UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment
Company Act file number: |
|
811-06142 |
|
|
|
Exact
name of registrant as specified in charter: |
|
Aberdeen
Japan Equity Fund, Inc. |
|
|
|
Address
of principal executive offices: |
|
1900
Market Street, Suite 200 |
|
|
Philadelphia,
PA 19103 |
|
|
|
Name
and address of agent for service: |
|
Andrea
Melia |
|
|
abrdn
Inc. |
|
|
1900
Market Street Suite 200 |
|
|
Philadelphia,
PA 19103 |
|
|
|
Registrant’s
telephone number, including area code: |
|
1-800-522-5465 |
|
|
|
Date
of fiscal year end: |
|
October
31 |
|
|
|
Date
of reporting period: |
|
October
31, 2021 |
Item 1. Reports to Stockholders.
Aberdeen
Japan Equity Fund, Inc. (JEQ)
Annual
Report
October
31, 2021
abrdn.com
Stockholder Letter
(unaudited)
Dear Stockholder,
We present this Annual Report, which covers the activities of
Aberdeen Japan Equity Fund, Inc. (the "Fund"), for the fiscal year
ended October 31, 2021. 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 fiscal year ended October 31, 2021, 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 |
|
14.0 |
% |
Market Price2 |
|
17.8 |
% |
TOPIX Net Total Return Index4 |
|
18.2 |
% |
For more information about Fund performance, please see the Report
of the Investment Manager (page 4) and Total Investment Returns
(page 6).
NAV, Market Price and Premium/Discount
The below table represents comparison from current fiscal year end
to prior fiscal year end of market price to NAV and associated
premium(+)/discount(-).
|
|
NAV |
|
Closing
Market
Price |
|
Premium(+)/
Discount(-) |
10/31/2021 |
|
$10.70 |
|
$9.27 |
|
-13.4% |
10/31/2020 |
|
$ 9.80 |
|
$8.22 |
|
-16.1% |
During the fiscal year ended October 31, 2021, the Fund's NAV was
within a range of $9.75 to $11.95 and the Fund's market price
traded within a range of $8.20 to $10.23. During the fiscal year
ended October 31, 2021, the Fund's shares traded within a range of
a premium(+)/discount(-) of -10.7% to -17.2%.
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 October 31, 2021 was 1,520,000,000
Japanese Yen ($13,330,410). See Notes to Financial Statements Note
7 for further information.
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 fiscal year ended October 31, 2021, 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
|
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
("TOPIX") 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 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 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
Beginning in the first quarter of 2020, the illness caused by a
novel coronavirus, COVID-19, has resulted in a global pandemic and
major disruption to economies and markets around the world,
including the United States. Financial markets have experienced
extreme volatility and severe losses. Some sectors of the economy
and individual issuers have experienced particularly large losses.
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
Under the revolving credit facility, the Fund is charged interest
on amounts borrowed at a variable rate, which may be based on the
London Interbank Offered Rate ("LIBOR") plus a spread. 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 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 a 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. 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
a 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.
Because the usefulness of LIBOR as a benchmark could deteriorate
during the transition period, these effects could occur prior to
the end of 2021.
abrdn
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. In
addition, the fund names are anticipated to be re-branded over the
next year.
2 |
Aberdeen
Japan Equity Fund, Inc. |
Stockholder Letter
(unaudited)
(concluded)
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 |
Report of the Investment
Manager (unaudited)
Market/economic review
Japan's equity market posted a gain over the 12-month period ended
October 31, 2021. Stock prices increased in late 2020, continuing
their recovery from losses earlier in the year Japan and other
global markets saw a divergence in performance, with shares of "new
economy" companies surpassing those in the "old economy" and the
"virtual world" gaining at the expense of the "physical world."
Accordingly, valuations of digital companies became extended. As
the 2020 calendar year progressed, it became evident that early
prognoses of the pandemic's economic impact were harsher than
reality. Many Japanese companies reaffirmed our view that they
again would be able to reduce expenses when faced with harsh
business conditions and, in some cases, swiftly pivot to capture
rising opportunities in the "new normal."
In early 2021, Japanese equity prices continued to rise on the back
of receding political uncertainty in the U.S., falling COVID-19
infections across the world, and positive news flow around global
governments' fiscal and monetary stimulus. The rally in the market
was led by 2020's laggards, while the outperformers in 2020 fell
behind. Higher bond yields and inflation expectations led this
rotation as shares of low-valuation cyclical companies and
interest-rate-sensitive financial stocks outperformed the overall
market. We tend to avoid these areas of the market due to our
concerns about their environmental, social and governance (ESG)
standards and structural issues.
On the political front, Prime Minister Yoshihide Suga's approval
rating declined as the government faced criticism for its handling
of the COVID-19 pandemic and the decision to go ahead with staging
the Summer Olympics in the country in July and August 2021. Suga's
announcement of his resignation in September 2021 triggered a
leadership election on October 4, 2021. Fumio Kishida, the policy
chief of the ruling party, the Liberal Democratic Party (LDP), and
former foreign minister, became Japan's new prime minister. Kishida
faced his first major challenge in the general election held at the
end of the reporting period on October 31, 2021. The LDP
comfortably held its majority, with the coalition securing 293
seats, and several high-profile former ministers lost their seats.
The Japanese government's main focus will be on maintaining the
COVID-19 recovery path, which has been a point of criticism for the
LDP. COVID-19 infection rates continued to drop in October, as over
70% of Japan's population was fully vaccinated as of the end of the
reporting period.*
Fund performance
Aberdeen Japan Equity Fund returned 14.0% on a net asset value
basis for the 12-month reporting period ended October 31, 2021,
versus the
18.2% return of its benchmark, the Tokyo Stock Price Index (TOPIX)
(net dividends).
At the individual stock level, the largest detractor from the
Fund's performance relative to the benchmark index for the
reporting period was Elecom Co. Ltd. Shares of the electronic
components manufacturer moved lower due to a mixed business outlook
after a year of strong performance in 2020 from companies shifting
their employees to work from home. Shares of Edulab Inc. also
declined after the educational software company announced that it
was delaying disclosure of its results for the second quarter of
its 2021 fiscal year to investigate some business transactions
within the company. The Fund subsequently exited its position in
Edulab due to concerns about the company's corporate governance.
Taoka Chemical Co. Ltd.'s stock price moved lower after it posted
relatively weak quarterly results late in the reporting period and
on investor concerns that customer inventory levels would remain
elevated.
The Fund's top-performing holding for the reporting period was
Sanken Electric Co. Ltd., as the semiconductor manufacturer's stock
price rose after it listed its U.S. subsidiary, Allegro
MicroSystems, Inc, in October 2020, continuing the unlocking of
value within the business. We believe that there is still further
upside from the company's restructuring efforts, which come on the
back of engagement from shareholders, including the Fund. Shares of
industrial gas producer Nippon Sanso Holdings Corp. rose during the
reporting period due to investors' expectations for an earnings
recovery from improving industrial activity across the company's
operations. Shares of human resources technology platform provider
Recruit Holdings Co. Ltd. also performed well over the reporting
period, benefiting from better-than-expected quarterly results and
the company raising its revenue and earnings guidance for the full
2021 fiscal year. Strong demand for hiring in the U.S. was
particularly supportive of the company's results.
With our ongoing research and due diligence, we are seeking
companies that we believe are good investments for the Fund in the
medium- to longer-term. Early in the reporting period, we initiated
a holding in information technology solutions provider NEC Corp.,
which we believe is well-positioned to benefit from the build-out
of Japan's 5G network and government digitalization efforts. The
company also should expand its business abroad through a
partnership with Korea-based Samsung Electronics Co. Ltd. (which
the Fund does not own) on 5G mobile network systems, as well as
providing a lower-cost solution for telecommunications providers in
the implementation of the new global wireless standard. We also
purchased shares of Murata
|
* |
Source: Cabinet Secretariat of Japan, October
2021 |
4 |
Aberdeen Japan Equity Fund, Inc. |
|
Report of the Investment
Manager (unaudited)
(concluded)
Manufacturing Co. Ltd. In our view, Murata is one of few electronic
component manufacturers in Japan to efficiently reinvest in its
business and grow its margins, which has translated into the
company's leading-edge research and manufacturing capability. We
established a new position in Jeol Ltd., a leading maker of
multi-beam semiconductor mask-writers, which are crucial in the
production of high-end semiconductors. In addition to the lucrative
mask-writers business, the company's management is seeking to boost
profitability by expanding its sales of scientific instruments to
the semiconductor and medical sectors.
During the reporting period, we also participated in the initial
public offerings of both Coconala Inc. and Appier Group Inc. as we
believe that they have attractive valuations relative to their
longer-term growth outlooks. Coconala provides an online-based
matching platform for knowledge, skills and services. We think that
Coconala is entering a virtuous circle, whereby more transactions
lead to more reviews, leading to clearer visualization of sellers'
skills and buyers' demand. Appier is an artificial
intelligence-based marketing support tool provider, enabling its
clients to improve data-driven decision-making in digital
marketing. The company's proprietary algorithms help to identify
valuable customers, enabling more targeted ads and coupons to
enhance customer conversion rates.
Late in the reporting period, we initiated a position in AGC Inc.,
a leading maker of glass products, chemicals and electronics, as we
feel that the stock trades at an attractive valuation. The company
has been using cash generated by cash-cow businesses, including
glass products, to invest in structural growth opportunities, such
as pharmaceutical development and manufacturing outsourcing,
extreme ultraviolet (EUV) masks blanks, glass and display products
for next-generation vehicles. The company manufactures several
globally leading products, enabling stable cash flow-generation to
support continued reinvestment in the business and underpinning
shareholder returns.
We exited several positions to fund the new holdings. At the
beginning of the reporting period, we sold the Fund's shares of
industrial refrigerator manufacturer Daiwa Industries Ltd.;
pharmaceutical firm Shionogi & Co. Ltd.; IT-services providers
SCSK Corp. and Fujisoft Inc.; clinical-testing device maker Sysmex
Corp.; and control equipment provider Azbil Corp.
Additionally we sold the Fund's shares of material handling systems
provider Daifuku Co. Ltd., which we had initiated early in 2020. In
our view, the valuation was no longer attractive following a
welcome
rebound in its share price in 2020. At the same time, management
released cautious financial guidance for its 2021 fiscal year,
anticipating a rise in fixed costs such as research and
development. We exited the position to raise cash for what we
believed were more attractive opportunities elsewhere. As we
previously noted, in September 2021, we exited the Fund's position
in Edulab. In light of the accounting investigation, we felt that
it was an appropriate time to sell the shares in Edulab to reduce
the Fund's governance risk.
During the reporting period, we acted on the Board's approval to
add leverage to the Fund. We believe that the use of leverage is
appropriate for a closed-end fund, given the stable asset base.
Leverage may help to enhance the Fund's performance, although it is
subject to risks on the downside as well. We intend to use the
Fund's credit facility2 strategically, with the level of
borrowing guided by our views on the opportunities in the market.
As of the end of the reporting period, the total leverage comprised
approximately 8.5% of the Fund's managed assets.
Outlook
We believe that prospects for Japanese equities are improving amid
a global economic recovery. In our view, a ramp-up in vaccinations
and the reopening of economies in North America and Europe should
benefit Japanese companies with local and overseas operations. We
believe that the Fund is well positioned to benefit from these
developments and that valuations remain reasonable against the
improving outlook of the Fund's holdings.
Risk Considerations
Past performance is not an indication of future results. Foreign
securities in which the Fund may invest may be more volatile,
harder to price and less liquid than U.S. securities. They are
subject to risks associated with less stringent accounting and
regulatory standards, the impact of currency exchange rate
fluctuation, political and economic instability, reduced
information about issuers, higher transaction costs and delayed
settlement. The Fund focuses its investments in the Japan region,
which may subject the Fund to more volatility and greater risk of
loss than geographically diverse funds. Equity stocks of small- and
mid-cap companies carry greater risk, and more volatility than
equity stocks of larger, more established companies.
abrdn Asia Limited (formerly known as Aberdeen Standard
Investments (Asia) Limited)
|
2 |
A
credit facility is a type of loan that allows the borrowing
business to take out money over an extended period of time rather
than reapplying for a loan each time it needs money. |
|
Aberdeen Japan Equity Fund,
Inc. |
5 |
Total Investment Return
(unaudited)
The following table summarizes the average annual Fund performance
compared to the TOPIX, the Fund's benchmark, for the 1-year,
3-year, 5-year and 10-year periods ended as of October 31,
2021.
|
1
Year |
|
3
Years |
|
5
Years |
|
10
Years |
|
Net
Asset Value (NAV) |
|
14.0 |
% |
|
|
13.4 |
% |
|
|
7.8 |
% |
|
|
9.7 |
% |
|
Market Price |
|
17.8 |
% |
|
|
13.9 |
% |
|
|
7.9 |
% |
|
|
9.4 |
% |
|
TOPIX
Net Total Return Index |
|
18.2 |
% |
|
|
8.5 |
% |
|
|
7.8 |
% |
|
|
8.0 |
% |
|
Performance of a $10,000 Investment (as of October 31,
2021)
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.
Aberdeen Standard Investments Inc. (to be known as abrdn Inc.
effective January 1, 2022) has entered into an agreement with the
Fund to limit investor relations services fees, without which
performance would be lower. 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 net operating expense ratio based on the fiscal year ended
October 31, 2021 was 0.83%. The net operating expense ratio,
excluding interest expense, based on the fiscal year ended October
31, 2021 was 0.76%.
6 |
Aberdeen Japan Equity Fund,
Inc. |
|
Top Ten Equity Holdings
(unaudited)
The following were the Fund's top ten equity holdings as of October
31, 2021:
Name
of Security |
As a
Percentage of Net Assets |
Toyota Motor Corp. |
|
5.5% |
Tokio Marine Holdings, Inc. |
|
5.3% |
Shin-Etsu Chemical Co. Ltd. |
|
4.6% |
Sony Group Corp. |
|
4.5% |
Recruit Holdings Co. Ltd. |
|
4.0% |
MISUMI Group, Inc. |
|
3.8% |
Keyence Corp. |
|
3.7% |
Asahi Group Holdings Ltd. |
|
3.4% |
Tokyu Fudosan Holdings Corp. |
|
3.2% |
KDDI
Corp. |
|
2.7% |
Portfolio Summary
(unaudited)
The following table summarizes the sector composition of the Fund's
portfolio, in S&P Global Inc.'s Global Industry Classification
Standard ("GICS") Sectors, expressed as a percentage of net assets,
as of October 31, 2021.
