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<SEC-DOCUMENT>0000905148-05-005460.txt : 20051109
<SEC-HEADER>0000905148-05-005460.hdr.sgml : 20051109
<ACCEPTANCE-DATETIME>20051108173518
ACCESSION NUMBER:		0000905148-05-005460
CONFORMED SUBMISSION TYPE:	N-2/A
PUBLIC DOCUMENT COUNT:		10
FILED AS OF DATE:		20051109
DATE AS OF CHANGE:		20051108

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			JAPAN SMALLER CAPITALIZATION FUND INC
		CENTRAL INDEX KEY:			0000859796
		IRS NUMBER:				133553469
		STATE OF INCORPORATION:			MD
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		N-2/A
		SEC ACT:		1933 Act
		SEC FILE NUMBER:	333-128763
		FILM NUMBER:		051187271

	BUSINESS ADDRESS:	
		STREET 1:		2 WORLD FINANCIAL CENTER
		STREET 2:		BUILDING B, 22ND FLOOR
		CITY:			NEW YORK
		STATE:			NY
		ZIP:			10281-1712
		BUSINESS PHONE:		8008330018

	MAIL ADDRESS:	
		STREET 1:		2 WORLD FINANCIAL CENTER
		STREET 2:		BUILDING B, 22ND FLOOR
		CITY:			NEW YORK
		STATE:			NY
		ZIP:			10281-1712

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	JAPAN OTC EQUITY FUND INC
		DATE OF NAME CHANGE:	19920703

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			JAPAN SMALLER CAPITALIZATION FUND INC
		CENTRAL INDEX KEY:			0000859796
		IRS NUMBER:				133553469
		STATE OF INCORPORATION:			MD
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		N-2/A
		SEC ACT:		1940 Act
		SEC FILE NUMBER:	811-05992
		FILM NUMBER:		051187272

	BUSINESS ADDRESS:	
		STREET 1:		2 WORLD FINANCIAL CENTER
		STREET 2:		BUILDING B, 22ND FLOOR
		CITY:			NEW YORK
		STATE:			NY
		ZIP:			10281-1712
		BUSINESS PHONE:		8008330018

	MAIL ADDRESS:	
		STREET 1:		2 WORLD FINANCIAL CENTER
		STREET 2:		BUILDING B, 22ND FLOOR
		CITY:			NEW YORK
		STATE:			NY
		ZIP:			10281-1712

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	JAPAN OTC EQUITY FUND INC
		DATE OF NAME CHANGE:	19920703
</SEC-HEADER>
<DOCUMENT>
<TYPE>N-2/A
<SEQUENCE>1
<FILENAME>efc5-2269_5761954formn2a.txt
<TEXT>

   As filed with the Securities and Exchange Commission on November 8, 2005

                                             Securities Act File No. 333-128763
                                      Investment Company Act File No. 811-05992
===============================================================================

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

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

                                   FORM N-2

            REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
                         PRE-EFFECTIVE AMENDMENT NO. 1
                      POST-EFFECTIVE AMENDMENT NO. AND/OR
        REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
                               AMENDMENT NO. 11

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

                    Japan Smaller Capitalization Fund, Inc.
              (Exact Name of Registrant as Specified in Charter)

                    Two World Financial Center, Building B
                           New York, New York 10281
                   (Address of Principal Executive Offices)

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

                                (800) 833-0018
             (Registrant's Telephone Number, including Area Code)

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

                             Mr. Hiroshi Terasaki
                    Japan Smaller Capitalization Fund, Inc.
                    Two World Financial Center, Building B
                           New York, New York 10281
                    (Name and Address of Agent for Service)

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

                                  Copies to:

  Sidley Austin Brown & Wood LLP                 Clifford Chance US LLP
        787 Seventh Avenue                        31 West 52nd Street
     New York, New York 10019                   New York, New York 10019
Attention: John A. MacKinnon, Esq.      Attention: Leonard B. Mackey, Jr., Esq.

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

                      Approximate date of proposed public
                      offering: As soon as practicable
                      after the effective date of this
                      Registration Statement.

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

      If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, as amended (the "Securities Act"), other than securities offered only
in connection with dividend or interest reinvestment plans, check the
following box. | |

      If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.  | |

      If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering.  | |

      If delivery of the prospectus is expected to be made pursuant to Rule
434 under the Securities Act, please check the following box.  | |


       CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

<TABLE>
<CAPTION>
===================================================================================================================
                                                          Proposed             Proposed
             Title of                    Amount            Maximum             Maximum             Amount of
            Securities                   Being         Offering Price         Aggregate           Registration
         Being Registered            Registered (1)     Per Unit (1)      Offering Price (1)        Fee (1)
- --------------------------------   ------------------  ---------------   ---------------------  -------------------

<S>                                    <C>                <C>                  <C>                 <C>
Common Stock ($.10 par value)          $61,728            $61,728              $16.20              $118.00(2)

===================================================================================================================
</TABLE>


(1)   Estimated solely for the purpose of calculating the registration fee.
      Based on the average of the high and low prices reported on the New York
      Stock Exchange on September 27, 2005 (i.e., a specified date within 5
      business days prior to the date of filing this registration statement).

(2)   Previously paid.


      The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.

<PAGE>


INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.



<TABLE>
<CAPTION>
<S>                                             <C>                                                <C>
PRELIMINARY PROSPECTUS                          Subject to Completion                              November 8, 2005
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
[LOGO]
                    Japan Smaller Capitalization Fund, Inc.
                      [_________] Shares of Common Stock
         Issuable Upon Exercise of Rights to Subscribe for Such Shares
- -------------------------------------------------------------------------------

Japan Smaller Capitalization Fund, Inc., a Maryland corporation (the "Fund"),
is issuing transferable rights ("Rights") to its stockholders of record as of
the close of business on [__________] (the "Record Date") entitling the
holders of these Rights to subscribe (the "Offer") for an aggregate of
[_________] shares of common stock, par value $0.10 per share (the "Common
Stock"). Stockholders of record will receive one Right for each outstanding
Fund share owned on the Record Date. The Rights entitle the holders to
purchase one new share of Common Stock for every [ ] Rights held, and
stockholders of record who fully exercise their Rights will be entitled to
subscribe, subject to certain limitations and subject to allotment, for
additional shares of Common Stock covered by any unexercised Rights. The
Fund's outstanding Common Stock is listed on the New York Stock Exchange
("NYSE") under the symbol "JOF." The Rights are transferable and will be
listed for trading on the NYSE under the symbol "JOF.RT" during the course of
the Offer. See "The Offer" for a complete discussion of the terms of the
Offer. [The subscription price per share will be [__]% of the average of the
last reported sale prices of a share of the Fund's Common Stock on the NYSE on
the date on which the Offer expires and the four preceding trading days.]

The Offer will expire at 5:00 p.m., New York City time, on [__________],
unless extended as described herein (the "Expiration Date").

The net asset value per share ("NAV") of the Fund's Common Stock at the close
of business on [__________] (the last trading date prior to the date of this
prospectus on which we determined net asset value) was $[____] and the last
reported sale price of a share on the NYSE on that date was $[____].

The Fund is a non-diversified, closed-end management investment company whose
primary investment objective is to provide stockholders with long-term capital
appreciation primarily through investments in smaller capitalization companies
in Japan. See "Investment Objective and Policies" and "Investment
Restrictions" in this prospectus.


Investment in the Fund's Common Stock involves certain risks that are not
typically associated with investments in securities of U.S. issuers. See "Risk
Factors and Special Considerations." If the subscription price per share for
the Offer is less than the Fund's NAV, you would experience immediate dilution
of NAV as a result of the Offer. See "Prospectus Summary--Risk Factors and
Special Considerations at a Glance--As a result of this Offer, you may incur
immediate economic dilution, and, if you do not exercise all of your Rights,
you will incur voting dilution."


Neither the U.S. Securities and Exchange Commission (the "SEC") nor any state
securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.

<TABLE>
<CAPTION>
                                                                  Per share      Total(4)
- -----------------------------------------------------------------------------------------------
<S>                                                               <C>          <C>
Estimated subscription price(1)                                   $            $
- -----------------------------------------------------------------------------------------------
Estimated sales load(1)(2)                                        $            $
- -----------------------------------------------------------------------------------------------
Proceeds, before expenses, to the Fund(1)(3)                      $            $
- -----------------------------------------------------------------------------------------------
</TABLE>
                                    (footnotes continued on inside front cover)
                              UBS Investment Bank


                                      i
<PAGE>


(continued from previous page)


This prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing and should be retained for
future reference. Stockholders may obtain additional information about the
Fund from the Fund's reports filed with the SEC. You may obtain a copy of the
Fund's reports filed with the SEC by contacting the Information Agent, The
Altman Group, Inc., at the toll-free telephone number below. You may also
request other information about the Fund or make stockholder inquiries by
calling the Fund toll-free at (800) 833-0018. In addition, the reports filed
with the SEC, including material incorporated by reference into this
prospectus, are available at the SEC's website at www.sec.gov. The reports are
not available on the Fund's website because the Fund believes that making the
reports available on the Fund's website will not be cost effective.

For information regarding the Offer, please contact the Information Agent, The
Altman Group, Inc. at 1(800) 814-0439.


(notes from previous page)

(1)   Estimated on the basis of [__]% of the last reported sales price per
      share at the close of trading on [__________]. See "The
      Offer--Subscription Price."

(2)   In connection with the Offer, UBS Securities LLC, the dealer manager for
      the Offer (the "Dealer Manager"), will receive a fee from the Fund for
      its financial advisory, marketing and soliciting services equal to 3.75%
      of the subscription price per share for each share issued pursuant to
      the Offer. The Dealer Manager will reallow a part of its fees to other
      broker-dealers that have assisted in soliciting the exercise of Rights.
      The Fund has also agreed to pay the Dealer Manager up to $100,000 as a
      partial reimbursement for its expenses incurred in connection with the
      Offer. The Fund and Nomura Asset Management U.S.A. Inc. (the "Manager")
      have also agreed to indemnify the Dealer Manager against certain
      liabilities under the Securities Act of 1933, as amended (the "1933
      Act").
(3)   Before deduction of offering expenses incurred by the Fund, estimated at
      $[_______], including an aggregate of up to $100,000 to be paid to the
      Dealer Manager as partial reimbursement for its expenses.

(4)   Assumes all Rights are exercised at the estimated subscription price.

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

As used in this prospectus, unless otherwise specified, "dollar," "$", "US$"
or "U.S. Dollar" refers to the United States Dollar and "yen" or "(Y)" refers
to the Japanese yen. No representation is made that the yen or dollar amounts
shown in this prospectus could have been or could be converted into dollars or
yen as the case may be, at any particular rate at all.


No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus in connection with the Offer made by this prospectus and, if given
or made, such information or representations must not be relied upon as having
been authorized by the Fund, the Manager, Nomura Asset Management Co. Ltd.
(the "Investment Adviser") or the Dealer Manager. This prospectus does not
constitute an offer to sell or the solicitation of any offer to buy any
security other than the shares of Common Stock offered by this prospectus, nor
does it constitute an offer to sell or a solicitation of any offer to buy the
shares of Common Stock by anyone in any jurisdiction in which such offer or
solicitation is not authorized, or in which the person making such offer or
solicitation is not qualified to do so, or to any such person to whom it is
unlawful to make such offer or solicitation. Neither the delivery of this
prospectus nor any sale made hereunder shall, under any circumstances, creates
any implication that information contained herein is correct as of any time
subsequent to the date hereof. However, if any material change occurs while
this prospectus is required by law to be delivered, the prospectus will be
amended or supplemented accordingly.



                                      ii
<PAGE>



                               TABLE OF CONTENTS

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



                                                                          Page


Prospectus Summary...........................................................1
Fund Expenses...............................................................11
The Offer...................................................................13
The Fund....................................................................24
Investment Objective and Policies...........................................26
Investment Restrictions.....................................................29
Risk Factors and Special Considerations.....................................30
Portfolio Composition.......................................................38
Management of the Fund......................................................46
Code of Ethics..............................................................51
Management and Investment Advisory Arrangements.............................51
Legal Proceedings...........................................................55
Proxy Voting Policy.........................................................55
Portfolio Transactions and Brokerage........................................56
Portfolio Turnover..........................................................58
Net Asset Value of Common Stock.............................................58
Dividends and Capital Gain Distributions; Dividend Reinvestment Plan........58
Taxation....................................................................61
Capital Stock...............................................................67
Custodian, Transfer Agent, Dividend Disbursing Agent and Registrar..........69
Experts.....................................................................69
Distribution Arrangements...................................................69
Legal Matters...............................................................69
Financial Statements........................................................69



                                     iii
<PAGE>


- -------------------------------------------------------------------------------
                              PROSPECTUS SUMMARY

      The following summary is qualified in its entirety by reference to the
more detailed information appearing elsewhere or incorporated by reference in
this prospectus. It may not contain all of the information that is important
to each stockholder. Accordingly, to understand the Offer fully, stockholders
are encouraged to read the entire document carefully. Unless otherwise
indicated, the information in this prospectus assumes that the Rights issued
are all exercised.

THE OFFER AT A GLANCE

Purpose of the Offer

The Board of Directors of the Fund ("Board of Directors") has determined that
the Offer is in the best interests of the Fund and its existing stockholders
because it represents an opportunity to increase the assets of the Fund
available for investment, thereby enabling the Fund to take advantage more
fully of existing and future investment opportunities that may be or may
become available, consistent with the Fund's investment objective of long-term
capital appreciation, through investment primarily in smaller capitalization
companies in Japan.


An increase in the assets of the Fund available for investment would enable
the Fund to be in a better position to take advantage of attractive investment
opportunities arising in the Japanese securities markets. Due to a combination
of positive economic and securities market developments, the Board of
Directors and the Manager believe that now is an opportune time to raise
assets for the Fund to invest in smaller capitalization companies in Japan.
The Board of Directors and Nomura Asset Management U.S.A. Inc., the Fund's
manager ("Manager"), also believe that an increase in the size of the Fund may
result in a modest reduction in the Fund's expense ratio. There can be no
assurance that the Offer will be successful or that, by increasing the size of
the Fund, the Fund's expense ratio will be lowered. See "The Offer--Purpose of
the Offer."


The Offer


The Fund is issuing to stockholders of record on [__________] (the "Record
Date") one transferable Right for each share of Fund Common Stock held. Each
stockholder on the Record Date that continues to hold Rights and each other
holder of the Rights is entitled to subscribe for one Share for every [ ]
Rights held (1 for [ ]). The Fund will not issue fractional shares of its
Common Stock upon the exercise of Rights; accordingly, Rights may be exercised
only in multiples of [ ].

The Rights will expire at, and therefore cannot be exercised after, 5:00 p.m.,
New York City time, on _____, 2005, unless the Offer is extended by the Fund
(the "Expiration Date"). The Rights are transferable and application will be
made to list them for trading on the NYSE under the symbol "JOF. RT." See "The
Offer."

In this prospectus, we use the terms "Shares" to refer to any outstanding
shares of Common Stock and shares of Common Stock to be issued pursuant to the
exercise of the Rights, "Stockholders" to refer to any person that holds
Shares, "Record Date Stockholders" to refer to those stockholders that held
their Shares on the Record Date and "Existing Rights Holders" to refer to
those persons (i) that are Record Date Stockholders to whom the Rights were
issued initially to the extent that a Record Date Stockholder continues to
hold Rights and (ii) any subsequent transferees of the Rights that continue to
hold the Rights.


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


<PAGE>


- -------------------------------------------------------------------------------
Subscription Price

The subscription price per share (the "Subscription Price") will be [[ ]% of
the average of the last reported sale prices of a share of the Fund's Common
Stock on the NYSE on the Expiration Date and the four preceding business
days.] See "The Offer--Subscription Price."

Over-Subscription Privilege

Record Date Stockholders who fully exercise all Rights issued to them (other
than those Rights to acquire less than one Share, which cannot be exercised)
are entitled to subscribe for additional Shares which were not subscribed for
by other Record Date Stockholders. If sufficient Shares are available, all
Record Date Stockholders' over-subscription requests will be honored in full.
If these requests for Shares exceed the Shares available, the available Shares
will be allocated pro-rata among Record Date Stockholders who over-subscribe
based on the number of Rights originally issued to them by the Fund. See "The
Offer--Over-Subscription Privilege."

Sale of Rights


The Rights are transferable until the expiration date of the Offer. The Fund
has applied to list the Rights for trading on the NYSE under the symbol
"JOF.RT" during the course of the Offer. The Fund and the Dealer Manager will
use their best efforts to ensure that an adequate trading market for the
Rights will exist. No assurance can be given that a market for the Rights will
develop. Trading in the Rights on the NYSE is expected to be conducted until
the close of trading on the NYSE on the last business day prior to the
Expiration Date. See "The Offer--Sale of Rights."


Use of Proceeds

The net proceeds of the Offer, assuming all Shares offered hereby are sold,
are estimated to be approximately $[ ], after deducting offering expenses and
fees paid to the Dealer Manager estimated to be $[ ]. The Manager and the
Investment Adviser anticipate that investment of the net proceeds of the Offer
in accordance with the Fund's investment objective and policies will take
approximately thirty days after completion of the Offer. However, the
investment of the net proceeds may take up to three months from completion of
the Offer, depending on market conditions and the availability of appropriate
securities. Pending such investment, it is anticipated that the net proceeds
will be invested in yen-denominated or U.S. dollar-denominated fixed-income
securities and other permitted investments. See "Use of Proceeds."

How to Obtain Subscription Information

o     Contact your broker-dealer, trust company, bank or other nominee, or


o     Contact the Information Agent toll-free at 1(800) 814-0439.


How to Subscribe

o     Deliver a completed subscription certificate ("Subscription
      Certificate") and payment to the Subscription Agent by the Expiration
      Date, or


o     If your shares are held in an account with your broker-dealer, trust
      company, bank or other nominee, have your broker-dealer, trust company,
      bank or other nominee deliver a notice of
- -------------------------------------------------------------------------------


                                      2
<PAGE>


- -------------------------------------------------------------------------------
      guaranteed delivery ("Notice of Guaranteed Delivery") to the Subscription
      Agent by the Expiration Date.


Subscription Agent

The Subscription Agent for the Offer is:


Computershares Shareholder Services, Inc.
161 Bay State Drive
Braintree, MA 02184


Restrictions on Foreign Stockholders

The Fund will not mail Subscription Certificates to Record Date Stockholders
whose record addresses are outside the United States (for these purposes, the
United States includes its territories and possessions and the District of
Columbia). The Subscription Agent will hold the Rights to which those
Subscription Certificates relate for such Stockholders' accounts until
instructions are received to exercise the rights, subject to applicable law.
If no instructions have been received by 5:00 p.m., New York City time, on
[________], 2005, three business days prior to the Expiration Date (or, if the
subscription period is extended, on or before three business days prior to the
extended Expiration Date), the Subscription Agent will transfer the Rights of
these Stockholders to the Dealer Manager, which will either purchase the
Rights or use its best efforts to sell the Rights. The net proceeds, if any,
from the sale of those Rights by or to the Dealer Manager will be remitted to
these Stockholders. See "The Offer--Foreign Stockholders."

Distribution Arrangements


UBS Securities LLC will act as Dealer Manager for the Offer. Under the terms
and subject to the conditions contained in a Dealer Manager Agreement between
the Fund, the Manager and the Dealer Manager, the Dealer Manager will provide
financial advisory services and marketing assistance in connection with the
Offer and will solicit the exercise of Rights and participation in the
over-subscription privilege by Record Date Stockholders. The Offer is not
contingent upon any number of Rights being exercised. The Fund has agreed to
pay the Dealer Manager a fee for financial advisory, marketing and soliciting
services equal to 3.75% of the Subscription Price per Share for Shares issued
pursuant to the exercise of Rights and the over-subscription privilege. The
Dealer Manager will reallow a part of its fees to other broker-dealers that
have assisted in soliciting the exercise of Rights. The Fund has also agreed
to pay the Dealer Manager up to $100,000 as a partial reimbursement for its
expenses incurred in connection with the Offer. The Fund and the Manager have
also agreed to indemnify the Dealer Manager against certain liabilities under
the Securities Act of 1933, as amended (the "1933 Act"). See "The
Offer--Distribution Arrangements."


IMPORTANT DATES TO REMEMBER

<TABLE>
<CAPTION>
<S>                                                                          <C>
Record Date                                                                  [______________]

Subscription Period                                                          [______________]--
                                                                               [______________]*

Expiration Date                                                              [______________]*

Deadline for Subscription Certificates and Payment for Shares+               [______________]*

Deadline for Notice of Guaranteed Delivery+                                  [______________]*

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


                                      3
<PAGE>


- -------------------------------------------------------------------------------
Deadline for Payment Pursuant to Notice of Guaranteed Delivery               [______________]*

Confirmation Mailed to Exercising Rights Holders                             [______________]*

Final Payment for Shares**                                                   [______________]*
</TABLE>

- ----------
*  Unless the Offer is extended.
+  A person exercising Rights must deliver either (i) a Subscription
   Certificate and payment for Shares or (ii) a Notice of Guaranteed Delivery
   by the Expiration Date, unless the Offer is extended.
** Additional amount due (in the event the Subscription Price exceeds the
   estimated Subscription Price).

THE FUND AT A GLANCE

The Fund

The Fund is a non-diversified, closed-end management investment company
organized as a Maryland corporation. As of [________], 2005, the Fund's net
asset value per share ("NAV") was $[______]. See "The Fund."

NYSE Listed


As of [_____], 2005, the Fund had 15,846,384 Shares of Common Stock
outstanding. The Fund's Common Stock is traded on the NYSE under the symbol
"JOF." As of [_____], 2005, the last reported sales price of a Share of the
Fund was $[_____]. The Rights are transferable and the Fund will apply to list
the Rights for trading on the NYSE under the symbol "JOF.RT" during the course
of the Offer. See "The Fund--Description of Common Stock."


Investment Objective

The Fund's investment objective is to provide stockholders with long-term
capital appreciation primarily through investments in smaller capitalization
companies in Japan (as determined in accordance with the Fund's investment
policies). No assurance can be given that the Fund's investment objective will
be achieved. See "Investment Objective and Policies."

Investment Policies

The Fund will, under normal market conditions, invest at least 80% of its
total assets in smaller capitalization Japanese equity securities traded on
the Tokyo, Osaka, Nagoya and JASDAQ Stock Exchanges and Mothers, Hercules and
Centrex markets, and included or traded on other indices or markets, as
applicable, determined by the Manager to be appropriate indices or markets for
smaller capitalization companies in Japan ("Smaller Capitalization
Companies"). This investment policy is a fundamental policy which may only be
changed by a stockholder vote.


Currently, the Manager considers Smaller Capitalization Companies to be those
companies whose equity securities are included, at the time of purchase, in
the RUSSELL/NOMURA Small Cap(TM) Index (the "RN Small Cap Index") and certain
other companies that are not represented in the RN Small Cap Index. The RN
Small Cap Index measures the performance of small companies in Japan and
currently consists of approximately 1,300 of the equity securities of the
smallest companies included in the RUSSELL/NOMURA Total Market(TM) Index (the
"RN Total Index"), representing the bottom 15% of the total market
capitalization of the RN Total Index. The RN Total Index is currently
comprised of approximately 1,700 of the largest Japanese equity securities as
determined by total market capitalization

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


                                      4
<PAGE>


- -------------------------------------------------------------------------------
(in terms of adjusted market capitalization) and measures the performance of
the broad Japanese equity market. The bottom 2% of total Japanese equity
market (in terms of adjusted market capitalization) are not included in the RN
Total Index and therefore are not included in the RN Small Cap Index. However,
because the companies who belong to such bottom 2% have small market
capitalizations, the Manager considers these companies to be Smaller
Capitalization Companies. See "Investment Objective and Policies" and "Risk
Factors and Special Considerations--Risks Relating to the Fund's Operations."
included in the RN Small Cap Index. See "Investment Objective and Policies"
and "Risk Factors and Special Considerations--Risks Relating to the Fund's
Operations."


The Fund is a non-diversified fund for purposes of the Investment Company Act
of 1940, as amended (the "1940 Act"). See " Investment Restrictions."

Manager and Investment Adviser

Nomura Asset Management U.S.A. Inc. acts as the Fund's Manager and its parent,
Nomura Asset Management Co., Ltd. (the "Investment Adviser"), acts as the
Fund's investment adviser pursuant to a contract with the Manager. The Manager
and the Investment Adviser (including its predecessor) have served in these
capacities since the Fund commenced operations in 1990. The Manager and the
Investment Adviser are affiliated with Nomura Securities Co., Ltd., the
largest securities company in Japan. The Manager and the Investment Adviser,
together with their affiliates, had approximately $154 billion in assets under
management as of September 30, 2005. See "Management and Investment Advisory
Arrangements."

Compensation of the Manager and the Investment Adviser

As compensation for its services to the Fund pursuant to the Management
Agreement, the Manager receives a monthly fee at the annual rate of 1.10% of
the value of the Fund's average weekly net assets (i.e., the average weekly
value of the total assets of the Fund minus the sum of accrued liabilities of
the Fund) not in excess of $50 million, 1.00% of the Fund's average weekly net
assets in excess of $50 million but not in excess of $100 million, 0.90% of
the Fund's average weekly net assets in excess of $100 million but not in
excess of $175 million and 0.80% of the Fund's average weekly net assets in
excess of $175 million.

For services performed under the Investment Advisory Agreement, the Investment
Adviser receives a monthly fee from the Manager at the annual rate of 0.50% of
the Fund's average weekly net assets not in excess of $50 million, 0.45% of
the Fund's average weekly net assets in excess of $50 million but not in
excess of $100 million, 0.40% of the Fund's average weekly net assets in
excess of $100 million but not in excess of $175 million and 0.35% of the
Fund's average weekly net assets in excess of $175 million.

The Manager and the Investment Adviser will benefit from the Offer because
their fees are based on the net assets of the Fund. See "Management and
Investment Advisory Arrangements--Compensation and Expenses."

Custodian

Brown Brothers Harriman & Co. acts as the Fund's custodian.

Transfer Agent, Dividend-Paying Agent and Registrar

EquiServe Trust Company, N.A. acts as the Fund's dividend-paying agent and as
transfer and service agent and registrar for the Fund's Common Stock and
Dividend Reinvestment Plan.

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


                                      5
<PAGE>


- -------------------------------------------------------------------------------
RISK FACTORS AND SPECIAL CONSIDERATIONS AT A GLANCE

YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS, AS WELL AS THE OTHER
INFORMATION IN THIS PROSPECTUS, BEFORE MAKING AN INVESTMENT IN THE FUND UNDER
THIS OFFER.

AS A RESULT OF THIS OFFER, YOU MAY INCUR IMMEDIATE ECONOMIC DILUTION AND, IF
YOU DO NOT EXERCISE ALL OF YOUR RIGHTS, YOU WILL INCUR VOTING DILUTION.

To the extent that the number of shares outstanding after the Offer increases
proportionately more than the increase in the size of the Fund's net assets,
you will, at the completion of the Offer, experience immediate dilution of
NAV. In addition, if the Subscription Price for the Offer is less than the
Fund's NAV, you would experience additional immediate dilution of NAV as a
result of the Offer. If the Subscription Price is substantially less than the
current NAV at the expiration of the Offer, such dilution could be
substantial. In addition, whether or not you exercise your Rights, you will
experience a dilution of NAV because you will indirectly bear the expenses of
this Offer, which include, among other items, SEC registration fees, printing
expenses and the fees assessed by service providers (including the cost of the
Fund's counsel and independent registered public accounting firm). This
dilution of NAV will disproportionately affect Stockholders who do not
exercise their Rights. We cannot state precisely the amount of any decrease
because we do not know at this time how many shares will be subscribed for or
what the NAV and Subscription Price will be at the pricing date. For example,
assuming (i) a NAV of $[__] (the Fund's approximate NAV on [__], 2005), (ii) a
subscription price of $[__] (which is [__]% of the Fund's market price on
[__], 2005) and (iii) that all Rights are exercised at the estimated
subscription price, the Fund's NAV (after payment of estimated expenses) would
be reduced by approximately $[__] per share. As of [__], 2005, the Fund's NAV
was $[__].


In addition to the economic dilution described above, if you do not exercise
all of your Rights, you will incur voting dilution as a result of this Offer.
This voting dilution will occur because you will own a smaller proportionate
interest in the Fund after the Offer than you owned prior to the Offer.


The fact that the Rights are transferable may reduce the effects of economic
dilution as a result of the Offer. Rights Holders can transfer or sell their
Rights. The cash received from the sale of Rights is partial compensation for
any such possible dilution. There can be no assurance, however, that a market
for the Rights will develop or that the Rights will have any value in that
market.


See "Risk Factors and Special Considerations--Risks Relating to the Offer--You
may incur immediate economic dilution, and if you do not exercise all of your
Rights, you will incur voting dilution."


YOU MAY LOSE MONEY BY INVESTING IN THE FUND.

An investment in the Fund is not a deposit in a bank and is not insured or
guaranteed by the U.S. Federal Deposit Insurance Corporation or any other
governmental agency.

Among the principal risks of investing in the Fund is market risk, which is
the risk that the value of your investment may fluctuate as stock markets in
Japan fluctuate.


As an investment company that primarily holds common stocks, the Fund's
portfolio is subject to the possibility that common stock prices will decline
over short or even extended periods. The Fund may remain substantially
invested during periods when stock prices generally rise and also during
periods when they generally decline. Risks are inherent in investments in
equities, and Fund stockholders should be able to tolerate significant
fluctuations in the value of their investment in the Fund.


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


                                      6
<PAGE>


- -------------------------------------------------------------------------------
See "Risk Factors and Special Considerations--Risks Relating to the Offer--You
may lose money by investing in the Fund."

INVESTING IN JAPAN INVOLVES CERTAIN RISKS AND SPECIAL CONSIDERATIONS NOT
TYPICALLY ASSOCIATED WITH INVESTING IN U.S. COMPANIES.

Investing in Japanese securities involves certain risks and special
considerations not typically associated with, or different from considerations
associated with, investing in the securities of established U.S. companies,
including:

      o     abrupt or unexpected changes to the government;

      o     different corporate disclosure, regulatory and governance
            standards;

      o     potential difficulty in enforcing judgments;

      o     currency exchange rate fluctuations, which may increase the cost
            associated with conversion of investment principal and income from
            one currency to another; and

      o     different laws regarding the custody of foreign securities.

These risks are described in more detail under "Risk Factors and Special
Considerations--Risks Relating to the Fund's Operations--Political factors in
Japan may adversely affect the Fund's performance;" "--The Japanese economy is
affected by different factors than the U.S. economy;" "--Japan has different
corporate disclosure, governance and regulatory requirements than you may be
familiar with in the United States;" "--The Fund may have difficulty enforcing
foreign judgments against Japanese companies or their management;" "--Foreign
currency fluctuations could adversely affect the Fund's performance;" "--If
the Fund repatriates investments during exchange rate fluctuations, it may
have an adverse impact on the Fund's performance;" "--Investments in small
capitalization Japanese companies may expose the Fund to greater investment
risk;" "--The Fund's ability to hedge against foreign currency risks may
adversely affect the Fund's net asset value;" and "--Japan has different laws
regarding the custody of foreign securities than you may be familiar with in
the United States."

THE FOCUS OF THE FUND'S INVESTMENTS IN SPECIFIC ECONOMIC SECTORS AND RELATED
INDUSTRIES MAY EXPOSE IT TO GREATER RISK OF LOSS WITH RESPECT TO ITS PORTFOLIO
SECURITIES.


From time to time, the Fund may invest a greater proportion of its assets in
the securities of companies that are part of specific sectors and related
industries of the Japanese economy. For example, at August 31, 2005, the Fund
maintained 29.8% of its total assets in the securities of Japanese companies
in the automotive equitment and parts, machinery and machine tools and
miscellaneous manufacturing sectors. The Fund is therefore subject to greater
risk of loss with respect to its portfolio securities as a result of its focus
on such sectors and related industries. See "Risk Factors and Special
Considerations--Risks Relating to the Fund's Operations--The focus of the
Fund's investments in specific economic sectors and related industries may
expose it to greater risk of loss with respect to its portfolio securities."


INVESTMENTS IN SMALL CAPITALIZATION JAPANESE COMPANIES MAY EXPOSE THE FUND TO
GREATER INVESTMENT RISK.


