Washington, D.C. 20549
Item 1. Reports to Stockholders.
(a) A copy of the report transmitted to shareholders
pursuant to Rule 30e-1 under the Investment Company Act of 1940 (the “1940 Act”) is filed herewith.
Managed Distribution Policy (unaudited)
The Board of Directors of the Aberdeen
Japan Equity Fund, Inc. (the "Fund") has authorized a managed distribution policy ("MDP") of paying quarterly
distributions at an annual rate, set once a year, that is a percentage of the rolling average of the Fund's net asset values over the
preceding three month period ending on the last day of the month immediately preceding the distribution's declaration date. With each
distribution, the Fund will issue a notice to shareholders and an accompanying press release which will provide detailed information
regarding the estimated amount and composition
of the distribution and other information required by the Fund's MDP exemptive order. The Fund's Board of Directors may amend or terminate
the MDP at any time without prior notice to shareholders; however, at this time, there are no reasonably foreseeable circumstances that
might cause the termination of the MDP. You should not draw any conclusions about the Fund's investment performance from the amount of
distributions or from the terms of the Fund's MDP.
Distribution Disclosure Classification
(unaudited)
The Fund's policy is to provide investors with
a stable distribution rate. Each quarterly distribution will be paid out of current income, supplemented by realized capital gains and,
to the extent necessary, paid-in capital.
The Fund is subject to U.S. corporate, tax and
securities laws. Under U.S. tax rules, the amount applicable to the Fund and character of distributable income for each fiscal period
depends on the actual exchange rates during the entire year between the U.S. Dollar and the currencies in which Fund assets are denominated
and on the aggregate gains and losses realized by the Fund during the entire year.
Therefore, the exact amount of distributable
income for each fiscal year can only be determined as of the end of the Fund's fiscal year, October 31. Under Section 19 of the
Investment Company Act of 1940, as amended (the "1940 Act"), the Fund is required to indicate the
sources of certain distributions to shareholders.
The estimated distribution composition may vary from quarter to quarter because it may be materially impacted by future income, expenses
and realized gains and losses on securities and fluctuations in the value of the currencies in which Fund assets are denominated.
Based on generally accepted accounting principles,
the Fund estimates the distributions for the fiscal year commenced November 1, 2021 through the distributions declared on May 10,
2022 consisted of 12% net investment income, 85% net realized long-term gain and 3% tax return of capital.
In January 2023, a Form 1099-DIV will
be sent to shareholders, which will state the final amount and composition of distributions and provide information with respect to their
appropriate tax treatment for the 2022 calendar year.
Aberdeen Japan Equity Fund, Inc.
Stockholder Letter (unaudited)
Dear Stockholder,
We present this Semi-Annual Report, which covers
the activities of Aberdeen Japan Equity Fund, Inc. (the "Fund"), for the six-month period ended April 30, 2022. 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").
Total Investment Return1
For the six-month period ended April 30,
2022, the total return to stockholders of the Fund based on the net asset value ("NAV") and market price of the Fund, respectively,
compared to the Fund's benchmark in US dollar terms is as follows:
NAV2,3 |
|
-24.6 |
% |
Market
Price2 |
|
-24.5 |
% |
TOPIX
Net Total Return Index4 |
|
-15.5 |
% |
For more information about Fund performance,
please visit the Fund on the web at www.aberdeenjeq.com. Here, you can view quarterly commentary on the Fund's performance, monthly fact
sheets, distribution and performance information, and other Fund literature.
NAV, Market Price and Premium/Discount
The below table represents comparison from current
six-month period end to prior fiscal year end of market price to NAV and associated premium(+)/discount(-).
|
NAV |
Closing
Market
Price |
Premium(+)/
Discount(-) |
4/30/2022 |
$
7.05 |
$6.12 |
-13.19% |
10/31/2021 |
$
10.70 |
$9.27 |
-13.4% |
During the six-month period ended April 30,
2022, the Fund's NAV was within a range of $6.92 to $10.97 and the Fund's market price traded within a range of $6.08 to $9.47. During
the six-month period ended April 30, 2022, the Fund's shares traded within a range of a premium(+)/discount(-) of -7.6% to -15.3%.
Loan Facility and Use of Leverage
The Fund is permitted to borrow for investment
purposes as permitted by the 1940 Act or any rule, order or interpretation thereunder. This allows the Fund to borrow for investment
purposes in the amount up to 33 1/3% of the Fund's total assets. On December 15, 2020, the Fund entered into a prime brokerage agreement
with BNP Paribas Prime Brokerage International Ltd. ("BNPP PB"), which allows the Fund to borrow on a committed basis. The
Fund's outstanding balance as of April 30, 2022 was 1,520,000,000 Japanese Yen ($11,732,016). See Notes to Financial Statements
Note 7 for further information.
Managed Distribution Policy
On December 20, 2021, the Fund announced
that it has implemented a Managed Distribution Policy ("MDP") commencing in 2022. The Board has determined that the Fund will
pay quarterly distributions at an annual rate, set once a year, that is a percentage of the rolling average daily NAV for the previous
three months as of the month-end prior to declaration. The Board has determined that the initial annualized rate for the 2022 calendar
year will be 6.5%. The Fund's distribution policy (the "Distribution Policy") is to provide investors with a stable quarterly
distribution out of current income, supplemented by realized capital gains and, to the extent necessary, paid-in capital. The Distribution
Policy will be subject to regular review by the Board. Previously, the Fund's policy was to pay a single annual distribution.
On May 10, 2022, the Fund announced that
it will pay on June 30, 2022, a stock distribution of US $0.12 per share to all shareholders of record as of May 20, 2022.
This stock distribution will automatically be paid in newly issued shares of the Fund unless otherwise instructed by the shareholder.
Shares of common stock will be issued at the lower of the NAV per share or the market price per share with a floor for the NAV of not
less than 95% of the market price. Fractional shares will generally be settled in cash, except for registered shareholders with book
entry accounts at Computershare Investor Services who will have whole and fractional shares added to their account.
Shareholders may request to be paid their quarterly
distributions in cash instead of shares of common stock by providing advance notice
1 | Past performance is no
guarantee of future results. Investment returns and principal value will fluctuate and shares,
when sold, may be worth more or less than original cost. Current performance may be lower
or higher than the performance quoted. Net asset value return data include investment management
fees, custodial charges and administrative fees (such as Director and legal fees) and assumes
the reinvestment of all distributions. |
2 | Assuming the reinvestment
of dividends and distributions. |
3 | The Fund's total return
is based on the reported NAV for each financial reporting period end and may differ from
what is reported on the Financial Highlights due to financial statement rounding or adjustments. |
4 | The TOPIX Net Total Return
Index is a free-float adjusted market capitalization-weighted index that is calculated based
on all the domestic common stocks listed on the Tokyo Stock Exchange First Section. The TOPIX
Net Total Return Index is calculated net of withholding taxes to which the Fund is generally
subject. The TOPIX Net Total Return Index shows the measure of current market capitalization
assuming that market capitalization as of the base date (January 4, 1968) is 100 points.
Indices are unmanaged and have been provided for comparison purposes only. No fees or expenses
are reflected. You cannot invest directly in an index. |
|
Aberdeen Japan Equity Fund, Inc. |
1 |
Stockholder Letter (unaudited)
(continued)
to the bank, brokerage or nominee who holds their
shares if the shares are in "street name" or by filling out in advance an election card received from Computershare Investor
Services if the shares are in registered form.
The Fund is covered under exemptive relief received
by the Fund's investment manager from the U.S. Securities and Exchange Commission ("SEC") that allows the Fund to distribute
long-term capital gains as frequently as monthly in any one taxable year.
Discount Management Program
Under the Fund's Discount Management Program,
the Fund's Board of Directors has authorized management to make open market purchases, from time to time, in a maximum aggregate amount
during each twelve month period ended October 31 of up to 10% of the Fund's shares of stock outstanding as of October 31 of
the prior year. Such purchases may be made opportunistically at certain discounts to net asset value per share when, in the reasonable
judgment of management based on historical discount levels and current market conditions, such repurchases may enhance stockholder value.
During the six-month period ended April 30, 2022, the Fund did not repurchase any shares.
Unclaimed Share Accounts
Please be advised that abandoned or unclaimed
property laws for certain states require financial organizations to transfer (escheat) unclaimed property (including Fund shares) to
the state. Each state has its own definition of unclaimed property, and Fund shares could be considered "unclaimed property"
due to account inactivity (e.g., no owner-generated activity for a certain period), returned mail (e.g., when mail sent to a stockholder
is returned to the Fund's transfer agent as undeliverable), or a combination of both. If your Fund shares are categorized as unclaimed,
your financial advisor or the Fund's transfer agent will follow the applicable state's statutory requirements to contact you, but if
unsuccessful, laws may require that the shares be escheated to the appropriate state. If this happens, you will have to contact the state
to recover your property, which may involve time and expense. For more information on unclaimed property and how to maintain an active
account, please contact your financial adviser or the Fund's transfer agent.