Sectors |
As a
Percentage of Net Assets |
Consumer Discretionary |
|
21.4% |
Industrials |
|
20.3% |
Information Technology |
|
15.3% |
Health Care |
|
11.5% |
Financials |
|
11.3% |
Materials |
|
9.1% |
Communication Services |
|
7.7% |
Consumer Staples |
|
7.1% |
Real Estate |
|
4.4% |
Short-Term Investment |
|
0.1% |
Liabilities
in Excess of Other Assets |
|
(8.2)% |
|
|
100.0% |
|
Aberdeen Japan Equity Fund, Inc. |
7 |
Portfolio of Investments
As of October 31, 2021
|
Shares or
Principal
Amount |
|
Value |
|
COMMON STOCKS—108.1% |
|
|
|
|
|
|
JAPAN—108.1% |
|
|
|
|
|
|
Communication Services—7.7% |
|
|
|
|
|
|
Coconala,
Inc.(a) |
|
63,400 |
|
$ |
1,040,325 |
|
KDDI Corp. |
|
124,500 |
|
|
3,807,208 |
|
Okinawa Cellular Telephone Co. |
|
26,300 |
|
|
1,184,979 |
|
ValueCommerce Co. Ltd. |
|
72,800 |
|
|
2,873,218 |
|
Z Holdings Corp. |
|
349,900 |
|
|
2,172,185 |
|
|
|
|
|
|
11,077,915 |
|
Consumer Discretionary—21.4% |
|
|
|
|
|
|
Koito
Manufacturing Co. Ltd.(b) |
|
38,500 |
|
|
2,184,419 |
|
Nitori Holdings Co. Ltd. |
|
9,100 |
|
|
1,671,765 |
|
Resorttrust, Inc. |
|
159,500 |
|
|
2,826,523 |
|
Scroll Corp. |
|
102,400 |
|
|
777,193 |
|
Shoei Co. Ltd. |
|
49,500 |
|
|
2,202,568 |
|
Sony
Group Corp.(b) |
|
56,200 |
|
|
6,507,751 |
|
Stanley Electric Co. Ltd. |
|
63,100 |
|
|
1,590,447 |
|
Toyota
Motor Corp.(b) |
|
445,300 |
|
|
7,856,942 |
|
USS Co. Ltd. |
|
89,000 |
|
|
1,434,528 |
|
Workman Co. Ltd. |
|
14,400 |
|
|
765,645 |
|
Yamaha Corp. |
|
44,700 |
|
|
2,824,060 |
|
|
|
|
|
|
30,641,841 |
|
Consumer Staples—7.1% |
|
|
|
|
|
|
Asahi Group Holdings Ltd. |
|
106,900 |
|
|
4,851,148 |
|
Milbon Co. Ltd. |
|
20,200 |
|
|
1,209,455 |
|
Pigeon Corp. |
|
16,400 |
|
|
379,761 |
|
Shiseido Co. Ltd. |
|
19,900 |
|
|
1,327,866 |
|
Welcia Holdings Co. Ltd. |
|
63,800 |
|
|
2,381,744 |
|
|
|
|
|
|
10,149,974 |
|
Financials—11.3% |
|
|
|
|
|
|
Japan Exchange Group, Inc. |
|
89,500 |
|
|
2,119,186 |
|
Tokio
Marine Holdings, Inc.(b) |
|
144,700 |
|
|
7,621,348 |
|
Tokyo
Century Corp.(b) |
|
28,200 |
|
|
1,614,615 |
|
WealthNavi,
Inc.(a) |
|
54,900 |
|
|
1,505,445 |
|
Zenkoku Hosho Co. Ltd. |
|
68,600 |
|
|
3,315,069 |
|
|
|
|
|
|
16,175,663 |
|
Health Care—11.5% |
|
|
|
|
|
|
AS One Corp. |
|
6,000 |
|
|
822,495 |
|
Asahi Intecc Co. Ltd. |
|
58,900 |
|
|
1,552,566 |
|
Astellas Pharma, Inc. |
|
127,800 |
|
|
2,154,551 |
|
BML, Inc. |
|
43,900 |
|
|
1,543,078 |
|
Chugai
Pharmaceutical Co. Ltd.(b) |
|
50,600 |
|
|
1,891,902 |
|
Daiichi Sankyo Co. Ltd. |
|
42,800 |
|
|
1,079,945 |
|
Hoya
Corp.(b) |
|
20,400 |
|
|
3,003,053 |
|
Jeol Ltd. |
|
29,400 |
|
|
2,228,175 |
|
Menicon Co. Ltd. |
|
31,200 |
|
|
1,171,380 |
|
Takara Bio, Inc. |
|
41,800 |
|
|
1,090,849 |
|
|
|
|
|
|
16,537,994 |
|
8 |
Aberdeen Japan Equity Fund, Inc. |
|
Portfolio of
Investments (continued)
As of October 31, 2021
|
Shares or
Principal
Amount |
|
Value |
|
COMMON STOCKS (continued) |
|
|
|
|
|
|
JAPAN (continued) |
|
|
|
|
|
|
Industrials—20.3% |
|
|
|
|
|
|
AGC, Inc. |
|
46,500 |
|
$ |
2,315,493 |
|
Amada
Co. Ltd.(b) |
|
304,800 |
|
|
3,011,262 |
|
Daikin
Industries Ltd.(b) |
|
15,700 |
|
|
3,438,532 |
|
FANUC
Corp.(b) |
|
7,700 |
|
|
1,521,682 |
|
Makita
Corp.(b) |
|
52,800 |
|
|
2,450,550 |
|
MISUMI
Group, Inc.(b) |
|
128,900 |
|
|
5,391,078 |
|
Nabtesco Corp. |
|
56,900 |
|
|
1,846,609 |
|
Nihon M&A Center Holdings, Inc. |
|
37,800 |
|
|
1,160,626 |
|
Recruit
Holdings Co. Ltd.(b) |
|
85,700 |
|
|
5,700,678 |
|
SHO-BOND Holdings Co. Ltd. |
|
30,100 |
|
|
1,260,870 |
|
Takuma Co. Ltd. |
|
81,400 |
|
|
1,064,826 |
|
|
|
|
|
|
29,162,206 |
|
Information Technology—15.3% |
|
|
|
|
|
|
Advantest
Corp.(b) |
|
22,600 |
|
|
1,852,927 |
|
Appier
Group, Inc.(a) |
|
26,100 |
|
|
278,206 |
|
Elecom Co. Ltd. |
|
37,500 |
|
|
573,584 |
|
Fukui Computer Holdings, Inc. |
|
30,400 |
|
|
1,096,585 |
|
Keyence
Corp.(b) |
|
8,900 |
|
|
5,372,171 |
|
Murata
Manufacturing Co. Ltd.(b) |
|
23,200 |
|
|
1,720,942 |
|
NEC Corp. |
|
21,600 |
|
|
1,105,963 |
|
NEC Networks & System Integration Corp. |
|
85,100 |
|
|
1,369,299 |
|
Otsuka Corp. |
|
23,600 |
|
|
1,162,454 |
|
Sanken
Electric Co. Ltd.(b) |
|
32,600 |
|
|
1,713,920 |
|
Sansan,
Inc.(a) |
|
17,900 |
|
|
2,079,773 |
|
Tokyo Electron Ltd. |
|
4,200 |
|
|
1,957,338 |
|
Zuken, Inc. |
|
43,100 |
|
|
1,661,843 |
|
|
|
|
|
|
21,945,005 |
|
Materials—9.1% |
|
|
|
|
|
|
Kansai
Paint Co. Ltd.(b) |
|
67,600 |
|
|
1,565,345 |
|
Nippon Paint Holdings Co. Ltd. |
|
99,500 |
|
|
1,064,633 |
|
Nippon
Sanso Holdings Corp.(b) |
|
145,400 |
|
|
3,432,685 |
|
Shin-Etsu
Chemical Co. Ltd.(b) |
|
36,900 |
|
|
6,580,489 |
|
Taoka Chemical Co. Ltd. |
|
26,000 |
|
|
398,618 |
|
|
|
|
|
|
13,041,770 |
|
Real Estate—4.4% |
|
|
|
|
|
|
Heiwa
Real Estate Co. Ltd.(b) |
|
52,600 |
|
|
1,660,634 |
|
Tokyu Fudosan Holdings Corp. |
|
799,300 |
|
|
4,631,474 |
|
|
|
|
|
|
6,292,108 |
|
Total Common Stocks |
|
|
|
|
155,024,476 |
|
|
Aberdeen Japan Equity Fund, Inc. |
9 |
Portfolio of
Investments (concluded)
As of October 31, 2021
Shares |
Description |
Value
(US$) |
|
SHORT-TERM INVESTMENT—0.1% |
|
UNITED STATES—0.1% |
|
107,246 |
State Street
Institutional U.S. Government Money Market Fund, Premier Class,
0.03%(c) |
$ 107,246 |
|
|
Total Short-Term Investment—0.1% (cost $107,246) |
|
107,246 |
|
|
Total
Investments—108.2% (cost
$125,745,768)(d) |
|
155,131,722 |
|
|
Liabilities in Excess of Other Assets—(8.2)% |
|
|
(11,706,987 |
) |
|
Net Assets—100.0% |
|
$143,424,735 |
|
(a) Non-income producing security.
(b) All or a portion of the security has been designated
as collateral for the line of credit.
(c) Registered investment company advised by State
Street Global Advisors. The rate shown is the 7 day yield as of
October 31, 2021.
(d) See Note 10 of the accompanying Notes to Financial
Statements for tax unrealized appreciation/(depreciation) of
securities.
See Notes to Financial Statements.
10 |
Aberdeen Japan Equity Fund, Inc. |
|
Statement of Assets and Liabilities
As of October 31, 2021
Assets |
|
|
|
|
Investments, at value (cost $125,638,522) |
|
$ |
155,024,476 |
|
Short-term investments, at value (cost $107,246) |
|
|
107,246 |
|
Foreign currency, at value (cost $666,361) |
|
|
664,455 |
|
Interest and dividends receivable |
|
|
839,199 |
|
Receivable for investments sold |
|
|
327,914 |
|
Tax reclaim receivable |
|
|
48,299 |
|
Prepaid expenses and other assets |
|
|
5,638 |
|
Total assets |
|
|
157,017,227 |
|
|
|
|
|
|
Liabilities |
|
|
|
|
Line of credit payable (Note 7) |
|
|
13,330,410 |
|
Payable for investments purchased |
|
|
85,251 |
|
Investment management fees payable (Note 3) |
|
|
38,782 |
|
Interest expense on line of credit |
|
|
11,751 |
|
Administration fees payable (Note 3) |
|
|
10,757 |
|
Investor relations fees payable (Note 3) |
|
|
8,111 |
|
Other accrued expenses |
|
|
107,430 |
|
Total liabilities |
|
|
13,592,492 |
|
|
|
|
|
|
Net Assets |
|
$ |
143,424,735 |
|
|
|
|
|
|
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 earnings |
|
|
42,960,154 |
|
Net Assets |
|
$ |
143,424,735 |
|
Net asset value per share based on 13,408,536 shares issued and
outstanding |
|
$ |
10.70 |
|
See Notes to Financial Statements.
|
Aberdeen Japan Equity Fund,
Inc. |
11 |
Statement of Operations
For the Year Ended October 31, 2021
Net
Investment Income: |
|
|
|
|
|
Income |
|
|
|
|
Dividends
and other income (net of foreign withholding taxes of
$210,788) |
|
$ |
2,274,626 |
|
Total
Investment Income |
|
2,274,626 |
|
|
|
|
|
|
Expenses: |
|
|
|
|
Investment
management fee (Note 3) |
|
445,725 |
|
Directors'
fees and expenses |
|
173,459 |
|
Administration
fee (Note 3) |
|
122,290 |
|
Investor
relations fees and expenses (Note 3) |
|
59,602 |
|
Independent
auditors' fees and expenses |
|
58,270 |
|
Custodian's
fees and expenses |
|
52,083 |
|
Legal
fees and expenses |
|
44,692 |
|
Reports
to stockholders and proxy solicitation |
|
35,459 |
|
NYSE
listing fee |
|
23,750 |
|
Insurance
expense |
|
19,577 |
|
Transfer
agent's fees and expenses |
|
19,091 |
|
Miscellaneous |
|
30,434 |
|
Total
operating expenses, excluding interest expense |
|
1,084,432 |
|
Interest
expense (Note 7) |
|
102,324 |
|
Net
operating expenses |
|
1,186,756 |
|
|
|
|
|
Net
Investment Income |
|
1,087,870 |
|
Net
Realized/Unrealized Gain/(Loss) from Investments and Foreign
Currency Related Transactions: |
|
|
|
|
Net
realized gain/(loss) from: |
|
|
|
|
Investment
transactions |
|
11,540,553 |
|
Foreign
currency transactions |
|
(79,338 |
) |
|
|
11,461,215 |
|
Net
change in unrealized appreciation/(depreciation)
on: |
|
|
|
|
Investments |
|
4,153,882 |
|
Foreign
currency translation |
|
1,091,331 |
|
|
|
5,245,213 |
|
Net
realized and unrealized gain from investments and foreign currency
related transactions |
|
16,706,428 |
|
Net
Increase in Net Assets Resulting from Operations |
|
$ |
17,794,298 |
|
See Notes to Financial
Statements.