The Fund invests a substantial portion of its assets in the securities of
Japanese Smaller Capitalization Companies. Investments in the securities of
these companies may present greater opportunities for

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


                                      7
<PAGE>


- -------------------------------------------------------------------------------
growth, but also involve greater risks than are customarily associated with
investments in securities of more established and larger capitalized
companies. The securities of Smaller Capitalization Companies have fewer
market makers and wider price spreads, which may in turn result in more abrupt
and erratic market price movements and make the Fund's investments more
vulnerable to adverse general market or economic developments than would
investments only in large, more established Japanese companies. It is more
difficult to obtain information about smaller capitalization companies because
they tend to be less well known and have shorter operating histories and
because they tend not to have significant ownership by large investors or be
followed by many securities analysts. See "Risk Factors and Special
Considerations--Investments in small capitalization Japanese companies may
expose the Fund to greater investment risk."


THERE ARE NO FIXED LIMITATIONS REGARDING PORTFOLIO TURNOVER.


Frequency of portfolio turnover is not a limiting factor if the Fund considers
it advantageous to purchase or sell securities. The Fund anticipates that its
annual portfolio turnover rate will not exceed 100%. For the fiscal year ended
February 28, 2005, the Fund's portfolio turnover rate was 86%. A high rate of
portfolio turnover involves correspondingly greater aggregate payments for
brokerage commissions, which expenses must be borne by the Fund and its
stockholders. In addition, a high rate of portfolio turnover may result in
certain tax consequences, such as increased capital gain dividends and/or
ordinary income dividends. See "Risk Factors and Special Considerations--Risks
Relating to the Fund's Operations--There are no fixed limitations regarding
portfolio turnover."


THE FUND'S ABILITY TO HEDGE AGAINST FOREIGN CURRENCY RISKS MAY ADVERSELY
AFFECT THE FUND'S NET ASSET VALUE.


The Fund may engage in a variety of foreign currency exchange transactions.
Hedging involves special risks, including possible default by the other party
to the transaction, illiquidity and, to the extent the Manager's and the
Investment Adviser's view as to certain market movements is incorrect, the
risks that the use of hedging could result in losses greater than if they had
not been used. The Fund has not previously entered into transactions to hedge
against foreign currency risks. However, if the Fund does enter into any such
transactions, the Fund, will deposit in a segregated account with its
custodian, liquid securities or cash or cash equivalents or other assets
permitted to be so segregated by the SEC in an amount equal to or greater than
the market value of the liabilities under any such foreign currency hedging
agreements. 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. See "Investment Objective and
Policies--Other Investment Policies--Hedging Foreign Currency Risks;" and
"Risk Factors and Special Considerations--Risks Relating to the Fund's
Operations--The Fund's ability to hedge against financial risks may adversely
affect the Fund's net asset value."


IF THE FUND FAILS TO QUALIFY AS A REGULATED INVESTMENT COMPANY, THE FUND WILL
BE TAXED AS A CORPORATION.

If in any taxable year the Fund fails to qualify as a regulated investment
company under the U.S. Internal Revenue Code of 1986, as amended (the "Code"),
the Fund will be taxed in the same manner as an ordinary corporation and
distributions to its Stockholders will not be deductible by the Fund in
computing its taxable income. In addition, in the event of a failure to
qualify, the Fund's distributions, to the extent derived from the Fund's
current or accumulated earnings and profits, will constitute dividends
(eligible for the corporate dividends-received deduction) which are taxable to
Stockholders as ordinary income, even though those distributions might
otherwise (at least in part) have been treated in the Stockholders' hands as
long-term capital gains. See "Taxation--U.S. Tax Status;" and "Risk Factors
and Special

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


                                      8
<PAGE>


- -------------------------------------------------------------------------------
Considerations--Risks Relating to the Fund's Operations--If the Fund fails to
qualify as a regulated investment company the Fund will be taxed as a
corporation."

THE FUND'S SHARES HAVE TRADED AND MAY IN THE FUTURE TRADE AT A DISCOUNT TO NET
ASSET VALUE.


Although the Fund's shares of Common Stock have recently traded on the NYSE at
a premium to their NAV, the Fund's shares have in the past traded at a
discount to their NAV. There can also be no assurance that the Fund's shares
will trade at a premium in the future or that the present premium is
sustainable. The Fund's shares have traded at discounts of as much as 29.4% in
the past five years. See "Risk Factors and Special Considerations--Risks
Relating to the Fund's Operations--The Fund's shares have traded and may trade
in the future at a discount to net asset value."


THE FUND'S STATUS AS A "NON-DIVERSIFIED" INVESTMENT COMPANY MAY EXPOSE IT TO
GREATER RISK OF LOSS WITH RESPECT TO ITS PORTFOLIO SECURITIES.

The Fund is classified as a "non-diversified" management investment company
under the 1940 Act, which means that the Fund is not limited by the 1940 Act
as to the proportion of its assets that may be invested in the securities of a
single issuer. As a non-diversified investment company, the Fund may invest a
greater proportion of its assets in the obligations of a smaller number of
issuers and, as a result, will be subject to greater risk with respect to its
portfolio securities. As a result, the Fund may be more susceptible to any
single economic, political or regulatory occurrence than would be the case if
it had elected to diversify its holdings sufficiently to be classified as a
"diversified" management investment company. See "Taxation--U.S. tax status;"
and "Risk Factors and Special Considerations--Risks Relating to the Fund's
Operations--The Fund's status as a "non-diversified" investment company may
expose it to greater risk of loss with respect to its portfolio securities."

CERTAIN PROVISIONS OF THE MARYLAND GENERAL CORPORATION LAW AND PROVISIONS IN
THE FUND'S CHARTER AND BYLAWS MAY HAVE THE EFFECT OF DEPRIVING YOU OF AN
OPPORTUNITY TO SELL YOUR SHARES AT A PREMIUM.

The Fund's Charter and Bylaws and the Maryland General Corporation Law (the
"MGCL") include provisions that could limit the ability of other persons to
acquire control of the Fund, to convert the Fund to an open-end investment
company or to change the composition of the Fund's Board of Directors. The
Fund has adopted measures that may make it difficult for another person or
entity to obtain control of the Fund.


Additionally, Charter provisions include various supermajority vote
requirements (which require the vote of 75 percent of outstanding shares in
certain circumstances) to approve extraordinary corporate actions such as a
merger or consolidation, the sale of all or substantially all of the Fund's
assets, the liquidation or dissolution of the Fund and certain Charter
amendments.


The foregoing provisions may be regarded as "anti-takeover" provisions and may
have the effect of depriving Stockholders of an opportunity to sell their
shares at a premium over prevailing market prices. See "Capital Stock--Certain
Provisions of Maryland General Corporation Law and the Charter and Bylaw;" and
"Risk Factors and Special Considerations--Risks Relating to the Fund's
Operations-- Certain provisions of the Maryland General Corporation Law and
provisions in the Fund's Charter and Bylaws may have the effect of depriving
you of an opportunity to sell your Shares at a premium."

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


                                      9
<PAGE>


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

THE OPERATING EXPENSES OF THE FUND MAY BE HIGHER THAN INVESTMENT COMPANIES
THAT INVEST PRIMARILY IN THE SECURITIES OF U.S. COMPANIES.


The Fund's estimated annual operating expenses may be higher than those of
most other investment companies that invest predominately in the securities of
U.S. companies. In addition, brokerage commissions, custodial fees and other
fees are generally higher for investments in foreign securities markets. As a
result of these higher expected operating expenses, the Fund needs to generate
higher relative returns to provide investors with an equivalent economic
return. See "Fund Expenses" and "Risk Factors and Special
Considerations--Risks Relating to the Fund's Operations--The operating
expenses of the Fund are higher than investment companies that invest
primarily in the securities of U.S. companies."




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


                                      10
<PAGE>


- -------------------------------------------------------------------------------
                                 FUND EXPENSES

<TABLE>
<CAPTION>
Stockholder transaction expenses
<S>                                                                                             <C>
     Sales load (as a percentage of the subscription price)(1)...................................  %
     Dividend Reinvestment Plan fees.............................................................  None

                                                                                        (as a percentage of net assets
                                                                                          attributable to the common
                                                                                                   stock)(2)
- ---------------------------------------------------------------------------------------------------------------
Annual expenses
      Management fee.......................................................................      ___%
      Other expenses ......................................................................      ___%

      Total annual expenses(3) ............................................................      ___%
</TABLE>


(1)   The Fund has agreed to pay the Dealer Manager for its financial
      advisory, marketing and soliciting services a fee equal to 3.75% of the
      aggregate subscription price for the Shares issued pursuant to the Offer
      and to reimburse the Dealer Manager in part for its out-of-pocket
      expenses up to $100,000. In addition, the Fund has agreed to pay a fee
      to each of the Subscription Agent and the Information Agent estimated to
      be $[_________] and $[____], respectively, plus reimbursement for their
      out-of-pocket expenses related to the Offer. Total offering expenses are
      estimated to be $[_____], which assumes that the Offer is fully
      subscribed. These fees will be borne by the Fund and indirectly by all
      of the Fund's Stockholders, including those who do not exercise their
      Rights. See "Distribution Arrangements."

(2)   Fees payable under the Management Agreement are calculated on the basis
      of the Fund's average weekly net assets. See "Management and Investment
      Advisory Arrangements". "Other expenses" have been estimated by
      annualizing actual expenses through the second fiscal quarter.
(3)   [The indicated [___]% expense ratio assumes that the Offer is fully
      subscribed, yielding estimated net proceeds of approximately $[_____]
      (assuming a subscription price of $[____] as of [_____________]), and
      that, as a result, based on the Fund's net assets of $[_______] on
      [__________], the net assets attributable to Stockholders would be
      $[_______] upon completion of the Offer.] It also assumes that net
      assets attributable to Stockholders will not increase or decrease due to
      currency fluctuations.

The above table is intended to assist the Fund's investors in understanding
the various costs and expenses associated with investing in the Fund through
the exercise of Rights.

                             Hypothetical example

An investor would directly or indirectly pay the following expenses on a
$1,000 investment in the Fund, assuming a 5% annual return:

    1 Year              3 Years               5 Years              10 Years
- -------------------------------------------------------------------------------
      $                    $                     $                     $

This hypothetical example assumes that all dividends and other distributions
are reinvested at NAV and that the percentage amounts listed under "Annual
expenses" above remain the same in the years shown. The above tables and the
assumption in the hypothetical example of a 5% annual return are required by
regulation of the SEC applicable to all investment companies; the assumed 5%
annual return is not a prediction of, and does not represent, the projected or
actual performance of the Fund's Shares. This hypothetical example reflects
all recurring and non-recurring fees, including payment of the [___]% sales
load and other expenses incurred in connection with the Offer. Each year's
figure includes all expenses of the Offer. For more complete descriptions of
certain of the Fund's costs and expenses, see "Management of the Fund" and
"Management and Investment Advisory Arrangements."

The hypothetical example should not be considered a representation of future
expenses or rate of return and actual Fund expenses may be greater or less
than those shown.


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


                                      11
<PAGE>

                             Financial Highlights


The following information, insofar as it relates to the year ended February
28, 2005, has been audited by [___________], the independent registered public
accounting firm for the Fund, whose report thereon was unqualified. Prior to
that time, the information was audited by a different independent registered
public accounting firm for the Fund, whose reports thereon were unqualified.
This information should be read in conjunction with the financial statements
and notes thereto incorporated by reference in this prospectus. See "Financial
Statements."


<TABLE>
<CAPTION>
                                      For the Six                                                          For the Year Ended
                                      Months Ended   ---------------------------------------------------------------------------
                                       August 31,    February     February                                            February
                                          2005          28,          29,                  February 28,                   29,
                                      ------------   --------     --------      -------------------------------       --------
                                      (unaudited)      2005         2004         2003         2002         2001         2000

<S>                                   <C>              <C>          <C>          <C>          <C>         <C>           <C>
Per share operating performance+
Net asset value, beginning of period      $11.59       $9.40        $5.74        $5.86        $7.59       $16.39        $5.86
                                      ------------   --------     --------      --------    --------    ---------     --------
  Net investment loss*...........          (0.01)     (0.06)       (0.03)       (0.05)       (0.06)       (0.09)       (0.11)
  Net realized and unrealized gain
  (loss) on investments and foreign
  currency.......................           0.75       2.25         3.69        (0.07)       (1.59)       (7.89)        11.99
                                      ------------   --------     --------      --------    --------    ---------     --------
Total from investment operations.           0.74       2.19         3.66        (0.12)       (1.65)       (7.98)        11.88
Distributions to Stockholders from:
  Net realized capital gains.....            --         --           --           --         (0.08)       (0.82)
  Net investment income .........            --         --           --           --           --           --           --
                                      ------------   --------     --------      --------    --------    ---------     --------
Total distributions..............           0.00       0.00         0.00        (0.00)       (0.08)       (0.82)        0.00
Net asset value, end of period+..         $12.33      $11.59        $9.40        $5.74        $5.86        $7.59       $16.39
                                      ============   ========     ========      ========    ========    =========     ========
Per share market value, end of
period...........................         $13.50      $12.20       $10.79        $6.38        $5.53        $6.89       $11.000
Total Investment Return+.........          10.7%       13.1%        69.1%        15.4%       (18.6%)      (31.1%)       76.0%
Ratio To Average Net Assets/
  Supplemental Data:
  Net assets, end of period (in
000s)                                    $195,335    $183,717     $149,012      $90,930      $92,815     $120,275     $259,766
  Ratio of operating expenses....          1.48%       1.54%        1.47%        1.63%        1.58%        1.33%        1.33%
  Ratio of net investment loss...         (0.16%)     (0.57%)      (0.41%)      (0.75%)      (0.84%)      (0.76%)      (0.88%)
  Portfolio turnover rate........           41%         86%          28%          28%          38%          78%          50%




<CAPTION>
                                                       For the Year Ended
                                      --------------------------------------------------
                                                                                February
                                                    February 28,                   29,
                                          -------------------------------       --------
                                           1999         1998         1997         1996

<S>                                        <C>          <C>          <C>          <C>
Per share operating performance
Net asset value, beginning of period       $4.85        $6.44        $7.82        $8.59
                                          --------    --------    --------      --------
  Net investment loss*...........         (0.04)       (0.06)       (0.09)       (0.07)
  Net realized and unrealized gain
(loss)
  on investments and foreign
currency.........................          1.06        (1.45)       (1.25)       (0.70)
                                          --------    --------    --------      --------
Total from investment operations.          1.02        (1.51)       (1.34)       (0.77)
Distributions to Stockholders from:
  Net realized capital gains.....
  Net investment income .........         (0.01)       (0.08)       (0.04)         --
                                          --------    --------    --------      --------
Total distributions..............         (0.01)       (0.08)       (0.04)        0.00
Net asset value, end of period...          $5.86        $4.85        $6.44        $7.82
                                          ========    ========    ========      ========
Per share market value, end of
period...........................         $6.250       $5.750       $6.375       $8.500
Total Investment Return+.........          8.8%        (8.5)%       (24.6%)      (1.4%)
Ratio To Average Net Assets/
  Supplemental Data:
  Net assets, end of period (in
000s)                                     $66,740      $55,246      $73,288      $88,966
  Ratio of operating expenses....          1.80%        1.71%        1.70%        1.47%
  Ratio of net investment loss...         (0.82%)      (1.00%)      (1.10%)      (0.83%)
  Portfolio turnover rate........           35%          29%          71%          79%
</TABLE>


+     Based on market value per share, adjusted for reinvestment of income
      dividends and long term capital gain distributions, and capital share
      transactions. Total return does not reflect sales commissions.
*     Based on average shares outstanding.
Note: Contained above is operating performance for a Share of Common Stock
      outstanding, total investment return, ratios to average net assets of
      Stockholders and other supplemental data for each of the periods
      indicated. This information has been determined based upon financial
      information provided in the financial statements and market value data
      for the Fund's Shares.


                                      12
<PAGE>


                                   THE OFFER

Purpose of the Offer

The Board of Directors of the Fund has determined that the Offer is in the
best interests of the Fund and its existing Stockholders because it represents
an opportunity to increase the assets of the Fund available for investment,
thereby enabling the Fund to take advantage more fully of existing and future
investment opportunities that may be or may become available, consistent with
the Fund's investment objective of long-term capital appreciation through
investment primarily in Smaller Capitalization Companies.

An increase in the assets of the Fund available for investment would enable
the Fund to be in a better position to take advantage of attractive investment
opportunities arising in the Japanese securities market. Due to a combination
of positive economic and securities market developments, the Board of
Directors and the Manager believe that now is an opportune time to raise Fund
assets for investment in Smaller Capitalization Companies. There is no
assurance that the investment of the proceeds of the Offer will be successful
or provide favorable returns.


In reaching its decision, the Board of Directors considered, among other
matters, (i) advice by the Manager and Investment Adviser that additional
assets would permit the Fund to take advantage of available investment
opportunities without having to sell portfolio securities that the Manager
believes should be held, (ii) the belief of the Manager and Investment Adviser
that current market opportunities are attractive in Smaller Capitalization
Companies and (iii) increasing the size of the Fund through the Offer may
result in certain economies of scale which could in turn lower the Fund's
expenses as a percentage of net assets. The Board of Directors and the
Managers also believe that an increase in the size of the Fund may result in a
modest reduction in the Fund's expense ratio. Furthermore, the Board of
Directors and the Manager believe that any resulting reduced expense ratio
would be of long-term benefit to the Fund and its Stockholders, and that a
well-subscribed rights offering could increase liquidity on the NYSE where
shares of the Fund's Common Stock are traded. There can be no assurance that
the Offer will be successful or that by increasing the size of the Fund, its
expense ratio will be lowered.


The Offer provides existing Stockholders the opportunity to purchase
additional Shares at a price below market price. The distribution to Record
Date Stockholders of transferable Rights, which may themselves have intrinsic
value, also will afford non-participating Record Date Stockholders the
potential of receiving cash payment upon the sale of the Rights, receipt of
which may be viewed as partial compensation for the economic dilution of their
interests. The Board of Directors also considered the impact of the Offer on
the Fund's NAV. For a discussion of the potential impact of the Offer on
current Stockholders, such as dilution, see "Risk Factors and Special
Considerations."

Structure of the Offer

The Board of Directors retained UBS Securities LLC, the Dealer Manager for the
Offer, to provide the Fund with financial advisory, marketing and soliciting
services relating to the Offer, including advice with respect to the
structure, timing and terms of the Offer. In determining the structure of the
Offer, the Board of Directors considered, among other things, using a fixed
pricing versus variable pricing mechanism, the benefits and drawbacks of
conducting a non-transferable versus a transferable rights offering, the
effect on the Fund and its existing Stockholders if the Offer is not fully
subscribed and the experience of the Dealer Manager in conducting rights
offerings.

ALTHOUGH THE FUND HAS NO PRESENT INTENTION TO DO SO, THE FUND MAY, IN THE
FUTURE AND IN ITS DISCRETION, CHOOSE TO MAKE ADDITIONAL RIGHTS OFFERINGS FROM
TIME TO TIME FOR A NUMBER OF SHARES AND ON TERMS WHICH MAY OR MAY


                                      13
<PAGE>

NOT BE SIMILAR TO THE OFFER. ANY SUCH FUTURE RIGHTS OFFERING WILL BE MADE IN
ACCORDANCE WITH THE 1940 ACT.

Terms of the Offer


The Fund is issuing to Record Date Stockholders transferable Rights to
subscribe for an aggregate of [__________] Shares. Each Record Date
Stockholder is being issued one transferable Right for each whole Share owned
on the Record Date. The Rights entitle each Record Date Stockholder to acquire
shares at the subscription price one Share for every [ ] Rights held (1-for-[
]). Rights may be exercised at any time during the subscription period, which
commences on [__________]], the Record Date, and ends at 5:00 p.m., New York
City time, on [__________], the Expiration Date, unless extended by the Fund.

The Rights will be listed for trading on the NYSE under the symbol "JOF.RT"
during the course of the Offer. Trading in the Rights on the NYSE is expected
to be conducted until the close of trading on the NYSE on the last business
day prior to the Expiration Date. See "The Offer--Sale of Rights." The Shares,
once issued, will be listed on the NYSE under the symbol "JOF." The Rights
will be evidenced by Subscription Certificates which will be mailed to Record
Date Stockholders, except as discussed below under "--Foreign Stockholders."


The Fund will not issue fractional Shares upon the exercise of Rights;
accordingly, Rights may be exercised only in multiples of
[-------].

The Rights are transferable. Rights Holders who are not Record Date
Stockholders may purchase Shares as described above (the "Primary
Subscription"), but are not entitled to subscribe for Shares pursuant to the
Over-Subscription Privilege (as defined below). Record Date Stockholders and
Rights Holders who purchase Shares in the Primary Subscription and Record Date
Stockholders who purchase Shares pursuant to the Over-Subscription Privilege
are hereinafter referred to as "Exercising Rights Holders."

Shares not subscribed for during the Primary Subscription will be offered, by
means of the Over-Subscription Privilege, to Record Date Stockholders who
fully exercise the Rights issued to them pursuant to the Offer (other than
those Rights to acquire less than one Share, which cannot be exercised) and
who wish to acquire more than the number of Shares they are entitled to
purchase pursuant to the exercise of their Rights, subject to certain
limitations and subject to allotment. Investors who are not Record Date
Stockholders are not entitled to subscribe for any Shares pursuant to the
Over-Subscription Privilege. See "--Over-Subscription Privilege" below.

For purposes of determining the number of Shares a Record Date Stockholder may
acquire pursuant to the Offer, broker-dealers, trust companies, banks or
others whose Shares are held of record by Cede & Co. ("Cede") or by any other
depository or nominee will be deemed to be the holders of the Rights that are
issued to Cede or the other depository or nominee on their behalf.

There is no minimum number of Rights which must be exercised in order for the
Offer to close.

SUBSCRIPTION PRICE

The subscription price for the Shares to be issued pursuant to the Offer will
be [[__]% of the average of the last reported sale prices of a Share on the
NYSE on the Expiration Date and the preceding four trading days]
("Subscription Price"). [For example, if the average of the last reported sale
prices of a Share on the NYSE on the Expiration Date and the preceding four
trading days is $[____] and the relevant average sale price on the NYSE is
$[____], the Subscription Price would be $[____] per Share ([__]% of market


                                      14
<PAGE>


price). Since the Expiration Date will be [__________] (unless the Fund
extends the subscription period), Rights Holders will not know the
Subscription Price at the time of exercise and will be required initially to
pay for both the Shares subscribed for pursuant to the Primary Subscription
and, if eligible, any additional Shares subscribed for pursuant to the
Over-Subscription Privilege at the estimated Subscription Price of $[____] per
Share.] See "--Payment for Shares" below. Rights Holders who exercise their
Rights will have no right to rescind a purchase after receipt of their
completed Subscription Certificates together with payment for Shares by the
Subscription Agent (as defined below). The Fund does not have the right to
withdraw the Rights or cancel the Offer after the Rights have been
distributed.


The Fund announced the terms of the Offer after the close of trading on the
NYSE on [__________]. The NAV at the close of business on [__________] (the
last trading date on which the Fund publicly reported its NAV prior to the
announcement) and on [__________] (the last trading date on which the Fund
publicly reported its NAV prior to the date of this prospectus) was $[____]
and $[____], respectively, and the last reported sale price of a Share on the
NYSE on those dates was $[____] and $[____], respectively.


OVER-SUBSCRIPTION PRIVILEGE

Shares not subscribed for by Rights Holders ("Excess Shares") will be offered,
by means of the over-subscription privilege (the "Over-Subscription
Privilege"), to the Record Date Stockholders who have fully exercised the
Rights issued to them and who wish to acquire more than the number of Shares
they are entitled to purchase pursuant to the Primary Subscription. Record
Date Stockholders should indicate on the Subscription Certificate, which they
submit with respect to the exercise of the Rights issued to them, how many
Excess Shares they are willing to acquire pursuant to the Over-Subscription
Privilege. If sufficient Excess Shares remain, all Record Date Stockholders'
over-subscription requests will be honored in full. If requests from Record
Date Stockholders for Shares pursuant to the Over-Subscription Privilege
exceed the Excess Shares available, the available Excess Shares will be
allocated pro-rata among Record Date Stockholders who oversubscribe based on
the number of Rights originally issued to such Record Date Stockholders. The
percentage of remaining Shares each over-subscribing Record Date Stockholder
may acquire will be rounded down to result in delivery of whole Shares. The
allocation process may involve a series of allocations to assure that the
total number of Shares available for over-subscriptions is distributed on a
pro-rata basis.

Banks, broker-dealers, trustees and other nominee holders of rights will be
required to certify to the Subscription Agent, before any Over-Subscription
Privilege may be exercised with respect to any particular beneficial owner, as
to the aggregate number of Rights exercised pursuant to the Primary
Subscription and the number of Shares subscribed for pursuant to the
Over-Subscription Privilege by such beneficial owner and that such beneficial
owner's Primary Subscription was exercised in full. Nominee Holder
Over-Subscription Forms and Beneficial Owner Certification Forms will be
distributed to banks, brokers, trustees and other nominee holders of rights
with the Subscription Certificates.

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

EXPIRATION OF THE OFFER

The Offer will expire at 5:00 p.m., New York City time, on [__________], the
Expiration Date, unless extended by the Fund.

announcement, the Fund will not, unless otherwise required by law, have any
obligation to publish, advertise or otherwise communicate any such
announcement other than by making a release to the Dow Jones News Service or
such other means of announcement as the Fund deems appropriate.



                                      15
<PAGE>


Any extension of the Offer will be followed as promptly as practicable by
announcement thereof, and in no event later than 9:00 a.m., New York City
time, on the next business day following the previously scheduled Expiration
Date. Without limiting the manner in which the Fund may choose to make such

SUBSCRIPTION AGENT


Computershare Shareholder Services, Inc. is the subscription agent (the
"Subscription Agent"). The Subscription Agent will receive for its
administrative, processing, invoicing and other services a fee estimated to be
approximately $[_________], plus reimbursement for all out-of-pocket expenses
related to the Offer.

Completed Subscription Certificates must be sent together with proper payment
of the Subscription Price for all Shares subscribed for in the Primary
Subscription and the Over-Subscription Privilege (for Record Date
Stockholders) to Computershare by one of the methods described below.
Alternatively, Notices of Guaranteed Delivery may be sent by facsimile to
(781) 380-3388 to be received by the Subscription Agent prior to 5:00 p.m.,
New York City time, on the Expiration Date. Facsimiles should be confirmed by
telephone at (781) 843-1833 ext. 200. The Fund will accept only properly
completed and executed Subscription Certificates actually received at any of
the addresses listed below, prior to 5:00 p.m., New York City time, on the
Expiration Date or by the close of business on the third business day after the
Expiration Date following timely receipt of a Notice of Guaranteed Delivery. See
"--Payment for Shares" below.

<TABLE>
<CAPTION>
                 Subscription Certificate
                      Delivery Method                                             Address/Number
- --------------------------------------------------------     ---------------------------------------------------

<S>                                                          <C>
By Notice of Guaranteed Delivery........................     Contact your broker-dealer, trust company, bank, or
                                                             other nominee to notify the Fund of your intent to
                                                             exercise the Rights.
By First Class Mail Only
     (No Overnight /Express Mail).......................     Japan Smaller Capitalization Fund, Inc.
                                                             c/o Computershare Shareholder Services, Inc.
                                                             Attention:  Corporate Actions
                                                             P.O. Box 859208
                                                             Braintree, MA 02185-9208

By Hand to New York Delivery Window.....................     Japan Smaller Capitalization Fund, Inc.
                                                             c/o Computershare Shareholder Services, Inc.
                                                             Attention:  Corporate Actions
                                                             17 Battery Place, 11th Floor
                                                             New York, New York 10004

By Express Mail or Overnight Courier....................     Japan Smaller Capitalization Fund, Inc.
                                                             c/o Computershare Shareholder Services, Inc.
                                                             Attention:  Corporate Actions
                                                             161 Bay State Drive
                                                             Braintree, MA 02184
</TABLE>


Delivery to an address other than one of the addresses listed above will not
constitute valid delivery.


                                      16
<PAGE>


INFORMATION AGENT

Any questions or requests for assistance concerning the method of subscribing
for Shares or for additional copies of this prospectus or Subscription
Certificates or Notices of Guaranteed Delivery may be directed to the
Information Agent at its telephone number and address listed below:


The Altman Group, Inc.
1200 Wall Street West, 3rd FL
Lyndhurst, New Jersey 07071
1(800) 814-0439


Stockholders may also contact their brokers or nominees for information with
respect to the Offer. The Information Agent will receive a fee estimated to be
$[______], plus reimbursement for its out-of-pocket expenses related to the
Offer.

SALE OF RIGHTS

The Rights are Transferable Until the Last Business Day Prior to the
Expiration Date


The Fund will apply to list the Rights for trading on the NYSE under the
symbol "JOF.RT" during the course of the Offer, subject to notice of issuance.
Trading in the Rights on the NYSE is expected to be conducted until the close
of trading on the NYSE on the last business day prior to the Expiration Date.
The Fund and the Dealer Manager will use their best efforts to ensure that an
adequate trading market for the Rights will exist, although no assurance can
be given that a market for the Rights will develop. Trading in the Rights on
the NYSE is expected to be conducted on a "when-issued" basis beginning on or
about [__________], until and including on or about [___________]. Thereafter,
the Rights are expected to trade on a "regular-way" basis until the last
business day prior to the Expiration Date (or if the Offer is extended, until
the last business day prior to the extended Expiration Date). Rights Holders
are encouraged to contact their broker, bank, trustee or other nominees for
more information about trading of the Rights.


Sales Through the Subscription Agent and Dealer Manager

Record Date Stockholders who do not wish to exercise any or all of their
Rights may instruct the Subscription Agent to sell any Rights they do not
intend to exercise themselves through or to the Dealer Manager. Subscription
Certificates evidencing the Rights to be sold through or to the Dealer Manager
must be received by the Subscription Agent on or before [_____________] (or if
the Offer is extended, until two business days prior to the Expiration Date).
Upon the timely receipt by the Subscription Agent of appropriate instructions
to sell Rights, the Subscription Agent will ask the Dealer Manager either to
purchase or to use its best efforts to complete the sale and the Subscription
Agent will remit the proceeds of the sale to the selling Record Date
Stockholders. If the Rights can be sold, sales of such Rights will be deemed
to have been effected at the weighted-average price received by the Dealer
Manager on the day such Rights are sold. The sale price of any Rights sold to
the Dealer Manager will be based upon the then current market price for the
Rights. The Dealer Manager will also attempt to sell all Rights which remain
unclaimed as a result of Subscription Certificates being returned by the
postal authorities to the Subscription Agent as undeliverable as of the fourth
business day prior to the Expiration Date. The Subscription Agent will hold
the proceeds from those sales for the benefit of such non-claiming Record
Date Stockholders until such proceeds are either claimed or revert to the
state. There can be no assurance that the Dealer Manager will purchase or be
able to complete the sale of any such Rights, and neither the Fund nor the
Dealer Manager has guaranteed any minimum sales price for the Rights. If a
Record Date Stockholder does not utilize the services of the Subscription
Agent and chooses to use another broker-



                                      17
<PAGE>

dealer or other financial institution to sell Rights, then the other
broker-dealer or financial institution may charge a fee to sell the Rights.

Other Transfers

The Rights evidenced by a Subscription Certificate may be transferred in whole
by endorsing the Subscription Certificate for transfer in accordance with the
accompanying instructions. A portion of the Rights evidenced by a single
Subscription Certificate (but not fractional Rights) may be transferred by
delivering to the Subscription Agent a Subscription Certificate properly
endorsed for transfer, with instructions to register such portion of the
Rights evidenced thereby in the name of the transferee and to issue a new
Subscription Certificate to the transferee evidencing such transferred Rights.
In such event, a new Subscription Certificate evidencing the balance of the
Rights, if any, will be issued to the Record Date Stockholder or, if the
Record Date Stockholder so instructs, to an additional transferee. The
signature on the Subscription Certificate must correspond to the name as set
forth upon the face of the Subscription Certificate in every particular,
without alteration or enlargement, or any change. A signature guarantee must
be provided by an eligible financial institution as defined in Rule 17Ad-15
under the Securities Exchange Act of 1934, as amended ("1934 Act"), subject to
the standards and procedures adopted by the Fund.