Portfolio Holdings Disclosure
The Fund's complete schedule of portfolio
holdings for the second and fourth quarters of each fiscal year are included in the Fund's semi-annual and annual reports to stockholders.
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (the "SEC") for the
first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. These reports are available on the SEC's
website at http://www.sec.gov. The Fund makes
the information available to stockholders upon
request and without charge by calling Investor Relations toll-free at 1-800-522-5465.
Proxy Voting
A description of the policies and procedures
that the Fund uses to determine how to vote proxies relating to portfolio securities and information regarding how the Fund voted proxies
relating to portfolio securities during the most recent 12 month period ended June 30 is available by August 31 of the relevant
year: (1) upon request without charge by calling Investor Relations toll-free at 1-800-522-5465; and (2) on the SEC's website
at http://www.sec.gov.
COVID-19
The COVID-19 pandemic has caused major disruption
to economies and markets around the world, including the United States. Financial markets have experienced losses, and some sectors of
the economy and individual issuers have experienced particularly large losses. Although many financial markets have generally recovered
from such losses, market volatility has continued. These circumstances may continue for an extended period of time, and as a result may
affect adversely the value and liquidity of the Fund's investments. The rapid development and fluidity of this situation precludes any
prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions, and, as a result, present uncertainty and
risk with respect to the Fund and the performance of its investments and ability to pay distributions. The full extent of the impact
and effects of COVID-19 will depend on future developments, including, among other factors, the duration and spread of the outbreak,
along with related travel advisories, quarantines and restrictions, the recovery time of the disrupted supply chains and industries,
the impact of labor market interruptions, the impact of government interventions, and uncertainty with respect to the duration of the
global economic slowdown.
LIBOR
The Fund may invest in certain debt securities,
derivatives or other financial instruments that utilize LIBOR as a "benchmark" or "reference rate" for various interest
rate calculations. In July 2017, the United Kingdom Financial Conduct Authority ("FCA"), which regulates LIBOR, announced
a desire to phase out the use of LIBOR by the end of 2021. However, subsequent announcements by the FCA, the LIBOR administrator and
other regulators indicate that it is possible that the most widely used LIBOR rates may continue until mid-2023. It is anticipated that
LIBOR ultimately will be discontinued or the regulator will announce that it is no longer sufficiently robust to be representative of
its underlying market around that time. Although financial regulators and industry working groups have suggested alternative reference
rates, such as European Interbank Offered Rate ("EURIBOR"), Sterling Overnight Interbank Average Rate ("SONIA")
2 |
Aberdeen Japan Equity Fund, Inc. |
|
Stockholder Letter (unaudited)
(concluded)
and Secured Overnight Financing Rate ("SOFR"),
global consensus on alternative rates is lacking and the process for amending existing contracts or instruments to transition away from
LIBOR remains unclear. The elimination of LIBOR or changes to other reference rates or any other changes or reforms to the determination
or supervision of reference rates could have an adverse impact on the market for, or value of, any securities or payments linked to those
reference rates, which may adversely affect the Fund's performance and/or NAV. Uncertainty and risk also remain regarding the willingness
and ability of issuers and lenders to include revised provisions in new and existing contracts or instruments. Consequently, the transition
away from LIBOR to other reference rates may lead to increased volatility and illiquidity in markets that are tied to LIBOR, fluctuations
in values of LIBOR-related investments or investments in issuers that utilize LIBOR, increased difficulty in borrowing or refinancing
and diminished effectiveness of hedging strategies, adversely affecting the Fund's performance. Furthermore, the risks associated with
the expected discontinuation of LIBOR and transition may be exacerbated if the work necessary to effect an orderly transition to an alternative
reference rate is not completed in a timely manner.
abrdn Rebrand
abrdn plc, formerly known as Standard
Life Aberdeen plc, was renamed on September 27, 2021. In connection with this re-branding, the entities within abrdn plc group,
including investment advisory entities, have been or will be renamed in the near future. The Fund's Board has approved a change in the
name of the Fund from "Aberdeen Japan Equity Fund, Inc." to "abrdn Japan Equity Fund, Inc." effective on
or about June 30, 2022. The internet address for the Fund's website will also change from www.aberdeenjeq.com to www.abrdnjeq.com,
effective as of June 30, 2022. The old address
will continue to redirect to the new address for at least a year.
Investor Relations Information
As part of abrdn's commitment to stockholders,
we invite you to visit the Fund on the web at www.aberdeenjeq.com. Here, you can view monthly fact sheets, quarterly commentary, distribution,
and performance information, and other Fund literature.
Enroll in abrdn's email services and be among
the first to receive the latest closed-end fund news, announcements, videos and other information. In addition, you can receive electronic
versions of important Fund documents including annual reports, semi-annual reports, prospectuses, and proxy statements. Sign up today
at https://www.abrdn.com/en-us/cefinvestorcenter/contact-us/preferences
Contact Us:
• | Visit: https://www.abrdn.com/en-us/cefinvestorcenter; |
• | Email: Investor.Relations@abrdn.com;
or |
• | Call: 1-800-522-5465
(toll-free in the U.S.). |
Yours sincerely,
/s/ Alan Goodson
Alan Goodson
President
|
Aberdeen Japan Equity Fund, Inc. |
3 |
Total Investment Return (unaudited)
The following table summarizes the average annual
Fund performance compared to the TOPIX Net Total Return Index, the Fund's benchmark, for the six-month, 1-year, 3-year, 5-year and 10-year
periods ended as of April 30, 2022.
|
6
Months |
|
1
Year |
|
3
Years |
|
5
Years |
|
10
Years |
|
Net
Asset Value (NAV) |
-24.6% |
|
|
-20.5% |
|
|
1.6% |
|
|
1.9% |
|
|
6.4% |
|
Market
Price |
-24.5% |
|
|
-21.4% |
|
|
2.0% |
|
|
1.2% |
|
|
6.0% |
|
TOPIX
Net Total Return Index |
-15.5% |
|
|
-13.9% |
|
|
2.3% |
|
|
3.3% |
|
|
5.8% |
|
Performance of a $10,000 Investment (as
of April 30, 2022)
This graph shows the change in value of a hypothetical
investment of $10,000 in the Fund for the period indicated. For comparison, the same investment is shown in the indicated index.
abrdn, Inc. (formerly known as Aberdeen Standard
Investments Inc.) has entered into an agreement with the Fund to limit investor relations services fees. This agreement aligns with the
term of the advisory agreement and may not be terminated prior to the end of the current term of the advisory agreement. See Note 3 in
the Notes to Financial Statements. Returns represent past performance. Total investment return at NAV is based on changes in the NAV
of Fund shares and assumes reinvestment of dividends and distributions, if any, at market prices pursuant to the dividend reinvestment
program sponsored by the Fund's transfer agent. All return data at NAV includes fees charged to the Fund, which are listed in the Fund's
Statement of Operations under "Expenses". The Fund's total investment return is based on the reported NAV on each financial
reporting period end. Total investment return at market value is based on changes in the market price at which the Fund's shares traded
on the NYSE during the period and assumes reinvestment of dividends and distributions, if any, at market prices pursuant to the Fund's
dividend reinvestment program. Because the Fund's shares trade in the stock market based on investor demand, the Fund may trade at a
price higher or lower than its NAV. Therefore, returns are calculated based on both market price and NAV. Past performance is no guarantee
of future results. The performance information provided does not reflect the deduction of taxes that a stockholder would pay on distributions
received from the Fund. The current performance of the Fund may be lower or higher than the figures shown. The Fund's yield, return,
market price and NAV will fluctuate. Performance information current to the most recent month-end is available at www.aberdeenjeq.com
or by calling 800-522-5465.
The annualized net operating expense ratio
based on the six-month period ended April 30, 2022 was 0.94%. The annualized net operating expense ratio, excluding interest expense
on the six-month period ended April 30, 2022 was 0.81%.
4 |
Aberdeen Japan Equity Fund, Inc. |
|
Portfolio Summary (as
a percentage of net assets) (unaudited)
As of April 30, 2022
The following table summarizes the sector composition
of the Fund's portfolio, in S&P Global Inc.'s Global Industry Classification Standard ("GICS") Sectors.
