Edgar Filing: JAPAN EQUITY FUND INC

PROSPECTUS

3,605,229 SHARES
THE JAPAN EQUITY FUND, INC.
COMMON STOCK
ISSUABLE UPON EXERCISE OF RIGHTS
TO SUBSCRIBE FOR SUCH SHARES OF COMMON STOCK

The Japan Equity Fund, Inc. (the "Fund") is issuing to its shareholders of
record as of the close of business on December 4, 2003 (the "Record Date")
transferable rights ("Rights") entitling the holders thereof to subscribe for up
to an aggregate of 3,605,229 shares (the "Shares") of the common stock, par
value $.01 per share ("Common Stock"), of the Fund (the "Offer") at the rate of
one share of Common Stock for each three Rights held, and entitling such Record
Date Shareholders (as defined below) to subscribe, subject to certain
limitations and subject to allotment, for any Shares not acquired by exercise of
primary subscription Rights. The number of Rights to be issued to Record Date
Shareholders (as defined below) will be rounded up to the nearest number of
Rights evenly divisible by three. In the case of shares of Common Stock held of
record by Cede & Co. ("Cede"), the nominee for The Depository Trust Company, or
any other depository or nominee (in each instance, a "Nominee Holder"), the
number of Rights issued to such Nominee Holder will be adjusted to permit
rounding up (to the nearest number of Rights evenly divisible by three) of the
Rights to be received by beneficial holders for whom it is the holder of record
only if the Nominee Holder provides to the Fund, on or before the close of
business on December 17, 2003, written representation of the number of Rights
required for such rounding. Shareholders of record on the Record Date and
beneficial holders with respect to whom Nominee Holders have submitted such
written representations are referred to herein as "Record Date Shareholders."
Fractional Shares will not be issued. The Rights are transferable and the Rights
and the Shares will be listed for trading on the New York Stock Exchange (the
"NYSE") subject to official notice of issuance. The Fund's Common Stock is
traded on the NYSE under the symbol "JEQ." The Rights will be traded under the
symbol "JEQ(RT)." SEE "The Offer." THE SUBSCRIPTION PRICE PER SHARE (THE
"SUBSCRIPTION PRICE") WILL BE 90% OF THE AVERAGE OF THE CLOSING PRICE OF THE
FUND'S COMMON STOCK ON THE NEW YORK STOCK EXCHANGE ON THE EXPIRATION DATE OF THE
RIGHTS OFFERING AND FOR THE FOUR IMMEDIATELY PRECEDING TRADING DAYS, WITH A
REQUIREMENT THAT THE PRICE BE NO LOWER THAN 95% OF THE NET ASSET VALUE PER SHARE
OF COMMON STOCK OF THE FUND AT THE TIME OF THE EXPIRATION OF THE RIGHTS
OFFERING.

THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK TIME, ON DECEMBER 23, 2003
unless extended as described herein (THE "EXPIRATION DATE"). The Fund announced
the Offer after the close of trading on the NYSE on November 10, 2003. The net
asset value per share of Common Stock at the close of business on November 10,
2003 and December 4, 2003 was $5.99 and $6.00, respectively, and the last
reported sale price of a share of Common Stock on the NYSE on November 10, 2003
and December 4, 2003 was $7.21 and $7.25, respectively.

The address of the Fund in the United States is c/o Daiwa Securities Trust
Company, One Evertrust Plaza, Jersey City, New Jersey, 07302-3051 (telephone
number (201)915-3054).

INVESTMENT IN THE FUND INVOLVES CERTAIN SPECIAL CONSIDERATIONS AND RISKS
ARISING IN PART FROM THE FUND'S INVESTMENT IN SECURITIES OF JAPANESE COMPANIES
THAT MAY BE CONSIDERED SPECULATIVE, WHICH RISKS ARE NOT NORMALLY ASSOCIATED WITH
INVESTMENTS IN SECURITIES OF U.S. ISSUERS OR CERTAIN OTHER NON-U.S. ISSUERS. SEE
"RISK FACTORS AND SPECIAL CONSIDERATIONS."

An immediate dilution of the aggregate net asset value of the Common Stock
owned by Record Date Shareholders who do not fully exercise their Rights will be
experienced as a result of the Offer if the Subscription Price is less than the
Fund's then net asset value per share. If the Subscription Price is less than
the Fund's then net asset value per share, the number of shares outstanding
after the Offer will increase in a greater percentage than the increase in the
size of the Fund's assets. In addition, as a result of the terms of the Offer,
Record Date Shareholders who do not fully exercise their Rights should expect
that they will, at the completion of the Offer, own a smaller proportional
interest in the Fund than would otherwise be the case. See "Risk Factors and
Special Considerations."

This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Investors are advised to
read this Prospectus and to retain it for future reference.

FOR INFORMATION REGARDING THE OFFER, CONTACT THE INFORMATION AGENT AT (800)
467-0835.
(CONTINUED ON NEXT PAGE)

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

ESTIMATED PRICE ESTIMATED ESTIMATED PROCEEDS
TO THE PUBLIC (1) SALES LOAD (2) TO THE FUND (3)

Per Share................................. US$6.53 US$0.24 US$6.29
Total..................................... US$23,542,145 US$882,830 US$22,659,315

(FOOTNOTES ON THE FOLLOWING PAGE)

DAIWA SECURITIES AMERICA INC.

The date of this Prospectus is December 5, 2003.

--------------------------

(FOOTNOTES FROM THE COVER PAGE)

(1) The estimated subscription price to the public is based on 90% of the
closing price of the Fund's Common Stock on the New York Stock Exchange on
December 4, 2003, the record date for the offering.

(2) In connection with the Offer, Daiwa Securities America Inc. (the "Dealer
Manager") and any other broker dealers who have executed and delivered a
Soliciting Dealer Agreement and who have solicited the exercise of Rights
will receive fees for their soliciting efforts equal to 2.50% of the
Subscription Price per Share for each Share issued pursuant to the exercise
of such Rights. The Fund has also agreed to pay the Dealer Manager a fee for
financial advisory and marketing services in connection with the Offer equal
to 1.25% of the aggregate Subscription Price for the Shares issued upon
exercise of the Rights and to reimburse the Dealer Manager for its
out-of-pocket expenses up to an aggregate of $100,000. The Fund, the
Investment Manager and the Investment Adviser have agreed to indemnify the
Dealer Manager against certain liabilities under the Securities Act of 1933,
as amended.

(3) Before deduction of expenses incurred by the Fund, estimated at $425,000,
including up to an aggregate of $100,000 to be paid to the Dealer Manager in
reimbursement of its expenses.

--------------------------

The Fund is a diversified, closed-end management investment company. The
Fund's investment objective 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 ("First Section") of the Tokyo Stock Exchange
("TSE"). The Fund seeks to achieve its investment objective by investing
substantially all of its assets, but under normal circumstances at least 80% 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,
except for such cash or cash equivalents ("Temporary Investments") as it needs
for purposes of settlement, meeting expenses and paying dividends. See
"Investment Objective and Policies." No assurance can be given that the Fund's
investment objective will be achieved.

Unless otherwise specified, references in this Prospectus to "U.S. $" or "$"
are to U.S. dollars and references to "yen" or "Y" are to Japanese yen.

On December 1, 2003, the most actively traded interbank rate in the Tokyo
foreign exchange market, as reported by The Bank of Japan, was $1.00 = Y109.210.
Unless otherwise indicated, U.S. dollar equivalent information in Japanese yen
for a period is based on the average of the daily exchange rates for the days in
the period, and U.S. dollar information for the Japanese yen as of a specified
date is based on the exchange rate for such date. No representation is made that
the Japanese yen or U.S. dollar amounts in this Prospectus could have been or
could be converted into U.S. dollars or Japanese yen, as the case may be, at any
particular rate or at all. SEE "Risk Factors and Special Considerations,
Exchange Rate Fluctuations and Foreign Currency Considerations" for information
regarding historical rates of exchange between the Japanese yen and the U.S.
dollar.

FEE TABLE

Shareholder Transaction Expenses:
Sales Load (as a percentage of offering price)(1)....... 3.75%
Dividend Reinvestment and Cash Purchase Plan (the
"Plan") Fees None(2)
Annual Expenses (as a percentage of net assets attributable
to Shares of Common Stock):
Management Fees......................................... 0.46%
Interest Payment on Borrowed Funds...................... None%
Other Expenses(3)....................................... 1.04%
Total Annual Expenses....................................... 1.50%

EXAMPLE:

CUMULATIVE EXPENSES PAID FOR THE PERIOD OF:
---------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------- --------- --------- ---------

An investor would pay the following expenses on a
$1,000 investment, assuming a 5% annual return
throughout the periods(4)........................... $ 52 $ 83 $ 116 $ 210

--------------
(1) The Fund has agreed to pay the Dealer Manager and other broker-dealers who
have executed and delivered a Soliciting Dealer Agreement and who have
solicited the exercise of Rights fees for their soliciting efforts equal to
2.50% of the Subscription Price per Share for each Share issued pursuant to
the exercise of such Rights. The Fund has also agreed to pay the Dealer
Manager a fee for financial advisory and marketing services in connection
with the Offer equal to 1.25% of the aggregate Subscription Price per Share
for each Share issued pursuant to the exercise of such Rights. These fees
will be borne by the Fund and indirectly by all of the Fund's shareholders,
including those who do not exercise their Rights.

(2) The Fund and the Plan Agent, PFPC Inc., impose no fee for participation in
the Plan. However, each participant in the Plan will pay a PRO RATA share of
brokerage commissions incurred in connection with open-market purchases of
Fund shares under the Plan.

(3) The figures provided under "Other Expenses" are based upon expenses for the
fiscal year ended October 31, 2003 and do not include expenses of the Fund
incurred in connection with the Offer, estimated at $425,000 or 1.81% of the
offering price. SEE "Management of the Fund" for additional information.

(4) The example reflects the Sales Load and other expenses of the Fund incurred
in connection with the Offer and assumes that all of the Rights are
exercised.

The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that an investor in the Fund will bear directly or
indirectly.

The Example set forth above assumes reinvestment of all dividends and
distributions at net asset value and an expense ratio of 1.50% and assumes that
all of the Rights are exercised. The table above and the assumption in the
Example of a 5% annual return are required by the U.S. Securities and Exchange
Commission (the "Commission") regulations applicable to all investment
companies. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR ANNUAL RATES OF RETURN. ACTUAL EXPENSES OR ANNUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED FOR PURPOSES OF THE EXAMPLE. The
figures provided under "Other Expenses" are based upon estimated amounts for the
current fiscal year.

--------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS

--------------------------------------------------------------------------------

This table below sets forth certain specified information for a share of
Common Stock outstanding throughout each year presented. The information for the
fiscal years ended October 31, 1994 through October 31, 2003 has been audited by
PricewaterhouseCoopers LLP, independent auditors, whose report thereon was
unqualified. The information should be read in conjunction with the financial
statements and notes contained therein.

SELECTED PER SHARE DATA AND RATIOS

(For a common share outstanding throughout each year)

FOR THE YEARS ENDED OCTOBER 31
----------------------------------------------------------------------------
2003 2002 2001 2000* 1999 1998 1997
-------- -------- -------- -------- -------- --------- ---------

Net asset value, beginning of
year........................... $ 4.54 $ 5.59 $ 8.35 $ 9.39 $ 6.08 $ 6.99 $ 10.52
------ ------ ------ ------ ------ ------- -------
Net investment loss............. (0.02) (0.04) (0.04) (0.04) (0.01) (0.01) (0.01)
Net realized and unrealized
gains (losses) on investments
and foreign currency
transactions................... 1.48 (1.01) (2.72) (1.00) 3.32 (0.90) (2.86)
------ ------ ------ ------ ------ ------- -------
Net increase (decrease) in net
asset value resulting from
operations..................... 1.46 (1.05) (2.76) (1.04) 3.31 (0.91) (2.87)
------ ------ ------ ------ ------ ------- -------
Less: dividends and
distributions to shareholders
from:
Net realized gains on
investments and foreign
currency transactions........ -- -- -- -- -- -- (0.66)
------ ------ ------ ------ ------ ------- -------
Dilutive effect of rights
offering....................... -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------- -------
Offering costs charged to
paid-in capital in excess of
par value...................... -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------- -------
Net asset value, end of year.... $ 6.00 $ 4.54 $ 5.59 $ 8.35 $ 9.39 $ 6.08 $ 6.99
====== ====== ====== ====== ====== ======= =======
Per share market value, end of
year........................... $7.160 $4.150 $4.990 $7.063 $9.813 $ 6.875 $ 7.375
====== ====== ====== ====== ====== ======= =======
Total investment return:
Based on market price at
beginning and end of year
assuming reinvestment of
dividends.................... 72.53% (16.83)% (29.35)% (28.02)% 42.73% (6.78)% (23.76)%
Based on net asset value at
beginning and end of year
assuming reinvestment of
dividends.................... 32.16% (18.78)% (33.05)% (11.08)% 54.44% (13.02)% (28.73)%
Ratios and supplemental data:
Net assets, end of year (in
millions).................... $ 64.9 $ 49.1 $ 60.5 $ 90.3 $101.6 $ 65.8 $ 75.6
Ratios to average net assets
of:
Expenses.................... 1.50% 1.44% 1.12% 0.96% 1.08% 1.19% 1.03%
Net investment loss......... (0.48)% (0.74)% (0.51)% (0.48)% (0.11)% (0.13)% (0.13)%
Portfolio turnover rate....... 84.00% 76.19% 63.39% 61.91% 58.70% 52.07% 61.75%
Average commission rate per
share........................ -- -- -- -- -- -- $0.0237

FOR THE YEARS ENDED OCTOBER 31
--------------------------------
1996 1995 1994
--------- --------- --------

Net asset value, beginning of
year........................... $ 11.47 $ 14.86 $14.69
------- ------- ------
Net investment loss............. (0.01) (0.01) (0.03)
Net realized and unrealized
gains (losses) on investments
and foreign currency
transactions................... 0.19 (1.90) 1.75
------- ------- ------
Net increase (decrease) in net
asset value resulting from
operations..................... 0.18 (1.91) 1.72
------- ------- ------
Less: dividends and
distributions to shareholders
from:
Net realized gains on
investments and foreign
currency transactions........ (0.67) (1.48) (1.09)
------- ------- ------
Dilutive effect of rights
offering....................... (0.43) -- (0.42)
------- ------- ------
Offering costs charged to
paid-in capital in excess of
par value...................... (0.03) -- (0.04)
------- ------- ------
Net asset value, end of year.... $ 10.52 $ 11.47 $14.86
======= ======= ======
Per share market value, end of
year........................... $10.375 $12.875 $15.00
======= ======= ======
Total investment return:
Based on market price at
beginning and end of year
assuming reinvestment of
dividends.................... (13.55)%+ (4.21)% 22.10%+
Based on net asset value at
beginning and end of year
assuming reinvestment of
dividends.................... (1.18)%+ (13.86)% 11.88%+
Ratios and supplemental data:
Net assets, end of year (in
millions).................... $ 113.6 $ 92.7 $119.6
Ratios to average net assets
of:
Expenses.................... 0.90% 0.97% 0.93%
Net investment loss......... (0.04)% (0.07)% (0.19)%
Portfolio turnover rate....... 33.89% 28.35% 30.76%
Average commission rate per
share........................ $0.0325 N/A N/A

------------------
* Effective January 1, 2000, Daiwa SB Investments Ltd. replaced Daiwa
Securities Trust Company as Investment Adviser to the Fund.

+ For the years ended October 31, 1996 and 1994, the total investment return
includes the benefit of shares resulting from the exercise of rights.

TRADING AND NET ASSET VALUE INFORMATION

The following table for each of the periods indicated shows the highest and
lowest selling prices of the Fund's Common Stock on the New York Stock Exchange
Composite Tape, and the net asset value per share and the premium or discount to
net asset value per share on the date of each of the high and low market prices.

PREMIUM/
(DISCOUNT) TO
NET ASSET
MARKET PRICE(1) NET ASSET VALUE VALUE(2)
---------------------- ---------------------- ----------------------
QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW
------------- -------- -------- -------- -------- -------- --------

January 31, 2002.............................. 5.10 4.32 5.60 5.22 (8.93) (17.24)
April 30, 2002................................ 6.14 4.30 5.60 4.60 9.64 (6.52)
July 31, 2002................................. 6.99 4.64 5.96 5.31 17.28 (12.62)
October 31, 2002.............................. 5.30 3.88 5.19 4.64 2.12 (16.38)
January 31, 2003.............................. 4.98 4.07 4.76 4.68 4.62 (13.03)
April 30, 2003................................ 4.61 4.02 4.64 4.51 (0.65) (10.86)
July 31, 2003................................. 6.95 4.41 5.05 4.24 37.62 4.01
October 31, 2003.............................. 7.70 5.45 6.26 4.81 23.00 13.31

--------------
(1) Highest and Lowest selling price per share as reported on the NYSE for the
respective quarter.

(2) "Premium/(Discount) to Net Asset Value" represents the discount or premium
from net asset value of the shares on the date of the respective high and
low market price for the respective quarter.

The closing market price and net asset value per share of the Common Stock
on December 4, 2003 were $7.25 and $6.00, respectively.

There can be no assurance whether the Fund's Common Stock will trade in the
future above, at, or below net asset value.

CAPITALIZATION AT NOVEMBER 30, 2003

AMOUNT OUTSTANDING
EXCLUSIVE OF AMOUNT
AMOUNT HELD BY THE HELD BY THE FUND OR FOR
TITLE OF CLASS AMOUNT AUTHORIZED FUND OR FOR ITS ACCOUNT ITS ACCOUNT
--------------------- --------------------- ----------------------- -----------------------

Common Stock, 30,000,000 shares 0 10,815,688 shares
$0.01 par value

PROSPECTUS SUMMARY

THE FOLLOWING IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
INCLUDED ELSEWHERE IN THIS PROSPECTUS.

TERMS OF THE OFFER

The Japan Equity Fund, Inc. (the "Fund") is issuing to its shareholders of
record ("Record Date Shareholders") as of the close of business on December 4,
2003 (the "Record Date") transferable rights (the "Rights") to subscribe for up
to an aggregate of 3,605,229 shares of Common Stock (the "Shares") of the Fund
(the "Offer"). Each Record Date Shareholder is being issued one Right for each
full share of Common Stock owned on the Record Date. The number of Rights to be
issued to Record Date Shareholders will be rounded up to the nearest number of
Rights evenly divisible by three. In the case of Shares held of record by a
Nominee Holder (as defined below), the number of Rights issued to such Nominee
Holder will be adjusted to permit rounding up (to the nearest number of Rights
evenly divisible by three) of the Rights to be received by beneficial holders
for whom it is the holder of record only if the Nominee Holder provides to the
Fund on or before the close of business on December 17, 2003 written
representation of the number of Rights required for such rounding. Accordingly,
no fractional Shares will be issued. The Rights entitle the holders thereof to
acquire at the Subscription Price (as hereinafter defined) one Share for each
three Rights held. The Subscription Period commences on December 9, 2003 and
ends at 5:00 p.m., New York time, on December 23, 2003 unless extended by the
Fund and the Dealer Manager (the "Expiration Date"). The Rights are evidenced by
subscription certificates ("Subscription Certificates") which will be mailed to
Record Date Shareholders except as discussed below under "Foreign Restrictions."

The right of a holder of Rights (a "Rights Holder") to acquire during the
Subscription Period at the Subscription Price one Share for each three Rights
held is hereinafter referred to as the "Primary Subscription." All Rights may be
exercised immediately upon receipt and until 5:00 p.m., New York time, on the
Expiration Date. Rights Holders purchasing Shares in the Primary Subscription
are hereinafter referred to as "Exercising Rights Holders."

OVER-SUBSCRIPTION PRIVILEGE

Any Record Date Shareholder who fully exercises all Rights held by such
Record Date Shareholder before or on the Expiration Date is entitled to
subscribe for Shares which were not otherwise subscribed for by others in the
Primary Subscription (the "Over-Subscription Privilege"). For purposes of
determining the number of Shares that a Record Date Shareholder may acquire
pursuant to the Offer, broker-dealers whose Shares are held of record by Cede &
Co. ("Cede"), nominee for The Depository Trust Company, or by any other
depository or nominee (in each instance, a "Nominee Holder"), will be deemed to
be the holders of the Rights that are held by Cede or such other depository or
nominee on their behalf. Shares acquired pursuant to the Over-Subscription
Privilege are subject to allotment, which is more fully discussed under "The
Offer--Over-Subscription Privilege."

SUBSCRIPTION PRICE

The Subscription Price per Share will be 90% of the average of the closing
price of the Fund's Common Stock on the New York Stock Exchange on the
Expiration Date of the rights offering and for the four immediately preceding
trading days, with a requirement that the price be no lower than 95% of the net
asset value per common share of the Fund at the time of the expiration of the
rights offering. The Subscription Price is discussed further under "The
Offer--The Subscription Price." In addition, information with respect to
quarterly high and low sale prices of the Fund's Common Stock on the New York
Stock Exchange Composite Tape, quarterly trading volume on the NYSE and
quarterly high and low net asset value per share is summarized under "Trading
and Net Asset Value Information," and a table depicting the premium and discount
percentages of the market price of the Fund's Common Stock to its per share net
asset value during the period from November 1, 2001 through October 31, 2003 is
summarized under "Trading and Net Asset Value Information."

EXERCISING RIGHTS

Rights will be evidenced by Subscription Certificates (SEE Appendix A) and
may be exercised by completing a Subscription Certificate and delivering it,
together with payment, either by means of a notice of guaranteed delivery or a
check (as described in "The Offer--Payment for Shares"), to PFPC Inc. (the
"Subscription Agent") at the address set forth under "The Offer--Subscription
Agent." Exercising Rights Holders will have no right to

rescind a purchase after the Subscription Agent has received a completed
Subscription Certificate. SEE "The Offer--Exercise of Rights and Payment for
Shares." Rights Holders who choose to exercise their Rights will not know at the
time of exercise the Subscription Price for Shares being acquired and will be
required initially to pay for such Shares at the estimated Subscription Price of
$6.53 (the "Estimated Subscription Price"). There is no minimum number of Rights
that must be exercised in order for the Offer to close.

SALE OF RIGHTS

The Rights are transferable until the close of trading on the NYSE on the
last Business Day (as defined below) prior to the Expiration Date. The Rights
and Shares will be listed for trading on the NYSE. Although no assurance can be
given that a market for the Rights will develop, trading in the Rights on the
NYSE may be conducted until the close of trading on the last Business Day prior
to the Expiration Date. The Fund expects that a market for the Rights will
develop and that the value of the Rights, if any, will be reflected by the
market price. The Fund will use its best efforts to maintain an adequate market
for the Rights until the close of trading on the last Business Day prior to the
Expiration Date for the benefit of the shareholders who do not exercise their
Rights. Rights may be sold directly by a Rights Holder, or sold through the
Subscription Agent if received by the Subscription Agent prior to December 18,
2003. Trading of the Rights on the NYSE will be conducted on a when issued basis
commencing on December 8, 2003 and on a regular way basis from December 10, 2003
through the last Business Day prior to the Expiration Date. If the Subscription
Agent receives Rights for sale in a timely manner, it will transfer such Rights
to the Dealer Manager, which will use its best efforts to sell the Rights on the
NYSE. Any commissions in connection with the sale of Rights by the Subscription
Agent will be paid by the applicable selling Rights Holders. Neither the Fund
nor the Subscription Agent will be responsible if Rights cannot be sold, and
neither of them has guaranteed any minimum sale price for the Rights. For
purposes of this Prospectus, a "Business Day" means any day on which trading is
conducted on the NYSE.

Rights Holders are urged to obtain a recent trading price for the Rights on
the NYSE from their broker, bank, financial adviser or the financial press.
Exercising Rights Holders' inquiries should be directed to The Altman
Group, Inc. See "Information Agent" below.

DEALER MANAGER AND SOLICITING FEES

In connection with the Offer, the Fund has agreed to pay Daiwa Securities
America Inc., as Dealer Manager, and other broker dealers who have executed and
delivered a Soliciting Dealer Agreement and who have solicited the exercise of
Rights, fees for their soliciting efforts equal to 2.50% of the Subscription
Price per Share for each Share issued pursuant to the exercise of such Rights.
The Fund has also agreed to pay the Dealer Manager a fee for financial advisory
and marketing services in connection with the Offer equal to 1.25% of the
aggregate Subscription Price for shares of Common Stock issued upon exercise of
the Rights and to reimburse the Dealer Manager for its out-of-pocket expenses in
connection with the Offer up to an aggregate of $100,000. SEE "Distribution
Arrangements."

FOREIGN RESTRICTIONS

Subscription Certificates will not be mailed to Record Date Shareholders
whose record addresses are outside the United States (for these purposes the
United States includes its territories and possessions and the District of
Columbia) ("Foreign Record Date Shareholders"). The Rights to which such
Subscription Certificates relate will be held by the Subscription Agent for such
Foreign Record Date Shareholders' accounts until instructions are received to
exercise, sell or transfer the Rights. If no instructions have been received by
5:00 p.m., New York time, on December 17, 2003, which is four Business Days
prior to the Expiration Date, unless extended, the Rights of those Foreign
Record Date Shareholders will be transferred by the Subscription Agent to the
Dealer Manager, which will use its best efforts to sell the Rights on the NYSE.
The net proceeds, if any, from the sale of those Rights by the Dealer Manager
will be remitted to the Foreign Record Date Shareholders.

INFORMATION AGENT

The Information Agent for the Offer is:

THE ALTMAN GROUP, INC.
1275 Valley Brook Ave.
Lyndhurst, NJ 07071
Toll Free: (800) 467-0835
Or Email: wantler@altmangroup.com

IMPORTANT DATES TO REMEMBER

EVENT DATE
----- --------------------------------------

Record Date........................... December 4, 2003
Subscription Period................... December 9, 2003 to December 23, 2003
(unless extended)
Expiration Date and Pricing Date...... December 23, 2003 (unless extended)
Subscription Certificates and Payment
for Shares Due...................... December 23, 2003
Notices of Guaranteed Delivery Due.... December 23, 2003
Subscription Certificates and Payment
for Shares pursuant to Notice of
Guaranteed Delivery Date............ December 31, 2003
Confirmation to Participants.......... January 6, 2004
Payment of any additional amounts for
Shares Due.......................... January 26, 2004

PURPOSE OF THE OFFER AND USE OF PROCEEDS

The Board of Directors of the Fund has determined that it is in the best
interests of the Fund and its shareholders to increase the assets of the Fund
available for investment so that the Fund will be in a better position to take
full advantage of investment opportunities in securities of Japanese companies
whose securities are traded on the First Section of the TSE. The Fund believes
that increasing the size of the Fund should also result in lowering the Fund's
expenses as a proportion of average net assets, although no assurance can be
given that this result will be achieved. At October 31, 2003, the Fund had net
assets of $64,918,372. In addition, the Fund seeks to reward its shareholders by
giving them the right to purchase additional shares of Common Stock at a price
below market without incurring any commission charge. The distribution to
shareholders of transferable Rights which themselves may have intrinsic value
will also afford non-participating shareholders the potential of receiving a
cash payment upon sale of such Rights, receipt of which may be viewed as partial
compensation for the possible dilution of their interest in the Fund.

The Investment Manager (as defined below), the Investment Adviser (as
defined below) and the Fund's Administrator and U.S. Custodian, will each
benefit from the Offer because their respective fees are based on the weekly
average net assets of the Fund. SEE "Management of the Fund--Investment
Management Agreement and Investment Advisory Agreement" and "Administration and
Custodians."

The net proceeds of the Offer will be invested in accordance with the Fund's
investment objective and policies. SEE "Investment Objective and Policies."
Assuming all of the Rights are exercised, the net proceeds of the Offer will be
invested in accordance with the Fund's investment objective and policies within
approximately 30 days of the Expiration Date. SEE "The Offer--Purpose of the
Offer."

THE FUND

The Fund is a diversified, closed-end management investment company
registered under the U.S. Investment Company Act of 1940, as amended (the "1940
Act"). The Fund is designed principally for investors wishing to participate in
the economy and securities market of Japan through investment primarily in
equity securities of companies listed on the First Section of the TSE. SEE "The
Fund."

LISTING

The Fund's shares are traded on the New York Stock Exchange under the symbol
"JEQ." The Rights will be traded on the NYSE, in units of one Right, under the
symbol "JEQ(RT)," subject to official notice of issuance.

INVESTMENT MANAGER

Daiwa SB Investments (USA) Ltd. (the "Investment Manager"), a direct
subsidiary of Daiwa SB Investments Ltd., which maintains sole ownership of
investment advisory subsidiaries in London, Hong Kong and Singapore to provide
investment advisory services to a global clientele, acts as the Fund's
Investment Manager. The Investment Manager is a registered investment adviser
under the U.S. Investment Advisers Act of 1940, as amended. The Investment
Manager currently serves as an investment adviser to three investment companies
registered under the 1940 Act, managing approximately $226.4 million as of
October 31, 2003. SEE "Management of the Fund."

INVESTMENT ADVISER

Daiwa SB Investments Ltd. acts as investment adviser (in such capacity, the
"Investment Adviser") to the Fund pursuant to an Investment Advisory Agreement
(the "Advisory Agreement") between the Investment Manager and the Investment
Adviser. The Investment Adviser had $25.95 billion under management as of
October 31, 2003. SEE "Management of the Fund."

INVESTMENT MANAGEMENT AND ADVISORY FEES

The Fund pays to the Investment Manager an aggregate monthly fee in U.S.
dollars 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 value of the Fund's
average weekly net assets, of which 40% of the total fee is retained by the
Investment Manager and 60% is paid by the Investment Manager to the Investment
Adviser. The Fund is also responsible for all of its operating expenses. SEE
"Management of the Fund."

ADMINISTRATOR; ADMINISTRATION FEE

Daiwa Securities Trust Company ("DSTC"), an affiliate of the Investment
Manager and Investment Adviser provides administrative services to the Fund
pursuant to an Administration Agreement (the "Administration Agreement"). The
Fund pays to DSTC a fee, calculated weekly and paid monthly in U.S. dollars, at
an annual rate of 0.20% of the first $60 million, 0.15% of the next $40 million
and 0.10% of the excess over $100 million of the average weekly net assets of
the Fund, with a minimum annual fee of $120,000 ($10,000 per month). SEE
"Administration and Custodians."

CUSTODIANS

DSTC also acts as custodian with respect to the Fund's non-Japanese
securities and non-yen denominated assets. DSTC has appointed The Sumitomo
Mitsui Banking Corporation to act as sub-custodian (the "Japanese Custodian")
for the Fund's assets held in Japan. As compensation for its services as
Custodian, DSTC receives a monthly fee based upon the Fund's average weekly net
assets. In addition, DSTC is reimbursed by the Fund for any out-of-pocket
expenses incurred in connection with the performance of its duties as custodian.
The out-of-pocket expenses of DSTC include the annual fees, asset-based or
transaction-based, and the out-of-pocket expenses of the Japanese Custodian. SEE
"Administration and Custodians."

DIVIDEND DISTRIBUTIONS AND REINVESTMENT

The Fund intends to distribute to shareholders, at least annually,
substantially all of its net investment income from dividends and interest
payments, and expects to distribute substantially all of its net realized
capital gains, if any, at least annually. Shareholders receive dividends in
cash, except that shareholders may elect to have their dividends or other
distributions from the Fund automatically reinvested in additional shares of the
Fund pursuant to the Fund's Dividend Reinvestment and Cash Purchase Plan (the
"Plan"). Shareholders whose shares are held in the name of a broker or nominee
who wish to participate in the Plan should contact such broker or nominee to
confirm that they will participate in the Plan on the shareholders' behalf. SEE
"Dividends and Distributions; Dividend Reinvestment and Cash Purchase Plan."

RISK FACTORS AND SPECIAL CONSIDERATIONS

DILUTION

An immediate dilution of the aggregate net asset value of the Common Stock
owned by Record Date Shareholders who do not fully exercise their Rights may be
experienced as a result of the Offer because the Subscription Price may be less
than the Fund's net asset value per share, and therefore the number of shares
outstanding after the Offer may increase in a greater percentage than the
increase in the size of the Fund's assets. In addition, as a result of the terms
of the Offer, Record Date Shareholders who do not fully exercise their Rights
should expect that they will, at the completion of the Offer, own a smaller
proportional interest in the Fund than would otherwise be the case if they had
fully exercised their Rights. It is not possible to state precisely the amount
of such a decrease in value, because it is not known at this time what the
subscription price will be or what the net asset value per share will be on the
Expiration Date. For example, assuming that all Rights are exercised and that
the Subscription Price of $5.70 is 5% below the Fund's net asset value of $6.00
per share on December 4, 2003, the Fund's net asset value per share (after
payment of the financial advisory and soliciting fees and estimated offering
expenses) would be reduced by approximately $0.16 per share. The distribution to
shareholders of transferable Rights which themselves may have intrinsic value
will also afford non-participating shareholders the potential of receiving a
cash payment upon sale of such Rights, receipt of which may be viewed as partial
compensation for the dilution of their interest in the Fund. No assurance can be
given that a market for the Rights will develop or as to the value, if any, that
such Rights will have.

CERTAIN RISK FACTORS

Investing in Japanese Equities (as defined herein) involves certain risks
and special considerations not typically associated with investing in securities
of established U.S. companies, including:

(1) risks related to the nature of the markets for Japanese Equities, including
the effect of cross-shareholdings in Japanese companies on the Japanese
equities markets and risks that the Japanese equities markets may be
affected by market developments in different ways than U.S. securities
markets and may be more volatile than U.S. securities markets;

(2) political and economic risks with respect to Japan, including the possible
imposition of, or changes in, currency exchange laws or other Japanese laws
or restrictions applicable to investments in Japanese Equities;

(3) fluctuations in the rate of exchange between currencies and costs associated
with currency conversion; and

(4) Japanese laws and government regulations which may create potential
limitations and restrictions on investments by the Fund in Japanese
Equities.