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

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

The Fund anticipates that the Rights will be eligible for transfer through,
and that the exercise of the Primary Subscription (but not the
Over-Subscription Privilege) may be effected through, the facilities of the
Depository Trust Company ("DTC"). Rights exercised through DTC are referred to
as "DTC Exercised Rights." Record Date Stockholders of DTC Exercised Rights
may exercise the Over-Subscription Privilege in respect of such DTC Exercised
Rights by properly executing and delivering to the Subscription Agent, at or
prior to 5:00 p.m., New York City time, on the Expiration Date, a Nominee
Holder Over-Subscription Certificate or a substantially similar form
satisfactory to the Subscription Agent, together with payment of the
Subscription Price for the number of Shares for which the Over-Subscription
Privilege is to be exercised.


                                      18
<PAGE>


METHODS FOR EXERCISING RIGHTS

Rights are evidenced by Subscription Certificates that, except as described
below under "--Foreign Stockholders," will be mailed to Record Date
Stockholders or, if a Record Date Stockholder's Shares are held by Cede or any
other depository or nominee on their behalf, to Cede or such depository or
nominee. Rights may be exercised by completing and signing the Subscription
Certificate that accompanies this prospectus and mailing it in the envelope
provided, or otherwise delivering the completed and signed Subscription
Certificate to the Subscription Agent, together with payment in full for the
Shares at the Subscription Price by the Expiration Date.

Rights may also be exercised by contacting your broker, Trustee or other
nominee, who can arrange, on your behalf, (1) to deliver a Notice of
Guaranteed Delivery prior to 5:00 p.m., New York City time, on the Expiration
Date and (2) to guarantee delivery of payment and delivery of a properly
completed and executed Subscription Certificate pursuant to a Notice of
Guaranteed Delivery by the close of business on the third Business day after
the Expiration Date. A fee may be charged for this service. Completed
Subscription Certificates and related payments must be received by the
Subscription Agent prior to 5:00 p.m., New York City time, on or before the
Expiration Date (unless payment is effected by means of a Notice of Guaranteed
Delivery as described below under "--Payment for Shares") at the offices of
the Subscription Agent at the address set forth above. Fractional Shares will
not be issued upon the exercise of Rights.

Exercising Rights Holders

Exercising Rights Holders who are holders of record may choose either option
set forth under "-- Payment for Shares" below. If time is of the essence, the
Manager, in its sole discretion, will permit delivery of the Subscription
Certificate and payment after the Expiration Date.

Record Date Stockholders Whose Shares are Held by a Nominee

Record Date Stockholders whose Shares are held by a nominee, such as a bank,
broker or trustee, must contact that nominee to exercise their Rights. In that
case, the nominee will complete the Subscription Certificate on behalf of the
Record Date Stockholder and arrange for proper payment by one of the methods
set forth under "--Payment for Shares" below.

Nominees

Nominees, such as brokers, trustees or depositories for securities, who hold
Shares for the account of others should notify the respective beneficial
owners of the Shares as soon as possible to ascertain the beneficial owners'
intentions and to obtain instructions with respect to the Rights. If the
beneficial owner so instructs, the nominee should complete the Subscription
Certificate and submit it to the Subscription Agent with the proper payment as
described under "--Payment for Shares" below.

All questions as to the validity, form, eligibility (including times of
receipt and matters pertaining to beneficial ownership) and the acceptance of
subscription forms and the Subscription Price will be determined by the Fund,
which determinations will be final and binding. No alternative, conditional or
contingent subscriptions will be accepted. The Fund reserves the right to
reject any or all subscriptions not properly submitted or the acceptance of
which would, in the opinion of the Fund's counsel, be unlawful.


                                      19
<PAGE>


FOREIGN STOCKHOLDERS

Subscription Certificates will not be mailed to Record Date Stockholders whose
record addresses are outside the United States (for these purposes, the United
States includes its territories and possessions and the District of Columbia)
(the "Foreign Stockholders"). Foreign Stockholders will receive written notice
of the Offer. The Subscription Agent will hold the Rights to which those
Subscription Certificates relate for these Stockholders' accounts until
instructions are received to exercise the Rights, subject to applicable law.
If no instructions have been received by 5:00 p.m., New York City time, on
[_______________], three business days prior to the Expiration Date (or, if
the subscription period is extended, on or before three business days prior to
the extended Expiration Date), the Subscription Agent will transfer the Rights
of these Stockholders to the Dealer Manager, which will either purchase the
Rights or use its best efforts to sell them. The net proceeds, if any, from
sale of those Rights will be remitted to these Stockholders.

PAYMENT FOR SHARES

Exercising Rights Holders may choose between the following methods of payment:

(1)   An Exercising Rights Holder may send the Subscription Certificate
      together with payment for the Shares acquired in the Primary
      Subscription and any additional Shares subscribed for pursuant to the
      Over-Subscription Privilege (for Record Date Stockholders) to the
      Subscription Agent based on the estimated Subscription Price of $[____]
      per Share ([__]% of $[____], the last reported sale price of a Share on
      the NYSE on [__________]). To be accepted, the payment, together with a
      properly completed and executed Subscription Certificate, must be
      received by the Subscription Agent at one of the Subscription Agent's
      offices set forth above, prior to 5:00 p.m., New York City time, on the
      Expiration Date.

(2)   An Exercising Rights Holder may have a bank, trust company or NYSE
      member send a Notice of Guaranteed Delivery by facsimile or otherwise
      guaranteeing delivery of (i) payment of the full Subscription Price for
      the Shares subscribed for in the Primary Subscription and any additional
      Shares subscribed for pursuant to the Over-Subscription Privilege (for
      Record Date Stockholders) and (ii) a properly completed and executed
      Subscription Certificate. The Subscription Agent will not honor a Notice
      of Guaranteed Delivery unless a properly completed and executed
      Subscription Certificate and full payment for the Shares is received by
      the Subscription Agent by the close of business on [________________]
      (or, if the Offer is extended, on the third business day after the
      Expiration Date).


All payments by an Exercising Rights Holder must be in U.S. dollars by money
order or check drawn on a bank or branch located in the United States and
payable to Computershare Shareholder Services, Inc. or to the Fund. The
Subscription Agent will deposit all funds received by it prior to the final
payment date into a segregated interest-bearing account (which interest will
accrue to the benefit of the Fund) pending proration and distribution of the
Shares.


The method of delivery of Subscription Certificates and payment of the
Subscription Price to the Fund will be at the election and risk of the
Exercising Rights Holders, but if sent by mail, it is recommended that such
Certificates and payments be sent by registered mail, properly insured, with
return receipt requested, and that a sufficient number of days be allowed to
ensure delivery to the Subscription Agent and clearance of payment prior to
5:00 p.m., New York City time, on the Expiration Date or the date guaranteed
payments are due under a Notice of Guaranteed Delivery (as applicable).
Because uncertified personal checks may take at least five business days to
clear,


                                      20
<PAGE>


you are strongly urged to pay, or arrange for payment, by means of certified
or cashier's check or money order.

On a date within eight business days following the Expiration Date
("Confirmation Date"), the Subscription Agent will send to each Exercising
Rights Holder (or, if Shares are held by Cede or any other depository or
nominee, to Cede or such other depository or nominee) a confirmation showing
(i) the number of Shares purchased pursuant to the Primary Subscription; (ii)
the number of Shares, if any, acquired pursuant to the Over-Subscription
Privilege (for Record Date Stockholders); (iii) the per Share and total
purchase price for the Shares; and (iv) any additional amount payable to the
Fund by the Exercising Rights Holder or any excess to be refunded by the Fund
to the Exercising Rights Holder, in each case based on the Subscription Price
as determined on the Expiration Date. If any Exercising Rights Holder, if
eligible, exercises his right to acquire Shares pursuant to the
Over-Subscription Privilege, any excess payment which would otherwise be
refunded to him will be applied by the Fund toward payment for Shares acquired
pursuant to the exercise of the Over-Subscription Privilege. Any additional
payment required from an Exercising Rights Holder must be received by the
Subscription Agent within ten business days after the Confirmation Date. Any
excess payment to be refunded by the Fund to an Exercising Rights Holder will
be mailed by the Subscription Agent to the Rights Holder as promptly as
practicable.

Whichever of the two methods described above is used, issuance of the Shares
purchased is subject to collection of checks and actual receipt of payment. If
an Exercising Rights Holder who subscribes for Shares pursuant to the Primary
Subscription or Over-Subscription Privilege (for Record Date Stockholders)
does not make payment of any amounts due by the Expiration Date or the date
guaranteed payments are due under a Notice of Guaranteed Delivery, the
Subscription Agent reserves the right to take any or all of the following
actions: (i) notify all other Record Date Stockholders to determine who will
subscribe for such subscribed and unpaid for Shares; (ii) apply any payment
actually received by it from the Exercising Rights Holder toward the purchase
of the greatest whole number of Shares which could be acquired by such
Exercising Rights Holder upon exercise of the Primary Subscription and/or the
Over-Subscription Privilege; and/or (iii) exercise any and all other rights or
remedies to which it may be entitled, including, without limitation, the right
to set off against payments actually received by it with respect to such
subscribed for Shares.

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

Exercising Rights Holders will have no right to rescind their subscription
after receipt of their payment for Shares by the Subscription Agent, except as
provided below under "--Notice of NAV Decline."

NOTICE OF NAV DECLINE

The Fund, as required by the SEC's registration form, will suspend the Offer
until it amends this prospectus if, subsequent to the effective date of this
prospectus, the Fund's NAV declines more than 10% from its NAV as of that
date. Accordingly, the Expiration Date would be extended and the Fund


                                      21
<PAGE>


would notify Record Date Stockholders of the decline and permit Exercising
Rights Holders to cancel their exercise of Rights.

DELIVERY OF STOCK CERTIFICATES

Certificates representing Shares acquired in the Primary Subscription will be
mailed promptly after the expiration of the Offer once full payment for such
shares has been received and cleared. Certificates representing Shares
acquired pursuant to the Over-Subscription Privilege will be mailed as soon as
practicable after full payment for such Shares has been received and cleared
and all allocations have been completed. Participants in the Fund's Dividend
Reinvestment Plan will have any Shares acquired in the Primary Subscription
and pursuant to the Over-Subscription Privilege credited to their accounts
under the Dividend Reinvestment Plan. Participants in the Fund's Dividend
Reinvestment Plan wishing to exercise Rights issued with respect to the Shares
held in their accounts under the Dividend Reinvestment Plan must exercise such
Rights in accordance with the procedures set forth above. Record Date
Stockholders whose shares are held of record by Cede & Co. FAST Automated
Securities Transfer Service ("Cede & Co. FAST") or by any other depository or
nominee on their behalf or their broker-dealer's behalf will have any Shares
acquired in the Primary Subscription credited to the account of Cede & Co.
FAST or such other depository or nominee. Shares acquired pursuant to the
Over-Subscription Privilege will be certificated, and certificates
representing such Shares will be sent directly to Cede & Co. FAST or such
other depository or nominee. Share Certificates will not be issued for Shares
credited to Dividend Reinvestment Plan accounts.

FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER

For U.S. Federal income tax purposes, neither the receipt nor the exercise of
the Rights by Record Date Stockholders will result in taxable income to such
Stockholders. If the Rights expire without exercise, no basis will be
allocated to such Rights, and the stockholder will not recognize any gain or
loss for U.S. Federal income tax purposes on such expiration.


A Record Date Stockholder's basis in a Right will be zero (and his basis in
his Shares will remain unchanged) unless either (i) the fair market value of
the Right on the date of distribution is 15% or more of the fair market value
of the Shares with respect to which the Right was distributed (which the Fund
does not expect to be the case) or (ii) the Record Date Stockholder elects, in
his or her Federal income tax return for the taxable year in which the Right
is received, to allocate part of the basis of the Shares to the Right. If
either of clauses (i) and (ii) is applicable, then if the Right is exercised,
the Record Date Stockholder will allocate his or her basis in the Shares with
respect to which the Right was distributed between the Shares and the Right in
proportion to the fair market values of each on the date of distribution.


The holding period of a Right received by a Record Date Stockholder includes
the holding period of the Shares with regard to which the Right is issued. If
the Right is exercised, the holding period of the Shares acquired begins on
the date the Right is exercised.

If a Right is sold, a gain or loss will be realized by the Rights Holder in an
amount equal to the difference between the basis of the Right sold and the
amount realized on its disposition.

A Record Date Stockholder's basis for determining gain or loss upon the sale
of a Share acquired upon the exercise of a Right will be equal to the sum of
the Record Date Stockholder's basis in the Right, if any, and the Subscription
Price. A Record Date Stockholder's gain or loss recognized upon a sale of a
Share acquired upon the exercise of a Right will depend on his basis in the
Share and the proceeds of the sale, will be capital gain or loss (assuming the
Share was held as a capital asset at the time of sale) and


                                      22
<PAGE>


will be long-term capital gain or loss if the Share is held for more than one
year. However, any loss recognized upon a sale of Shares held for six (6)
months or less will be treated as a long-term capital loss to the extent of
any capital gain distributions previously received by the Stockholder with
respect to such shares. Additionally, tax rules may disallow a loss to the
extent that the Stockholder purchases additional Stock (including by
reinvestment of distributions) within 30 days before or after the sale date.

The foregoing is a general summary of the material U.S. Federal income tax
consequences of the Offer under the provisions of the Code and Treasury
regulations in effect as of the date of the prospectus that are generally
applicable to Record Date Stockholders who are United States persons within
the meaning of the Code, and does not address any foreign, state or local tax
consequences. The Code and Treasury regulations are subject to change or
differing interpretations by legislative or administrative action, which may
be retroactive. Exercising Rights Holders should consult their tax advisors
regarding specific questions as to foreign, Federal, state or local taxes. For
a summary of certain tax consequences that may result to the Fund and its
Stockholders, see "Taxation."

ERISA CONSIDERATIONS

Stockholders who are employee benefit plans subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") (including corporate savings
and 401(k) plans), Keogh or H.R. 10 plans of self-employed individuals and
individual retirement accounts (collectively, "Retirement Plans") should be
aware that additional contributions of cash to a Retirement Plan (other than
rollover contributions or trustee-to-trustee transfers from other Retirement
Plans) in order to exercise Rights would be treated as contributions to the
Retirement Plan and, when taken together with contributions previously made,
may result in, among other things, excise taxes for excess or nondeductible
contributions. In the case of Retirement Plans qualified under Section 401(a)
of the Code and certain other Retirement Plans, additional cash contributions
could cause the maximum contribution limitations of Section 415 of the Code or
other qualification rules to be violated. It may also be a reportable
distribution and there may be other adverse tax and ERISA consequences if
Rights are sold or transferred by a Retirement Plan.

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

ERISA contains fiduciary responsibility requirements, and ERISA and the Code
contain prohibited transaction rules that may impact the exercise of Rights. A
Retirement Plan that exercises Rights will be deemed to represent and warrant
that such exercise will not constitute or result in a non-exempt prohibited
transaction under ERISA or Section 4975 of the Code. Due to the complexity of
these rules and the penalties for noncompliance, Retirement Plans should
consult with their counsel and other advisers regarding the consequences of
their exercise of Rights under ERISA and the Code.

DISTRIBUTION ARRANGEMENTS


UBS Securities LLC, a broker-dealer and member of the NASD, will act as Dealer
Manager for the Offer. Under the terms and subject to the conditions contained
in the Dealer Management Agreement, the Dealer Manager will provide financial
advisory and marketing services in connection with the Offer and will solicit
the exercise of Rights and participation in the Over-Subscription Privilege.
The Offer is not contingent upon any number of Rights being exercised. The
Fund has agreed to pay the Dealer Manager a fee for its financial advisory,
marketing and soliciting services equal to 3.75% of the aggregate Subscription
Price for Shares issued pursuant to the Offer.



                                      23
<PAGE>



The Dealer Manager will reallow to broker-dealers included in the selling
group to be formed and managed by the Dealer Manager selling fees equal to
2.50% of the Subscription Price for each Share issued pursuant to the Offer as
a result of their selling efforts. In addition, the Dealer Manager will
reallow to other broker-dealers that have executed and delivered a Soliciting
Dealer Agreement and have solicited the exercise of Rights, solicitation fees
equal to 0.50% of the Subscription Price for each Share issued pursuant to the
exercise of Rights as a result of their soliciting efforts, subject to a
maximum fee based on the number of Shares held by each broker-dealer through
DTC on the Record Date. Fees will be paid to the broker-dealer designated on
the applicable portion of the Subscription Certificates or, in the absence of
such designation, to the Dealer Manager.

In addition, the Fund has agreed to pay the Dealer Manager an amount up to
$100,000 as a partial reimbursement of its expenses incurred in connection
with the Offer. The Fund and the Manager have agreed to indemnify the Dealer
Manager or contribute to losses arising out of certain liabilities, including
liabilities under the 1933 Act. The Dealer Manager Agreement also provides
that the Dealer Manager will not be subject to any liability to the Fund in
rendering the services contemplated by the Dealer Manager Agreement except for
any act of bad faith, willful misconduct or gross negligence of the Dealer
Manager or reckless disregard by the Dealer Manager of its obligations and
duties under the Dealer Manager Agreement.


Prior to the expiration of the Offer, the Dealer Manager may independently
offer for sale Shares, including Shares acquired through purchasing and
exercising the Rights, at prices it sets which may be different from the
market price for such Shares or from the price to be received upon the
exercise of Rights. The Dealer Manager may realize profits or losses in
addition to and independent of any fees described in this prospectus.

CERTAIN EFFECTS OF THIS OFFER

The Fund's Manager and Investment Adviser will benefit from the Offer because
the management and investment advisory fees are based on the Fund's net
assets. For a description of these fees, see "Management and Investment
Advisory Arrangements." It is not possible to state precisely the amount of
additional compensation the Manager will receive as a result of the Offer
because it is not known how many Shares will be subscribed for and because the
proceeds of the Offer will be invested in additional portfolio securities,
which will fluctuate in value. However, assuming (i) all Rights are exercised,
(ii) the Fund's average monthly total net assets remain between $[_____] and
$[____] and (iii) the Subscription Price is $[____] per Share, and after
giving effect to the Dealer Manager fee and other expenses related to the
Offer, the Manager would receive additional annualized management fees of
$[_____]. One of the Fund's Directors who voted to authorize the Offer is an
interested person of the Manager and the Investment Adviser. The other
Directors who approved the Offer are not affiliated with the Manager or the
Investment Adviser.

                                USE OF PROCEEDS

The net proceeds of the Offer, assuming all Shares offered hereby are sold,
are estimated to be approximately $[ ], after deducting offering expenses
estimated to be $[ ]. The Manager and the Investment Adviser anticipate that
investment of the net proceeds of the Offer in accordance with the Fund's
investment objective and policies will take approximately thirty (30) days
after completion of the offering. However, the investment of the net proceeds
may take up to three months from completion of the offering, depending on
market conditions and the availability of appropriate securities. See "The
Offer--Purpose of the Offer," "Investment Objective and Policies" and
"Investment Restrictions." Pending such investment, it is anticipated that the
proceeds will be invested in yen-denominated or U.S.


                                      24
<PAGE>


dollar-denominated fixed-income securities and other permitted investments.
See "Investment Objective and Policies." These temporary investments will not
be consistent with the Fund's investment objective.

                                   THE FUND

The Fund was incorporated under the laws of the State of Maryland on January
25, 1990 and is registered with the SEC under the 1940 Act, as an investment
company. The Fund commenced operations on March 21, 1990. The Fund's principal
office is located at Two World Financial Center, Building B, New York, NY
10281. As of November 1, 2005, the Fund had net assets of approximately $217
million. The Manager and Investment Adviser are registered with the SEC under
the Investment Advisers Act of 1940, as amended.

The Fund is a non-diversified, closed-end management investment company.
Closed-end investment companies differ from open-end management investment
companies (commonly referred to as "mutual funds") because closed-end
investment companies have a fixed capital base and do not redeem shares at
NAV. Many closed-end funds trade on the NYSE. Mutual funds issue securities
redeemable at NAV at any time at the option of the stockholder and typically
engage in a continuous offering of their shares. For these reasons, mutual
funds are subject to periodic asset in-flows and out-flows that can complicate
portfolio management. Closed-end investment companies do not face the prospect
of having to liquidate portfolio holdings to satisfy redemptions at the option
of stockholders or to maintain cash positions to meet the possibility of
redemptions and can therefore remain fully invested.

The Fund's investment objective is to provide stockholders with long-term
capital appreciation primarily through investments in Smaller Capitalization
Companies. No assurance can be given that the Fund's investment objective will
be achieved.

DESCRIPTION OF COMMON STOCK

The Fund is authorized to issue 100,000,000 shares of Common Stock. All shares
of Common Stock have equal voting, dividend, distribution and liquidation
rights. The Shares outstanding are, and the Shares issuable upon the exercise
of the Rights, when issued and paid for pursuant to the terms of the Offer,
will be, fully paid and non-assessable. Shares are not redeemable and have no
preemptive rights, conversion rights, cumulative voting rights or appraisal
rights.


The number of Shares outstanding as of November 1, 2005  was 15,846,384. The
number of Shares adjusted to give effect to the Offer, assuming that all
Rights are exercised and the applicable Shares issued, would be [_________].

The Fund's Shares are publicly held and are listed and traded on the NYSE. The
following table sets forth for the quarters indicated the highest and lowest
daily intraday prices on the NYSE per Share, the highest and lowest closing
NAV and the highest and lowest registered premium or discount from NAV. The
table also sets forth the number of Shares traded on the NYSE during the
respective quarter.

<TABLE>
<CAPTION>
                                       NAV per               NYSE Market               Premium/
                                       Share (1)              Price (2)              (Discount)(3)
                                    ----------------- -----------------------  -----------------------
                                                                                                              NYSE
During Quarter Ended                High       Low        High         Low          Low          High       Volume(2)
- ------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>       <C>         <C>       <C>            <C>        <C>         <C>
February 28, 2003..........             $6.03     $5.45       $6.85     $5.92          17.40%     2.41%       2,938,800
May 31, 2003...............             $8.30     $5.32       $7.65     $5.98          23.78%     4.75%       2,502,800
August 31, 2003............             $7.68     $6.21       $9.40     $7.30          33.14%    12.94%       4,140,000


                                      25
<PAGE>


November 30, 2003..........             $9.51     $7.76      $11.55     $9.10          23.53%     6.81%       5,480,000
February 29, 2004..........             $9.53     $8.55      $10.90     $9.76          20.71%     9.00%       4,226,200
May 31 29, 2004............            $11.58     $9.44      $14.55    $10.50          28.84%     4.54%       9,300,000
August 31, 2004............            $11.45    $10.19      $13.35    $11.24          23.49%     7.77%       3,185,900
November 30, 2004..........            $10.83     $9.90      $12.59    $10.86          16.99%     4.04%       2,812,100
February 28, 2005..........            $11.59    $10.27      $12.67    $11.35          17.37%     0.00%       3,432,300
May 31, 2005...............            $11.80    $11.14      $12.40    $10.11           6.08%   (11.18)%      3,253,800
August 31, 2005............            $12.45    $11.12      $14.03    $10.47          12.69%    (8.88)%      4,194,500

</TABLE>
- ---------------------------
(1)   Source: Bloomberg L.P. Represents the highest and lowest NAV for the
      respective quarter based on the NAV calculated at the end of the
      business day.
(2)   Source: NYSE
(3)   Source: Bloomberg L.P. Represents the high/low premium or discount from
      NAV of the Shares for the respective quarter based on the Share price at
      the end of the business day.

At the close of business on [__________], the NAV was $[____] and the last
reported sale price of a Share on the NYSE was $[____], representing a [____]%
[discount/premium] from such NAV.


                                      26
<PAGE>


                       INVESTMENT OBJECTIVE AND POLICIES

The investment objective of the Fund is long-term capital appreciation, which
it seeks to achieve through investments in Japanese smaller capitalization
companies.

The Fund's investment objective and its policy to invest, under normal market
conditions, at least 80% of its total assets in smaller capitalization
Japanese equity securities traded on the Tokyo, Osaka, Nagoya and JASDAQ Stock
Exchanges and Mothers, Hercules and Centrex markets and included or traded on
other indices or markets, as applicable, determined by the Manager to be
appropriate indices or markets for smaller capitalization companies in Japan
("Smaller Capitalization Companies"). Neither the Fund's investment objective
nor its investment policy may be changed without the approval of the holders
of a majority of the outstanding Shares. A majority vote, as defined by the
1940 Act, means the affirmative vote of the lesser of (i) 67% of the Shares
represented at a meeting at which more than 50% of the outstanding Shares are
represented or (ii) more than 50% of the outstanding Shares)

Portfolio Structure


Under normal market conditions, at least 80% of the Fund's total assets are
invested in equity securities of Smaller Capitalization Companies. Currently,
the Manager considers Smaller Capitalization Companies to be those companies
whose equity securities are included, at the time of purchase, in the RN Small
Cap Index and certain other companies that are not represented in the RN Small
Cap Index. The RN Small Cap Index measures the performance of small companies
(in terms of adjusted market capitalization) and currently consists of
approximately 1,300 of the equity securities of the smallest companies
included in the RN Total Index, representing the bottom 15% of the total
market capitalization of the RN Total Index. The RN Total Index is currently
comprised of approximately 1,700 of the largest Japanese equity securities as
determined by total market capitalization (in terms of adjusted market
capitalization) and measures the performance of the broad Japanese equity
market. The bottom 2% of total Japanese equity market (in terms of adjusted
market capitalization) are not included in the RN Total Index and therefore
are not included in the RN Small Cap Index. However, because the companies who
belong to such bottom 2% have small market capitalizations, the Manager
considers these companies to be Smaller Capitalization Companies. Currently,
the largest of the Smaller Capitalization Companies in RN Total Index has an
approximate market capitalization of 241 billion yen (approximately US$2,084
million).

The Fund may invest its assets in a broad spectrum of industries. The Fund
seeks to identify and invest in companies it believes offer potential for
long-term capital appreciation. In evaluating prospective investments, the
Investment Adviser utilizes internal financial, economic and credit analysis
resources as well as information obtained from other sources. In selecting
industries and companies for investment, the Investment Adviser considers
overall growth prospects, financial conditions, competitive position,
technology, research and development, productivity, labor costs and sources,
profit margins, return on investment, structural changes in local economies,
capital resources, the degree of government regulation or deregulation,
management and other factors. There can be no assurance that the Fund will
realize its investment objective.


There are risks associated with investments in securities of Smaller
Capitalization Companies that are not customarily associated with investments
in securities of more established and larger capitalized companies. Although
the opportunities for growth may be greater with these companies, they also


                                      27
<PAGE>


involve greater risks. For example, they are more susceptible to abrupt and
erratic price movements and adverse general market and economic developments,
and it may be more difficult to obtain information about these companies
because they tend to be less well known and followed by fewer securities
analysts. See "Risk Factors and Special Considerations--Investments in
Japanese small capitalization companies may expose the Fund to greater
investment risk."

Securities of Smaller Capitalization companies are traded in a number of
separate markets in Japan that have been developed in response to increased
attention to this section of the securities market. At the time the Fund
commenced operations in 1990, securities of emerging Japanese companies were
traded primarily on the Japanese over-the-counter market and securities of
these companies were not generally eligible for listing on major securities
exchanges. See "Portfolio Transactions and Brokerage" for information
concerning the primary markets where equity securities of Smaller
Capitalization Companies are currently traded.

The Fund invests the balance of its assets not invested in Smaller
Capitalization Companies in yen-denominated or U.S. dollar-denominated
fixed-income securities. These fixed-income securities include non-convertible
preferred stock, debt securities, obligations issued or guaranteed by the U.S.
or Japanese government or their agencies or instrumentalities and money market
instruments (such as short term obligations issued or guaranteed by the U.S.
or Japanese government, commercial paper and time deposits, certificates of
deposit and bankers' acceptances of U.S. or Japanese banks).

Other Investment Policies

The Fund has adopted certain other policies as set forth below:

      o     Repurchase Agreements. Repurchase agreements are contracts
            pursuant to which the seller of a security agrees at the time of
            sale to repurchase the security at an agreed upon date and price
            in a specified currency, thereby determining the yield during the
            term of the agreement. When the Fund enters into a repurchase
            agreement, the seller is required to maintain the value of the
            securities subject to the repurchase agreement, marked to market
            daily, at not less than their repurchase price. This results in a
            fixed rate of return for the Fund that is insulated from market
            fluctuation during such period although the rate of return may be
            affected by currency fluctuations. Repurchase agreement may
            involve risks in the event of insolvency or other default by the
            seller, including possible delays or restrictions upon the Fund's
            ability to dispose of the underlying securities. In the event of a
            default under a repurchase agreement, the rate of return to the
            Fund would be dependent upon intervening fluctuations of the
            market value of such security and the accrued interest in the
            security. In such an event, the Fund would have rights against the
            seller for breach of contract with respect to any losses arising
            from market fluctuations following the failure of the seller to
            perform.

      o     Borrowings. The Fund is authorized to borrow money in amounts of
            up to 10% of the value of its total assets at the time of such
            borrowings. Borrowings by the Fund create an opportunity for
            greater return, however, at the same time, increase exposure to
            capital risk. In addition, borrowed funds are subject to interest
            costs that may offset or exceed the return earned on the borrowed
            funds.

      o     Hedging Foreign Currency Risks. The Fund is authorized to deal in
            forward foreign exchange between the U.S. dollar and the yen as a
            hedge against possible variations in the foreign exchange rate
            between these currencies. This is accomplished through contractual
            agreements to purchase or sell a specified currency at a specified
            future date (up to one year) and price at the time of the
            contract. The Fund's dealings in forward foreign exchange are
            limited to hedging involving either


                                      28
<PAGE>


            specific transactions or portfolio positions. The Fund does not
            intend to utilize hedging techniques to a significant extent.

            The Fund is also authorized to purchase or sell listed or OTC
            foreign currency options, foreign currency futures and related
            options on foreign currency futures as a short or long hedge
            against possible variations in foreign exchange rates. Such
            transactions may be effected with respect to hedges on non-U.S.
            dollar-denominated securities owned by the Fund, sold by the Fund
            but not yet delivered, or committed or anticipated to be purchased
            by the Fund.

            Hedging against a decline in the value of a currency does not
            eliminate fluctuations in the prices of portfolio securities or
            prevent losses if the prices of such securities decline, and it
            precludes the opportunity for gain if the value of the hedged
            currency should rise. Moreover, it may not be possible for the
            Fund to hedge against a devaluation that is so generally
            anticipated that the Fund is not able to contract to sell the
            currency at a price above the devaluation it anticipates. The cost
            to the Fund of engaging in foreign currency transactions varies
            with such factors as the currency involved, the length of the
            contract period and the market conditions then prevailing. Since
            transactions in foreign currency exchange are usually conducted on
            a principal basis, no fees or commissions are involved.


            Although certain risks are involved in options and futures
            transactions, the Fund believes that, because it is authorized to
            engage in options and futures transactions only for currency
            hedging purposes, the options and futures portfolio strategies of
            the Fund do not subject the Fund to certain risks frequently
            associated with speculation in options and futures transactions.
            As of the date of this prospectus, the Fund has not engaged in any
            options and futures transactions. However, if the Fund does enter
            into such transaction, the Fund, will deposit in a segregated
            account with its custodian, liquid securities or cash or cash
            equivalents or other assets permitted to be so segregated by the
            SEC in an amount equal to or greater than the market value of the
            liabilities under any such foreign currency hedging agreements.



                                      29
<PAGE>


                            INVESTMENT RESTRICTIONS

The Fund has elected to be classified as a non-diversified, closed-end
management investment company and will invest its assets only in a manner
consistent with this classification under applicable law.

The Fund has adopted the following restrictions and policies relating to the
investment of its assets and its activities, which are fundamental policies
and may not be changed without 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 (i) 67% of the Shares represented at a meeting at
which more than 50% of the outstanding Shares are represented or (ii) more
than 50% of the outstanding Shares). The Fund may not:

      1.    Make investments for the purpose of exercising control or
            management.

      2.    Purchase securities of other investment companies, except in
            connection with a merger, consolidation, acquisition or
            reorganization, or by purchase in the open market of securities of
            closed-end investment companies where no underwriter's or dealer's
            commission or profit, other than customary broker's commission, is
            involved and only if immediately thereafter not more than 10% of
            the Fund's total assets would be invested in such securities.

      3.    Purchase or sell real estate, commodities or commodity contracts;
            provided that the Fund may invest in securities secured by real
            estate or interests therein or issued by companies which invest in
            real estate or interests therein and the Fund may deal in forward
            foreign exchange and the Fund may purchase and sell financial and
            currency options, futures contracts and related options.