Sectors |
|
Consumer
Discretionary |
19.3% |
Industrials |
17.0% |
Information
Technology |
15.9% |
Health
Care |
13.4% |
Financials |
11.4% |
Consumer
Staples |
10.3% |
Communication
Services |
9.5% |
Materials |
8.4% |
Real
Estate |
5.6% |
Short-Term
Investment |
0.1% |
Liabilities
in Excess of Other Assets |
(10.9)% |
|
100.0% |
Top
Ten Holdings |
|
Tokio
Marine Holdings, Inc. |
6.7% |
KDDI
Corp. |
5.3% |
Toyota
Motor Corp. |
5.0% |
Shin-Etsu
Chemical Co. Ltd. |
4.2% |
Tokyu
Fudosan Holdings Corp. |
4.2% |
Sony
Group Corp. |
4.0% |
Asahi
Group Holdings Ltd. |
3.8% |
Chugai
Pharmaceutical Co. Ltd. |
3.1% |
SHO-BOND
Holdings Co. Ltd. |
3.1% |
Keyence
Corp. |
2.7% |
|
Aberdeen
Japan Equity Fund, Inc. |
5 |
Statement of Investments (unaudited)
As of April 30, 2022
|
|
Shares
or
Principal
Amount |
|
Value |
|
COMMON
STOCKS—110.8% |
|
JAPAN—110.8% |
|
Communication
Services—9.5% |
|
KDDI
Corp. |
|
151,900 |
|
$ 5,030,121 |
|
Okinawa
Cellular Telephone Co. |
|
20,400 |
|
785,019 |
|
ValueCommerce
Co. Ltd. |
|
72,900 |
|
2,130,247 |
|
Z
Holdings Corp. |
|
265,600 |
|
1,042,703 |
|
|
|
8,988,090 |
|
Consumer
Discretionary—19.3% |
|
Denso
Corp. |
|
27,500 |
|
1,675,994 |
|
Koito
Manufacturing Co. Ltd.(a) |
|
26,700 |
|
979,744 |
|
Nitori
Holdings Co. Ltd. |
|
9,100 |
|
936,202 |
|
Resorttrust, Inc. |
|
135,000 |
|
2,271,177 |
|
Scroll
Corp. |
|
155,700 |
|
952,012 |
|
Shoei
Co. Ltd. |
|
39,300 |
|
1,458,003 |
|
Sony
Group Corp.(a) |
|
43,800 |
|
3,779,984 |
|
Toyota
Motor Corp.(a) |
|
275,100 |
|
4,713,482 |
|
Workman
Co. Ltd. |
|
14,400 |
|
491,691 |
|
Yamaha
Corp. |
|
26,200 |
|
1,001,023 |
|
|
|
18,259,312 |
|
Consumer
Staples—10.3% |
|
Ajinomoto
Co., Inc. |
|
93,000 |
|
2,416,283 |
|
Asahi
Group Holdings Ltd. |
|
95,300 |
|
3,592,125 |
|
Milbon
Co. Ltd. |
|
17,300 |
|
724,367 |
|
Seven
& i Holdings Co. Ltd. |
|
18,500 |
|
818,013 |
|
Shiseido
Co. Ltd. |
|
17,000 |
|
803,614 |
|
Welcia
Holdings Co. Ltd. |
|
68,200 |
|
1,398,036 |
|
|
|
9,752,438 |
|
Financials—11.4% |
|
Japan
Exchange Group, Inc. |
|
47,100 |
|
701,338 |
|
Tokio
Marine Holdings, Inc.(a) |
|
115,900 |
|
6,266,558 |
|
Tokyo
Century Corp.(a) |
|
34,400 |
|
1,059,592 |
|
WealthNavi, Inc.(b) |
|
26,300 |
|
342,068 |
|
Zenkoku
Hosho Co. Ltd. |
|
67,300 |
|
2,361,970 |
|
|
|
10,731,526 |
|
Health
Care—13.4% |
|
AS
One Corp. |
|
14,200 |
|
753,920 |
|
Asahi
Intecc Co. Ltd. |
|
40,200 |
|
776,822 |
|
Astellas
Pharma, Inc. |
|
132,000 |
|
2,009,794 |
|
BML, Inc. |
|
24,000 |
|
617,654 |
|
Chugai
Pharmaceutical Co. Ltd.(a) |
|
97,300 |
|
2,915,609 |
|
Daiichi
Sankyo Co. Ltd. |
|
26,000 |
|
654,651 |
|
Hoya
Corp.(a) |
|
17,100 |
|
1,697,040 |
|
Jeol
Ltd. |
|
20,400 |
|
916,134 |
|
Menicon
Co. Ltd. |
|
24,600 |
|
525,441 |
|
Olympus
Corp. |
|
72,300 |
|
1,272,561 |
|
Takara
Bio, Inc. |
|
29,900 |
|
480,909 |
|
|
|
12,620,535 |
|
6 |
Aberdeen
Japan Equity Fund, Inc. |
|
Statement
of Investments (unaudited) (continued)
As
of April 30, 2022
|
|
Shares
or | |
| |
|
|
Principal | |
| |
|
|
Amount | |
Value | |
COMMOM
STOCKS (continued) | |
| | | |
| | |
JAPAN
(continued) | |
| | | |
| | |
Industrials—17.0% | |
| | | |
| | |
AGC,
Inc. | |
| 43,200 | | |
$ | 1,619,542 | |
Amada
Co. Ltd.(a) | |
| 174,400 | | |
| 1,354,209 | |
Daikin
Industries Ltd.(a) | |
| 13,600 | | |
| 2,078,319 | |
FANUC
Corp.(a) | |
| 6,400 | | |
| 980,660 | |
Makita
Corp.(a) | |
| 36,700 | | |
| 1,084,736 | |
MISUMI
Group, Inc.(a) | |
| 84,700 | | |
| 2,123,794 | |
Nabtesco
Corp. | |
| 35,100 | | |
| 800,546 | |
Nihon
M&A Center Holdings, Inc. | |
| 28,000 | | |
| 344,787 | |
Recruit
Holdings Co. Ltd.(a) | |
| 60,700 | | |
| 2,202,293 | |
SHO-BOND
Holdings Co. Ltd. | |
| 69,300 | | |
| 2,912,678 | |
Takuma
Co. Ltd. | |
| 49,300 | | |
| 552,499 | |
| |
| | | |
| 16,054,063 | |
Information
Technology—15.9% | |
| | | |
| | |
Advantest
Corp.(a) | |
| 15,800 | | |
| 1,078,320 | |
Appier
Group, Inc.(b) | |
| 26,100 | | |
| 172,449 | |
Elecom
Co. Ltd. | |
| 118,100 | | |
| 1,416,172 | |
Fukui
Computer Holdings, Inc. | |
| 30,400 | | |
| 758,817 | |
Ibiden
Co. Ltd. | |
| 13,800 | | |
| 515,732 | |
Kaga
Electronics Co. Ltd. | |
| 33,000 | | |
| 777,544 | |
Keyence
Corp.(a) | |
| 6,400 | | |
| 2,572,826 | |
Kohoku
Kogyo Co. Ltd. | |
| 17,200 | | |
| 944,193 | |
NEC
Corp. | |
| 33,900 | | |
| 1,315,180 | |
NEC
Networks & System Integration Corp. | |
| 85,100 | | |
| 1,208,355 | |
Net
Protections Holdings, Inc.(b) | |
| 70,300 | | |
| 359,197 | |
Otsuka
Corp. | |
| 25,100 | | |
| 822,580 | |
Sansan,
Inc.(b) | |
| 36,800 | | |
| 351,097 | |
Tokyo
Electron Ltd. | |
| 4,500 | | |
| 1,898,759 | |
Zuken,
Inc. | |
| 36,700 | | |
| 849,733 | |
| |
| | | |
| 15,040,954 | |
Materials—8.4% | |
| | | |
| | |
Kansai
Paint Co. Ltd.(a) | |
| 67,600 | | |
| 930,982 | |
Nippon
Paint Holdings Co. Ltd. | |
| 159,000 | | |
| 1,259,492 | |
Nippon
Sanso Holdings Corp.(a) | |
| 95,700 | | |
| 1,722,168 | |
Shin-Etsu
Chemical Co. Ltd.(a) | |
| 29,000 | | |
| 3,985,600 | |
| |
| | | |
| 7,898,242 | |
Real
Estate—5.6% | |
| | | |
| | |
Heiwa
Real Estate Co. Ltd.(a) | |
| 42,400 | | |
| 1,337,520 | |
Tokyu
Fudosan Holdings Corp. | |
| 763,800 | | |
| 3,974,563 | |
| |
| | | |
| 5,312,083 | |
Total
Common Stocks | |
| | | |
| 104,657,243 | |
|
Aberdeen
Japan Equity Fund, Inc. |
7 |
Statement
of Investments (unaudited)
(concluded)
As
of April 30, 2022
| |
Shares
or | | |
| |
| |
Principal | | |
| |
| |
Amount | | |
Value | |
SHORT-TERM
INVESTMENT—0.1% | |
| | |
| |
MONEY
MARKET FUNDS—0.1% | |
| | | |
| | |
UNITED
STATES—0.1% | |
| | | |
| | |
|
State
Street Institutional U.S. Government Money Market Fund, Premier Class, 0.29%(c) | |
| $ 127,922 | | |
| $ 127,922 | |
|
Total
Money Market Funds | |
| | | |
| 127,922 | |
|
Total
Short-Term Investment—0.1% (cost $127,922) | |
| | | |
| 127,922 | |
|
Total
Investments—110.9% (cost $113,752,008)(d) | |
| | | |
| 104,785,165 | |
|
Liabilities
in Excess of Other Assets—(10.9)% | |
| | | |
| (10,283,846 | ) |
|
Net
Assets—100.0% | |
| | | |
| $ 94,501,319 | |
(a) All or a portion of the security has been designated as collateral for the line of credit.