SEE "Risk Factors and Special Considerations."

In addition, Japanese accounting, financial and other reporting standards
are, in certain respects, more limited than U.S. standards. Under Japanese
practice, certain material disclosures may not be made and less information is
available to persons investing in Japan than in the United States. SEE "Risk
Factors and Special Considerations."

Because the Fund invests primarily in Japanese Equities and the Fund may
also invest in yen-denominated debt securities (as Temporary Investments), the
U.S. dollar value of the Fund's assets will be adversely affected by a decline
in the value of the yen relative to the U.S. dollar. SEE "Risk Factors and
Special Considerations."

The Fund may borrow under certain circumstances, including to pay dividends,
finance share repurchases and for temporary or emergency purposes. Such
borrowings would involve the Fund in leveraging and increase exposure to capital
risk and produce interest costs which would reduce the Fund's net income. SEE
"Investment Restrictions."

PREMIUM/DISCOUNT TO NET ASSET VALUE

value. SEE "Financial Highlights--Trading and Net Asset Value Information." The
Fund cannot predict whether its own shares will in the future trade at, below or
above net asset value. The risk of purchasing shares of a closed-end fund which
might trade at a discount is more pronounced for investors who wish to sell
their shares in a relatively short period of time after the purchase because for
those investors realization of gain or loss on their investment is likely to be
more dependent upon the existence of a premium or discount than upon portfolio
performance.

ARTICLES OF INCORPORATION

The Fund's Amended and Restated Articles of Incorporation include provisions
that could have the effect of limiting the ability of other entities or persons
to acquire control of the Fund or to change the composition of its Board of
Directors and could have the effect of depriving shareholders of an opportunity
to sell their shares at a premium over prevailing market prices by discouraging
a third party from seeking to obtain control of the Fund. SEE "Description of
Common Stock--Anti-Takeover Provisions."

MARKET DISRUPTION

As a result of the terrorist attacks on the World Trade Center and the
Pentagon on September 11, 2001, some of the U.S. securities markets were closed
for a four-day period. These terrorist attacks and related events have led to
increased short-term market volatility. U.S. military and related action in Iraq
is ongoing and events in the Middle East could have significant adverse effects
on U.S and world economies and markets. The Fund does not know how long the
securities markets will continue to be affected by these events and cannot
predict the effects of the military action or similar events in the future on
the U.S economy and securities markets. A similar disruption of the U.S. or
world financial markets could impact interest rates, secondary trading, ratings,
credit risk, inflation and other factors relating to the Common Stock.

THE FUND

The Japan Equity Fund, Inc. (the "Fund") is a diversified, closed-end
management investment company registered under the Investment Company Act of
1940, as amended (the "1940 Act"). The Fund was incorporated under the laws of
the State of Maryland on July 12, 1990 under its former name "The Japan Emerging
Equity Fund, Inc." The Fund's principal office is c/o Daiwa Securities Trust
Company, One Evertrust Plaza, Jersey City, New Jersey 07302, and its telephone
number is (201) 915-3054.

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, but under normal circumstances at least 80% of the value of
its assets, in equity securities of companies listed on the TSE, 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 made by the Fund.

THE OFFER

TERMS OF THE OFFER

FOR INFORMATION REGARDING THE OFFER, CONTACT THE INFORMATION AGENT AT (800)
467-0835 OR EMAIL: WANTLER@ALTMANGROUP.COM

The Fund is issuing Rights to subscribe for the Shares to Record Date
Shareholders. Each Record Date Shareholder is being issued one Right for each
full share of Common Stock owned on the Record Date. The number of Rights to be
issued to Record Date Shareholders will be rounded up to the nearest number of
Rights evenly divisible by three. In the case of shares held of record by a
Nominee Holder, the number of Rights issued to such Nominee Holder will be
adjusted to permit rounding up (to the nearest number of Rights evenly divisible
by three) of the Rights to be received by beneficial holders for whom it is the
holder of record only if the Nominee Holder provides to the Fund on or before
the close of business on December 17, 2003 written representation of the number
of Rights required for such rounding. Accordingly, no fractional Shares will be
issued. The Rights entitle the holders thereof to acquire at the Subscription
Price one Share for each three Rights held. The Rights are evidenced by
Subscription Certificates, which will be mailed to the Record Date Shareholders
other than Foreign Record Date Shareholders. SEE "The Offer--Foreign
Shareholders."

Completed Subscription Certificates may be delivered to the Subscription
Agent at any time during the Subscription Period, which commences on
December 9, 2003, and ends at 5:00 p.m., New York time, on December 23, 2003,
unless extended by the Fund and the Dealer Manager. SEE "The Offer--Expiration
of the Offer." Parties that purchase Rights prior to the Expiration Date may
also purchase Shares in the Primary Subscription. All Rights may be exercised
immediately upon receipt and until 5:00 p.m., New York time, on the Expiration
Date.

Any Record Date Shareholder who fully exercises all Rights held by such
Record Date Shareholder before or on the Expiration Date is entitled to
subscribe for Shares which were not otherwise subscribed for by Exercising
Rights Holders in the Primary Subscription. For purposes of determining the
maximum number of Shares that a Record Date Shareholder may acquire pursuant to
the Offer, broker-dealers whose shares are held of record by Cede, the nominee
for The Depository Trust Company, or by any other depository or nominee will be
deemed to be the holders of the Rights that are held by Cede or such other
depository or nominee on their behalf. Shares acquired pursuant to the
Over-Subscription Privilege may be subject to allotment, which is more fully
discussed below under "Over-Subscription Privilege."

Rights will be evidenced by Subscription Certificates (SEE Appendix A) and
may be exercised by completing a Subscription Certificate and delivering it,
together with proper payment. The method by which Rights may be exercised and
Shares paid for is set forth below under "Exercise of Rights" and "Payment for
Shares." An Exercising Rights Holder will have no right to rescind a purchase
after the Subscription Agent has received a

completed Subscription Certificate. Persons exercising Rights will not know at
the time of exercise the Subscription Price of the Shares being acquired and
will be required initially to pay for both Shares subscribed for on Primary
Subscription and any additional Shares subscribed for pursuant to the
Over-Subscription Privilege at the Estimated Subscription Price of $6.53 per
share. SEE "Payment for Shares" below.

The Rights are transferable until the close of business on the last Business
Day prior to the Expiration Date and will be admitted for trading on the NYSE.
Assuming a market exists for the Rights, the Rights may be purchased and sold
through usual brokerage channels or sold through the Subscription Agent if
delivered to the Subscription Agent on or before December 18, 2003. Although no
assurance can be given that a market for the Rights will develop, trading in the
Rights on the NYSE may be conducted until and including the close of trading on
the last Business Day prior to the Expiration Date. The method by which Rights
may be transferred is set forth below under "Sale of Rights." Shares issued
pursuant to an exercise of Rights will also be listed on the NYSE, subject to
official notice of issuance.

PURPOSE OF THE OFFER

The Board of Directors of the Fund has determined that it is in the best
interests of the Fund and its shareholders to increase the assets of the Fund
available for investment so that the Fund will be in a better position to take
full advantage of investment opportunities in the equity securities of companies
that are listed on the TSE. The Fund believes that increasing the size of the
Fund should also result in lowering the Fund's expenses as a proportion of
average net assets, although no assurance can be given that this result will be
achieved. At October 31, 2003, the Fund had net assets of $64,918,372. In
addition, the Fund seeks to reward shareholders by giving them the right to
purchase additional shares of Common Stock at a price below market without
incurring any commission charge. The distribution to shareholders of
transferable Rights which may themselves have intrinsic value will also afford
non-participating shareholders the potential of receiving a cash payment upon
sale of such Rights, receipt of which may be viewed as partial compensation for
the possible dilution of their interest in the Fund. The Board of Directors
determined to proceed with the offer of transferable rights after having
considered the dilutive effects of the offering on shareholders who are
unwilling or unable to fully exercise their rights, as well as the alternatives
of a secondary offering and the offer of non-transferable rights.

The Investment Manager, the Investment Adviser, the U.S. Custodian and the
Administrator will each benefit from the Offer because their respective fees are
based on the weekly average net assets of the Fund. SEE "Management of the
Fund--Investment Management Agreement and Investment Advisory Agreement" and
"Administration and Custodians." It is not possible to state precisely the
amount of additional compensation the Investment Manager, the Investment
Adviser, the U.S. Custodian and the Administrator will receive as a result of
the Offer because it is not known how many Shares will be subscribed for and
because the proceeds of the Offer will be invested in additional portfolio
securities, which will fluctuate in value. However, in the event that all the
Rights are exercised in full and on the basis of the Subscription Price of
$6.53, the Investment Manager would receive additional annual management fees of
approximately $44,469, of which the Investment Adviser would receive 60% or
$26,681, from the Investment Manager , the U.S. Custodian would receive
additional fees of $11,117 and the Administrator would receive additional fees
of $33,351. In addition to financial advisory fees and solicitation fees, the
Dealer Manager, which is an affiliate of the Investment Manager and the
Investment Adviser, may realize profits or losses as a result of the Offer made
hereby. SEE "Distribution Arrangements." One of the Fund's Directors who voted
to authorize the Offer is affiliated with the Investment Manager, the Investment
Adviser, the U.S. Custodian, the Administrator and the Dealer Manager. This
Director could benefit indirectly from the Offer because of his affiliations.
The other four Directors, who voted to authorize the Offer, are not affiliated
with the Investment Manager, the Investment Adviser, the U.S. Custodian, the
Administrator or the Dealer Manager (the "Non-Interested Directors"). SEE
"Directors and Officers" and "Management of the Fund."

The Fund may, in the future and at the discretion of its Board of Directors,
choose to make additional rights offerings from time to time for a number of
shares and on terms which may or may not be similar to the Offer.

USE OF PROCEEDS

If all of the Rights are exercised in full at the Estimated Subscription
Price of $6.53 per Share, the proceeds, net of commissions, to the Fund would be
approximately $22.7 million, before deducting expenses incurred by the Fund,
estimated at $425,000. However, there can be no assurance that all Rights will
be exercised in full. The Investment Adviser believes that it may take up to
approximately 30 days after the Expiration Date (as defined

below), depending on market conditions and the availability of appropriate
securities, to invest the net proceeds of the Offer in accordance with the
Fund's investment objective. SEE "Risk Factors and Special Considerations."
Pending such investment, it is anticipated that the proceeds will be invested in
yen-denominated or U.S. dollar-denominated debt securities. SEE "Investment
Objective and Policies."

OVER-SUBSCRIPTION PRIVILEGE

Shares not subscribed for by Rights Holders will be offered, by means of the
Over-Subscription Privilege, to Record Date Shareholders who have exercised all
exercisable Rights held by them on the Expiration Date and who wish to acquire
more than the number of Shares for which the Rights held by them are
exercisable. Record Date Shareholders should indicate, on the Subscription
Certificate which they submit with respect to the exercise of the Rights held by
them, how many Shares they are willing to acquire pursuant to the Over-
Subscription Privilege. If sufficient Shares remain, all over-subscriptions will
be honored in full.

If subscriptions for Shares pursuant to the Over-Subscription Privilege
exceed the Shares available, the available Shares will be allocated among those
who over-subscribe based on the number of Rights originally issued to them by
the Fund so that the number of shares issued to Record Date Shareholders who
subscribe pursuant to the Over-Subscription Privilege will generally be in
proportion to the number of Shares owned by them in the Fund on the Record Date.
The percentage of remaining Shares each over-subscribing Record Date Shareholder
may acquire may be rounded up or down to result in delivery of whole Shares. The
allocation process may involve a series of allocations in order to assure that
the total number of Shares available for over-subscriptions is distributed on a
PRO RATA basis.

The Fund will not offer or sell any Shares which are not subscribed for
pursuant to the Primary Subscription or the Over-Subscription Privilege.

THE SUBSCRIPTION PRICE

The Subscription Price per Share will be will be 90% of the average of the
closing price of the Fund's Common Stock on the New York Stock Exchange on the
Expiration Date of the rights offering and for the four immediately preceding
trading days, with a requirement that the price be no lower than 95% of the net
asset value per common share of the Fund at the time of the expiration of the
rights offering. Exercising Rights Holders will have no right to rescind a
purchase after receipt of their completed Subscription Certificates for Shares
by the Subscription Agent. The Fund does not have the right to withdraw the
Offer after the Rights have been distributed.

The Fund announced the Offer after the close of trading on the NYSE on
November 10, 2003. The net asset value per share of Common Stock at the close of
business on November 10, 2003 and on December 4, 2003 was $5.99 and $6.00,
respectively, and the last reported sale price of a share of Common Stock on the
NYSE on November 10, 2003 and on December 4, 2003 was $7.21 and $7.25,
respectively.

EXPIRATION OF THE OFFER

The Offer will expire at 5:00 p.m., New York time, on December 23, 2003 (the
"Expiration Date") unless extended by the Fund and the Dealer Manager. Rights
will expire on the Expiration Date and thereafter may not be exercised. Since
the Expiration Date and the date upon which the price of the rights will be
determined (the "Pricing Date") will be the same date, the shareholders who
decide to acquire Shares in the Primary Subscription or pursuant to the
Over-Subscription Privilege will not know the purchase price of such shares when
they make such decision. Any extension of the Offer will be followed as promptly
as practicable by announcement thereof. Such announcement will be issued no
later than 5:00 p.m., New York City time, on the business day prior to the
previously scheduled Expiration Date. Without limiting the manner in which the
Fund may choose to make such announcement, the Fund will not, unless otherwise
required by law, have any obligation to publish, advertise or otherwise
communicate any such announcement other than by making a release to the Dow
Jones News Service or such other means of announcement as the Fund deems
appropriate.

SUBSCRIPTION AGENT

The Subscription Agent is PFPC Inc. The Subscription Agent will receive for
its administrative, processing, invoicing and other services as subscription
agent, an amount estimated to be approximately $35,000, which includes
reimbursement for out-of-pocket expenses related to the Offer. The Subscription
Agent is also the Fund's transfer agent, dividend paying agent and registrar.
Questions regarding the Subscription Certificates should be directed to PFPC
Inc., P.O. Box 859208, Braintree, Massachusetts 02185-9208 (telephone number:

(781) 843-1833). Shareholders may also consult their brokers or nominees. Signed
Subscription Certificates (SEE Appendix A) should be sent together with proper
payment of the Subscription Price, to PFPC Inc., by one of the methods described
below. The Fund will accept only Subscription Certificates actually received at
any of the addresses listed below. Notices of Guaranteed Delivery may also be
sent by facsimile to (781) 380-3388, with the original Notice of Guaranteed
Delivery to be sent promptly by one of the methods described below. Facsimiles
should be confirmed by telephone to (781) 843-1833 ext. 200.

(1) BY FIRST CLASS MAIL
PFPC Inc.
P.O. Box 859208
Braintree, MA 02185-9208

(2) EXPRESS MAIL OR OVERNIGHT COURIER:
PFPC Inc.
161 Bay State Road
Braintree, MA 02184

(2) BY HAND:
Securities Transfer and Reporting Services, Inc.
Attn: The Japan Equity Fund
100 Williams Street Galleria
New York, NY 10038

DELIVERY TO AN ADDRESS OTHER THAN ONE OF THOSE LISTED ABOVE WILL NOT
CONSTITUTE GOOD DELIVERY.

INFORMATION AGENT

The Information Agent for the Offer is:

The Altman Group, Inc.
1275 Valley Brook Ave.
Lyndhurst, NJ 07071
Toll Free: (800) 467-0835
or
Email: wantler@altmangroup.com

The Fund will pay the Information Agent an amount estimated to be approximately
$35,000, which includes reimbursement for out-of-pocket expenses related to the
Offer.

Any questions or requests for assistance may be directed to the Information
Agent at its address and telephone numbers listed above.

SALE OF RIGHTS

The Rights are transferable until the last Business Day prior to the
Expiration Date. The Rights will be listed on the NYSE under the symbol
"JEQ(RT)" and may be sold on the NYSE through the usual investment channels. The
Fund has used its best efforts to ensure that an adequate trading market for the
Rights will exist by causing the Rights to be listed on the NYSE and by
retaining the Dealer Manager, the Subscription Agent and the Information Agent.
Although there can be no assurance that such a market for the Rights will
develop, trading in the Rights on the NYSE may be conducted until the close of
trading on the last Business Day prior to the Expiration Date.

SALES THROUGH SUBSCRIPTION AGENT

Rights Holders who do not wish to exercise any or all of their Rights may
instruct the Subscription Agent to sell any unexercised Rights. Subscription
Certificates representing the Rights to be sold by the Subscription Agent must
be received by the Subscription Agent prior to December 18, 2003, which will
allow the Subscription Agent three NYSE trading days in which to sell such
Rights. Upon the timely receipt by the Subscription Agent of appropriate
instructions to sell Rights, the Subscription Agent will use its best efforts to
complete the sale and the Subscription Agent will remit the proceeds of the
sale, net of commissions, to selling the Rights Holders. If the Rights can be
sold, sales of such Rights will be deemed to have been effected at the weighted-
average price received by the Subscription Agent on the day such Rights are
sold. The selling Rights Holders

will pay all brokerage commissions incurred by the Subscription Agent. The
Subscription Agent will also attempt to sell all Rights which remain unclaimed
as a result of Subscription Certificates being returned by the postal
authorities to the Subscription Agent as undeliverable as of the fourth Business
Day prior to the Expiration Date. Such sales will be made net of commissions on
behalf of the nonclaiming shareholders. The Subscription Agent will hold the
proceeds from those sales for the benefit of such nonclaiming shareholders until
such proceeds are either claimed or escheat. There can be no assurance that the
Subscription Agent will be able to complete the sale of any such Rights, and
neither the Fund nor the Subscription Agent has guaranteed any minimum sales
price for the Rights. All such Rights will be sold at the market price, if any,
of trading on the NYSE.

The Subscription Agent will retain the Dealer Manager to act as its broker
in carrying out the sale of any rights on its behalf so long as the Subscription
Agent concludes that the fees charged by the Dealer Manager are competitive with
those fees which would be charged by other brokers for carrying out the same or
similar transactions.

OTHER TRANSFERS

The Rights are transferable until the close of trading on the NYSE on the
last Business Day prior to the Expiration Date. The Rights evidenced by a single
Subscription Certificate may be transferred in whole or in part (in a number
evenly divisible by three) by delivering to the Subscription Agent a
Subscription Certificate properly endorsed for transfer in accordance with the
accompanying instructions, with instructions to register such portion of the
Rights evidenced thereby in the name of the transferee and to issue a new
Subscription Certificate to the transferee evidencing such transferred Rights.
In such event, a new Subscription Certificate evidencing the balance of the
Rights will be issued to the transferring Rights Holder or, if the transferring
Rights Holder so instructs, to an additional transferee.

Holders of Rights wishing to transfer all or a portion of their Rights
should allow at least three Business Days prior to the Expiration Date for
(i) the transfer instructions to be received and processed by the Subscription
Agent; (ii) a new Subscription Certificate to be issued and transmitted to the
transferee or transferees with respect to transferred Rights, and to the
transferor with respect to retained Rights, if any; and (iii) the Rights
evidenced by such new Subscription Certificate to be exercised or sold by the
recipients thereof. Neither the Fund nor the Subscription Agent will have any
liability to a transferee or transferor of Rights if Subscription Certificates
are not received by the transferee in time for exercise or sale prior to the
Expiration Date.

Except for the fees charged by the Subscription Agent (which will be paid by
the Fund as described above), all commissions, fees and other expenses
(including brokerage commissions and transfer taxes) incurred in connection with
the purchase, sale or exercise of Rights will be for the account of the
transferor of the Rights, and none of such commissions, fees or expenses will be
paid by the Fund, the Subscription Agent, or the Dealer-Manager.

The Rights will be eligible for transfer through, and the exercise of the
Primary Subscription (but not the Over-Subscription Privilege) may be effected
through, the facilities of The Depository Trust Company ("DTC"); Rights
exercised through DTC are referred to as "DTC Exercised Rights." The holder of a
DTC Exercised Right may exercise the Over-Subscription Privilege in respect of
such DTC Exercised Right by properly executing and delivering to the
Subscription Agent, at or prior to 5:00 p.m., New York time, on the Expiration
Date, a Nominee Holder Over-Subscription Form (SEE Appendix C), together with
payment of the Subscription Price for the number of Shares for which the
Over-Subscription Privilege is to be exercised. Copies of the Nominee Holder
Over-Subscription Form may be obtained from the Information Agent.

EXERCISE OF RIGHTS

Rights may be exercised by completing and signing the reverse side of the
Subscription Certificate which accompanies this Prospectus and mailing it in the
envelope provided, or otherwise delivering the completed and signed Subscription
Certificate to the Subscription Agent, together with payment of the Estimated
Subscription Price for the Shares as described below under "Payment for Shares."
Exercising Rights Holders should designate on the appropriate portion of the
Subscription Certificate the Dealer Manager, Soliciting Dealer or other
broker-dealer that was influential in the exercise of Rights by the Exercising
Rights Holder. Completed Subscription Certificates must be received by the
Subscription Agent prior to 5:00 p.m., New York time, on the

Expiration Date at the offices of the Subscription Agent at the address set
forth above. Rights may also be exercised through an Exercising Rights Holder's
broker or dealer, who may charge such Exercising Rights Holder a servicing fee.

Nominees who hold shares of Common Stock for the account of others, such as
brokers, trustees or depositories for securities, should notify the respective
beneficial owners of such shares as soon as possible to ascertain such
beneficial owners' intentions and to obtain instructions with respect to the
Rights. If the beneficial owner so instructs, the nominee should complete the
Subscription Certificate and submit it to the Subscription Agent with the proper
payment. In addition, beneficial owners of Common Stock or Rights held through
such a nominee should contact the nominee and request the nominee to effect
transactions in accordance with the beneficial owner's instructions.

EXERCISE OF THE OVER-SUBSCRIPTION PRIVILEGE

Record Date Shareholders who fully exercise all Rights held by them before
or on the Expiration Date may participate in the Over-Subscription Privilege by
indicating on their Subscription Certificate the number of Shares they are
willing to acquire pursuant thereto. There is no limit on the number of Shares
for which Record Date Shareholders may seek to subscribe pursuant to the
Over-Subscription Privilege. If sufficient Shares remain after the Primary
Subscription, all over-subscriptions will be honored in full; otherwise the
number of Shares issued to each Record Date Shareholder participating in the
Over-Subscription Privilege will be allocated as described above under
"Over-Subscription Privilege."

Banks, brokers and other nominee holders of Rights will be required to
certify to the Fund, before any Over-Subscription Privilege may be exercised as
to any particular beneficial owner, as to the aggregate number of Rights
exercised pursuant to the Primary Subscription and the number of Shares
subscribed for pursuant to the Over-Subscription Privilege by such beneficial
owner and that such beneficial owner's Primary Subscription was exercised in
full. SEE Appendix C.

PAYMENT FOR SHARES

Exercising Rights Holders who acquire Shares on Primary Subscription or,
with respect to the Record Date Shareholders, pursuant to the Over-Subscription
Privilege may choose between the following methods of payment:

(1) Subscription Certificate sent together with payment. An Exercising
Rights Holder can send the Subscription Certificate together with payment for
the Shares acquired on Primary Subscription and any additional Shares subscribed
for pursuant to the Over-Subscription Privilege (for Record Date Shareholders)
to the Subscription Agent based upon the Estimated Subscription Price of $6.53
per Share. Subscriptions will be accepted when payment, together with the
executed Subscription Certificate, is received by the Subscription Agent at any
of the addresses set forth above, and such payment and Subscription Certificates
must be received by the Subscription Agent no later than 5:00 p.m., New York
time, on the Expiration Date. The Subscription Agent will deposit all checks
received by it for the purchase of Shares into a segregated interest-bearing
account of the Fund (the interest from which will belong to the Fund) pending
proration and distribution of Shares. A PAYMENT PURSUANT TO THIS METHOD MUST BE
IN U.S. DOLLARS BY MONEY ORDER OR CHECK DRAWN ON A BANK LOCATED IN THE UNITED
STATES, MUST BE PAYABLE TO THE ORDER OF "THE JAPAN EQUITY FUND, INC." AND MUST
ACCOMPANY AN EXECUTED SUBSCRIPTION CERTIFICATE FOR SUCH SUBSCRIPTION CERTIFICATE
TO BE ACCEPTED AND BE RECEIVED BY 5:00 P.M., NEW YORK TIME, ON THE EXPIRATION
DATE.

(2) Notice of Guaranteed Delivery and Subscription Certificate (with
payment) sent separately. Alternatively, a subscription will be accepted by the
Subscription Agent if, prior to 5:00 p.m., New York time, on the Expiration
Date, the Subscription Agent has received a Notice of Guaranteed Delivery (SEE
Appendix B) by facsimile (telecopy) or otherwise from a bank, a trust company or
a NYSE member guaranteeing delivery of (i) (a) payment of the full Subscription
Price for the Shares subscribed for on Primary Subscription and any additional
Shares subscribed for pursuant to the Over-Subscription Privilege (for Record
Date Shareholders), and (b) a properly completed and executed Subscription
Certificate. The Subscription Agent will not honor a Notice of Guaranteed
Delivery unless a properly completed and executed Subscription Certificate and
full payment for the Shares is received by the Subscription Agent by the close
of business on the fifth Business Day after the Expiration Date (December 31,
2003) (the "Protection Period"); and (ii) payment in full of any additional
amount required to be paid if the Subscription Price as determined on the
Pricing Date is in excess of the Estimated Subscription Price.

Within seven Business Days following the Protection Period (the
"Confirmation Date"), a confirmation or invoice will be sent by the Subscription
Agent to each Exercising Rights Holder at the address of record (or, if the
Common Stock is held by Cede or any other depository or nominee, to Cede or such
other depository or nominee) showing (i) the number of Shares acquired pursuant
to the Primary Subscription, (ii) the number of Shares, if any, acquired
pursuant to the Over-Subscription Privilege, (iii) the per Share and total
purchase price for the Shares and (iv) any additional amount payable by such
shareholder to the Fund or any excess to be refunded by the Fund to such
shareholder, in each case based on the Subscription Price as determined on the
Pricing Date. If any Record Date Shareholder exercises his right to acquire
Shares pursuant to the Over-Subscription Privilege, any such excess payment
which would otherwise be refunded to him will be applied by the Fund toward
payment for Shares acquired pursuant to exercise of the Over-Subscription
Privilege. Any additional payment required from a shareholder must be received
by the Subscription Agent prior to the final payment date (which is ten business
days after the Confirmation Date) of January 26, 2004, unless the Offer is
extended. Any excess payment to be refunded by the Fund to a shareholder will be
mailed by the Subscription Agent to such shareholder as promptly as possible. A
SHAREHOLDER WILL HAVE NO RIGHT TO RESCIND A PURCHASE AFTER THE SUBSCRIPTION
AGENT HAS RECEIVED PAYMENT, EITHER BY MEANS OF A NOTICE OF GUARANTEED DELIVERY
OR A CHECK. All payments by a shareholder must be in United States dollars by
money order or check drawn on a bank or branch located in the United States of
America and payable to the order of "THE JAPAN EQUITY FUND, INC."

Whichever of the two methods described above is used, issuance and delivery
of certificates for the Shares purchased are subject to collection of checks and
actual payment.

If an Exercising Rights Holder who acquires Shares pursuant to the Primary
Subscription or Over-Subscription Privilege does not make payment of any or all
amounts due, the Fund and the Subscription Agent reserve the right to take any
or all of the following actions: (i) find other shareholders or Rights Holders
for such subscribed and unpaid for Shares; and/or (ii) apply any payment
actually received by it toward the purchase of the greatest whole number of
Shares which could be acquired by such holder upon exercise of the Primary
Subscription and/or Over-Subscription Privilege; and/or (iii) exercise any and
all other rights or remedies to which it may be entitled, including, without
limitation, the right to set-off against payments actually received by it with
respect to such subscribed Shares.

THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE FUND WILL BE AT THE ELECTION AND RISK OF THE RIGHTS
HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES AND
PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO
THE FUND AND CLEARANCE OF PAYMENT PRIOR TO 5:00 P.M., NEW YORK TIME, ON THE
EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE
BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT,
BY MEANS OF CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER.

All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Fund, whose determinations will
be final and binding. The Fund in its sole discretion may waive any defect or
irregularity, or permit a defect or irregularity to be corrected within such
time as it may determine, or reject the purported exercise of any Right.
Subscriptions will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as the Fund determines
in its sole discretion. The Fund will not be under any duty to give notification
of any defect or irregularity in connection with the submission of Subscription
Certificates or incur any liability for failure to give such notification.

DELIVERY OF SHARE CERTIFICATES

Certificates representing Shares purchased pursuant to the Primary
Subscription will be delivered to Exercising Rights Holders as soon as
practicable after the corresponding Rights have been validly exercised and full
payment for such Shares has been received and cleared. Generally, this will
occur subsequent to the Confirmation Date. Shares may be issued to the Dealer
Manager, however, pursuant to the exercise of Rights in the Primary Subscription
promptly after receipt by the Subscription Agent of Rights and payment from the
Dealer Manager if the Dealer Manager agrees to maintain an excess
collateralization account with the Subscription Agent. Certificates representing
Shares purchased pursuant to the Over-Subscription Privilege will be delivered
to Exercising Rights Holders as soon as practicable after the Expiration Date
and after all allocations have been effected. Participants in the Fund's
Dividend Reinvestment and Cash Purchase Plan (the "DRIP Plan") will have any
Shares acquired in the Primary Subscription and pursuant to the
Over-Subscription Privilege credited to their dividend reinvestment accounts in
the DRIP Plan. Participants in the DRIP Plan wishing to exercise Rights for the
Shares held in their accounts in the DRIP Plan must exercise them in accordance
with the procedures set forth above. Shareholders whose Shares are held of
record by Cede or by any other depository or nominee on their behalf or their
broker-dealer's behalf will have any Shares acquired in the Primary Subscription
and pursuant to the Over-Subscription Privilege credited to the account of Cede
or such other depository or nominee. Shares acquired in the Primary Subscription
and pursuant to the Over-Subscription Privilege will be certificated and stock
certificates representing such Shares will be sent directly to Cede or such
other depository or nominee. Stock certificates will not be issued for Shares
credited to DRIP Plan accounts.

FOREIGN SHAREHOLDERS

Subscription Certificates will not be mailed to Foreign Record Date
Shareholders. The Rights to which such Subscription Certificates relate will be
held by the Subscription Agent for such Foreign Record Date Shareholders'
accounts until instructions are received to exercise, sell or transfer the
Rights. If no instructions have been received by 5:00 p.m., New York time, on
December 17, 2003, which is four Business Days prior to the Expiration Date,
unless extended, the Subscription Agent will use its best efforts to sell the
Rights of those Foreign Record Date Shareholders on the NYSE. The net proceeds,
if any, from the sale of those Rights by the Subscription Agent will be remitted
to the Foreign Record Date Shareholders.

FEDERAL INCOME TAX CONSEQUENCES

The U.S. federal income tax consequences to holders of Common Stock with
respect to the Offer will be as follows:

1. The distribution of Rights to Record Date Shareholders will not result in
taxable income to such holders nor will such holders realize taxable income as a
result of the exercise of the Rights.

2. The basis of a Right will be (a) to a holder of Common Stock to whom it
is issued and who exercises or sells the Right, (i) if the fair market value of
the Right immediately after issuance is less than 15% of the fair market value
of the Common Stock with regard to which it is issued, zero (unless the holder
elects, by filing a statement with his timely filed federal income tax return
for the year in which the Rights are received, to allocate the basis of the
Common Stock between the Right and the Common Stock based on their respective
fair market values immediately after the Right is issued), and (ii) if the fair
market value of the Right immediately after issuance is 15% or more of the fair
market value of the Common Stock with regard to which it is issued, a portion of
the basis in the Common Stock based upon the respective fair market values or
the Common Stock and the Right immediately after the Right is issued; (b) to a
holder of Common Stock to whom it is issued and who allows the Right to expire,
zero; and (c) to anyone who purchases a Right in the market, the purchase price
for the Right.

3. The holding period of a Right received by a Record Date Shareholder
includes the holding period of the Common Stock with regard to which the Right
is issued.

4. Any gain or loss on the sale of a Right will be treated as a capital gain
or loss if the Right is a capital asset in the hands of the seller. Such a
capital gain or loss will be long-term or short-term, depending on how long the
Right has been held, in accordance with paragraph 3 above. A Right issued with
regard to Common Stock will be a capital asset in the hands of the person to
whom it is issued if the Common Stock to which the Right relates is a capital
asset in the hands of that person. If a Right is allowed to expire, there will
be no loss realized unless the Right was acquired by purchase, in which case
there will be a loss equal to the basis of the Right.

5. If the Right is exercised by the Record Date Shareholder, the basis of
the Common Stock received will include the basis allocated to the Right and the
amount paid upon exercise of the Right.

6. If the Right is exercised, the holding period of the Common Stock
acquired begins on the date the Right is exercised.

7. Gain recognized by a foreign shareholder on the sale of a Right will be
taxed in the same manner as gain recognized on the sale of Fund shares. SEE
"Taxation--U.S. Federal Income Taxes--Foreign Shareholders."

The Fund is required to withhold and remit to the U.S. Treasury 28% of
reportable payments paid on an account if the holder of the account is a
taxpayer to whom the backup withholding rules apply and has provided the Fund
with either an incorrect taxpayer identification number or no number at all or
has failed to certify that he or she is not subject to such withholding.