12 |
Aberdeen
Japan Equity Fund, Inc. |
Statements of Changes in Net Assets
|
For
the
Year Ended
October 31, 2021 |
|
For
the
Year Ended
October 31, 2020 |
|
Increase/(Decrease)
in Net Assets from Operations: |
|
|
|
|
|
Operations: |
|
|
|
|
|
Net
investment income |
|
$ |
1,087,870 |
|
$ |
749,230 |
|
Net
realized gain from investment transactions |
|
11,540,553 |
|
5,006,941 |
|
Net
realized gain/(loss) from foreign currency transactions |
|
(79,338 |
) |
19,106 |
|
Net
change in unrealized appreciation/(depreciation) on
investments |
|
4,153,882 |
|
8,829,605 |
|
Net
change in unrealized appreciation on foreign currency
translation |
|
1,091,331 |
|
5,047 |
|
Net
increase in net assets resulting from operations |
|
17,794,298 |
|
14,609,929 |
|
Distributions
to Stockholders From: |
|
|
|
|
|
Distributable
earnings |
|
(5,828,556 |
) |
(3,472,529 |
) |
Net
decrease in net assets from distributions |
|
(5,828,556 |
) |
(3,472,529 |
) |
Issuance
of 0 and 2,644 shares of common stock, respectively due to stock
distribution |
|
– |
|
20,853 |
|
Change
in net assets from capital stock transactions |
|
– |
|
20,853 |
|
Net
increase/(decrease) in net assets |
|
11,965,742 |
|
11,158,253 |
|
Net
Assets: |
|
|
|
|
|
Beginning
of year |
|
131,458,993 |
|
120,300,740 |
|
End
of year |
|
$ |
143,424,735 |
|
$ |
131,458,993 |
|
Amounts listed as "–" are $0 or round to $0.
See Notes to Financial
Statements.
Aberdeen
Japan Equity Fund, Inc. |
13 |
Financial Highlights
|
|
For
the Fiscal Years Ended October 31, |
|
|
2021 |
|
2020 |
|
2019 |
|
2018 |
|
2017 |
|
PER
SHARE OPERATING PERFORMANCE(a): |
|
|
|
|
|
|
|
|
|
|
|
Net
asset value, beginning of year |
|
$9.80 |
|
$8.97 |
|
$8.66 |
|
$10.30 |
|
$9.51 |
|
Net
investment income |
|
0.08 |
|
0.06 |
|
0.06 |
|
0.07 |
|
0.07 |
|
Net
realized and unrealized gains/(losses) on investments and foreign
currencies |
|
1.25 |
|
1.03 |
|
0.90 |
|
(1.23 |
) |
1.03 |
|
Total
from investment operations |
|
1.33 |
|
1.09 |
|
0.96 |
|
(1.16 |
) |
1.10 |
|
Distributions
from: |
|
|
|
|
|
|
|
|
|
|
|
Net
investment income |
|
(0.06 |
) |
(0.07 |
) |
(0.07 |
) |
(0.06 |
) |
(0.09 |
) |
Net
realized gains |
|
(0.37 |
) |
(0.19 |
) |
(0.58 |
) |
(0.42 |
) |
(0.23 |
) |
Total
distributions |
|
(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 year |
|
$10.70 |
|
$9.80 |
|
$8.97 |
|
$8.66 |
|
$10.30 |
|
Market
value, end of year |
|
$9.27 |
|
$8.22 |
|
$7.53 |
|
$7.40 |
|
$9.17 |
|
Total
Investment Return Based on(b): |
|
|
|
|
|
|
|
|
|
|
|
Market
value |
|
17.78% |
|
12.75% |
|
11.42% |
|
(15.22% |
) |
16.73% |
|
Net
asset value |
|
14.03% |
|
12.84% |
|
13.41% |
|
(11.67% |
) |
12.78% |
|
Ratio
to Average Net Assets/Supplementary Data: |
|
|
|
|
|
|
|
|
|
|
|
Net
assets, end of year (in millions) |
|
$143.4 |
|
$131.5 |
|
$120.3 |
|
$115.9 |
|
$137.7 |
|
Average
net assets (in millions) |
|
$143.0 |
|
$119.6 |
|
$110.2 |
|
$134.7 |
|
$124.4 |
|
Net
operating expenses |
|
0.83% |
|
0.85% |
|
0.94% |
|
0.81% |
|
0.86% |
|
Net
operating expenses, excluding interest expense |
|
0.76% |
|
– |
|
– |
|
– |
|
– |
|
Net
investment income |
|
0.76% |
|
0.63% |
|
0.71% |
|
0.69% |
|
0.78% |
|
Portfolio
turnover |
|
45% |
|
34% |
|
42% |
|
32% |
|
22% |
|
Line of
credit payable outstanding (000 omitted) |
|
$13,330 |
|
$– |
|
$– |
|
$– |
|
$– |
|
Asset
coverage ratio on line of credit payable at year
end(c) |
|
1,176% |
|
– |
|
– |
|
– |
|
– |
|
Asset
coverage per $1,000 on line of credit payable at year
end |
|
$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) |
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.
14 |
Aberdeen
Japan Equity Fund, Inc. |
Notes to Financial Statements
October 31, 2021
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
Aberdeen
Japan Equity Fund, Inc. |
15 |
Notes to Financial
Statements (continued)
October 31, 2021
to valuations based upon unobservable inputs that are significant
to 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 value factor |
Depositary
receipts, indices, futures, sector indices/ETFs, exchange rates,
and local exchange opening and closing prices of each
security. |
The following is a summary of the inputs used as of October 31,
2021 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 |
$– |
|
$155,024,476 |
|
$– |
|
$155,024,476 |
|
Short-Term
Investment |
|
107,246 |
|
|
– |
|
|
– |
|
|
107,246 |
|
Total |
$107,246 |
|
$155,024,476 |
|
$– |
|
$155,131,722 |
|
Amounts listed as "–" are $0 or round to $0.
For the fiscal year ended October 31, 2021, 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.
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.
16 |
Aberdeen Japan Equity Fund, Inc. |
|
Notes to Financial
Statements (continued)
October 31, 2021
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. |
17 |
Notes to Financial
Statements (continued)
October 31, 2021
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 ("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 fiscal year ended
October 31, 2021, the Fund paid abrdn Asia $445,725. In addition,
the Fund has agreed to reimburse the Investment Manager for all
out-of-pocket expenses related to the Fund. For the fiscal year
ended October 31, 2021, no such expenses were paid to the
Investment Manager.
b. Fund Administration:
Aberdeen Standard Investments Inc. ("ASII") (to be known as abrdn
Inc. effective January 1, 2022), an affiliate of abrdn Asia, serves
as the Fund's administrator, pursuant to an agreement under which
ASII 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 fiscal year ended October 31, 2021, ASII earned
$122,290 from the Fund for administration services.
c. Investor Relations:
Under the terms of the Investor Relations Services Agreement, ASII
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 ASII 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 ASII.
Pursuant to the terms of the Investor Relations Services Agreement,
ASII (or third parties engaged by ASII), 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 fiscal year ended October 31, 2021, the Fund incurred
investor relations fees of approximately $59,602. For the fiscal
year ended October 31, 2021, ASII 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 fiscal year ended October 31, 2021, were
$76,262,699 and $67,028,783, respectively.
5. Capital
The authorized capital of the Fund is 30 million shares of $0.01
par value per share of common stock. During the fiscal year ended
October 31, 2021, the Fund did not repurchase any shares pursuant
to its Discount Management Program and reinvested 0 shares pursuant
to its Dividend Reinvestment and Cash Purchase Plan. As of October
31, 2021, 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 fiscal year ended October 31,
2021, the Fund did not repurchase any shares.
18 |
Aberdeen Japan Equity Fund,
Inc. |
|
Notes to Financial
Statements (continued)
October 31, 2021
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. 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 October 31, 2021 was 1,520,000,000 Japanese Yen
($13,330,410). The average weighted interest rate on borrowings
during the period was of 1.00%. Interest expense related to the
line of credit for the fiscal year ended October 31, 2021, was
$102,324. See Note 12 (Subsequent Events) regarding the amendment
to the lending agreement entered into following the reporting
period.
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.
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:
Under the revolving credit facility, the Fund is charged interest
on amounts borrowed at a variable rate, which may be based on the
London Interbank Offered Rate ("LIBOR") plus a spread. 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 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 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. 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
|
Aberdeen Japan Equity Fund, Inc. |
19 |
Notes to Financial
Statements (continued)
October 31, 2021
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.
Because the usefulness of LIBOR as a benchmark could deteriorate
during the transition period, these effects could occur prior to
the end of 2021.
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.
Consumer Discretionary Sector Risk. To the extent that the
consumer discretionary sector represents a significant portion of
the Fund, the Fund will be sensitive to changes in, and its
performance may depend to a greater extent on, factors impacting
this sector. Consumer discretionary companies are companies that
provide non-essential goods and services, such as retailers, media
companies and consumer services. Companies in the consumer
discretionary sector may be affected by changes in domestic and
international economies, exchange and interest rates, competition,
consumers' disposable income and consumer preferences, social
trends and marketing campaigns.
Industrials Sector Risk. To the extent that the industrial
sector represents a significant portion of the Fund's holdings, the
Fund will be sensitive to changes in, and its performance may be
adversely impacted by issues impacting this sector. The value of
securities issued by companies in the industrials sector may be
adversely affected by supply and demand related to their specific
products or services and industrials sector products in general.
The products of manufacturing companies may face obsolescence due
to rapid technological developments and frequent new product
introduction. Government regulations, world events, economic
conditions and exchange rates may adversely affect the performance
of companies in the industrials sector. Companies in the
industrials sector may be adversely affected by liability for
environmental damage and product liability claims. The industrials
sector may also be adversely affected by changes or trends in
commodity prices, which may be influenced by unpredictable factors.
Companies in the industrials sector, particularly aerospace and
defense companies, may also be adversely affected by government
spending policies because companies involved in this sector rely to
a significant extent on government demand for their products and
services.
Information Technology Sector Risk. To the extent that the
information technology sector represents a significant portion of
the Fund, the Fund will be sensitive to changes in, and its
performance may depend to a greater extent on, factors impacting
this sector. Performance of
20 |
Aberdeen
Japan Equity Fund, Inc. |
Notes to Financial
Statements (continued)
October 31, 2021
companies in the information technology sector may be adversely
impacted by many factors, including, among others, overall economic
conditions, short product cycles, rapid obsolescence of products,
competition and government regulation.
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.
10. Tax Information
The U.S. federal income tax basis of the Fund's investments
(including derivatives, if applicable) and the net unrealized
appreciation as of October 31, 2021, were as follows:
Tax Basis of Investments |
|
Appreciation |
|
Depreciation |
|
Net Unrealized
Appreciation/
(Depreciation) |
$125,316,491 |
|
$33,494,232 |
|
$(3,679,001) |
|
$29,815,231 |
The tax character of distributions paid during the fiscal years
ended October 31, 2021 and October 31, 2020 was as follows:
|
|
October 31, 2021 |
|
October 31, 2020 |
Distributions paid from: |
|
|
|
|
Ordinary Income |
|
$821,675 |
|
$940,960 |
Net long-term capital gains |
|
5,006,881 |
|
2,531,569 |
Total tax character of distributions |
|
$5,828,556 |
|
$3,472,529 |
As
of October 31, 2021, the components of accumulated earnings on a
tax basis were as follows:
Undistributed ordinary income –
net |
|
$1,441,505 |
|
Undistributed long-term capital gains
– net |
|
11,705,324 |
|
Total undistributed
earnings |
|
$13,146,829 |
|
Capital loss carryforward |
|
– |
* |
Other currency gains |
|
– |
|
Other temporary
differences |
|
– |
|
Unrealized
appreciation/(depreciation) |
|
29,813,325 |
** |
Total accumulated earnings/(losses) –
net |
|
$42,960,154 |
|
|
* |
During the fiscal year ended
October 31, 2021, the Fund did not utilize a capital loss
carryforward. |
|
** |
The difference between book-basis
and tax-basis unrealized appreciation/(depreciation) is
attributable to: the realization for tax purposes of unrealized
gains on investments in passive foreign investment companies and
the tax deferral of wash sales. |
|
Aberdeen Japan Equity Fund,
Inc. |
21 |
Notes to Financial
Statements (concluded)
October 31, 2021
11. Recent Rulemaking
In October 2020, the 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. While the new rule became
effective February 19, 2021, funds will not be required to fully
comply with the new rule until August 19, 2022. It is not currently
clear what impact, if any, the new rule will have on the
availability, liquidity or performance of derivatives. Management
is assessing the impact of Rule 18f-4 on the Fund.
In December 2020, the Securities and Exchange Commission ("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 October 31, 2021, other than as noted below.
On December 20, 2021, the Fund announced that it will pay on
January 11, 2022, a distribution of US $0.98049 per share to all
stockholders of record as of December 30, 2021. In addition on the
same day, 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.
In approving the managed distribution policy the Board considered,
among other factors, the ability of the Fund to sustain the policy
and that making periodic distributions could increase liquidity for
common shareholders and may assist in narrowing the discount to NAV
at which the Fund's shares have tended to trade. There can be no
guarantee that these benefits will occur or that any improvement
would continue.
The distributions will be made from net investment income, net
realized capital gains and, to any extent necessary, return of
capital. As net assets of the Fund may vary from quarter to
quarter, the quarterly distribution may represent more or less than
one quarter of 6.5% of the Fund's net assets at the time of
distribution. Shareholders should not draw any conclusions about
the Fund's investment performance from the amount of the
distributions or the terms of the Fund's policy.
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
plus a spread.
22 |
Aberdeen
Japan Equity Fund, Inc. |
Report of Independent Registered Public Accounting Firm
To
the Shareholders and Board of Directors
Aberdeen Japan Equity Fund, Inc.:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and
liabilities of Aberdeen Japan Equity Fund, Inc. (the Fund),
including the portfolio of investments, as of October 31, 2021, the
related statement of operations for the year then ended, the
statements of changes in net assets for the each of the years in
the two-year period then ended, and the related notes
(collectively, the financial statements) and the financial
highlights for each of the years in the five-year period then
ended. In our opinion, the financial statements and financial
highlights present fairly, in all material respects, the financial
position of the Fund as of October 31, 2021, the results of its
operations for the year then ended, the changes in its net assets
for each of the years in the two-year period then ended, and the
financial highlights for each of the years in the five-year period
then ended, in conformity with U.S. generally accepted accounting
principles.