(b) Non-income producing security.
(c) Registered investment company advised by State Street Global Advisors. The rate shown is the 7 day yield as of April 30, 2022.
(d) See Note 10 of the accompanying Notes to Financial Statements for tax unrealized appreciation/(depreciation) of securities.
See
accompanying Notes to Financial Statements.
8 |
Aberdeen
Japan Equity Fund, Inc. |
|
Statement
of Assets and Liabilities (unaudited)
As
of April 30, 2022
Assets
Investments,
at value (cost $113,752,008) | |
$ | 104,785,165 | |
Foreign
currency, at value (cost $742,435) | |
| 733,575 | |
Interest
and dividends receivable | |
| 881,234 | |
Tax
reclaim receivable | |
| 66,017 | |
Prepaid
expenses and other assets | |
| 392 | |
Total
assets | |
| 106,466,383 | |
Liabilities | |
| | |
Line
of credit payable (Note 7) | |
| 11,732,016 | |
Director
fees payable | |
| 46,981 | |
Investment
management fees payable (Note 3) | |
| 29,780 | |
Investor
relations fees payable (Note 3) | |
| 21,949 | |
Interest
expense payable | |
| 9,032 | |
Administration
fees payable (Note 3) | |
| 7,309 | |
Other
accrued expenses | |
| 117,997 | |
Total
liabilities | |
| 11,965,064 | |
| |
| | |
Net
Assets | |
$ | 94,501,319 | |
Composition
of Net Assets | |
| | |
Common
stock (par value $0.01 per share) (Note 5) | |
$ | 134,085 | |
Paid-in
capital in excess of par | |
| 100,330,496 | |
Distributable
accumulated loss | |
| (5,963,262 | ) |
Net
Assets | |
$ | 94,501,319 | |
Net
asset value per share based on 13,408,536 shares issued and outstanding | |
$ | 7.05 | |
See
Notes to Financial Statements.
|
Aberdeen
Japan Equity Fund, Inc. |
9 |
Statement
of Operations (unaudited)
For
the Six-Month Period Ended April 30, 2022
Net
Investment Income:
| |
| | |
Income | |
| | |
Dividends
and other income (net of foreign withholding taxes of $156,956) | |
$ | 1,160,395 | |
Total
Investment Income | |
| 1,160,395 | |
| |
| | |
Expenses: | |
| | |
Investment
management fee (Note 3) | |
| 201,406 | |
Directors’
fees and expenses | |
| 95,821 | |
Administration
fee (Note 3) | |
| 52,793 | |
Independent
auditors’ fees and expenses | |
| 29,029 | |
Investor
relations fees and expenses (Note 3) | |
| 28,908 | |
Legal
fees and expenses | |
| 20,851 | |
Custodian’s
fees and expenses | |
| 15,137 | |
Reports
to stockholders and proxy solicitation | |
| 15,017 | |
NYSE
listing fee | |
| 11,778 | |
Transfer
agent’s fees and expenses | |
| 8,637 | |
Insurance
expense | |
| 5,245 | |
Miscellaneous | |
| 18,742 | |
Total
operating expenses, excluding interest expense | |
| 503,364 | |
Interest
expense (Note 7) | |
| 56,982 | |
Net
operating expenses | |
| 560,346 | |
| |
| | |
Net
Investment Income | |
| 600,049 | |
Net
Realized/Unrealized Gain/(Loss) from Investments and Foreign Currency Related Transactions: | |
| | |
Net
realized gain/(loss) from: | |
| | |
Investment
transactions | |
| 2,580,694 | |
Foreign
currency transactions | |
| (134,887 | ) |
| |
| 2,445,807 | |
Net
change in unrealized appreciation/(depreciation) on: | |
| | |
Investments | |
| (38,352,797 | ) |
Foreign
currency translation | |
| 1,541,740 | |
| |
| (36,811,057 | ) |
Net
realized and unrealized (loss) from investments and foreign currency related transactions | |
| (34,365,250 | ) |
Net
Decrease in Net Assets Resulting from Operations | |
$ | (33,765,201 | ) |
See
Notes to Financial Statements.
10 |
Aberdeen
Japan Equity Fund, Inc. |
|
Statements
of Changes in Net Assets
|
| | |
| |
|
For
the | | |
| |
|
Six-Month | | |
| |
|
Period
Ended | | |
For
the | |
|
April
30, 2022 | | |
Year
Ended | |
|
(unaudited) | | |
October
31, 2021 | |
Increase/(Decrease)
in Net Assets from Operations: |
| | |
| | |
Operations: |
| | |
| | |
Net
investment income |
$ 600,049 | | |
| $ 1,087,870 | |
Net
realized gain from investment transactions |
2,580,694 | | |
| 11,540,553 | |
Net
realized loss from foreign currency transactions |
(134,887 | ) | |
| (79,338 | ) |
Net
change in unrealized appreciation/(depreciation) on investments |
(38,352,797 | ) | |
| 4,153,882 | |
Net
change in unrealized appreciation on foreign currency translation |
1,541,740 | | |
| 1,091,331 | |
Net
increase/(decrease) in net assets resulting from operations |
(33,765,201 | ) | |
| 17,794,298 | |
Distributions
to Stockholders From: |
| | |
| | |
Distributable
earnings |
(15,158,215 | ) | |
| (5,828,556 | ) |
Net
decrease in net assets from distributions |
(15,158,215 | ) | |
| (5,828,556 | ) |
Net
increase/(decrease) in net assets |
(48,923,416 | ) | |
| 11,965,742 | |
Net
Assets: |
| | |
| | |
Beginning
of period |
143,424,735 | | |
| 131,458,993 | |
End
of period |
$ 94,501,319 | | |
| $ 143,424,735 | |
See
Notes to Financial Statements.
|
Aberdeen
Japan Equity Fund, Inc. |
11 |
Financial
Highlights
|
For the |
|
|
|
|
|
|
|
Six-Month |
|
|
|
|
|
|
|
Period
Ended |
|
|
|
|
|
|
|
April
30, 2022 |
For
the Fiscal Years Ended October 31, |
|
|
(unaudited) |
2021 |
2020 |
2019 |
2018 |
2017 |
|
PER
SHARE OPERATING PERFORMANCE(a):
Net
asset value, beginning of period |
$10.70 |
$9.80 |
$8.97 |
$8.66 |
$10.30 |
$9.51 |
|
Net
investment income |
0.04 |
0.08 |
0.06 |
0.06 |
0.07 |
0.07 |
|
Net
realized and unrealized gains/(losses) on investments and foreign currencies |
(2.56) |
1.25 |
1.03 |
0.90 |
(1.23) |
1.03 |
|
Total
from investment operations |
(2.52) |
1.33 |
1.09 |
0.96 |
(1.16) |
1.10 |
|
Distributions
from: |
|
|
|
|
|
|
|
Net
investment income |
(0.26) |
(0.06) |
(0.07) |
(0.07) |
(0.06) |
(0.09) |
|
Net
realized gains |
(0.87) |
(0.37) |
(0.19) |
(0.58) |
(0.42) |
(0.23) |
|
Total
distributions |
(1.13) |
(0.43) |
(0.26) |
(0.65) |
(0.48) |
(0.32) |
|
Capital
Share Transactions:
Impact
due to discount management policy |
– |
– |
– |
– |
– |
0.01 |
|
Net
asset value, end of period |
$7.05 |
$10.70 |
$9.80 |
$8.97 |
$8.66 |
$10.30 |
|
Market
value, end of period |
$6.12 |
$9.27 |
$8.22 |
$7.53 |
$7.40 |
$9.17 |
|
Total
Investment Return Based on(b): |
|
|
|
|
|
|
|
Market
value |
(24.48%) |
17.78% |
12.75% |
11.42% |
(15.22%) |
16.73% |
|
Net
asset value |
(24.63%) |
14.03% |
12.84% |
13.41% |
(11.67%) |
12.78% |
|
|
|
|
|
|
|
|
|
Ratio
to Average Net Assets/Supplementary Data: |
|
|
|
|
|
|
|
Net
assets, end of period (in millions) |
$94.5 |
$143.4 |
$131.5 |
$120.3 |
$115.9 |
$137.7 |
|
Average
net assets (in millions) |
$120.1 |
$143.0 |
$119.6 |
$110.2 |
$134.7 |
$124.4 |
|
Net
operating expenses |
0.94%(c) |
0.83% |
0.85% |
0.94% |
0.81% |
0.86% |
|
Net
operating expenses, excluding interest expense |
0.81%(c) |
0.76% |
– |
– |
– |
– |
|
Net
investment income |
1.01%(c) |
0.76% |
0.63% |
0.71% |
0.69% |
0.78% |
|
Portfolio
turnover |
18%(d) |
45% |
34% |
42% |
32% |
22% |
|
Line
of credit payable outstanding (000 omitted) |
$11,732 |
$13,330 |
$– |
$– |
$– |
$– |
|
Asset
coverage ratio on line of credit payable at period end(e) |
905% |
1,176% |
– |
– |
– |
– |
|
Asset
coverage per $1,000 on line of credit payable at period end |
$9,055 |
$11,759 |
$– |
$– |
$– |
$– |
|
(a) | Based
on average shares outstanding. |
(b) | Total
investment return based on market value is calculated assuming that shares of the Fund’s
common stock were purchased at the closing market price as of the beginning of the period,
dividends, capital gains, and other distributions were reinvested as provided for in the
Fund’s dividend reinvestment plan and then sold at the closing market price per share
on the last day of the period. The computation does not reflect any sales commission investors
may incur in purchasing or selling shares of the Fund. The total investment return based
on the net asset value is similarly computed except that the Fund’s net asset value
is substituted for the closing market value. |
(c) | Annualized. |
(d) | Not
annualized. |
(e) | Asset
coverage ratio is calculated by dividing net assets plus the amount of any borrowings, for
investment purposes by the amount of the Revolving Credit Facility. |
Amounts
listed as “–” are $0 or round to $0.