      4.    Issue senior securities or borrow amounts in excess of 10% of its
            total assets taken at value.

      5.    Underwrite securities of other issuers except insofar as the Fund
            may be deemed an underwriter under the 1933 Act in selling
            portfolio securities.

      6.    Make loans to other persons, except that the Fund may purchase
            debt securities and enter into repurchase agreements in accordance
            with its investment objective and policies.

      7.    Purchase any securities on margin, except that the Fund may obtain
            such short-term credit as may be necessary for the clearance of
            purchases and sales of portfolio securities (the deposit or
            payment by the Fund of initial or variation margin in connection
            with futures contracts and options transactions is not considered
            the purchase of a security on margin).

      8.    Make short sales of securities or maintain a short position or
            invest in put, call, straddle or spread options, except to the
            extent described herein.

      9.    Invest more than 25% of its total assets (taken at market value at
            the time of each investment) in securities of issuers in a single
            industry.

An additional investment restriction adopted by the Fund, which may be changed
by the Board of Directors, provides that the Fund may not mortgage, pledge,
hypothecate or in any manner transfer, as security for indebtedness, any
securities owned or held by the Fund except as may be necessary in connection
with borrowings mentioned in (4) above or except as may be necessary in
connection with futures and options transactions.


                                      30
<PAGE>


If a percentage restriction on investment policies or the investment or use of
assets set forth above is adhered to at the time a transaction is effected,
later changes in percentage resulting from changing values will not be
considered a violation.

                    RISK FACTORS AND SPECIAL CONSIDERATIONS

YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS AND THE OTHER INFORMATION IN
THIS PROSPECTUS BEFORE YOU DECIDE TO PARTICIPATE IN THIS OFFER. THE RISKS AND
UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES FACING THE FUND.
ADDITIONAL RISKS AND UNCERTAINTIES MAY ALSO ADVERSELY AFFECT AND IMPAIR THE
FUND. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, THE FUND'S OPERATIONS,
RESULTS OF OPERATIONS AND FINANCIAL CONDITION WOULD LIKELY SUFFER, WHICH IN
TURN COULD MATERIALLY ADVERSELY AFFECT YOUR INVESTMENT IN THE FUND.

RISKS RELATING TO THE OFFER

AS A RESULT OF THIS OFFER, YOU MAY INCUR IMMEDIATE ECONOMIC DILUTION AND, IF
YOU DO NOT EXERCISE ALL OF YOUR RIGHTS, YOU WILL INCUR VOTING DILUTION.

To the extent that the number of shares outstanding after the Offer will have
increased proportionately more than the increase in the size of the Fund's net
assets, you will, at the completion of the Offer, experience immediate
dilution of NAV. In addition, if the Subscription Price for the Offer is less
than the Fund's NAV, you would experience additional immediate dilution of NAV
as a result of the Offer. If the Subscription Price is substantially less than
the current NAV at the expiration of the Offer, such dilution could be
substantial. In addition, whether or not you exercise your Rights, you will
experience a dilution of NAV because you will indirectly bear the expenses of
this Offer, which include, among other items, SEC registration fees, printing
expenses and the fees assessed by service providers (including the cost of the
Fund's counsel and independent registered public accounting firm). This
dilution of NAV will disproportionately affect Stockholders who do not
exercise their Rights. We cannot state precisely the amount of any decrease
because we do not know at this time how many shares will be subscribed for or
what the NAV and Subscription Price will be at the pricing date. For example,
assuming (i) a NAV of $[__] (the Fund's approximate NAV on [__], 2005), (ii) a
subscription price of $[__] (which is [__]% of the Fund's market price on
[__], 2005) and (iii) that all Rights are exercised at the estimated
Subscription Price, the Fund's NAV (after payment of estimated expenses) would
be reduced by approximately $[__] per share. As of [__], 2005, the Fund's NAV
was $[__].


In addition to the economic dilution described above, if you do not exercise
all of your Rights, you will incur voting dilution as a result of this Offer.
This voting dilution will occur because you will own a smaller proportionate
interest in the Fund after the Offer than you owned prior to the Offer.


The fact that the Rights are transferable may reduce the effects of dilution
as a result of the Offer. Rights Holders can transfer or sell their Rights.
The cash received from the sale of Rights is partial compensation for any
possible dilution. There can be no assurances, however, that a market for the
Rights will develop or that the Rights will have any value in that market.

YOU MAY LOSE MONEY BY INVESTING IN THE FUND.

An investment in the Fund is not a deposit in a bank and is not insured or
guaranteed by the U.S. Federal Deposit Insurance Corporation or any other
governmental agency.


                                      31
<PAGE>


Among the principal risks of investing in the Fund is market risk, which is
the risk that the value of your investment may fluctuate as stock markets in
Japan fluctuate.


As an investment company that primarily holds common stock, the Fund's
portfolio is subject to the possibility that common stock prices will decline
over short or even extended periods. The Fund may remain substantially
invested during periods when stock prices generally rise and also during
periods when they generally decline. Moreover, as a holder of common stock,
the Fund's rights to the assets of the companies in which it invests will be
subordinated to such companies' holders of preferred stock and debt in the
event of a bankruptcy, liquidation or similar proceeding. Accordingly, if such
an event were to occur to a company in which the Fund invests, the Fund would
be entitled to such a company's assets only after such company's preferred
stockholders and debt holders have been paid. Risks are inherent in
investments in equities, and Fund stockholders should be able to tolerate
significant fluctuations in the value of their investment in the Fund.


RISKS RELATING TO THE FUND'S OPERATIONS

POLITICAL FACTORS IN JAPAN MAY ADVERSELY AFFECT THE FUND'S PERFORMANCE.

Japan has a parliamentary form of government. The legislative power is vested
in the Japanese Diet, which consists of a House of Representatives and a House
of Councillors. The major political parties represented in the Diet are
Liberal Democratic Party (LDP), Democratic Party of Japan (DPJ), Clean
Government Party (Komeito), New Japan (CNP), Japan Communist Party (JCP) and
Social Democratic Party (SDP). Japan was governed nationally by conservative
political parties for more than 50 years, and since the LDP formed a governing
coalition with the Liberal Party in January 1999, a ruling coalition of the
LDP and one or more parties maintains its majority in the Diet. On April 24,
2001, Junichiro Koizumi of the LDP won a victory on April 24, 2001 in the
Lower House elections, and was elected as Japan's 87th Prime Minister on April
26, 2001. He was re-elected as LDP President on September 20, 2003, securing a
second three-year term as Prime Minister. On September 27, 2004, Koizumi
carried out a major cabinet reorganization, dubbing his new ministerial lineup
"Reform Implementation Cabinet." On August 8, 2005, Koizumi called a general
election to the Lower House, approximately about two years before the end of
the term taken from the 2003 elections, after bills to privatize Japan Post
were voted down in the Upper House. The elections were held on September 11,
2005 and concluded in a landslide victory for Koizumi's LDP. Together with its
partner, Komeito, the governing coalition now commands two-thirds majority in
the Lower House, empowering the government to pass legislative bills without
requiring the consent of the Upper House and permitting it to approve
amendments to the Constitution, which are then submitted to the Upper House
and a national referendum. There can be no assurance that the Japanese
government will not be subject to abrupt or unexpected changes in the future
that may have an adverse impact on Smaller Capitalization Companies. Recent
and future developments in the domestic political environment in Japan may
lead to changes in policy that might adversely affect the Fund.

THE JAPANESE ECONOMY IS AFFECTED BY DIFFERENT FACTORS THAN THE U.S. ECONOMY.

The Japanese economy grew substantially from the early 1960s through 1990.
This growth averaged 10% in real GDP terms during the years 1960 through 1970,
an average of 5% during the years 1970 through 1980 and an average of 4%
during the years 1980 through 1990. During the 1990s, growth slowed down
considerably and Japan entered into a prolonged recession and the growth rate
slowed to an average of 1.7%. The so-called "lost decade" recession was due to
the sudden end to the speculative bubble economy of the late 1980s and early
1990s. Since the year 2000, Japan's economic growth rate has remained
relatively low.


                                      32
<PAGE>


To a certain extent, Japanese economic growth depends on the U.S. and Chinese
economies. Slowdowns in these two countries will necessarily have a negative
impact on Japan. Exposure to China, in terms of both imports and exports, has
been increasing in recent years.

The rising oil price is also a concern, and a sustained high price level will
have an impact on the Japanese economy. Rising costs could impede the growth
rate of industrial activity.

Deflation has been the most negative factor holding back the Japanese economy
since the bursting of the bubble economy. CPI growth has been negative for
several years. If CPI growth remains below zero, then the Japanese economic
growth rate cannot be expected to accelerate.

Looking at Japanese industries, the automobile and electrical industries had
been the main driving forces for the Japanese economy up to the 1990s. The
electrical industry has recently lost some of its share in the global market.
In addition, Korean companies and Taiwanese companies are gaining market share
in the semiconductor and liquid crystal areas. The automobile industry is
maintaining a strong performance, and this large industry influences many
Japanese companies.

JAPAN HAS DIFFERENT CORPORATE DISCLOSURE, GOVERNANCE AND REGULATORY
REQUIREMENTS THAN YOU MAY BE FAMILIAR WITH IN THE UNITED STATES.

Investing in Japanese securities involves certain risks and special
considerations not usually associated with investing in securities of U.S.
companies, including risks related to the nature of the markets for Japanese
securities, 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. Moreover, as issuers of the
Fund's portfolio securities generally will not be subject to the reporting
requirements of the SEC, there may be less publicly available information
about the issuers of these securities than about reporting U.S. companies.

Issuers in Japan are subject to accounting, auditing and financial standards
and requirements that differ, in some cases significantly, from those
applicable to U.S. issuers. In particular, the assets and profits appearing on
the financial statements of a Japanese issuer may not reflect its financial
position or results of operations in the way they would be reflected had such
financial statements been prepared in accordance with U.S. generally accepted
accounting principles.

Legal principles relating to corporate affairs and the validity of corporate
procedures, directors' fiduciary duties and liabilities and stockholders'
rights for issuers in Japan may differ from those that may apply in the United
States Shareholders' rights under Japanese law may not be as extensive as
those that exist under the laws of the United States. The Fund may therefore
have more difficulty asserting its rights as a stockholder of a Japanese
company in which it invests than it would as a stockholder of a comparable
U.S. company.

THE FUND MAY HAVE DIFFICULTY ENFORCING FOREIGN JUDGMENTS AGAINST JAPANESE
COMPANIES OR THEIR MANAGEMENT.

It may be difficult for the Fund to obtain a judgment in a court outside the
United States with respect to any claim that the Fund may have against any
such issuer or its directors and officers. As a result, even if the Fund
initiates a suit against the issuer in a U.S. court, it may be difficult for
the Fund to effect service of process in Japan. Moreover, if the Fund obtains
a judgment in a U.S. court, it may be difficult to enforce such judgment in
Japan.


                                      33
<PAGE>


FOREIGN CURRENCY FLUCTUATIONS COULD ADVERSELY AFFECT THE FUND'S PERFORMANCE.

The Fund's assets will be invested principally in securities of Japanese
issuers and substantially all of the income received by the Fund will be in
Japanese yen. However, the Fund will compute and distribute its income in U.S.
dollars. Currency exchange rate fluctuations can decrease or eliminate income
available for distribution. For example, if the value of the Japanese yen
falls relative to the U.S. dollar between the earning of the income and the
time at which the Fund converts the Japanese yen to U.S. dollars, the Fund may
be required to liquidate securities in order to make distributions if the Fund
has insufficient cash in U.S. dollars to meet distribution requirements.

The following table sets forth certain information as to yen per U.S. dollar
exchange rates for the years 1994 through 2004 and for the period from January
1, 2005 through August 31, 2005.


<TABLE>
<CAPTION>
                 2005     2004     2003    2002     2001     2000    1999     1998     1997    1996     1995     1994
Yen per U.S.
$1.00
- ----------------
<S>              <C>      <C>      <C>     <C>      <C>      <C>     <C>      <C>      <C>     <C>      <C>      <C>
   High(1)       109.08   101.83   106.93  115.63   113.57   101.46  101.35   113.81   110.68  103.97   79.75    96.35
   Low(1)        113.41   114.80   121.48  135.04   132.08   114.98  124.75   147.64   131.60  116.18   104.70   113.60
   Average(2)    111.60   108.17   115.94  125.14   121.58   107.78  113.94   130.90   121.00  108.79   94.06    102.23
</TABLE>

Source:  Nomura Asset Management Co., Ltd.
1)    High and low rates include intraday transaction.
2)    Average rates indicate average of the most actively traded rates at the
      end of each month.
3)    For 2005, the rates are for the month of September 2005.

On September 30, 2005, the most actively traded interbank rate on the Tokyo
foreign exchange market, as reported by The Bank of Japan, was $1.00 = yen
113.15. The recent relative strength of the yen to the U.S. dollar may
adversely affect the economy of Japan and, in particular, the export sector
thereof.


IF THE FUND REPATRIATES INVESTMENTS DURING EXCHANGE RATE FLUCTUATIONS, IT MAY
HAVE AN ADVERSE IMPACT ON THE FUND'S PERFORMANCE.


Since the Fund will invest primarily in securities denominated or quoted in
Japanese yen, changes in the U.S. dollar-Japanese yen exchange rate will
affect the dollar value of securities in the Fund's portfolio and the
unrealized appreciation or depreciation of investments.

Furthermore, the Fund may incur costs in connection with conversions between
U.S. dollars and Japanese yen. Foreign exchange dealers realize a profit based
on the difference between the prices at which they are buying and selling
various currencies. Thus, a dealer normally will offer to sell a foreign
currency to the Fund at one rate, while offering a lesser rate of exchange
should the Fund desire immediately to resell that currency to the dealer. The
Fund will conduct its foreign currency exchange transactions either at the
spot rate prevailing in the foreign currency exchange market or through
entering into forward, futures or options contracts to purchase or sell
foreign currencies, if available.

THE FOCUS OF THE FUND'S INVESTMENTS IN SPECIFIC ECONOMIC SECTORS AND RELATED
INDUSTRIES MAY EXPOSE IT TO GREATER RISK OF LOSS WITH RESPECT TO ITS PORTFOLIO
SECURITIES.


From time to time, the Fund may invest a greater proportion of its assets in
the securities of companies that are part of specific sectors and related
industries of the Japanese economy. For example, at August 31, 2005, the Fund
maintained 29.8% of its total assets in the securities of Japanese companies
in the


                                      34
<PAGE>


automotive equitment and parts, machinery and machine tools and miscellaneous
manufacturing sectors. The Fund is therefore subject to greater risk of loss
with respect to its portfolio securities as a result of its focus on such
sectors and related industries.


INVESTMENTS IN SMALL CAPITALIZATION JAPANESE COMPANIES MAY EXPOSE THE FUND TO
GREATER INVESTMENT RISK.


The Fund invests a substantial portion of its assets in the securities of
smaller capitalization Japanese companies. Investments in the securities of
these companies may present greater opportunities for growth, but also involve
greater risks than are customarily associated with investments in securities
of more established and larger capitalized companies. The securities of
Smaller Capitalization Companies have fewer market makers and wider price
spreads, which may in turn result in more abrupt and erratic market price
movements and make the Fund's investments more vulnerable to adverse general
market or economic developments than would investments only in large, more
established Japanese companies. It is more difficult to obtain information
about smaller capitalization companies because they tend to be less well known
and have shorter operating histories and because they tend not to have
significant ownership by large investors or be followed by many securities
analysts. Additionally, these companies may have limited product lines,
markets or financial resources, or they may be dependent upon a limited
management group that may lack depth and experience. Investments in larger and
more established companies present certain advantages in that such companies
generally have greater financial resources, more extensive research and
development, manufacturing, marketing and service capabilities, more stability
and greater depth of management and technical personnel.


THERE ARE NO FIXED LIMITATIONS REGARDING PORTFOLIO TURNOVER.


Frequency of portfolio turnover is not a limiting factor if the Fund considers
it advantageous to purchase or sell securities. The Fund anticipates that its
annual portfolio turnover rate will not exceed 100%. For the fiscal year
ended February 28, 2005, the Fund's portfolio turnover rate was 86%. A high
rate of portfolio turnover involves correspondingly greater aggregate payments
for brokerage commissions than a lower rate, which expenses must be borne by
the Fund and its stockholders, while a lower rate of portfolio turnover
involves correspondingly lower aggregate payments and stockholder expenses. In
addition, a high rate of portfolio turnover may result in certain tax
consequences, such as increased capital gain dividends and/or ordinary income
dividends.


THE FUND'S ABILITY TO HEDGE AGAINST FOREIGN CURRENCY RISKS MAY ADVERSELY
AFFECT THE FUND'S NET ASSET VALUE.


The Fund may engage in a variety of foreign currency exchange transactions.
Hedging involves special risks, including possible default by the other party
to the transaction, illiquidity and, to the extent the Manager's and the
Investment Adviser's view as to certain market movements is incorrect, the
risks that the use of hedging could result in losses greater than if they had
not been used. The Fund has not previously entered into transactions to hedge
against foreign currency risks. However, if the Fund does enter into any such
transactions, the Fund, will deposit in a segregated account with its
custodian, liquid securities or cash or cash equivalents or other assets
permitted to be so segregated by the SEC in an amount equal to or greater than
the market value of the liabilities under any such foreign currency hedging
agreements. 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. See "Investment Objective and
Policies--Other Investment Policies--Hedging Foreign Currency Risks."



                                      35
<PAGE>


IF THE FUND FAILS TO QUALIFY AS A REGULATED INVESTMENT COMPANY, THE FUND WILL
BE TAXED AS A CORPORATION.

If in any taxable year the Fund fails to qualify as a regulated investment
company under the Code the Fund will be taxed in the same manner as an
ordinary corporation and distributions to its Stockholders will not be
deductible by the Fund in computing its taxable income. In addition, in the
event of a failure to qualify, the Fund's distributions, to the extent derived
from the Fund's current or accumulated earnings and profits, will constitute
dividends (eligible for the corporate dividends-received deduction) which are
taxable to Stockholders as ordinary income, even though those distributions
might otherwise (at least in part) have been treated in the Stockholders'
hands as long-term capital gains. If the Fund fails to qualify as a regulated
investment company in any year, it will be required to pay out its earnings
and profits accumulated in that year in order to qualify again as a regulated
investment company and may in certain circumstances be required to pay tax on
unrealized gains.

THE FUND'S SHARES HAVE TRADED AND MAY IN THE FUTURE TRADE AT A DISCOUNT TO NET
ASSET VALUE.


Although the Fund's shares of Common Stock have recently traded on the NYSE at
a premium to their NAV, the Fund's shares have in the past traded at a
discount to their NAV. There can also be no assurance that the Fund's shares
will trade at a premium in the future or that the present premium is
sustainable. The Fund's shares have traded at discounts of as much as 29.4% in
the past five years.


In addition, you should note that shares of closed-end investment companies
frequently trade at a discount from NAV. This characteristic is a risk
separate and distinct from the risk that the Fund's NAV will decrease as a
result of its investment activities. The Fund cannot predict whether its
shares will trade at, above or below NAV. The risk that shares of a closed-end
fund might trade at a discount is more significant for investors who wish to
sell their shares in a relatively short period of time. 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.

JAPAN HAS DIFFERENT LAWS REGARDING THE CUSTODY OF JAPANESE SECURITIES THAN YOU
MAY BE FAMILIAR WITH IN THE UNITED STATES.

The Fund may hold its foreign securities and cash in foreign banks and
securities depositories. There may be less regulatory oversight over their
operations than in the case of U.S. financial institutions. Also, certain
Japanese laws 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.

THE FUND'S STATUS AS A "NON-DIVERSIFIED" INVESTMENT COMPANY MAY EXPOSE IT TO
GREATER RISK OF LOSS WITH RESPECT TO ITS PORTFOLIO SECURITIES.

The Fund is classified as a "non-diversified" management investment company
under the 1940 Act, which means that the Fund is not limited by the 1940 Act
as to the proportion of its assets that may be invested in the securities of a
single issuer. As a non-diversified investment company, the Fund may invest a
greater proportion of its assets in the obligations of a smaller number of
issuers and, as a result, will be subject to greater risk with respect to its
portfolio securities. Although, with respect to 50% of its assets, the Fund
must diversify its holdings in order to be treated as a regulated investment
company under the provisions of the Code, the Fund may be more susceptible to
any single economic, political or regulatory occurrence than would be the case
if it had elected to diversify its holdings sufficiently to be classified as a
"diversified" management investment company under the 1940 Act. See
"Taxation--U.S. Tax Status."


                                      36
<PAGE>


CERTAIN PROVISIONS OF THE MARYLAND GENERAL CORPORATION LAW AND PROVISIONS IN
THE FUND'S CHARTER AND BYLAWS MAY HAVE THE EFFECT OF DEPRIVING YOU OF AN
OPPORTUNITY TO SELL YOUR SHARES AT A PREMIUM.

The Fund's Charter and Bylaws and the MGCL include provisions that could limit
the ability of other persons to acquire control of the Fund, to convert the
Fund to an open-end investment company or to change the composition of the
Fund's Board of Directors. The Fund has also adopted measures that may make it
difficult for another person or entity to obtain control of the Fund.


The Fund's Charter and Bylaws include provisions that classify the Board of
Directors into three classes. The Directors of each class are elected to serve
for three years and until their successors are duly elected and qualify.
Additionally, the Charter provides that a Director elected by the Stockholders
may be removed (but only for cause) by a vote of the holders of at least 75
percent of the outstanding Shares entitled to vote in the election of such
Director.

Under the Charter, the Board of Directors is authorized to classify and
reclassify any unissued shares of stock into other classes or series of stock,
including preferred stock, and authorize the issuance of shares of stock
without obtaining stockholder approval.

Through a provision in the Charter, the Fund is subject to the Maryland
Business Combination Act (the "Business Combination Act"). Subject to various
limitations, the Business Combination Act prohibits certain business
combinations between the Fund and an "interested stockholder" (defined
generally as any person who beneficially owns ten percent or more of the
voting power of the Fund's shares or an affiliate or associate of the Fund
who, at any time within the two-year period prior to the date in question, was
the beneficial owner of ten percent or more of our then outstanding voting
shares, or an affiliate thereof) for five years after the most recent date on
which the Stockholder becomes an interested stockholder, and thereafter
imposes special stockholder voting requirements on these combinations.

Additionally, Charter provisions include various supermajority vote
requirements (which require the vote of 75 percent of outstanding shares in
certain circumstances) to approve extraordinary corporate actions such as a
merger or consolidation, the sale of all or substantially all of the Fund's
assets, the liquidation or dissolution of the Fund and certain Charter
amendments.


The foregoing provisions may be regarded as "anti-takeover" provisions and may
have the effect of depriving Stockholders of an opportunity to sell their
shares at a premium over prevailing market prices. See "Capital Stock--Certain
Provisions of Maryland General Corporation Law and the Charter and Bylaws."


THE OPERATING EXPENSES OF THE FUND MAY BE HIGHER THAN INVESTMENT COMPANIES
THAT INVEST PRIMARILY IN THE SECURITIES OF U.S. COMPANIES.


The Fund's estimated annual operating expenses may be higher than those of
most other investment companies that invest predominately in the securities of
U.S. companies. In addition, brokerage commissions, custodial fees and other
fees are generally higher for investments in foreign securities markets. The
management fees and operating expenses, however, are believed by the Manager
to be comparable to expenses of other management investment companies that
invest primarily in the securities of issuers in Japan with investment
objectives similar to the investment objective of the Fund. As a result of
these higher expected operating expenses, the Fund needs to generate higher
relative returns to provide investors with an equivalent economic return. See
"Fund Expenses."


                                      37
<PAGE>


FUTURE MARKET DISRUPTIONS RESULTING FROM TERRORIST ATTACKS IN THE UNITED
STATES AND ELSEWHERE OR U.S. MILITARY ACTION ABROAD COULD NEGATIVELY AND
ADVERSELY AFFECT THE MARKET FOR THE FUND'S COMMON STOCK.

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


                                      38
<PAGE>


                             PORTFOLIO COMPOSITION

The following sets forth certain information with respect to the composition
of the Fund's investment portfolio as of August 31, 2005:

                    JAPAN SMALLER CAPITALIZATION FUND, INC.

                            SCHEDULE OF INVESTMENTS


                                AUGUST 31, 2005
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                                                                            % of Net
EQUITY SECURITIES                                              Shares           Cost         Market Value    Assets
                                                              ----------   --------------   -------------   ---------
<S>                                                               <C>      <C>              <C>                  <C>
Automotive Equipment and Parts
F.C.C. Co., Ltd...............................                    47,000   $    1,809,003   $    1,827,342       0.9
     Clutches and facings
Musashi Seimitsu Industry Co., Ltd............                   137,700        1,559,126        3,403,527       1.7
     Ball joints, camshafts and gears
Nipon Piston Ring Co., Ltd....................                   326,000          626,479          852,826       0.5
     Internal combustion engine parts
Nissin Kogyo Co., Ltd. .......................                    29,200          644,363        1,116,846       0.6
     Brake systems
Nittan Valve Co., Ltd. .......................                   381,000        2,524,774        3,127,599       1.6
     Engine valves
Sanoh Industrial Co., Ltd.....................                   254,400        1,784,177        1,851,976       1.0
     Tubes, wires and electrical products
Unipres Corporation...........................                   219,300        1,840,380        2,023,760       1.0
                                                                           --------------   --------------       ---
     Press processed automobile parts
Total Automotive Equipment and Parts..........                                 10,788,302       14,203,876       7.3
                                                                           --------------   --------------       ---

Banks and Finance
The Bank of Fukuoka, Ltd......................                   303,000        1,632,072        1,921,510       1.0
     Deposits, loans and exchange transactions
IBJ Leasing Company, Limited..................                    85,500        1,457,738        1,916,625       1.0
     Leases general machinery, aircrafts and computer
Kansai Urban Banking Corporation..............                   685,000        1,220,065        1,903,207       0.9
     General banking services
Sanyo Shinpan Finance Co., Ltd................                    44,000        2,433,536        3,099,905       1.6
                                                                           --------------   --------------       ---
     Consumer Financing
Total Banks and Finance.......................                                  6,743,411        8,841,247       4.5
                                                                           --------------   --------------       ---

Chemicals and Pharmaceuticals
Arisawa Manufacturing Co., Ltd................                        90            3,402            1,908       0.0
     Glassfibers and insulating resins
Asahi Denka Co., Ltd..........................                   178,000        1,875,962        1,979,829       1.0
     Resin, insulators and processed fat/oil products
C. Uyemura & Co., Ltd.........................                    19,000          265,973          702,720       0.4
     Chemicals
Hisamistu Pharmaceutical Co., Ltd.............                   107,500        1,958,519        2,826,778       1.4
     Pharmaceutical products
Kanto Denka Kogyo Co., Ltd....................                    46,000          157,108          155,194       0.1
     High-pressured gases
Koatsu Gas KogyoCo., Ltd......................                   192,000          966,841          978,576       0.5
     Natural gas supplier

                       See notes to financial statements


                                      39
<PAGE>


                    JAPAN SMALLER CAPITALIZATION FUND, INC.

                     SCHEDULE OF INVESTMENTS -- Continued

                                AUGUST 31, 2005
                                  (Unaudited)

                                                                                                            % of Net
EQUITY SECURITIES                                         Shares             Cost           Market Value     Assets
                                                          ------             ----           ------------     ------
<CAPTION>
<S>                                                        <C>         <C>                <C>                    <C>
Shizuokagas Co., Ltd..........................             418,000     $    1,242,332     $    2,511,281         1.3
                                                                       --------------     --------------         ---
     Natural gas supplier
Total Chemicals and Pharmaceuticals...........                              6,470,137          9,156,286         4.7
                                                                       --------------     --------------         ---

Electric
Mirai Industry Co., Ltd.......................             246,500          2,331,742          2,568,287         1.3
                                                                       --------------     --------------         ---
     Plastic molded electric materials
Total Electric................................                              2,331,742          2,568,287         1.3
                                                                       --------------     --------------         ---

Electronics
Alpine Electronics Inc........................              70,000            984,550          1,098,733         0.6
     Automobile audio and video products
Chiyoda Integre Co., Ltd......................              38,620            761,792            778,636         0.5
     Electronic components
Cosel Co., Ltd................................              60,900          1,570,427          1,768,959         0.9
     Electrical machinery
Dainippon Screen Mfg. Co., Ltd................             349,000          1,659,738          2,436,751         1.2
     Electronic components
Elpida Memory, Inc.+..........................              35,000          1,069,787            994,542         0.5
     Electronic components
Fukuda Denshi Co..............................              16,300            385,199            582,274         0.3
     Medical electronic equipment
Iriso Electronics Co., Ltd....................              46,520          1,036,411          1,109,490         0.6
     Electronic connectors
Kuroda Electric Co., Ltd......................              80,400            688,481          1,461,423         0.7
     Materials and components
Meiko Electronics Co., Ltd....................             116,300          3,178,148          4,280,402         2.2
     Printed circuit boards
Nitto Kogyo Corporation.......................              62,000            783,899            788,598         0.4
     Power switchboards
Shinko Electric Industries Co., Ltd...........              42,800          1,120,124          2,366,731         1.2
                                                                       --------------     --------------         ---
     Semiconductor packages
Total Electronics.............................                             13,238,556         17,666,539         9.1
                                                                       --------------     --------------         ---

Food Marketing
Arcs Co., Ltd.................................                  28                145                365         0.0
     Supermarket chain
Ariake Japan Co., Ltd.........................              50,083          1,021,687          1,276,302         0.7
     Natural seasonings
J-Oil Mills, Inc.,............................              63,000            273,259            280,177         0.1
     Cooking Oil
Nippon Flour Mills Co., Ltd.                               166,000            744,002            697,812         0.4
     Flour and grain


                       See notes to financial statements


                                      40
<PAGE>


                    JAPAN SMALLER CAPITALIZATION FUND, INC.

                     SCHEDULE OF INVESTMENTS -- Continued

                                AUGUST 31, 2005
                                  (Unaudited)


                                                                                                            % of Net
                                                          Shares             Cost           Market Value     Assets
                                                         ---------     --------------     --------------    ---------
<CAPTION>
<S>                                                         <C>        <C>                <C>                    <C>
Ozeki Co., Ltd................................              90,800     $    2,831,843     $    2,371,260         1.2
     Supermarket chain
Plenus Co., Ltd...............................              80,960          2,274,633          2,819,048         1.4
     Japanese lunch-boxes
Sansei Foods Co., Ltd.........................              76,800          1,631,040          1,925,975         1.0
     Candy products
Showa Sangyo Co., Ltd.........................             101,000            283,512            285,174         0.2
     Flour
Warabeya Nichiyo Co., Ltd.....................              67,700          1,380,917          1,031,423         0.5
                                                                       --------------     --------------         ---
     Japanese lunch-boxes
Total Food Manufacturing......................                             10,441,038         10,687,536         5.5
                                                                       --------------     --------------         ---

Information and Software
Argo Graphics Inc.............................              55,000            717,576          1,463,624         0.8
     Computer aided design software
Jastec Co., Ltd...............................              21,100            386,315            384,484         0.2
     Application software
Kyowa Expo Corporation........................             222,000          1,879,239          2,018,637         0.9
     Designs, constructs, maintains communication
     and electric facilities
Sorun Corporation.............................             253,500          1,655,994          1,692,210         0.9
     Computer software development
Sumisho Computer Systems Corporation..........                  14                319                290         0.0
     Computer software development
Tecmo, Ltd....................................             119,100          1,280,616          1,288,177         0.7
                                                                       --------------     --------------         ---
     Computer game software
Total Information and Software ...............                              5,920,059          6,847,422         3.5
                                                                       --------------     --------------         ---

Iron and Steel
Nakayama Steel Works Ltd......................             180,000            752,611            896,306         0.5
     Wire rods, steel bars, and C-shaped steel
     products
Neturen Co., Ltd..............................              47,000            359,948            356,141         0.2
     Metal processors
Sanyo Special Steel Co., Ltd..................             369,000          1,002,042          1,780,840         0.9
     Specialty steel products
Yodagawa Steel Works, Ltd.....................             329,000          1,868,368          1,958,775         1.0
                                                                       --------------     --------------         ---
     Surface-treated steel sheets and plates
Total Iron and Steel .........................                              3,982,969          4,992,062         2.6
                                                                       --------------     --------------         ---

Machinery and Machine Tools
Hitachi Construction Machinery Co., Ltd.......             262,600          3,327,283          4,015,218         2.1
     Construction Machinery

                       See notes to financial statements


                                      41
<PAGE>


                    JAPAN SMALLER CAPITALIZATION FUND, INC.