Basis for Opinion
These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board
(United States) (PCAOB) and are required to be independent with
respect to the Fund in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material
misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement
of the financial statements and financial highlights, whether due
to error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements and financial highlights. Such procedures also included
confirmation of securities owned as of October 31, 2021, by
correspondence with the custodian, brokers, or by other appropriate
auditing procedures when replies from brokers were not received.
Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements and financial
highlights. We believe that our audits provide a reasonable basis
for our opinion.
We
have served as the auditor of one or more Aberdeen investment
companies since 2009.
Philadelphia, Pennsylvania
December 28, 2021
|
Aberdeen Japan Equity Fund,
Inc. |
23 |
Federal
Tax Information: Dividends and Distributions
(unaudited)
The
following information is provided with respect to the distributions
paid by Aberdeen Japan Equity Fund, Inc. during the fiscal year
ended October 31, 2021:
Payable
Date |
|
Total
Cash
Distribution |
|
Long-Term
Capital
Gain |
|
Tax
Return of
Capital |
|
Net
Ordinary
Dividend |
|
Foreign
Taxes
Paid(1) |
|
Gross
Ordinary
Dividend |
|
Qualified
Dividends(2) |
|
Foreign
Source
Income |
1/8/2021 |
|
$0.434690 |
|
$0.373410 |
|
$0.000000 |
|
$0.061280 |
|
$0.017395 |
|
$0.078675 |
|
$0.078675 |
|
$0.078675 |
|
(1) |
The foreign
taxes paid represent taxes incurred by the Fund on interest
received from foreign sources. Foreign taxes paid may be included
in taxable income with an offsetting deduction from gross income or
may be taken as a credit for taxes paid to foreign governments. You
should consult your tax advisor regarding the appropriate treatment
of foreign taxes paid. |
|
(2) |
The Fund
hereby designates the amount indicated above or the maximum amount
allowable by law. |
Designation
Requirements
Of the
distributions paid by the Fund from ordinary income for the year
ended October 31, 2020, the following percentages met the
requirements to be treated as qualifying for qualified dividend
income.
Qualified
Dividend Income 100.0%
The above
amounts are based on the best available information at this time.
In early 2022, the Fund will notify applicable stockholders of
final amounts for use in preparing 2021 U.S. federal income tax
forms.
Supplemental
Information (unaudited)
Results
of Annual Meeting of Stockholders
The Fund
held its Annual Meeting of Stockholders on May 27, 2021 (the
"Stockholders Meeting"). At the Stockholders Meeting, stockholders
of the Fund voted to elect one Class I Director and one Class III
Director to the Board of Directors.
As of the
record date, April 12, 2021, the Fund had outstanding 13,408,535
shares of common stock. 91.17% of outstanding common stock were
voted representing a quorum. The description of the proposals and
number of shares voted at the Stockholders Meeting are as
follows:
To elect
one Class I Director to the Board of Directors:
|
|
Votes
For |
|
Votes
Against |
|
Abstained |
|
Radhika
Ajmera |
|
|
9,908,684 |
|
|
2,297,886 |
|
|
17,782 |
|
To elect
one Class III Director to the Board of Directors:
|
|
Votes
For |
|
Votes
Against |
|
Abstained |
|
P.
Gerald Malone |
|
|
10,215,461 |
|
|
1,990,854 |
|
|
18,037 |
|
Board of
Directors' Consideration of the Investment Management
Agreement
The
Investment Company Act of 1940 (the "1940 Act") and the terms of
the investment management agreement (the "Investment Management
Agreement") between the Aberdeen Japan Equity Fund, Inc. (the
"Fund") and Aberdeen Standard Investments (Asia) Limited (the
"Investment Manager") require that the Investment Management
Agreement be approved annually at an in-person meeting by the Board
of Directors (the "Board"), including a majority of the Directors
who have no direct or indirect interest in the Investment
Management Agreement and are not "interested persons" of the Fund,
as defined in the 1940 Act (the "Independent
Directors").
24 |
Aberdeen
Japan Equity Fund, Inc. |
|
Supplemental
Information (unaudited)
(continued)
At a
regularly scheduled quarterly meeting held on June 15, 2021 (the
"Quarterly Meeting"), the Board voted unanimously to renew the
Investment Management Agreement between the Fund and the Investment
Manager. In considering whether to approve the continuation of the
Fund's Investment Management Agreement, the Board members received
and considered a variety of information provided by the Investment
Manager relating to the Fund, the Investment Management Agreement
and the Investment Manager, including information regarding the
nature, extent and quality of services provided by the Investment
Manager under the Investment Management Agreement, comparative
investment performance, fee and expense information of a peer group
of similar closed-end funds (the "Peer Group") selected by
Strategic Insight Mutual Fund Research and Consulting, LLC ("SI"),
an independent third-party provider of investment company data and
other performance information for relevant benchmark indices. In
addition, the Independent Directors of the Fund held a separate
meeting via videoconference on June 9, 2021 (together with the
in-person Quarterly Meeting held on June 15, 2021, the "Meetings")
to review the materials provided and the relevant legal
considerations.
In
connection with their consideration of whether to approve the
continuation of the Fund's Investment Management Agreement, the
Board members received and reviewed a variety of information
provided by the Advisor relating to the Fund, the Investment
Management Agreement and the Investment Manager, including
comparative performance, fee and expense information and other
information regarding the nature and quality of services provided
by the Investment Manager under the Investment Management
Agreement. The materials provided to the Board generally included,
among other items: (i) information regarding the Fund's expenses
and management fees, including information comparing the Fund's
expenses to those of a Peer Group of funds and information about
applicable fee "breakpoints" and expense limitations; (ii) a report
prepared by the Investment Manager in response to a request
submitted by the Independent Directors' independent legal counsel
on behalf of the Independent Directors; (iii) information on the
investment performance of the Fund and the performance of a Peer
Group of funds and the Fund's performance benchmark; (iv)
information regarding the profitability of the Investment
Management Agreement to the Investment Manager; and (v) a
memorandum from the Independent Directors' independent legal
counsel on the responsibilities of the Board in considering the
approval of the investment management arrangement under the 1940
Act and Maryland law.
The
Independent Directors were advised by separate independent legal
counsel throughout the process and also consulted in executive
sessions with their counsel regarding consideration of the renewal
of the Investment Management Agreement. In determining whether to
approve the continuation of the Investment Management Agreement,
the Board, including the Independent Directors, did not identify
any single factor as determinative. Individual Directors may have
evaluated the information presented differently from one another
and given different weights to various factors. Matters considered
by the Board, including the Independent Directors, in connection
with its approval of the continuation of the Investment Management
Agreement include the factors listed below.
In
addition, the Board considered other matters such as: (i) the
Fund's investment objective and strategy, (ii) the Investment
Manager's investment personnel and operations, (iii) the resources
devoted by the Investment Manager to the Fund, (iv) the Investment
Manager's financial condition and stability, (v) the Investment
Manager's record of compliance with the Fund's investment policies
and restrictions, policies on personal securities transactions and
other compliance policies, (vi) the allocation of the Fund's
brokerage, and the use, if any, of "soft" commission dollars to pay
the Fund's expenses and to pay for research and other similar
services, and (vii) possible conflicts of interest. Throughout the
process, the Board members had the opportunity to ask questions of
and request additional information from management.
The Board
also noted that in addition to the materials provided by the
Investment Manager in connection with the Board's consideration of
the renewal of the Investment Management Agreement at the Meetings,
the Board received and reviewed materials in advance of each
regular quarterly meeting that contained information about the
Fund's investment performance and information relating to the
services provided by the Investment Manager.
As part of
their deliberations, the Board members considered the
following:
The
nature, extent and quality of the services provided to the Fund
under the Investment Management Agreement. The Directors also
considered the nature, extent and quality of the services provided
by the Investment Manager to the Fund and the resources dedicated
to the Fund by the Investment Manager and its affiliates. Among
other things, The Board reviewed the background and experience of
the Investment Manager's senior management personnel and the
qualifications, background and responsibilities of the portfolio
managers primarily responsible for the day-to-day portfolio
management services for the Fund. The Directors also considered the
financial condition of the Investment Manager and the Investment
Manager's ability to provide quality service to the Fund.
Management reported to the Board on, among other things, its
business plans and organizational changes. The Board considered the
Investment Manager's risk management processes. The Board noted
that they received information on a regular basis from the Fund's
Chief Compliance Officer regarding the Investment Manager's
compliance policies and procedures
|
Aberdeen
Japan Equity Fund, Inc. |
25 |
Supplemental
Information (unaudited)
(continued)
and
considered the Investment Manager's brokerage policies and
practices. The Directors also took into account the Investment
Manager's investment experience and considered information
regarding the Investment Manager's compliance with applicable laws
and Securities and Exchange Commission and other regulatory
inquiries or audits of the Fund and/or the Investment Manager. The
Directors took into account their knowledge of management and the
quality of the performance of management's duties through Board
meetings, discussion and reports during the preceding
year.
Investment
performance of the Fund and the Investment Manager. The Board
received and reviewed with the Fund's management, among other
performance data, information that compared the Fund's return to
comparable investment companies. The Board also received and
considered performance information compiled by SI as compared with
the funds in the Fund's Morningstar category (the "Morningstar
Group").
In
addition, the Board received and reviewed information regarding the
Fund's total return on a net and gross basis and relative to the
Fund's benchmark and the Fund's share performance and
premium/discount information. The Board also received and
considered information about the Fund's total return against the
Morningstar Group average and against other comparable
Aberdeen-managed funds. The Directors considered management's
discussion of the factors contributing to differences in
performance, including differences in the investment strategies,
restrictions and risks of each of these other funds. Additionally,
the Board took into account information about the Fund's
discount/premium ranking relative to its Morningstar Group and
management's discussion of the Fund's performance. The Board also
considered the Investment Manager's performance and reputation
generally, the responsiveness of the Investment Manager to Director
concerns about performance and the willingness of the Investment
Manager to take steps intended to improve performance. The Board
concluded that overall Fund performance supported continuation of
the Investment Management Agreement.
The
costs of the services provided and profits realized by the
Investment Manager and its affiliates from their relationships with
the Fund. The Board reviewed with management the effective
annual management fee rate paid by the Fund to the Investment
Manager for investment management services. The Board considered
the management fee structure, including that management fees for
the Fund were based on the Fund's average weekly net assets rather
than total managed assets. The Board received and took into account
information compiled at the request of the Fund by SI that compared
the Fund's effective annual management fee rate with the fees paid
by its Peer Group. Management noted that due to the unique strategy
and structure of the Fund, Aberdeen did not have any closed-end
funds that were directly comparable to the Fund. Although there
were no other substantially similar Investment Manager-advised
investment vehicles against which to compare the Fund's management
fees, the Investment Manager provided information for other
Aberdeen products with similar investment strategies to those of
the Fund where available. In evaluating the Fund's management fees,
the Board took into account the demands, complexity and quality of
the investment management of the Fund.
In addition
to the foregoing, the Board considered the Fund's fees and expenses
as compared to its Peer Group, consisting of closed-end funds in
the Fund's Morningstar expense category as compiled by
SI.
Economies of
Scale. The Board considered management's discussion of the
Fund's management fee structure and determined that the management
fee structure was reasonable and reflected economies of scale being
shared between each of the Fund and the Investment Manager. The
Board based its determination on various factors, including how the
Fund's management fees compared relative to the Peer Group at
higher asset levels and that the Fund's management fee schedule
provided breakpoints at higher asset levels to adjust for
anticipated economies in the event of asset increases.
The Board
also considered other factors, which included but were not limited
to the following:
|
• |
whether the
Fund has operated in accordance with its investment objective, the
Fund's record of compliance with its investment restrictions, and
the compliance programs of the Investment Manager. |
|
• |
the effect
of any market and economic volatility on the performance, asset
levels and expense ratios of the Fund. |
|
• |
the nature,
quality, cost and extent of administrative services performed by
Aberdeen Standard Investments, Inc. ("ASII"), an affiliate of the
Investment Manager, under a separate agreement covering
administrative services. |
26 |
Aberdeen
Japan Equity Fund, Inc. |
|
Supplemental
Information (unaudited)
(concluded)
|
• |
so-called
"fallout benefits" to the Investment Manager or ASII, such as the
benefits of research made available to ASII by reason of brokerage
commissions generated by the Fund's securities transactions or
reputational and other indirect benefits. The Board considered any
possible conflicts of interest associated with these fallout and
other benefits, and the reporting, disclosure and other processes
in place to disclose and monitor such possible conflicts of
interest. |
* *
*
Based on
their evaluation of all factors that they deemed to be material,
including those factors described above, and assisted by the advice
of independent counsel, the Directors, including the Independent
Directors, voting separately, approved the Fund's Investment
Management Agreement additional one-year period.
|
Aberdeen
Japan Equity Fund, Inc. |
27 |
Additional Information Regarding
the Fund (unaudited)
Recent Changes
The following information is a summary of certain changes during
the fiscal year ended October 31, 2021. This information may not
reflect all of the changes that have occurred since you purchased
the Fund.
During the applicable period, there have been: (i) no material
changes to the Fund's investment objectives and policies that
constitute its principal portfolio emphasis that have not been
approved by stockholders, (ii) no material changes to the Fund's
principal risks, (iii) no changes to the persons primarily
responsible for day-to-day management of the Fund; and (iv) no
changes to the Fund's charter or by-laws that would delay or
prevent a change of control that have not been approved by
stockholders.
Investment Objectives 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 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"). There is no
assurance that the Fund will achieve its investment objective. The
investment objective is not fundamental and may be changed by the
Board of Directors without stockholders approval.
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.
The Fund may invest without limit in the equity securities of
companies of any size, including small-cap and mid-cap
companies.
In carrying out the Fund's investment strategies, the Investment
Manager employs a fundamental, bottom-up investment process, based
on first-hand research and disciplined company evaluation.
Securities are identified for their long-term, fundamental value.