See
Notes to Financial Statements.
12 |
Aberdeen
Japan Equity Fund, Inc. |
|
Notes to Financial Statements (unaudited)
April 30, 2022
1.
Organization
Aberdeen
Japan Equity Fund, Inc. (the "Fund") was incorporated in Maryland on July 12, 1990 under its original name "The
Japan 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 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").
2.
Summary of Significant Accounting Policies
The
Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial
Accounting Standards Board ("FASB") Accounting Standard Codification Topic 946 Financial Services – Investment
Companies. The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial
statements. The policies conform to generally accepted accounting principles (“GAAP” )in the United States of America.
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported
amounts of income and expenses for the period. Actual results could differ from those estimates. The accounting records of the
Fund are maintained in U.S. Dollars.
a.
Security Valuation:
The
Fund values its securities at current market value or fair value, consistent with regulatory requirements. "Fair value"
is defined in the Fund's Valuation and Liquidity Procedures as the price that could be received to sell an asset or paid to transfer
a liability in an orderly transaction between willing market participants without a compulsion to transact at the measurement
date.
Equity
securities that are traded on an exchange are valued at the last quoted sale price on the principal exchange on which the security
is traded at the "Valuation Time" subject to application, when appropriate, of the valuation factors described in the
paragraph below. Under normal circumstances, the Valuation Time is as of the close of regular trading on the New York Stock Exchange
(“NYSE”) (usually 4:00 p.m. Eastern Time). In the absence of a sale price, the security is valued at the mean of
the bid/ask price quoted at the close on the principal exchange on which the security is traded. Securities traded on NASDAQ
are valued at the NASDAQ official closing price. Closed-end funds and exchange-traded funds ("ETFs") are valued at
the market price of the security at the Valuation Time. A security using any of these pricing methodologies is determined to
be a Level 1 investment. |
|
Foreign
equity securities that are traded on foreign exchanges that close prior to Valuation Time
are valued by applying valuation factors to the last sale price or the mean price as noted
above. Valuation factors are provided by an independent pricing service provider approved
by the Board. These valuation factors are used when pricing the Fund's portfolio holdings
to estimate market movements between the time foreign markets close and the time the Fund
values such foreign securities. These valuation factors are based on inputs such as depositary
receipts, indices, futures, sector indices/ETFs, exchange rates, and local exchange opening
and closing prices of each security. When prices with the application of valuation factors
are utilized, the value assigned to the foreign securities may not be the same as quoted
or published prices of the securities on their primary markets. A security that applies a
valuation factor is determined to be a Level 2 investment because the exchange-traded price
has been adjusted. Valuation factors are not utilized if the independent pricing service
provider is unable to provide a valuation factor or if the valuation factor falls below a
predetermined threshold; in such case, the security is determined to be a Level 1 investment.
Short-term
investments are comprised of cash and cash equivalents invested in short-term investment funds which are redeemable daily. The
Fund sweeps available cash into the State Street Institutional U.S. Government Money Market Fund, which has elected to qualify
as a “government money market fund” pursuant to Rule 2a-7 under the Investment Company Act of 1940, as amended, and
has an objective, which is not guaranteed, to maintain a $1.00 per share NAV. Generally, these investment types are categorized
as Level 1 investments.
In
the event that a security’s market quotations are not readily available or are deemed unreliable (for reasons other than
because the foreign exchange on which it trades closes before the Valuation Time), the security is valued at fair value as determined
by the Fund’s Pricing Committee, taking into account the relevant factors and surrounding circumstances using valuation
policies and procedures approved by the Board. A security that has been fair valued by the Fund’s Pricing Committee may
be classified as Level 2 or Level 3 depending on the nature of the inputs.
In
accordance with the authoritative guidance on fair value measurements and disclosures under GAAP, the Fund discloses the fair
value of its investments using a three-level hierarchy that classifies the inputs to valuation techniques used to measure the
fair value. The hierarchy assigns Level 1, the highest level, measurements to valuations based upon unadjusted quoted prices
in active markets for identical assets, Level 2 measurements to valuations based upon other significant observable inputs, including
adjusted quoted prices in active markets for similar assets, and Level 3, the lowest level, measurements to valuations based
upon unobservable inputs that are significant to |
|
Aberdeen
Japan Equity Fund, Inc. |
13 |
Notes to Financial Statements (unaudited)
(continued)
April 30, 2022
the
valuation. Inputs refer broadly to the assumptions that market participants would use in
pricing the asset or liability, including assumptions about risk, for example the risk inherent
in a particular valuation technique used to measure fair value including a pricing model
and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable
or unobservable. Observable inputs are inputs that reflect the assumptions market participants
would use in pricing the asset or liability, which are based on market data obtained from
sources independent of the reporting entity. Unobservable inputs are inputs that reflect
the reporting entity’s own assumptions about the assumptions market participants would
use in pricing the asset or liability developed based on the best information available in
the |
|
circumstances.
A financial instrument’s level within the fair value hierarchy is based upon the lowest
level of any input that is significant to the fair value measurement. The three-level hierarchy
of inputs is summarized below:
Level
1 – quoted prices in active markets for identical investments;
Level
2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds,
and credit risk); or
Level
3 – significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments).
|
A summary of standard inputs is
listed below:
Security
Type |
| Standard
Inputs |
Foreign
equities utilizing a fair |
| Depositary
receipts, indices, futures, sector indices/ETFs, exchange rates, and local exchange opening |
value
factor |
| and
closing prices of each security. |
The
following is a summary of the inputs used as of April 30, 2022 in valuing the Fund's investments
and other financial instruments at fair value. The inputs or methodologies used for valuing
securities are not necessarily an indication of the risk associated with investing in those
securities. Please refer to the Portfolio of Investments for a detailed breakout of the security
types:
Investments,
at Value | |
Level
1 – Quoted Prices ($) | | |
Level
2 – Other Significant Observable Inputs ($) | | |
Level
3 – Significant Unobservable Inputs ($) | | |
Total
($) | |
Investments
in Securities | |
| | | |
| | | |
| | | |
| | |
Common
Stocks | |
| $– | | |
| $104,657,243 | | |
| $– | | |
| $104,657,243 | |
Short-Term
Investment | |
| 127,922 | | |
| – | | |
| – | | |
| 127,922 | |
Total | |
| $127,922 | | |
| $104,657,243 | | |
| $– | | |
| $104,785,165 | |
Amounts listed as "–"
are $0 or round to $0.
For the six-month
period ended April 30, 2022, there were no significant changes to the fair valuation methodologies for the type of holdings in the Fund’s
portfolio.
b.
Foreign Currency Translation:
Foreign
securities, currencies, and other assets and liabilities denominated in foreign currencies are translated into U.S. Dollars at
the exchange rate of said currencies against the U.S. Dollar, as of the Valuation Time, as provided by an independent pricing
service approved by the Board.
Foreign
currency amounts are translated into U.S. Dollars on the following basis:
(i) market
value of investment securities, other assets and liabilities – at the current daily rates of exchange; and
(ii) purchases
and sales of investment securities, income and expenses – at the rate of exchange prevailing on the respective dates of
such transactions. |
|
The
Fund does not isolate that portion of gains and losses on investments in equity securities due to changes in the foreign exchange rates
from the portion due to changes in market prices of equity securities. Accordingly, realized and unrealized foreign currency gains and
losses with respect to such securities are included in the reported net realized and unrealized gains and losses on investment transactions
balances.
The
Fund reports certain foreign currency related transactions and foreign taxes withheld on security transactions as components of realized
gains for financial reporting purposes, whereas such foreign currency related transactions are treated as ordinary income for U.S. federal
income tax purposes.
|
14 |
Aberdeen
Japan Equity Fund, Inc. |
|
Notes
to Financial Statements (unaudited) (continued)
April 30, 2022
Net unrealized currency gains or losses from
valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized
appreciation/depreciation in value of investments, and translation of other assets and liabilities denominated in foreign currencies.