The foregoing is only a summary of the applicable federal income tax laws
and does not include any state or local tax consequences of the Offer.
Exercising Rights Holders should consult their own tax advisers concerning the
tax consequences of this transaction. SEE "Taxation."

NOTICE OF NET ASSET VALUE DECLINE

The Fund has, as required by the Commission's registration form, undertaken
to suspend the Offer until it amends this Prospectus if, subsequent to
December 4, 2003 (the effective date of the Fund's Registration Statement), the
Fund's net asset value declines more than 10% from its net asset value as of
that date.

EMPLOYEE PLAN CONSIDERATIONS

Shareholders that are subject to the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), (including employee benefit plans such as
corporate savings and 401(k) plans), Keogh or H.R.10 plans of self-employed
individuals and Individual Retirement Accounts (collectively, "Plans") should be
aware that additional contributions of cash to the Plan (other than rollover
contributions or trustee-to-trustee transfers from other Plans) in order to
exercise Rights would be treated as Plan contributions and, when taken together
with contributions previously made, may subject a Plan, among other things, to
excise taxes for excess or nondeductible contributions. In the case of Plans
qualified under Section 401(a) of the U.S. Internal Revenue Code of 1986, as
amended (the "Code"), additional cash contributions could cause the maximum
contribution limitations of Section 415 of the Code or other qualification rules
to be violated. Furthermore it may be a reportable distribution and there may be
other adverse tax consequences if Rights are sold or transferred by a Plan to
another account. A Sale of Rights by a Plan account to an unrelated third party
and retention of cash proceeds by the Plan account or the direct exercise of
Rights by a Plan account, should not be treated as a taxable Plan distribution,
but rather would generally be treated for federal income tax purposes as a sale
or assumption (as applicable) of Plan assets. Plans contemplating making
additional cash contributions to exercise Rights should consult with their
counsel prior to making such contributions.

Plans and other tax exempt entities, including governmental plans, should
also be aware that if they borrow in order to finance their exercise of Rights,
they may become subject to the tax on unrelated business taxable income ("UBTI")
under Section 511 of the Code. If any portion of an Individual Retirement
Account ("IRA") is used as security for a loan, the portion so used is also
treated as distributed to the IRA depositor.

ERISA contains fiduciary responsibility requirements, and ERISA and the Code
contain prohibited transaction rules that may impact the exercise or transfer of
Rights. Due to the complexity of these rules and the penalties for
noncompliance, Plans once again should consult with their counsel regarding the
consequences of their exercise or transfer of Rights under ERISA and the Code.

RISK FACTORS AND SPECIAL CONSIDERATIONS

Risk is inherent in all investing. Investing in any investment company
security involves risk, including the risk that you may receive little or no
return on your investment or even that you may lose part or all of your
investment. Investing in the Fund's Common Stock involves certain risks and
considerations not typically associated with investing in U.S. securities.
Therefore, before investing you should consider carefully the following risks
that you assume when you invest in shares of the Fund's Common Stock and special
considerations with respect to the Offer and with respect to an investment in
the Fund.

DILUTION OF NET ASSET VALUE FOR NON-PARTICIPANTS IN THE OFFER

An immediate dilution of the aggregate net asset value or share of the
Common Stock owned by Record Date Shareholders who do not fully exercise their
Rights may be experienced as a result of the Offer because the Subscription
Price may be less than the Fund's then net asset value per share, and the number
of shares outstanding after the Offer may increase in a greater percentage than
the increase in the size of the Fund's assets. In addition, as a result of the
terms of the Offer, Record Date Shareholders who do not fully exercise their
Rights should expect that they will, at the completion of the Offer, own a
smaller proportional interest in the Fund than would otherwise be the case. It
is not possible to state precisely the amount of such a decrease in value,
because it is not known at this time what proportion of the shares will be
purchased as a result of the offer, what the Subscription Price will be or what
the net asset value per share will be on the Expiration Date. For example,
assuming that all Rights are exercised and that the Subscription Price of $5.70
is 5% below the Fund's net asset value of $6.00 per share on December 4, 2003,
the Fund's net asset value per share (after payment of the financial advisory
and soliciting fees and estimated offering expenses) would be reduced by
approximately $0.16 per share. The distribution to shareholders of transferable
Rights which themselves may have intrinsic value will also afford
non-participating shareholders the potential of receiving a cash payment upon
sale of such Rights, receipt of which may be viewed as partial compensation for
the dilution of their interest in the Fund. No assurance can be given that a
market for the Rights will develop or as to the value, if any, that such Rights
will have.

INVESTMENTS IN JAPANESE EQUITIES

The Fund invests primarily in Japanese equities consisting of equity
securities traded on the First Section of the TSE, or listed on the
over-the-counter market in Japan or listed on other stock exchanges in Japan
("Japanese Equities"). Investing in Japanese Equities involves certain risks and
special considerations not usually associated with investing in securities of
established U.S. companies, including (1) risks related to the nature of the
markets for Japanese Equities, including the effect of cross-shareholdings in
Japanese companies on the Japanese equities markets and risks that the Japanese
equities markets may be affected by market developments in different ways than
U.S. securities markets and may be more volatile than U.S. securities markets;
(2) political and economic risks with respect to Japan, including the possible
imposition of, or changes in, currency exchange laws or other Japanese laws or
restrictions applicable to investments in Japanese Equities; (3) fluctuations in
the rate of exchange between currencies and costs associated with currency
conversion; and (4) Japanese laws and government regulations which may create
potential limitations and restrictions on investments by the Fund in Japanese
Equities. Moreover, as issuers of the Fund's portfolio securities generally will
not be subject to the reporting requirements of the Commission, there may be
less publicly available information about the issuers of these securities than
about reporting U.S. companies.

Although the market for Japanese Equities traded on the First Section of the
TSE is substantial in terms of trading volume and liquidity, the TSE has
nonetheless exhibited significant market volatility over the years. In recent
years, the markets for Japanese Equities have undergone several substantial
gains and declines. From 1985 (year-end) to 1989 (year-end), the TOPIX increased
from 1,047.08 to 2,881.37, a substantial increase of 174.6% reaching the
historical high on December 29, 1989 at 2,881.37. From the end of 1989 to the
end of 1998, the TOPIX declined from 2,881.37 to 1,086.99, which was a decline
of -62.3%. From the end of 1998 to the end of 1999, the TOPIX increased from
1,086.99 to 1,722.20, an increase of 63%. From the end of 1999, the TOPIX
steadily declined in value until hitting the bottom on April 28, 2003 at 796.56
at closing. Since April 30, 2003 the TOPIX has rebounded to the 1,000 price
level in August 2003 and still continues to move upward although there continues
to be a high degree of price volatility. There can be no assurance that the
market will not decline again. Accordingly, price volatility of Japanese
Equities may have an adverse effect on the investment performance of the Fund.

POLITICAL AND ECONOMIC FACTORS

POLITICAL FACTORS

Japan has a parliamentary form of government. Legislative power is vested in
the Diet which consists of the House of Representatives (the "Lower House") and
the House of Councilors (the "Upper House"). Members of the Lower House are
elected for terms of four years unless the Lower House is dissolved prior to the
expiration of their full, elected terms. On the other hand, members of the Upper
House have a six-year term and every three years elections are held for half of
the 247 total members. The major political parties represented in the Diet are
the Liberal Democratic Party ("LDP"), the largest party; the New Komeito Party;
the New Conservative Party ("NCP"); the Democratic Party of Japan ("DPJ"), the
largest opposition party; the Liberal Party ("LP"); the Japan Communist Party
("JCP"); and the Social Democratic Party ("SDP"). The distribution of the Diet
membership by party as of June 10, 2003 for the Upper House and as of
November 9, 2003 for the Lower House are as follows:

HOUSE OF REPRESENTATIVES AS OF NOVEMBER 9, 2003 HOUSE OF COUNCILORS AS OF JUNE 10, 2003
------------------------------------------------- ---------------------------------------------

237 Liberal Democratic Party Liberal Democratic Party--Conservative 116
Party
34 New Komeito New Komeito 24
4 New Conservative Party New Conservative Party 0
177 Democratic Party--Independants' Club Democratic Party--Shin Ryokufu Kai 60
1 Liberal Party Parliamentary Innovation Club 14
9 Japan Communist Party Japan Communist Party 20
11 Independent Independents 7
6 Social Democratic Party--Citizens' League Social Democratic Party--Goken League 6
1 Vacant Vacant 0
480 TOTAL MEMBERS, HOUSE OF REPRESENTATIVES TOTAL MEMBERS, HOUSE OF COUNCILORS 247

The current government is a coalition of the LDP, the New Conservative Party
and the New Komeito Party. Until two years ago, Japan's Prime Minister was
determined by a basic proportional representation formula that was biased in
favor of densely-populated prefectures. Under the old system, each member of the
Parliament who had been on the LDP party register for more than three years cast
a vote for president of the party. (Each vote represented 10,000 voters.) The
party leaders would then select its candidate for prime minister.

But in the run-up to the April 2001 elections, the LDP restructured its
preliminary electoral system in an effort to reach out to all localities. Under
the LDP's new system, each of 47 prefectures would cast three votes for
President, as would the 346 LDP party members in both houses of the Japanese
Parliament, for a total number of 487 votes.

Campaigning hard on a pro-reform platform, Junichiro Koizumi swept both the
preliminary and final elections. He was inaugurated on April 26, 2001,
succeeding Yoshiro Mori.

On October 11, 2003, Prime Minister Junichiro Koizumi dissolved the House of
Representatives of the Diet after he was re-elected as the Liberal Democratic
Party chief on September 20.

This led to a general election, which took place on November 9, 2003. Prime
Minister Junichiro Koizumi won the election but with a reduced majority. The
opposition DPJ made considerable gains, winning nearly 180 seats, its largest
share ever. Other traditional parties like the Communist Party and the Social
Democratic Party lost significant numbers of seats, making a two-party system a
possibility in future Japanese politics. The DPJ gained 40 more seats, making it
the largest opposition party with a total lower-house membership of 177. Among
those in the ruling coalition, only the New Clean Government Party (KOMEITO)
made gains, bringing its total lower-house membership to 34 from 31 members
prior to the election.

The Fund, the Investment Manager and the Investment Adviser are unable to
predict the impact, if any, of any changes which may occur in the Japanese
political environment. It is possible that changes in the Japanese government's
economic and fiscal policies could occur and that the Japanese securities
markets could react negatively.

ECONOMIC FACTORS

The Japanese economy has grown substantially over the previous three
decades. This growth averaged 10% in real GDP terms during the years 1960
through 1970, an average of 5% during the years 1970 through 1980, and an
average of 4% during 1980 through 1990. During the 1990s, growth slowed down
considerably and Japan entered into a prolonged recession and the growth slowed
to an average of 1.7%. The so called "lost decade" recession was due to the
sudden end to the speculative bubble economy of the late 1980s and early 1990s.
In

addition, the Japanese Government implemented "emergency economic measures"
which were supposed to help ease the speculative excesses from the stock and
real estate markets but which deteriorated its fiscal balance.

The Government's efforts were further hampered by the 2000 through 2002
weakening of the U.S. and Asian economies. In February 2003, geopolitical risks
(Iraq and North Korea) and share liquidation by financial institutions forced
the market to stay in a bottom area after testing the strong resistance of the
Nikkei 225, at a level of 8800. The fall in share prices accelerated in March,
on the back of sales to unwind cross shareholdings in the run-up to the closing
of full-year accounts. Further, sales related to the return of the government
portion of employee pension funds, and also the increasing lack of buyers due to
the uncertainty over the Iraq situation, contributed to the market's falling to
new post-bubble lows. February and the early part of March were a seasonal weak
period even in the 1980s bull market years, due to institutional liquidation
toward the fiscal year end. Although there was a rebound in share prices across
the globe once the war in Iraq began, the upturn in Japan was muted due to the
financial instability that had been triggered by the fall in share prices, as
well as concerns over North Korea. During March, the average traded volume on
the First Section of the TSE was 830 million shares, with an average traded
value of Y 570 billion. April 2003 saw investors increasingly focus on low to
mid-priced stocks as they avoided international blue chips, which were
particularly affected by the return of the subrogated portion of employee
pension funds to the government and also the U.S. economy, where the war in Iraq
led to increasing uncertainty. Buyers continued to shy away, not only because of
the lacking sense of urgency in government policy, nor the deterioration in
supply/demand conditions caused by the return of the subrogated portion of
pension funds, but also because investors took a wait-and-see attitude to
corporate results announcements. As a result, the market remained on a downward
trend, hitting new post-bubble lows toward the end of the month. During April,
the average daily traded volume on the First Section of the TSE was 950 million
shares, with an average traded value of Y590 billion. The end of the Iraq war in
early April shifted the stock market's attention away from the war to the U.S.
economy, but lingering uncertainties, including the impact from the war, meant
that the Japanese stock market continued to follow a downward trend, with major
high techs and international blue chips falling in particular due to their
susceptibility to U.S. trends and the selling pressure from crossholding
unwinding and the problem of the return of the subrogated portion of employee
pension funds to the government. At the end of April, Sony's downward revision
of earnings projections triggered the market's plunge to a series of post-bubble
lows. In May 2003, reflecting a rise in the U.S. stock market, Japanese stocks,
especially in the high-tech, communications, and exporting sectors, climbed
despite the strong yen, and the Nikkei 225 recovered to the 8,300 level at the
end of the month when the rising yen trend halted. In addition, bank shares went
higher on expectations that the injection of public funds into Resona Bank would
lead to the strengthening of the banking sector's capital base. Further, the
government's announcement of stock market support measures made it harder to
sell, although they were mainly aimed at improving supply and demand.
Nonetheless, once announcements of corporate results and government measures
were over, there were few incentives to boost the market further. The outlook
for the U.S. economy still looked cloudy, while concerns about the domestic
economy increased following the downward revision of economic assessments by The
Bank of Japan (the "BOJ"), and negative supply-demand factors for major stocks
remained. On the other hand, low and middle-priced stocks were individually
picked based on news that had emerged during the peak results announcement
period. The June 2003 market benefited from non-Japanese investors increasing
their positions on Japanese stocks, as they looked increasingly undervalued
compared to U.S. stocks, which had risen on expectations of a mild economic
recovery, excessive concerns about the financial system diminished, and Japanese
companies' earnings began to recover. Consequently, the Nikkei 225 regained the
9,000 level for the first time since December 2002. The selling pressure from
supply and demand factors, such as crossholdings unwinding and the problem of
the return of the subrogated portion of employee pension funds to the government
also lessened somewhat as the need to sell stocks in a hurry decreased due to a
rise in share prices, and traded volumes recovered considerably. However, as
there were no definite improvements in fundamentals, the market saw increased
profit-taking selling at the 9,000 level, and became top-heavy amid the lack of
aggressive buyers.

At the start of the month of July 2003, despite a slowdown in market energy,
the Nikkei 225 recovered to above 10,000 points in intraday trading on July 8 as
a result of buying by non-Japanese investors amid the continued bullishness of
U.S. markets and financial deregulation. This was mirrored by the purchases of
Japanese institutional investors following the improvement in the economic
environment as indicated by the BOJ's June TANKAN survey (Quarter Business
Survey) and a rise in capital spending by semiconductor makers. Consequently,
trading volume exceeded two billion shares on July 3, 2003 for the first time in
fourteen years. The popularity of high-tech issues on U.S. stock markets and
recovery in securities markets led gains among electrical machinery makers,
technology issues, banks and securities houses. Laggard automobile-related
issues

and domestic-demand sensitive stocks were also increasingly sought. However, as
the Nikkei 225 crossed the 10,000-point threshold, it fell back sharply on
concerns about overheating, a rebound in Sony's share price, and a growing sense
of having reached a ceiling, based on machinery orders. At the end of the month
(July 22-31), there was seen to be a shift from a finance-based market to a
performance-based market based on quarterly results announcements. Following
signs of a recovery in the U.S. economy and capital expenditure trends,
electrical machinery, high-tech, machinery, and iron and steel stocks turned
bullish. However, since the market had factored in favorable results ahead of
results announcements, the release of poor results by Sony and Toshiba,
unchanged forecasts by Matsushita Electric Industrial Co., and a decrease in
profits by Honda, made investors increasingly choosy in their stock selection as
concerns over profitability expanded.

VALUATIONS: Based on fiscal year 2003 earnings estimates for the Japanese
market, the price earnings ("PE") multiple is currently 19.0 times. In addition,
the price book ("PB") multiple is 1.5 times.

2003
ESTIMATED JAPAN USA UK GERMANY
--------------------- -------- -------- -------- --------

P/E 19.0 17.1 18.6 16.1
P/B 1.5 2.9 2.0 1.4

SUPPLY OVERHANG: The Japanese securities markets have been adversely
affected for several years by an overhanging supply of securities. The principal
source of this overhang was the need to unwind the cross-holding arrangements
that have long existed between financial institutions and non-financial
institutions. The unwinding process has been the biggest cause of stock selling
since the end of the bubble era and, while it now appears to have passed its
peak, there can be no assurance that it may not continue to adversely effect
individual securities or the market in general. The other source of this
overhang is the selling of the return of the subrogated portion of employee
pension funds to the Japanese government. The pension fund scheme is a
defined-benefit pension plan (meaning the yield is predetermined), and some
pensions and managers have failed to secure a yield high enough to cover benefit
payments, because of recent low interest rates and falling stock prices, forcing
corporations to cover the losses. This covering of losses has reached a limit,
and funds have been forced to dissolve, prompting the Japanese government's
decision to allow corporations to return to the government the portion of their
corporate pension fund, which they had formerly managed and paid out on behalf
of the government. In order to return the state-contributed portion, the
corporations must liquidate the assets which they had been managing, triggering
sales for cash in the market and thereby contributing to the supply overhang.

EXCHANGE RATE FLUCTUATIONS AND FOREIGN CURRENCY CONSIDERATIONS

Substantially all of the Fund's assets are invested in Japanese Equities. In
addition, a portion of the Fund's Temporary Investments may be in
yen-denominated debt securities. Substantially all income received by the Fund
is in yen. However, the Fund's net asset value is reported, and distributions
from the Fund are made, in U.S. dollars. Therefore, the Fund's reported net
asset value and distributions will be adversely affected by depreciation of the
yen relative to the U.S. dollar. In addition, the Fund computes its income on
the date of its receipt by the Fund at the foreign exchange rate in effect on
that date, and if the value of the yen falls relative to the U.S. dollar between
the date of receipt and the date the Fund makes distributions, and, if the Fund
has insufficient cash in U.S. dollars to meet distribution requirements, the
Fund may be required to liquidate securities in order to make distributions.
Such liquidations, if required, may adversely affect the Fund. There is no
assurance that the Fund will be able to liquidate securities in order to meet
such distribution requirements. The Fund is required to distribute 90% of its
investment company taxable income to its shareholders each year, as described
under "Taxation--U.S. Federal Income Taxes," in order to maintain its
qualification as a regulated investment company for U.S. tax purposes. The Fund
is permitted to borrow money to pay dividends required to be distributed in
order to maintain its tax qualification status. SEE "Investment Objective and
Policies."

Yen exchange rates can fluctuate significantly over short periods and can be
subject to unpredictable changes based on a variety of factors including
political developments and currency controls by the Japanese government. A
change in the value of yen against the U.S. dollar will generally result in a
change in the U.S. dollar value of the Fund's assets. If the yen exchange rate
declines compared to the U.S. dollar, the Fund's NAV would decline. In addition,
although most of the Fund's income will be received or realized primarily in
yen, the Fund will be required to compute and distribute its income in U.S.
dollars. Therefore, for example, if the exchange rate for yen declines after the
Fund's income has been accrued and translated into U.S. dollars, but before the
income has been received or converted into U.S. dollars, the Fund could be
required to liquidate portfolio securities to make distributions. Similarly, if
the exchange rate declines between the time the Fund

incurs expenses in U.S. dollars and the time the expenses are paid, the amount
of yen required to be converted into U.S. dollars in order to pay the expenses
in U.S. dollars will be greater than the yen equivalent of the expenses at the
time they were incurred.

If the Fund is unable to obtain funds necessary to meet its U.S.
distribution requirements of distributing 90% of its investment company taxable
income to its shareholders each year, the Fund will not qualify for the
dividends-paid deduction available to regulated investment companies under U.S.
law and will be subject to a corporate-level tax on its income for such year.
SEE "Taxation--U.S. Federal Income Taxes."

The Investment Manager and Investment Adviser may hedge yen risks in
accordance with their views by engaging in foreign currency exchange
transactions. These may include buying and selling foreign currency options,
foreign currency futures, options on foreign currency futures and swap
arrangements. Many of these activities constitute "derivatives" transactions.
There can be no assurance that the Fund will employ a foreign currency hedge at
any given time, nor can there be any assurance that the Fund will be able to do
this hedging successfully. Moreover, fluctuations in the value of the yen
against the U.S. dollar have historically been profound and negative. Although
exchange rates against the U.S. dollar have been favorable in recent months,
there can be no assurance that favorable exchange rates will continue. Nor can
there be any assurance that fluctuations in the value of the yen to the U.S.
dollar will not return to being profound and negative.

In mid-1999, the Japanese yen was trading around 120 yen per U.S. dollar and
strengthened considerably against the U.S. dollar towards the end of 1999 to
near 100 yen, a level not seen since 1995. From the end of 1999 through the
beginning of 2002, it steadily weakened to around 130 yen, peaking at about 135
yen. Since then, the Japanese yen firmed up against the U.S. dollar to the
120-yen level and has been steadily maintaining that level. The following table
sets forth certain information as to yen per U.S. dollar exchange rates for the
years 1992 through 2002 and for the period from January 1 through August 29,
2003.

YEN PER DOLLAR EXCHANGE RATE

Y PER U.S. $1.00
--------------------------------
HIGH(1) LOW(1) AVERAGE(2)
-------- -------- ----------

1992........................................................ 134.53 119.31 126.71
1993........................................................ 126.10 101.02 111.07
1994........................................................ 113.06 96.60 102.16
1995........................................................ 104.55 80.63 94.03
1996........................................................ 116.21 103.45 108.79
1997........................................................ 130.88 111.26 121.04
1998........................................................ 147.26 113.60 130.75
1999........................................................ 124.32 101.64 113.70
2000........................................................ 114.41 101.45 107.80
2001........................................................ 131.79 113.57 121.52
2002........................................................ 134.71 115.81 125.20
January 2003................................................ 120.48 117.81 118.77
February 2003............................................... 121.45 117.17 119.42
March 2003.................................................. 121.69 116.84 118.75
April 2003.................................................. 120.55 117.92 119.82
May 2003.................................................... 119.30 116.08 117.41
June 2003................................................... 119.80 117.42 118.32
July 2003................................................... 120.55 117.68 118.65
August 2003................................................. 120.32 116.92 118.62
September 2003.............................................. 117.48 110.78 114.96
October 2003................................................ 110.99 108.28 109.51

--------------

Notes: (1) High and low rates include intra-day transactions.
(2) Average rates indicate the average of the most actively traded
rates for a given day.
Source: Interbank rates in Tokyo as reported by The Bank of Japan.

JAPANESE GOVERNMENT REGULATION

In general, the transfer of shares (including a call option on shares) in a
Japanese company listed on any stock exchange in Japan by a resident of Japan
(including a corporation) by such a resident of Japan to a non-resident of Japan
(including a corporation) requires a post facto report to the Minister of
Finance of Japan (the "Minister of Finance") via the Bank of Japan of such
transaction pursuant to the Foreign Exchange and Foreign

Trade Law of Japan (Law No. 228, December 1, 1949), as amended, and cabinet
orders and ministerial ordinances thereunder currently in effect (the "Foreign
Exchange Regulations"). If the transfer is made from or through a bank,
securities company or other financial institution designated by the Foreign
Exchange Regulations (as will generally be the case with the Fund), such post
facto report is not required, subject to the quantity restrictions referred to
below. The Foreign Exchange Regulations give the Minister of Finance the power,
in certain limited and exceptional circumstances, to require prior approval for
any such acquisition.

If a foreign investor intends to acquire shares of a Japanese corporation
and as a result of such acquisition the foreign investor would directly or
indirectly hold 10% or more of the total outstanding shares of that corporation,
such foreign investor must file a report after such acquisition with the
Minister of Finance and any other Minister with proper jurisdiction. In
instances where such acquisition concerns national security or meets certain
other conditions specified in the Foreign Exchange Regulations, such foreign
investor must file a prior notification in respect of the proposed acquisition
with the Minister of Finance and any other Minister with proper jurisdiction.
Such Ministers may make a recommendation to modify or prohibit the proposed
acquisition if, as a result of examination, they consider that such acquisition
falls under certain limited conditions specified in the Foreign Exchange
Regulations. If the foreign investor does not accept the recommendation, such
Ministers may issue an order modifying or prohibiting the acquisition. The Fund
will be considered a foreign investor for this purpose.

The acquisition of shares by non-resident shareholders by way of stock
splits, as well as the acquisition of shares of a Japanese company that are
listed on a Japanese stock exchange by non-residents upon exercise of warrants
or stock acquisition rights, or conversion of convertible bonds issued outside
Japan, are not subject to any of the foregoing reporting requirements. Under the
Foreign Exchange Regulations, dividends paid on shares held by non-residents of
Japan and the proceeds of any sales of shares within Japan may, in general, be
converted into any foreign currency and remitted abroad. The Fund will be
considered a non-resident of Japan for this purpose.

There can be no assurance that under the Foreign Exchange Regulations the
Minister of Finance will not require prior approval for an acquisition by the
Fund of shares listed on the First Section of the TSE, or that the Minister of
Finance or any other Minister will not recommend modification or suspension of
the direct or indirect acquisition by the Fund of greater than 10% of the shares
of a Japanese corporation.

INVESTMENT ADVISORY AGREEMENT

Under the Investment Advisory Agreement (the "Investment Advisory
Agreement"), between the Investment Manager and the Investment Adviser, the
Investment Adviser has agreed to provide certain investment advisory services to
the Investment Manager for the Fund's use, subject to the oversight and
supervision of the Board of Directors of the Fund. The Fund has been advised
that there is substantial doubt as to the enforceability in the courts of Japan
of judgments against the Investment Adviser predicated upon the civil liability
provisions of the Federal securities laws of the United States. The Investment
Adviser is advised by U.S. counsel with respect to the Federal securities laws
of the United States.

INTEREST EXPENSE AND LEVERAGING

The Fund may, subject to the limitations described under "Investment
Restrictions," borrow to pay dividends required to be distributed in order to
maintain its qualification as a regulated investment company for U.S. tax
purposes, for temporary or emergency purposes, for short-term credits in
connection with clearance and settlement of transactions and to finance share
repurchases. SEE "Investment Restrictions." Money borrowed to raise funds for
any reason results in interest costs and has a prior fixed dollar claim on the
Fund's assets and income. Any gain in the value of securities purchased or in
income received from such securities in excess of the amount borrowed or
interest payable causes the net asset value of the Fund's Common Stock or the
income available to the Fund to increase more than otherwise would be the case.
Conversely, any decline in the value of securities purchased or income received
from such securities to below the asset or income claims of the borrowed money
causes the net asset value of the Fund's Common Stock or the income available to
the Fund to decline more sharply than would be the case if there were no prior
claims. The use of borrowing thus increases exposure to risk. This influence
ordinarily is called "leverage."

CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION

Board of Directors and, consequently, these provisions could deprive
shareholders of an opportunity to sell their shares at a premium over prevailing
market prices by discouraging a third party from seeking to obtain control of
the Fund. SEE "Description of Common Stock--Anti-Takeover Provisions."

UNREGISTERED PORTFOLIO SECURITIES

Portfolio securities held by the Fund are not registered with the
Commission, and the issuers of these securities are not subject to the
Commission's reporting requirements. The Japanese Equities held in the Fund's
portfolio are, however, registered in accordance with Japanese securities laws.
Nevertheless, there may be less publicly available information about issuers of
the Fund's portfolio securities than about U.S. companies, and such issuers may
not be subject to accounting, auditing and financial reporting standards and
requirements similar to those of U.S. companies. Japanese accounting, financial
and other reporting standards are, in certain respects, more limited than U.S.
standards. Under Japanese practice, certain material disclosures may not be made
and less information is available to persons investing in Japan than in the
United States. SEE "The Tokyo Stock Exchange--Regulation of the Japanese
Equities Markets."

OPERATING EXPENSES

The operating expense ratio of the Fund is expected to be higher than that
of funds investing predominantly in the securities of U.S. issuers since the
expenses of the Fund (such as custodial and communication costs) will be higher.
SEE "Expenses."

NET ASSET VALUE DISCOUNT

As with any stock, the price of the Fund's shares will fluctuate with market
conditions and other factors. Shares of closed-end investment companies
frequently trade at a discount from net asset value. This is a risk separate and
distinct from the risk that the Fund's net asset value will decrease. The Fund
cannot predict whether the Fund's Common Stock will trade at, above or below net
asset value. Since its initial public offering in July 1992, the Fund's Common
Stock has traded at times at either a discount or a premium to its net asset
value. The risk of purchasing shares of a closed-end fund which might trade at a
discount is more pronounced for investors who wish to sell their shares in a
relatively short period of time after the purchase because, for those investors,
realization of gain or loss on their investment is likely to be more dependent
upon the existence of a premium or discount than upon portfolio performance.

FOREIGN CUSTODY

The Fund generally holds its foreign securities and cash in foreign banks
and securities depositories. There may be limited or no regulatory oversight
over their operations. Also, the laws of certain countries may put limits on the
Fund's ability to recover its assets if a foreign bank, depository or issuer of
a security, or any of their agents, goes bankrupt. In addition, it is often more
expensive for the Fund to buy, sell and hold securities in certain foreign
markets than in the United States. The increased expense of investing in foreign
markets reduces the amount the Fund can earn on its investments and typically
results in a higher operating expense ratio for the Fund than for investment
companies invested only in the United States.

MARKET DISRUPTION

As a result of the terrorist attacks on the World Trade Center and the
Pentagon on September 11, 2001, some of the U.S. securities markets were closed
for a four-day period. These terrorist attacks and related events have led to
increased short-term market volatility. U.S. military and related action in Iraq
is ongoing and events in the Middle East could have significant adverse effects
on U.S and world economies and markets. The Fund does not know how long the
securities markets will continue to be affected by these events and cannot
predict the effects of the military action or similar events in the future on
the U.S economy and securities markets. A similar disruption of the U.S. or
world financial markets could impact interest rates, auctions, secondary
trading, ratings, credit risk, inflation and other factors relating to the
Common Stock.

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of the Fund is to outperform over the long term, on
a total return basis (including appreciation and dividends), the TOPIX, a
composite market-capitalization weighted index of all common stocks listed on
the First Section of the Tokyo Stock 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. 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 made by the Fund. There are
three steps in the stock selection process: Step 1: From approximately 3,300
securities in the TSE and other stock markets (OTC), stocks are chosen based on
the liquidity (companies with less than 30 billion yen market capitalization are
eliminated), and financial condition (companies without dividend payments and
companies losses from operations are eliminated), which narrows down to
approximately 1,000 stocks; Step 2: These 1,000 stocks are further reduced by
using quantitative valuation (excluding relatively expensive stocks in the 3rd
and 4th quartile based on the Investment Adviser's analytical model), relative
attractiveness in the sector (steady earnings growth with a healthy balance
sheet, management quality--emphasis on shareholder value, and business
strategy--product competitiveness/restructuring efforts and liquidity). The
master list (buy list) is constructed with approximately 180 stocks which are
evaluated by the Investment Adviser's analysts and fund managers through regular
company visits; Step 3: Within the determined sector/size allocation, the model
portfolio is constructed. Fund managers pick 70 to 80% of the portfolio's
securities from the model portfolio and the remaining stocks from the master
list (buy list). Stocks in the model portfolio are monitored by the Investment
Adviser's analysts and fund managers.

At all times, the Fund attempts to be fully invested in Japanese Equities,
except that it maintains sufficient levels of cash and U.S. dollar-denominated
and Japanese yen-denominated short-term debt instruments ("Temporary
Investments") necessary to pay its expenses and to settle open securities
transactions. The Investment Adviser and the Investment Manager are not bound by
any sector constraints in investing in Japanese Equities. There is no limit on
the percentage of the Fund's assets that may be invested in any one industry or
sector, but under the investment strategy of the Investment Manager the Fund
would not expect more than 25% to be invested in any one industry under normal
circumstances.

TEMPORARY INVESTMENTS

The Fund maintains a portion of its assets, but in any event no more than
the greater of (i) 5% of its assets and (ii) amounts necessary for the Fund to
pay dividends and distributions, in Temporary Investments to be used to pay the
Fund's expenses, both in the United States and Japan, and to pay any costs
incurred in settling securities transactions. The Fund utilizes U.S. dollar and
Japanese yen time deposits and U.S. dollar-denominated and Japanese
yen-denominated short-term obligations issued or guaranteed by the U.S. or
Japanese government, commercial paper rated A-1 by Standard & Poor's or Prime-l
by Moody's Investors Service, Inc., and certificates of deposit and bankers'
acceptances issued by a commercial bank organized or operating in the United
States or Japan with total assets equivalent to at least one billion dollars as
Temporary Investments.

INVESTMENT RESTRICTIONS

The following limitations are fundamental policies of the Fund, which cannot
be changed without the express approval of a majority of the Fund's outstanding
voting securities, as defined in the 1940 Act.

The Fund is not permitted to:

(1) Purchase securities on margin, except as set forth in paragraph
(3) below.

(2) Make short sales of securities or maintain a short position in any
security.