                     SCHEDULE OF INVESTMENTS -- Continued

                                AUGUST 31, 2005
                                  (Unaudited)


                                                                                                  Market       % of Net
                                                             Shares              Cost             Value         Assets
                                                             ------             -------           --------    ---------
<CAPTION>
<S>                                                             <C>        <C>               <C>                    <C>
Makino Milling Machine Co., Ltd...............                  375,000    $    2,198,738    $    2,736,683         1.4
     Industrial machinery
Nachi-Fujikoshi Corp..........................                  750,000         2,163,291         3,010,690         1.5
     Machine tools
NS Tool Co., Ltd..............................                    3,700           189,778           193,586         0.1
     Industrial cutting tools
NSK Ltd.......................................                   370,000        1,905,953         1,995,941         1.0
     Metal processors
Shibaura Mechatronics Corporation.............                  165,000         1,471,583         1,385,729         0.7
     Semiconductor machinery
Shimadzu Corporation..........................                  265,000         1,435,772         1,668,576         0.9
     Precision tools and equipment
Sintokogio, Ltd...............................                  226,000         1,826,584         1,924,532         1.0
     Engineering equipment
Tsubaki Nakashima Co., Ltd....................                  141,500         1,755,612         1,982,315         1.0
     Bearing balls, blowers and precision ball screws
Yamazen Corporation...........................                  444,000         1,363,157         2,170,836         1.1
     Machinery and tools                                                       ----------        ----------      --------
Total Machinery and Machine Tools ............                                 17,637,751        21,084,106        10.8
                                                                               ----------        ----------      --------
Miscellaneous Manufacturing
Bunka Shutter Co., Ltd........................                  169,000           920,496         1,045,817         0.5
     Light and heavy weight shutters
Daikoku Denki Co., Ltd........................                   43,000         1,179,552         1,241,261         0.6
     Leisure and recreational products
Dainichi Co., Ltd.............................                   27,000           203,564           238,934         0.1
     Oil heating equipment
Dowa Mining Co., Ltd..........................                  562,000         3,555,607         4,010,121         2.1
     Various metal-related products
Hamamatsu Photonics K.K.......................                   45,000           945,971           972,216         0.5
     Election tubes, semiconductors, and image
     processors
JSP Corporation...............................                   67,200           718,162           681,972         0.4
     Polystyrene products
Kansai Paint Co., Ltd.........................                  212,000         1,299,777         1,340,598         0.7
     Wide range of paints
Kitagawa Industries Co., Ltd..................                   17,700           255,371           275,427         0.1
     Metal products and fasteners
Mani, Inc.....................................                   66,300         1,160,436         3,325,317         1.7
     Medical goods and equipment
Nichias Corporation...........................                  420,000         1,887,724         1,905,733         1.0
     Building and construction materials


                                      42
<PAGE>


                       See notes to financial statements


                                      43
<PAGE>


                    JAPAN SMALLER CAPITALIZATION FUND, INC.

                     SCHEDULE OF INVESTMENTS -- Continued

                                AUGUST 31, 2005
                                  (Unaudited)


                                                                                              Market       % of Net
                                                               Shares         Cost             Value         Assets
                                                              --------    ------------      ------------   --------
<CAPTION>
<S>                                                             <C>       <C>               <C>                 <C>
Nichiha Corporation...........................                  64,600    $    790,477      $    981,922        0.5
     Ceramic exterior walls and fiber boards
Nippon Kodoshi Corp...........................                 188,000       2,839,396         1,433,043        0.7
     Paper for electric insulation
SK Kaken Co., Ltd.............................                  49,500       1,188,490         1,719,138        0.9
     Paints
Topcon Corporation............................                  60,000         981,275         1,377,475        0.7
     Medical instruments
Ushio Inc. ...................................                 118,000       2,095,910         2,320,509        1.2
     Lamps and optical equipment
Total Miscellaneous Manufacturing.............                              20,022,208        22,869,483       11.7

Oil and Gas
Cosmo Oil Company, Ltd........................                 435,000       1,375,075         2,154,301        1.1
     Domestic crude oil refiner
Teikoku Oil Co., Ltd..........................                 252,000       1,890,462         2,114,113        1.1
     Oil and natural gas
Total Oil and Gas.............................                               3,265,537         4,268,414        2.2

Real Estate and Warehouse
Daibiru Corporation...........................                 315,000       2,263,529         2,304,497        1.2
     Leases office buildings, apartments and hotels
Leopalace21 Corporation.......................                 118,500       1,843,194         2,207,411        1.1
     Property manager
Recrm Research Co., Ltd.......................                   1,529       2,099,657         2,565,459        1.3
     Building management
Ryowa Life Create Co., Ltd....................                 122,500         949,246           917,189        0.5
     Real estate management
Sanko Soflan Company Inc......................                 138,000         931,642           970,998        0.5
     Designs and constructs housing
Tosei Corporation.............................                   1,937       1,440,964         1,485,228        0.7
     Residential properties and leases office
     facilities
Total Real Estate and Warehouse...............                               9,528,232        10,450,782        5.3

Restaurants
Saint Marc Co., Ltd. .........................                  48,300       1,630,894         2,108,809        1.1
     Restaurants and bakery shop chain
Total Restaurants.............................                               1,630,894         2,108,809        1.1

Retail
Arc Land Sakamoto Co., Ltd. ..................                  36,000         551,975           589,094        0.3
     Operates home centers


                                      44
<PAGE>


                       See notes to financial statements


                                      45
<PAGE>


                    JAPAN SMALLER CAPITALIZATION FUND, INC.

                     SCHEDULE OF INVESTMENTS -- Continued

                                AUGUST 31, 2005
                                  (Unaudited)
                                                                                                            % of Net
                                                               Shares           Cost         Market Value    Assets
                                                             ------------    ------------    -------------  --------
Joshin Denki Co., Ltd.........................                    410,000    $  1,682,696     $  2,063,777       1.1
     Household appliances and computers
Komeri Co., Ltd...............................                     34,800         931,446        1,117,568       0.6
     Building products
Meganesuper Co., Ltd..........................                    193,760       2,749,736        2,625,299       1.3
     Eye glasses chain
Ricoh Elemex Corporation......................                      4,000          28,250           32,980       0.0
     Precison equipment
Ryohin Keikaku Co., Ltd.......................                     52,500       2,679,180        3,049,930       1.6
     Knitwears, food and household items
Seijo Corporation.............................                     84,500       1,359,040        2,317,261       1.2
     Chain drug store
Shimachu Co., Ltd. ...........................                     59,000       1,464,575        1,490,235       0.7
     Furniture and home goods
Village Vanguard Co., Ltd. +..................                        229       1,751,520        2,933,381       1.5
     Books, cd's, videos and office supplies                                   ----------       ----------    ------
Total Retail..................................                                 13,198,418       16,219,525       8.3
                                                                               ----------       ----------    ------
Services
Alps Logistics Co., Ltd.......................                     93,300         715,946        1,780,069       0.9
     Transportation
Daiwa Logistics Co., Ltd......................                     31,000         234,815          278,526       0.1
     Transports housing materials and building steel
     frames
Funai Consulting Co., Ltd.....................                     61,500         748,463          829,394       0.4
     Management and financial consulting
Hitachi Transport System, Ltd.................                    106,000         807,735          939,948       0.5
     Freight truck and marine transportation
Maeda Road Construction Co., Ltd..............                    105,000         749,474          766,271       0.4
     Constructs highways, runways, and harbor facilities
Obayashi Corporation..........................                    322,000       1,622,900        1,983,907       1.0
     General contractor
Space Co., Ltd................................                     58,100         736,768          696,016       0.3
     Interior design and display work
Sumikin Bussan Corp...........................                    860,000       2,202,289        3,428,984       1.8
     General trading firm
Tohokushinsha Film Corporation................                     79,800       1,254,729        2,076,794       1.1
     Produces tv programs, movies and commercial films
Vic Tokai Corporation.........................                     40,600         336,098          410,194       0.2
     Information and telecommunication
Yusen Air & Sea Service Co., Ltd..............                     46,500       1,612,589        1,539,443       0.8
     Domestic and international air freight forwarding                         ----------       ----------    ------

Total Services................................                                 11,021,806       14,729,546       7.5
                                                                               ----------       ----------    ------


                       See notes to financial statements


                                      46
<PAGE>


                    JAPAN SMALLER CAPITALIZATION FUND, INC.

                     SCHEDULE OF INVESTMENTS -- Continued

                                AUGUST 31, 2005
                                  (Unaudited)

                                                                                                            % of Net
                                                          Shares             Cost           Market Value     Assets
                                                        ------------   --------------     ---------------   ---------
Telecommunications
Daimei Telecom Engineering Corp...............               226,000   $    1,890,566     $    2,403,626         1.2
     Telecommunication wire installations
Jupiter Telecommunications Co., Ltd.+.........                 1,498        1,195,631          1,256,723         0.7
     Cable television broadcasting                                     --------------     --------------    ---------
Total Telecommunications......................                              3,086,197          3,660,349         1.9
                                                                       --------------     --------------    ---------
Textiles and Apparel
Seiren Co., Ltd...............................                80,000          740,560            899,914         0.4
     Dyeing processor of filament fibers
Workman Co., Ltd..............................                71,900        1,333,163          1,945,785         1.0
     Uniforms                                                          --------------     --------------    ---------
Total Textiles and Apparel....................                              2,073,723          2,845,699         1.4
                                                                       --------------     --------------    ---------
Transportation
Keisei Electric Railway Co., Ltd..............               332,000        1,614,165          1,716,080         0.9
     Passenger rail and business transportation                        --------------     --------------    ---------
Total Transportation..........................                              1,164,165          1,716,080         0.9
                                                                       --------------     --------------    ---------
Wholesale
Hitachi High-Technologies Corporation.........               133,100        2,064,939          2,152,797         1.1
     Computers and electrical devices
Kondotec, Inc.................................               205,500        1,400,365          1,716,594         0.8
     Construction materials
Meiko Shokai Co., Ltd.........................                37,300          580,251            585,468         0.3
     Office equipment
Rentrak Japan Co., Ltd........................               271,000        2,377,521          2,280,844         1.2
     Videocassettes and DVDs
Ryoden Trading Co., Ltd.......................               125,000          873,137            875,017         0.5
     Electronic components
Ryosan Co., Ltd...............................                76,700        1,882,691          1,920,008         1.0
     Electronic parts
Shinko Shoji Co., Ltd.........................               128,000        1,105,366          1,255,117         0.6
     Electronic parts
Takachiho Electric Co., Ltd...................                84,800        1,028,372          1,124,496         0.6
     Electronic parts, optical materials and
     equipment
Takihyo Co., Ltd..............................               263,000        1,531,834          1,425,854         0.7
     Apparel, accessories and interior products
Tomen Electronics Corporation.................                38,900          995,046          1,040,445         0.5
     Semiconductors and electronic equipment
Toshin Denki Co., Ltd.........................                24,400          318,608            574,480         0.3
     Lighting equipment and electrical engineering
     materials


                       See notes to financial statements


                                      47
<PAGE>


                    JAPAN SMALLER CAPITALIZATION FUND, INC.

                     SCHEDULE OF INVESTMENTS -- Continued

                                AUGUST 31, 2005
                                  (Unaudited)


                                                                                                                  % of Net
                                                                     Shares            Cost        Market Value    Assets
                                                                   ------------   --------------  --------------- ---------
Yuasa Trading Co., Ltd. +.................................            1,709,000   $    2,922,481  $    3,299,139       1.7
     Industrial machinery                                                         --------------  --------------- ---------
Total Wholesale...........................................                            17,080,611      18,250,259       9.3
                                                                                  --------------  --------------- ---------
TOTAL INVESTMENTS IN EQUITY SECURITIES....................                           160,075,756     193,166,307      98.9
                                                                                  --------------  --------------- ---------

INVESTMENTS IN FOREIGN CURRENCY                                    Principal
                                                                    --------
                                                                     Amount
Hong Kong Shanghai Bank-Tokyo
     Non-interest bearing account.........................      JPY188,634,935         1,705,717       1,701,637       0.9
                                                                                  --------------  --------------- ---------

TOTAL INVESTMENTS IN FOREIGN CURRENCY.....................                             1,705,717       1,701,637       0.9
                                                                                  --------------  --------------- ---------
TOTAL INVESTMENTS.........................................                        $  161,781,473     194,867,944      99.8
                                                                                  --------------  --------------- ---------
OTHER ASSETS LESS LIABILITIES, NET........................                                               466,859       0.2
                                                                                                  --------------- ---------
NET ASSETS................................................                                        $  195,334,803     100.0
                                                                                                  =============== =========
</TABLE>


+ Non-income producing security.


      Portfolio securities and foreign currency holdings were translated
             at the following exchange rate as of August 31, 2005.

                   Japanese Yen......JPY (Y) 110.86 = $1.00




                       See notes to financial statements


                                      48
<PAGE>


                            MANAGEMENT OF THE FUND

DIRECTORS AND OFFICERS


Under the Fund's Bylaws and the MGCL, the business and affairs of the Fund
shall be managed under the direction of its Board of Directors. Investment
decisions for the Fund are made by the Manager (or by the Investment Adviser
as its delegate), subject to any direction it may receive from the Fund's
Board of Directors, which periodically reviews the Fund's investment
performance.


The Fund's Bylaws provide that the Directors are divided into three classes,
as nearly equal in number as possible. Each Director serves for three years
and until his or her successor is duly elected and qualifies. Each year, the
term of one class expires. The officers of the Fund serve at the pleasure of
the Board of Directors.

Maryland law permits the Fund to include in its Charter a provision limiting
the liability of the Fund's Directors and officers to the Fund and the
Stockholders for money damages, except for liability resulting from (a) actual
receipt of an improper benefit or profit in money, property or services or (b)
active and deliberate dishonesty established by a final judgment and which is
material to the cause of action. The Fund's Charter contains a provision which
eliminates Directors' and officers' liability to the fullest extent permitted
by Maryland law.


The Fund's Charter provides that the Fund shall indemnify each Director and
officer to the full extent permitted by the Maryland law and subject to the
requirements of the Investment Company Act. The Fund's Bylaws obligate the
Fund, to the maximum extent permitted by Maryland law and subject to the
requirements of the Investment Company Act, to indemnify and pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
individual who is a present or former Director or officer of the Fund and who
is made or threatened to be made a party to the proceeding by reason of his or
her service in that capacity or (b) any individual who, while a Director or
officer of the Fund and at the request of the Fund, serves or has served as a
director, officer, partner or trustee of another corporation, real estate
investment trust, partnership, joint venture, trust, employee benefit plan or
other enterprise and who is made or threatened to be made a party to the
proceeding by reason of his or her service in that capacity.


Neither the Charter nor the Bylaws of the Fund protects or indemnifies a
Director or officer against any liability to which he or she would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office.

The names of the Directors and officers of the Fund, their addresses, ages and
principal occupations during the past five years are provided in the tables
below. A director who is deemed an "interested person" (as that term is
defined in Section 2(a)(19) of the 1940 Act) of the Fund is included in the
table titled "Interested Director." Directors who are not interested persons,
as described above, of the Fund are included in the table titled "Independent
Directors."


                                      49
<PAGE>


INTERESTED DIRECTOR

<TABLE>
<CAPTION>
                                                                                           Number of
                                                 Term of                                   Funds in
                                                Office and                                   Fund             Other
                             Position(s)        Length of            Principal             Complex**      Directorships
     Name, Address            Held With            Time            Occupation(s)          Overseen by        Held by
        and Age               the Fund            Served       During Past Five Years      Director          Director
- ------------------------  -----------------  ---------------   ----------------------   ----------------  --------------
<S>                       <C>                <C>               <C>                      <C>                    <C>
Hiroshi Terasaki (50)*,   President and      President and     Managing Director and     2 registered          None
Two World Financial       Class II Director  Director since    Chief Executive            investment
Center, Building B, New                      June 2005         Officer, Nomura Asset       companies
York, New York  10281                                          Management U.K.          consisting of 2
                                                               Limited from
                                                               2003 to
                                                               portfolios
                                                               2005; General
                                                               Manager, Fixed
                                                               Income
                                                               Investment
                                                               Department of
                                                               the Investment
                                                               Adviser from
                                                               2000 to 2003.
</TABLE>

*     Mr. Terasaki is a Director and the President of the Fund for which the
      Manager acts as manager and for which the Investment Adviser acts as
      investment adviser. Mr. Terasaki is an "interested person," as defined
      in the 1940 Act, of the Fund based on his positions as President of the
      Fund, and as President and Director of the Manager.
**    In addition to the Fund, the "Fund Complex" includes Korea Equity Fund,
      Inc.


INDEPENDENT DIRECTORS

<TABLE>

<CAPTION>
                                                                                           Number of
                                                 Term of                                   Funds in
                                                Office and                                   Fund             Other
                             Position(s)        Length of            Principal             Complex*       Directorships
     Name, Address            Held With            Time            Occupation(s)          Overseen by        Held by
        and Age               the Fund            Served       During Past Five Years      Director          Director
- ------------------------  -----------------  ---------------   ----------------------   ----------------  --------------
<S>                       <C>                <C>               <C>                      <C>               <C>
William G. Barker, Jr.    Class I Director   Director since    Retired.                  2 registered          None
(72)                                         1993                                         investment
111 Parsonage Road,                                                                        companies
Greenwich, Connecticut                                                                  consisting of 2
06830                                                                                     portfolios

William K. Grollman (63)  Class III          Director since    President and             2 registered     SmartPros Ltd.
SmartPros Ltd.            Director           January 2004      co-founder since 1981      investment
12 Skyline Drive                                               and director of             companies
Hawthorne, New York                                            SmartPros Ltd.           consisting of 2
10532                                                          (continuing education      portfolios
                                                               for the
                                                               professions)
                                                               which is listed
                                                               on American
                                                               Stock Exchange;
                                                               former Partner
                                                               and National
                                                               Director of BDO
                                                               Seidman
                                                               accounting
                                                               firm.

Chor Weng Tan (69)        Class II Director  Director since    Retired since 2004;       2 registered          None
76 Echo Bay Drive                            1990              Managing Director for      investment
New Rochelle, New York                                         Education, the              companies
10805                                                          American Society of      consisting of 2
                                                               Mechanical Engineers       portfolios
                                                               from 1991 to 2004.


                                      50
<PAGE>


Arthur R. Taylor (70)     Class III          Director since    Retired since 2002;       2 registered          None
3731 Devonshire Street,   Director           1990              President of               investment
Allentown,                                                     Muhlenberg College          companies
Pennsylvania  18103                                            from 1992 to 2002.       consisting of 2
                                                                                          portfolios

John F. Wallace (77)      Class I Director   Director since    Retired since 2000;       2 registered          None
17 Rhoda Street                              1990              Vice President of the      investment
West Hempstead,                                                Fund from 1997 to           companies
New York 11552                                                 2000 and Secretary       consisting of 2
                                                               and Treasurer of the       portfolios
                                                               Fund from 1990 to
                                                               1997; Senior Vice
                                                               President of the
                                                               Manager from 1981 to
                                                               2000, Secretary from
                                                               1976 to 2000,
                                                               Treasurer from 1984
                                                               to 2000 and Director
                                                               from 1986 to 2000.
</TABLE>


* In addition to the Fund, the "Fund Complex" includes Korea Equity Fund, Inc.



OFFICERS WHO ARE NOT DIRECTORS

<TABLE>
<CAPTION>

                                                              Term of
                                                           Office** and
                                   Position(s)               Length of
        Name, Address*              Held With                  Time                     Principal Occupation(s)
           and Age                   the Fund                 Served                     During Past Five Years
- ---------------------------  ---------------------  -------------------------   -------------------------------------
<S>                             <C>                 <C>                          <C>
Kenneth L. Munt (59)            Vice President      Vice President since 2001    Senior Vice President and Secretary
                                                                                 of the Manager since 1999.

Keiko Tani (42)                 Vice President      Vice President since 2005    Senior Vice President and General
                                                                                 Counsel of the Manager since 2005;
                                                                                 Leader, Legal Team, Product
                                                                                 Documentation & Legal Department of
                                                                                 the Investment Adviser from 2003 to
                                                                                 2005, General Manager of Legal
                                                                                 Department from 1999 to 2003.

Rita Chopra-Brathwaite (36)     Treasurer           Treasurer since 2002         Vice President of the Manager since
                                                                                 2001, Assistant Vice President from
                                                                                 1999 to 2000.

Neil Daniele (45)               Secretary           Secretary since 2002         Senior Vice President of the Manager
                                                                                 since 2002; Vice President and
                                                                                 Compliance Officer of Munich Re
                                                                                 Capital Management Corp. (asset
                                                                                 management firm) from 2001 to 2002;
                                                                                 Vice President of AIG Global
                                                                                 Investment Group, Inc. (asset
                                                                                 management firm) from 2000 to 2001;
                                                                                 Compliance Officer of AIG Global
                                                                                 Investment Corp. from 1996 to 2000.

</TABLE>

*     The address of each officer listed above is Two World Financial Center,
      Building B, New York, New York 10281
**    Elected annually by and serves at the pleasure of the Board of
      Directors.


                                      51
<PAGE>


OWNERSHIP OF SECURITIES

As of the Record Date, the Fund's Directors and executive officers, as a
group, owned less than 1% of the Fund's outstanding Shares. The information as
to ownership of securities which appears below is based on statements
furnished to the Fund by its Directors and executive officers.


As of November 8, 2005, the dollar range of equity securities owned
beneficially by each Director in the Fund and in all registered investment
companies overseen by the Director within the same family of investment
companies as the Fund was as follows:


<TABLE>
<CAPTION>

                                                                                  Aggregate Dollar Range of Equity
                                                                                    Securities in All Registered
                                                                                  Investment Companies Overseen by
                                         Dollar Range of Equity Securities in     Director in Family of Investment
           Name of Director                            the Fund                               Companies
- ----------------------------------      -------------------------------------     ---------------------------------
<S>                                                     <C>                                <C>
William G. Barker, Jr.                                   None                                   None
William K. Grollman                                      None                                   None
Chor Weng Tan                                            None                              $10,001-$50,000
Arthur R. Taylor                                         None                                   None
Hiroshi Terasaki                                         None                                   None
John F. Wallace                                          None                              $10,001-$50,000
</TABLE>






As of November 8, 2005, the Directors and officers of the Fund as a group
(eleven persons) owned an aggregate of less than 1% of the outstanding shares
of the Fund. At such date, all of the officers of the Fund as a group (five
persons) owned an aggregate of less than 1% of the outstanding shares of
Nomura Holdings, Inc., the parent company of each of the Manager and the
Investment Adviser.


COMMITTEES OF THE BOARD OF DIRECTORS

Current Committees and Members

The Fund has a standing Audit Committee and a Nominating Committee. The Audit
Committee and Nominating Committee are composed entirely of Directors who are
not "interested persons" of the Fund or the Fund's Manager within the meaning
of the 1940 Act and who are "independent" as defined in the NYSE listing
standards.

Audit Committee

The Audit Committee is responsible for the selection and engagement of the
Fund's independent public accountants (subject to ratification by the Board of
Directors), pre-approves and reviews both the audit and non-audit work of the
Fund's independent public accountants, and reviews compliance of the Fund with
regulations of the SEC and the Internal Revenue Service, and other related
matters.


The Board of Directors has adopted a Charter for its Audit Committee. The
Audit Committee has received the written disclosures and the letter required
by Independence Standards Board Standard No. 1 from [___________] ("[__]"),
the Fund's independent registered public accounting firm, and has discussed
with [__] its independence. The Audit Committee has also reviewed and
discussed the audited financial statements with Fund management and [__], and
discussed certain matters with [__] required to be discussed by Statements on
Auditing Standards


                                      52
<PAGE>


Nos. 61 and 90. Based on the foregoing, the Audit Committee recommended to the
Board of Directors that the Fund's audited financial statements be included in
the Fund's Annual Report to Stockholders for the fiscal year ended February
28, 2005. The members of the Fund's Audit Committee are Messrs. William G.
Barker, Jr., William K. Grollman, Chor Weng Tan, Arthur R. Taylor and John F.
Wallace. The Audit Committee Charter is available upon request to the Fund at
Two World Financial Center, Building B, New York, New York 10281 (or by
calling (800) 833-0018).


Nominating Committee; Consideration of Potential Director Nominees

The Nominating Committee makes recommendations to the Board of Directors
regarding nominations for membership on the Board of Directors. It evaluates
candidates' qualifications for Board of Directors membership and, with respect
to nominees for positions as independent directors, their independence from
the Fund's Manager and other principal service providers. The Committee
periodically reviews Director compensation and will recommend any appropriate
changes to the Board of Directors as a group. This Committee also reviews and
may make recommendations to the Board of Directors relating to those issues
that pertain to the effectiveness of the Board of Directors in carrying out
its responsibilities in governing the Fund and overseeing the management of
the Fund. The members of the Fund's Nominating Committee are Messrs. William
G. Barker, Jr., William K. Grollman, Chor Weng Tan, Arthur R. Taylor and John
F. Wallace.

The Nominating Committee will consider potential independent director
candidates recommended by Stockholders provided that the proposed candidates
satisfy the criteria for independent directors adopted by the Nominating
Committee and any applicable regulatory requirements; are not "interested
persons" of the Fund or the Fund's Manager within the meaning of the 1940 Act;
and are "independent" as defined in the NYSE listing standards.


The Board of Directors has adopted a charter for the Nominating Committee
which is available upon request to the Fund at Two World Financial Center,
Building B, New York, New York 10281 (or by calling (800) 833-0018).


No nominee recommendations have been received from Stockholders. The
Nominating Committee may modify its policies and procedures for director
nominees and recommendations from time to time in response to changes in the
Fund's needs and circumstances, and as applicable legal or listing standards
change.

Board of Directors and Committee Meetings in Fiscal 2005

During the Fund's fiscal year ended February 28, 2005, the Board of Directors
held four regular meetings, two special meetings, two Audit Committee meetings
and one Nominating Committee meeting. Each Director then in office attended
75% or more of the aggregate number of regular and special meetings of the
Board of Directors and those Committees of which each Director is a member.

COMPENSATION OF OFFICERS

The Fund does not pay its officers for the services they provide to the Fund,
except for those expenses incurred in connection with Board of Directors or
Stockholders meetings which are reimbursed by the Fund under the Fund's
reimbursement policy. Instead, the officers who are also officers or employees
of the Manager are compensated by the Manager.


                                      53
<PAGE>


COMPENSATION OF DIRECTORS

The Manager pays all compensation of all Directors of the Fund who are
affiliated with the Manager or any of its affiliates. The Fund pays to each
Director not affiliated with the Manager or any of its affiliates an annual
fee of $10,000 plus $1,000 per Board of Directors or committee meeting
attended, together with such Director's actual out-of-pocket expenses relating
to attendance at meetings. Mr. Barker, who has been designated by the
Directors not affiliated with the Fund to serve as Lead Director, is paid an
additional $5,000, effective June 2005. Such fees and expenses aggregated
$86,500 for the fiscal year ended February 28, 2005.


The following table sets forth the aggregate compensation (not including
expense reimbursements) paid by the Fund to each Director (other than Mr.
Yasushi Suzuki, who received no director fees or other compensation for
services as a Director of the Fund) during the fiscal year ended February 28,
2005, as well as the total compensation paid by the Fund to each Director.


<TABLE>
<CAPTION>
                                                             Pension or Retirement     Aggregate Compensation From
                                 Aggregate Compensation     Benefits Accrued As Part       Fund Complex Paid to
                                From Fund for its Fiscal    of Fund Expenses for its       Directors During the
                                Year Ended February 28,        Fiscal Year Ended           Calendar Year Ended
      Name of Director                    2005                 February 28, 2005            December 31, 2004*
- ----------------------------    ------------------------    ------------------------   ----------------------------
<S>                                     <C>                           <C>                        <C>
William G. Barker, Jr.                  $17,500                       None                       $30,500
William K. Grollman                      17,500                       None                        29,500
Yasushi Suzuki**                           --                         None                          --
Chor Weng Tan                            17,500                       None                        30,500
Arthur R. Taylor                         16,500                       None                        29,000
John F. Wallace                          17,500                       None                        30,500
</TABLE>

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

*     In addition to the Fund, the "Fund Complex" includes Korea Equity Fund,
      Inc. Because the funds in the Fund Complex do not share a common fiscal
      year, the information relating to compensation from the Fund Complex
      paid to the Directors is provided as of December 31, 2004.

**    Mr. Suzuki resigned as a Director effective June 20, 2005.

                                CODE OF ETHICS

The Fund and the Manager have adopted a joint code of ethics in accordance
with Rule 17j-1 under the 1940 Act. The Investment Adviser has adopted a
separate code of ethics in accordance with Rule 17j-1 under the 1940 Act. The
Fund's Dealer Manager has also adopted a code of ethics in accordance with
Rule 17j-1 under the 1940 Act. Subject to certain conditions and restrictions,
these codes of ethics permit personnel who are subject to them to invest in
securities, including securities that may be purchased or held by the Fund.


Each of these codes of ethics may be reviewed and copied at the Public
Reference Room of the SEC in Washington, D.C. Information on the operation of
the Public Reference Room may be obtained by calling the SEC at
1-202-942-8090. These codes of ethics are also available on the EDGAR Database
on the SEC's Internet site at www.sec.gov. Copies of these codes of ethics may
be obtained, after paying a duplicating fee, by electronic request to
publicinfo@sec.gov, or by writing to the SEC's Public Reference Section,
Washington, D.C. 20549-0102. The Fund's code of ethics is available upon
request to the Fund at Two World Financial Center, Building B, New York, New
York 10281 (or by calling (800) 833-0018).



                                      54
<PAGE>


                MANAGEMENT AND INVESTMENT ADVISORY ARRANGEMENTS

The Manager

The Manager acts as the management company for the Fund. The Manager, a New
York corporation with its office located at Two World Financial Center,
Building B, New York, New York 10281, is a subsidiary of the Investment
Adviser. The Manager also provides global investment advisory services,
primarily with respect to Japanese securities and other Pacific Basin
securities, for North American institutional clients. The Manager also acts as
one of the investment advisers to 11 other investment companies (one of which
is registered as an investment company under the 1940 Act).

Under its management agreement with the Fund (the "Management Agreement"), the
Manager agrees to provide, or arrange for the provision of, investment
advisory and management services to the Fund, subject to the oversight and
supervision of the Board of Directors of the Fund. In addition to the
management of the Fund's portfolio in accordance with the Fund's investment
objective and policies and the responsibility for making decisions to buy,
sell or hold particular securities, the Manager is obligated to perform, or
arrange for the performance of the administrative and management services
necessary for the operation of the Fund. The Manager is also obligated to
provide all the office space, facilities, equipment and personnel necessary to
perform its duties thereunder.

The Investment Adviser

In accordance with the terms of the Management Agreement, the Manager has
retained the Investment Adviser to act as the investment adviser for the Fund.
Pursuant to the investment advisory agreement between the Manager and the
Investment Adviser (the "Investment Advisory Agreement"), the Investment
Adviser has agreed to (i) furnish the Fund with economic research, securities
analysis and investment recommendations, (ii) review and render investment
advice with respect to the Fund, (iii) make decisions to buy, sell or hold
particular securities, (iv) execute portfolio transactions, and (v) pursuant
to investment discretion delegated to the Investment Adviser by the Manager,
exercise investment discretion, including stock selection and order placement
responsibility, with respect to the Fund's portfolio. The Manager has a
significant compliance role with respect to, and is responsible for reviewing
all transactions effected by, the Investment Adviser. The Investment Adviser,
a Japanese corporation with its principal office located at 1-12-1,
Nihombashi, Chuo-ku, Tokyo 103-8260, Japan, provides investment advisory
services for Japanese and international clients. The Investment Adviser,
together with its affiliates, had approximately $154 billion in assets under
management as of September 30, 2005. The Investment Adviser is owned 100% by
Nomura Holdings, Inc. Nomura Securities Co., Ltd., also owned by Nomura
Holdings, Inc. is the largest securities company in Japan.