Net realized foreign exchange gains or losses
represent foreign exchange gains and losses from transactions in foreign currencies and forward foreign currency contracts, exchange
gains or losses realized between the trade date and settlement date on security transactions, and the difference between the amounts
of interest and dividends recorded on the Fund's books and the U.S. Dollar equivalent of the amounts actually received.
Foreign security and currency transactions may
involve certain considerations and risks not typically associated with those of domestic origin, including unanticipated movements in
the value of the foreign currency relative to the U.S. Dollar. Generally, when the U.S. Dollar rises in value against foreign currency,
the Fund's investments denominated in that foreign currency will lose value because the foreign currency is worth fewer U.S. Dollars;
the opposite effect occurs if the U.S. Dollar falls in relative value.
c. Security Transactions, Investment Income and Expenses:
Security transactions are recorded on the trade
date. Realized and unrealized gains/(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 which
may be recorded after the ex-date, as soon as the Fund acquires information regarding such dividends or corporate actions.
Interest income and expenses are recorded on an accrual basis.
d. Distributions:
The Fund records dividends and distributions
payable to its stockholders 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 GAAP. 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 reclassification.
Dividends and distributions which exceed net investment income and net realized capital gains for tax purposes are reported as return
of capital.
e. Federal Income Taxes:
The Fund intends to continue to qualify as a
"regulated investment company" (RIC) by complying with the provisions available to certain
investment companies, as defined in Subchapter
M of the Internal Revenue Code of 1986, as amended, and to make distributions of net investment income and net realized capital gains
sufficient to relieve the Fund from all federal income taxes. Therefore, no federal income tax provision is required.
The Fund recognizes the tax benefits of uncertain
tax positions only where the position is "more likely than not" to be sustained assuming examination by tax authorities. Management
of the Fund has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements.
Since tax authorities can examine previously filed tax returns, the Fund's U.S. federal and state tax returns for each of the most recent
four fiscal years up to the most recent fiscal year ended October 31, 2021 are subject to such review.
f. Rights Issues and Warrants:
Rights issues give the right, normally to existing
stockholders, to buy a proportional number of additional securities at a given price (generally at a discount) within a fixed period
(generally a short-term period) and are offered at the company's discretion. Warrants are securities that give the holder the right to
buy common stock at a specified price for a specified period of time. Rights issues and warrants are speculative and have no value if
they are not exercised before the expiration date. Rights issues and warrants are valued at the last sale price on the exchange on which
they are traded.
g. Foreign Withholding Tax:
Dividend and interest income from non-U.S. sources
received by the Fund are generally subject to non-U.S. withholding taxes and are recorded on the Statement of Operations. The Fund files
for tax reclaims for the refund of such withholdings taxes according to tax treaties. Tax reclaims that are deemed collectible are booked
as tax reclaim receivable on the Statement of Assets and Liabilities. In addition, the Fund may be subject to capital gains tax in certain
countries in which it invests. The above taxes may be reduced or eliminated under the terms of applicable U.S. income tax treaties with
some of these countries. The Fund accrues such taxes when the related income is earned.
In addition, when the Fund sells securities within
certain countries in which it invests, the capital gains realized may be subject to tax. Based on these market requirements and as required
under GAAP, the Fund accrues deferred capital gains tax on securities currently held that have unrealized appreciation within these countries.
The amount of deferred capital gains tax accrued, if any, is reported on the Statement of Assets and Liabilities.
|
Aberdeen Japan Equity Fund, Inc. |
15 |
Notes
to Financial Statements (unaudited)
(continued)
April 30, 2022
3. Agreements and Transactions with Affiliates
a. Investment Manager:
abrdn Asia Limited (“abrdn Asia”
or the “Investment Manager”), formerly Aberdeen Standard Investments (Asia) Limited, serves as the Fund’s investment
manager with respect to all investments. The Investment Manager is an indirect wholly-owned subsidiary of abrdn plc, formerly known as
Standard Life Aberdeen plc. In rendering advisory services, the Investment Manager may use the resources of investment advisor subsidiaries
of abrdn plc. These affiliates have entered into procedures pursuant to which investment professionals from affiliates may render portfolio
management and research services as associated persons of the Investment Manager.
Pursuant to the Management Agreement, the Investment
Manager makes investment management decisions relating to the Fund’s assets. For such investment services, the Fund pays the Investment
Manager 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 Managed Assets. For purposes of this calculation, “Managed Assets” of the Fund means total
assets of the Fund, including assets attributable to investment leverage, minus all liabilities, but not excluding any liabilities or
obligations attributable to leverage obtained by the Fund for investment purposes through (i) the issuance or incurrence of indebtedness
of any type (including, without limitation, borrowing through a credit facility or the issuance of debt securities), (ii) the issuance
of preferred stock or other similar preference securities, and/or (iii) any other means, but not including any collateral received for
securities loaned by the Fund. During the six-month period ended April 30, 2022, the Fund paid abrdn Asia $201,406. In addition, the
Fund has agreed to reimburse the Investment Manager for all out-of-pocket expenses related to the Fund. For the six-month period ended
April 30, 2022, no such expenses were paid to the Investment Manager.
b. Fund Administration:
abrdn Inc. (formerly, Aberdeen Standard Investments,
Inc.), an affiliate of abrdn Asia, serves as the Fund’s administrator, pursuant to an agreement under which abrdn Inc. receives
a fee, payable quarterly by the Fund, at an annual fee rate of 0.08% of the value of the Fund’s average weekly net assets. During
the six-month period ended April 30, 2022, abrdn Inc. earned $52,793 from the Fund for administration services.
c. Investor Relations:
Under the terms of the Investor Relations Services
Agreement, abrdn Inc. provides and/or engages third parties to provide investor relations services to the Fund and certain other funds
advised by abrdn Asia or its affiliates as part of an Investor Relations Program. Under the Investor Relations Services Agreement, the
Fund owes a portion of the fees
related to the Investor Relations Program (the
“Fund’s Portion”). However, Investor Relations Services fees are limited by abrdn Inc. so that the Fund will only pay
up to an annual rate of 0.05% of the Fund’s average weekly net assets. Any difference between the capped rate of 0.05% of the Fund’s
average weekly net assets and the Fund’s Portion is paid for by abrdn Inc.
Pursuant to the terms of the Investor Relations
Services Agreement, abrdn Inc. (or third parties engaged by abrdn Inc.), among other things, provides objective and timely information
to stockholders based on publicly-available information; provides information efficiently through the use of technology while offering
stockholders immediate access to knowledgeable investor relations representatives; develops and maintains effective communications with
investment professionals from a wide variety of firms; creates and maintains investor relations communication materials such as fund
manager interviews, films and webcasts, publishes white papers, magazine articles and other relevant materials discussing the Fund’s
investment results, portfolio positioning and outlook; develops and maintains effective communications with large institutional stockholders;
responds to specific stockholder questions; and reports activities and results to the Board and management detailing insight into general
stockholders sentiment.
During the six-month period ended April 30, 2022,
the Fund incurred investor relations fees of approximately $28,908. For the six-month period ended April 30, 2022, abrdn Inc. did not
waive any investor relations fees because the Fund did not reach the capped amount.
4. Investment Transactions
Purchases and sales of investment securities
(excluding short-term securities) for the six-month period ended April 30, 2022, were $24,014,805 and $38,609,937, respectively.
5. Capital
The authorized capital of the Fund is 30 million
shares of $0.01 par value per share of common stock. As of April 30, 2022, there were 13,408,536 shares of common stock issued and outstanding.
6. Discount Management Program
The Fund’s Discount Management Program
authorizes management to make open market purchases, from time to time, in a maximum aggregate amount during each twelve month period
ended October 31 of up to 10% of the Fund’s shares of stock outstanding as of October 31 of the prior year. Such purchases may
be made opportunistically at certain discounts to net asset value per share when, in the reasonable judgment of management based on historical
discount levels and current market conditions, such repurchases may enhance stockholder value. During the six-month period ended April
30, 2022, the Fund did not repurchase any shares.
16 |
Aberdeen Japan Equity Fund, Inc. |
|
Notes
to Financial Statements (unaudited) (continued)
April 30, 2022
The Board of Directors authorized the Discount
Management Program in order to potentially enhance share liquidity and increase stockholder value through the potential accretive impact
of the purchases to the Fund's NAV. There is no assurance that the Fund will purchase shares in any specific amounts.
7. Line of Credit
On December 15, 2020, the Fund executed a Prime
Brokerage Agreement with BNP Paribas Prime Brokerage International Ltd. (“BNPP PB”). The maximum commitment amount is $20,000,000.