(3) Issue senior securities, borrow money or pledge its assets, except
that the Fund may borrow money in an amount not to exceed 10% (calculated at
the lower of cost or current market value) of its total assets (not
including the amount borrowed) (i) to pay any dividends required to be
distributed in order for the Fund to maintain its qualification as a
regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code") or otherwise to avoid having the Fund be subject to
U.S. taxes, (ii) from a bank for temporary or emergency purposes, (iii) for
such short-term credits as may be necessary for the clearance or settlement
of transactions, and (iv) for repurchases of its common stock. The Fund may
pledge its assets to secure such borrowings. Notwithstanding the above,
initial and variation margin in respect of futures contracts and options
thereon and any collateral arrangements in respect of options on securities
or indexes will not be prohibited by this paragraph (3) or any other
investment restrictions.

(4) Buy or sell any commodities or commodity futures contracts or
commodity options, or real estate or interests in real estate or real estate
mortgages, except that (i) the Fund may buy or sell securities of companies
which invest or deal in commodities or real estate, and (ii) the Fund may
enter into foreign currency and stock index futures contracts and options
thereon and may buy or sell forward currency contracts.

(5) Make loans, except through the purchase of debt securities
consistent with its investment objective and policies.

(6) Act as underwriter of securities of other issuers except, in
connection with the purchase of securities for the Fund's own portfolio or
the disposition of portfolio securities or of subscription rights thereto,
to the extent that it may be deemed to be an underwriter under applicable
U.S. securities laws.

(7) Make any investment for the purpose of exercising control or
management.

The Fund's policy to invest, under normal circumstances, at least 80% of
the value of its assets in equity securities of companies listed on the TSE,
listed on the over-the-counter market in Japan or listed on other stock
exchanges in Japan is a non-fundamental policy. The Fund will provide
shareholders with at least 60 days prior notice of any change to this
non-fundamental policy.

ADDITIONAL RESTRICTIONS IMPOSED BY LAW

The Fund is subject to certain requirements under Subchapter M of the
Code with respect to its qualification as a regulated investment company.
SEE "Taxation--U.S. Federal Income Taxes." Further, pursuant to the 1940
Act, the Fund may not invest in certain securities, including certain
securities of Japanese companies engaged in the securities business. SEE
"Portfolio Transactions and Brokerage." To the extent that requirements
under Japanese law or U.S. law or other investment limitations described in
this paragraph are changed by applicable law, the Fund may make investments
in accordance with such changed law, subject to the Fund's investment
objective and policies and its investment restrictions.

THE TOKYO STOCK EXCHANGE

OVERVIEW OF THE TOKYO STOCK EXCHANGE

The TSE is highly systemized. Its chief characteristics are: prices are
consecutively determined every day on which sessions are held; trading is
limited to members, who are required to possess certain qualifications;
trading is limited to listed stocks which have met certain basic standards;
in connection with the trading of listed stocks, a centralized market has
been adopted so that buy and sell orders may converge on the market and
trading contracts are concluded based upon the principles of competitive
bidding; in order to simplify the settling of accounts, a system of clearing
accounts has been adopted; and to assure fairness in trading, the TSE
reserves the right to supervise trading by enacting appropriate regulations
governing stock trading and to provide punishment for any violations
thereof.

The TSE is one of five stock exchanges in Japan. The largest and most
prestigious of the exchanges, in 2002, the TSE accounted for 92.4 % of the
value and 94.9% of the volume of transactions on all Japanese stock
exchanges. Consequently, the TSE is widely regarded as the principal
securities exchange for all of Japan. As of November 25, 2003, there were
1,528 companies listed on the TSE's First Section, with an aggregate market
capitalization of approximately U.S.$2,602.6 billion (Y302.0 trillion) and,
for the six months ended on August 29, 2003, an average monthly trading
value of approximately U.S.$126,768.0 million (Y14,795.1 billion).

The TSE's First Section is for established companies (in existence for
five years or more) that meet the stringent listing criteria for that
Section. These listing criteria relate to the size and business condition of
the issuing company, the liquidity of its securities and other factors
pertinent to investor protection. The TSE also has a Second Section for
smaller companies and newly listed issuers. A foreign stock market on the
TSE, consisting of shares of non-Japanese companies had 32 non-Japanese
companies as of August 4, 2003.

HISTORICAL BACKGROUND AND DEVELOPMENT OF THE TOKYO STOCK EXCHANGE

The TSE is an incorporated organization under a membership system
established in accordance with the Securities and Exchange Law (Law No. 25
of April 13, 1948, as amended) (the "Securities and Exchange Law"). It was
founded in its present form on April 1, 1949. The first Japanese stock
exchange was established in Tokyo on May 15, 1878 as the Tokyo Stock
Exchange Co., Ltd. This organization, along with all existing stock
exchanges in Japan, was merged into the Japan Securities Exchange, a
quasigovernmental entity, effective June 30, 1943. The Japan Securities
Exchange was dissolved on April 16, 1947.

Bond trading was introduced on the TSE in April 1956. Five years later,
the TSE split the companies whose equity securities were listed into the
First and Second Sections. On October 1, 1966, Japanese government bonds
were listed on the TSE for the first time after World War II. The TOPIX was
inaugurated on July 1, 1969, with January 4, 1968 being assigned an index
price of 100. On December 18, 1973, the TSE opened a Foreign Stock Section
for securities of non-Japanese companies. The TSE constitution was revised
in April 1982 to delete the prohibition against foreign membership.

Recent years have seen the introduction of trading in 10- and 20-year
Japanese government bond futures, index futures and options based on the
TOPIX, U.S. Treasury bond futures and options on Japanese government bond
futures. The TSE has also taken advantage of technological improvements by
implementing a Market Information System, which provides real-time
information about prices and trading volume of each issue to securities
companies and the media; the Computer-assisted Order Routing and Execution
System ("CORES"), a computerized trading system which handles all domestic
stocks apart from the 150 most active stocks (which are traded on the
trading floor of the TSE) and all foreign stocks; and the Floor Order
Routing and Execution System ("FaRES"), an electronic system designed to
enhance operational capacity of the trading floor on which the 150 most
active stocks are traded. FaRES is designed to automate the order routing
process for small orders, replace manual order books with electronic order
books having order execution capability and computerize the trade report and
confirmation process. FaRES was put into full operation on March 18, 1991
and enables the TSE to handle a trading volume of five billion shares a day
(compared to a maximum of two billion shares under the prior system).

COMPARISON OF THE TOPIX WITH STANDARD & POOR'S 500

For comparison, the graph below illustrates the performance of the TOPIX
with that of the Standard & Poor's 500 Composite Stock Price Index for the
period 1975 to 2002. The TOPIX is reported daily in leading international
financial newspapers such as THE WALL STREET JOURNAL and the FINANCIAL
TIMES.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Relative Stock Market Performance Cumulative (USD)

TOPIX S&P500

12/74 100 100
12/77 163.86 138.71
12/80 261.16 198.02
12/83 341.13 240.56
12/86 1,066.09 353.22
12/89 2,164.13 515.46
12/92 1,131.13 635.52
12/95 1,646.21 898.35
12/98 1,033.45 1,792.93
12/2001 846.7 1,674.56
12/2003 N/A N/A

LISTING AND SECTION REQUIREMENTS OF THE TOKYO STOCK EXCHANGE

Companies applying for an initial listing on the TSE are required to
meet prescribed criteria for the extent of the company's business, the
liquidity of its securities and its financial results. The TSE undertakes an
extensive review of each application, and notification with the Prime
Minister of the new listing is required for each such listing.

Set forth below are the TSE's numerical criteria for listing, effective as
of March 2003:

APPLICATION DOMESTIC STOCK(1) FOREIGN STOCK(1)
----------- ----------------- ----------------

(1)-(6) and (9) must be met, along with (1)-(6) and (9) must be met, along with
either (7) or (8) either (7) or (8)

(1) No. of Shares to Be 4,000 units(2) or more
Listed

Average Trading Minimum No.
Closing Unit Of Shares
Price (shares) (thsnd. shares)
-------------------------- ------- ---------------
Less than Y500 1,000 20,000
Y500-Y1,000 500 10,000
Y1,000-Y5,000 100 2,000
Y5,000-Y10,000 50 1,000
Y10,000-Y100,000 10 200
Y100,000 or more 1 20
----------------------------------------------------
*Average Closing Price
*Daily average of closing prices at home country
stock exchange, etc. for one year preceding the
date of listing application. In the case of a
company not being publicly held, the initial public
offering price will be referred.

(2) No. of Shares Held by "Special Few" 75% or less of the number of shares to Significant portion of shares must not
(I.E., 10 Largest Shareholders and be listed by the time of listing be held by a limited number of
Persons Having Special Interest in Provisional Criteria: shareholders.
the Issuer and the Issuer if the (1) 80% or less of the number of shares
Issuer also holds shares) to be listed by the time of listing, and
also 75% or less by the end of the first
fiscal year after listing, if the number
of shares is 60,000 units or less
(2) 87.5% of the number of shares to be
listed minus 7,500 units or less, if the
number of shares to be listed is more
than 60,000 units and less than 100,000
units
(3) 80% or less of the number of shares
to be listed, if the number of shares to
be listed is more than 100,000 units

(3) No. of Shareholders Holding One Unit If the number of shares to be listed is:
or More (Excluding "Special Few") (1) Less than 10,000 units; 800 or more
(2) 10,000 units or more but less than
20,000 units; 1,000 or more
(3) 20,000 units or more; 1,200 plus 100
per each 10,000 units in excess of
20,000 units, up to 2,200
Provided that the recent share price per
1 unit is:
(1) Y100,000 or more but less than
Y500,000, half the number of
shareholders required by the
criteria above, 800 or more
(2) less than Y100,000, 800 or more

Liquidity in Number of
home shareholders
country in Japan
------- --------

Secondary Listing Having or 1,000
Simultaneous Listing being likely
with Other Exchanges to have
sufficient
liquidity in
home country

Secondary Listing Not Having 2,000
Simultaneous Listing or being
with Other Exchanges unlikely to
have
sufficient
liquidity in
home country

Primary Listing -- 2,000

APPLICATION DOMESTIC STOCK(1) FOREIGN STOCK(1)
----------- ----------------- ----------------

(1)-(6) and (9) must be met, along with (1)-(6) and (9) must be met, along with
either (7) or (8) either (7) or (8)
(4) Market Capitalization Y2 billion or more Y2 billion or more.
(5) Time Elapsed after 3 years or more with continued business 3 years or more with continued business
Incorporation operation. operation.
(6) Shareholders' Equity Y1 billion or more Y1 billion or more.
(7) Pre-Tax Profit Following (a or b) Following (a or b)
a. Annual total for each of last 2 years: a. Annual total for each of last 2 years:
1st year: Y100 million or more, and 1st year: Y100 million or more, and
2nd (last) year; Y400 million or more 2nd (last) year; Y400 million or more
b. Annual total for each of last 3 years: b. Annual total for each of last 3 years:
1st year: Y100 million or more, 1st year: Y100 million or more,
3rd (last) year; Y400 million or more, 3rd (last) year; Y400 million or more,
and total for three years: Y600 million and total for three years: Y600 million
or more. or more.
(8) Total Market Y100 billion or more, provided that the Y100 billion or more, provided that the
Capitalization previous year's sales surpass Y10 previous year's sales surpass Y10
billion. billion.
(9) Financial Records a. There should be no false statements in a. There should be no false statements in
the applicant's financial statements for the applicant's financial statements for
the 2 most recent fiscal years (or for the 2 most recent fiscal years (or for
the 3 most recent fiscal years, in the 3 most recent fiscal years, in
cases where neither the criteria (7)a cases where neither the criteria (7)a
nor the criteria (8) are met). nor the criteria (8) are met).
b. The opinion given by a certified b. The opinion given by a certified
public accountants, in the audit reports, public accountants, in the audit reports,
should be "fair" for the 2 most recent should be "fair" for the 2 most recent
fiscal years (or for the 3 most recent fiscal years (or for the 3 most recent
fiscal years, in cases where neither fiscal years, in cases where neither
criteria (7)a nor the criteria criteria (7)a nor the criteria
(8) are met). (8) are met).
c. The auditor's opinions need be c. The auditor's opinions need be
non-qualified fair in principle. non-qualified fair in principle.

------------------

Notes: (1) The TSE also has listing regulations for straight bonds,
convertible bonds, bonds with warrants, etc.
(2) 1 unit is the minimum amount of stock shares with 1 voting
right.
Source: TSE 2003 Fact Book.

Securities of Japanese companies are assigned to either the First or Second
Section, while securities of foreign companies are assigned to the Foreign
Section. In addition, some domestic stocks of emerging companies are assigned to
another section, called "Mothers" (Market Of The High-growth and Emerging
Stocks). The First and Second Section markets are not markets independent of
each other, and an authorized change in listing from the Second to the First
Section, or vice versa, is reviewed each year. In general, newly listed shares
of a company will be assigned to the Second Section, except the Mothers Section
shares. For example, in 2002, of the 94 newly listed companies on the TSE, 61
were assigned to the Second Section and 8 were assigned to the Mothers Section.
Newly listed companies are subject to review for an authorized change in listing
from the Second to the First Section after six months from the initial listing.
On the other hand, if a First Section listed company fails to satisfy certain a
requirements, it will be redesignated as a Second Section listed company or
delisted entirely. In 2002, there were 36 companies whose listings were changed
from the Second to the First Section, and 78 companies whose shares were
delisted.

Set forth below are the TSE's criteria for assignment to the First Section
and delisting of domestic stocks, respectively, effective as of March, 2003:

ASSIGNMENT OF LISTED STOCK TO
APPLICATION 1ST SECTION DELISTING
----------- ----------- ---------

(1)-(6) and (9) must be met, along with either In case of falling under the requirements of any
(7) or (8) one of (1)-(5) or (10).

(1) No. of Shares Listed 20,000 units or more Less than 4,000 units
(2) No. of Shares Held by 70% or less of the number of shares listed If the number of shares held by the "special few"
"Special Few" Provisional Criteria; (1) More than 75% of the number of shares listed
(1) 92.5% of the number of shares to be listed (Provisionally 80%) as of the end of last 2 fiscal
minus 22,500 units or less, if the number of years
shares to be listed is more than 100,000 units and (2) More than 90% of the number of shares listed
less than 180,000 units. unless predetermined document are not submitted
(2) 80% or less of the number of shares to be
listed, if the number of shares to be listed is
more than 180,000 units.

ASSIGNMENT OF LISTED STOCK TO
APPLICATION 1ST SECTION DELISTING
----------- ----------- ---------

(1)-(6) and (9) must be met, along with either In case of falling under the requirements of any
(7) or (8) one of (1)-(5) or (10).
(3) No. of Shareholders If the number of shares listed is: If the number of shares listed is:
Holding 1 Unit or More (1) Less than 30,000 units; 2,200 or more (1) Less than 10,000 units; Less than 400
(Excluding "Special Few") (2) 30,000 units or more but less than 200,000 (2) 10,000 units or more but less than 20,000
as of End of Last units; 2,300 plus 100 for each 10,000 units, units; Less than 600
Business Year for or more (3) 20,000 units or more; Less than 1,000 plus 100
Assignment to First (3) 200,000 units or more; 4,000 or more plus 100 for each 10,000 units in excess of first 20,00
Section and Each End of for each 20,000 units, or more units, up to 2,000
Last 2 Business Years for Provided that the recent share price per 1 unit Provided that the recent share price per 1 unit
Delisting is: is:
(1) Y100,000 or more but less than Y500,000, half (1) Y100,000 or more but less than Y500,000, half
the number of shareholders required by the the number of shareholders required by the
criteria above, 2,200 or more criteria above, 400 or more
(2) less than Y100,000, 2,200 or more (2) less than Y100,000, 400 or more
(4) Average Monthly For each period of last 3 months and preceding 3 (1) For last 1 year:
Trading Volume months: Average monthly trading volume of less than 10
If the stock is listed on TSE only; 200 units or units, or
more. (2) No trades during last 3 months
If the stock is listed on other regional
exchanges, there are separate standards.
(5) Market Capitalization Y4 billion or more Less than Y1 billion during last 4 months (or
of Share Listed during last 10 months if predetermined documents
are submitted).
(6) Share Holders' Equity Y1 billion or more Not Applicable
(7) Pre-tax Profit Following (a or b) Not Applicable
a. Annual total for each of last two years:
First Year: Y100 million or more, and
Second (last) year: Y400 million or more
b. Annual total for each of last three years:
First year: Y100 million or more,
Third (last) year: Y400 million or more, and
total for three years: Y600 million or more
(8) Market Capitalization Y100 billion or more, provided that the previous Not Applicable
year's sales surpass Y10 billion.
(9) Financial Records a. There should be no false statements in the Not Applicable
applicant's financial statements for the 5 most
recent fiscal years.
b. The opinion given by a certified public
accountants, in the audit reports, should be
"fair" for the 5 most recent fiscal years.
(10) Liabilities Not Applicable Excess liabilities continued for last 2 fiscal
years

------------------
Source: TSE 2003 Fact Book.

SECTOR ANALYSIS OF THE FIRST SECTION

The First Section includes a broad cross-section of companies involved in
many different parts of the Japanese economy. Set forth below are the industry
sector weightings of the First Section of the TSE as of the end of
August, 2003.

PERCENTAGE OF NUMBER OF
INDUSTRY SECTOR FIRST SECTION(1) COMPANIES
--------------- ---------------- ---------

Fishery, Agriculture & Forestry............................. 0.10 6
Mining...................................................... 0.08 7
Construction................................................ 2.00 107
Foods....................................................... 2.42 73
Textiles & Apparels......................................... 1.07 48
Pulp & Paper................................................ 0.61 13
Chemicals................................................... 5.95 115

PERCENTAGE OF NUMBER OF
INDUSTRY SECTOR FIRST SECTION(1) COMPANIES
--------------- ---------------- ---------
Pharmaceuticals. 4.11 35

Oil & Coal Products......................................... 0.65 9
Rubber Products............................................. 0.68 9
Glass & Ceramics............................................ 1.01 26
Steel Products.............................................. 1.73 34
Nonferrous Metals........................................... 0.91 21
Metal Products.............................................. 0.62 33
Machinery................................................... 3.70 115
Electric Appliances......................................... 16.44 152
Transport Equipment......................................... 10.71 57
Precision Instruments....................................... 1.33 22
Other Products.............................................. 1.89 43
Electric Power & Gas........................................ 4.11 15
Land Transport.............................................. 3.61 33
Marine Transport............................................ 0.49 11
Air Transport............................................... 0.33 4
Warehouse/Harbor Trans...................................... 0.17 11
Communication............................................... 10.92 64
Wholesale................................................... 3.34 112
Retail...................................................... 4.39 115
Banks....................................................... 7.35 84
Securities.................................................. 2.45 17
Insurance................................................... 1.90 10
Miscellaneous Finance....................................... 2.02 29
Real Estate................................................. 1.19 34
Services.................................................... 1.70 59
------ -----
Total....................................................... 100.00 1,523
------ -----

--------------
(1) Weightings are based on market capitalization.

MARKET GROWTH OF THE FIRST SECTION

In recent years, the TSE has experienced steady growth in terms of the
number of listed companies and there were new listings on the TSE in 2002, of
which six were new to the First Section. Furthermore, while the overall number
of companies listed on the First Section of the TSE has been relatively stable
recently, through the end of 2002 there were significant numbers of new listings
on the Second Section as well as promotions to the First Section. The change in
the number of listed companies on the TSE for the period from 1993 through 2002
is shown by the table set forth below:

NUMBER OF TSE LISTED COMPANIES (YEAR END)

FIRST SECTION SECOND SECTION
-------------------------------- ---------------------
NUMBER OF PROMOTION NUMBER OF
COMPANIES NEW TO FIRST COMPANIES NEW
LISTED LISTING SECTION LISTED LISTING
--------- -------- --------- --------- ---------

1993........................ 1,234 1 0 433 15
1994........................ 1,235 2 0 454 22
1995........................ 1,253 0 0 461 23
1996........................ 1,293 2 0 473 34
1997........................ 1,327 2 0 478 34
1998........................ 1,340 4 2 498 38
1999........................ 1,364 2 7 526 48
2000........................ 1,447 7 15 579 67
2001........................ 1,491 9 7 576 50
2002........................ 1,495 6 18 581 16

--------------
Source: Daiwa Institute of Research

The First Section of the TSE grew in terms of both monthly trading value and
aggregate market capitalization through the end of August, 2003. The trading
value and market capitalization of the First Section of the TSE for the period
from 1988 through 2003 is shown by the table set forth below:

AVERAGE MONTHLY YEAR-END MARKET
TRADING VALUE CAPITALIZATION
(TSE1, Y MILLIONS) (TSE1, Y BILLIONS)
------------------ ------------------

1988...................................................... 23,311,292 462,896
1989...................................................... 27,152,313 590,909
1990...................................................... 14,692,552 365,155
1991...................................................... 8,925,670 365,939
1992...................................................... 4,906,773 281,006
1993...................................................... 6,973,811 313,563
1994...................................................... 6,876,435 342,141
1995...................................................... 6,551,439 350,238
1996...................................................... 8,091,440 336,385
1997...................................................... 8,868,931 273,908
1998...................................................... 8,000,106 267,784
1999...................................................... 14,836,762 442,443
2000...................................................... 20,219,362 352,785
2001...................................................... 16,653,691 290,669
2002...................................................... 15,905,830 242,939
2003*..................................................... 14,795,081 292,541

--------------
* Average monthly trading value for the eight months ended August 30, 2003.

MARKET PERFORMANCE OF THE FIRST SECTION(1)

The TSE publishes the TOPIX, a capitalization-weighted index for all stocks
listed on its First Section. The Nihon Keizai Shimbun, Japan's leading financial
newspaper, publishes the Nikkei Stock Average (the "Nikkei Average"), a
price-weighted index of 225 selected stocks listed on the First Section of the
TSE.

Set forth below is further information concerning the performance of the
First Section of the TSE as measured in yen by the representative indexes. The
information is presented on a quarterly basis for the twenty-year period ended
December 31, 2002, supplemented by information for the first half of 2003.

NIKKEI 225 % CHANGES TOPIX % CHANGES
----------- ------------- -------- -------------

1982
1Q.............................................. 7260.48 -5.49% 533.81 -6.40%
2Q.............................................. 7213.87 -0.64% 539.25 1.02%
3Q.............................................. 6910.73 -4.20% 524.00 -2.83%
4Q.............................................. 8016.67 16.00% 593.72 13.31%
1983
1Q.............................................. 8478.70 5.76% 617.69 4.04%
2Q.............................................. 8870.95 4.63% 656.13 6.22%
3Q.............................................. 9402.59 5.99% 691.08 5.33%
4Q.............................................. 9893.82 5.22% 731.82 5.90%
1984
1Q.............................................. 10929.2 10.46% 866.78 18.44%
2Q.............................................. 10378.0 -5.04% 793.11 -8.50%
3Q.............................................. 10649.3 2.61% 824.66 3.98%
4Q.............................................. 11542.6 8.39% 913.37 10.76%
1985
1Q.............................................. 12580.8 8.99% 999.38 9.42%
2Q.............................................. 12882.1 2.39% 1026.41 2.70%
3Q.............................................. 12700.1 -1.41% 1026.19 -0.02%
4Q.............................................. 13113.3 3.25% 1047.08 2.04%

NIKKEI 225 % CHANGES TOPIX % CHANGES
----------- ------------- -------- -------------
1986

1Q.............................................. 15859.8 20.94% 1265.93 20.90%
2Q.............................................. 17654.2 11.31% 1359.24 7.37%
3Q.............................................. 17852.9 1.13% 1517.28 11.63%
4Q.............................................. 18701.3 4.75% 1562.55 2.98%
1987
1Q.............................................. 21566.7 15.32% 1871.19 19.75%
2Q.............................................. 24176.4 12.10% 2039.08 8.97%
3Q.............................................. 26010.9 7.59% 2136.61 4.78%
4Q.............................................. 21564.0 -17.10% 1725.83 -19.23%
1988
1Q.............................................. 26260.3 21.78% 2147.9 24.46%
2Q.............................................. 27769.4 5.75% 2183.10 1.64%
3Q.............................................. 27923.7 0.56% 2151.36 -1.45%
4Q.............................................. 30159.0 8.01% 2357.03 9.56%
1989
1Q.............................................. 32838.7 8.89% 2469.15 4.76%
2Q.............................................. 32948.7 0.33% 2449.38 -0.80%
3Q.............................................. 35636.8 8.16% 2702.22 10.32%
4Q.............................................. 38915.9 9.20% 2881.37 6.63%
1990
1Q.............................................. 29980.4 -22.96% 2227.48 -22.69%
2Q.............................................. 31940.2 6.54% 2343.36 5.20%
3Q.............................................. 20983.5 -34.30% 1570.95 -32.96%
4Q.............................................. 23848.7 13.65% 1733.83 10.37%
1991
1Q.............................................. 26292.0 10.25% 1970.73 13.66%
2Q.............................................. 23291.0 -11.41% 1819.01 -7.70%
3Q.............................................. 23916.4 2.69% 1832.20 0.73%
4Q.............................................. 22983.8 -3.90% 1714.68 -6.41%
1992
1Q.............................................. 19345.9 -15.83% 1418.52 -17.27%
2Q.............................................. 15951.7 -17.54% 1236.20 -12.85%
3Q.............................................. 17399.1 9.07% 1310.60 6.02%
4Q.............................................. 16924.9 -2.73% 1307.66 -0.22%
1993
1Q.............................................. 18591.4 9.85% 1431.87 9.50%
2Q.............................................. 19590.0 5.37% 1580.25 10.36%
3Q.............................................. 20105.7 2.63% 1626.25 2.91%
4Q.............................................. 17417.2 -13.37% 1439.31 -11.50%
1994
1Q.............................................. 19111.9 9.73% 1563.21 8.61%
2Q.............................................. 20643.9 8.02% 1673.32 7.04%
3Q.............................................. 19563.8 -5.23% 1576.89 -5.76%
4Q.............................................. 19723.1 0.81% 1559.09 -1.13%
1995
1Q.............................................. 16140.0 -18.17% 1307.89 -16.11%
2Q.............................................. 14517.4 -10.05% 1196.99 -8.48%
3Q.............................................. 17913.1 23.39% 1438.16 20.15%
4Q.............................................. 19868.2 10.91% 1577.70 9.70%

NIKKEI 225 % CHANGES TOPIX % CHANGES
----------- ------------- -------- -------------
1996

1Q.............................................. 21406.8 7.74% 1636.88 3.75%
2Q.............................................. 22530.8 5.25% 1712.45 4.62%
3Q.............................................. 21556.4 -4.32% 1627.55 -4.96%
4Q.............................................. 19361.3 -10.18% 1470.94 -9.62%
1997
1Q.............................................. 18003.4 -7.01% 1373.26 -6.64%
2Q.............................................. 20605.0 14.45% 1553.81 13.15%
3Q.............................................. 17887.7 -13.19% 1388.32 -10.65%
4Q.............................................. 15258.7 -14.70% 1175.03 -15.36%
1998
1Q.............................................. 16527.2 8.31% 1251.70 6.52%
2Q.............................................. 15830.3 -4.22% 1230.38 -1.70%
3Q.............................................. 13406.4 -15.31% 1043.57 -15.18%
4Q.............................................. 13842.2 3.25% 1086.99 4.16%
1999
1Q.............................................. 15836.6 14.41% 1267.22 16.58%
2Q.............................................. 17529.7 10.69% 1416.20 11.76%
3Q.............................................. 17605.5 0.43% 1506.83 6.40%
4Q.............................................. 18934.3 7.55% 1722.20 14.29%
2000
1Q.............................................. 20337.3 7.41% 1705.94 -0.94%
2Q.............................................. 17411.1 -14.39% 1591.60 -6.70%
3Q.............................................. 15747.3 -9.56% 1470.78 -7.59%
4Q.............................................. 13785.7 -12.46% 1283.67 -12.72%
2001
1Q.............................................. 12999.7 -5.70% 1277.27 -0.50%
2Q.............................................. 12969.0 -0.24% 1300.98 1.86%
3Q.............................................. 9774.68 -24.63% 1023.42 -21.33%
4Q.............................................. 10542.6 7.86% 1032.14 0.85%
2002
1Q.............................................. 11024.9 4.57% 1060.19 2.72%
2Q.............................................. 10621.8 -3.66% 1024.89 -3.33%
3Q.............................................. 9383.29 -11.66% 921.05 -10.13%
4Q.............................................. 8578.95 -8.57% 843.29 -8.44%
2003
1Q.............................................. 7972.71 -7.07% 788.00 -6.56%
2Q.............................................. 9083.11 13.93% 903.44 14.65%
3Q.............................................. 10219.05 12.51% 1018.8 12.77%

--------------
Note: (1) The TOPIX is a market capitalization-weighted index, while the Nikkei
Average is a price-weighted index.

On July 1, 1969, the Tokyo Stock Exchange introduced TOPIX (Tokyo Stock
Price Index), a composite index of all the common stocks listed on the First
Section of the TSE, to provide a comprehensive measure of the market trend to
investors who may be interested in general market price movements. This
composite index is supplemented by sub-indexes for each of 33 industry groups
and of three categories (large, medium and small), in which companies listed on
the First Section are classified by their size (in terms of the number of listed
shares). In addition, the TSE has computed a composite index called "Second
Section Stock Price Index" covering all stocks listed on its Second Section
since August 18, 1969. On February 1, 1999, the TSE also began publishing the
dividend-included TOPIX, its sub-indexes and TOPIX New Indexes.

COMPUTATION METHOD FOR INDEXES

The indexes are basically a measure of the changes in aggregate market value
of TSE common stocks. The base for each of the indexes is the aggregate market
value of its component stocks as at the close on January 4, 1968, the first
trading day of that year. The aggregate market value is calculated by
multiplying the number of listed shares of each component stock by its price and
totaling the products derived therefrom. In calculating the indexes, the base
market value is used as the denominator of a fraction whose numerator represents
the current aggregate market value. The fraction so obtained is multiplied by
100 (the index value on the base date) and reduced to a decimal figure to the
nearest one-hundredth for each of the indexes computed.

The formula is as follows:

CURRENT MARKET VALUE
CURRENT INDEX = X 100
------------------
BASE MARKET VALUE

For the purpose of maintaining continuity of the indexes, the base market
value is adjusted from time to time to reflect only price movements resulting
from auction market activity and eliminate the effects of other factors, such as
new listings, delistings and new share issues, either through public offering or
through rights offerings to shareholders. No adjustment is made, however, in
case of a stock split-up or split-down, a bonus issue, a stock dividend or a
decrease in paid-in capital, since such corporate actions do not affect the
current market value. The formula for adjusting the base market value is as
follows:

NEW MARKET VALUE (NEW BASIS)
NEW BASE VALUE = OLD BASE VALUE X
-------------------------
OLD MARKET VALUE (OLD BASIS)

For example, suppose that on March 1, 20XX, the base value and the market
value were Y8,000 billion and Y16,000 billion, respectively. The index was
200.00 (16,000/8,000 X 100). On March 2, 20XX, the Exchange lists XYZ company's
additional 100 million shares issued through a public offering. The previous
day's closing price of the company's stock was Y2,000. Thus, the market value on
March 2 increases by Y200 billion (Y2,000 X 100 million shares), to Y16,200
billion, which represents the new market value. Therefore,

16,200
NEW BASE VALUE = 8,000 X = Y8,100 BILLION
-----
16,000

is used as the base market value for the calculation of the index on
March 2.

FREQUENCY OF INDEXES COMPUTATION

All indexes except the TOPIX have been computed and published, on a minute
by minute basis, every minute since August 4, 1997.

The TOPIX has been calculated every minute since May 23, 1987. The changes
in the indexes from the previous day are indicated both in index value and in
percentage. Historically, the TOPIX has been available on a daily closing basis
from May 16, 1949, while the sub-indexes have been available since January 4,
1968, the base date. The Second Section Stock Price Index has been available on
a daily closing basis from October 2, 1961, when the Second Section of the TSE
commenced.

The TOPIX is reported daily in leading international financial newspapers
such as THE WALL STREET JOURNAL and the FINANCIAL TIMES.

The above summary of the TOPIX was taken from Tokyo Stock Exchange Fact Book
2003.

REGULATION OF THE JAPANESE EQUITIES MARKETS

The principal securities law in Japan is the Securities and Exchange Law.
This law provides overall regulation for the issuance of securities in public
and private offerings and for secondary market trading. Corporate issuers that
have registered securities under the Securities and Exchange Law, as well as
corporate issuers whose securities are listed on Japanese stock exchanges,
become subject to the disclosure requirement that they file annual securities
reports, semi-annual reports and current reports with the Prime Minister
pursuant to the Securities and Exchange Law, which reports are made available
for public inspection.

The five stock exchanges in Japan are licensed by the Prime Minister
pursuant to the Securities and Exchange Law. Each stock exchange is required to
have a constitution, regulations governing the sale and

purchase of securities and standing rules for exchange contracts for the
purchase and sale of securities on the exchange. In addition, each stock
exchange has detailed rules and regulations covering a variety of matters,
including rules and standards for listing and delisting of securities. Companies
seeking to list their securities on an exchange are subject to a suitability
review by the exchange.

The insider trading provisions, including criminal sanctions, of the
Securities and Exchange Law are applicable to debt and equity securities listed
on a Japanese stock exchange and to unlisted debt and equity securities issued
by a Japanese corporation that has securities listed on a Japanese stock
exchange or traded on the Japanese over-the-counter markets (the "OTC") as well
as to options relating to such debt and equity securities. In addition, such
corporations are subject to provisions that prohibit directors, statutory
auditors and principal shareholders of such companies and certain other persons
related to such companies from effecting short swing transactions, which
correspond to Section 16(b) of the U.S. Securities Exchange Act of 1934 (the
"Exchange Act"). The reporting obligations of directors, corporate auditors and
principal shareholders with respect to the purchase or sale of securities issued
by the subject corporation or to the acquisition or award of options relating to
such securities are also provided.