Mr. Takeshi Ebihara, Senior Portfolio Manager of the Fund, works in the Japan
Equity Small/Mid Cap team for Institutional Clients of the Investment Adviser
and is primarily responsible for the day-to-day management of the portfolio of
the Fund. Mr. Ebihara has held such responsibilities for the Fund since April
2004. In addition to the Fund, he manages 14 accounts investing in small
capitalization securities which total approximately 59.11 billion yen as of
August 31, 2005 ($[_______] at such date). Mr. Ebihara served as an analyst in
the Corporate Research Department of the Investment Adviser from 2003 to April
2004, and as a Portfolio Manager for Japanese pension funds in the Japan
Equity Investment Department of the Investment Adviser from 1997 to 2003. For
a discussion of Mr. Ebihara's compensation, see "Management and Investment
Advisory Arrangements--Portfolio Manager Compensation."



                                      55
<PAGE>


Compensation and Expenses


As compensation for its services to the Fund, the Manager receives a monthly
fee at the annual rate of 1.10% of the value of the Fund's average weekly net
assets (i.e., the average weekly value of the total assets of the Fund minus
the sum of accrued liabilities of the Fund) not in excess of $50 million,
1.00% of the Fund's average weekly net assets in excess of $50 million but not
in excess of $100 million, 0.90% of the Fund's average weekly net assets in
excess of $100 million but not in excess of $175 million and 0.80% of the
Fund's average weekly net assets in excess of $175 million. This fee is higher
than that paid by most management investment companies, but is comparable to
fees paid by many U.S. investment companies that invest primarily in a single
foreign country.


For services performed under the Investment Advisory Agreement, the Investment
Adviser receives a monthly fee from the Manager at the annual rate of 0.50% of
the Fund's average weekly net assets not in excess of $50 million, 0.45% of
the Fund's average weekly net assets in excess of $50 million but not in
excess of $100 million, 0.40% of the Fund's average weekly net assets in
excess of $100 million but not in excess of $175 million and 0.35% of the
Fund's average weekly net assets in excess of $175 million.

For purposes of this calculation, average weekly net assets are determined at
the end of each month on the basis of the average net assets of the Fund for
each week during the month. The assets for each weekly period are determined
by averaging the net assets at the last business day of a week with the net
assets at the last business day of the prior week.

For the fiscal years ended February 28, 2005, February 29, 2004 and February
28, 2003, the Fund paid or accrued on behalf of the Manager aggregate
management fees of $1,680,234, $1,233,249 and $1,081,500, respectively. The
Manager informed the Fund that during the same fiscal years, the Manager paid
aggregate advisory fees of $753,257, $556,341 and $488,881, respectively, to
the Investment Adviser.

The Board of Directors of the Fund most recently approved the continuance of
the Management and Investment Advisory Agreements on August 10, 2005. A
discussion regarding the basis for such approval will be contained in the
Fund's semi-annual report for the period ending August 31, 2005.


The Manager and the Investment Adviser will benefit from the Offer because
their fees are based on the average of the net assets of the Fund at the end
of each month included in the applicable performance period. It is not
possible to state precisely the amount of additional compensation the Manager
and the Investment Adviser will receive as a result of the Offer because it is
not known how many shares will be subscribed for and because the proceeds of
the Offer will be invested in additional portfolio securities which will
fluctuate in value. However, based on the estimated proceeds from the Offer,
assuming all the Rights are exercised in full at the estimated Subscription
Price of $[___] per share, and after payment of the Dealer Manager fees and
estimate of expenses, the Manager would receive additional annual fees of
approximately $[___] as a result of the increase in assets under management
over the Fund's current assets under management.


The Management Agreement obligates the Manager to provide, or arrange for the
provision of, investment advisory services and to pay all compensation of and
furnish office space for officers and employees of the Fund, as well as the
fees of all Directors of the Fund who are affiliated persons of the Manager or
any of its affiliates. The Fund pays all other expenses incurred in its
operation, including, among other things, taxes; expenses for legal, tax and
auditing services; listing fees; costs of printing proxies, stock
certificates, stockholder reports and prospectuses; charges of the custodian,
sub-custodians and transfer agent; SEC fees; expenses of registering the
shares under Federal, state or foreign laws; fees and expenses of unaffiliated
Directors; accounting and pricing costs (including the weekly calculation of


                                      56
<PAGE>


NAV); insurance; interest; brokerage costs; litigation and other extraordinary
or non-recurring expenses; and other expenses properly payable by the Fund.

Duration and Termination

Unless earlier terminated as described below, the Management Agreement and the
Investment Advisory Agreement will remain in effect from year to year if
approved annually (a) by the Board of Directors of the Fund or by a majority
of the outstanding shares of the Fund and (b) by a majority of the Directors
who are not parties to such contracts or interested persons (as defined in the
1940 Act) of any such party. Such contracts are not assignable and may be
terminated without penalty on 60 days' written notice at the option of either
party thereto or by the vote of the stockholders of the Fund.

Enforceability

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

Relationship of a Director to the Manager

Mr. Hiroshi Terasaki, a Director and President of the Fund, also serves as the
President and Director of the Manager.

Portfolio Manager Compensation


Other Accounts Managed by the Portfolio Manager. As of August 31, 2005, Mr.
Ebihara, the Fund's portfolio manager (the "Portfolio Manager"), was primarily
responsible for the day-to-day portfolio management for the Fund, for three
other pooled investment vehicles that are not registered investment companies
under the 1940 Act (with total assets of 3.88 billion yen) and for 11 other
accounts (with total assets of 55.23 billion yen). None of the investment
advisory fees with respect to these accounts is based on the performance of
the account.


Securities Ownership of Portfolio Manager. As of August 31, 2005, Mr. Ebihara
did not own beneficially any securities issued by the Fund.

Portfolio Manager Compensation Structure. The Portfolio Manager receives a
combination of base compensation and discretionary compensation consisting of
a cash bonus. The methodology used to determine the Portfolio Manager's
compensation is applied across all accounts managed by the Portfolio Manager.

Base Salary Compensation. Generally, the Portfolio Manager receives fixed
salary compensation based on his duties and performance. The amount of base
salary is reviewed annually after completion of the formal performance
appraisal process. In order to appraise the Portfolio Manager's performance,
certain measures are used, such as a review of his specialties and expertise,
a review of his capabilities to achieve assigned duties and a review of his
management and communication skills.


Discretionary Compensation. In addition to base compensation, the Portfolio
Manager may receive discretionary compensation in the form of a cash bonus.
The bonus, which is paid semi-annually, is based on both quantitative and
qualitative scores. The quantitative score is determined prior to payment
based on the performance of the Portfolio Manager's accounts, measured on a


                                      57
<PAGE>


pre-tax basis for rolling three-year periods against the RN Small Cap Index. The
quantitative scoring for purposes of the bonus comprises 60 percent of the
performance appraisal measurement. The qualitative score is determined by
analyzing the quality of the Portfolio Manager's contribution to the
Investment Adviser. While the bonus can range up to 100 percent or more of
base salary, the Investment Adviser has indicated that cash bonuses typically
represent approximately 20 to 40 percent of its portfolio managers' aggregate
cash compensation.

Potential Material Conflicts of Interest. Real, potential or apparent
conflicts of interest may arise where a portfolio manager has day-to-day
responsibilities with respect to more than one account. These conflicts
include the following: (i) the process for allocation of investments among
multiple accounts for which a particular investment may be appropriate, (ii)
allocation of a portfolio manager's time and attention among relevant accounts
and (iii) circumstances where the Investment Adviser has an incentive fee
arrangement or other interest with respect to one account that does not exist
with respect to other accounts.


                               LEGAL PROCEEDINGS

The Fund is not currently a party to any material legal proceedings.

                              PROXY VOTING POLICY


Summary of Proxy Voting Policies and Procedures of the Fund


The Fund's proxy voting policies and procedures seek to assure that proxies
received by the Fund are voted in the best interests of the Fund's
Stockholders. Because the investment philosophy of the Manager is generally
consistent with the investment objective of the Fund and the economic
interests of its Stockholders, investment decisions for the Fund should
generally be consistent with its Manager's philosophy. In proxy voting
decisions, as in other investment decisions, the Manager exercises proxy
voting decisions solely in the best interest of the Fund's Stockholders.

Accordingly, the Fund's proxy voting policies and procedures delegate all
responsibility for proxy voting to the Manager, provided that the Board of
Directors has the opportunity to periodically review and approve the Manager's
proxy voting policies and any material amendments. In addressing potential
conflicts of interest, the Fund's procedures provide that the Manager follow
an alternative voting procedure instead of voting in its sole discretion. The
proxies may be voted in accordance with the recommendations made by third
party proxy voting service vendors only when the business generates more than
1% of the total revenue of the Manager, and when the proposal to be voted on
may provide an undue enrichment to a director, officer, or another affiliate
of such business. However, the Fund allows the Manager to resolve conflicts of
interest in any reasonable manner consistent with the alternative voting
procedures described in its proxy voting policy.

The Fund shall annually file Form N-PX disclosing its proxy voting record for
the most recent twelve-month period. A description of the Fund's proxy voting
record for the most recent twelve-month period ended June 30 is available
without charge on the SEC's website at www.sec.gov. The Fund's proxy voting
policies and procedures are available upon request to the Fund at Two World
Financial Center, Building B, New York, New York, 10281 (or by calling (800)
833-0018).


                                      58
<PAGE>



Summary of the Manager's Proxy Voting Policies and Procedures


The Manager's proxy voting policies and procedures reflect the substantial
differences between proxy voting at stockholders' meetings held in the United
States and proxy voting in Japan. The Manager seeks to vote proxies in the
best interests of the Fund and its Stockholders in accordance with the
Manager's fiduciary duties and Rule 206(4)-6 of the Investment Advisers Act of
1940.

The Manager will vote the shares of stock owned by the Fund in the best
interests of the Fund and its Stockholders. The Manager is responsible for
identifying the cases when it may be faced with a potential conflict of
interest in voting shares of the Fund's investments in the best interest of
the Fund and its Stockholders. If a potential conflict of interest exists, the
Manager can only exercise its voting authority after careful investigation and
research of the issues involved. The Manager can consult with third party
proxy voting service vendors and could, in exceptional cases, make the
determination that not voting the securities is in the best interest of the
Fund. In attempting to eliminate a potential material conflict of interest,
the Manager may vote in accordance with its policies and procedures if a
routine matter is involved; vote as recommended by an independent third party
which has no knowledge of the nature of the material conflict of interest or
does not itself have a material conflict of interest; or notify the Board of
Directors of the material conflict of interest and seek a waiver of the
conflict.

In accordance with its policies and procedures, the Manager will generally
support existing management on votes on the financial statements of the issuer
and the election of the board of directors; vote for the acceptance of the
accounts unless there are grounds to suspect that the accounts as presented or
audit procedures used do not present an accurate picture of company results
and support routine issues such as the appointment of independent auditors,
allocation of income and the declaration of dividends. Where matters are of an
extraordinary nature, or an extraordinary or special meeting is called,
further investigation and consultation may be necessary to analyze all
relevant information to reach a decision as to how to vote and such matters
will be voted on a case by case basis.

                     PORTFOLIO TRANSACTIONS AND BROKERAGE

Subject to policies established by the Board of Directors of the Fund, the
Investment Adviser is primarily responsible for the execution of the Fund's
portfolio transactions. In executing such transactions, the Investment Adviser
seeks to obtain the best net results for the Fund, taking into account such
factors as price (including the applicable brokerage commission or dealer
spread), size of order, difficulty of execution and the facilities of the firm
involved and the firm's risk in positioning a block of securities. While the
Investment Adviser generally seeks reasonably competitive dealer spreads or
commission rates, the Fund does not necessarily pay the lowest spread or
commission available.

The Fund has no obligation to deal with any broker or dealer in execution of
transactions in portfolio securities. The Fund expects that, consistent with
its policy of obtaining best net results and subject to the requirements of
the 1940 Act, a portion of its portfolio transactions conducted on an agency
basis may be conducted through Nomura Securities Co., Ltd. ("Nomura
Securities"). In addition, subject to obtaining best net results, securities
companies which provide supplemental investment research to the Manager and
Investment Adviser, may receive orders for transactions by the Fund.
Information so received will be in addition to and not in lieu of the services
required to be performed by the Manager under the Management Agreement, and
the expenses of the Manager will not necessarily be reduced as a result of the
receipt of such supplemental information. It is possible that certain of the
supplementary investment research so received will primarily benefit one or
more other investment companies or other accounts for which investment
discretion is exercised. Conversely, the Fund may be the primary beneficiary
of the


                                      59
<PAGE>


research or services received as a result of portfolio transactions effected
for such other accounts or investment companies.

Transactions with Affiliates


Because of the affiliation of Nomura Securities with the Fund, the Fund is
prohibited from engaging in certain transactions involving Nomura Securities
or its affiliates absent an exemptive order under the 1940 Act. Without such
an order, the Fund is prohibited from engaging in portfolio transactions with
Nomura Securities or its affiliates acting as principal. In addition, the Fund
is subject to limitations in purchasing securities in offerings in which
Nomura Securities or any of its affiliates participates as an underwriter and
may only affect such transactions in accordance with Rule 10f-3 adopted under
the 1940 Act. [Since underwritten offerings of publicly-traded Japanese common
stocks are currently made at discounts (typically up to 10%) from current
market prices, the Fund's inability to purchase in such offerings would
prevent the Fund from taking advantage of such discounted prices.]


Nomura Securities or any of its affiliates may serve as the Fund's broker in
transactions conducted on an exchange and in over-the-counter transactions
conducted on an agency basis. Costs associated with transactions in foreign
securities are generally higher than with transactions in U.S. securities,
although, as noted above, the Fund will endeavor to achieve the best net
results in effecting such transactions.


For the fiscal year ended February 28, 2005, the Fund paid total brokerage
commissions of $76,188 and the Fund paid no brokerage commissions to Nomura
Securities or its affiliates. For the fiscal year ended February 29, 2004, the
Fund paid total brokerage commissions of $91,097, of which $448, or 0.5%, was
paid to Nomura Securities and its affiliates for effecting 0.19% of the
aggregate amount of transactions on which the Fund paid brokerage commissions.
For the fiscal year ended February 28, 2003, the Fund paid total brokerage
commissions of $382,585, of which $3,588, or 4.7%, was paid to Nomura
Securities and its affiliates for effecting 0.2% of the aggregate amount of
transactions on which the Fund paid brokerage commissions.


Exchanges on Which the Fund Purchases Securities

Under normal market conditions, at least 80% of the Fund's total assets are
invested in equity securities of Smaller Capitalization Companies traded on
the Tokyo, Osaka, Nagoya and JASDAQ Stock Exchanges and Mothers, Hercules and
Centrex markets and included or traded on other indices or markets, as
applicable, determined by the Manager to be appropriate indices or markets for
Smaller Capitalization Companies. The following briefly summarizes each of the
markets that lists the securities of Smaller Capitalization Companies:

      o     Tokyo Stock Exchange. Tokyo Stock Exchange, established in 1878,
            is the largest stock exchange in Japan. Currently, there are
            approximately 2,300 companies listed on the Tokyo Stock Exchange
            with an aggregate market capitalization of 332,133.153 billion yen
            ($3,321 trillion). Approximately 17%% of the companies listed on
            the Tokyo Stock Exchange are Smaller Capitalization Companies
            covered by the RN Small Cap Index.

      o     Osaka Stock Exchange. Osaka Stock Exchange is the second largest
            stock exchange in Japan. There are approximately 950 companies
            listed on the Osaka Stock Exchange, with an aggregate market
            capitalization of 28.800 billion yen.

      o     Nagoya Stock Exchange. Nagoya Stock Exchange is one of the three
            largest stock exchanges in Japan. There are approximately 375
            companies listed on the Nagoya Stock Exchange, with an aggregate
            market capitalization of 16.200 billion yen.


                                      60
<PAGE>


      o     JASDAQ Stock Exchange. JASDAQ Stock Exchange was created in
            December 2004 and is the successor of Jasdaq Market Inc. JASDAQ
            Stock Exchange is the largest over-the-counter market in Japan and
            does not require that companies be profitable for any
            predetermined length of time prior to listing on the exchange.

      o     Mothers. Mothers (market of the high-growth and emerging stocks)
            is a market established by the Tokyo Stock Exchange that provides
            venture companies access to capital markets at an early state of
            their development and provides investors with more diversified
            investment products. Japanese and non-Japanese companies may seek
            a listing on Mothers.

      o     Hercules. Hercules is the successor market to the NASDAQ Japan
            Market, and the New Market Section of the Osaka Stock Exchange.

      o     Centrex. Centrex is the growth company market section of the
            Nagoya Stock Exchange (the "NSE"). The goal of Centrex is to
            provide venture companies that wish to eventually list their
            shares on the larger sections of the NSE with a marketplace to
            raise funds in a flexible manner. Because Centrex does not have
            restrictive listing requirements based on company size or history,
            companies are able to list their shares on Centrex at their
            earliest stage of growth.

                              PORTFOLIO TURNOVER


The Manager will effect portfolio transactions without regard to holding
period, if, in its judgment, such transactions are advisable in light of a
change in circumstance in general market, economic or financial conditions. As
a result of its investment policies, the Fund may engage in a substantial
number of portfolio transactions. Accordingly, while the Fund anticipates that
its annual turnover rate should not exceed 100% under normal conditions, it is
impossible to predict portfolio turnover rates. The portfolio turnover rate is
calculated by dividing the lesser of the Fund's annual sales or purchases of
portfolio securities (exclusive of purchases or sales of securities whose
maturities at the time of acquisition were one year or less) by the monthly
average value of the securities in the portfolio during the year. High
portfolio turnover involves correspondingly greater transaction costs in the
form of dealer spreads and brokerage commissions, which are borne directly by
the Fund. In addition, a high rate of portfolio turnover may result in certain
tax consequences, such as increased capital gain dividends and/or ordinary
income dividends.


The rate of portfolio turnover in the fiscal years ended February 28, 2005,
February 29, 2004 and February 28, 2003, were 86%, 28% and 28%, respectively.

                        NET ASSET VALUE OF COMMON STOCK

The Shares are listed on the NYSE. The NAV is generally determined each day
during which the NYSE is open for trading ("Valuation Date"). The NAV is
calculated by dividing the value of net assets of the Fund (including interest
and dividends accrued but not yet received minus all liabilities including
accrued expenses) by the total number of Shares outstanding. For purposes of
calculating NAV, yen is translated into dollars at the exchange rate provided
by the custodian.

Portfolio securities traded in the over-the-counter market are valued at the
last reported sales price as of the close of business on the Valuation Date
or, if none is available, at the mean of the bid and offer prices at the close
of business on such day or, if none is available, the last reported sales
price. Portfolio securities which are traded on stock exchanges are valued at
the last sales price on the principal market on


                                      61
<PAGE>


which securities are traded or lacking any sales, at the last available bid
price. Short-term debt securities which mature in 60 days or less are valued
at amortized cost if their original maturity at the date of purchase was 60
days of less, or by amortizing their value on the 61st day prior to maturity
if their term to maturity at the date of purchase exceeded 60 days. Securities
and other assets for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the direction of
the Board of Directors of the Fund.

     DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS; DIVIDEND REINVESTMENT PLAN

Dividends and Distributions

The Fund intends to distribute, at least annually, substantially all its net
investment income and its net capital gains, if any. However, as of February
28, 2005, the Fund had a capital loss carryforward which will offset net
capital gains realized by the Fund after that date until the capital loss
carryforward has been completely offset or has expired. As a result, gains
realized by the Fund from the sale or other disposition of portfolio
securities and from certain transactions in futures and options will not give
rise to net capital gains until the capital loss carry forward has been
eliminated. The Fund does not intend to distribute amounts realized from such
transactions until its capital loss carryforward has been eliminated. Details
concerning the capital loss carryforward are contained in the notes to
financial statements that are incorporated in this prospectus.

Dividend Reinvestment Plan

The Dividend Reinvestment Plan (the "Plan") is available automatically for any
holder of Common Stock with shares registered in his/her own name who wishes
to purchase additional shares with income dividends or capital gains
distributions received on shares owned, unless such Stockholder elects to
receive all dividends an capital gain distributions in cash, paid by check and
mailed to the Stockholder. If a Stockholder holds shares in his/her own name,
communications regarding the Plan should be addressed to the plan agent,
EquiServe Trust Company, N.A. (the "Plan Agent"). Under the Plan, Stockholders
appoint the Plan Agent to reinvest dividends and distributions in shares of
the Fund. Such shares will be acquired by the Plan Agent for Stockholders
either through open market purchases if the Fund is trading at a discount or
through the issuance of authorized but unissued shares if the Fund is trading
at NAV or a premium. If the market price of a share on the payable date of a
dividend or distribution is at or above the Fund's NAV on such date, the
number of shares to be issued by the Fund to each Stockholder receiving shares
in lieu of cash dividends or distributions will be determined by dividing the
amount of the cash dividends or distributions to which such Stockholder would
be entitled by the greater of the NAV on such date or 95% of the market price
of a share on such date. If the market price of a share on such distribution
date is below the NAV, the number of shares to be issued to such Stockholders
will be determined by dividing such amount, less brokerage commission, by the
per share market price.

Purchases will be made by the Plan Agent from time to time on the NYSE or
elsewhere to satisfy dividend and distribution investment requirements under
the Plan. Purchases will be suspended on any day when the closing price (or
mean between the closing bid and ask prices there were no sales) of the shares
on the NYSE on the preceding trading day was higher than the NAV. If on the
dividend payable date, purchases by the Fund are insufficient to satisfy
dividend or distribution investments and on the last trading day immediately
preceding the dividend payable date the closing price or the mean between the
closing bid and ask prices of the shares is lower than or the same as the NAV,
the Plan Agent will continue to purchase shares until all investments by
Stockholders have been completed or the closing price or the mean between


                                      62
<PAGE>


the bid and ask prices of the shares becomes higher than the NAV, in which
case the Fund will issue the necessary additional shares from authorized but
unissued shares. If on the last trading day immediately preceding the dividend
payable date, the closing price or the mean between the bid and ask prices of
the shares is higher than the NAV and if the number of shares previously
purchased on the NYSE or elsewhere is insufficient to satisfy dividend
investments, the Fund will issue the necessary additional shares from
authorized but unissued shares. There will be no brokerage charges with
respect to shares issued directly by the Fund to satisfy the dividend
investment requirements. However, each participant will pay a pro rata share
of brokerage commissions incurred with respect to the Fund's open market
purchases of shares. In each case, the cost per share of shares purchased for
each Stockholder's account will be the average cost, including brokerage
commissions, of any shares purchased in the open market plus the cost of any
shares issued by the Fund. For the fiscal year ended February 28, 2005, the
Fund did not issue any new shares for dividend reinvestment purposes.

Stockholders who elect to hold their shares in the name of a broker or other
nominee should contact such broker or other nominee should contact such broker
or other nominee to determine whether they may participate in the Plan. To the
extent such participation is permitted, the Plan Agent will administer the
Plan on the basis of the number of shares certified from time to time by the
broker as representing the total amount registered in the Stockholder's name
and held for the account of beneficial owners who are participating in such
Plan. Stockholders that participate in the Plan holding shares in a brokerage
account may not be able to transfer the shares to another broker and continue
to participate in the Plan. Shareholders who are participating in the Plan may
withdraw from the Plan at any time. There will be no penalty for withdrawal
from the Plan, and Stockholders who have previously withdrawn from the Plan
may rejoin it at any time. Changes in participation in the Plan should be made
by contacting the Plan Agent if the shares are held in the Stockholder's own
name and must be in writing and should include the Stockholder's name and
address as they appear on the account registration. If the shares are held in
the name of a broker or other nominee, such person should be contacted
regarding changes in participation in the Plan. Upon withdrawal from the Plan,
the Plan Agent will deliver to the Stockholder a certificate or certificates
for the appropriate number of full shares and a cash payment for any
fractional shares. In lieu of receiving a certificate, the Stockholder may
request the Plan Agent to sell part or all of the Stockholder shares at the
market price and remit the proceeds to the Stockholder, net of any brokerage
commissions. A $2.50 fee will be charged by Plan Agent upon any cash
withdrawal or termination. An election to withdraw from the Plan will, until
such election is changed, be deemed to an election by a Stockholder to take
all subsequent distributions in cash. An election will be effective only for a
dividend or distribution is received by the Plan Agent not less than 10 days
prior to such record date.

The Plan Agent will maintain all Stockholders' accounts in the Plan, and
furnish written confirmation of all transactions in such account, including
information needed by Stockholders tax records. Shares in the account of each
Plan participant may be held by the Plan Agent in certificated form in the
name of the participant, and each Stockholder's proxy will include those
shares purchased or received pursuant to the Plan.

The automatic reinvestment of dividends will not relieve participants of any
income taxes that may be payable (or required to be withheld) on such
dividends. Stockholders receiving dividends or distributions in the form of
additional shares pursuant to the Plan should be treated for Federal income
tax purposes as receiving a distribution in an amount equal to the amount of
money that the Stockholders receiving cash dividends or distributions will
receive and should have a cost basis in the shares received equal to such
amount.

The Fund reserves the right to amend or terminate the Plan as applied to any
dividend paid subsequent to written notice of the change sent to participants
in the Plan at least 90 days before the record date for such dividend. There
is no service charge to participants in the Plan; however, the Fund reserves
the right to amend the Plan to include a service change payable by
participants. All correspondence concerning the Plan, including requests for
additional information about the Plan, should be directed to the Plan Agent.


                                      63
<PAGE>


All correspondence concerning the Plan should be directed to the Plan Agent at
EquiServe Trust Company, N.A., 150 Royall Street, Canton, Massachusetts 02021.

JAPANESE FOREIGN EXCHANGE AND FOREIGN TRADE LAW

General

The Foreign Exchange and Foreign Trade Law of Japan and the cabinet orders and
ministerial ordinances thereunder (collectively, the "Foreign Exchange Law")
govern certain aspects relating to the transfer of the shares and acquisition
and holding of the shares by "exchange non-residents" and by "foreign
investors" (both as hereinafter defined).

"Exchange non-residents" are defined as individuals who are not resident in
Japan and corporations whose principal offices are located outside Japan.
Generally, branches and other offices located within Japan of non-resident
corporations are regarded as exchange residents of Japan and branches and
other offices of Japanese corporations located outside Japan are regarded as
exchange non-residents of Japan.

"Foreign investors" are defined to be (i) individuals not resident in Japan,
(ii) corporations which are organized under the laws of foreign countries or
whose principal offices are located outside Japan and (iii) corporations not
less than 50 percent of the voting rights of which are held by (i) and/or
(ii), or a majority of the officers (or officers having the power of
representation) of which are non-resident individuals.

The Fund is considered to be an exchange non-resident and foreign investor.

Acquisition of Shares

In general, the acquisition of shares of a Japanese company listed on a
Japanese stock exchange in Japan ("listed shares") by an exchange non-resident
from an exchange resident of Japan is not subject to the prior filing
requirement, provided that the Foreign Exchange Law gives the Minister of
Finance the power in certain very exceptional circumstances to require prior
approval for any such acquisition. An exchange resident who transferred listed
shares to an exchange non-resident for value exceeding 100 million yen is
generally required to file a report concerning the transfer of securities with
the Minister of Finance within 20 days of the date of such transfer.

If a foreign investor acquires listed shares and as a result of such
acquisition, aggregated with their existing holdings, if any, such foreign
investor and certain related parties hold 10% or more of the issued shares of
the relevant company, the foreign investor must file a report of such
acquisition with the Minister of Finance and any other competent Minister
within 15 days from and including the date of such acquisition. In certain
exceptional cases, however, a prior notification of such acquisition must be
filed with the Minister of Finance and any other competent Minister, who may
modify or prohibit the proposed acquisition.

Dividends and Proceeds of Sales

Under the Foreign Exchange Law, dividends paid on, and the proceeds of sales
in Japan of, shares held by exchange non-residents may, in general, be
converted into any foreign currency and repatriated abroad. The acquisition of
shares by exchange non-residents by way of stock splits is not subject to any
notification or reporting requirements.


                                      64
<PAGE>


                                   TAXATION

The following is intended to be a general summary of certain tax consequences
that may result to the Fund and its Stockholders. It is not intended as a
complete discussion of all such tax consequences, nor does it purport to deal
with all categories of investors. Investors are therefore advised to consult
with their tax advisers before making an investment in the Fund. The summary
is based on the laws in effect on the date of this prospectus, which are
subject to change. For a description of the Federal income tax consequences of
the Offer, see "The Offer--Federal Income Tax Consequences of the Offer."

U.S. TAX CONSIDERATIONS

The Fund has elected to be treated and intends to continue to qualify annually
to be treated as a regulated investment company under the Code. To qualify as
a regulated investment company, the Fund must, among other things, (a) derive
in each taxable year at least 90% of its gross income from (i) dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock, securities or foreign currencies, or other income
derived with respect to its business of investing in stocks, securities or
currencies and (ii) net income from an interest in a qualified publicly traded
partnerships as defined in the Code; (b) diversify its holdings so that, at
the end of each quarter of the taxable year, (i) at least 50% of the market
value of the Fund's total assets is represented by cash, U.S. Government
securities, securities of other regulated investment companies and other
securities, with such other securities of any one issuer limited for the
purposes of this calculation to an amount not greater than 5% of the value of
the Fund's total assets and 10% of the outstanding voting securities of such
issuer and (ii) not more than 25% of the value of its total assets is invested
in the securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies or, of any two or more
issuers that the Fund controls and that are determined to be engaged in the
same or similar or related business or the securities of one or more qualified
publicly traded partnerships as defined in the Code); and (c) distribute at
least 90% of its investment company taxable income (which includes, among
other items for this purpose, dividends, interest and net short-term capital
gains in excess of net long-term capital losses) each taxable year. For
purposes of the diversification requirements descried above, the outstanding
voting securities of any issuer includes the equity securities of a "qualified
publicly traded partnership".

As a regulated investment company, the Fund generally will not be subject to
U.S. Federal income tax on its investment company taxable income and net
capital gains (net long-term capital gains in excess of the sum of net
short-term capital losses and capital loss carryovers from prior years, if
any) that it distributes to Stockholders. The Fund intends to distribute to
its Stockholders, at least annually, substantially all of its investment
company taxable income, as computed for U.S. Federal income tax purposes. To
the extent the Fund retains its net capital gains for investment, it will be
subject under current tax rates to a Federal income tax at a maximum effective
rate of 35% on the amount retained. See "--Distributions" below.

Amounts not distributed on a timely basis in accordance with a calendar-year
distribution requirement are subject to a nondeductible 4% federal excise tax
payable by the Fund. To avoid the tax, the Fund must distribute, or be deemed
to have distributed, during each calendar-year at least an amount equal to the
sum of (1) 98% of its ordinary income (not taking into account any capital
gains or losses) for the calendar year, (2) 98% of its capital gains in excess
of its capital losses (adjusted for certain ordinary losses) for the
twelve-month period ending on October 31 of the calendar year and (3) all
ordinary income and capital gains for previous years that were not distributed
during such years. To prevent application of the excise tax, the Fund
currently intends to make its distributions in accordance with the
calendar-year distribution requirement. Compliance with the calendar year
distribution requirement may limit the extent to which the Fund will be able
to retain its net capital gains for investment.


                                      65
<PAGE>


A distribution will be treated as paid on December 31 of a calendar year if it
is declared by the Fund in October, November or December of that year to
Stockholders of record on a date in such a month and paid by the Fund during
January of the following calendar year. Such distributions will be taxable to
Stockholders in the calendar year in which the distributions are declared,
rather than the calendar year in which the distributions are received.

If in any taxable year the Fund fails to qualify as a regulated investment
company under the Code, the Fund will be taxed in the same manner as an
ordinary corporation and distributions to its Stockholders will not be
deductible by the Fund in computing its taxable income. In addition, in the
event of a failure to qualify, the Fund's distributions, to the extent derived
from the Fund's current or accumulated earnings and profits, will constitute
dividends (eligible for the corporate dividends-received deduction or
treatment as qualified dividend income, as applicable) which are taxable to
Stockholders as ordinary income, even though those distributions might
otherwise (at least in part) have been treated in the Stockholders' hands as
long-term capital gains. If the Fund fails to qualify as a regulated
investment company in any year, it will be required to pay out its earnings
and profits accumulated in that year in order to qualify again as a regulated
investment company and may in certain circumstances be required to pay tax on
unrealized gains.