The terms of the lending agreement indicate the rate to be 1 month LIBOR plus 0.85% per annum on amounts borrowed. On December 14, 2021,
the Board approved an amendment to its Prime Brokerage Agreement with BNP Paribas Prime Brokerage International to adjust the charged
interest on amounts borrowed at a variable rate, which may be based on the Secured Overnight Financing Rate (“SOFR”) plus
a spread. The BNPP PB facility provides a secured, committed line of credit for the Fund where certain Fund assets are pledged against
advances made to the Fund. The Fund has granted a security interest in all pledged assets used as collateral to the BNPP PB facility.
The Fund’s outstanding balance as of April 30, 2022 was 1,520,000,000 Japanese Yen ($11,732,016). During the six-month period ended
April 30, 2022, the average borrowing by the Fund was 1,520,000,000.00 JPY with an average weighted interest rate on borrowings of 0.87%.
Interest expense related to the line of credit for the six-month period ended April 30, 2022, was $56,982.
8. Portfolio Investment Risks
a. Risks Associated with Foreign Securities and Currencies:
Investments in securities of foreign issuers
carry certain risks not ordinarily associated with investments in securities of U.S. issuers. These risks include future political and
economic developments and the possible imposition of exchange controls or other foreign governmental laws and restrictions. In addition,
with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, and political or social
instability or diplomatic developments, which could adversely affect investments in those countries. Foreign securities may also be harder
to price than U.S. securities.
Certain countries also may impose substantial
restrictions on investments in their capital markets by foreign entities, including restrictions on investments in issuers of industries
deemed sensitive to relevant national interests. These factors may limit the investment opportunities available and result in a lack
of liquidity and high price volatility with respect to securities of issuers from developing countries. Foreign securities may also be
harder to price than U.S. securities.
The value of foreign currencies relative to the
U.S. Dollar fluctuates in response to market, economic, political, regulatory, geopolitical or
other conditions. A decline in the value of a
foreign currency versus the U.S. Dollar reduces the value in the U.S. Dollars of investments denominated in that foreign currency. This
risk may impact the Fund more greatly to the extent the Fund does not hedge its currency risk, or hedging techniques used by the Investment
Manager are unsuccessful.
b. Focus Risk:
The Fund may have elements of risk not typically
associated with investments in the United States due to focused investments in a limited number of countries or regions subject to foreign
securities or currency risks. Such focused investments may subject the Fund to additional risks resulting from political or economic
conditions in such countries or regions and the possible imposition of adverse governmental laws or currency exchange restrictions could
cause the securities and their markets to be less liquid and their prices to be more volatile than those of comparable U.S. securities.
c. Leverage Risk:
The Fund may use leverage to purchase securities.
Increases and decreases in the value of the Fund's portfolio will be magnified when the Fund uses leverage.
d. LIBOR Risk:
The Fund may invest in certain debt securities,
derivatives or other financial instruments that utilize LIBOR as a “benchmark” or “reference rate” for various
interest rate calculations. In July 2017, the United Kingdom Financial Conduct Authority (“FCA”), which regulates LIBOR,
announced a desire to phase out the use of LIBOR by the end of 2021. However, subsequent announcements by the FCA, the LIBOR administrator
and other regulators indicate that it is possible that the most widely used LIBOR rates may continue until mid-2023. It is anticipated
that LIBOR ultimately will be discontinued or the regulator will announce that it is no longer sufficiently robust to be representative
of its underlying market around that time. Although financial regulators and industry working groups have suggested alternative reference
rates, such as European Interbank Offered Rate (“EURIBOR”), Sterling Overnight Interbank Average Rate (“SONIA”)
and SOFR, global consensus on alternative rates is lacking and the process for amending existing contracts or instruments to transition
away from LIBOR remains unclear. The elimination of LIBOR or changes to other reference rates or any other changes or reforms to the
determination or supervision of reference rates could have an adverse impact on the market for, or value of, any securities or payments
linked to those reference rates, which may adversely affect the Fund’s performance and/or net asset value. Uncertainty and risk
also remain regarding the willingness and ability of issuers and lenders to include revised provisions in new and existing contracts
or instruments.
|
Aberdeen Japan Equity Fund, Inc. |
17 |
Notes to Financial
Statements (unaudited) (continued)
April 30, 2022
Consequently, the transition away from LIBOR
to other reference rates may lead to increased volatility and illiquidity in markets that are tied to LIBOR, fluctuations in values of
LIBOR-related investments or investments in issuers that utilize LIBOR, increased difficulty in borrowing or refinancing and diminished
effectiveness of hedging strategies, adversely affecting the Fund’s performance. Furthermore, the risks associated with the expected
discontinuation of LIBOR and transition may be exacerbated if the work necessary to effect an orderly transition to an alternative reference
rate is not completed in a timely manner.
e. Non-U.S. Taxation Risk:
Income, proceeds and gains received by the Fund
from sources within foreign countries may be subject to withholding and other taxes imposed by such countries, which will reduce the
return on those investments. Tax treaties between certain countries and the United States may reduce or eliminate such taxes.
If, at the close of its taxable year, more than
50% of the value of the Fund’s total assets consists of securities of foreign corporations, including for this purpose foreign
governments, the Fund will be permitted to make an election under the Code that will allow stockholders a deduction or credit for foreign
taxes paid by the Fund. In such a case, stockholders will include in gross income from foreign sources their pro rata shares of such
taxes. A stockholder’s ability to claim an offsetting foreign tax credit or deduction in respect of such foreign taxes is subject
to certain limitations imposed by the Code, which may result in the stockholder’s not receiving a full credit or deduction (if
any) for the amount of such taxes. Stockholders who do not itemize on their U.S. federal income tax returns may claim a credit (but not
a deduction) for such foreign taxes. If the Fund does not qualify for or chooses not to make such an election, stockholders will not
be entitled separately to claim a credit or deduction for U.S. federal income tax purposes with respect to foreign taxes paid by the
Fund; in that case the foreign tax will nonetheless reduce the Fund’s taxable income. Even if the Fund elects to pass through to
its stockholders foreign tax credits or deductions, tax-exempt stockholders and those who invest in the Fund through tax-advantaged accounts
such as IRAs will not benefit from any such tax credit or deduction.
f. Passive Foreign Investment Company Tax
Risk:
Equity investments by the Fund in certain "passive
foreign investment companies" ("PFICs") could subject the Fund to a U.S. federal income
tax (including interest charges) on distributions
received from the PFIC or on proceeds received from the disposition of shares in the PFIC. The Fund may be able to elect to treat a PFIC
as a "qualified electing fund" (i.e., make a "QEF election"), in which case the Fund will be required to include
its share of the company's income and net capital gains annually. The Fund may make an election to mark the gains (and to a limited extent
losses) in such holdings "to the market" as though it had sold and repurchased its holdings in those PFICs on the last day
of the Fund's taxable year. Such gains and losses are treated as ordinary income and loss. Because it is not always possible to identify
a foreign corporation as a PFIC, the Fund may incur the tax and interest charges described above in some instances.
g. Sector Risk:
To the extent that the Fund has a significant
portion of its assets invested in securities of companies conducting business in a broadly related group of industries within an economic
sector, the Fund may be more vulnerable to unfavorable developments in that economic sector than funds that invest more broadly.
h. Valuation Risk:
The price that the Fund could receive upon the
sale of any particular portfolio investment may differ from the Fund's valuation of the investment, particularly for securities that
trade in thin or volatile markets or that are valued using a fair valuation methodology or a price provided by an independent pricing
service. As a result, the price received upon the sale of an investment may be less than the value ascribed by the Fund, and the Fund
could realize a greater than expected loss or lower than expected gain upon the sale of the investment. The Fund's ability to value its
investments may also be impacted by technological issues and/or errors by pricing services or other third-party service providers.
9. Contingencies
In the normal course of business, the Fund may
provide general indemnifications pursuant to certain contracts and organizational documents. The Fund's maximum exposure under these
arrangements is dependent on future claims that may be made against the Fund, and therefore, cannot be estimated; however, the Fund expects
the risk of loss from such claims to be remote.
18 |
Aberdeen Japan Equity
Fund, Inc. |
|
Notes
to Financial Statements (unaudited) (concluded)
April 30, 2022
10. Tax Information
The U.S. federal income tax basis of the Fund’s
investments (including derivatives, if applicable) and the net unrealized depreciation as of April 30, 2022, were as follows:
Tax
Basis of Investments |
|
Appreciation |
|
Depreciation |
|
Net
Unrealized
Depreciation |
$114,746,932 |
|
$6,698,649 |
|
$
(16,660,416) |
|
$
(9,961,767) |
11. Recent Rulemaking
In October 2020, the Securities and Exchange
Commission (“SEC”) adopted new regulations governing the use of derivatives by registered investment companies. Rule 18f-4
will impose limits on the amount of derivatives a fund could enter into, eliminate the asset segregation framework currently used by
funds to comply with Section 18 of the 1940 Act, and require funds whose use of derivatives is more than a limited specified exposure
to establish and maintain a derivatives risk management program and appoint a derivatives risk manager. Management is currently finalizing
the implementation of Rule 18f-4 to meet the August 19, 2022 compliance date.