The so-called "five percent rule" of the Securities and Exchange Law is
applicable to listed or OTC-registered companies. When any person has become,
solely or jointly, the holder of more than five percent of the aggregate issued
capital stock of a company whose securities are listed on any Japanese stock
exchange or traded on the OTC, a report concerning such holding must be filed
with the Prime Minister within five business days. A similar report must also be
made in respect of any subsequent change of one percent or more in any such
holding. For this purpose, securities issuable to such a person upon conversion
of convertible securities or exercise of warrants or stock acquisition rights
are taken into account in determining both the number of securities held by such
person and the issuer's total issued share capital. Copies of each such report
must also be furnished to the issuer of such securities and each Japanese stock
exchange on which the securities are listed or the Japanese Securities Dealers
Association (the "JSDA") under which the securities are registered, as the case
may be.

The takeover bid rules (the "TOB rules") under the Securities and Exchange
Law are applicable to equity or equity-related securities issued by a company
which is subject to periodic disclosure requirements. All purchases of such
securities made outside any Japanese stock exchange must comply with the
procedures provided in the TOB rules unless expressly exempted therefrom. Exempt
transactions include those as a result of which the bidder will hold not more
than five percent of the aggregate outstanding securities of the target company.

In the aftermath of irregularities and scandals in the Japanese securities
markets uncovered in 1991, the Securities and Exchange Law was amended with
effect from January 1, 1992. Under the amended law, securities companies are
prohibited from the operation of discretionary accounts, loss compensation or
provision of artificial gains in securities transactions, directly or
indirectly, to their customers and making offers or agreements with respect
thereto; provided, however, that in the case of compensation for damages caused
by certain types of misconduct or failure to act on the part of the securities
companies, such compensation is exempted from the prohibition only after
notification thereof to the Prime Minister. Investors are prohibited from
demanding that a securities company agree to effect, or from receiving after
such demand, directly or indirectly, such loss compensation or gain provision.

To prevent the recurrence of scandals, in 1992 the Securities and Exchange
Surveillance Commission was established to conduct inspections of securities
companies, daily surveillance of securities markets and investigations of
securities fraud within the ambit of the Ministry of Finance. The Securities and
Exchange Surveillance Commission thereafter was split off from the Minister of
Finance together with the Financial Services Agency (the "FSA") in 1998 and has
become an organization under the FSA. Also in 1992, the Law concerning the
Streamlining of Related Laws to Reform the Financial System and the Securities
Trading System was enacted to provide for a variety of reforms designated to
rationalize and revitalize the Japanese financial and capital markets. Its
principal provisions permitted banks and securities companies to compete in each
other's business field, subject to various regulations and restrictions. It also
contained provisions which (i) broadened the definition of "securities" under
the Securities and Exchange Law, (ii) clarified and rationalized the concept of
public offering versus private placement and related regulations, and
(iii) revised the information disclosure system to ensure that in each case
investors continue to receive adequate information.

After the burst of the "Bubble" economy in the early 1990s, due to the delay
of the financial deregulation and the continuing sluggish Japanese economy, the
financial and capital markets in Japan have been losing their

international presence. In response, the financial system reform, the so-called
Japanese version of the Big Bang, was introduced with the aim of revitalizing
the Japanese financial market commensurate with the international markets of New
York and London by the year 2001. The three principles of the reform are
(i) "free"--toward a free market where the market mechanism prevails,
(ii) "fair"--toward a transparent and credible market, and
(iii) "global"--toward an international market ahead of its time. To meet this
end, the Financial System Reform Law took effect in 1998 covering a wide range
of financial areas, regulations and products including switching of the
licensing system for a securities company lasting for more than 30 years to the
registration system, full liberalizing of brokerage commissions for stock
trading and abolishing of the restriction of off-exchange trading for listed
securities.

DIRECTORS AND OFFICERS

The Directors and principal officers of the Fund are set forth below,
together with their positions with the Fund and their principal occupations
during the past five years and, in the case of the Directors, their positions
with other publicly held companies.

POSITION WITH THE AGGREGATE DOLLAR RANGE NUMBER OF
FUND, TERM OF AGGREGATE DOLLAR OF SECURITIES IN ALL PORTFOLIOS
OFFICE, AND PRINCIPAL OCCUPATION RANGE OF EQUITY FUNDS OVERSEEN OR TO IN FUND
LENGTH OF TIME DURING PAST FIVE YEARS SECURITIES IN THE BE OVERSEEN IN FUND COMPLEX
NAME (AGE) AND ADDRESS SERVED AND OTHER DIRECTORSHIPS FUND (+) COMPLEX (+) OVERSEEN
---------------------- ----------------- ----------------------- ----------------- ---------------------- ----------

INTERESTED PERSONS:
Shunsuke Ichijo (50) President since Chief Executive Officer $1-$10,000 None None
7-9, Nihonbashi 2-chome February 2000** and Director, Daiwa SB
Chuo-ku, Tokyo Investments since 1999;
103-0027 Japan General Manager of
International Division
of DICAM Tokyo since
1996.
John J. O'Keefe (44) Vice President Vice President of the None None None
One Evertrust Plaza and Treasurer Fund Accounting
Jersey City, New Jersey since June 2000** Department of Daiwa
07302-3051 Securities Trust
Company since June
2000; Assistant
Controller for Reserve
Management Corporation
from September 1999 to
June 2000; Accounting
Manager for Prudential
Investments from
January 1998 to
September 1999.
Mariedor Pineda (29) Secretary since Production Analyst, None None None
One Evertrust Plaza July 2003** Daiwa Securities Trust
Jersey City, New Jersey Company since April
07302-3051 1999, Assistant
Supervisor, CAMBA-Park
Slope Women's Shelter,
from March 1996 to
March 1999.
Laurence E. Cranch (56) Assistant Partner of Clifford None None None
200 Park Avenue Secretary since Chance US LLP since
New York, New York July 1992** 1980.
10166-0153

Hiroshi Kimura (50) Chairman; Chairman and President, None None None
One Evertrust Plaza Director Daiwa Securities Trust
Jersey City, New Jersey Director since Company, since July
07302-3051 2001* 2001; Director and
Senior Vice President
of Daiwa Securities
Trust Company, from
April 1999 to June
2001; Associate
Director of Daiwa
Europe Bank, from April
1996 to March 1999.
INDEPENDENT DIRECTORS:
Austin C. Dowling (71) Director since Retired. $10,001-50,000 $10,001-50,000 None
1002 E. Long Beach 1992*
Boulevard
North Beach, New Jersey
08008
Martin J. Gruber (65) Director since Professor of Finance, $10,001-50,000 $10,001-50,000 None
229 South Irving Street 1992* Leonard N. Stern School
Ridgewood, New Jersey of Business, New York
07450 University, since 1965;
Trustee, Deutsche Asset
Management BT Family of
Funds, since 1992;
Trustee, C.R.E.F.,
since 2001; Trustee,
T.I.A.A., from 1996 to
2000; Director, SG
Cowen Income & Growth
Fund, Inc., from 1986
to 2001; Director, SG
Cowen Opportunity Fund,
from 1987 to 2001;
Director, SG Cowen
Standby Reserve Fund
Inc., from 1985 to
2001; Director, SG
Cowen Standby Tax
Exempt Reserve Fund
Inc., from 1986 to
2001.
David G. Harmer (60) Director since Executive Director, $1-10,000 $10,001-$50,000 None
4337 Bobwhite Court 1997* Department of Community
Ogden, UT 84403 and Economic
Development for the
State of Utah since May
2002; Chairman, 2K2
Hosting Corporation,
from April 2001 to
April 2002; President,
Jetway Systems, a
division of FMC
Corporation, from
January 1997 to 2001.

Oren G. Shaffer (60) Director since Vice Chairman and Chief None $10,001-50,000 None
2409 5th Street 2000* Financial Officer of
Boulder, CO 80304 Quest Communications
International Inc.
since July 2002;
Executive Vice
President and Chief
Financial Officer of
Ameritech Corporation,
from 1994 to 2000.

------------------

(+) The information as to beneficial ownership is based on statements furnished
to the Fund by the Directors. The dollar value of shares is based upon the
market price as of March 17, 2003.

* Directors serve for three years from the date of their election, with terms
expiring on the date of the annual meetings of stockholders of the Fund, or
until their successors are elected and qualified.
Messrs. Kimura and Gruber are Class I Directors of the Fund, with terms
scheduled to expire in 2006.
Messrs. Harmer and Shaffer are Class II Directors of the Fund, with
terms scheduled to expire in 2004.
Mr. Dowling is a Class III Director of the Fund, with a term scheduled
to expire in 2005.

** Elected by and serves at the pleasure of the Board of Directors of the Fund.

Messrs. Dowling, Gruber, Harmer and Shaffer are directors of The Singapore
Fund, Inc. and The Thai Capital Fund, Inc., which are other closed-end
investment companies advised by affiliates of the Investment Manager and the
Investment Adviser.

Messrs. O'Keefe and Cranch and Ms. Pineda are officers of other closed-end
investment companies advised by affiliates of the Investment Manager and the
Investment Adviser. Mr. O'Keefe serves as Vice President and Treasurer of The
Singapore Fund, Inc and The Thai Capital Fund, Inc. Ms. Pineda serves as
Secretary of The Singapore Fund, Inc. and The Thai Capital Fund, Inc.
Mr. Cranch serves as Assistant Secretary of The Singapore Fund, Inc. and The
Thai Capital Fund, Inc.

As of the date of this Prospectus, the Directors and officers of the Fund
owned in the aggregate less than 1% of the outstanding shares of Common Stock of
the Fund. As of December 31, 2002, no non-interested Director of the Fund owned
securities of the Investment Manager, the Investment Adviser, Daiwa or an entity
directly or indirectly controlling, controlled by or under common control with
the Investment Manager, the Investment Adviser or Daiwa.

The officers of the Fund, together with the Investment Manager and the
Investment Adviser, conduct and supervise daily business operations of the Fund.
The Directors renew such actions, supervise the actions of the Investment
Manager and the Investment Adviser and decide general policy. The Fund pays each
Director who is not an interested person (within the meaning of the 1940 Act) of
the Investment Manager or the Investment Adviser an annual fee of $3,508 per
year, plus $526 per Directors' meeting and $421 per audit committee meeting
attended in person or by telephone, together with such Director's actual
out-of-pocket expenses relating to attendance at meetings.

Set forth below is a chart showing the aggregate compensation paid or
payable by the Fund to each of its Directors, during the fiscal year ended
October 31, 2002, as well as the total compensation paid to each Director of the
Fund by the Fund and by other U.S. registered investment companies advised by
the Investment Manager, the Investment Adviser or their respective affiliates
(collectively, the "Fund Complex"), for their services as Directors of such
investment companies during their respective fiscal years.

AGGREGATE PENSION OR RETIREMENT ESTIMATED ANNUAL TOTAL COMPENSATION
NAME AND POSITION WITH COMPENSATION BENEFITS ACCRUED AS PART BENEFITS UPON FROM FUND AND
FUND FROM FUND OF FUND EXPENSES RETIREMENT FUND COMPLEX PAID
---- ------------ ------------------------ ---------------- ------------------

Hiroshi Kimura,
Director and Chairman
of the Board $ 0 $0 $0 $ 0
Austin C. Dowling,
Director $6,981 $0 $0 $18,568
Martin J. Gruber,
Director $6,034 $0 $0 $15,778
David G. Harmer,
Director $6,455 $0 $0 $18,399
Oren G. Shaffer,
Director $4,982 $0 $0 $15,978

The Fund's Board of Directors also has an Audit Committee which is
responsible for reviewing financial and accounting matters and consists of all
of the non-interested Directors of the Fund. The Fund has adopted a formal,
written Audit Committee Charter. The members of the Audit Committee are
Messrs. Dowling, Gruber, Harmer and Shaffer. The Audit Committee met twice
during its last fiscal year.

The Board of Directors is divided into three classes, each class having a
term of three years. Each year the term of office of one class expires. SEE
"Description of Common Stock--Anti-Takeover Provisions." Furthermore, as
permitted by the Maryland General Corporation Law ("MGCL"), the Fund has elected
to be subject to the provisions of Section 3-804 (c), whereby in the event of a
vacancy that results from an increase in the size of the Board of Directors, the
death, resignation or removal of a director, the remaining directors in office
may fill the vacancy, even if the remaining directors do not constitute a
quorum.

The Amended and Restated Articles of Incorporation of the Fund contain a
provision permitted under the MGCL which by its terms eliminates the personal
liability of the Fund's Directors to the Fund or its stockholders for monetary
damages for breach of fiduciary duty as a director, subject to certain
qualifications described below. The Amended and Restated Articles of
Incorporation and the Amended and Restated By-Laws of the Fund provide that the
Fund will indemnify directors, officers, employees or agents of the Fund to the
full extent permitted by the MGCL. Under Maryland law, a corporation may
indemnify any director or officer made a party to any proceeding by reason of
service in that capacity unless it is established that (1) the act or omission
of the director or officer was material to the matter giving rise to the
proceeding and (A) was committed in bad faith or (B) was the result of active
and deliberate dishonesty; (2) the director or officer actually received an
improper personal benefit in money, property or services; or (3) in the case of
any criminal proceeding, the director or officer had reasonable cause to believe
that the act or omission was unlawful. The Amended and Restated Articles of
Incorporation further provide that to the fullest extent permitted by the MGCL,
and subject to the requirements of the 1940 Act, no director or officer will be
liable to the Fund or its stockholders for money damages. Under Maryland law, a
corporation may restrict or limit the liability of directors or officers to the
corporation or its stockholders for money damages, except to the extent that
(1) it is proved that the person actually received an improper benefit or profit
in money, property or services, or (2) a judgment or other final adjudication
adverse to the person is entered in a proceeding based on a finding in the
proceeding that the person's action, or failure to act, was the result of active
and deliberate dishonesty and was material to the cause of action adjudicated in
the proceeding. Nothing in the Amended and Restated Articles of Incorporation or
the Amended and Restated By-Laws of the Fund protects or indemnifies a director,
officer, employee or agent against any liability to which he would otherwise be
subject by reason of acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, or protects or indemnifies
a director or officer of the Fund against any liability to the Fund or its
stockholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.

MANAGEMENT OF THE FUND

THE INVESTMENT MANAGER

Daiwa SB Investments (USA) Ltd. (the "Investment Manager") acts as the
Fund's investment manager. The Investment Manager is a direct subsidiary of
Daiwa SB Investments Ltd., which maintains sole ownership of investment advisory
subsidiaries in London, Hong Kong and Singapore to provide investment advisory
services to a global clientele. The Investment Manager is a registered
investment adviser under the U.S. Investment Advisers Act of 1940, as amended
(the "Advisers Act"). The Investment Manager currently serves as an investment
adviser to three investment companies registered under the 1940 Act, managing
approximately $186.6 million as of July 31, 2003. The Investment Manager's
principal address is Financial Square, 32 Old Slip, 11th Floor, New York, New
York 10005-3538.

INVESTMENT MANAGEMENT AGREEMENT

The Investment Manager supervises the purchase and sale of securities on
behalf of the Fund based on the recommendations of the Investment Adviser,
including the selection of brokers and dealers to carry out the transactions,
and prepares and makes available research and statistical data, all in
accordance with the Fund's investment objective and policies, under the
direction and control of the Fund's Board of Directors. The Investment Manager
also exercises investment discretion with respect to the Fund's Temporary
Investments. In addition, the Investment Manager is responsible for maintaining
records and furnishing or causing to be furnished all required records or other
information of the Fund to the extent such records, reports and other
information are not maintained or furnished by the Fund's administrators,
custodians or other agents.

The Investment Manager is responsible for the salaries and expenses of those
of the Fund's officers and employees, as well as fees and expenses of those of
the Fund's Directors, officers and employees, who are directors, officers or
employees of the Investment Manager or any of its affiliated persons. However,
the Fund bears travel expenses or an appropriate fraction thereof of officers
and Directors of the Fund who are managing directors, officers or employees of
the Investment Manager to the extent that such expenses relate to attendance at
meetings held in connection with the Fund's operation, including meetings of the
Fund's Board of Directors or any committee thereof.

Under the Investment Management Agreement (the "Investment Management
Agreement") between the Fund and the Investment Manager, the Investment Manager
and its affiliates are permitted to provide investment advisory services to
other clients, including clients who may invest in Japanese Equities and, in
providing such services, may use non-confidential information furnished by the
Investment Adviser. Conversely, information furnished by others to the
Investment Manager in the course of providing services to clients other than the
Fund may be useful to, and used by, the Investment Manager in providing services
to the Fund.

For its services to the Fund, the Investment Manager receives a monthly fee,
payable in U.S. Dollars, at an annual rate of 0.60% of the Fund's average weekly
net assets (I.E., the average weekly value of the total assets of the Fund minus
the sum of accrued liabilities of the Fund) up to $20 million; 0.40% of such net
assets in excess of $20 million up to $50 million; and 0.20% of such net assets
in excess of $50 million. For the fiscal years ended October 31, 2003, October
31, 2002 and October 31, 2001, the Investment Manager earned amounts, including
fees and expenses, of $242,485, $258,108 and $292,860, respectively, prior to
applicable remittances of 60% of these amounts to the Investment Adviser. For
purposes of calculating compensation, average weekly net assets are determined
at the end of each month based upon the average of the net assets as calculated
on each valuation date, generally each Thursday, during the month.

The Investment Management Agreement was effective initially for a period of
two years and continues in effect from year to year provided such continuance is
specifically approved at least annually (i) by a vote of a majority of those
members of the Board of Directors who are neither parties to the Investment
Management Agreement nor interested persons of the Investment Adviser, the
Investment Manager or the Fund, cast in person at a meeting called for the
purpose of voting on such approval, and (ii) by a majority vote of either the
Fund's Board of Directors or of the Fund's outstanding voting securities. The
Investment Management Agreement may be terminated at any time without payment of
penalty by the Fund or by the Investment Manager upon 60 days' written notice.
The Investment Management Agreement will automatically terminate in the event of
its assignment, as defined under the 1940 Act.

The Investment Management Agreement provides that the Investment Manager
will not be liable for any act or omission, error of judgment or mistake of law,
or for any loss suffered by the Fund in connection with matters to which the
Investment Management Agreement relates, except for a loss resulting from
willful

misfeasance, bad faith or gross negligence on the part of the Investment Manager
in the performance of its duties, or from reckless disregard by the Investment
Manager of its obligations and duties under the Investment Management Agreement.

In reaching a decision to continue the engagement of Daiwa SB Investments
(USA) Ltd. as the Fund's Investment Manager, the Board of Directors reviewed
information derived from a number of sources covering a range of issues. The
Directors considered, among other things, the experience and expertise of Daiwa
SB Investments (USA) Ltd.'s executive and professional personnel, the
availability of such personnel to the Fund and the Daiwa SB Investments (USA)
Ltd.'s policies and practices relating to the assignment of personnel to the
Fund. The Board of Directors also considered the management fee under the
Investment Management Agreement and information on fees charged by other
investment managers for comparable services. The Board of Directors noted that
the fee to be charged by Daiwa SB Investments (USA) Ltd. under the Invest
Management Agreement would be lower than the management fee rates charged by
many of the investment managers of comparable funds. Taking into account this
review, as well as the nature and quality of the services provided by Daiwa SB
Investments (USA) Ltd., the Board of Directors determined that the management
fee rate of Daiwa SB Investments (USA) Ltd. was reasonable.

Based on its review, the Board of Directors, including a majority of the
Non-Interested Directors, concluded that it was satisfied with the nature and
quality of the services provided by Daiwa SB Investments (USA) Ltd. to the Fund
and that the management fee rate was reasonable in relation to such services.
Accordingly, the Board of Directors approved the continuation of the Investment
Management Agreement as being in the interests of the Fund's stockholders.

THE INVESTMENT ADVISER

Daiwa SB Investments Ltd. acts as the investment adviser (in such capacity,
the "Investment Adviser") of the Fund. The Investment Adviser, a corporation
incorporated in Tokyo under the laws of Japan, has its principal place of
business located at 7-9 Nihonbashi 2-chome, Chuo-ku, Tokyo 103-0027, Japan and
is principally owned by Daiwa Securities Group, Inc., the Sumitomo Bank and TRPH
Corporation. The Investment Adviser is a registered investment adviser under the
Advisers Act. The Investment Adviser currently provides investment advisory
services with respect to securities traded principally in Japan, other Asian
countries, the United States and European countries. As a member of the Daiwa
Securities Group (the "Group" or "Daiwa"), the Investment Adviser has access to
the Group's resources, including those of the Daiwa Institute of Research and
the Japanese Institute of Research.

The Fund has been advised that there is substantial doubt as to the
enforceability in the courts of Japan of judgments against the Investment
Adviser predicated upon the civil liability provisions of the Federal securities
laws of the United States. The Investment Adviser is advised by U.S. counsel
with respect to the Federal securities laws of the United States.

INVESTMENT ADVISORY AGREEMENT

Under the terms of the Investment Advisory Agreement, the Investment Adviser
provides the Investment Manager with investment recommendations. SEE "Investment
Objective and Policies." The Investment Adviser also prepares and makes
available research and statistical data and provide advice to the Investment
Manager regarding Japanese Equities. The information and investment advice
received by the Investment Manager from the Investment Adviser is used for the
purpose of managing the Fund's investment portfolio and is evaluated by the
Investment Manager's staff in light of their own expertise and information from
other sources.

The Investment Adviser or one of its affiliates pays the salaries and
reasonable expenses of the Fund's Directors, officers and employees, who are
directors, officers or employees of the Investment Adviser or any of its
affiliated persons. However, the Fund bears travel expenses of officers and
Directors of the Fund who are managing directors, officers or employees of the
Investment Adviser to the extent such expenses relate to attendance at meetings
held in connection with the Fund's operation, including meetings of the Fund's
Board of Directors or any committee thereof.

For its services to the Fund, the Investment Adviser receives from the
Investment Manager a monthly fee, payable in U.S. dollars, at an annual rate of
60% of the fee paid by the Fund to the Investment Manager under the

Investment Management Agreement. For the fiscal years ended October 31, 2003,
October 31, 2002 and October 31, 2001, the Investment Adviser earned amounts,
including fees and expenses, of $145,491, $156,789 and $178,084, respectively,
which was paid or payable by the Investment Manager. For purposes of calculating
compensation, average weekly net assets are determined at the end of each month
based upon the average of the net assets as calculated on each valuation date,
generally each Thursday, during the month.

The Investment Advisory Agreement was effective initially for a period of
two years and continues in effect from year to year provided such continuance is
specifically approved at least annually (i) by a vote of a majority of those
members of the Board of Directors who are neither parties to the Investment
Advisory Agreement nor interested persons of the Investment Adviser, the
Investment Manager or the Fund, cast in person at a meeting called for the
purpose of voting on such approval, and (ii) by a majority vote of either the
Fund's Board of Directors or of the Fund's outstanding voting securities. The
Investment Advisory Agreement may be terminated at any time without payment of
penalty by the Investment Manager or by the Investment Adviser upon 60 days'
written notice. The Investment Advisory Agreement will automatically terminate
in the event of its assignment, as defined under the 1940 Act.

The Investment Advisory Agreement provides that the Investment Adviser will
not be liable for any act or omission, error of judgment or mistake of law, or
for any loss suffered by the Fund in connection with matters to which the
Investment Advisory Agreement relates, except for a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Investment Adviser
in the performance of its duties, or from reckless disregard by the Investment
Adviser of its obligations and duties under the Investment Advisory Agreement.

The Fund pays all of its other expenses (but not the overhead or employee
costs of the Investment Manager or the Investment Adviser), including among
others: legal fees and expenses of U.S. and Japanese counsel to the Fund and, if
any, to its Directors who are not "interested persons" of the Fund; auditing and
accounting expenses; taxes and governmental fees; NYSE or other securities
exchange listing fees; dues and expenses incurred in connection with membership
in investment company organizations; fees and expenses of the Fund's custodian,
subcustodians, transfer agents and registrars; fees and expenses with respect to
administration, except as may be otherwise provided pursuant to administration
agreements; expenses for portfolio pricing services by a pricing agent, if any;
expenses of preparing share certificates and other expenses in connection with
the issuance, offering and underwriting of shares issued by the Fund; expenses
relating to investor and public relations; expenses of registering or qualifying
securities of the Fund for public sale; freight, insurance and other charges in
connection with the shipment of the Fund's portfolio securities; brokerage
commissions or other costs of acquiring or disposing of any portfolio holding of
the Fund; expenses of preparation and distribution of reports, notices and
dividends to shareholders; expenses of the dividend reinvestment and cash
purchase plan, except for brokerage expenses paid by participants in such plan;
costs of stationery; any litigation expenses; costs of stockholders' and other
meetings; and other expenses properly payable by the Fund.

In reaching a decision to continue the engagement of Daiwa SB Investments
Ltd. as the Fund's Investment Adviser, the Board of Directors reviewed
information derived from a number of sources covering a range of issues. The
Directors considered, among other things, the experience and expertise of Daiwa
SB Investments Ltd.'s executive and professional personnel, the availability of
such personnel to the Fund and the Daiwa SB Investments Ltd.'s policies and
practices relating to the assignment of personnel to the Fund. The Board of
Directors also considered the advisory fee under the Investment Advisory
Agreement and information on fees charged by other investment advisors for
comparable services. The Board of Directors noted that the fee to be charged by
Daiwa SB Investments Ltd. under the Investment Advisory Agreement, along with
the portion of the fee retained by the Investment Manager, would be lower than
the advisory fee rates charged by many of the investment advisers of comparable
funds. Taking into account this review, as well as the nature and quality of the
services provided by Daiwa SB Investments Ltd., the Board of Directors
determined that the advisory fee rate of Daiwa SB Investments Ltd. was
reasonable.

Based on its review, the Board of Directors, including a majority of the
non-interested Directors, concluded that it was satisfied with the nature and
quality of the services provided by Daiwa SB Investments Ltd. to the Fund and
that the advisory fee rate was reasonable in relation to such services.
Accordingly, the Board of Directors approved the continuation of the Investment
Advisory Agreement as being in the interests of the Fund's stockholders.

PORTFOLIO MANAGEMENT

The following individuals are primarily responsible for portfolio management
for the Fund.

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), Mr. Ogawa possesses 28 years of
investment experience and has been responsible for Japanese stock selection
since 1984. He spent nine years with Daiwa Securities as an institutional
research analyst and three years in New York analyzing U.S. securities. He
graduated from Tohoku University with a B.A. in Law in 1972.

Mr. Kazuhiko Hosaka, CMA, is a Senior Portfolio Manager, with a total of 14
years of experience in the Japanese equity market. He joined Daiwa in 1990 as a
portfolio manager after spending two years as a securities analyst at Barclays
Securities Group. He has been directly responsible for managing Japanese equity
portfolios for several North American and European pension clients. He graduated
from Aoyama Gakuin University with a B.A. in Law in 1988.

CODE OF ETHICS

The Fund, the Investment Adviser, the Investment Manager and Daiwa
Securities America Inc. have each adopted a code of ethics under Rule 17j-1 of
the 1940 Act. Each code of ethics permits personnel, subject to each code of
ethics and its restrictive provisions, to invest in securities, including
securities that may be purchased or held by the Fund. Each code of ethics can be
reviewed and copied at the Commission's Public Reference Room in Washington,
District of Columbia. Information on the operations of the Reference Room may be
obtained by calling the Securities and Exchange Commission at (202) 942-8090.
Each code of ethics is also available on the EDGAR database on the Commission's
web site at http://www.sec.gov. Copies of each code of ethics may also be
obtained, after paying a duplicating fee, by electronic request at the following
e-mail address: publicinfo@sec.gov, or by writing the Commission's Public
Reference Room Section, Washington, District of Columbia 20549-0102.

PROXY VOTING PROCEDURES

The Fund has adopted policies and procedures with respect to the voting of
proxies related to portfolio securities. These proxy voting procedures delegate
to the Investment Manager the responsibility for voting proxy securities,
subject to the Board of Director's continuing oversight. The Fund's procedures
provide that the Board of Directors annually reviews the Investment Manager's
proxy voting policies and procedures and the Investment Manager's proxy votes on
behalf of the Fund. The Investment Manager's proxy voting policies and
procedures are set forth below.

PROXY VOTING POLICIES AND PROCEDURES OF THE INVESTMENT MANAGER

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 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.

ELECTION OF DIRECTORS: In many instances, election of directors is a
routine voting issue. Unless there is a proxy fight for seats on the Board or we
determine that there are other compelling reasons for withholding votes for
directors, we will vote in favor of the management proposed slate of directors.
That said, we believe that directors have a duty to respond to shareholder
actions that have received significant shareholder support. We may withhold
votes for directors that fail to act on key issues such as failure to implement
proposals to declassify boards, failure to implement a majority vote
requirement, failure to submit a rights plan to a shareholder vote and failure
to act on tender offers where a majority of shareholders have tendered their
shares.

APPOINTMENT OF AUDITORS: The selection of an independent accountant to
audit a company's financial statements is generally a routine business matter.
Daiwa believes that management remains in the best position to choose the
accounting firm and will generally support management's recommendation.

CHANGES IN CAPITAL STRUCTURE: Changes in a company's charter, articles of
incorporation or by-laws are often technical and administrative in nature.
Absent a compelling reason to the contrary, Daiwa will cast its votes in
accordance with the company's management on such proposals. However, we will
review and analyze on a case-by-case basis any non-routine proposals that are
likely to affect the structure and operation of the company or have a material
economic effect on the company.

CORPORATE RESTRUCTURINGS, MERGERS AND ACQUISITIONS: Daiwa believes proxy
votes dealing with corporate reorganizations are an extension of the investment
decision and will take account of our investment process policy in deciding how
to vote.

CORPORATE GOVERNANCE: Daiwa recognizes the importance of good corporate
governance in ensuring that management and the board of directors fulfil their
obligations to the shareholders. We generally favor proposals promoting
transparency and accountability within a company.

SOCIAL AND CORPORATE RESPONSIBILITY: Daiwa recognizes the importance of
supporting sound and responsible policies in relation to social, political and
environmental issues. However, in the interests of shareholders, we reserve the
right to vote against proposals that are unduly burdensome or result in
unnecessary and excessive costs to the company. We may abstain from voting on
social proposals that do not have a readily determinable financial impact on
shareholder value.

EXECUTIVE COMPENSATION: Daiwa believes that company management and the
compensation committee of the board of directors should, within reason, be given
latitude to determine the types and mix of compensation and benefit awards
offered. Whether proposed by a shareholder or management, we will review
proposals relating to executive compensation plans and, if deemed excessive, may
vote against the proposals.

PROXY VOTING. 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 team. The
committee may also evaluate proxies where we face a material conflict of
interest (as discussed below).

CONFLICTS OF INTEREST. Daiwa recognizes that there is a potential conflict
of interest when we vote a proxy solicited by an issuer with whom we have any
material business or personal relationship that may affect how we vote on the
issuer's proxy. We believe that oversight by the proxy voting committee ensures
that proxies are voted with only our clients' best interests in mind. In order
to avoid any perceived conflict of interests, the following procedures have been
established for use when we encounter a potential conflict.

1. 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.

2. If our proposed vote is consistent with our stated proxy voting policy, no
further review is necessary.

3. 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.

4. 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 Voting 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.

ADMINISTRATION AND CUSTODIANS

ADMINISTRATION

Daiwa Securities Trust Company ("DSTC") has agreed to provide, pursuant to
an Administration Agreement (the "Administration Agreement") between the Fund
and DSTC, administrative services to the Fund (in such capacity, the
"Administrator"). Such administrative services include maintenance of the Fund's
books and records, calculations of the Fund's net asset value, preparation and
filing of reports with respect to certain of the Fund's U.S. reporting
requirements, overseeing custody arrangements with the Japanese Custodian (as
defined below) and other accounting and general administrative services. The
Administrator gathers information on the distribution and holding of the Fund's
shares and will respond to general inquiries from investors in the Fund's
shares. The Administrator also will be responsible for monitoring the activities
of the Fund's custodians, transfer agent, accountants, legal counsel and other
persons providing services to the Fund. In addition, the Administrator acts as
liaison between the holders of the Fund's shares and the Fund, the Investment
Manager and the Investment Adviser. The services provided under the
Administration Agreement are also subject to the supervision of the Directors of
the Fund. The Board of Directors of the Fund has approved the provision of
services described above pursuant to the Administration Agreement as being in
the best interests of the Fund.

Under the Administration Agreement, the Fund pays to DSTC a fee calculated
weekly and paid monthly in U.S. dollars, at an annual rate of 0.20% of the first
$60 million, 0.15% of the next $40 million and 0.10% of the excess over $100
million of the average weekly net assets of the Fund, with a minimum annual fee
of $120,000 ($10,000 per month).

CUSTODIANS

DSTC also acts as custodian (in such capacity, the "U.S. Custodian") with
respect to the Fund's non-Japanese securities and non-yen denominated assets
pursuant to a Custodial Services Agreement (the "Custodial Services Agreement")
between the Fund and the U.S. Custodian. The U.S. Custodian's principal business
address is One Evertrust Plaza, Jersey City, New Jersey 07302-3051. The U.S.
Custodian appointed The Sumitomo Mitsui Banking Corporation, to act as
sub-custodian (the "Japanese Custodian") of the U.S. Custodian for the Japanese
securities and yen-determined assets held in Japan pursuant a sub-administration
agreement. The Japanese Custodian's principal business address is 1-2 Yurakucho
1-chome, Chiyoda-ku, Tokyo, Japan. Under the Custodial Services Agreement, the
U.S. Custodian receives fee calculated weekly and paid monthly in U.S. dollars,
at an annual rate of .10% of U.S. net assets and .05% of non-U.S. net assets. In
addition, the U.S. Custodian will be reimbursed by the Fund for any
out-of-pocket expenses incurred by the U.S. Custodian in connection with the
performance of its duties under the Custodial Services Agreement. The
out-of-pocket expenses of the U.S. Custodian includes the annual fees,
asset-based or transaction-based, and the out-of-pocket expenses of the Japanese
Custodian. As compensation for its services, the U.S. Custodian receives a
monthly fee and reimbursement of out-of-pocket expenses, including the fees and
out-of-pocket expenses of the Japanese custodian. For the fiscal year ended
October 31, 2003, the Fund paid $85,730 for custodian fees and expenses to the
U.S. Custodian, which included Japanese Custodian fees and expenses of $56,625.