The stock selection process contains two filters, first quality and
then price. In the quality filter, the Investment Manager seeks to
determine whether the company has good growth prospects and a
balance sheet that supports expansion. The Investment Manager also
evaluates matters of long term value by examining a spectrum of
considerations such as governance and risk management, including
those risks often referred to as environmental, social and
governance factors ("ESG"). ESG analysis is fully integrated into
investment decisions for all equity holdings. As such, although ESG
investing is not a principal strategy of the Fund, the Investment
Manager considers and evaluates ESG factors as part of the
investment analysis process and this analysis forms an integral
component of the Investment Manager's quality rating for all
companies. In the price filter, the Investment Manager assesses
the
value of a company by reference to financial ratios, and estimates
the value of the company relative to its market price and the
valuations of other potential investments. The Investment Manager
may sell a security when it perceives that a company's business
direction or growth potential has changed or the company's
valuations no longer offer attractive relative value.
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.
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 stockholders with at least 60 days
prior notice of any change to this non-fundamental policy.
Temporary Investments. Generally, the Fund will be fully
invested in accordance with its investment objective and
strategies; however, for purposes of settlement, meeting expenses,
paying dividends or other cash management purposes, or if the
Fund's Investment Manager believes that business, economic,
political or financial conditions warrant, the Fund may invest
without limit in cash, cash equivalents or other short-term
obligations, including the following short-term instruments:
|
• |
obligations of the U.S. Government,
its agencies or instrumentalities (including repurchase agreements
with respect to these securities), |
|
• |
bank obligations (including
certificates of deposit, time deposits and bankers' acceptances) of
U.S. banks and foreign banks denominated in any currency, |
|
• |
short-term floating rate securities
and other instruments denominated in any currency issued by
international development agencies, banks and other financial
institutions, governments and their agencies and instrumentalities,
and corporations located in countries that are members of the
Organization for Economic Cooperation and Development, |
|
• |
obligations of U.S. corporations
that are rated no lower than A-2 by Standard & Poor's Rating
Group or P-2 by Moody's Investor Services or the equivalent by
another rating service or, if unrated, deemed to be of equivalent
quality by the Investment Manager, and |
28 |
Aberdeen Japan Equity Fund, Inc. |
|
Additional Information Regarding
the Fund (unaudited)
(continued)
|
• |
shares of money market funds that
are authorized to invest in short-term instruments described
above. |
The use of temporary investments prevents the Fund from fully
pursuing its investment objective.
Leverage. The portfolio management team currently
anticipates using leverage, under normal circumstances, in the
amount of approximately 10%-15% of the Fund's total assets over the
longer term. Depending on market conditions, the Fund may borrow
more or less than 10%-15% of the Fund's total assets (but may not
exceed the limits imposed by the 1940 Act or any rule, order or
interpretation thereunder). The Fund intends to use leverage
through borrowing from a credit facility. The Fund also would be
permitted to engage in other transactions, such as reverse
repurchase agreements and issuance of debt securities or preferred
securities, which have the effect of leverage, but currently has no
intention to do so.
The 1940 Act generally prohibits the Fund from engaging in most
forms of leverage representing indebtedness other than preferred
shares unless immediately after such incurrence the Fund's total
assets less all liabilities and indebtedness not represented by
senior securities (for these purposes, "total net assets") is at
least 300% of the aggregate senior securities representing
indebtedness (i.e., the use of leverage through senior securities
representing indebtedness may not exceed 33 1/3% of the Fund's
total net assets (including the proceeds from leverage)).
Additionally, under the 1940 Act, the Fund generally may not
declare any dividend or other distribution upon any class of its
capital shares, or purchase any such capital shares, unless at the
time of such declaration or purchase, this asset coverage test is
satisfied. With respect to asset coverage for preferred shares,
under the 1940 Act, the Fund is not permitted to issue preferred
shares unless immediately after such issuance the value of the
Fund's total net assets (as defined above) is at least 200% of the
liquidation value of the outstanding preferred shares and the newly
issued preferred shares plus the aggregate amount of any senior
securities of the Fund representing indebtedness (i.e., such
liquidation value plus the aggregate amount of senior securities
representing indebtedness may not exceed 50% of the Fund's total
net assets). In addition, the Fund is not permitted to declare any
cash dividend or other distribution on its Common Shares unless, at
the time of such declaration, the value of the Fund's total net
assets (determined after deducting the amount of such dividend or
other distribution) satisfies the above-referenced 200% coverage
requirement.
Leverage involves certain additional risks, which are described
under "Risk Factors-Leverage Risk" further below.
Risk Factors
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.
MANAGEMENT RISK
The Fund's ability to achieve its investment objective is directly
related to the Investment Manager's investment strategies for the
Fund. The value of your investment in the Fund's common shares may
vary with the effectiveness of the research and analysis conducted
by the Investment Manager and its ability to identify and take
advantage of attractive investment opportunities. If the investment
strategies of the Investment Manager do not produce the expected
results, the value of your investment could be diminished or even
lost entirely, and the Fund could underperform the market or other
funds with similar investment objectives. Additionally, there can
be no assurance that all of the personnel of the Investment Manager
will continue to be associated with the Investment Manager for any
length of time. The loss of the services of one or more key
employees of the Investment Manager could have an adverse impact on
the Fund's ability to realize its investment objective.
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 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,
|
Aberdeen Japan Equity Fund, Inc. |
29 |
Additional Information Regarding
the Fund (unaudited)
(continued)
as issuers of the Fund's portfolio securities generally will not be
subject to the reporting requirements of the Securities and
Exchange Commission (the "Commission"), there may be less publicly
available information about the issuers of these securities than
about reporting U.S. companies.
The Japanese economy has emerged from a prolonged economic
downturn. Since the year 2000, Japan's economic growth has remained
relatively low. In addition, the Japanese yen has shown volatility
over the past two decades and such volatility could affect returns
in the future. Depreciation of the yen, and any other currencies in
which the Fund's securities are denominated, will decrease the
value of the Fund's holdings. In December 2012, Shinzo Abe became
the Prime Minster of Japan. His economic policies (consisting
primarily of (i) aggressive monetary policy, (ii) fiscal
consolidation, and (iii) growth strategy) were positively received
by the markets. Since then, Japan has been on the path to get out
of the prolonged deflationary period; however, the uncertainties
remain within the economy. Prime Minister Shinzo Abe was replaced
by Yoshida Suga, Abe's Chief Cabinet Secretary, for his entire
prime minister term.
The economy is characterized by an aging demographic, declining
population, large government debt and regulated labor market.
Economic growth is dependent on domestic consumption, deregulation
and consistent government policy. International trade, particularly
with the U.S., also impacts growth and adverse economic conditions
in the U.S. or other such trade partners may affect Japan. Japan
also has a growing economic relationship with China and other
Southeast Asian countries, and thus Japan's economy may also be
affected by economic, political or social instability in those
countries (whether resulting from local or global events).
Japan's neighbors, in particular China, have become increasingly
important export markets. Despite a strengthening in the economic
relationship between Japan and China, the countries' political
relationship has at times been strained in recent years. Should
political tension increase, it could adversely affect the economy
and destabilize the region as a whole. Japan also remains heavily
dependent on oil imports, and higher commodity prices could
therefore have a negative impact on the economy. The natural
disasters that have impacted Japan and the ongoing recovery efforts
have had a negative effect on Japan's economy. Japan has an aging
population and, as a result, Japan's workforce is shrinking.
Japan's economy may suffer if this trend continues.
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 stockholders each year 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.
The Investment Manager 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.
SMALL- AND MID-CAPITALIZATION COMPANY RISK
Investing in equity securities of small-capitalization and
mid-capitalization companies may involve greater risks than
investing in equity securities of larger, more established
companies. Small-capitalization and mid-capitalization companies
generally have limited product lines, markets and financial
resources. Their equity securities may trade less frequently and in
more limited volumes than the equity securities of larger, more
established companies. Also, small-capitalization and
mid-capitalization companies are typically subject to greater
changes in earnings and business prospects than larger companies.
As a result, the market prices of their equity securities may
experience greater volatility and may decline more than those of
large-capitalization companies in market downturns.
30 |
Aberdeen Japan Equity Fund,
Inc. |
|
Additional Information Regarding
the Fund (unaudited)
(continued)
INTEREST EXPENSE AND LEVERAGING
The Fund may borrow money as permitted by the 1940 Act, including
for investment purposes (referred to as "leverage"). Leverage
involves certain additional risks, including the risk that the cost
of leverage may exceed the return earned by the Fund on the
proceeds of such leverage. The use of leverage will increase the
volatility of changes in the Fund's net asset value, market price
and distributions. In the event of a general market decline in the
value of assets in which the Fund invests, the effect of that
decline will be magnified in the Fund because of the additional
assets purchased with the proceeds of the leverage. Currently, the
illness COVID-19 caused by a novel coronavirus has resulted in a
global pandemic and major disruption to economies and markets
around the world, including Japan. Financial markets have
experienced extreme volatility and severe losses. To the extent
that the Fund uses leverage during a period of market decline, any
losses experienced by the Fund would be exacerbated. During a time
of improving value in securities the Fund holds, leverage could
enhance Fund returns.
In addition, funds borrowed pursuant a credit facility may
constitute a substantial lien and burden by reason of their prior
claim against the income of the Fund and against the net assets of
the Fund in liquidation. If an event of default under a loan
facility occurs, lenders may have the right to cause a liquidation
of the collateral (i.e., sell portfolio securities and other assets
of the Fund) and, if any such default is not cured, the lenders may
be able to control the liquidation as well. A leverage facility
agreement may include covenants that impose on the Fund asset
coverage requirements, Fund composition requirements and limits on
certain investments, such as illiquid investments or derivatives,
which are more stringent than those imposed on the Fund by the 1940
Act. However, because the Fund's use of leverage is expected to be
relatively modest and the Fund generally is not expected to engage
in derivatives transactions, the Investment Manager currently does
not believe that these restrictions would significantly impact its
management of the Fund.
CERTAIN PROVISIONS OF THE 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, consequently,
these provisions could deprive stockholders 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.
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.
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.
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.
|
Aberdeen Japan Equity Fund, Inc. |
31 |
Additional Information Regarding
the Fund (unaudited)
(continued)
MARKET EVENTS RISK
Markets are affected by numerous factors, including interest rates,
the outlook for corporate profits, the health of the national and
world economies, the fluctuation of other stock markets around the
world, and financial, economic and other global market developments
and disruptions, such as those arising from war, terrorism, market
manipulation, government interventions, defaults and shutdowns,
political changes or diplomatic developments, including unfavorable
international trade policies or developments, public health
emergencies and natural/environmental disasters. In addition, any
spread of an infectious illness, public health threat or similar
issue could reduce consumer demand or economic output, result in
market closures, travel restrictions or quarantines, and generally
have a significant impact on the world economy, which in turn could
adversely affect the Fund's investments. Such events can negatively
impact the securities markets and cause the Fund to lose value.
These events can also impair the technology and other operational
systems upon which the Fund's service providers rely and could
otherwise disrupt the Fund's service providers' ability to fulfill
their obligations to the Fund.
Policy and legislative changes in the United States and in other
countries are affecting many aspects of financial regulation, and
governmental and quasi-governmental authorities and regulators
throughout the world have responded to serious economic disruptions
with a variety of significant fiscal and monetary policy changes,
including but not limited to, direct capital infusions into
companies, new monetary programs and dramatically lower interest
rates. The impact of these policies and legislative changes on the
markets, and the practical implications for market participants,
may not be fully known for some time. A reversal of these policies,
or the ineffectiveness of these policies, could increase volatility
in securities markets, which could adversely impact the Fund's
investments. The current market environment could make identifying
investment risks and opportunities especially difficult for the
Adviser.
The current contentious domestic political environment, as well as
political and diplomatic events within the United States and
abroad, such as presidential elections in the U.S. or abroad or the
U.S. government's inability at times to agree on a long-term budget
and deficit reduction plan, has in the past resulted, and may in
the future result, in a government shutdown or otherwise adversely
affect the U.S. regulatory landscape, the general market
environment and/or investor sentiment, which could have an adverse
impact on the Fund's investments and operations. Additional and/or
prolonged U.S. federal government shutdowns may affect investor and
consumer confidence and may adversely impact financial markets and
the broader economy, perhaps suddenly and to a significant
degree.
Economies and financial markets throughout the world are becoming
increasingly interconnected. As a result, whether or not a Fund
invests in securities of issuers located in or with significant
exposure to countries experiencing economic and financial
difficulties, the value and liquidity of the Fund's investments may
be negatively affected by such events.
COVID-19 Risk. Beginning in the first quarter of 2020, the
illness COVID-19 caused by a novel coronavirus has resulted in a
global pandemic and major disruption to economies and markets
around the world, including the United States. Financial markets
have experienced extreme volatility and severe losses. Some sectors
of the economy and individual issuers have experienced particularly
large losses. 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. To the extent the impacts of
COVID-19 continue, the Fund may experience negative impacts to its
business that could exacerbate other risks described herein,
including:
|
• |
significant mark-downs in the fair
value of the Fund's investments and decreases in NAV per
share; |
|
• |
the Fund's investments may require
a workout, restructuring, recapitalization or reorganizations that
involve additional investment from the Fund and/or that result in
greater risks and losses to the Fund; |
|
• |
operational impacts on and
availability of key personnel of the Investment Manager, custodian,
and/or any of the Fund's other third-party service providers,
vendors and counterparties as they face changed circumstances
and/or illness related to the pandemic; |
|
• |
difficulty in valuing the Fund's
assets in light of significant changes in the financial markets,
including difficulty in forecasting discount rates and making
market comparisons, and circumstances affecting the Investment
Manager, and the Fund's service providers' personnel during the
pandemic; |
|
• |
significant changes to the
valuations of pending or prospective investments; and |
|
• |
limitations on the Fund's ability
to make distributions or dividends, as applicable, to the Fund's
common stockholders. |
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
32 |
Aberdeen
Japan Equity Fund, Inc. |
Additional Information Regarding
the Fund (unaudited)
(continued)
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.
Fundamental Investment Restrictions
The following are the fundamental investment limitations of the
Fund set forth in their entirety. Investment limitations identified
as fundamental may be changed only with the approval of the holders
of a majority of the Fund's outstanding voting securities (which
for this purpose and under the 1940 Act, means the lesser of (1)
67% of the voting shares present in person or by proxy at a meeting
at which more than 50% of the outstanding voting shares are present
in person or by proxy, or (2) more than 50% of the outstanding
voting shares).