In December 2020, the SEC adopted Rule 2a-5 under
the 1940 Act, which establishes requirements for determining fair value in good faith for purposes of the 1940 Act, including related
oversight and reporting requirements. The rule also defines when market quotations are “readily available” for purposes of
the 1940 Act, the threshold for determining whether a fund must fair value a security. The SEC also adopted new
Rule 31a-4 under the 1940 Act, which sets forth
the recordkeeping requirements associated with fair value determinations. Finally, the SEC is rescinding previously issued guidance on
related issues, including the role of a board in determining fair value and the accounting and auditing of fund investments. Rule 2a-5
and Rule 31a-4 became effective on March 8, 2021, with a compliance date of September 8, 2022. Management is currently evaluating this
guidance.
12. Subsequent Events
Management has evaluated the need for disclosures
and/or adjustments resulting from subsequent events through the date the financial statements were issued. Based on this evaluation,
no disclosures and/or adjustments were required to the financial statements as of April 30, 2022, other than as noted below.
On May 10, 2022, the Fund announced that it will
pay on June 30, 2022, a distribution of US $0.12 per share to all stockholders of record as of May 20, 2022.
|
Aberdeen Japan Equity Fund, Inc. |
19 |
Dividend
Reinvestment and Optional Cash Purchase Plan (unaudited)
The Fund intends to distribute to stockholders
substantially all of its net investment income and to distribute any net realized capital gains at least annually. Net investment income
for this purpose is income other than net realized long-term and short-term capital gains net of expenses. Pursuant to the Dividend Reinvestment
and Optional Cash Purchase Plan (the “Plan”), stockholders whose shares of common stock are registered in their own names
will be deemed to have elected to have all distributions automatically reinvested by Computershare Trust Company N.A. (the “Plan
Agent”) in the Fund shares pursuant to the Plan, unless such stockholders elect to receive distributions in cash. Stockholders
who elect to receive distributions in cash will receive such distributions paid by check in U.S. Dollars mailed directly to the stockholder
by the Plan Agent, as dividend paying agent. In the case of stockholders such as banks, brokers or nominees that hold shares for others
who are beneficial owners, the Plan Agent will administer the Plan on the basis of the number of shares certified from time to time by
the stockholders as representing the total amount registered in such stockholders’ names and held for the account of beneficial
owners that have not elected to receive distributions in cash. Investors that own shares registered in the name of a bank, broker or
other nominee should consult with such nominee as to participation in the Plan through such nominee and may be required to have their
shares registered in their own names in order to participate in the Plan. Please note that the Fund does not issue certificates so all
shares will be registered in book entry form. The Plan Agent serves as agent for the stockholders in administering the 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, nonparticipants
in the Plan will receive cash and participants in the Plan will receive common stock, to be issued by the Fund or purchased by the Plan
Agent in the open market, as provided below. If the market price per share (plus expected per share fees) on the valuation date equals
or exceeds NAV per share on that date, the Fund will issue new shares to participants at NAV; provided, however, that if the NAV is less
than 95% of the market price on the valuation date, then such shares will be issued at 95% of the market price. The valuation date will
be the payable date for such distribution or dividend or, if that date is not a trading day on the New York Stock Exchange, the immediately
preceding trading date. If NAV exceeds the market price of Fund shares at such time, or if the Fund should declare an income dividend
or 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 New York Stock Exchange or elsewhere, for the participants’ accounts on, or shortly after, the payment date. If, before
the Plan Agent has completed its purchases, the market price exceeds the NAV of a Fund share, the average per share purchase price paid
by the Plan Agent may exceed the NAV of the Fund’s shares,
resulting in the acquisition of fewer shares
than if the distribution had been paid in shares issued by the Fund on the dividend payment date. Because of the foregoing difficulty
with respect to open-market purchases, the Plan provides that if the Plan Agent is unable to invest the full dividend amount in open-market
purchases during the purchase period or if the market discount shifts to a market premium during the purchase period, the Plan Agent
will cease making open-market purchases and will receive the uninvested portion of the dividend amount in newly issued shares at the
close of business on the last purchase date.
Participants have the option of making additional
cash payments of a minimum of $50 per investment (by check, one-time online bank debit or recurring automatic monthly ACH debit) to the
Plan Agent for investment in the Fund’s common stock, with an annual maximum contribution of $250,000. The Plan Agent will wait
up to three business days after receipt of a check or electronic funds transfer to ensure it receives good funds. Following confirmation
of receipt of good funds, the Plan Agent will use all such funds received from participants to purchase Fund shares in the open market
on the 25th day of each month or the next trading day if the 25th is not a trading day.
If the participant sets up recurring automatic
monthly ACH debits, funds will be withdrawn from his or her U.S. bank account on the 20th of each month or the next business
day if the 20th is not a banking business day and invested on the next investment date. The Plan Agent maintains all stockholder
accounts in the Plan and furnishes written confirmations of all transactions in an account, including information needed by stockholders
for personal and tax records. Shares in the account of each Plan participant will be held by the Plan Agent in the name of the participant,
and each stockholder's proxy will include those shares purchased pursuant to the Plan. There will be no brokerage charges with respect
to common shares issued directly by the Fund. However, each participant will pay a per share fee of $0.02 incurred with respect to the
Plan Agent's open market purchases in connection with the reinvestment of dividends, capital gains distributions and voluntary cash payments
made by the participant. Per share fees include any applicable brokerage commissions the Plan Agent is required to pay.
Participants also have the option of selling
their shares through the Plan. The Plan supports two types of sales orders. Batch order sales are submitted on each market day and will
be grouped with other sale requests to be sold. The price will be the average sale price obtained by Computershare’s broker, net
of fees, for each batch order and will be sold generally within 2 business days of the request during regular open market hours. Please
note that all written sales requests are always processed by Batch Order. ($10 and $0.12 per share). Market
20 |
Aberdeen Japan Equity
Fund, Inc. |
|
Dividend
Reinvestment and Optional Cash Purchase Plan (unaudited)
(concluded)
Order sales will sell at the next available trade.
The shares are sold real time when they hit the market, however an available trade must be presented to complete this transaction. Market
Order sales may only be requested by phone at 1-800-647-0584 or using Investor Center through www.computershare.com/buyaberdeen. ($25
and $0.12 per share).
The receipt of dividends and distributions under
the Plan will not relieve participants of any income tax that may be payable on such dividends or distributions. The Fund or the Plan
Agent may terminate the Plan as applied to any voluntary cash payments made and any dividend or distribution paid subsequent to notice
of the termination sent to
members of the Plan at least 30 days prior to
the record date for such dividend or distribution. The Plan also may be amended by the Fund or the Plan Agent, but (except when necessary
or appropriate to comply with applicable law or the rules or policies of the Securities and Exchange Commission or any other regulatory
authority) only by mailing a written notice at least 30 days prior to the effective date to the participants in the Plan. All correspondence
concerning the Plan should be directed to the Plan Agent by phone at 1-800-647-0584, using Investor Center through www.computershare.com/buyaberdeen
or in writing to Computershare Trust Company N.A., P.O. Box 505000, Louisville, KY 40233-5000.
|
Aberdeen
Japan Equity Fund, Inc. |
21 |
Corporate
Information
Directors |
Legal
Counsel |
Radhika
Ajmera, Chair |
Dechert
LLP |
Stephen Bird |
1900
K Street N.W. |
Anthony
Clark |
Washington,
DC 20006 |
P. Gerald Malone |
|
|
Independent
Registered Public Accounting Firm |
Investment
Manager |
KPMG
LLP |
abrdn Asia Limited |
1601
Market Street |
21
Church Street |
Philadelphia,
PA 19103 |
#01-01
Capital Square Two |
|
Singapore
049480 |
Investor Relations |
|
abrdn, Inc. |
Administrator |
1900 Market Street, Suite 200 |
abrdn, Inc. |
Philadelphia, PA 19103 |
1900 Market Street, Suite 200 |
1-800-522-5465 |
Philadelphia, PA 19103 |
Investor.Relations@abrdn.com |
|
|
|
|
|
|
Transfer
Agent and Registrar |
Custodian |
Computershare |
State
Street Bank and Trust Company |
P.O.
Box 505000 |
1
Lincoln Street |
Louisville
KY, 40233 |
Boston,
MA 02111 |
|
|
|
|
|
|
The
Financial Statements as of April 30, 2022, included in this report, were not audited and accordingly, no opinion is expressed thereon.
Notice
is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that the Fund may purchase, from
time to time, shares of its common stock in the open market.
Shares
of Aberdeen Japan Equity Fund, Inc. are traded on the NYSE under the symbol "JEQ". Information about the Fund's net asset value
and market price is available at www.aberdeenjeq.com.
This
report, including the financial information herein, is transmitted to the stockholders of Aberdeen Japan Equity Fund, Inc. for their
general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs
of any specific person. Past performance is no guarantee of future returns.
JEQ SEMI-ANNUAL
(b) Not applicable.