Mr. Small: The Japan Equity Fund was first listed on the New York Stock Exchange in mid-1992. At that time, we used quantitative analysis and a program-trading model developed by Dr. Harry Markowitz. In 2001 we switched the investment process of the fund to more of an active style, and our institutional portfolio managers took over the day-to-day operations of the fund. We manage the Japan Equity Fund very similarly to the way we manage our institutional and pension accounts, in that we primarily use a value approach, which is not really surprising in the Japanese market. We strive to beat our benchmark through active management, which is comprised of about 30% quantitative and 70% qualitative analyses done by our research people and portfolio managers. One of the main reasons that we use a value approach in Japan obviously is due to the maturity of the market. That philosophy has been our flag bearer since our firm, Daiwa SB Investments, was founded more than 35 years ago. We transferred that strategy, which has been very successful in the domestic Japanese market, to this particular fund in order to provide U.S. investors with access to that style of management.
TWST: What is your benchmark and how have you done compared to it?
Mr. Small: The benchmark for the Japan Equity Fund is the TOPIX, or the Tokyo Stock Price Index. The reason we use this as our benchmark is that we feel it is a much broader representation of the Japanese market than either the MSCI Japan or even the Nikkei. Over the past few years, we've had a couple of good years and a couple of down years. One of the issues with working in the closed-end fund arena is that our performance, meaning the net asset value performance of the fund versus the TOPIX, is not really correlated to the performance of the fund's shares here in the U.S. With that said, on an NAV basis, we are up about 65 basis points on the index year-to-date. As of the end of September, the fund was up 7.25% and the TOPIX was up 6.61%. In 2007 and 2008, we underperformed a bit; while in 2005 and 2006, we exceeded our target and outperformed by about 0.4% and 2.5%, respectively.
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