EXPENSES

The Fund's annual operating expenses are higher than normal annual operating
expenses of most closed-end investment companies of comparable size that invest
in U.S. securities because the management fee and other operating expenses
reflect communication and other costs associated with investing in Japan.
Expenses of the Offer will be charged to capital. For the fiscal years ended
October 31, 2003 and October 31, 2002, the Fund's expenses were $787,491 and
$817,323, respectively. The Fund's annual expense ratio (excluding taxes) for
the fiscal years ended October 31, 2003 and October 31, 2002 was 1.50% and
1.44%, respectively, of the Fund's net assets.

PORTFOLIO TRANSACTIONS AND BROKERAGE

Subject to the policies established by the Board of Directors of the Fund,
the Investment Manager is primarily responsible for the execution of the Fund's
portfolio transactions. In executing such transactions, the Investment Manager
seeks to obtain the best results for the Fund, taking into account such factors
as price

(including the applicable brokerage commission or dealer spread), size of order,
difficulty of execution, operational facilities of the firm involved and the
firm's risk in positioning a block of securities. While the Investment Manager
generally seeks reasonably competitive dealer spreads or commission rates, the
Fund does not necessarily pay the lowest spread or commission available.

The Fund has no obligation to deal with any broker or dealer in execution of
transactions in portfolio securities. The Fund expects that, consistent with its
policy of obtaining the best net results and subject to the requirements of the
1940 Act and Japanese securities laws, a substantial amount of its portfolio
transactions conducted on an agency basis may be conducted through Daiwa,
including transactions on the TSE. Costs associated with transactions in foreign
securities are generally higher than those associated with transactions in U.S.
securities, although, as noted above, the Fund will endeavor to achieve the best
net results in effecting such transactions. In addition, subject to obtaining
the best net results, securities firms which provide supplemental investment
research, including industry and company analysis, macroeconomic analysis and
market environment analysis, to the Investment Manager or the Investment Adviser
may receive orders for transactions by the Fund. Information so received will be
in addition to, and not in lieu of, the services required to be performed by the
Investment Manager under the Investment Management Agreement or the Investment
Adviser under the Investment Advisory Agreement, as the case may be, and the
expenses of the Investment Manager or the Investment Adviser will not
necessarily be reduced as a result of the receipt of such supplemental
information. The Fund does not intend to pay brokers a commission that exceeds
what another broker may have charged because of the value of the brokerage or
research services provided.

While the Investment Manager utilizes the research services provided by
brokers in the process of stock selection, the Investment Manager does not make
any investment decisions in accordance with the brokers' research materials. The
Investment Manager makes the final decisions regarding stock selection. This
selection comes from a master list compiled by in-house analysts utilizing the
sell-side research to prevent conflicts of interest. The Investment Manager's
portfolio managers principally rely on the in-house research for fundamental
analyses of individual companies. The external research information is used
merely as supplemental material for the internal research department and,
therefore, is not identified as being used for managing a particular client's
assets. During the last fiscal year, no brokerage transactions were directed to
a broker because of the value of the research services provided.

Because of the affiliation of Daiwa with the Fund, the Fund is prohibited
from engaging in certain transactions involving Daiwa or its affiliates except
pursuant to an exemptive order under the 1940 Act. Without such an order, the
Fund is prohibited from engaging in portfolio transactions with Daiwa or its
affiliates acting as principal and from purchasing securities in public
offerings that are not registered under the Securities Act of 1933 in which
Daiwa or any of its affiliates participates as an underwriter.

Brokerage commissions paid by the Fund for the fiscal years ended October
31, 2003, October 31, 2002 and October 31, 2001 were $128,408, $128,544 and
$158,383, respectively, of which $21,224, $18,721 and $23,010, respectively, was
paid to Daiwa Securities Co. Ltd., an affiliate of the Investment Manager, in
connection with portfolio transactions. The percentage of the Fund's aggregate
brokerage commissions paid to Daiwa Securities Co. Ltd. for those periods was
16.53%, 14.56% and 14.53%, respectively. The percentage of the Fund's aggregate
dollar amount of transactions involving the payment of commissions effected
through Daiwa Securities Co., Ltd. for those periods was 16.64%, 14.83% and
16.79%, respectively.

PORTFOLIO TURNOVER

The Investment Manager effects portfolio transactions for the Fund. The
Fund's annual turnover rate will be between approximately 50% and 80% under
normal conditions; however, it is impossible to predict portfolio turnover
rates. For the fiscal years ended October 31, 2003 and October 31, 2002, the
Fund's portfolio turnover rates were 84.00% and 76.19%, respectively. The
portfolio turnover rate is calculated by dividing the lesser of the Fund's
annual sales or purchases of portfolio securities (exclusive of purchases or
sales of securities whose maturities at the time of acquisition were one year or
less) by the monthly average value of the securities in the portfolio during the
year. High portfolio turnover involves correspondingly greater transaction costs
in the form of dealer spreads and brokerage commissions, which are borne
directly by the Fund.

DIVIDENDS AND DISTRIBUTIONS;
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN

The Fund will distribute to shareholders, at least annually, substantially
all of its net income from dividends and interest payments and expects to
distribute substantially all of its net realized capital gains, if any,
annually. Dividends and distributions will be paid in cash, except that,
pursuant to the Dividend Reinvestment and Cash

Purchase Plan (the "DRIP Plan"), a shareholder may elect to have all
distributions automatically reinvested by PFPC Inc. (the "Plan Agent") in Fund
shares. Shareholders who do not participate in the DRIP Plan will receive all
distributions in cash paid by check in U.S. dollars mailed directly to the
shareholder by PFPC Inc., as paying agent. Shareholders who wish to have
distributions automatically reinvested should notify the Plan Agent for The
Japan Equity Fund, Inc., PFPC Inc. at PFPC Inc., P.O. Box 43027, Providence,
Rhode Island 02940-3027.

The Plan Agent serves as agent for the shareholders in administering the
DRIP Plan. If the Directors of the Fund declare an income dividend or a capital
gains distribution payable either in the Fund's Common Stock or in cash,
non-participants in the DRIP Plan will receive cash and participants in the DRIP
Plan will receive the equivalent amount in shares of Common Stock to be issued
by the Fund. If the market price per share on the valuation date equals or
exceeds the net asset value per share on that date, the Fund will issue new
shares to participants at net asset value or, if the net asset value is less
than 95% of the market price on the valuation date, then at 95% of the market
price. The valuation date will be the dividend or a distribution payment date
or, if that date is not a trading day on the NYSE, the next preceding trading
day. If the net asset value exceeds the market price of Fund shares at such
time, participants in the DRIP Plan will be deemed to have elected to receive
shares of Common Stock issued by the Fund, valued at the market price on the
valuation date. If the Fund should declare an income dividend or a capital gains
distribution payable only in cash, the Plan Agent will, as agent for the
participants, buy Fund shares in the open market, on the NYSE or elsewhere, with
the cash in respect of such dividend or distribution, for the participants'
account on, or shortly after, the payment date.

Participants in the DRIP Plan have the option of making additional cash
payments to the Plan Agent, annually, in any amount from $100 to $3000, for
investment in the Fund's Common Stock. The Plan Agent will use all funds
received from participants (as well as any dividends and capital gains
distributions payable only in cash) to purchase Fund shares in the open market
on or about February 15 of each year. Any voluntary cash payments received more
than 30 days prior to such date will be returned by the Plan Agent, and interest
will not be paid on any uninvested cash payments. To avoid unnecessary cash
accumulations, and also to allow ample time for receipt and processing by the
Plan Agent, it is suggested that participants send in voluntary cash payments to
be received by the DRIP Plan Agent approximately ten days before February 15. A
participant may withdraw a voluntary cash payment by written notice if the
notice is received by the Plan Agent not less than two business days before such
payment is to be invested.

The Plan Agent maintains all shareholder accounts in the DRIP Plan and
furnish written confirmations of all transactions in such accounts, including
information needed by shareholders for personal and tax records. Shares in the
account of each DRIP Plan participant will be held by the Plan Agent in
non-certificated form in the name of the participant, and each shareholder's
proxy will include those shares purchased pursuant to the DRIP Plan.

In the case of shareholders, such as banks, brokers or nominees, that hold
shares for others who are the beneficial owners, the Plan Agent will administer
the DRIP Plan on the basis of the number of shares certified from time-to-time
by the registered shareholder as representing the total amount registered in the
shareholder's name and held for the account of beneficial owners who are
participating in the DRIP Plan. Shareholders whose shares are held in the name
of a broker or nominee should contact such broker or nominee to confirm that
they will participate in the DRIP Plan on the shareholders' behalf.

There is no charge to participants for reinvesting dividends or capital
gains distributions. The Plan Agent's fees for the handling of the reinvestment
of dividends and distributions will be paid by the Fund. However, each
participant's account will be charged a PRO RATA share of the brokerage
commissions incurred with respect to the Plan Agent's open market purchases in
connection with the reinvestment of income dividends or capital gains
distributions payable only in cash. For purchases from voluntary cash payments,
participants must pay a PRO RATA portion of the brokerage commissions incurred
on their behalf. Brokerage charges for purchasing small amounts of stock of
individual accounts through the DRIP Plan are expected to be less than the usual
brokerage charges for such transactions, because the Plan Agent will be
purchasing stock for all participants in blocks and prorating the lower
commission thus attainable.

The election by participants of automatic reinvestment of dividends and
distributions will not relieve participants of any income tax that may be
payable on such dividends or distributions. SEE "Taxation--U.S. Federal Income
Taxes."

The Fund reserves the right to amend or terminate the DRIP Plan as applied
to any voluntary cash payment made and any dividend or distribution paid
subsequent to notice of the change having been sent to all shareholders at least
30 days before the record date for such dividend or distribution. The DRIP Plan
also may

be amended or terminated by the Plan Agent by at least 30 days' prior written
notice to all shareholders. All communication concerning the DRIP Plan should be
directed to the Plan Agent for The Japan Equity Fund, Inc. at PFPC Inc.,
P.O. Box 43027, Providence, Rhode Island 02940-3027 (telephone number (800)
331-1710).

TAXATION

U.S. FEDERAL INCOME TAXES

The Fund has qualified and intends to continue to qualify as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986, as amended
(the "Code"). To so qualify, the Fund must, among other things: (a) derive at
least 90% of its gross income from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stocks or
securities and gains from the sale or other disposition of foreign currencies,
or other income (including gains from options, futures contracts and forward
contracts) derived with respect to the Fund's business of investing in stocks,
securities or currencies; and (b) diversify its holdings so that, at the end of
each quarter, (i) at least 50% of the value of the Fund's total assets is
represented by cash and cash items, U.S. government securities, securities of
other RICs, and other securities, with such other securities limited in respect
of any one issuer to an amount not greater in value than 5% of the Fund's total
assets and to not more than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of the Fund's total assets is
invested in the securities (other than U.S. government securities or securities
of other RICs) of any one issuer or of any two or more issuers that the Fund
controls and that are determined to be engaged in the same business or similar
or related businesses. The Fund expects that all of its foreign currency gains
will be directly related to its principal business of investing in stocks and
securities.

As a RIC, the Fund will not be subject to U.S. federal income tax on its
investment company taxable income in any year that it distributes to its
shareholders at least 90% of its investment company taxable income for the
taxable year; however, the Fund will be subject to tax on its income and gains
to the extent that it does not distribute to its shareholders an amount equal to
such income and gains as these terms are defined for U.S. federal income tax
purposes. Investment company taxable income includes dividends, interest and net
short-term capital gains in excess of net long-term capital losses, but does not
include net long-term capital gains in excess of net short-term capital losses.
The Fund intends to distribute annually to its shareholders substantially all of
its investment company taxable income. If necessary, the Fund intends to borrow
money or liquidate assets to make such distributions. Except to the extent
described below regarding distributions consisting of "qualified dividend
income," distributions of investment company taxable income ("ordinary income
dividends"), whether paid in cash or shares, are taxable to a U.S. shareholder
as ordinary income to the extent of the Fund's current and accumulated earnings
and profits. Distributions in excess of the Fund's earnings and profits will
first reduce the adjusted tax basis of a holder's shares and, thereafter, will
constitute capital gains to such holder (assuming the shares are held as capital
assets). Since the Fund will not invest in the stock of domestic corporations,
distributions to corporate shareholders of the Fund will not be entitled to the
dividends received deduction. However, individual shareholders of the Fund may
be entitled to the 15% rate generally applicable to net long-term capital gains
on the portion of distributions consisting of "qualified dividend income" as
designated by the Fund and notified to shareholders annually. For this purpose
"qualified dividend income" includes dividends received during the taxable year
from foreign corporations only if such corporations are "qualified foreign
corporations" and certain other requirements are satisfied. A "qualified foreign
corporation" generally means (i) a foreign corporation that is eligible for
benefits of a comprehensive income tax treaty with the U.S. that the U.S.
Treasury Department determines is satisfactory for this purpose and that
includes an exchange of information program, and (ii) any other foreign
corporation with respect to any dividend paid by such corporation if the stock
with respect to which such dividend is paid is readily tradable on an
established securities market in the U.S., but excludes certain passive
investment companies. The relevant legislative history indicates that, until the
U.S. Treasury Department issues guidance regarding the determination of treaties
as satisfactory for this purpose, a foreign corporation will be considered to be
a "qualified foreign corporation" if it is eligible for the benefits of a
comprehensive income tax treaty with the U.S. that includes an exchange of
information program other than the current U.S.-Barbados income tax treaty, and
that a company will be eligible for benefits of a comprehensive income tax
treaty for this purpose if it would qualify for the benefits of the treaty with
respect to substantially all of its income in the taxable year in which the
dividend is paid. No guidance has to date been issued by the U.S. Treasury
Department as to whether the U.S./Japan tax treaty is satisfactory for this
purpose; however, Article 26 of the U.S./Japan tax treaty provides for the
exchange of information pertinent to carrying out the provisions of such treaty
subject to certain limitations. If the Fund fails to satisfy the 90%
distribution requirement or fails to qualify as a regulated investment company
in any taxable year, it will be subject to corporate income tax in such year on
all of its taxable income, whether or not the Fund makes any distributions to
its shareholders.

As a RIC, the Fund also will not be subject to U.S. federal income tax on
its net long-term capital gains in excess of net short-term capital losses and
capital loss carryovers from the prior eight years, if any, that it distributes
to its shareholders. If the Fund retains for reinvestment or otherwise an amount
of such net long-term capital gains it will be subject to a tax of 35% of the
amount retained. The Board of Directors of the Fund will determine at least once
a year whether to distribute any net long-term capital gains in excess of net
short-term capital losses and capital loss carryovers from prior years ("capital
gain dividends"). The Fund expects to designate amounts retained, if any, as
undistributed capital gains in a notice to its shareholders, each of whom, if
subject to U.S. federal income tax on long-term capital gains, (a) will be
required to include in income, as long-term capital gains, such shareholder's
proportionate share of the undistributed amount, (b) will be entitled to credit
against its U.S. federal income tax liabilities such shareholder's proportionate
share of the tax paid by the Fund on the undistributed amount and to claim a
refund to the extent that such shareholder's credits exceed its liabilities, and
(c) will be entitled to increase its tax basis in its shares by an amount equal
to 65% of the amount of undistributed capital gains included in the
shareholder's income. Capital gain dividends paid by the Fund are taxable to its
shareholders as long-term capital gains regardless of how long the shareholder
has held the Fund's shares, and are not eligible for the dividends received
deduction. Under the Code, net long-term capital gains will be taxed at a rate
generally no greater than 15% for individuals and a rate no greater than 35% for
corporations.

Shareholders receiving dividends in the form of additional shares pursuant
to the DRIP Plan should be treated for U.S. federal income tax purposes as
receiving a distribution in an amount equal to the amount of money that the
shareholders receiving cash dividends will receive, and should have a cost basis
in the shares equal to such amount.

If the net asset value of shares is reduced below a shareholder's cost as a
result of a distribution by the Fund, the distribution will be taxable even
though it, in effect, represents a return of invested capital. Investors
considering buying shares just prior to a dividend should be aware that,
although the price of shares purchased at that time may reflect the amount of
the forthcoming dividend, those who purchase just prior to the record date for a
dividend will receive a dividend which will be taxable.

Under the Code, the Fund may be subject to a 4% excise tax on a portion of
its undistributed income unless the Fund distributes annually at least 98% of
its adjusted taxable ordinary income (not taking into account any capital gains
or losses) for the calendar year and at least 98% of its capital gain net income
for the 12-month period ending, as a general rule, on October 31 of the calendar
year. For this purpose, any income or gain retained by the Fund that is subject
to corporate income tax will be treated as having been distributed at year-end.
In addition, the minimum amounts that must be distributed in any year to avoid
the excise tax will be increased or decreased to reflect any under-distribution
or over-distribution, as the case may be, in the previous year. For a
distribution to qualify under the foregoing provisions, the distribution
generally must be declared and paid during the year. Any dividend declared by
the Fund in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by each shareholder on December 31 of such year and to have
been paid by the Fund not later than December 31 of such year, provided that
such dividend is actually paid by the Fund during January of the following year.

The Fund maintains accounts and calculates income by reference to the U.S.
dollar for U.S. federal income tax purposes. Investments are maintained and
income therefrom calculated by reference to the yen, and such calculations do
not necessarily correspond to the Fund's distributable income and capital gains
for U.S. federal income tax purposes as a result of fluctuations in currency
exchange rates. Furthermore, exchange control regulations may restrict the
ability of the Fund to repatriate investment income or the proceeds of sales of
securities. These restrictions and limitations may limit the Fund's ability to
make sufficient distributions to satisfy the 90% distribution requirement and
avoid the 4% excise tax.

The Fund's transactions in foreign currencies, forward contracts, options
and futures contracts (including options and futures contracts on foreign
currencies) will be subject to special provisions of the Code that, among other
things, may affect the character of gains and losses realized by the Fund (I.E.,
may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund and defer Fund losses. These rules could
therefore affect the character, amount and timing of distributions to
shareholders. These provisions also (a) will require the Fund to mark-to-market
certain types of the positions in its portfolio (I.E., treat them as if they
were closed out at fair market value), and (b) may cause the Fund to recognize
income without receiving cash with which to make distributions in amounts
necessary to satisfy the 90% and 98% distribution requirements for avoiding
income and excise taxes. The Fund will monitor its transactions, will make the
appropriate tax elections,

and will make the appropriate entries in its books and records when it acquires
any foreign currency, option, futures contract, forward contract, or hedged
investment in order to mitigate the effect of these rules, prevent
disqualification of the Fund as a RIC and minimize the imposition of income and
excise taxes.

For backup withholding purposes, the Fund may be required to withhold 28% of
reportable payments (which include dividends and redemptions) to certain
non-corporate shareholders. A shareholder, however, may avoid becoming subject
to this requirement by filing an appropriate form certifying under penalties of
perjury that such shareholder's taxpayer identification number is correct and
that such shareholder is not subject to backup withholding, or is exempt from
backup withholding. Corporations and certain other shareholders are exempt from
backup withholding.

Upon the sale or exchange of shares, a shareholder will realize a taxable
gain or loss depending upon the shareholder's tax basis in the shares. Such gain
or loss will be treated as capital gain or loss if the shares are capital assets
in the shareholder's hands, and will be long-term if the shareholder's holding
period for the shares is more than twelve months. Any loss realized on a sale or
exchange will be disallowed to the extent that the shares disposed of are
replaced (including replacement through the reinvesting of dividends in the
Fund) within a period of 61 days beginning 30 days before and ending 30 days
after the disposition of the shares. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by a
shareholder on the sale of Fund shares held by the shareholder for six months or
less will be treated for federal income tax purposes as a long-term capital loss
to the extent of any capital gain dividends received by the shareholder with
respect to such shares.

An amount received by a shareholder from the Fund in exchange for shares of
the Fund (pursuant to a repurchase of shares or a tender offer or otherwise)
generally will be treated as a payment in exchange for the shares tendered,
which may result in taxable gain or loss as described above. However, if the
amount received by a shareholder exceeds the fair market value of the shares
tendered, or if a shareholder does not tender all of the shares of the Fund
owned or deemed to be owned by the shareholder, all or a portion of the amount
received may be treated as a dividend taxable as ordinary income or as a return
of capital. In addition, if a tender offer is made, any shareholders who do not
tender their shares could be deemed, under certain circumstances, to have
received a taxable distribution of shares of the Fund.

PASSIVE FOREIGN INVESTMENT COMPANIES

If the Fund purchases shares in certain foreign passive investment entities
described in the Code as passive foreign investment companies ("PFICs"), and
does not make one of the elections described below, the Fund will be subject to
U.S. federal income tax at ordinary rates on a portion of any "excess
distribution" (distributions received by the Fund in any year that exceed 125%
of the average annual distribution received by the Fund in the three preceding
years or during the Fund's holding period, if shorter, and any gain from the
disposition of such PFIC shares), even if such income is distributed as a
taxable dividend by the Fund to its shareholders. Additional charges in the
nature of interest may be imposed on the Fund in respect of deferred taxes
arising from such "excess distributions." If the Fund were to invest in a PFIC
and elect to treat the PFIC as a "qualified electing fund" under the Code (and
if the PFIC were to comply with certain reporting requirements), in lieu of the
foregoing requirements the Fund would be required to include in income each year
its PRO RATA share of the PFIC's ordinary earnings and net realized capital
gains, whether or not such amounts were actually distributed to the Fund.
Alternatively, the Fund may elect to market-to-market the stock of the PFIC
annually, and to take into account as income or loss any appreciation or
depreciation in the value of the PFIC stock.

FOREIGN TAX CREDITS

As indicated under "Japanese Taxes" below, the Fund will be subject to
Japanese withholding taxes on interest and dividends received from Japanese
corporations at certain rates. If the Fund qualifies as a RIC, if certain
distribution requirements are satisfied and if more than 50% of the value of the
Fund's assets at the close of any taxable year consists of stocks or securities
of Japanese and other foreign corporations, the Fund may elect to treat such
Japanese withholding and any other foreign taxes that can be treated as income
taxes under U.S. income tax principles as paid by its shareholders. The Fund has
made and intends to continue to make this election in any year in which it is
qualified to do so. As a consequence, each shareholder will be required to
include in its income an amount equal to its allocable share of such Japanese or
other foreign withholding taxes paid by the Fund and, subject to certain
limitations, to credit such amount against its U.S. federal income tax
liability, if any, or to deduct its share from its U.S. taxable income, if any.
In general, a shareholder may elect each year whether to claim a deduction or a
credit for such foreign taxes paid. A shareholder that is a nonresident

alien individual or a foreign corporation may be subject to U.S. federal
withholding tax on the income resulting from the Fund's election described in
this paragraph but may not be able to claim a credit or deduction against such
U.S. tax for the foreign taxes treated as having been paid by such shareholder.
For purposes of the foreign tax credit limitation, foreign source taxable income
consisting of qualified dividend income must be reduced by the "rate
differential portion" of any dividend income. The rate differential portion is
the excess of the highest applicable tax rate (currently 35%) minus the tax rate
for qualified dividend income (15%) over the highest applicable tax rate
(currently 35%). Each shareholder will be notified within 60 days after the
close of the Fund's taxable year whether the foreign taxes paid by the Fund to
Japan or another country will be treated as paid by its shareholders for that
year and, if so, such notification will designate (i) such shareholder's portion
of the foreign taxes paid to such country and (ii) the portion of the Fund's
dividends that represents income derived from sources within such country.

FOREIGN SHAREHOLDERS

Ordinarily income dividends paid to shareholders who are nonresident aliens
or foreign entities will be subject to a 30% U.S. federal withholding tax under
existing provisions of the Code applicable to foreign individuals and entities
unless a reduced rate of withholding or a withholding exemption is provided
under applicable law or a relevant tax treaty. In the case of a foreign
shareholder who is a nonresident alien individual, the Fund may be required to
withhold U.S. federal income tax at a rate of 28%, unless the foreign
shareholder files an appropriate form certifying under penalty of perjury as to
his nonresident alien status.

If a foreign shareholder is a resident alien or if dividends from the Fund
are effectively connected with a United States trade or business carried on by
the foreign shareholder, dividends from the Fund and any gains realized upon the
sale of shares of the Fund will be subject to federal income tax at the rates
applicable to United States citizens or domestic corporations. A foreign
shareholder that is a corporation also may be subject to the 30% branch profits
tax.

Foreign shareholders are advised to consult their own tax advisers with
respect to the tax consequences to them of an investment in the Fund.

DISCLOSURE REGULATIONS

Under recently promulgated Treasury Regulations, if a shareholder recognizes
a loss with respect to shares of $2 million or more for an individual
shareholder, or $10 million or more for a corporate shareholder, in a single
taxable year (or a greater amount over a combination of years), the shareholder
must file with the IRS a disclosure statement on Form 8886. Direct holders of
portfolio securities are, in many cases, exempted from this reporting
requirement, but under current guidance shareholders of regulated investment
companies are not exempted. The fact that a loss is reportable under these
regulations does not affect the legal determination of whether or not the
taxpayer's treatment of the loss is proper. Shareholders should consult with
their tax advisers to determine the applicability of these regulations in light
of their individual circumstances.

NOTICES

Shareholders will be notified annually by the Fund as to the Fund's
distributions.

THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS A SUMMARY INCLUDED FOR
GENERAL INFORMATION PURPOSES ONLY. EACH SHAREHOLDER IS ADVISED TO CONSULT SUCH
SHAREHOLDER'S OWN TAX ADVISER WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES TO
SUCH SHAREHOLDER OF AN INVESTMENT IN THE FUND, INCLUDING STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX
LAWS.

JAPANESE TAXES

In the opinion of Japanese counsel for the Fund, the operations of the Fund
as described in this Prospectus will not subject the Fund to any Japanese
income, capital gains or other taxes except for withholding taxes on interest
and dividends and margin of issue and redemption prices of certain discount
notes paid to the Fund by Japanese corporations and consumption taxes payable
with respect to securities transactions conducted in Japan. In the opinion if
such counsel, under the tax convention between the United States and Japan (the
"Convention") as currently in force, Japanese withholding tax rate imposed upon
dividends paid by Japanese corporations to the Fund is limited to 15% with
certain exceptions. Pursuant to the Law Amending a Part of Income Tax Law etc.
(Law No. 8 of 2003) enacted on March 28, 2003, withholding tax at a rate of 10%
is imposed

upon dividends paid by Japanese public corporations to the Fund during the
period from April 1, 2003 to December 31, 2003. Such withholding tax rate will
be 7% duirng the period from January 1, 2004 to March 31, 2008. Pursuant to the
present terms of the Convention, interest received by the Fund from sources
within Japan is subject to Japanese withholding tax at the rate of 10%. A
shareholder of the Fund will not, merely because of the ownership of Fund
shares, be subject to individual income taxes imposed by Japan.

NET ASSET VALUE

Net asset value per share is determined on Thursday of each week based on
valuations made as of 5:00 p.m., Tokyo time, on such day. If any Thursday is a
holiday in Japan, the Fund intends to determine its net asset value as of
5:00 p.m., Tokyo time, on the prior business day in Japan. The net asset value
is computed by dividing the value of the securities held by the Fund plus any
cash or other assets (including interest and dividends accrued but not yet
received) minus all liabilities (including accrued expenses) by the total number
of shares outstanding at such time. Any assets or liabilities initially
expressed in terms of non-U.S. dollar currencies are translated into U.S.
dollars.

Securities traded on the First Section are valued at the last reported sales
price available to the Fund as of the close of business on the day the
securities are being valued or, lacking any such sales, at the last available
bid price. Other investments are stated at market value or otherwise at the fair
value at which it is expected they may be resold, as determined in good faith by
or under the direction of the Board of Directors of the Fund. Such valuations
and procedures will be reviewed periodically by the Board of Directors.

DESCRIPTION OF COMMON STOCK

The authorized capital stock of the Fund is 30,000,000 shares of Common
Stock ($0.01 par value) of which 10,815,688 were outstanding as of November 30,
2003. Shares of the Fund, when issued, are fully paid and non-assessable, and
will have no conversion, preemptive or other subscription rights. All shares of
Common Stock are equal as to assets, earnings and the receipt of dividends, if
any, as may be declared by the Board of Directors out of funds available
therefor. In the event of liquidation, dissolution or winding up of the Fund,
each share of Common Stock is entitled to receive its proportion of the Fund's
assets remaining after payment of all debts and expenses.

Under the Fund's Amended and Restated Articles of Incorporation, the Board
of Directors has the authority to classify or reclassify shares of its capital
stock with such rights, preferences, qualifications and limitations as the Board
of Directors, in its discretion, may determine.

The Fund does not have any current plans to make additional offerings of its
shares other than pursuant to the Offer except that additional shares may be
issued under the DRIP Plan. Offerings of additional shares will require approval
of the Fund's Board of Directors and may require shareholder approval. Any such
additional offerings would also be subject to the requirements of the 1940 Act,
including the requirement that shares may not be sold at a price below the then
current net asset value of the Fund's shares (exclusive of any underwriting
commission or discount) except in connection with an offering to existing
stockholders or with the consent of the holders of a majority of the Fund's
shares.

Stockholders are entitled to one vote per share and do not have cumulative
voting rights. Thus, holders of more than 50% of the shares voting for the
election of directors have the power to elect 100% of the directors, and, if
such event should occur, the holders of less than 50% of the shares voting for
directors would not be able to elect any person or persons to the Board of
Directors. In accordance with NYSE listing requirements, the Fund holds annual
stockholder meetings.

AMOUNT OUTSTANDING
EXCLUSIVE OF AMOUNT HELD
AMOUNT HELD BY THE FUND BY THE FUND OR FOR ITS
TITLE OF CLASS AMOUNT AUTHORIZED OR FOR ITS ACCOUNT ACCOUNT
--------------------- --------------------- ----------------------- ------------------------

Common Stock 30,000,000 shares 0 10,815,688 shares

REPURCHASE OF SHARES AND CONVERSION TO OPEN-END INVESTMENT COMPANY

Shares of closed-end investment companies frequently trade at a discount
from net asset value. In recognition of the possibility that the Fund's shares
may trade at a discount, the Fund may from time to time take action to attempt
to reduce or eliminate a market value discount from net asset value, either by
repurchasing Fund shares in the open market when it can do so at prices below
the current net asset value per share, or by

making a tender offer for shares of the Fund. The Board of Directors will
consider making such repurchases or tender offers on a quarterly basis. There is
no assurance that the Directors will approve such repurchases and/or tender
offers.

There can be no assurance that repurchasing or tendering for shares of the
Fund will result in the shares trading at a price equal to their net asset
value. The Fund anticipates that the market price of its shares will vary from
net asset value from time to time. When the Fund repurchases its shares in the
market at a price below their net asset value, the net asset value per share of
those shares that remain outstanding will be increased, but this does not
necessarily mean that the market price of those outstanding shares will be
affected either positively or negatively. The market price of the Fund's shares
will, among other things, be determined by the relative demand for and supply of
such shares in the market, the Fund's investment performance, the Fund's
dividends and yield, and investor perception of the Fund's overall
attractiveness as an investment as compared with other investment alternatives.

Subject to the Fund's fundamental policy with respect to borrowings, the
Fund may incur debt to finance repurchases and tenders of shares. SEE
"Investment Restrictions." However, the payment of interest on such borrowings
will increase the Fund's expenses and consequently reduce net income. In
addition, the Fund is required under the 1940 Act to maintain "asset coverage"
of not less than 300% of its "senior securities representing indebtedness" as
such terms are defined in the 1940 Act.

Any tender offer by the Fund will be made at a price based upon the net
asset value of the shares at the close of business on the last date of the
tender offer. No repurchases of shares will be made by the Fund during a tender
offer. Each offer will be made and shareholders notified in accordance with the
requirements of the Exchange Act and the 1940 Act, either by publication or
mailing or both. Each offering document will contain such information as is
prescribed by such laws and the rules and regulations promulgated thereunder.
When a tender offer is authorized by the Fund's Board of Directors, a
stockholder wishing to accept the offer will be required to tender all (but not
less than all) of the shares owned by such stockholder (or attributed to him or
her for federal income tax purposes under Section 318 of the Code). The Fund
will purchase all shares tendered in accordance with the terms of the offer
unless it determines to accept none of them (based upon one of the conditions
set forth below). Persons tendering shares may be required to pay a service
charge to help defray certain costs of the transfer agent. Any such service
charges will not be deducted from the consideration paid for the tendered
shares. During the period of a tender offer, the Fund's stockholders will be
able to determine the Fund's current net asset value (which will be calculated
weekly) by use of a toll-free telephone number.