The Fund may invest in shares of foreign corporations which may be classified
under the Code as passive foreign investments companies ("PFICs"). In general,
a foreign corporation is classified as a PFIC if at least one-half of its
assets constitute investment-type assets or 75% or more of its gross income is
investment-type income. If the Fund receives an "excess distribution" with
respect to PFIC stock, the Fund itself may be subject to a tax on a portion of
the excess distribution, whether or not the corresponding income is
distributed by the Fund to Stockholders. In general, under the PFIC rules, an
excess distribution is treated as having been realized ratably over the period
during which the Fund held the PFIC shares. The Fund itself will be subject to
tax on the portion, if any, of an excess distribution that is so allocated to
prior Fund taxable years and an interest factor will be added to the tax, as
if the tax had been payable in such prior taxable years. Certain distributions
from a PFIC as well as gain from the sale of PFIC shares are treated as excess
distributions. Excess distributions are characterized as ordinary income even
though, absent application of the PFIC rules, certain excess distributions
might have been classified as capital gain.

The Fund may be eligible to elect alternative tax treatment with respect to
PFIC shares. Under an election that currently is available in some
circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year. If this
election was made, the special rules, discussed above, relating to the
taxation of excess distributions, would not apply. In addition, another
election may be available that would involve marking to market the Fund's PFIC
shares at the end of each taxable year (and on certain other dates prescribed
in the Code), with the result that unrealized gains are treated as though they
were realized. If this election were made, tax at the Fund level under the
PFIC rules would generally be eliminated, but the Fund could, in limited
circumstances, incur nondeductible interest charges and any mark to market
gains would be treated as ordinary income.

Because the application of the PFIC rules may affect, among other things, the
character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC shares, as well as subject the Fund
itself to tax on certain income from PFIC shares, the amount that must be
distributed to Stockholders, and which will be taxed to Stockholders as
ordinary income or long-term income capital gain, may be increased or
decreased substantially as compared to a fund that did not invest in PFIC
shares.


                                      66
<PAGE>


The Fund has received a private letter ruling from the Internal Revenue
Service that provides that the Fund will not recognize gain or loss on the
distribution of stocks or securities to Stockholders in connection with
repurchase offers made by the Fund.

Distributions

Dividends paid out of the Fund's investment company taxable income (which
includes any net short-term capital gains) will be taxable to a U.S.
Stockholder as ordinary income to the extent attributable to the Fund's
current and accumulated earnings and profits. Distributions of net capital
gains (net long-term capital gains in excess of the sum of net short-term
capital losses and any capital loss carryovers from prior years), if any,
designated by the Fund as capital gain dividends, are taxable as long-term
capital gains, regardless of how long the Stockholder has held the Fund's
Shares.

Dividends paid by the Fund will not qualify for the deduction for dividends
received by corporations because the Fund's income is not expected to consist
of dividends paid by U.S. corporations. The tax rate on certain dividend
income and long-term capital gain applicable to non-corporate Stockholders has
been reduced for taxable years ending in or prior to 2008. Distributions
comprised of dividends from domestic corporations and certain foreign
corporations (generally, corporations incorporated in a possession of the
United States, some corporations eligible for treaty benefits under a treaty
with the United States and corporations whose stock is readily tradable on an
established securities market in the United States) are treated as "qualified
dividend income" eligible for taxation at a maximum tax rate of 15% in the
hands of non-corporate Stockholders. However, a "qualified foreign
corporation" does not include a foreign corporation which for the taxable year
of the corporation in which such dividends were paid, or the preceding taxable
year, is a "passive foreign investment company," as defined under the Code. A
certain portion of the Fund's dividends when paid by to non-corporate
Stockholders may be eligible for treatment as qualified dividend income. In
order for dividends paid by the Fund to be qualified dividend income, the Fund
must meet holding period and certain other requirements with respect to the
dividend-paying stocks in its portfolio and the non-corporate Stockholder must
meet a holding period and certain other requirements with respect to the
Fund's shares.

In the event the Fund retains any net capital gains, it may designate such
retained amounts as undistributed capital gains in a notice to its
Stockholders. In the event such a designation is made, Stockholders subject to
U.S. tax would include in income, as long-term capital gains, their
proportionate share of such undistributed amounts, but would be allowed a
credit or refund, as the case may be, for their proportionate share of the 35%
tax paid by the Fund. If the designation is made, for U.S. Federal income tax
purposes, the tax basis of Shares owned by a Stockholder would be increased by
an amount equal to 65% of the amount of undistributed capital gains included
in the Stockholder's income.

Investment company taxable income will be increased or decreased by the amount
of foreign currency gains or losses realized by the Fund in connection with
the disposition of yen-denominated debt securities as well as changes in
yen/dollar exchange rates between the time the Fund accrues a receivable
(typically, dividends, interest and payments for securities sold) or payable
(typically, expenses and payments for securities purchased) and the time such
receivable or payable is satisfied. The Fund cannot predict the impact of such
transactions on company taxable investment income. The Fund believes that any
foreign currency gains will generally be treated as qualifying income under
current federal income tax law for purposes of the gross income requirement
described above. However, the Code expressly provides the U.S. Treasury with
authority to issue regulations that would exclude foreign currency gains from
qualifying income if such gains are not directly related to a regulated
investment company's business of investing in stock or securities (or options
or futures with respect to stocks or securities). While to date the U.S.
Treasury has not exercised this regulatory authority, there can be no
assurance that it will not issue regulations in the future (possibly with
retroactive application) that would treat some or all of the


                                      67
<PAGE>


Fund's foreign currency gains as non-qualifying income for purposes of the
gross income requirement described above.

Sales of Shares

Upon the sale or other disposition of Shares of the Fund, a Stockholder
generally will realize a taxable gain or loss in an amount equal to the
difference between the proceeds of the sale or other dispositions and the
Stockholder's adjusted tax basis in the Shares. Such gain or loss will be a
capital gain or loss if the Shares are capital assets in the Stockholder's
hands and generally will be long-term or short-term depending upon the
Stockholder's holding period for the Shares. Any loss realized on a sale or
exchange will be disallowed to the extent the Shares disposed of are replaced
(including replacement through the Dividend Reinvestment Plan) within a period
of 61 days, beginning 30 days before and ending 30 days after the Shares are
disposed of. In such a case, the basis of the Shares acquired will be adjusted
to reflect the disallowed loss. Any loss realized by a Stockholder on a
disposition of Fund Shares held by the Stockholder for six months or less will
be treated as a long-term capital loss to the extent of any distributions of
capital gain dividends received or treated as having received by the
Stockholder with respect to such shares. In addition, the ability to otherwise
deduct capital losses may be limited under the Code.

Foreign Taxes

Japanese taxes may be withheld from payments received by the Fund and may
apply to the extent the Fund receives income from certain sources. Application
of such taxes will reduce amounts available for distribution to Shareholders.

If more than 50% in value of the Fund's total assets at the close of any
taxable year consists of stocks or securities of foreign corporations, the
Fund may elect to treat any Japanese or other income and similar taxes paid by
it as paid by its Stockholders. The Fund anticipates that it will qualify
annually to make the election. The Fund will notify Stockholders in writing
each year if it makes the election and of the amount of Japanese or other
foreign taxes, if any, that would be treated as paid by the Stockholders. If
the Fund makes the election, the source (for U.S. federal income tax purposes)
of the Fund's income will flow through to Stockholders and Stockholders will
be required to include their proportionate share of the amount of foreign
income and similar taxes paid by the Fund in income even though they do not
actually receive such amounts.

Generally, Stockholders itemizing their deductions will be entitled to deduct
the amount of Japanese or other foreign taxes withheld from distributions to
them and, if the Fund so elects, their proportionate share of the amount of
Japanese or other foreign income and similar taxes paid by the Fund, if any.
Alternatively, Stockholders who satisfy certain holding period requirements
may be eligible to claim a foreign tax credit for such amounts. However, under
certain provisions of the Code, Stockholders may not be able to claim a credit
for the full amount of Japanese or other foreign taxes withheld from
distributions or for the full amount of their proportionate share of Japanese
or other income and similar taxes paid by the Fund. This is because,
generally, a credit for foreign taxes is subject to the limitation that it may
not exceed the Stockholder's U.S. Federal income tax attributable to his
foreign source taxable income. Under the Code, the Fund's distributions are
not treated as foreign source income. However, if the Fund elects to treat any
Japanese or other foreign income and similar taxes paid by it as paid by its
Stockholders, the source of the Fund's income will instead flow through to its
Stockholders and such income may, at least in part, be foreign source income.
Accordingly, the Fund will make such an election whether or not it pays any
Japanese or other foreign taxes. In addition, Stockholders will not be
eligible to claim a foreign tax credit with respect to foreign income taxes
paid by the Fund unless certain holding period requirements are satisfied. The
U.S. Internal Revenue Service has issued a private ruling to the


                                      68
<PAGE>


Fund to the effect that making such an election will serve to pass through to
Stockholders the source of the Fund's income even if the Fund pays no foreign
taxes.

Non-U.S. Stockholders may not be able to credit or deduct the foreign taxes,
but they may be deemed to have additional income from the Fund, equal to their
share of the foreign taxes, that is subject to the U.S. withholding tax.

Gains, if any, from the sale of securities by the Fund generally will be
treated as derived from U.S. sources and certain currency fluctuation gains,
if any, from foreign currency-denominated debt securities, receivables and
payables, will be treated as ordinary income derived from U.S. sources. In
addition, the foreign tax credit is available only to the extent of the U.S.
tax that would otherwise be payable on foreign source income. Thus, even if
the source of the Fund's income passes through to Stockholders, Stockholders
may be unable to claim a credit for the full amount of the Japanese or other
foreign taxes withheld from distributions or for the full amount of their
proportionate share, if any, of the Japanese or other foreign taxes paid by
the Fund.

The foregoing is only a general description of the foreign tax credit. Because
application of the credit depends on the particular circumstances of each
Stockholder, Stockholders are advised to consult their own tax advisers.

Backup Withholding

The Fund may be required to withhold for U.S. Federal income taxes 28% of all
taxable distributions payable to Stockholders who fail to provide the Fund
with their certified U.S. taxpayer identification number (or certificate
regarding foreign status) or to Stockholders otherwise subject to U.S. backup
withholding. Similarly, proceeds from the sale or other disposition of Shares
of the Fund in the United States may be subject to backup withholding if the
Stockholder fails to provide a certified U.S. taxpayer identification number
(or certificate regarding foreign status) and make other certifications in
connection with the transaction, or if the Stockholder is otherwise subject to
U.S. backup withholding. Corporate Stockholders and other Stockholders
specified in the Code are exempt from such backup withholding. Backup
withholding is not an additional tax. Any amounts withheld may be credited
refunded or against the Stockholder's U.S. Federal income tax liability,
provided that the required information is furnished to the Internal Revenue
Service.

FOREIGN STOCKHOLDERS

U.S. taxation of a Stockholder who, as to the United States, is a non-resident
alien individual, a foreign trust or estate, a foreign corporation or foreign
partnership ("Foreign Stockholder") depends on whether the income from the
Fund is "effectively connected" with a U.S. trade or business carried on by
such Stockholder. Ordinarily, income from the Fund will not be treated as so
"effectively connected."

Income Not Effectively Connected

If the income from the Fund is not "effectively connected" with a U.S. trade
or business carried on by the Foreign Stockholder, distributions of investment
company taxable income generally will be subject to a U.S. tax of 30% (or
lower treaty rate), which tax generally will be withheld from such
distributions. Foreign Stockholders may be subject to U.S. tax at the rate of
30% (or lower treaty rate) of the income resulting from the Fund's election to
treat any foreign taxes paid by it as paid by its Stockholders, but may not be
able to claim a credit or deduction for the foreign taxes treated as having
been paid by them.

Capital gain dividends and amounts retained by the Fund which are designated
as undistributed capital gains will not be subject to U.S. tax at the rate of
30% (or lower treaty rate) unless the Foreign


                                      69
<PAGE>


Stockholder is a non-resident alien individual and is physically present in
the United States for more than 182 days during the taxable year and meets
certain other requirements. However, this rule applies only in exceptional
cases because any individual present in the United States for more than 182
days during a calendar year is generally treated as a resident for U.S.
federal income tax purposes, subject to U.S. federal income tax on his
worldwide income at the graduated rates applicable to U.S. citizens, rather
than the 30% U.S. withholding tax. In the case of a Foreign Stockholder who is
a non-resident alien individual, the Fund may be required to withhold U.S.
federal income tax at a rate of 28% of a capital gain dividend. See "--Backup
Withholding" above. If a Foreign Stockholder is a non-resident alien
individual, any gain he realizes upon the sale of his Fund Shares in the
United States will ordinarily be exempt from U.S. tax unless (1) he is
physically present in the United States for more than 182 days during the
taxable year or is otherwise considered to be a resident alien of the United
States or (2) backup withholding applies. See "--Backup withholding" above.

Under the provisions of the American Jobs Creation Act of 2004 (the "2004 Tax
Act"), dividends derived by a RIC from short-term capital gains and qualifying
net interest income (including income from original issue discount and market
discount) and paid to stockholders who are nonresident aliens and foreign
entities, if and to the extent properly designated as "interest-related
dividends" or "short-term capital gain dividends," will not be subject to U.S.
withholding tax. It is uncertain, however, what portion, if any, of the Fund's
distributions will be designated as short-term capital gains exempt from
withholding in the hands of nonresident and foreign stockholders, and it is
not expected that the Fund will be able to designate any payments as
qualifying net interest income. These provisions generally would apply to
distributions with respect to taxable years of the Fund beginning after
December 31, 2004 and before January 1, 2008. Nonresident stockholders are
urged to consult their own tax advisers concerning the applicability of the
U.S. withholding tax, of any two or more issuers that the Fund controls and
that are determined to be engaged in the same or similar or related business
or the securities of one or more.

Income Effectively Connected

If the income from the Fund is "effectively connected" with a U.S. trade or
business carried on by a Foreign Stockholder, then distributions of investment
company taxable income and net capital gains, amounts retained by the Fund
which are designated as undistributed capital gains and any gains realized
upon the sale of Shares of the Fund, will be subject to U.S. federal income
tax at the graduated rates applicable to U.S. citizens, residents and domestic
corporations. Such Stockholders may also be subject to the branch profits tax
imposed under the Code.

The tax consequences to a Foreign Stockholder entitled to claim the benefits
of an applicable tax treaty may be different from those described herein.
Foreign Stockholders are advised to consult their own tax adviser with respect
to the particular tax consequences to them of an investment in the Fund.

OTHER TAX CONSIDERATIONS

Distributions from the Fund and sales or other dispositions of Shares of the
Fund may be subject to additional state, local and foreign taxes depending on
each Stockholder's particular situation. Stockholders are advised to consult
their own tax advisers with respect to the particular tax consequences to them
of an investment in the Fund.

                                 CAPITAL STOCK


The following summary of the terms of the stock of the Fund does not purport
to be complete and is subject to and qualified in its entirety by reference to
the MGCL and the Fund's Charter and Bylaws.



                                      70
<PAGE>


General

Set forth below is information with respect to the Fund's outstanding
securities as of August 31, 2005:

<TABLE>
<CAPTION>
                                                              Number of Shares Held by      Number of Shares Issues
        Title of Class          Number of Shares Authorized  the Fund or for its Account        and Outstanding
- --------------------------  -------------------------------  ---------------------------   ------------------------
<S>                                     <C>                             <C>                       <C>
Common Stock                            100,000,000                     None                      15,846,384
</TABLE>


COMMON STOCK

The Fund's Charter authorizes the issuance of up to 100,000,000 Shares of
stock, par value $.10 per share, all of which shares have been classified as
Common Stock. On November 1, 2005, there were 15,846,384 outstanding Shares of
Common Stock, all of which are fully paid and non-assessable. All Shares of
Common Stock have equal rights as to dividends, assets and voting and have no
conversion, preemptive or other subscription rights. In the event of
liquidation, each Share of Common Stock is entitled to its proportion of the
Fund's assets after the payment of debts and expenses. Stockholders are
entitled to one vote per Share and do not have cumulative voting rights. The
Funds' Charter authorizes the Board of Directors to classify and reclassify
unissued shares of stock into other classes and series of stock. The Fund
holds regular annual meetings of Stockholders in accordance with the laws of
Maryland and the rules of the NYSE.

The Shares commenced trading on the NYSE on March 21, 1990. For the quarter
ended August 31, 2005, the highest trading price was $14.03 and the lowest
trading price was $10.47. During the same period, the NAV ranged from a low
of $11.37 to a high of $12.45. Total trading volume on the NYSE during the
period was 4,194,500 shares. On [_____________], the closing price on the
NYSE was $[_____] and the NAV was $[_____].

BENEFICIAL OWNERSHIP

As of November 1, 2005, the following persons were known to the Fund to be the
beneficial owners of 5% or more of the outstanding Shares:


<TABLE>
<CAPTION>
                                                                                          Percent of the Fund's
        Name and Address of Owner                 Amount and Nature of Reported               Common Stock
          Dudley & Shanley, LLC                        Beneficial Ownership                Beneficially Owned
- ------------------------------------------       ------------------------------       -----------------------------
<S>                                                   <C>                                         <C>
             130 Maple Avenue                            899,000 shares -
        Red Bank, New Jersey 07701                     beneficial ownership                       5.7%
       Van Den Berg Management Inc.
          805 Las Cimas Parlway
                Suite 430                               1,473,297 shares -
           Austin, Texas 78746                         beneficial ownership                       9.3%
</TABLE>



Van Den Berg Management Inc. has reported beneficial ownership of
approximately 9.3% of the Fund's Common Stock as of January 5, 2005. Van Den
Berg Management Inc. is located at 805 Las Cimas Parkway Suite 430, Austin,
Texas 78746. Dudley & Shanley, LLC ("Dudley") has reported beneficial
ownership of approximately 5.7% of the Fund's Common Stock as of August 29,
2005. Dudley is located at 130 Maple Avenue, Red Bank, New Jersey 07701. To
the knowledge of the management of the Fund, Van Den Berg Management Inc. and
Dudley are the only beneficial owners of more than 5% of the Fund's
outstanding shares.



                                      71
<PAGE>


NO PREEMPTIVE RIGHTS

No holder of Shares has any preemptive right to acquire from the Fund any
capital stock of the Fund whether now or hereafter authorized.

REPURCHASE OF SHARES AND CONVERSION TO AN OPEN-END INVESTMENT COMPANY

The Fund's shares have traded over time at both a discount and premium in
relation to NAV. However, shares of closed-end investment companies frequently
trade at a discount from NAV. In recognition of the possibility that the
Fund's shares may trade at a discount in the future, the Fund may from time to
time take action to attempt to reduce or eliminate a market value discount
from NAV, either by repurchasing Fund shares in the open market when it can do
so at prices below the current NAV, or by making a tender offer for shares of
the Fund. The Board of Directors considers making such repurchases or tender
offers on a quarterly basis. The Fund has not previously repurchased shares in
the open market or made a tender offer for its shares. There is no assurance
that the Directors will approve such repurchases and/or tender offers in the
future.

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

In addition, if Fund shares are trading at a discount from NAV, the Board of
Directors may also consider whether to submit to Stockholders a proposal that
the Fund be converted to an open-end investment company. Any such proposal
would require the favorable votes of the Fund's outstanding shares then
entitled to vote and of the Directors as specified below. Stockholders of an
open-end investment company may require the company to redeem their shares at
any time (except in certain circumstances as authorized by or under the 1940
Act) at their net asset value, less such redemption charge, if any, as might
be in effect at the time of redemption. The Board of Directors may, however,
determine that the Fund should not take any action to convert the Fund to an
open-end investment company or that, due to the characteristics of the Fund's
portfolio securities, it may be inappropriate to convert the Fund to an
open-end investment company.

CERTAIN PROVISIONS OF THE MARYLAND GENERAL CORPORATION LAW AND THE CHARTER AND
BYLAWS

The Fund's Charter and Bylaws include provisions that could have the effect of
limiting the ability of other entities or persons to acquire control of the
Fund or to change the composition of its Board of Directors and could have the
effect of depriving 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.


Reclassification and Issuance of Stock

The Fund's Charter authorizes the Board of Directors to classify and
reclassify any unissued shares of stock into other classes or series of stock,
without the approval of the holders of Common Stock. Prior to issuance of
shares of each class or series, the Board of Directors is required by Maryland
law to set the terms, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption for each class or series.
Thus, the Board of Directors could authorize the issuance of shares of
preferred stock with terms and conditions which could have the effect of
delaying, deferring or preventing a transaction or a change in control that
might involve a premium price for the holders of Common Stock or otherwise be
in their best interest. Any issuance of preferred stock must comply with the
requirements of the 1940 Act.


Classified Board of Directors; Vote to Elect Directors

The Board of Directors is divided into three classes of Directors serving
staggered terms. Directors of each class are elected to serve for three-year
terms and until their successors are duly elected and qualify


                                      72
<PAGE>


and, each year, one class of Directors will be elected by the Stockholders. A
classified board may render a change in control of the Fund or removal of the
Fund's incumbent management more difficult. The Fund believes, however, that
the longer time required to elect a majority of a classified Board of
Directors will help to ensure the continuity and stability of the Fund's
objectives. The Bylaws provide that a majority of the votes entitled to be
cast in the election of Directors shall be required to elect a Director.

Number of Directors; Vacancies; Removal

The Fund's Charter provides that the Fund elects to be subject to various
provisions of Subtitle 8 of Title 3 of the MGCL regarding the number of
Directors constituting the Board of Directors and the filling of vacancies on
the Board of Directors. Accordingly, the number of Directors may be fixed only
by the Board of Directors. Additionally, except as may be provided by the
Board of Directors in setting the terms of any class or series of preferred
stock, if any, any and all vacancies on the Board of Directors may be filled
only by the affirmative vote of a majority of the remaining Directors in
office, even if the remaining Directors do not constitute a quorum, and any
Director elected to fill a vacancy will serve for the remainder of the full
term of the directorship in which the vacancy occurred and until a successor
is elected and qualifies, subject to any applicable requirements of the 1940
Act.

The Fund's Charter provides that a Director elected by the Stockholders may be
removed only by the affirmative vote of at least 75 percent of the shares of
stock entitled to vote in the election to fill that directorship. Because the
Board of Directors is classified, a Director may be removed only for cause.

Action by Stockholders


Under the MGCL and the Charter, stockholder action can be taken only at an
annual or special meeting of Stockholders by unanimous written consent in lieu
of a meeting. These provisions, combined with the requirements of the Bylaws
regarding the calling of a Stockholder-requested special meeting of
Stockholders discussed below, may have the effect of delaying consideration of
a Stockholder proposal until the next annual meeting.


Advance Notice Provisions for Stockholder Nominations and Stockholder Proposals


The Fund's Bylaws provide that with respect to an annual meeting of
Stockholders, nominations of persons for election to the Board of Directors
and the proposal of business to be considered by Stockholders may be made only
(1) pursuant to the Fund's notice of the meeting, (2) by the Board of
Directors or (3) by a Stockholder who is entitled to vote at the meeting and
who has complied with the advance notice procedures of the Bylaws. With
respect to special meetings of Stockholders, only the business specified in
the Fund's notice of the meeting may be brought before the meeting.
Nominations of persons for election to the Board of Directors at a special
meeting may be made only (1) pursuant to the Fund's notice of the meeting, (2)
by the Board of Directors or (3) provided that the Board of Directors has
determined that Directors will be elected at the meeting, by a Stockholder who
is entitled to vote at the meeting and who has complied with the advance
notice provisions of the Bylaws.


Calling of Special Meeting of Stockholders


The Bylaws provide that the Chairman of the Board of Directors, the President
or the Board of Directors may call a special meeting of Stockholders. The
Charter provides that the Fund elects to be subject to various provisions of
Subtitle 8 of Title 3 of the MGCL regarding Stockholder-requested special
meetings. Accordingly, subject to the satisfaction of certain procedural and
informational requirements specified in the Fund's Bylaws, a
Stockholder-requested special meeting will be called by


                                      73
<PAGE>


the Fund's Secretary only upon the written request of Stockholders entitled to
cast not less than a majority of all the votes entitled to be cast at such
meeting.


Approval of Extraordinary Corporate Action; Amendment of Charter and Bylaws


Under Maryland law, a Maryland corporation generally cannot dissolve, amend
its charter, merge, sell all or substantially all of its assets, engage in a
share exchange or engage in similar transactions outside the ordinary course
of business, unless approved by the affirmative vote of stockholders entitled
to cast at least two-thirds of the votes entitled to be cast on the matter.
However, a Maryland corporation may provide in its charter for approval of
these matters by a greater or lesser percentage, but not less than a majority
of all of the votes entitled to be cast on the matter. The Fund's Charter
generally provides for approval of Charter amendments by Stockholders entitled
to cast at least a majority of the votes entitled to be cast on the matter.
The Fund's Charter also provides that a Charter amendment to make the Common
Stock a redeemable security and a proposal to approve a merger or
consolidation of the Fund, the sale of all or substantially all of the Fund's
assets or the liquidation or dissolution of the Fund requires the approval of
the Stockholders entitled to cast at least 75 percent of the votes entitled to
be cast on such matter. However, if such amendment or proposal is approved by
at least two-thirds of the total number of Directors, such amendment or
proposal may be approved by the holders of a majority of the votes entitled to
be cast on such a matter. Approval of other Charter amendments simply require
the affirmative vote of 75 percent of all the votes entitled to be cast on the
matter.


The Fund's Bylaws provide that the Board of Directors has exclusive power to
adopt, alter or repeal any provision of our Bylaws and to make new Bylaws.

The Maryland Business Combination Act

The Fund's Charter provides that the Fund is subject to the provisions of the
Maryland Business Combination Act (the "Business Combination Act"). Under the
Business Combination Act, "business combinations" between a Maryland
corporation and an interested stockholder or an affiliate of an interested
stockholder are prohibited for five years after the most recent date on which
the interested stockholder becomes an interested stockholder. These business
combinations include a merger, consolidation, share exchange, or, in
circumstances specified in the statute, an asset transfer or issuance or
reclassification of equity securities. An interested stockholder is defined
as:

      o  any person who beneficially owns ten percent or more of the voting
power of the corporation's shares; or

      o  an affiliate or associate of the corporation who, at any time within
the two-year period prior to the date in question, was the beneficial owner of
ten percent or more of the voting power of the then outstanding voting stock
of the corporation.

A person is not an interested stockholder under the statute if the board of
directors approved in advance the transaction by which he otherwise would have
become an interested stockholder. However, in approving a transaction, the
board of directors may provide that its approval is subject to compliance, at
or after the time of approval, with any terms and conditions determined by the
board.

After the five-year prohibition, any business combination between the Maryland
corporation and an interested stockholder generally must be recommended by the
board of directors of the corporation and approved by the affirmative vote of
at least:


                                      74
<PAGE>


      o  80% of the votes entitled to be cast by holders of outstanding shares
of voting stock of the corporation; and

      o  two-thirds of the votes entitled to be cast by holders of voting stock
of the corporation other than shares held by the interested stockholder with
whom or with whose affiliate the business combination is to be effected or
held by an affiliate or associate of the interested stockholder.

These super-majority vote requirements do not apply if the corporation's
common stockholders receive a minimum price, as defined under Maryland law,
for their shares in the form of cash or other consideration in the same form
as previously paid by the interested stockholder for its shares.

The statute permits various exemptions from its provisions, including business
combinations that are exempted by the board of directors before the time that
the interested stockholder becomes an interested stockholder.

The Business Combination Act may discourage others from trying to acquire
control of the Fund and increase the difficulty of consummating any offer.

The full text of these provisions can be found in the Fund's Charter and
Bylaws, on file with the SEC, but is also available upon request to the Fund
at Two World Financial Center, Building B, New York, New York 10281 (or by
calling (800) 833-0018). These provisions could have the effect of depriving
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 in a tender offer or similar transaction. The Board of
Directors believes that the provisions of the Fund's Charter and Bylaws
described above provide the advantage of greater assurance of continuity of
Board of Directors and management composition and policies and has determined
that the foregoing provisions are in the best interests of the Fund's
Stockholders


      CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR

Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts
02109-3661, acts as the Fund's custodian.

EquiServe Trust Company, N.A., 150 Royall Street, Canton, Massachusetts 02021,
acts as the Fund's dividend-paying agent and as transfer and service agent and
registrar for the Fund's Common Stock and Dividend Reinvestment Plan.

                                    EXPERTS


The financial statements of the Fund incorporated by reference in this
prospectus, insofar as they relate to the year ended February 28, 2005, has
been audited by [___________], the independent registered public accounting
firm of the Fund. Prior to that time, the information was audited by a
different independent registered public accounting firm for the Fund, whose
reports thereon were unqualified. The principal place of business of
[___________] is located at [_________________________________________]. The
audit services they provide include examination of the financial statements of
the Fund, services relating to filings by the Fund with the SEC, and
consultation on matters related to the preparation and filing of tax returns.



                                      75
<PAGE>


                           DISTRIBUTION ARRANGEMENTS


UBS Securities LLC will act as Dealer Manager for the Offer. Under the terms
and subject to the conditions contained in the Dealer Manager Agreement dated
[__________] among the Fund, the Manager and the Dealer Manager, the Dealer
Manager will provide financial advisory and marketing services in connection
with the Offer and will solicit the exercise of Rights and participation in
the Over-Subscription Privilege. The Offer is not contingent upon any number
of Rights being exercised. The Fund has agreed to pay the Dealer Manager a fee
for its financial advisory, marketing and soliciting services equal to 3.75%
of the aggregate Subscription Price for Shares issued pursuant to the Offer.
The Dealer Manager fee will be borne by the Fund and indirectly by all of the
Fund's Stockholders, including those who do not exercise their Rights.

The Dealer Manager will reallow to broker-dealers included in the selling
group to be formed and managed by the Dealer Manager selling fees equal to
2.50% of the Subscription Price for each Share issued pursuant to the Offer as
a result of their selling efforts. In addition, the Dealer Manager will
reallow to other broker-dealers that have executed and delivered a Soliciting
Dealer Agreement and have solicited the exercise of Rights, solicitation fees
equal to 0.50% of the Subscription Price for each Share issued pursuant to the
exercise of Rights as a result of their soliciting efforts, subject to a
maximum fee based upon the number of Shares held by each broker-dealer through
DTC on the Record Date. Fees will be paid to the broker-dealer designated on
the applicable portion of the Subscription Certificates or, in the absence of
such designation, to the Dealer Manager.

In addition, the Fund will pay the Dealer Manager an amount up to $100,000 as
a partial reimbursement for its expenses incurred in connection with the
Offer. The Fund and the Manager have agreed to indemnify the Dealer Manager or
contribute to losses arising out of certain liabilities including liabilities
under the 1933 Act. The Dealer Manager Agreement also provides that the Dealer
Manager will not be subject to any liability to the Fund or the Manager in
rendering the services contemplated by such Agreement except for any act of
bad faith, willful misconduct or gross negligence of the Dealer Manager or
reckless disregard by the Dealer Manager of its obligations and duties under
such Agreement.


Prior to the expiration of the Offer, the Dealer Manager may independently
offer for sale Shares, including Shares acquired through purchasing and
exercising the Rights, at prices it sets. The Dealer Manager may realize
profits or losses independent of any fees described in this prospectus.

In the ordinary course of their businesses, the Dealer Manager and its
affiliates may engage in investment banking or financial transactions with the
Fund, the Manager and their affiliates.

The Fund will bear the expenses of the Offer, which will be paid from the
proceeds of the Offer. These expenses include, but are not limited to, the
expense of preparation and printing of the prospectus for the Offer, the
expense of counsel and auditors in connection with the Offer and the
out-of-pocket expenses incurred by the officers of the Fund and others in
connection with the Offer.

The principal business address of UBS Securities LLC is 299 Park Avenue, New
York, New York 10171-0026.

                                 LEGAL MATTERS

The validity of the shares offered hereby will be passed on for the Fund by
Sidley Austin Brown & Wood LLP, New York, New York, and certain legal matters
relating to the Offer will be passed on for the Dealer Manager by Clifford
Chance US LLP, New York, New York. Sidley Austin Brown & Wood LLP and Clifford
Chance US LLP will rely as to certain matters of Maryland law on the opinion
of Venable LLP,


                                      76
<PAGE>


Baltimore, Maryland. Matters of Japanese law will be passed upon for the Fund
and the Dealer Manager by Mori Hamada & Matsumoto, Tokyo, Japan.


                                      77
<PAGE>


                             FINANCIAL STATEMENTS


The Fund's financial statements for the fiscal year ended February 28, 2005,
together with the report of [___________] thereon, are incorporated in this
prospectus by reference to the Fund's 2005 Annual Report and the Fund's
financial statement for the six months ended August 31, 2005 are incorporated
in this prospectus by reference to the Fund's Semi-Annual Report. A copy of
the Fund's 2005 Annual Report or Semi-Annual Report is available at the SEC's
website at www.sec.gov. Copies may also be obtained free of charge upon
written or oral request from the Fund's Information Agent, The Altman Group,
Inc., at 1(800) 814-0439 or at 1200 Wall Street West, 3rd FL, Lyndhurst, New
Jersey 07071.