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) |
Borrow money or issue senior
securities, except as permitted by the 1940 Act, or any rule, order
or interpretation thereunder. |
|
(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. |
Effects of Leverage
The following table is furnished in response to requirements of the
SEC. It is designed to, among other things, illustrate the effects
of leverage through the use of senior securities, as that term is
defined under Section 18 of the 1940 Act, on Common Share total
return, assuming investment portfolio total returns (consisting of
income and changes
in the value of investments held in a Fund's portfolio) of -10%,
-5%, 0%, 5% and 10%. The table below reflects the Fund's continued
use of the revolving credit facility and reverse repurchase
agreements, as applicable, as of October 31, 2021 as a percentage
of total managed assets (including assets attributable to such
leverage), and the annual return that the Fund's portfolio must
experience (net of expenses) in order to cover such costs. The
information below does not reflect the Fund's use of certain other
forms of economic leverage achieved through the use of other
instruments or transactions not considered to be senior securities
under the 1940 Act, such as covered credit default swaps or other
derivative instruments.
The assumed investment portfolio returns in the table below are
hypothetical figures and are not necessarily indicative of the
investment portfolio returns experienced or expected to be
experienced by the Fund. Your actual returns may be greater or less
than those appearing below. In addition, actual borrowing expenses
associated with reverse repurchase agreements (or dollar rolls or
borrowings, if any) used by the Fund may vary frequently and may be
significantly higher or lower than the rate used for the example
below.
Assumed
annual returns on the Fund's portfolio (net of
expenses) |
|
(10 |
)% |
|
(5 |
)% |
|
0 |
% |
|
5 |
% |
|
10 |
% |
Corresponding
return to common shareholder |
|
(11.0 |
)% |
|
(5.6 |
)% |
|
(0.1 |
)% |
|
5.4 |
% |
|
10.8 |
% |
Based on estimated indebtedness of $ 13,330,41 (representing
approximately 8.5% of the Fund's Managed Assets as of October 31,
2021 at an annual interest rate of 0.98225% (effective interest
rate as of October 31, 2021), the Fund's investment portfolio at
fair value would have to produce an annual return of approximately
0.08% to cover annual interest payments on the estimated debt.
Share total return is composed of two elements – the distributions
paid by the Fund to holders of Shares (the amount of which is
largely determined by the net investment income of the Fund after
paying dividend payments on any preferred shares issued by the Fund
and expenses on any forms of leverage outstanding) and gains or
losses on the value of the securities and other instruments the
Fund owns. As required by SEC rules, the table assumes that the
Fund is more likely to suffer capital losses than to enjoy capital
appreciation. For example, to assume a total return of 0%, the Fund
must assume that the income
Aberdeen
Japan Equity Fund, Inc. |
33 |
Additional Information Regarding
the Fund (unaudited)
(concluded)
it receives on its investments is entirely offset by losses in the
value of those investments. This table reflects hypothetical
performance of the Fund's portfolio and not the actual performance
of the Fund's Shares, the value of which is determined by market
forces and other factors.
Should the Fund elect to add additional leverage to its portfolio,
any benefits of such additional leverage cannot be fully achieved
until the proceeds resulting from the use of such leverage have
been received by the Fund and invested in accordance with the
Fund's investment objective and policies. As noted above, the
Fund's willingness to use additional leverage, and the extent to
which leverage is used at any time, will depend on many factors,
including, among other things, the Advisers' assessment of the
yield curve environment, interest rate trends, market conditions
and other factors.
34 |
Aberdeen
Japan Equity Fund, Inc. |
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
Aberdeen Japan Equity
Fund, Inc. |
35 |
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.
36 |
Aberdeen
Japan Equity Fund, Inc. |
Management of the
Fund(unaudited)
The names,
years of birth and business addresses of the directors and officers
of the Fund as of October 31, 2021, their principal occupations
during the past five years, the number of portfolios each Trustee
oversees and other directorships they hold are provided in the
tables below. Directors that are deemed "interested persons" (as
that term is defined in Section 2(a)(19) of the Investment Company
Act of 1940, as amended) of the Fund or the Fund's investment
adviser are included in the table below under the heading
"Interested Directors." Directors who are not interested persons,
as described above, are referred to in the table below under the
heading "Independent Directors." Aberdeen Standard Investments,
Inc. ("ASII"), its parent company abrdn plc, and its advisory
affiliates are collectively referred to as "abrdn" in the tables
below.
Name,
Address and
Year of Birth |
|
Position(s)
Held
with the Fund |
|
Term of
Office
and Length of
Time Served |
|
Principal
Occupation(s)
During Past Five Years |
|
Number
of
Funds in
Fund Complex*
Overseen by
Director |
|
|
Other
Directorships
Held by
Director** |
Interested
Directors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen
Bird***
c/o Aberdeen Standard Investments Inc.
1900 Market St. Suite 200
Philadelphia, PA 19103
Year of Birth:
1967
|
|
Class
II Director |
|
Since
2021; current term ends at the 2022 annual Meeting |
|
Mr.
Bird joined the Board of SLA plc in July 2020 as Chief
Executive-Designate, and was formally appointed Chief Executive
Officer in September 2020. Previously, Mr. Bird served as chief
executive officer of global consumer banking at Citigroup from
2015, retiring from the role in November 2019. His responsibilities
encompassed all consumer and commercial banking businesses in 19
countries, including retail banking and wealth management, credit
cards, mortgages, and operations and technology supporting these
businesses. Prior to this, Mr. Bird was chief executive for all of
Citigroup's Asia Pacific business lines across 17 markets in the
region, including India and China. Mr. Bird joined Citigroup in
1998, and during his 21 years with the company he held a number of
leadership roles in banking, operations and technology across its
Asian and Latin American businesses. Before this, he held
management positions in the UK at GE Capital – where he was
director of UK operations from 1996 to 1998 – and at British
Steel. |
|
26 |
|
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
Independent
Directors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radhika
Ajmera c/o Aberdeen Standard
Investments Inc.
1900 Market St. Suite 200
Philadelphia, PA 19103
Year of Birth: 1964
|
|
Chair
of Board of Directors, Class I Director, Audit Committee
Member |
|
Since
2014; chair since 2017. Current term ends at the 2024 annual
Meeting |
|
Ms.
Ajmera was appointed Chair of Aberdeen Japan Equity Fund Inc in
2017, having served as a director since 2014. She has been an
independent non-executive director of Aberdeen Asia-Pacific Income
Investment Co Ltd since 2015. She is also an independent
non-executive director of Aberdeen Funds since 2020 and Aberdeen
Global Income Fund Inc, Aberdeen Asia-Pacific Income Fund Inc and
Aberdeen Australia Equity Fund Inc since 2021. She has over 20
years' experience in fund management, predominantly in emerging
markets. She has also held a number of UK closed end fund
non-executive directorships. Ms Ajmera is a graduate of the London
School of Economics. |
|
21 |
|
|
None. |
Aberdeen
Japan Equity Fund, Inc. |
37 |
Management of the
Fund(unaudited)
(continued)
Name,
Address and
Year of Birth |
|
Position(s)
Held
with the Fund |
|
Term
of Office
and Length of
Time Served |
|
Principal
Occupation(s)
During Past Five Years |
|
Number
of
Funds in
Fund Complex*
Overseen by
Director |
|
|
Other
Directorships
Held by
Director** |
|
|
|
|
|
|
|
|
|
|
|
|
Anthony
S. Clark 3307 N. Columbus St.
Arlington, VA 22207
Year of Birth:
1953
|
|
Class III
Director, Audit Committee Member |
|
Since 2015;
current term ends at the 2023 annual Meeting |
|
Mr. Clark has
been the Managing Member of Innovation Capital Management LLC, a
registered investment adviser, since January 2016. Previously, Mr.
Clark was Chief Investment Officer of the Pennsylvania State
Employees' Retirement System, Deputy Chief Investment Officer of
the Pension Benefit Guaranty Corporation, and Director of Global
Equities in the Investment Department of the Howard Hughes Medical
Institute. Mr. Clark is a Chartered Financial Analyst
(CFA). |
|
1 |
|
|
Director of
The Taiwan Fund, Inc. since 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
P.
Gerald Malone c/o Aberdeen Standard
Investments Inc.
1900 Market St. Suite 200
Philadelphia, PA 19103
Year of Birth:
1950
|
|
Class III
Director |
|
Since 2021;
current term ends at the 2023 annual Meeting |
|
Mr. Malone is,
by profession, a lawyer of over 40 years. Currently, he is a
non-executive director of a number of U.S. companies, including
Medality Medical (medical technology company) and Bionik
Laboratories Corp. (US healthcare company) since 2018. He is also
Chairman of many of the open and closed end funds in the Fund
Complex. He previously served as Independent Chairman of UK
companies Crescent OTC Ltd (pharmaceutical services) until February
2018; and fluidOil Ltd. (oil services) until June 2018; U.S.
company Rejuvenan llc (wellbeing services) until September 2017 and
as chairman of UK company Ultrasis plc (healthcare software
services company) until October 2014. Mr. Malone was previously a
Member of Parliament in the U.K. from 1983 to 1997 and served as
Minister of State for Health in the U.K. government from 1994 to
1997. |
|
26 |
|
|
Director of
Bionik Laboratories Corporation (U.S. healthcare company) since
2018. |
|
|
|
|
|
|
|
|
|
|
|
|
Rahn K.
Porter
c/o Aberdeen Standard
Investments Inc.
1900 Market St. Suite 200
Philadelphia, PA 19103
Year of Birth: 1954
|
|
Class II Director, Audit Committee Chairman |
|
Since 2007; current term ends at the 2022 annual Meeting |
|
Mr. Porter is the Principal at RPSS Enterprises (consulting) since
2019. He was the Chief Financial and Administrative Officer of The
Colorado Health Foundation from 2013 to 2019. |
|
19 |
|
|
Director of CenturyLink Investment Management Company since 2006,
Director of BlackRidge Financial Inc. from 2004 to 2019. |
|
* |
As of October 31, 2021,
the Fund Complex consists of: Aberdeen Income Credit Strategies
Fund, Aberdeen Asia-Pacific Income Fund, Inc., Aberdeen Global
Income Fund, Inc., Aberdeen Australia Equity Fund, Inc., Aberdeen
Emerging Markets Equity Income Fund, Inc., Aberdeen Japan Equity
Fund, Inc., The India Fund, Inc., Aberdeen Global Dynamic Dividend
Fund, Aberdeen Total Dynamic Dividend Fund, Aberdeen Global Premier
Properties Fund, Aberdeen Standard Global Infrastructure Income
Fund, Aberdeen Investment Funds (which consists of 3 portfolios),
Aberdeen Funds (which consists of 17 portfolios) and abdrn ETFs
(which consists of 3 portfolios). |
|
** |
Current directorships
(excluding Fund Complex) as of October 31, 2021 held in (1) any
other investment companies registered under the 1940 Act, (2) any
company with a class of securities registered pursuant to Section
12 of the Securities Exchange Act of 1934, as amended (the "1934
Act") or (3) any company subject to the requirements of Section
15(d) of the Exchange Act. |
|
*** |
Mr. Bird is considered
to be an "interested person" of the Fund as defined in the 1940 Act
because of his affiliation with the Adviser. |
38 |
Aberdeen
Japan Equity Fund, Inc. |
Management of the
Fund(unaudited)
(continued)
Information Regarding Officers
Name,
Address and
Year of Birth |
|
Position(s)
Held
with the Fund |
|
Term
of Office*
and Length of
Time Served |
|
Principal
Occupation(s) During Past Five Years |
|
Officers |
|
|
|
Alan
Goodson** c/o Aberdeen Standard
Investments Inc.
1900 Market St. Suite 200
Philadelphia, PA 19103
Year of Birth:
1974
|
|
President |
|
Since
September 2012 |
|
Currently,
Director, Vice President and Head of Product &Client Solutions
– Americas for ASII, overseeing Product Management & Governance
, Product Development and Client Solutions for registered and
unregistered investment companies in the U.S., Brazil and Canada.
Mr. Goodson is Director and Vice President of ASII and joined ASII
in 2000. |
|
Joseph
Andolina** c/o Aberdeen Standard
Investments Inc.
1900 Market St. Suite 200
Philadelphia, PA 19103
Year of Birth: 1978
|
|
Chief
Compliance Officer, Vice President – Compliance |
|
Since
September 2017 |
|
Currently,
Chief Risk Officer – Americas and serves as the Chief Compliance
Officer for ASII. Prior to joining the Risk and Compliance
Department, he was a member of ASII's Legal Department, where he
served as U.S. Counsel since 2012. |
|
Andrea
Melia** c/o Aberdeen Standard
Investments Inc.
1900 Market St. Suite 200
Philadelphia, PA 19103
Year of Birth:
1969
|
|
Treasurer |
|
Since
September 2012 |
|
Currently,
Vice President and Director, Product Management for ASII. Ms. Melia
joined ASII in September 2009. |
|
Megan
Kennedy** c/o Aberdeen Standard
Investments Inc.
1900 Market St. Suite 200
Philadelphia, PA 19103
Year of Birth:
1974
|
|
Secretary
and Vice President |
|
Since
September 2012 |
|
Currently,
Director, Product Governance for ASII. Ms. Kennedy joined ASII in
2005. |
|
Bev
Hendry** c/o Aberdeen Standard
Investments Inc.
1900 Market St. Suite 200
Philadelphia, PA 19103
Year of Birth:
1953
|
|
Vice
President |
|
Since
December 2014 |
|
Currently,
Chairman – Americas for abrdn (2018-present), Mr. Hendry was Chief
Executive Officer – Americas for Aberdeen Asset Management PLC
(2014-2018). |
|
Christian
Pittard** c/o Aberdeen Standard
Investments Inc.
1900 Market St. Suite 200
Philadelphia, PA 19103
Year of Birth:
1973
|
|
Vice
President |
|
Since
September 2012 |
|
Currently,
Group Head of Product Opportunities and Director of Aberdeen Asset
Management PLC since 2010. Mr. Pittard joined abrdn from KPMG in
1999. |
|
Lucia
Sitar** c/o Aberdeen Standard
Investments Inc.