It is the Board of Directors' present policy (which may be changed by them)
not to authorize share repurchases or accept tenders if (1) such transactions,
if consummated, would result in delisting of the Fund's shares from the NYSE
(the NYSE's stated policy is to consider delisting if the aggregate market value
of a company's outstanding shares is less than $5,000,000, the number of
publicly held shares falls below 600,000 or the number of round-lot holders
falls below 1,200), or cause the Fund to fail to qualify as a regulated
investment company under the Code; (2) the amount of securities tendered would
require liquidation of such a substantial portion of the Fund's investments that
the Fund would not be able to liquidate portfolio securities in an orderly
manner in light of existing market conditions and such liquidation would have an
adverse effect on the net asset value of the Fund or cause adverse tax
consequences to the detriment of the non-tendering Fund shareholders; or
(3) there is, in the judgment of the Directors, any material (a) legal action or
proceeding instituted or threatened challenging such transactions or otherwise
materially adversely affecting the Fund, (b) suspension of or limitation on
prices for trading securities generally on the NYSE or any foreign exchange on
which portfolio securities of the Fund are traded, (c) declaration of a banking
moratorium by Japanese or U.S. federal or state authorities or any suspension of
payment by banks in Japan, the United States or New York State, (d) limitation
affecting the Fund or the issuers of its portfolio securities imposed by U.S.
federal or state or foreign authorities on the extension of credit by lending
institutions or on the exchange of foreign currency, (e) commencement of war,
armed hostilities or other international or national calamity directly or
indirectly involving the United States or Japan, or (f) other event or condition
which would have a material adverse effect on the Fund or its shareholders. The
Directors may modify these conditions in light of experience.

Although the Directors believe that share repurchases generally would have a
favorable effect on the market price of the Fund's shares, it should be
recognized that the acquisition of shares by the Fund will decrease its total
assets and therefore may increase the Fund's expense ratio.

In addition, if Fund shares are trading at a discount from net asset value,
the Board of Directors may also consider whether to submit to stockholders a
proposal that the Fund be converted to an open-end investment

company. Any such proposal would require the favorable votes of the Fund's
outstanding shares then entitled to vote and of the Directors as specified
below. Stockholders of an open-end investment company may require the company to
redeem their shares at any time (except in certain circumstances as authorized
by or under the 1940 Act) at their net asset value, less such redemption charge,
if any, as might be in effect at the time of redemption. The Board of Directors
may, however, determine that the Fund should not take any action to convert the
Fund to an open-end investment company. In light of the position of the
Commission's staff that illiquid securities may not exceed 15% of total assets
of a registered open-end investment company, any attempt to convert the Fund to
such a company would have to take into account the percentage of illiquid
securities in the Fund's portfolio at the time, and other factors. The Fund
cannot predict whether on this basis it would be able to effect any such
conversion or whether, if relief from the Commission's position was required, it
could be obtained.

Any decision by the Board of Directors to authorize a tender offer or share
repurchase will depend on the Fund's ability to obtain financing for the
transaction at a level which the Directors believe will have a significant
beneficial effect on the remaining Fund stockholders.

ANTI-TAKEOVER PROVISIONS

The Fund presently has provisions in its Amended and Restated Articles of
Incorporation and Amended and Restated By-Laws (collectively, the "Charter
Documents") which could have the effect of limiting (i) the ability of other
entities or persons to acquire control of the Fund, (ii) the Fund's ability to
engage in certain transactions or (iii) the ability of the Fund's Directors or
stockholders to amend the Charter Documents or effect changes in the Fund's
management. These provisions in the Fund's Charter Documents may be regarded as
"anti-takeover" provisions.

The Board of Directors is divided into three classes, each having a term of
three years. At the annual meeting of stockholders in each year, the term of one
class expires. Accordingly, only those Directors in one class may be changed in
any one year, and it would require two years to replace a majority of the Board
of Directors. In addition, a Director may be removed from office only by vote of
the holders of at least 75% of the shares of the Fund entitled to be voted on
the matter. Such a system of electing and removing Directors may have the effect
of maintaining the continuity of the management and, thus, make it more
difficult for the Fund's stockholders to change a majority of the Directors.

Under the Fund's Amended and Restated Articles of Incorporation, the Board
of Directors has the authority to classify or reclassify unissued shares of its
capital stock with such rights, preferences, qualifications and limitations as
the Board of Directors in its discretion, may determine.

As permitted by the Maryland General Corporation Law ("MGCL") the Fund has
elected to be subject to the provisions of Section 3-602 of the MGCL which deals
with certain "business combinations" with "interested stockholders." An
"interested stockholder" is defined, in essence, as any person owning
beneficially, directly or indirectly, more than ten percent of the outstanding
voting stock of a Maryland corporation. A "business combination" is defined to
include, among other things, any merger or similar transaction subject to a
statutory vote and additional transactions involving transfers of assets or
securities in specified amounts to interested stockholders or their affiliates.
Unless an exemption to Section 3-602 applies, the Fund may not engage in any
business combination with an interested stockholder for a period of five years
after the interested stockholder became an interested stockholder, and
thereafter may not engage in a business combination unless it is recommended by
the Board of Directors and approved by the affirmative vote of at least (i) 80%
of the votes entitled to be cast by the holders of all outstanding voting stock
of the Fund, and (ii) 66-2/3% of the votes entitled to be cast by all holders of
outstanding shares of voting stock other than voting stock held by the
interested stockholder.

In addition, under the Fund's Amended and Restated Articles of
Incorporation, the affirmative vote of the holders of at least 75% of the shares
of the Fund then entitled to vote is required to approve, adopt or authorize the
following:

(i) a merger or consolidation of the Fund with or into another corporation,

(ii) a sale, lease, exchange or other disposition to or with any entity or
person of all or any substantial part of the assets of the Fund (except assets
having an aggregate fair market value of less than $1,000,000 or such sale,
lease or exchange in the context of the ordinary course of the Fund's investment
activities),

(iii) issuance or transfer of any securities of the Fund to any person or
entity for cash, securities or other property (or combination thereof) having an
aggregate fair market value of $1,000,000 or more excluding sales of securities
in connection with a public offering and securities issued pursuant to a
dividend reinvestment plan adopted by the Fund or upon the exercise of any stock
subscription rights distributed by the Fund,

(iv) a liquidation or dissolution of the Fund, or

(v) the conversion of the Fund from closed-end to open-end status,

unless any of the foregoing actions or events have been previously approved,
adopted or authorized by the affirmative vote of 75% of the Directors then in
office. In any such case, the affirmative vote of the holders of 66-2/3% of the
outstanding shares of the Fund or such higher percentage as may be specified in
the MGCL or the 1940 Act would be required.

The affirmative vote of 75% or more of the outstanding shares of the Fund
then entitled to vote is required to amend any or all of the foregoing
provisions and certain other provisions contained in the Charter Documents.

The Board of Directors has determined that the super-majority voting
requirements described above, which are greater than the minimum requirement
under Maryland law or the 1940 Act, are generally in the best interests of
shareholders. Reference should be made to the Amended and Restated Articles of
Incorporation of the Fund on file with the Commission for the full text of these
provisions.

The provisions of the Charter Documents described above and the Fund's right
to repurchase its shares (SEE "Repurchase of Shares and Conversion to Open-End
Investment Company") could have the effect of depriving shareholders of the
opportunity to sell their shares at a premium over prevailing market prices, by
discouraging a third party from seeking to obtain control of the Fund in a
tender offer or similar transaction. The overall effect of these provisions is
to render more difficult the accomplishment of a merger or the assumptions of
control by another entity or person.

DISTRIBUTION ARRANGEMENTS

Daiwa Securities America Inc. will act as Dealer Manager for the Offer. The
principal business address of Daiwa Securities America Inc. is Financial Square,
32 Old Slip, 14th Floor, New York, New York 10005-3538. Under the terms and
subject to the conditions contained in a Dealer Manager Agreement, dated the
date of this prospectus, the Dealer Manager will provide financial advisory
services and marketing assistance in connection with the Offer and will solicit
the exercise of Rights. The Fund will pay the Dealer Manager a fee equal to
1.25% of the aggregate Subscription Price for the Shares issued upon exercise of
the Rights for financial advisory and marketing services in connection with the
Offer, including advice with respect to the availability, timing, size, and
pricing of the Offer, the coordination of soliciting efforts among soliciting
dealers, the Subscription Agent and the Information Agent, and market-making
activities to facilitate a liquid and orderly market for the Rights and the
Shares. The Fund has agreed to pay directly to the Dealer Manager and to each
broker dealer who has executed and delivered a Soliciting Dealer Agreement and
who has solicited the exercise of Rights, fees for their soliciting efforts (the
"Soliciting Fees") equal to 2.50% of the aggregate Subscription Price per Share
issued upon exercise of the Rights. The Fund has also agreed to reimburse the
Dealer Manager for its out-of-pocket expenses in connection with the Offer up to
an aggregate of $100,000. Soliciting Fees will be paid to the Dealer Manager or
the broker dealer, as the case may be, designated on the applicable portion of
the Subscription Certificate.

In addition, the Fund, the Investment Manager and the Investment Adviser,
will indemnify the Dealer Manager or contribute to losses arising out of certain
liabilities, including liabilities under the Securities Act of 1933.

The Investment Manager and the Investment Adviser are affiliates of Daiwa
Securities America Inc. Mr. Kimura, a Director of the Fund, and Mr. O'Keefe and
Ms. Pineda, officers of the Fund, are also affiliated with Daiwa Securities
America Inc.

The Offer may be deemed to involve a distribution of the Fund's Common Stock
for purposes of Regulation M. As such, until the distribution of the Common
Stock pursuant to the Offer is completed, rules of the Commission may limit the
ability of the Dealer Manager and the Soliciting Dealers to bid for and purchase
the Common Stock. As an exception to these rules, the Dealer Manager and the
Soliciting Dealers are permitted to engage in certain transactions that
stabilize the price of the Common Stock. The Dealer Manager and the

Soliciting Dealers also are permitted to engage in certain stabilizing
transactions in the Rights. Such stabilizing transactions may consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock or the Rights and may be effected on the NYSE, in the
over-the-counter markets or otherwise.

In general, purchases of a security for the purpose of stabilization could
cause the price of the security to be higher than it might be in the absence of
such purchases. The Fund, the Dealer Manager and the Soliciting Dealers make no
representations or predictions as to the direction or magnitude of any effect
that the transactions described above might have on the price of the Common
Stock or the Rights. In addition, the Fund, the Dealer Manager and the
Soliciting Dealers make no representation that the Dealer Manager or the
Soliciting Dealers will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.

TRANSFER AGENT, DIVIDEND PAYING AGENT AND REGISTRAR

PFPC Inc. (the "Transfer Agent") acts as the Fund's Dividend Paying Agent
and as Transfer Agent and Registrar for the Fund's Common Stock. The principal
business address of the Transfer Agent is PFPC Inc., P.O. Box 43027, Providence,
Rhode Island 02940-3027.

EXPERTS

The financial statements of the Fund for the fiscal year ended October 31,
2003 included in this Prospectus have been so included in reliance on the report
of PricewaterhouseCoopers LLP, independent auditors, given on the authority of
said firm as experts in auditing and accounting. The address of
PricewaterhouseCoopers LLP, is 1177 Avenue of the Americas, New York, New
York 10036.

LEGAL MATTERS

Certain legal matters in connection with this offering will be passed on for
the Fund by Clifford Chance US LLP, New York, New York and for the Dealer
Manager by Sidley Austin Brown & Wood LLP, New York, New York. With respect to
all matters of Japanese law, counsel for the Fund and counsel for the Dealer
Manager will rely on Mori Hamada & Matsumoto, Tokyo, Japan. Counsel for the Fund
and counsel for the Dealer Manager will rely, as to matters of Maryland law, on
Piper Rudnick LLP, Baltimore, Maryland.

It is likely that foreign persons, such as the Japanese Custodian and
foreign directors of the Fund, will not have assets in the United States that
could be attached in connection with any U.S. action, suit or proceeding. The
Fund has been advised by its Japanese counsel that judgments rendered by a
non-Japanese court are enforceable by the courts of Japan without reexamination
or relitigation of the matters adjudicated upon, provided that (i) the
jurisdiction of such court is not denied under Japanese laws, (ii) the defendant
either has been properly served by summons (other than by way of public notice)
regarding the action or has appeared in such action, (iii) reciprocity exists
with respect to the enforcement of a final judgment of a Japanese court by the
non-Japanese court, and (iv) the judgment of the non-Japanese court to be
executed in Japan is not contrary to Japanese public policy.

The books and records of the Fund required under U.S. law are maintained at
the Fund's principal office in the United States and are subject to inspection
by the Commission.

ADDITIONAL INFORMATION

The Fund has filed with the Commission, Washington, D.C. 20549, a
Registration Statement on Form N-2, with respect to the Shares offered hereby.
Further information concerning the Rights, the Shares and the Fund may be found
in the Registration Statement, of which this Prospectus constitutes a part. The
Registration Statement may be inspected without charge at the Commission's
office in Washington, D.C., and copies of all or any part thereof may be
obtained from such office after payment of the fees prescribed by the
Commission.

The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act and in accordance therewith is required to
file reports and other information with the Commission. Any such reports and
other information, including the Fund's Code of Ethics, can be inspected and
copied at the public reference facilities of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following regional offices of the Commission: Pacific Regional Office, at 5670
Wilshire Boulevard, 11th Floor, Los Angeles, California 90036; and Midwest
Regional Office, at Northwest Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such material can be obtained from
the public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549

at prescribed rates. The Commission maintains a website at http://www.sec.gov
containing reports and information statements and other information regarding
registrants, including the Fund, that file electronically with the Commission.
Reports, proxy statements and other information concerning the Fund can also be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005.

Additional information regarding the Fund is contained in the Registration
Statement on Form N-2, including amendments, exhibits and schedules thereto,
relating to such shares filed by the Fund with the Commission in Washington,
D.C. This prospectus does not contain all of the information set forth in the
Registration Statement, including any amendments, exhibits and schedules
thereto. For further information with respect to the Fund and the shares offered
hereby, reference is made to the Registration Statement. Statements contained in
this prospectus as to the contents of any contract or other document referred to
are not necessarily complete and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement may be inspected without charge
at the Commission's principal office in Washington D.C., and copies of all or
any part thereof may be obtained from the Commission upon the payment of certain
fees prescribed by the Commission.

THE JAPAN EQUITY FUND, INC.

INDEX TO FINANCIAL STATEMENTS

PAGE
--------

Portfolio of Investments as of October 31, 2003............. F-2

Statement of Assets and Liabilities as of October 31,
2003...................................................... F-6

Statement of Operations for the year ended October 31,
2003...................................................... F-7

Statement of Changes in Net Assets for the years ended
October 31, 2003 and 2002................................. F-8

Notes to Financial Statements............................... F-9

Financial Highlights for a share of capital stock
outstanding during each year ended October 31, 2003,
2002, 2001, 2000 and 1999................................. F-13

Report of Independent Accountants........................... F-14

F-1

THE JAPAN EQUITY FUND, INC.
----------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2003
--------------------------------------------------------------------------------

COMMON STOCKS--96.86%
--------------------------------------------------------------------------------

SHARES VALUE
-------- -----------

BANKS--5.45%
267 Mitsubishi Tokyo Financial Group
Inc. .................................. $ 1,934,783
185,000 The Sumitomo Trust & Banking Co.,
Ltd. .................................. 1,041,919
130 UFJ Holdings, Inc.* .................... 560,448
-----------
3,537,150
-----------
CHEMICALS--5.48%
239,000 Denki Kagaku Kogyo Kabushiki Kaisha .... 732,214
19,900 Hitachi Chemical Co., Ltd. ............. 324,183
158,000 Mitsui Chemicals Inc. .................. 930,435
20,000 Nifco Inc. ............................. 258,118
35,000 Shin-Etsu Chemical Co., Ltd. ........... 1,313,062
-----------
3,558,012
-----------
COMMERCE--0.89%
67,000 Canon Sales Co., Inc. .................. 574,619
-----------
COMMUNICATION--9.75%
20,200 Hitachi Information System, Ltd. ....... 587,360
130 KDDI Corp. ............................. 711,888
370 NTT Corp. .............................. 1,666,392
1,110 NTT DoCoMo, Inc. ....................... 2,423,225
3,700 TIS Inc. ............................... 131,343
50,000 Tokyo Broadcasting System, Inc. ........ 807,650
-----------
6,327,858
-----------
CONSTRUCTION--1.54%
55,000 Daiwa House Industry Co., Ltd. ......... 598,331
103,000 Shimizu Corp. .......................... 401,532
-----------
999,863
-----------

SHARES VALUE
-------- -----------

ELECTRIC APPLIANCES--17.36%
42,000 ALPS Electric Co., Ltd. ................ $ 710,017
21,000 Canon Inc. ............................. 1,024,766
30,000 Casio Computer Co., Ltd. ............... 269,400
9,800 Fanuc Ltd. ............................. 594,185
185,000 Hitachi Ltd. ........................... 1,096,221
55,000 Japan Radio Co., Ltd. .................. 268,391
13,000 Kyocera Corp. .......................... 789,396
150,000 Matsushita Electric Industrial Co.,
Ltd. .................................. 1,993,671
9,000 NEC Electronics Corp. .................. 698,404
40,000 Nippon Chemi-con Corp. ................. 159,604
2,700 Rohm Co., Ltd. ......................... 367,034
61,000 Sharp Corp. ............................ 968,547
50,000 Taiyo Yuden Co., Ltd. .................. 729,224
8,500 TDK Corp. .............................. 561,365
170,000 Toshiba Corp. .......................... 687,672
30,000 Yokogawa Electric Corp. ................ 353,605
-----------
11,271,502
-----------
ELECTRIC POWER & GAS--1.33%
10,000 Kansai Electric Power Co., Inc. ........ 174,280
200,000 Tokyo Gas Co., Inc. .................... 691,616
-----------
865,896
-----------
FOODS--0.80%
60,000 Fuji Oil Co., Ltd. ..................... 520,638
-----------
GLASS & CERAMIC PRODUCTS--1.07%
60,000 NGK Insulators, Ltd. ................... 413,319
7,000 Nippon Electric Glass Co., Ltd. ........ 129,701
80,000 Sumitomo Osaka Cement Co., Ltd. ........ 148,964
-----------
691,984
-----------

F-2

THE JAPAN EQUITY FUND, INC.
----------------------------------------------------------------------

PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2003
--------------------------------------------------------------------------------

COMMON STOCKS (CONTINUED)
--------------------------------------------------------------------------------

SHARES VALUE
-------- -----------

INSURANCE--0.70%
97,000 Nissay Dowa General Insurance Co.,
Ltd. .................................. $ 453,770
-----------
IRON & STEEL--2.76%
550,000 Kobe Steel, Ltd.* ...................... 711,337
355,000 Nippon Steel Corp. ..................... 735,920
170,000 Nisshin Steel Co., Ltd. ................ 341,497
-----------
1,788,754
-----------
LAND TRANSPORTATION--1.44%
40 East Japan Railway Co. ................. 182,719
56,000 Yamato Transport Co., Ltd. ............. 750,468
-----------
933,187
-----------
MACHINERY--3.99%
30,000 Amada Co., Ltd. ........................ 130,710
85,000 Komatsu Ltd. ........................... 463,906
130,000 Mitsubishi Heavy Industries, Ltd. ...... 360,117
180,000 NSK Ltd. ............................... 747,936
11,000 Ricoh Co., Ltd. ........................ 210,374
33,200 THK Co., Ltd. .......................... 679,105
-----------
2,592,148
-----------
MARINE TRANSPORTATION--0.69%
110,000 Mitsui O.S.K. Lines, Ltd. .............. 451,018
-----------
METAL PRODUCTS--0.85%
30,000 NHK Spring Co., Ltd. ................... 137,865
23,000 Tostem Inax Holding Corp. .............. 413,291
-----------
551,156
-----------
NON-FERROUS METALS--1.66%
85,000 Fujikura Ltd. .......................... 515,364
140,000 Mitsui Mining & Smelting Co., Ltd. ..... 565,034
-----------
1,080,398
-----------

SHARES VALUE
-------- -----------

OTHER FINANCING BUSINESS--1.73%
52,000 Hitachi Capital Corp. .................. $ 703,541
2,870 SFCG Co., Ltd. ......................... 421,734
-----------
1,125,275
-----------
OTHER PRODUCTS--1.82%
128,000 Toppan Printing Co., Ltd. .............. 1,183,489
-----------
PHARMACEUTICAL--3.44%
37,000 Takeda Chemical Industries, Ltd. ....... 1,320,216
36,000 Yamanouchi Pharmaceutical Co., Ltd. .... 911,392
-----------
2,231,608
-----------
PRECISION INSTRUMENTS--0.51%
40,000 Citizen Watch Co., Ltd. ................ 330,582
-----------
REAL ESTATE--2.05%
142,000 Mitsui Fudosan Co., Ltd. ............... 1,332,471
-----------
RETAIL TRADE--6.43%
13,000 Fast Retailing Co., Ltd. ............... 796,551
2,000 Hard Off Corp. Co., Ltd. ............... 42,928
53,400 Isetan Co., Ltd. ....................... 557,413
68,000 Marui Co., Ltd. ........................ 870,739
7,800 Matsumotokiyoshi Co., Ltd. ............. 395,652
4,500 Nitori Co., Ltd. ....................... 289,351
17,000 Otsuka Kagu Ltd. ....................... 498,991
69,000 Uny Co., Ltd. .......................... 724,051
-----------
4,175,676
-----------
RUBBER PRODUCTS--1.12%
260,000 Yokahama Rubber Co., Ltd. .............. 727,389
-----------

F-3

THE JAPAN EQUITY FUND, INC.
----------------------------------------------------------------------

PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2003
--------------------------------------------------------------------------------

COMMON STOCKS (CONCLUDED)
--------------------------------------------------------------------------------

SHARES VALUE
-------- -----------

SECURITIES--4.06%
230,000 Nikko Cordial Corp. .................... $ 1,251,055
80,000 Nomura Holdings Inc. ................... 1,385,434
-----------
2,636,489
-----------
SERVICES--2.93%
6,700 Meitec Corp. ........................... 241,524
1,800 OBIC Co., Ltd. ......................... 399,560
13,500 Secom Co., Ltd. ........................ 532,471
100 The Goodwill Group, Inc. ............... 726,472
-----------
1,900,027
-----------
TEXTILE & APPAREL--1.82%
195,000 Mitsubishi Rayon Co., Ltd. ............. 729,774
40,000 Onward Kashiyma Co., Ltd. .............. 452,761
-----------
1,182,535
-----------
TRANSPORTATION EQUIPMENT--9.38%
40,000 Denso Corp. ............................ 764,997
20,000 Honda Motor Co., Ltd. .................. 796,184
140,000 Mazda Motor Corp. ...................... 362,135
15,000 Nissan Motor Co., Ltd. ................. 169,510
15,600 Shimano Inc. ........................... 300,495
10,300 Showa Corp. ............................ 102,981
14,800 Toyota Industries Corp. ................ 275,582
98,000 Toyota Motor Corp. ..................... 2,813,612
44,000 Yamaha Motor Co., Ltd. ................. 503,284
-----------
6,088,780
-----------
WAREHOUSING--1.35%
100,000 Mitsubishi Logistics Corp. ............. 877,821
-----------

SHARES VALUE
-------- -----------

WHOLESALE TRADE--4.46%
15,000 Autobacs Seven
Co., Ltd. ............................. $ 330,215
3,600 Kuroda Electric
Co., Ltd. ............................. 114,584
63,000 Mitsubishi Corp. ....................... 659,356
150,000 Mitsui & Co., Ltd. ..................... 1,100,715
91 Net One Systems Co., Ltd. .............. 687,800
-----------
2,892,670
-----------
Total Common Stocks
(Cost--$57,173,942) ............................ 62,882,765
-----------
---------------------------------------------------------------
SHORT-TERM INVESTMENTS--0.23%
---------------------------------------------------------------

PRINCIPAL
AMOUNT
(000)
---------

U.S. DOLLAR TIME DEPOSIT--0.23%
$149 Bank of New York Time Deposit, 0.05%,
due 11/3/03
(Cost--$149,229) ...................... 149,229
-----------
Total Investments--97.09%
(Cost--$57,323,171) ............................. 63,031,994
Other assets less liabilities--2.91% .............. 1,886,378
-----------

NET ASSETS (Applicable to 10,815,688 shares of
capital stock outstanding; equivalent to $6.00
per share)--100.00% ............................. $64,918,372
===========

------------------------

* Non-income producing securities.

F-4

THE JAPAN EQUITY FUND, INC.
----------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONCLUDED)
OCTOBER 31, 2003
--------------------------------------------------------------------------------

-------------------------------------------
TEN LARGEST EQUITY
POSITIONS HELD
OCTOBER 31, 2003
-------------------------------------------

PERCENT OF
ISSUE NET ASSETS
--------------------------------- ----------

Toyoto Motor Corp. .............. 4.33%
NTT DoCoMo, Inc. ................ 3.73
Metsushita Electric Industrial
Co., Ltd. ...................... 3.07
Mitsubishi Tokyo Financial Group
Inc. ........................... 2.98
NTT Corp. ....................... 2.57
Nomura Holdings Inc. ............ 2.13
Mitsui Fudosan Co., Ltd. ........ 2.05
Takeda Chemical Industries,
Ltd. ........................... 2.03
Shin-Etsu Chemical Co., Ltd. .... 2.02
Nikko Cordial Corp. ............. 1.93

-------------------------------------------
TEN LARGEST EQUITY
CLASSIFICATIONS HELD
OCTOBER 31, 2003
-------------------------------------------

PERCENT OF
INDUSTRY NET ASSETS
--------------------------------- ----------

Electric Appliances.............. 17.36%
Communication.................... 9.75
Transportation Equipment......... 9.38
Retail Trade..................... 6.43
Chemicals........................ 5.48
Banks............................ 5.45
Wholesale Trade.................. 4.46
Securities....................... 4.06
Machinery........................ 3.99
Pharmaceuticals.................. 3.44

F-5

THE JAPAN EQUITY FUND, INC.
----------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2003
--------------------------------------------------------------------------------

ASSETS
Investment in securities, at value
(cost--$57,323,171)....................... $ 63,031,994
Cash denominated in foreign currency
(cost--$1,327,293)........................ 1,325,093
Receivable for securities sold............. 2,105,387
Interest and dividends receivable.......... 218,291
Deferred rights expense.................... 15,150
Prepaid expenses........................... 33,891
------------
Total assets............................. 66,729,806
------------
LIABILITIES
Payable for securities purchased........... 1,704,890
Accrued expenses and other liabilities..... 106,544
------------
Total liabilities........................ 1,811,434
------------
NET ASSETS
Capital stock, $0.01 par value per share;
total 30,000,000 shares authorized;
10,815,688 shares issued and
outstanding............................... 108,157
Paid-in capital in excess of par value..... 107,239,148
Accumulated net realized loss on
investments............................... (48,137,844)
Net unrealized appreciation on investments
and other assets and liabilities
denominated in foreign currency........... 5,708,911
------------
Net assets applicable to shares
outstanding............................. $ 64,918,372
============
NET ASSET VALUE PER SHARE............ $ 6.00
============

See accompanying notes to financial statements.

F-6

THE JAPAN EQUITY FUND, INC.
----------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2003
--------------------------------------------------------------------------------

INVESTMENT INCOME:
Dividends (net of withholding taxes of
$59,858).................................. $ 534,138
Interest................................... 97
-----------
Total investment income.................. 534,235
-----------
EXPENSES:
Investment management fee.................. 242,485
Administration fee......................... 120,904
Custodian fees and expenses................ 85,730
Audit and tax services..................... 83,300
Legal fees and expenses.................... 75,177
Reports and notices to shareholders........ 49,843
Insurance expense.......................... 39,625
Directors' fees and expenses............... 26,807
Transfer agency fee and expenses........... 15,781
Other...................................... 47,840
-----------
Total expenses........................... 787,492
-----------
Net investment loss.......................... (253,257)
-----------
REALIZED AND UNREALIZED GAINS FROM INVESTMENT
ACTIVITIES AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized losses on investments......... (5,224,636)
Net realized foreign currency transaction
gains..................................... 209,459
Net change in unrealized appreciation
(depreciation) on investments in equity
securities................................ 21,082,931
Net change in unrealized appreciation
(depreciation) on assets and
liabilities denominated in foreign
currency.................................. (2,396)
-----------
Net realized and unrealized gains from
investment activities and foreign
currency transactions....................... 16,065,358
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.................................. $15,812,101
===========

See accompanying notes to financial statements.

F-7

THE JAPAN EQUITY FUND, INC.
----------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------

FOR THE YEARS ENDED
OCTOBER 31,
---------------------------
2003 2002
----------- ------------

INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment loss........................ $ (253,257) $ (421,926)
Net realized gain (loss) on:
Investments.............................. (5,224,636) (13,433,292)
Foreign currency transactions............ 209,459 (81,954)
Net change in unrealized appreciation
(depreciation) on:
Investments in equity securities......... 21,082,931 2,524,336
Translation of short-term investments and
other assets and liabilities denominated
in foreign currency..................... (2,396) 7,749
----------- ------------
Net increase (decrease) in net assets
resulting from operations................. 15,812,101 (11,405,087)
----------- ------------
NET ASSETS:
Beginning of year.......................... 49,106,271 60,511,358
----------- ------------
End of year................................ $64,918,372 $ 49,106,271
=========== ============

See accompanying notes to financial statements.

F-8

THE JAPAN EQUITY FUND, INC.
----------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

The Japan Equity Fund, Inc. (the "Fund") was incorporated in Maryland on
July 12, 1990 under its former name "The Japan Emerging Equity Fund, Inc." and
commenced operations on July 24, 1992. It is registered with the Securities and
Exchange Commission as a closed-end, diversified management investment company.

The following significant accounting policies are in conformity with
generally accepted accounting principles in the United States of America for
investment companies. Such policies are consistently followed by the Fund in the
preparation of its financial statements. The preparation of financial statements
in accordance with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the
amounts and disclosures in the financial statements. Actual reporting results
could differ from those estimates.

VALUATION OF INVESTMENTS--Securities which are listed on the Tokyo Stock
Exchange or listed on the over-the-counter market in Japan or listed on other
exchanges in Japan and for which market quotations are readily available are
valued at the last reported sales price available to the Fund at the close of
business on the day the securities are being valued or, lacking any such sales,
at the last available bid price. In instances where quotations are not readily
available or where the price as determined by the above procedures is deemed not
to represent fair market value, fair value will be determined in such manner as
the Board of Directors (the "Board") may prescribe. Short-term investments
having a maturity of 60 days or less are valued at amortized cost, except where
the Board determines that such valuation does not represent the fair value of
the investment. All other securities and assets are valued at fair value as
determined in good faith by, or under the direction of, the Board.

FOREIGN CURRENCY TRANSLATION--The books and records of the Fund are
maintained in U.S. dollars as follows: (1) the foreign currency market value of
investment securities and other assets and liabilities stated in Japanese yen
are translated at the exchange rates prevailing at the end of the period; and
(2) purchases, sales, income and expenses are translated at the rate of exchange
prevailing on the respective dates of such transactions. The resulting exchange
gains and losses are included in the Statement of Operations. The Fund does not
isolate the effect of fluctuations in foreign exchange rates from the effect of
fluctuations in the market price of securities.

TAX STATUS--The Fund intends to continue to distribute substantially all of
its taxable income and to comply with the minimum distribution and other
requirements of the Internal Revenue Code applicable to regulated investment
companies. Accordingly, no provision for federal income or excise taxes is
required.

The Fund is not subject to any Japanese income, capital gains or other taxes
except for withholding taxes on certain income, generally imposed at rates of
10% on interest and dividends, paid to the Fund by Japanese corporations.

INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
recorded on the trade date (the date upon which the order to buy or sell is
executed). Realized and unrealized gains and losses from security and foreign
currency transactions are calculated on the identified cost basis. Dividend
income and corporate actions are recorded generally on the ex-date, except for
certain dividends and corporate actions from Japanese securities which may be
recorded after the ex-date, as soon as the Fund acquires information regarding
such dividends or corporate actions. Interest income is recorded on an accrual
basis.

F-9

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS--The Fund records dividends and
distributions payable to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations, which
may differ from generally accepted accounting principles. These book basis/tax
basis differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax basis treatment;
temporary differences do not require reclassifications. Dividends and
distributions which exceed net investment income and net realized capital gains
for tax purposes are reported as distributions of paid-in-capital.

INVESTMENT MANAGER AND INVESTMENT ADVISER

The Fund has an Investment Management Agreement with Daiwa SB Investments
(U.S.A.) Ltd. (the "Manager"). Daiwa SB Investments Ltd. ("DSBI" or the
"Adviser"), an affiliate of the Manager, acts as the Fund's investment adviser
pursuant to an Investment Advisory Agreement between the Manager and DSBI. For
such investment services, the Fund is obligated to pay the Manager a monthly fee
at an annual rate of 0.60% of the first $20 million, 0.40% of the next
$30 million and 0.20% of the excess over $50 million of the Fund's average
weekly net assets, of which fee 60% is paid by the Manager to DSBI.

In addition, the Fund has agreed to reimburse the Manager and the Adviser
for all out-of-pocket expenses related to the Fund. For the year ended
October 31, 2003, there were no out-of-pocket expenses incurred by the Manager
or the Adviser.

At October 31, 2003, the Fund owed $23,022 to the Manager and the Manager
informed the Fund that it owed the Adviser $13,813.

Brokerage commissions of $21,224 were paid by the Fund to Daiwa Securities
America, Inc., an affiliate of both the Manager and DSBI, in connection with
portfolio transactions during the year ended October 31, 2003. At October 31,
2003, the Fund had unsettled purchases of $487,305 and unsettled sales of
$913,349 with this affiliate, such amounts are included in "Payable for
securities purchased" and "Receivable for securities sold", respectively, in the
Statement of Assets and Liabilities.

ADMINISTRATOR AND CUSTODIAN AND OTHER RELATED PARTIES

Daiwa Securities Trust Company ("DSTC") an affiliate of the Adviser,
provides certain administrative services to the Fund, for which the Fund pays to
DSTC a monthly fee at an annual rate of 0.20% of the first $60 million of the
Fund's average weekly net assets, 0.15% of the next $40 million and 0.10% of the
excess over $100 million, with a minimum annual fee of $120,000. In addition, as
permitted by the Administration Agreement, the Fund reimburses the Administrator
for its out-of-pocket expenses related to the Fund. For the year ended
October 31, 2003, there were no out-of-pocket expenses incurred by the
Administrator.