1900 Market St. Suite 200
Philadelphia, PA 19103
Year of Birth:
1971
|
|
Vice
President |
|
Since
September 2012 |
|
Currently,
Vice President and Head of Product Management and Governance for
ASII since 2020. Previously, Ms. Sitar was Managing U.S. Counsel
for ASII. She joined ASII as U.S. Counsel in July 2007. |
|
Aberdeen
Japan Equity Fund, Inc. |
39 |
Management of the
Fund(unaudited)
(concluded)
Name,
Address and
Year of Birth |
|
Position(s)
Held
with the Fund |
|
Term
of Office*
and Length of
Time Served |
|
Principal
Occupation(s) During Past Five Years |
|
Hugh
Young** abrdn Asia Limited
21 Church Street
#01-01 Capital Square Two
Singapore 049480
Year of Birth: 1958
|
|
Vice
President |
|
Since
December 2020 |
|
Currently,
Chairman of abrdn Asia Limited (since 1991). Mr. Young joined abrdn
in 1991. |
|
Jim
O'Connor** c/o Aberdeen Standard
Investments Inc.
1900 Market St. Suite 200
Philadelphia, PA 19103
Year of Birth: 1976
|
|
Vice
President |
|
Since
December 2020 |
|
Currently,
Chief Operating Officer – Americas for ASII. Mr. O'Connor joined
ASII as US Counsel in 2010. |
|
Chris
Demetriou** c/o Aberdeen Standard
Investments Inc.
1900 Market St. Suite 200
Philadelphia, PA 19103
Year of Birth: 1983
|
|
Vice
President |
|
Since
December 2020 |
|
Currently,
Chief Executive Officer – UK, EMEA and Americas, Mr. Demetriou
joined ASII in 2013, as a result of the acquisition of SVG, a FTSE
250 private equity investor based in London. |
|
Sharon
Ferrari** c/o Aberdeen Standard
Investments Inc.
1900 Market St. Suite 200
Philadelphia, PA 19103
Year of Birth: 1977
|
|
Assistant
Treasurer |
|
Since
March 2014 |
|
Currently,
Senior Product Manager – US for ASII. Ms. Ferrari joined ASII as a
Senior Fund Administrator in 2008. |
|
Heather
Hasson** c/o Aberdeen Standard
Investments Inc.
1900 Market St. Suite 200
Philadelphia, PA 19103
Year of Birth: 1982
|
|
Assistant
Secretary |
|
Since
September 2012 |
|
Currently,
Senior Product Manager for ASII since 2009. She joined ASII as a
Fund Administrator in 2006. |
|
|
* |
Officers hold their positions with
the Fund until a successor has been duly elected and
qualifies. |
|
** |
As of October 31, 2021, each
officer may hold officer position(s) in one or more other funds
which are part of the Fund Complex. |
During the year the Independent Directors of the Fund engaged Mr.
Martin Gilbert as an advisory consultant to provide ongoing insight
into the asset management industry given his long standing
experience in both this sector and the closed end funds arena. The
position was not remunerated, although travel and expenses were
reimbursed across all the funds related to the consultancy.
Effective December 15, 2021 the consultant agreement was terminated
by mutual agreement of the parties.
Further information about the Fund's Directors and Officers is
available in the Fund's Statement of Additional Information, which
can be obtained without charge by calling (800) 522-5465.
40 |
Aberdeen
Japan Equity Fund, Inc. |
Corporate Information
Directors
Radhika Ajmera, Chair
Stephen Bird
Anthony Clark
P.
Gerald Malone
Rahn K. Porter
Investment Manager
abrdn Asia Limited
21
Church Street
#01-01 Capital Square Two
Singapore 049480
Administrator
Aberdeen Standard Investments Inc.
1900 Market Street, Suite 200
Philadelphia, PA 19103
Transfer Agent and Registrar
Computershare
P.O. Box 505000
Louisville KY, 40233
Legal Counsel
Dechert LLP
1900 K Street N.W.
Washington, DC 20006
Independent Registered Public Accounting Firm
KPMG LLP
1601 Market Street
Philadelphia, PA 19103
Investor Relations
Aberdeen Standard Investments Inc.
1900 Market Street, Suite 200
Philadelphia, PA 19103
1-800-522-5465
Investor.Relations@abrdn.com
Custodian
State Street Bank and Trust Company
1
Lincoln Street
Boston, MA 02111
abrdn Asia Limited
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 ANNUAL
Item 2. Code of Ethics.
(a) |
As of October 31, 2021,
Aberdeen Japan Equity Fund, Inc. (the “Fund” or the “Registrant”)
had adopted a Code of Ethics that applies to the Registrant’s
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by
the Registrant or a third party (the “Code of Ethics”). |
(c) |
There have been no amendments, during the
period covered by this report, to a provision of the Code of
Ethics. |
(d) |
During the period covered by this report,
there were no waivers to the provisions of the Code of
Ethics. |
(f) |
A copy of the Code of Ethics has been filed
as an exhibit to this Form N-CSR. |
Item 3. Audit Committee Financial Expert.
The Registrant's Board of Directors has determined that Rahn K.
Porter, a member of the Board of Directors’ Audit Committee,
possesses the attributes, and has acquired such attributes through
means, identified in instruction 2 of Item 3 to Form N-CSR to
qualify as an “audit committee financial expert,” and has
designated Mr. Porter as the Audit Committee’s financial expert.
Mr. Porter is considered to be an “independent” director, as such
term is defined in paragraph (a)(2) of Item 3 to Form N-CSR.
Item 4. Principal Accountant Fees and Services.
(a) – (d) Below is a table reflecting the fee information requested
in Items 4(a) through (d):
Fiscal Year
Ended |
|
(a)
Audit Fees1 |
|
|
(b)
Audit-Related Fees2 |
|
|
(c)
Tax Fees3 |
|
|
(d)
All Other Fees4 |
|
October 31, 2021 |
|
$ |
50,039 |
|
|
$ |
0 |
|
|
$ |
8,500 |
|
|
$ |
0 |
|
Percentage
approved pursuant to pre-approval
exception5 |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
October 31, 2020 |
|
$ |
48,582 |
|
|
$ |
0 |
|
|
$ |
8,240 |
|
|
$ |
0 |
|
Percentage
approved pursuant to pre-approval
exception5 |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
1 “Audit Fees” are the aggregate fees billed for
professional services for the audit of the Fund’s annual financial
statements and services provided in connection with statutory and
regulatory filings or engagements.
2 “Audit Related Fees” are the aggregate fees billed for
assurance and related services reasonably related to the
performance of the audit or review of financial statements that are
not reported under “Audit Fees”. These fees include offerings
related to the Fund’s common shares.
3 “Tax Fees” are the aggregate fees billed for
professional services for tax advice, tax compliance, and tax
planning. These fees include: federal and state income tax returns,
review of excise tax distribution calculations and federal excise
tax return.
4 “All Other Fees” are the aggregate fees billed for
products and services other than “Audit Fees”, “Audit-Related Fees”
and “Tax Fees”.
5 Pre-approval exception under Rule 2-01 of
Regulation S-X. The pre-approval exception for services provided
directly to the Fund waives the pre-approval requirement for
services other than audit, review or attest services if: (A) the
aggregate amount of all such services provided constitutes no more
than 5% of the total amount of revenues paid by the Fund to its
accountant during the fiscal year in which the services are
provided; (B) the Fund did not recognize the services as non-audit
services at the time of the engagement; and (C) the services are
promptly brought to the Audit Committee’s attention, and the
Committee (or its delegate) approves the services before the audit
is completed.
(e)(1) |
The
Registrant’s Audit Committee (the “Committee”) has adopted a
Charter that provides that the Committee shall annually select,
retain or terminate, and recommend to the Independent Directors for
their ratification, the selection, retention or termination, the
Registrant’s independent auditor and, in connection therewith, to
evaluate the terms of the engagement (including compensation of the
independent auditor) and the qualifications and independence of the
independent auditor, including whether the independent auditor
provides any consulting, auditing or tax services to the
Registrant’s investment adviser (the “Adviser”) or any sub-adviser,
and to receive the independent auditor’s specific representations
as to their independence, delineating all relationships between the
independent auditor and the Registrant, consistent with the PCAOB
Rule 3526 or any other applicable auditing standard. PCAOB Rule
3526 requires that, at least annually, the auditor: (1) disclose to
the Committee in writing all relationships between the auditor and
its related entities and the Registrant and its related entities
that in the auditor’s professional judgment may reasonably be
thought to bear on independence; (2) confirm in the letter that, in
its professional judgment, it is independent of the Registrant
within the meaning of the Securities Acts administered by the SEC;
and (3) discuss the auditor’s independence with the audit
committee. The Committee is responsible for actively engaging in a
dialogue with the independent auditor with respect to any disclosed
relationships or services that may impact the objectivity and
independence of the independent auditor and for taking, or
recommending that the full Board take, appropriate action to
oversee the independence of the independent auditor. The Committee
Charter also provides that the Committee shall review in advance,
and consider approval of, any and all proposals by Management or
the Adviser that the Registrant, the Adviser or their affiliated
persons, employ the independent auditor to render “permissible
non-audit services” to the Registrant and to consider whether such
services are consistent with the independent auditor’s
independence. The Committee may delegate to one or more of its
members (“Delegates”) authority to pre-approve permissible
non-audit services to be provided to the Registrant. Any
pre-approval determination of a Delegate shall be presented to the
full Committee at its next meeting. The Committee shall communicate
any pre-approval made by it or a Delegate to the Adviser, who will
ensure that the appropriate disclosure is made in the Registrant’s
periodic reports required by Section 30 of the Investment Company
Act of 1940, as amended, and other documents as required under the
federal securities laws. |
(e)(2) |
None
of the services described in each of paragraphs (b) through (d) of
this Item involved a waiver of the pre-approval requirement by the
Audit Committee pursuant to Rule 2-01 (c)(7)(i)(C) of Regulation
S-X. |
The following table shows the amount of fees that KPMG LLP billed
during the Fund’s last two fiscal years for non-audit services to
the Registrant, and to the Adviser, and any entity controlling,
controlled by or under common control with the Adviser that
provides ongoing services to the Fund (“Affiliated Fund Service
Provider”):
Fiscal Year Ended |
|
Total Non-
Audit Fees
Billed to Fund |
|
|
Total Non-Audit Fees
billed to Adviser and
Affiliated Fund Service
Providers (engagements
related directly to the
operations and financial
reporting of the Fund) |
|
|
Total Non-Audit Fees
billed to Adviser and
Affiliated Fund Service
Providers (all other
engagements) |
|
|
Total |
|
October 31, 2021 |
|
$ |
8,500 |
|
|
$ |
0 |
|
|
$ |
401,745 |
|
|
$ |
410,245 |
|
October 31, 2020 |
|
$ |
8,240 |
|
|
$ |
0 |
|
|
$ |
357,225 |
|
|
$ |
365,465 |
|
“Non-Audit Fees billed to Fund” for both fiscal years represent
“Tax Fees” and “All Other Fees” billed to Fund in their respective
amounts from the previous table.
Item 5. Audit Committee of Listed Registrants.
(a) |
The
Registrant has a separately-designated standing Audit and Valuation
Committee established in accordance with Section 3(a)(58)(A) of the
Exchange Act (15 U.S.C. 78c(a)(58)(A)). |
As of the fiscal year ended October 31, 2021, the Audit Committee
members were:
Radhika Ajmera
Anthony Clark
Rahn K. Porter
Item 6. Schedule of Investments.
(a) Included as part of the Report to Shareholders filed under Item
1 of this Form N-CSR.
(b) Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for
Closed-End Management Investment Companies.
Pursuant to the Registrant's Proxy Voting Policy and Procedures,
the Registrant has delegated responsibility for its proxy voting to
its Adviser, provided that the Registrant's Board of Directors has
the opportunity to periodically review the Adviser's proxy voting
policies and material amendments thereto.
The proxy voting policies of the Registrant are included herewith
as Exhibit (c) and policies of the Adviser are included as Exhibit
(d).
Item 8. Portfolio Managers of Closed-End Management Investment
Companies.
(a)(1) PORTFOLIO MANAGER BIOGRAPHIES
The Fund is managed by abrdn’s Asian Equities team. The Asian
Equities team works in a collaborative fashion; all team members
have both portfolio management and research responsibilities. The
team is responsible for the day-to-day management of the Fund. As
of the date of filing this report, the following individuals have
primary responsibility for the day-to-day management of the Fund’s
portfolio:
Individual &
Position |
Past
Business Experience |
Hugh Young
Chairman, abrdn Asia
|
Hugh
Young is the Chairman for abrdn’s business in Asia. He
was previously the Head of Asia Pacific for abrdn. Previously, he
served as Head of Asia Pacific, a main board director and Head of
Investments for Aberdeen Asset Management (before its merger with
Standard Life plc in 2017). He joined the company in 1985 to manage
Asian equities from London, having started his investment career in
1980. He founded Singapore-based abrdn Asia in 1992 as the regional
headquarters. He is a director of a number of group subsidiary
companies and group-managed investment trusts and funds. He
graduated with a BA (Hons) in Politics from Exeter
University. |
Adrian Lim
Investment Director
|
Adrian
Lim is an Investment Director on the Asian Equities team. He
originally joined abrdn in 2001 as a Manager on the Private Equity
team, on the acquisition of Murray Johnstone, but transferred to
his current post soon afterwards. Previously, he worked for Arthur
Andersen as an Associate Director advising clients on mergers &
acquisitions in the region. he graduated with a BAcc from Nanyang
Technological University, Singapore and is a CFA®
charterholder. |
Flavia Cheong
Head of Equities – Asia Pacific
|
Flavia
Cheong is the Head of Equities - Asia Pacific on the Asian Equities
team, where, as well as sharing responsibility for company
research, she oversees regional portfolio construction. Before
joining abrdn in 1996, she was an economist with the Investment
Company of the People’s Republic of China, and earlier with the
Development Bank of Singapore. She graduated with a BA in
Economics and an MA (Hons) in Economics from the University of
Auckland. She is a CFA® charterholder. |
Ai-Mee Gan
Investment Manager
|
Gan
Ai-Mee is an Investment Manager on the Asian Equities Team. She
joined abrdn in April 2009. Previously, she worked as a Senior
Associate with Transaction Advisory Services at Ernst &
Young. She holds a BCom in Accounting & Finance and
BSc in Information Systems, University of Melbourne. She is also a
member of the Institute of Chartered Accountants in
Australia. |
Christina Woon
Investment Director
|
Christina
Woon is an Investment Director on the Asian Equities Team. She
joined abrdn in January 2013 as a graduate. She holds a
Bachelor of Accountancy from Singapore Management University. She
is a CFA® charterholder. |
(a)(2) OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGERS.
The
following chart summarizes information regarding other accounts for
which each portfolio manager has day-to-day management
responsibilities. Accounts are grouped into the following three
categories: (1) registered investment companies; (2) other pooled
investment vehicles; and (3) other accounts. To the extent that any
of these accounts pay advisory fees that are based on account
performance (“performance-based fees”), information on those
accounts is provided separately. The figures in the chart below for
the category of “registered investment companies” do not include
the Fund. The “Other Accounts Managed” represents the accounts
managed by the teams of which the portfolio manager is a member.
The information in the table below is as of October 31,
2021 .
Name of
Portfolio Manager |
|
Type of Accounts |
|
Other Accounts
Managed |
|
|
Total Assets ($M) |
|
|
Number of
Accounts
Managed for
Which
Advisory
Fee is Based
on
Performance |
|
|
Total Assets for
Which
Advisory Fee is
Based on
Performance ($M) |
|
Hugh Young |
|
Registered Investment Companies |
|
|
3 |
|
|
$ |
605.87 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
Pooled Investment Vehicles |
|
|
51 |
|
|
$ |
13,561.38 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
Other Accounts |
|
|
38 |
|
|
$ |
11,241.59 |
|
|
|
8 |
|
|
$ |
2,999.25 |
|
Adrian Lim |
|
Registered Investment Companies |
|
|
3 |
|
|
$ |
605.87 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
Pooled Investment Vehicles |
|
|
51 |
|
|
$ |
13,561.38 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
Other Accounts |
|
|
38 |
|
|
$ |
11,241.59 |
|
|
|
8 |
|
|
$ |
2,999.25 |
|
Flavia Cheong |
|
Registered Investment Companies |
|
|
3 |
|
|
$ |
605.87 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
Pooled Investment Vehicles |
|
|
51 |
|
|
$ |
13,561.38 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
Other Accounts |
|
|
38 |
|
|
$ |
11,241.59 |
|
|
|
8 |
|
|
$ |
2,999.25 |
|
Ai-Mee Gan |
|
Registered Investment Companies |
|
|
3 |
|
|
$ |
605.87 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
Pooled Investment Vehicles |
|
|
51 |
|
|
$ |
13,561.38 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
Other Accounts |
|
|
38 |
|
|
$ |
11,241.59 |
|
|
|
8 |
|
|
$ |
2,999.25 |
|
Christina Woon |
|
Registered Investment Companies |
|
|
3 |
|
|
$ |
605.87 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
Pooled Investment Vehicles |
|
|
51 |
|
|
$ |
13,561.38 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
Other Accounts |
|
|
38 |
|
|
$ |
11,241.59 |
|
|
|
8 |
|
|
$ |
2,999.25 |
|
POTENTIAL CONFLICTS OF INTEREST
The Adviser and its affiliates (collectively referred to herein as
“abrdn”) serve as investment advisers for multiple clients,
including the Registrant and other investment companies registered
under the 1940 Act and private funds (such clients are also
referred to below as “accounts”). The portfolio managers’
management of “other accounts” may give rise to potential conflicts
of interest in connection with their management of the Registrant’s
investments, on the one hand, and the investments of the other
accounts, on the other. The other accounts may have the same
investment objective as the Registrant. Therefore, a potential
conflict of interest may arise as a result of the identical
investment objectives, whereby the portfolio manager could favor
one account over another. However, the Adviser believes that these
risks are mitigated by the fact that: (i) accounts with like
investment strategies managed by a particular portfolio manager are
generally managed in a similar fashion, subject to exceptions to
account for particular investment restrictions or policies
applicable only to certain accounts, differences in cash flows and
account sizes, and similar factors; and (ii) portfolio manager
personal trading is monitored to avoid potential conflicts. In
addition, the Adviser has adopted trade allocation procedures that
require equitable allocation of trade orders for a particular
security among participating accounts.
In some cases, another account managed by the same portfolio
manager may compensate Aberdeen based on the performance-based fees
with qualified clients. The existence of such a performance-based
fee may create additional conflicts of interest for the portfolio
manager in the allocation of management time, resources and
investment opportunities.
Another potential conflict could include instances in which
securities considered as investments for the Registrant also may be
appropriate for other investment accounts managed by the Adviser or
its affiliates. Whenever decisions are made to buy or sell
securities for the Registrant and one or more of the other accounts
simultaneously, the Adviser may aggregate the purchases and sales
of the securities and will allocate the securities transactions in
a manner that it believes to be equitable under the circumstances.
As a result of the allocations, there may be instances where the
Registrant will not participate in a transaction that is allocated
among other accounts. While these aggregation and allocation
policies could have a detrimental effect on the price or amount of
the securities available to the Registrant from time to time, it is
the opinion of the Adviser that the benefits from the policies
outweigh any disadvantage that may arise from exposure to
simultaneous transactions. The Registrant has adopted policies that
are designed to eliminate or minimize conflicts of interest,
although there is no guarantee that procedures adopted under such
policies will detect each and every situation in which a conflict
arises.
With respect to non-discretionary model delivery accounts, abrdn
will deliver model changes subsequent to commencing trading on
behalf of discretionary accounts. Model changes are typically
delivered on a security by security basis. The timing of such
delivery is determined by abrdn and will depend on the anticipated
market impact of trading. Market impact includes, but is not
limited to, factors such as liquidity and price impact. When
minimal market impact is anticipated, abrdn typically delivers
security level model changes after such time when approximately
two-thirds of the full discretionary order has been executed.
Although abrdn anticipates delivering model changes of such
securities after approximately two-thirds of the discretionary
order has been executed, abrdn may deliver model changes prior to
or substantially after two-thirds have been executed depending on
prevailing market conditions and trader discretion. With respect to
securities for which abrdn anticipates a more significant market
impact, abrdn intends to withhold model deliver changes until such
time when the entire discretionary order has been fully executed.
Anticipated market impact on any given security is determined at
the sole discretion of abrdn based on prior market experience and
current market conditions. Actual market impact may vary
significantly from anticipated market impact. Notwithstanding the
aforementioned, abrdn may provide order instructions simultaneously
or prior to completion of trading for other accounts if the trade
represents a relatively small proportion of the average daily
trading volume of the particular security or other instrument.
abrdn does not trade for non-discretionary model delivery clients.
Because model changes may be delivered to non-discretionary model
clients prior to the completion of abrdn’s discretionary account
trading, abrdn may compete against these clients in the market when
attempting to execute its orders for its discretionary accounts. As
a result, discretionary clients may experience negative price and
liquidity impact due to multiple market participants attempting to
trade in a similar direction on the same security.
Timing delays or other operational factors associated with the
implementation of trades may result in non-discretionary and model
delivery clients receiving materially different prices relative to
other client accounts. This may create performance dispersions
within accounts with the same or similar investment mandate.
(a)(3)
DESCRIPTION OF COMPENSATION STRUCTURE
abrdn’s remuneration policies are designed to support its business
strategy as a leading international asset manager. The
objective is to attract, retain and reward talented individuals for
the delivery of sustained, superior returns for abrdn’s clients and
shareholders. abrdn operates in a highly competitive
international employment market, and aims to maintain its strong
track record of success in developing and retaining talent.
abrdn’s policy is to recognize corporate and individual
achievements each year through an appropriate annual bonus scheme.
The bonus is a single, fully discretionary variable pay award. The
aggregate value of awards in any year is dependent on the group’s
overall performance and profitability. Consideration is also
given to the levels of bonuses paid in the market. Individual
awards, which are payable to all members of staff, are determined
by a rigorous assessment of achievement against defined
objectives.
The variable pay award is composed of a mixture of cash and a
deferred award, the portion of which varies based on the size of
the award. Deferred awards are by default abrdn plc shares,
with an option to put up to 50% of the deferred award into funds
managed by abrdn. Overall compensation packages are designed to be
competitive relative to the investment management industry.
Base Salary
abrdn’s policy is to pay a fair salary commensurate with the
individual’s role, responsibilities and experience, and having
regard to the market rates being offered for similar roles in the
asset management sector and other comparable companies. Any
increase is generally to reflect inflation and is applied in a
manner consistent with other abrdn employees; any other increases
must be justified by reference to promotion or changes in
responsibilities.
Annual Bonus
The Remuneration Committee determines the key performance
indicators that will be applied in considering the overall size of
the bonus pool. In line with practices amongst other asset
management companies, individual bonuses are not subject to an
absolute cap. However, the aggregate size of the bonus pool
is dependent on the group’s overall performance and
profitability. Consideration is also given to the levels of
bonuses paid in the market. Individual awards are determined
by a rigorous assessment of achievement against defined objectives,
and are reviewed and approved by the Remuneration Committee.
abrdn has a deferral policy which is intended to assist in the
retention of talent and to create additional alignment of
executives’ interests with abrdn’s sustained performance and, in
respect of the deferral into funds managed by abrdn, to align the
interest of portfolio managers with our clients.
Staff performance is reviewed formally at least once a year. The
review process evaluates the various aspects that the individual
has contributed to abrdn, and specifically, in the case of
portfolio managers, to the relevant investment team. Discretionary
bonuses are based on client service, asset growth and the
performance of the respective portfolio manager. Overall
participation in team meetings, generation of original research
ideas and contribution to presenting the team externally are also
evaluated.
In the calculation of a portfolio management team’s bonus, abrdn
takes into consideration investment matters (which include the
performance of funds, adherence to the company investment process,
and quality of company meetings) as well as more subjective issues
such as team participation and effectiveness at client
presentations through key performance indicator scorecards.
To the extent performance is factored in, such performance is not
judged against any specific benchmark and is evaluated over the
period of a year - January to December. The pre- or after-tax
performance of an individual account is not considered in the
determination of a portfolio manager’s discretionary bonus; rather
the review process evaluates the overall performance of the team
for all of the accounts the team manages.
Portfolio manager performance on investment matters is judged over
all of the accounts the portfolio manager contributes to and is
documented in the appraisal process. A combination of the
team’s and individual’s performance is considered and
evaluated.
Although performance is not a substantial portion of a portfolio
manager’s compensation, abrdn also recognizes that fund performance
can often be driven by factors outside one’s control, such as
(irrational) markets, and as such pays attention to the effort by
portfolio managers to ensure integrity of our core process by
sticking to disciplines and processes set, regardless of momentum
and ‘hot’ themes. Short-terming is thus discouraged and
trading-oriented managers will thus find it difficult to thrive in
the abrdn environment. Additionally, if any of the
aforementioned undue risks were to be taken by a portfolio manager,
such trend would be identified via abrdn’s dynamic compliance
monitoring system.
In rendering investment management services, the Adviser may use
the resources of additional investment adviser subsidiaries of
abrdn plc. These affiliates have entered into a memorandum of
understanding (“MOU”) pursuant to which investment professionals
from each affiliate may render portfolio management, research or
trading services to abrdn clients. Each investment professional who
renders portfolio management, research or trading services under a
MOU or personnel sharing arrangement (“Participating Affiliate”)
must comply with the provisions of the Advisers Act, the 1940 Act,
the Securities Act of 1933, the Exchange Act, and the Employee
Retirement Income Security Act of 1974, and the laws of states or
countries in which the Adviser does business or has clients. No
remuneration is paid by the Fund with respect to the MOU/personnel
sharing arrangements.
(a)(4)
Dollar
Range of Equity Securities in the
Registrant Beneficially Owned by the Portfolio
Manager as of October 31, 2021 |
|
Hugh
Young |
|
None |
Adrian
Lim |
|
None |
Flavia
Cheong |
|
None |
Ai-Mee
Gan |
|
None |
Christina
Woon |
|
None |
(b) Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management
Investment Company and Affiliated Purchasers.
No such purchases were made by or on behalf of the Registrant
during the period covered by the report.
Item 10. Submission of Matters to a Vote of Security
Holders.
During the period ended October 31, 2021, there were no material
changes to the procedures by which shareholders may recommend
nominees to the Registrant’s Board of Directors.
Item 11. Controls and Procedures.
|
(a) |
The
Registrant’s principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
Registrant’s disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940 (the “Act”) (17
CFR 270.30a-3(c)) are effective, as of a date within 90 days of the
filing date of the report that includes the disclosure required by
this paragraph, based on the evaluation of these controls and
procedures required by Rule 30a-3(b) under the Act (17 CFR
270.30a3(b)) and Rule 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or
240.15d15(b)). |
|
(b) |
There
were no changes in the Registrant’s internal control over financial
reporting (as defined in Rule 30a-3(d) under the Act (17
CFR 270.30a-3(d))) that occurred during the second fiscal quarter
of the period covered by this report that has materially affected,
or is reasonably likely to materially affect, the Registrant’s
internal control over financial reporting. |
Item 12. Disclosure of Securities Lending Activities for
Closed-End Management Investment Companies
Not applicable
Item 13. Exhibits.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the Registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Aberdeen Japan Equity Fund, Inc.
|
|
By: |
/s/
Alan Goodson |
|
|
Alan
Goodson, |
|
|
Principal
Executive Officer of |
|
|
Aberdeen
Japan Equity Fund, Inc. |
|
|
|
Date: January
10, 2022 |
|
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
By: |
/s/
Alan Goodson |
|
|
Alan
Goodson, |
|
|
Principal
Executive Officer of |
|
|
Aberdeen
Japan Equity Fund, Inc. |
|
|
|
Date: January
10, 2022 |
|
By: |
/s/
Andrea Melia |
|
|
Andrea
Melia, |
|
|
Principal
Financial Officer of |
|
|
Aberdeen
Japan Equity Fund, Inc. |
|
|
|
Date: January
10, 2022 |
|
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