DSTC also acts as custodian for the Fund's assets and has appointed Sumitomo
Mitsui Banking Corporation (the "Sub-Custodian"), an affiliate of the Manager,
to act as the sub-custodian for all of the cash and securities of the Fund held
in Japan. As compensation for its services as custodian, DSTC receives a monthly
fee and

F-10

THE JAPAN EQUITY FUND, INC.
----------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
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,
2003, DSTC and the Sub-Custodian earned $29,105 and $56,625, respectively, as
compensation for custodial service to the Fund.

At October 31, 2003, the Fund owed $10,897 and $3,150 to DSTC for
administration and custodian fees, respectively, excluding fees and expenses of
$2,974 payable to the Sub-Custodian.

During the year ended October 31, 2003, the Fund paid or accrued $75,177 for
legal services in connection with the Fund's on-going operations to a law firm
of which the Fund's Assistant Secretary is a partner.

INVESTMENTS IN SECURITIES AND FEDERAL INCOME TAX MATTERS

For federal income tax purposes, the cost of securities owned at
October 31, 2003 was substantially the same as the cost of securities for
financial statement purposes. At October 31, 2003, the net unrealized
appreciation of investments for federal income tax purposes, excluding
short-term securities, of $5,708,823 was composed of gross appreciation of
$8,779,851 for those investments having an excess of value over cost, and gross
depreciation of $3,071,028 for those investments having an excess of cost over
value. For the year ended October 31, 2003, total aggregate purchases and sales
of portfolio securities, excluding short-term securities, were $42,867,805 and
$43,850,776, respectively.

In order to present undistributed net investment income and accumulated net
realized loss on investments on the Statement of Assets and Liabilities that
more closely represent their tax character, certain adjustments have been made
to paid-in capital in excess of par value, undistributed net investment income
and accumulated net realized loss on investments.

For the year ended October 31, 2003, the adjustments were to decrease net
investment loss by $253,257, increase accumulated net realized loss on
investments by $209,459 and decrease paid-in capital in excess of par by
$43,798, primarily relating to the Fund's net operating loss for the year ended
October 31, 2003 and the reclassification of realized foreign currency gains.
Net investment income, net realized losses and net assets were not affected by
this change.

At October 31, 2003, the Fund had a remaining capital loss carryover of
$48,137,844, of which $6,264,639 expires in the year 2005, $16,909,841 expires
in the year 2006, $6,225,150 expires in the year 2009, $13,474,882 expires in
the year 2010 and $5,263,332 expires in the year 2011 available to offset future
net capital gains.

As of October 31, 2003, the Fund had no distributable earnings.

CAPITAL STOCK

There are 30,000,000 shares of $.01 par value common stock authorized. Of
the 10,815,688 shares of the Fund outstanding at October 31, 2003, Daiwa
Securities America Inc. an affiliate of the Manager, Adviser and DSTC owned
14,532 shares.

F-11

THE JAPAN EQUITY FUND, INC.
----------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
--------------------------------------------------------------------------------

SUBSEQUENT EVENT

On November 10, 2003, the Fund announced that it will issue to stockholders
of record as of December 4, 2003 (the "Record Date") one transferable right for
each share of common stock held (the "Offering"). Three rights will entitle the
holder to purchase one share of common stock at the subscription price. The
subscription price will not be determined until December 23, 2003, the
expiration date of the Offering (the "Expiration Date") and will equal 90% of
the average of the closing price of the Fund's common stock on the New York
Stock Exchange on the Expiration Date of the Offering and the four immediately
preceding trading days, with a requirement that the price be no lower than 95%
of the net asset value per share of common stock of the Fund at the Expiration
Date. If all subscription rights are exercised, the Fund will issue
approximately 3,605,229 shares of its common stock in the Offering.

F-12

THE JAPAN EQUITY FUND, INC.
----------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

Selected data for a share of capital stock outstanding during each year is
presented below:

FOR THE YEARS ENDED OCTOBER 31,
2003 2002 2002 2000 1999
-------- -------- -------- -------- --------

Net asset value, beginning of year...................... $ 4.54 $ 5.59 $ 8.35 $ 9.39 $ 6.08
------- ------- ------- ------- -------
Net investment loss..................................... (0.02) (0.04) (0.04) (0.04) (0.01)
Net realized and unrealized gains (losses) on
investments and foreign currency transactions.......... 1.48 (1.01) (2.72) (1.00) 3.32
------- ------- ------- ------- -------
Net increase (decrease) in net asset value resulting
from operations........................................ 1.46 (1.05) (2.76) (1.04) 3.31
------- ------- ------- ------- -------
Net asset value, end of year............................ $ 6.00 $ 4.54 $ 5.59 $ 8.35 $ 9.39
======= ======= ======= ======= =======
Per share market value, end of year..................... $ 7.160 $ 4.150 $ 4.990 $ 7.063 $ 9.813
======= ======= ======= ======= =======
Total investment return:
Based on market price at beginning and end of year.... 72.53 % (16.83)% (29.35)% (28.02)% 42.73 %
Based on net asset value at beginning and end
of year.............................................. 32.16 % (18.78)% (33.05)% (11.08)% 54.44 %
Ratios and supplemental data:
Net assets, end of year (in millions)................. $ 64.9 $ 49.1 $ 60.5 $ 90.3 $101.6
Ratios to average net assets of:
Expenses............................................ 1.50 % 1.44 % 1.12 % 0.96 % 1.08 %
Net investment loss................................. (0.48)% (0.74)% (0.51)% (0.48)% (0.11)%
Portfolio turnover.................................... 84.00 % 76.19 % 63.39 % 61.91 % 58.70 %

F-13

THE JAPAN EQUITY FUND, INC.
----------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
--------------------------------------------------------------------------------

To The Shareholders and
Board of Directors of
The Japan Equity Fund, Inc.

In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Japan Equity Fund, Inc. (the
"Fund") at October 31, 2003, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
December 3, 2003

F-14

APPENDIX A

[FORM OF SUBSCRIPTION CERTIFICATE]

VOID IF NOT RECEIVED BY THE SUBSCRIPTION AGENT BEFORE 5:00 P.M.
NEW YORK TIME ON THE EXPIRATION DATE OF DECEMBER 23, 2003

CONTROL NO. MAXIMUM PRIMARY SUBSCRIPTION SHARES AVAILABLE

THE JAPAN EQUITY FUND, INC.
SUBSCRIPTION RIGHTS FOR COMMON STOCK

Dear Stockholder:

IN ORDER TO EXERCISE YOUR RIGHTS, YOU MUST COMPLETE BOTH SIDES OF THE TEAR-
OFF CARD BELOW.
As the registered owner of the Subscription Certificate below, you are
entitled to subscribe for the number of shares of Common Stock, $.01 par value
("Shares"), of The Japan Equity Fund, Inc. (the "Fund"), shown above pursuant to
the Primary Subscription and upon the terms and conditions and at the
Subscription Price for each Share specified in the Prospectus relating thereto.
The Rights represented hereby include the Over-Subscription Privilege for record
date Rights Holders, as described in the Prospectus. Under the Over-Subscription
Privilege, any number of additional Shares may be purchased by a record date
Rights Holder if such Shares are available and such Rights Holder has fully
exercised his or her Primary Subscription Rights.
Registered owners who are participants in the Fund's Dividend Reinvestment
and Cash Purchase Plan (the "Plan") will receive their Primary Subscription
Shares and Over-Subscription Shares via an uncertificated share credit to their
existing accounts. TO REQUEST A STOCK CERTIFICATE, PARTICIPANTS IN THE PLAN MUST
CHECK BOX D ON THE REVERSE SIDE OF THE RIGHTS CERTIFICATE BELOW.
Stock certificates for Shares purchased pursuant to the Primary Subscription
will be delivered as soon as practicable after receipt of the required completed
Subscription Certificate and after full payment has been received and cleared.
Generally, this will occur subsequent to the Confirmation Date. Shares, however,
may be issued to the Dealer Manager pursuant to the exercise of Rights in the
Primary Subscription promptly after exercise and payment as permitted in the
Subscription Agent Agreement between the Fund and the Subscription Agent. Stock
certificates for Shares purchased pursuant to the Over-Subscription Privilege
and confirmation statements reflecting uncertificated share credits for dividend
reinvestment accounts will be delivered as soon as practicable after the
Expiration Date and after all allocations have been effected.

THE PRIMARY SUBSCRIPTION RIGHTS ARE TRANSFERABLE

PAYMENT MUST BE IN UNITED STATES DOLLARS. ONLY MONEY ORDERS OR CHECKS DRAWN
ON A BANK LOCATED IN THE UNITED STATES AND MADE PAYABLE TO "THE JAPAN EQUITY
FUND, INC." WILL BE ACCEPTED. PLEASE REFERENCE YOUR RIGHTS CARD CONTROL NUMBER
ON YOUR CHECK, MONEY ORDER, OR NOTICE OF GUARANTEED DELIVERY.

A-1

THE DOCUMENT BELOW IS YOUR SUBSCRIPTION CERTIFICATE

CUSIP No. 710571252

VOID IF NOT RECEIVED BY THE SUBSCRIPTION AGENT BEFORE 5:00 P.M.
NEW YORK TIME ON THE EXPIRATION DATE OF DECEMBER 23, 2003

1. Control No. 2. Rights Represented by this Subscription Certificate
3. Maximum Primary Shares Available

THE JAPAN EQUITY FUND, INC.
SUBSCRIPTION RIGHTS FOR COMMON STOCK
(COMPLETE APPROPRIATE SECTION ON REVERSE SIDE OF THIS FORM)

The registered holder (the "Holder") of this Subscription Certificate, named
below, or assignee, is entitled to the number of Rights to subscribe for shares
of the Common Stock, $.01 par value (the "Shares"), of The Japan Equity
Fund, Inc. (the "Fund") shown above, in the ratio of one Share for each three
Rights, pursuant to the Primary Subscription and upon the terms and conditions
and at the price for each Share specified in the Prospectus relating thereto. To
subscribe for Shares the Holder must present to PFPC Inc. (the "Subscription
Agent"), prior to 5:00 p.m., New York time, on the Expiration Date of
December 23, 2003, either: (a) a properly completed and executed Subscription
Certificate and a money order or check drawn on a bank located in the United
States and payable to "The Japan Equity Fund, Inc." for an amount equal to the
number of Shares subscribed for under the Primary Subscription (and, if such
Holder is a Record Date Shareholder electing to exercise the Over-Subscription
Privilege, under the Over-Subscription Privilege) multiplied by the Estimated
Subscription Price; or (b) a Notice of Guaranteed Delivery guaranteeing delivery
of (i) a properly completed and executed Subscription Certificate and (ii) a
money order or check drawn on a bank located in the United States and payable to
"The Japan Equity Fund, Inc." for an amount equal to the number of Shares
subscribed for under the Primary Subscription (and, if such Holder is a Record
Date Shareholder electing to exercise the Over-Subscription Privilege, under the
Over-Subscription Privilege) multiplied by the Estimated Subscription Price
(which certificate and full payment must then be delivered by the close of
business on the fifth Business Day after the Expiration Date). Under the
Over-Subscription Privilege, as described in the Prospectus, any number of
additional Shares may be purchased by a Record Date Stockholder if such Shares
are available and the owner's Primary Subscription Rights have been fully
exercised and the PRO RATA allocation requirements have been satisfied. Any
excess payment to be refunded by the Fund to a Record Date Shareholder who is
not allocated the full amount of Shares subscribed for pursuant to the
Over-Subscription Privilege will be returned to him or her by mail by the
Subscription Agent as soon as practicable. An exercising Rights Holder will have
no right to rescind a purchase after the Subscription Agent has received
payment, either by means of a Notice of Guaranteed Delivery or a money order or
check. This Subscription Certificate may be transferred, in the same manner and
with the same effect as in the case of a negotiable instrument payable to
specific persons, by duly completing and signing the assignment on the reverse
side hereof. Capitalized terms used but not defined in this Subscription
Certificate shall have the meanings assigned to them in the Prospectus, dated
December 5, 2003, relating to the Rights. To subscribe pursuant to the Primary
Subscription or the Over-Subscription Privilege, three Rights and the Estimated
Subscription Price, which is $6.53, are required for each Share. Payment of U.S.
$6.53 per Share must accompany the Subscription Certificate. See reverse side
for forms.

THE JAPAN EQUITY FUND, INC.

By:
---------------------------------------

(Complete appropriate section on reverse side of this form)

A-2

TO SUBSCRIBE FOR YOUR PRIMARY SUBSCRIPTION SHARES PLEASE COMPLETE LINE "A" ON
THE CARD BELOW.

Example:

29 shares = 30 Rights. Note that Rights will be rounded up to the next whole
number evenly divisible by three.

30 Rights divided by 3 = 10 Primary Subscription Shares. The maximum number of
Primary Subscription Shares would be 10. Fractional shares will be dropped.

A. 30 DIVIDED BY 3 = 10 X $6.53 = $65.30
------------ ------------ ------------ ------------
(No. of (No. of (Estimated (Payment to
Rights) Shares) Subscription be Remitted)
Price)

If you are not exercising in full your Primary Subscription Right, check box "F"
below and we will attempt to sell any remaining unexercised Rights.

Please note that $6.53 is an estimated price only. The Subscription Price will
be determined on December 23, 2003, the Pricing Date (which is the same as the
Expiration Date, unless extended), and could be higher or lower than the
Estimated Subscription Price depending on the changes in the net asset value and
share price of the Common Stock. Within 12 Business Days after the Expiration
Date, the Subscription Agent will notify each Exercising Rights Holder of any
additional amount payable by such Holder to the Fund or any excess to be
refunded by the Fund to such Holder, in each case based on the Subscription
Price as determined on the Expiration Date.

TO SUBSCRIBE FOR ANY SHARES AVAILABLE UNDER THE OVER-SUBSCRIPTION PRIVILEGE,
PLEASE COMPLETE LINE "B" BELOW.

PLEASE NOTE: ONLY RECORD DATE SHAREHOLDERS WHO HAVE EXERCISED THEIR PRIMARY
SUBSCRIPTION IN FULL MAY EXERCISE THE OVER-SUBSCRIPTION PRIVILEGE.

PAYMENT OF SHARES: Full payment or a Notice of Guaranteed Delivery for both the
Shares purchased pursuant to Primary Subscription and Over-Subscription
Privilege must accompany this subscription. Please reference your rights card
control number on your check, money order, or Notice of Guaranteed Delivery.

Return Subscription Certificate by hand, first class mail or overnight courier
to: PFPC Inc.

BY FIRST CLASS MAIL: BY EXPRESS MAIL OR OVERNIGHT BY HAND:
PFPC Inc. COURIER: Securities Transfer and
P.O. Box 859208 PFPC Inc. Reporting Services, Inc.
Braintree, MA 02185-9208 161 Bay State Road ATTN: The Japan Equity Fund
Braintree, MA 02184 100 Williams Street Galleria
New York, NY 10038

If the aggregate Subscription Price paid by a Record Date Shareholder is
insufficient to purchase the number of Shares that such stockholder indicates
are being subscribed for, or if a Record Date Shareholder does not specify the
number of Shares to be purchased, then the Record Date Shareholder will be
deemed to have exercised first, the Primary Subscription Right (if not already
fully exercised) and second, the Over-Subscription Privilege to the full extent
of the payment tendered. If the aggregate Subscription Price paid by a Record
Date Shareholder exceeds the amount necessary to purchase the number of Shares
for which the Record Date Shareholder has indicated an intention to subscribe,
then the Record Date Shareholder will be deemed to have exercised first, the
Primary Subscription Rights (if not already fully exercised) and second, the
Over-Subscription Privilege to the full extent of the excess payment tendered.

A-3

PLEASE FILL IN ALL APPLICABLE INFORMATION EXPIRATION DATE: DECEMBER 23,
2003 (UNLESS EXTENDED) PFPC INC.

A. Primary DIVIDED BY 3 = X $6.53 = $ E. The following
Subscription ------------ ------------ ------------ ------------ Broker Dealer
(three (Rights (No. of (Estimated is being
Rights = 1 Exercised) Shares Subscription Price) designated as
Share) Requested) having been
instrumental
in the
exercise of
this
Subscription
Right:
/ / Daiwa
Securities
America Inc.
/ /
Representative name
Please be sure to
B. Over-Subscription X $6.53 = $ complete Line E
Privilege ------------ ------------ ------------ above before
(No. of (Estimated
Shares Subscription Price) submitting this
Requested) Subscription
Certificate.

C. Amount of Check Enclosed (A + B) (and amount to be inserted in = $ F. Sell any
Notice of Guaranteed Delivery, if applicable) ------------ remaining
Rights / /

D. If you currently reinvest your dividends pursuant to the Plan and wish to receive G. Sell all of my
a certificate, check here / / Rights / /

--------------------------------------------------------------------------------

SECTION 1. TO SUBSCRIBE: I hereby irrevocably subscribe for the number of Shares
indicated as the total of A and B hereon upon the terms and conditions specified
in the Prospectus relating to the Primary Subscription Right and
Over-Subscription Privilege, receipt of which is acknowledged. I hereby agree
that if I fail to pay for the Shares of Common Stock for which I have
subscribed, the Fund may exercise any of the remedies set forth in the
Prospectus.

TO SELL: If I have checked either the box on line F or on line G, I
authorize the sale of Rights by the Subscription Agent according to the
procedures described in the Prospectus.

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Signature(s) of Subscriber(s)/Seller(s)

--------------------------------------------------------------------------------
Address for delivery of Shares if other than shown on front

If permanent change of address, check here / /

PLEASE GIVE YOUR TELEPHONE ( ) DAY
NUMBER: ------------------------------------------------

( ) EVENING
------------------------------------------------

SECTION 2. TO TRANSFER RIGHTS (except pursuant to F or G above): For value
received, _____ of the Rights represented by this Subscription Certificate are
assigned to:

------------------------------------------------------------------------------
(Print Full Name of Assignee) social security number

------------------------------------------------------------------------------
(Print Full Address)

------------------------------------------------------------------------------
Signature(s) of Assignor(s)

IMPORTANT: The signature(s) must correspond in every particular, without
alteration, with the name(s) as printed on your Subscription
Certificate.
Your Signature must be guaranteed by an Eligible Guarantor Institution as that
term is defined under Rule 17Ad-15 of the Securities Exchange Act of 1934, which
may include:
a) a commercial bank or trust company, or
b) a member firm of a domestic stock exchange, or
c) a savings bank or credit union.

Signature
---------------------------------------------------------------------
Guaranteed (Name of Bank or Firm)
By
---------------------------------------------------------------------------
(Signature of Officer and Title)

A-4

APPENDIX B

[FORM OF NOTICE OF GUARANTEED DELIVERY]

NOTICE OF GUARANTEED DELIVERY FOR SHARES OF COMMON STOCK OF
THE JAPAN EQUITY FUND, INC.
SUBSCRIBED FOR UNDER PRIMARY SUBSCRIPTION AND THE
OVER-SUBSCRIPTION PRIVILEGE

As set forth in the Prospectus, this form or one substantially equivalent
hereto may be used as a means of effecting subscription and payment for all
Shares of Common Stock of The Japan Equity Fund, Inc. subscribed for under the
Primary Subscription and the Over-Subscription Privilege. Such form may be
delivered by hand or sent by facsimile transmission, overnight courier or first
class mail to the Subscription Agent.

THE SUBSCRIPTION AGENT IS:
PFPC Inc.

BY FIRST CLASS MAIL: BY FACSIMILE:
PFPC Inc. (781) 380-3388
P.O. Box 859208
Braintree, MA 02185-9208

BY EXPRESS MAIL OR CONFIRM BY TELEPHONE
OVERNIGHT COURIER: (781) 843-1833 Ext. 200
PFPC Inc.
161 Bay State Road
Braintree, MA 02184

BY HAND:
Securities Transfer and Reporting
Services, Inc.
ATTN: The Japan Equity Fund
100 Williams Street Galleria
New York, NY 10038

DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION
OF INSTRUCTIONS VIA A TELECOPY OR FACSIMILE NUMBER, OTHER THAN
AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY

The New York Stock Exchange member firm or bank or trust company which
completes this form must communicate this guarantee and the number of Shares
subscribed for in connection with this guarantee (separately disclosed as to the
Primary Subscription and the Over-Subscription Privilege) to the Subscription
Agent and must deliver this Notice of Guaranteed Delivery guaranteeing delivery
of (a) payment in full for all subscribed Shares and (b) a properly completed
and executed Subscription Certificate (which certificate and full payment must
then be delivered no later than the close of business on December 31, 2003, the
fifth business day after the Expiration Date) to the Subscription Agent prior to
5:00 p.m., New York time, on the Expiration Date on December 23, 2003. Failure
to do so will result in a forfeiture of the Rights.

(Continued on other side)

B-1

GUARANTEE

The undersigned, a member firm of The New York Stock Exchange, Inc. or a
bank or trust company having an office or correspondent in the United States,
guarantees delivery to the Subscription Agent by no later than 5:00 p.m., New
York time on December 31, 2003 of (a) a properly completed and executed
Subscription Certificate and (b) payment of the full Subscription Price for
Shares subscribed for on Primary Subscription and for any additional Shares
subscribed for pursuant to the Over-Subscription Privilege as subscription for
such Shares as indicated herein or in the Subscription Certificate.

1. Primary Number of Rights Number of Primary Shares Payment to be made in
Subscription exercised in connection requested for which you connection with Primary
with the Primary are guaranteeing delivery Subscription Shares:
Subscription: of Rights and payment: $
Rights DIVIDED BY 3 = Shares

2. Over- Number of Shares Payment to be made in
Subscription requested for which you connection with these
Privilege are guaranteeing payment: Shares:
Shares $

3. Totals Total number of Rights to Total Amount of Check or
be delivered: Money Order enclosed:
Rights $

Method of delivery (circle one):

(a) Direct to PFPC Inc., as Subscription Agent

(b) Through a Depository [ ]
(Name of Depository)

A representative of PFPC Inc. will phone you with a Protect Identification
Number for this guarantee. This number needs to be referenced on any direct
delivery of rights or any delivery through a Depository. In addition, please
note that if you are guaranteeing for Over-Subscription Shares and are a
Depository participant, you must also execute and forward to PFPC Inc. a Nominee
Holder Over-Subscription Exercise Form and a Beneficial Owner Listing
Certificate Form.

---------------------------------------------- ----------------------------------------------
Name of Firm Authorized Signature

---------------------------------------------- ----------------------------------------------
Address Title

---------------------------------------------- ----------------------------------------------
Address Name (Please Type or Print)

---------------------------------------------- ----------------------------------------------
Contact Number Telephone Number

---------------------------------------------- ----------------------------------------------
Department Date

B-2

APPENDIX C

[FORM OF NOMINEE HOLDER OVER-SUBSCRIPTION EXERCISE FORM]

THE JAPAN EQUITY FUND, INC.
RIGHTS OFFERING

NOMINEE HOLDER OVER-SUBSCRIPTION EXERCISE FORM
PLEASE COMPLETE ALL APPLICABLE INFORMATION AND RETURN TO:

BY FIRST CLASS MAIL EXPRESS MAIL OR OVERNIGHT BY HAND:
To: PFPC Inc. COURIER: To: Securities Transfer and
P.O. Box 859208 To: PFPC Inc. Reporting Services, Inc.
Braintree, MA 02185-9208 161 Bay State Road ATTN: The Japan Equity Fund
Braintree, MA 02184 100 Williams Street Galleria
New York, NY 10038

THIS FORM IS TO BE USED ONLY BY DEPOSITORY PARTICIPANTS OR NOMINEE HOLDERS TO
EXERCISE THE OVER-SUBSCRIPTION PRIVILEGE IN RESPECT OF RIGHTS, AS ISSUED BY THE
JAPAN EQUITY FUND, INC. (THE "FUND"), FOR WHICH THE PRIMARY SUBSCRIPTION WAS
EXERCISED AND DELIVERED THROUGH THE FACILITIES OF A COMMON DEPOSITORY. ALL OTHER
EXERCISES OF OVER-SUBSCRIPTION PRIVILEGES MUST BE EFFECTED BY THE DELIVERY OF
THE SUBSCRIPTION CERTIFICATES.

THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE FUND'S
PROSPECTUS DATED DECEMBER 5, 2003 (THE "PROSPECTUS") AND ARE INCORPORATED HEREIN
BY REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM THE
FUND'S INFORMATION AGENT.

VOID UNLESS RECEIVED BY THE SUBSCRIPTION AGENT WITH PAYMENT IN FULL BY 5:00 PM,
NEW YORK TIME, ON DECEMBER 23, 2003, UNLESS EXTENDED BY THE FUND (THE
"EXPIRATION DATE").

1. The undersigned hereby certifies to the Fund and the Subscription Agent that
it is a participant in ____________ (Name of Depository) and that it has either
(i) exercised the Primary Subscription in respect of Rights and delivered such
exercised Rights to the Subscription Agent by means of transfer to the
Depository Account of the Subscription Agent or (ii) delivered to the
Subscription Agent a Notice of Guaranteed Delivery in respect of the exercise of
the Primary Subscription and will deliver the Rights called for in such Notice
of Guaranteed Delivery to the Subscription Agent by means of transfer to such
Depository Account of the Subscription Agent.

2. The undersigned hereby exercises the Over-Subscription Privilege to
purchase, to the extent available, Shares of the Fund's Common Stock and
certifies to the Fund and the Subscription Agent that such Over-Subscription
Privilege is being exercised for the account or accounts of persons (which may
include the undersigned) on whose behalf all Primary Subscription Rights have
been exercised.

3. The undersigned understands that payment of the Estimated Subscription Price
of $6.53 per Share for each Share of Common Stock subscribed for pursuant to the
Over-Subscription Privilege must be received by the Subscription Agent at or
before 5:00 p.m. New York time on the Expiration Date and represents that such
payment, in the aggregate amount of $_________ (check appropriate box):

/ / has been or is being delivered to the Subscription Agent pursuant
to the Notice of Guaranteed Delivery referred to above, or
/ / is being delivered to the Subscription Agent herewith, or
has been delivered separately to the Subscription Agent; and, in
/ / the case of funds not delivered pursuant to a Notice of
Guaranteed Delivery, is or was delivered in the manner set forth
below (check appropriate box and complete information relating
thereto):
/ / uncertified check, or
/ / certified check, or
/ / bank draft, or
/ / money order

C-1

----------------------------------------------
Primary Subscription Confirmation Number

----------------------------------------------
Participant Number

Contact Name:
----------------------------------------------

Phone Number:
----------------------------------------------

----------------------------------------------
Name of [ ] Participant

----------------------------------------------
Address

----------------------------------------------
Address Zip Code

Dated: By:
----------------------------------------------

Name:
----------------------------------------------

Title:
----------------------------------------------

For allocation purposes, the total number of Record Date Shares owned by the
person on whose behalf this over-subscription is being exercised were Record
Date Shares on December 4, 2003.

*PLEASE ATTACH A BENEFICIAL OWNER LISTING CONTAINING THE RECORD DATE POSITION OF
PRIMARY RIGHTS OWNED, THE NUMBER OF PRIMARY SHARES SUBSCRIBED AND THE NUMBER OF
OVER-SUBSCRIPTION SHARES, IF APPLICABLE, REQUESTED BY EACH SUCH OWNER.

C-2

BENEFICIAL OWNER LISTING CERTIFICATION

The undersigned, a bank, broker or other nominee holder of Rights ("Rights")
to purchase shares of Common Stock, $0.01 par value ("Common Stock"), of The
Japan Equity Fund, Inc. (the "Fund") pursuant to the Rights Offering (the
"Offer") described and provided for in the Fund's Prospectus dated December 5,
2003 (the "Prospectus"), hereby certifies to the Fund and to PFPC Inc., as
Subscription Agent for such Offer, that for each numbered line filled in below
the undersigned has exercised, on behalf of the beneficial owner thereof (which
may be the undersigned), the number of Rights specified on such line pursuant to
the Primary Subscription (as defined in the Prospectus) and such beneficial
owner wishes to subscribe for the purchase of additional shares of Common Stock
pursuant to the Over-Subscription Privilege (as defined in the Prospectus), in
the amount set forth in the third column of such line.

Number of Rights Exercised Number of Shares Requested Pursuant
Number of Record Date Shares Owned Pursuant to Primary Subscription to Over-Subscription Privilege

1)
----------------------------- ------------------------------ --------------------------------
2)
----------------------------- ------------------------------ --------------------------------
3)
----------------------------- ------------------------------ --------------------------------
4)
----------------------------- ------------------------------ --------------------------------
5)
----------------------------- ------------------------------ --------------------------------
6)
----------------------------- ------------------------------ --------------------------------
7)
----------------------------- ------------------------------ --------------------------------
8)
----------------------------- ------------------------------ --------------------------------
9)
----------------------------- ------------------------------ --------------------------------
10)
----------------------------- ------------------------------ --------------------------------

------------------------------------------------
Name of Nominee Holder

By:
--------------------------------------------
Name:
Title:

Dated: , 2003

Provide the following information if applicable:

----------------------------------------------
[ ] Participant Number

----------------------------------------------
Participant Number

Name of Broker:
----------------------------------------------

Address:
----------------------------------------------

C-3

APPENDIX D

[FORM OF CERTIFICATE AND REQUEST FOR ADDITIONAL RIGHTS]

THE JAPAN EQUITY FUND, INC. RIGHTS OFFERING
CERTIFICATION AND REQUEST FOR ADDITIONAL RIGHTS

To Depository's Stock Dividend Department:

The undersigned bank, broker or other nominee holder of Rights (as defined
below) hereby certifies that it is the holder of record of shares of
Common Stock, par value $0.01 per share, of The Japan Equity Fund, Inc. (the
"Fund") on behalf of beneficial owner(s) at the close of business as of
December 4, 2003 (the "Record Date"), for the Offering of up to 3,605,229 shares
of Common Stock pursuant to transferable subscription rights (the "Rights")
being distributed to holders of Common Stock, as described in the Fund's
Prospectus dated December 5, 2003, a copy of which the undersigned has received.
Such holders shall receive one Right for each share of Common Stock held of
record as of the close of business on the Record Date.

The undersigned further certifies that beneficial owner(s), on whose
behalf it holds, as of the close of business on the Record Date shares of
Common Stock registered in the name of the undersigned are each entitled to
round up to the next number of Rights evenly divisible by three with the
understanding that beneficial owners owning a number of shares of Common Stock
that is not an integral multiple of three will receive additional Rights and
that the final number of Rights to be credited to beneficial holder(s) will
include such additional Rights to subscribe for one additional full Share of
Common Stock at the Subscription Price, and accordingly the undersigned requests
an aggregate of additional Rights to be credited to its Record Date
Rights position of such beneficial holders. The undersigned further certifies
that each such beneficial owner is a bona fide beneficial owner of Common Stock,
that such beneficial ownership is reflected on the undersigned's records and
that all shares of Common Stock which, to the undersigned's knowledge, are
beneficially owned by any such beneficial owner through the undersigned, have
been aggregated in calculating the foregoing. The undersigned agrees to provide
the Fund or its designee with such additional information as the Fund deems
necessary to verify the foregoing provided that the information requested does
not violate the request of confidentiality of any client. The expiration date
for providing this information to the Fund will be on the close of business on
December 17, 2003.

------------------------------------------------
Name of Nominee Holder

By:
--------------------------------------------
Name:
Title:
Address:
Telephone number:

------------------------------------------------
Participant Number

Dated: , 2003

D-1

-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------

YOU SHOULD RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT, AND THE DEALER MANAGER AND SOLICITING DEALERS HAVE NOT, AUTHORIZED ANY
OTHER PERSON TO PROVIDE YOU WITH DIFFERENT INFORMATION. IF ANYONE PROVIDES YOU
WITH DIFFERENT OR INCONSISTENT INFORMATION, YOU SHOULD NOT RELY ON IT. WE ARE
NOT, AND THE DEALER MANAGER AND SOLICITING DEALERS ARE NOT, MAKING AN OFFER TO
SELL THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED. YOU SHOULD ASSUME THAT THE INFORMATION APPEARING IN THIS PROSPECTUS
IS ACCURATE ONLY AS OF THE DATE ON THE FRONT COVER OF THIS PROSPECTUS. OUR
BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS MAY HAVE
CHANGED SINCE THAT DATE.

------------------------

TABLE OF CONTENTS

PAGE
--------

Fee Table................................. 3
Financial Highlights...................... 4
Trading and Net Asset Value Information... 5
Prospectus Summary........................ 6
The Fund.................................. 12
The Offer................................. 12
Risk Factors and Special Considerations... 21
Investment Objective and Policies......... 27
Investment Restrictions................... 28
The Tokyo Stock Exchange.................. 29
Directors and Officers.................... 40
Management of the Fund.................... 44
Administration and Custodians............. 49
Expenses.................................. 49
Portfolio Transactions and Brokerage...... 49
Dividends and Distributions; Dividend
Reinvestment and Cash Purchase Plan...... 50
Taxation.................................. 52
Net Asset Value........................... 56
Description of Common Stock............... 56
Distribution Arrangements................. 59
Transfer Agent, Dividend Paying Agent and
Registrar................................ 60
Experts................................... 60
Legal Matters............................. 60
Additional Information.................... 60
Financial Statements...................... F-1
Appendix A................................ A-1
Appendix B................................ B-1
Appendix C................................ C-1
Appendix D................................ D-1

------------------------

3,605,229 SHARES

THE
JAPAN EQUITY FUND
INC.
COMMON STOCK

---------------------

PROSPECTUS

---------------------

DAIWA SECURITIES AMERICA INC.
DECEMBER 5, 2003

-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------