                                      78
<PAGE>


                                    [LOGO]


                                  Managed by

                      Nomura Asset Management U.S.A. Inc.




<PAGE>


PART C

OTHER INFORMATION

ITEM 25. FINANCIAL STATEMENTS AND EXHIBITS

1.    Financial Statements

      Schedule of Investments as of February 28, 2005*

      Statement of Assets and Liabilities as of February 28, 2005*

      Statement of Operations for the fiscal year ended February 28, 2005*

      Statements of Changes in Net Assets for the fiscal years ended February
         28, 2005 and 2004*

      Notes to Financial Statements*

      Financial Highlights for a share of Common Stock outstanding during each
         of the fiscal years ended February 28, 2005, 2004, 2003, 2002 and
         2001*


      Schedule of Investments as of August 31, 2005**

      Unaudited Statement of Assets and Liabilities as of August 31, 2005**

      Unaudited Statement of Operations for the six months ended August 31,
         2005**

      Statement of Changes in Net Assets for the six months ended August 31,
         2005 (unaudited) **

      Notes to Financial Statements (Unaudited)**

      Financial Highlights for a share of common stock outstanding, during the
         six months ended August 31, 2005 (unaudited)**


      *  Incorporated by reference to the Registrant's Annual Report to
         Shareholders for the fiscal year ended February 28, 2005 filed with
         the Securities and Exchange Commission (the "Commission") on May 9,
         2005 pursuant to Rule 30b2-1 under the Investment Company Act ("1940
         Act").


      ** Incorporated by reference to the Registrant's Semi-Annual Report to
         Shareholders for the six months ended August 31, 2005 filed with the
         the Commission on November 3, 2005 pursuant to Rule 30b2-1 under the
         1940 Act.


2.    Exhibits

a)    1) Articles of Incorporation, dated January 11, 1990 (a)

      2) Amendment to Articles of Incorporation

b)    Amended and Restated Bylaws of the Fund

c)    Not Applicable


d)    1)    Portions of the Articles of Incorporation and Bylaws of the
            Fund defining the rights of holders of shares of Common Stock of
            the Fund (b)


      2)  Form of specimen certificate for shares of Common Stock of the
            Fund (a)


      3)    Form of Exercise Form (c)

      4)    Form of Subscription Certificate (c)

      5)    Form of Notice of Guaranteed Delivery and Form of Beneficial Owner
            Certification Form (c)

      6)    Form of Subscription Agent Agreement between Registrant and
            Computershare (c)


<PAGE>


      7)    Form of Information Agent Agreement between Registrant and The
            Altman Group, Inc. (c)


e)    Dividend Reinvestment Plan (a)

f)    Not Applicable

g)    1)    Management Agreement between Registrant and Nomura Asset
            Management U.S.A. Inc.

      2)    Investment Advisory Agreement between Nomura Asset Management
            U.S.A. Inc. and Nomura Asset Management Co., Ltd.


h)    Form of Dealer Manager Agreement among the Registrant, the Manager and
      UBS Securities LLC (c)


i)    Not applicable

j)   Custodian Contract between the Fund and Brown Brothers Harriman & Co.

k)    1)    Accounting Agency Agreement between the Fund and Brown Brothers
            Harriman & Co.


      2)    Registrar, Transfer Agency and Service Agreement between the Fund
            and EquiServe Trust Company, N.A.

l)    1)    Opinion and consent of Sidley Austin Brown & Wood LLP, counsel
            to the Fund (c)

      2)    Opinion and consent of Venable LLP, special Maryland counsel to
            the Fund (c)

      3)    Consent of Mori Hamada & Matsumoto, special Japanese counsel to
            the Fund (c)


m)    Not applicable


n)    Consent of [___________], independent registered public accounting firm
      for the Fund with respect to the financial statements for the year ended
      February 28, 2005 (c)


o)    Not applicable

p)    Not applicable

q)    Not applicable

r)    1)    Code of Ethics of Registrant and the Manager adopted pursuant
            to Rule 17j-1 of the Investment Company Act of 1940

      2)    Code of Ethics of the Investment Adviser adopted pursuant to Rule
            17j-1 of the Investment Company Act of 1940

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

(a)   Filed or refiled on September 15, 1999 as an exhibit to the Registrant's
      Registration Statement on Form N-2 (File No. 333-87159).

(b)   Reference is made to Article V, Article VI (Sections 3 and 6), Article
      VII, Article VIII, Article X, Article XII, Article XIII, Article XIV and
      Article XV of the Fund's Articles of Incorporation, filed as Exhibit (a)
      to this Registration Statement; and Article II, Article III (sections 3,
      4 and 14), Article VI, Article VII, Article XII, and Article XIII of the
      Registrant's Amended and Restated By-Laws, filed as Exhibit (b) to this
      Registration Statement.
(c)   To be filed by amendment.



                                      2
<PAGE>


ITEM 26.  MARKETING ARRANGEMENTS

Not Applicable


                                      3
<PAGE>


ITEM 27. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement:


<TABLE>
<CAPTION>
<S>                                                                                                     <C>
  Registration fees                                                                                     $10,000
  NYSE listing fee                                                                                      $21,000
  Printing and Postage (including subscription certificates)                                            $55,000
  Fees and expenses of qualifications under state securities laws (including fees of counsel)           $50,000
  Legal fees and expenses                                                                               $300,000
  Accounting fees and expenses                                                                          $30,000
  NASD fees                                                                                             $8,000
  Dealer Manager's fees and reimbursement of expenses                                                   $100,000
  Subscription Agent fee and expenses                                                                   $35,000
  Information Agent fees and expenses                                                                   $10,000
  Miscellaneous                                                                                         $31,000
       Total                                                                                            $650,000
</TABLE>


ITEM 28. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL

None.

ITEM 29. NUMBER OF HOLDERS OF SECURITIES

TITLE OF CLASS                             NUMBER OF RECORD HOLDERS AT ________

Common Stock, par value $0.10 per share    [_____]

ITEM 30. INDEMNIFICATION

Reference is made to Article VI of the Fund's Articles of Incorporation,
Article VI of Fund's Bylaws, Section 2-418 of the Maryland General Corporation
Law, the Management Agreement filed as Exhibit (g)(1), the Investment Advisory
Agreement filed as Exhibit (g)(2) and the Dealer Manager Agreement filed as
Exhibit (h).


Maryland law permits the Fund to include in its charter (the "Charter") a
provision limiting the liability of the Fund's Directors and officers to the
Fund and the stockholders for money damages, except for liability resulting
from (a) actual receipt of an improper benefit or profit in money, property or
services or (b) active and deliberate dishonesty established by a final
judgment and which is material to the cause of action. The Charter of the Fund
contains such a provision which eliminates Directors' and officers' liability
to the fullest extent permitted by Maryland law.

Article VI of the Charter of the Fund provides that each officer and director
of the Fund shall be indemnified by the Fund to the full extent permitted
under the General Laws of the State of Maryland, subject to the provisions of
the Investment Company Act of 1940 (the "1940 Act"). Article VI of the Fund's
Bylaws obligate the Fund to the maximum extent permitted by Maryland law and
subject to the requirements of the 1940 Act, to indemnify and pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
individual who is a present or former Director or officer of the Fund and who
is made or threatened to be made a party to the proceeding by reason of his or
her service in that capacity or (b) any individual who, while a Director or
officer of the Fund and at the request of the Fund, serves or has served as a
director, officer, partner or trustee of another corporation, real estate
investment


                                      4
<PAGE>


trust, partnership, joint venture, trust, employee benefit plan or other
enterprise and who is made or threatened to be made a party to the proceeding
by reason of his or her service in that capacity. The Fund may, with the
approval of its Board of Directors or any duly authorized committee thereof,
provide such indemnification and advance for expenses to a person who served a
predecessor of the Fund in any of the capacities described above and to any
employee or agent of the Fund or a predecessor of the Fund. The Fund has been
advised that such indemnity shall not protect any such person against any
liability to the Fund or any stockholder thereof to which such person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office. Absent a court determination that an officer or director seeking
indemnification was not liable on the merits or guilty of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
the conduct of his office, the decision by the Fund to indemnify such person
must be based upon the reasonable determination of independent counsel for
non-party independent directors, after review of the facts, that such officer
or director is not guilty of willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of his office.

Maryland law requires a corporation (unless its charter provides otherwise,
which the Fund's Charter does not) to indemnify a director or officer who has
been successful in the defense of any proceeding to which he is made a party
by reason of his service in that capacity. Maryland law permits a corporation
to indemnify its present and former directors and officers, among others,
against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by them in connection with any proceeding to which they may
be made a party by reason of their service in those or other capacities unless
it is established that (a) the act or omission of the director or officer was
material to the matter giving rise to the proceeding and (i) was committed in
bad faith or (ii) was the result of active and deliberate dishonesty, (b) the
director or officer actually received an improper personal benefit in money,
property or services or (c) in the case of any criminal proceeding, the
director or officer had reasonable cause to believe that the act or omission
was unlawful. However, under Maryland law, a Maryland corporation may not
indemnify for an adverse judgment in a suit by or in the right of the
corporation or for a judgment of liability on the basis that personal benefit
was improperly received, unless in either case a court orders indemnification
and then only for expenses. In addition, Maryland law permits a corporation to
advance reasonable expenses to a director or officer upon the corporation's
receipt of (a) a written affirmation by the director or officer of his or her
good faith belief that he or she has met the standard of conduct necessary for
indemnification by the corporation and (b) a written undertaking by him or her
or on his or her behalf to repay the amount paid or reimbursed by the
corporation if it is ultimately determined that the standard of conduct was
not met.


Insofar as the conditional advancing of indemnification moneys for actions
based upon the 1940 Act may be concerned, such payments will be made only on
the following conditions: (i) the advances must be limited to amounts used, or
to be used, for the preparation or presentation of a defense to the action,
including costs connected with the preparation of a settlement; (ii) advances
may be made only upon receipt of a written promise by, or on behalf of, the
recipient to repay that amount of the advance which exceeds the amount to
which it is ultimately determined that he is entitled to receive from the Fund
by reason of indemnification; and (iii) (a) such promise must be secured by a
surety bond, other suitable insurance or an equivalent form of security which
assures that any repayments may be obtained by the Fund without delay or
litigation, which bond, insurance or other form of security must be provided
by the recipient of the advance, or (b) a majority of a quorum of the Fund's
disinterested, non-party Directors, or an independent legal counsel in a
written opinion, shall determine, based upon a review of readily available
facts, that the recipient of the advance ultimately will be found entitled to
indemnification.


The Fund may purchase insurance on behalf of an officer or director protecting
such person, to the full extent permitted under the Maryland law, from
liability arising from his or her activities as officer or director of the
Fund. The Fund, however, may not purchase insurance on behalf


                                      5
<PAGE>


of any officer or director of the Fund that protects or purports to protect
such person from liability to the Fund or to its stockholders to which such
officer or director would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office.

Reference is made to Article V of the Management Agreement filed as Exhibit
(g)(1) herewith relating to limitation of liability of the Manager, and to
Article IV of the Investment Advisory Agreement filed as Exhibit (g)(2)
herewith for provisions relating to limitation of liability of the Investment
Adviser.


Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "1933 Act") may be permitted to directors, officers and controlling
persons of the Fund and the principal underwriter pursuant to the foregoing
provisions or otherwise, the Fund has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the 1933 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Fund of expenses incurred or paid by a director, officer,
or controlling person of the Fund and the principal underwriter in connection
with the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person or the principal underwriter in
connection with the shares being registered, the Fund will, unless in the
opinion of its counsel the matter has been settled by the controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933
Act and will be governed by the final adjudication of such issue.

ITEM 31. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

Pursuant to the management and advisory arrangements described in the
prospectus constituting Part A of this Registration Statement, the Fund's
Manager, Nomura Asset Management U.S.A. Inc., is responsible for providing the
Fund with advisory services. The Manager has entered into an Investment
Advisory Agreement with Nomura Asset Management Co., Ltd. (the "Investment
Adviser").

(a) The Manager provides investment advisory services to United States and
foreign clients. The Manager also acts as an investment adviser to Korea
Equity Fund, Inc. (registered closed-end investment company). The principal
address of the Manager is Two World Financial Center, Building B, New York,
New York 10281.


Set forth below is a list of each executive officer and director of the
Manager, indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
[March 1, 2003] for his own account or in the capacity of director, officer,
partner or trustee.


<TABLE>
<CAPTION>
                                                                       Other Substantial Business, Profession,
            The Name                Position With Management                    Vocation or Employment
- ------------------------------    --------------------------     ---------------------------------------------------
<S>                               <C>                            <C>
Hiroshi Terasaki..............    President and Director         President and Director of the Fund since 2005.
Kiyoharu Ikeda................    Treasurer, Director and        _____
                                  Senior Vice President
Marti G. Sbrahmanyam..........    Director                       Charles E. Merrill Professor of Finance, Economics
                                                                 and International Business, New York University
                                  since 1991.
Kenneth L. Munt...............    Senior Vice President and      Vice President of the Fund since 2001.
                                  Secretary
Keiko Tani....................    Senior Vice President and      Vice President of the Fund since 2005.
                                  General Counsel
Rita Chopra-Brathwaite........    Vice President                 Treasurer of the Fund since 2002.
Neil Daniele..................    Senior Vice President          Secretary of the Fund since 2002.


                                      6
<PAGE>


                           Chief Compliance Officer
</TABLE>

(b) The Investment Adviser provides investment advisory services to Japanese
and international clients. The Investment Adviser is an investment adviser to
Korea Equity Fund Inc. (a U.S. registered closed-end investment company). The
principal address of the Investment Adviser is 1-12-1, Nihombashi, Chuo-ku,
Tokyo 103-8260, Japan.


Set forth below is a list of the principal officers and directors of the
Investment Adviser indicating each business, profession, vocation or
employment of a substantial nature in which each such person has been engaged
since [March 1, 2003] for his own account or in the capacity of director,
officer, partner or trustee.


<TABLE>
<CAPTION>
                                          Position With                 Other Substantial Business, Profession,
             Name                     The Investment Adviser                     Vocation or Employment
- ------------------------------   -------------------------------   -------------------------------------------------
<S>                              <C>                               <C>
Toshio Ando                      Chairman and Director             Outside Director, Saitama Development Co., Ltd.
Takumi Shibata                   President and CEO, Director       Senior Managing Director and Head of Asset
                                                                   Management, Nomura Holdings, Inc.
                                                                   Chairman, Nomura BlackRock Asset Management Co.,
                                     Ltd.
                                                                   Outside Director, Nomura Trust & Banking Co.,
                                     Ltd.
Akihiko Nakamura                 Outside Director                  Senior Managing Director and Head of Global IT
                                                                   Operation, Nomura Holdings, Inc.
                                                                   Senior Managing Director, Nomura Securities Co.,
                                     Ltd.
Tetsu Ozaki                      Outside Director                  Senior Managing Director, Head of Corporate
                                                                   Planning and Global Public Communication, Nomura
                                                                   Holdings, Inc.
                                                                   Senior Managing Director, Nomura Securities Co.,
                                     Ltd.
Yukio Suzuki                     Outside Director                  Director, Nomura Holdings, Inc.
Takamichi Arata                  Outside Director                  Auditor, Nomura BlackRock Asset Management Co.,
                                     Ltd.
Daisuke Suzuki                   Outside Director
Kamezo Nakai                     Executive Vice President
                                                                   Senior Managing Director, Nomura Holdings, Inc.
Takahide Mizuno                  Executive Vice President          Senior Managing Director, Nomura Holdings, Inc.
                                                                   Outside Director, Nomura Asset Management
                                                                   Delaware Inc.
                                                                   Outside Director, FQN Management LLC
Atsushi Yoshikawa                Executive Vice President          Senior Managing Director, Nomura Holdings, Inc.
                                                                   Outside Director, Nomura Asset Management
                                                                   Delaware Inc.
                                                                   Outside Director, FQN Management LLC
Shigeru Fujinuma                 Executive Managing Director       Outside Director, Nomura Asset Management Hong
                                                                   Kong Limited
                                                                   Outside Director, Nomura Asset Management
                                                                   Singapore Limited
Eiichiro Tabuchi                 Senior Managing Director
Kazuhiro Okada                   Senior Managing Director
Tatsuro Kochi                    Senior Managing Director
Kouichi Goto                     Senior Managing Officer
Yukio Shirokawa                  Senior Managing Officer
Takao Omori                      Senior Managing Officer
Tamon Watanabe                   Senior Managing Officer
Mitsugu Toyota                   Senior Managing Officer
</TABLE>


                                      7
<PAGE>


ITEM 32. LOCATION OF ACCOUNTS AND RECORDS

All accounts, books and other documents required to be maintained by Section
31 (a) of the 1940 Act, as amended, and the rules promulgated thereunder are
maintained at the offices of the Fund (Two World Financial Center, Building B,
New York, New York 10281), and Brown Brothers Harriman & Co., 40 Water Street,
Boston, Massachusetts 02109-3661, the Fund's custodian and EquiServe Trust
Company, N.A., 150 Royall Street, Canton, Massachusetts 02021, the Fund's
transfer agent.

ITEM 33. MANAGEMENT SERVICES

Not applicable.

ITEM 34. UNDERTAKINGS

      (1)   The Registrant undertakes to suspend offering of its shares until
            it amends its prospectus if (1) subsequent to the effective date
            of its Registration Statement, the NAV of its shares declines more
            than 10 percent from its NAV as of the effective date of the
            Registration Statement or (2) the NAV increases to an amount
            greater than its net proceeds as stated in the prospectus.
      (2)   Not applicable.
      (3)   Not applicable.
      (4)   Not applicable.
      (5)   Registrant undertakes that:
            (a)   for the purpose of determining any liability under the 1933
                  Act, the information omitted from the form of prospectus
                  filed as part of this registration statement in reliance
                  upon Rule 430A and contained in a form of prospectus filed
                  by the Registrant under Rule 497(h) under the 1933 Act shall
                  be deemed to be part of this registration statement as of
                  the time it was declared effective.
            (b)   for the purposes of determining any liability under the 1933
                  Act, each post-effective amendment that contains a form of
                  prospectus shall be deemed to be a new Registration
                  Statement relating to the securities offered therein, and
                  the offering of the securities at that time shall be deemed
                  to be the initial bona fide offering thereof.
      (6)   Not applicable.


                                      8
<PAGE>

                                  Signatures


Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of New York, and State of New York, on the 8th day of
November 2005.


                               Japan Smaller Capitalization Fund, Inc.



                               By:  /s/ Keiko Tani
                                    ---------------------------------------
                                                   (Keiko Tani,
                                                  Vice President)




Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.


<TABLE>
<CAPTION>
                  Signature                                    Title                               Date
                  ---------                                    -----                               ----

<S>                                                 <C>                                      <C>
                                                       Director and President                November 8, 2005
/s/ Hiroshi Teraski*                               (Principal Executive Officer)
- -----------------------------------------------
              (Hiroshi Terasaki)

                                                             Treasurer                       November 8, 2005
/s/ Rita Chopra-Brathwaite                         (Principal Financial Officer)
- -----------------------------------------------
          (Rita Chopra-Brathwaite )

/s/ William G. Barker, Jr.*                                   Director                       November 8, 2005
- -----------------------------------------------
           (William G. Barker, Jr.)

/s/ William K. Grollman*                                      Director                       November 8, 2005
- -----------------------------------------------
            (William K. Grollman)

/s/ Chor Weng Tan*                                            Director                       November 8, 2005
- -----------------------------------------------
               (Chor Weng Tan)

/s/ Arthur R. Taylor*                                         Director                       November 8, 2005
- -----------------------------------------------
              (Arthur R. Taylor)

/s/ John F. Wallace*                                          Director                       November 8, 2005
- -----------------------------------------------
              (John F. Wallace)


/s/ Rita Chopra-Brathwaite                                                                   November 8, 2005
- -----------------------------------------------
</TABLE>

*By Rita Chopra-Brathwaite, as attorney-in-fact of each person so indicated.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2(A)(2)
<SEQUENCE>2
<FILENAME>efc5-2269_ex992a2.txt
<TEXT>
                                                                Exhibit (a)(2)


                             ARTICLES OF AMENDMENT

                                      OF

                          JAPAN OTC EQUITY FUND, INC.



         JAPAN OTC EQUITY FUND, INC., a Maryland corporation (the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of the State of Maryland that:

         FIRST: The charter of the Corporation is hereby amended by deleting
Article I thereof in its entirety and inserting the following in lieu thereof:

                                  "ARTICLE I.
                                     NAME
                                     ----

         The name of the corporation is JAPAN SMALLER CAPITALIZATION FUND,
         INC. (the "Corporation")."



         SECOND: The amendment does not increase the authorized capital stock
of the Corporation.



         THIRD: The foregoing amendment to the charter of the Corporation has
been approved by a majority of the entire Board of Directors of the
Corporation and the amendment is limited to a change expressly authorized by
Section 2-605 of the Maryland General Corporation Law to be made without
action by the stockholders.



<PAGE>


         IN WITNESS WHEREOF, Japan OTC Equity Fund, Inc. has caused these
Articles of Amendment to be signed in its name and on its behalf by its Vice
President and attested by its Secretary on February    , 2002.


<TABLE>
<CAPTION>

<S>                                                     <C>

ATTEST:                                                  JAPAN OTC EQUITY FUND, INC.



By: /s/ John J. Boretti                                  By:  /s/ Kenneth L. Munt
    ---------------------------------------                   -----------------------------
   John J. Boretti, Secretary and Treasurer                   Kenneth L. Munt, Vice President

</TABLE>


         THE UNDERSIGNED, Vice President of Japan OTC Equity Fund, Inc.,
acknowledges these Articles of Amendment to be the act of the Corporation, and
as to all matters or facts required to be verified under oath, the undersigned
Vice President acknowledges that to the best of his knowledge, information and
belief, the matters and facts set forth in these Articles of Amendment are
true in all material respects, and that this statement is made under the
penalties of perjury.



                                        /s/ Kenneth L. Munt
                                        -----------------------------------
                                           Kenneth L. Munt, Vice President



                                       2

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2(B)
<SEQUENCE>3
<FILENAME>efc5-2269_5572536exhb.txt
<TEXT>
                                                                   Exhibit (b)

                    JAPAN SMALLER CAPITALIZATION FUND, INC.
                    ---------------------------------------

                          AMENDED AND RESTATED BYLAWS
                          ---------------------------

                                   ARTICLE I

                                    Offices
                                    -------

         Section 1. Principal Office. The principal office of the Corporation
in the State of Maryland shall be located at such place as the Board of
Directors may designate.

         Section 2. Principal Executive Office. The Corporation may have
additional offices, including a principal executive office, at such places as
the Board of Directors may from time to time determine or the business of the
Corporation may require.

                                  ARTICLE II

                           Meetings of Stockholders
                           ------------------------

         Section 1. Annual Meeting. An annual meeting of the stockholders for
the election of directors and the transaction of any business within the
powers of the Corporation and as may be properly brought before the meeting
shall be held on a date and at the time set by the Board of Directors during
the month of August in each year.

         Section 2.  Special Meetings.

                (a) General. The Chairman of the Board, President or Board of
Directors may call a special meeting of the stockholders. Subject to
subsection (b) of this Section 2, a special meeting of stockholders shall also
be called by the Secretary of the Corporation upon the written request of
stockholders entitled to cast not less than a majority of all the votes
entitled to be cast at such meeting.

                (b) Stockholder Requested Special Meetings. (1) Any
stockholder of record seeking to have stockholders request a special meeting
shall, by sending written


<PAGE>



notice to the Secretary (the "Record Date Request Notice") by registered mail,
return receipt requested, request the Board of Directors to fix a record date
to determine the stockholders entitled to request a special meeting (the
"Request Record Date"). The Record Date Request Notice shall set forth the
purpose of the meeting and the matters proposed to be acted on at it, shall be
signed by one or more stockholders of record as of the date of signature (or
their agents duly authorized in a writing accompanying the Record Date Request
Notice), shall bear the date of signature of each such stockholder (or such
agent) and shall set forth all information relating to each such stockholder
that must be disclosed in solicitations of proxies for election of directors
in an election contest (even if an election contest is not involved), or is
otherwise required, in each case pursuant to Regulation 14A (or any successor
provision) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules thereunder. Upon receiving the Record Date
Request Notice, the Board of Directors may fix a Request Record Date. The
Request Record Date shall not precede and shall not be more than ten days
after the close of business on the date on which the resolution fixing the
Request Record Date is adopted by the Board of Directors. If the Board of
Directors, within ten days after the date on which a valid Record Date Request
Notice is received, fails to adopt a resolution fixing the Request Record
Date, the Request Record Date shall be the close of business on the tenth day
after the first date on which the Record Date Request Notice is received by
the Secretary.

                (2) In order for any stockholder to request a special
meeting, one or more written requests for a special meeting signed by
stockholders of record (or their agents duly authorized in a writing
accompanying the request) as of the Request Record Date



                                      2
<PAGE>



entitled to cast not less than a majority (the "Special Meeting Percentage")
of all of the votes entitled to be cast at such meeting (the "Special Meeting
Request") shall be delivered to the Secretary. In addition, the Special
Meeting Request (a) shall set forth the purpose of the meeting and the matters
proposed to be acted on at it (which shall be limited to those lawful matters
set forth in the Record Date Request Notice received by the Secretary), (b)
shall bear the date of signature of each such stockholder (or such agent)
signing the Special Meeting Request, (c) shall set forth the name and address,
as they appear in the Corporation's books, of each stockholder signing such
request (or on whose behalf the Special Meeting Request is signed), the class,
series and number of all shares of stock of the Corporation which are owned by
each such stockholder, and the nominee holder for, and number of, shares owned
by such stockholder beneficially but not of record, (d) shall be sent to the
Secretary by registered mail, return receipt requested, and (e) shall be
received by the Secretary within 60 days after the Request Record Date. Any
requesting stockholder (or agent duly authorized in a writing accompanying the
revocation or the Special Meeting Request) may revoke his, her or its request
for a special meeting at any time by written revocation delivered to the
Secretary.

                (3) The Secretary shall inform the requesting stockholders
of the reasonably estimated cost of preparing and mailing the notice of
meeting (including the Corporation's proxy materials). The Secretary shall not
be required to call a special meeting upon stockholder request and such
meeting shall not be held unless, in addition to the documents required by
paragraph (2) of this Section 3(b), the Secretary receives payment of such
reasonably estimated cost prior to the mailing of any notice of the meeting.



                                      3
<PAGE>


                (4) Except as provided in the next sentence, any special
meeting shall be held at such place, date and time as may be designated by the
Chairman of the Board, President or Board of Directors, whoever has called the
meeting. In the case of any special meeting called by the Secretary upon the
request of stockholders (a "Stockholder Requested Meeting"), such meeting
shall be held at such place, date and time as may be designated by the Board
of Directors; provided, however, that the date of any Stockholder Requested
Meeting shall be not more than 90 days after the record date for such meeting
(the "Meeting Record Date"); and provided further that if the Board of
Directors fails to designate, within ten days after the date that a valid
Special Meeting Request is actually received by the Secretary (the "Delivery
Date"), a date and time for a Stockholder Requested Meeting, then such meeting
shall be held at 10:00 a.m. Eastern time on the 90th day after the Meeting
Record Date or, if such 90th day is not a Business Day (as defined below), on
the first preceding Business Day; and provided further that in the event that
the Board of Directors fails to designate a place for a Stockholder Requested
Meeting within ten days after the Delivery Date, then such meeting shall be
held at the principal executive office of the Corporation. In fixing a date
for any special meeting, the Chairman of the Board, President or Board of
Directors may consider such factors as he, she or it deems relevant within the
good faith exercise of business judgment, including, without limitation, the
nature of the matters to be considered, the facts and circumstances
surrounding any request for the meeting and any plan of the Board of Directors
to call an annual meeting or a special meeting. In the case of any Stockholder
Requested Meeting, if the Board of Directors fails to fix a Meeting Record
Date that is a date within 30 days after the Delivery Date, then the close of
business on



                                      4
<PAGE>



the 30th day after the Delivery Date shall be the Meeting Record Date. The
Board of Directors may revoke the notice for any Stockholder Requested Meeting
in the event that the requesting stockholders fail to comply with the
provisions of paragraph (3) of this Section 3(b).

                (5) If written revocations of requests for the special
meeting have been delivered to the Secretary and the result is that
stockholders of record (or their agents duly authorized in writing), as of the
Request Record Date, entitled to cast less than the Special Meeting Percentage
have delivered, and not revoked, requests for a special meeting to the
Secretary, the Secretary shall: (i) if the notice of meeting has not already
been mailed, refrain from mailing the notice of the meeting and send to all
requesting stockholders who have not revoked such requests written notice of
any revocation of a request for the special meeting, or (ii) if the notice of
meeting has been mailed and if the Secretary first sends to all requesting
stockholders who have not revoked requests for a special meeting written
notice of any revocation of a request for the special meeting and written
notice of the Secretary's intention to revoke the notice of the meeting,
revoke the notice of the meeting at any time before ten days before the
commencement of the meeting. Any request for a special meeting received after
a revocation by the Secretary of a notice of a meeting shall be considered a
request for a new special meeting.

                (6) The Chairman of the Board, President or Board of
Directors may appoint regionally or nationally recognized independent
inspectors of elections to act as the agent of the Corporation for the purpose
of promptly performing a ministerial review of the validity of any purported
Special Meeting Request received by the Secretary. For the purpose of
permitting the inspectors to perform such review, no such purported



                                      5
<PAGE>


request shall be deemed to have been delivered to the Secretary until the
earlier of (i) five Business Days after receipt by the Secretary of such
purported request and (ii) such date as the independent inspectors certify to
the Corporation that the valid requests received by the Secretary represent at
least a majority of the issued and outstanding shares of stock that would be
entitled to vote at such meeting. Nothing contained in this paragraph (6)
shall in any way be construed to suggest or imply that the Corporation or any
stockholder shall not be entitled to contest the validity of any request,
whether during or after such five Business Day period, or to take any other
action (including, without limitation, the commencement, prosecution or
defense of any litigation with respect thereto, and the seeking of injunctive
relief in such litigation).

                (7) For purposes of these Bylaws, "Business Day" shall mean
any day other than a Saturday, a Sunday or a day on which banking institutions
in the State of New York are authorized or obligated by law or executive order
to close.

         Section 3. Place of Meetings. The annual meeting and any special
meeting of the stockholders shall be held at such place as the Board of
Directors may from time to time determine.

         Section 4. Notice. Not less than ten nor more than 90 days before
each meeting of stockholders, the Secretary shall give to each stockholder
entitled to vote at such meeting and to each stockholder not entitled to vote
who is entitled to notice of the meeting written or printed notice stating the
time and place of the meeting and, in the case of a special meeting or as
otherwise may be required by any statute, the purpose for which the meeting is
called, either by mail, by presenting it to such stockholder personally, by
leaving it at the stockholder's residence or usual place of business or by



                                      6
<PAGE>


any other means permitted by Maryland law. If mailed, such notice shall be
deemed to be given when deposited in the United States mail addressed to the
stockholder at the stockholder's address as it appears on the records of the
Corporation, with postage thereon prepaid.

         Subject to Section 11(a) of this Article II, any business of the
Corporation may be transacted at an annual meeting of stockholders without
being specifically designated in the notice, except such business as is
required by any statute to be stated in such notice. No business shall be
transacted at a special meeting of stockholders except as specifically
designated in the notice.

         Section 5. Quorum. At any meeting of stockholders, the presence in
person or by proxy of stockholders entitled to cast (without regard to class)
a majority of all the votes entitled to be cast at such meeting on any matter
shall constitute a quorum; but this section shall not affect any requirement
under any statute or the charter of the Corporation (the "Charter") for the
vote necessary for the adoption of any measure.

         If, however, such quorum shall not be present at any meeting of the
stockholders, the chairman of the meeting shall have the power to adjourn the
meeting from time to time to a date not more than 120 days after the original
record date without notice other than announcement at the meeting. At such
adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally
notified.

         The stockholders present either in person or by proxy, at a meeting
which has been duly called and convened, may continue to transact business
until adjournment, notwithstanding the withdrawal of enough stockholders to
leave less than a quorum.




                                      7
<PAGE>


         The absence from any meeting, in person or by proxy, of holders of
the number of shares of stock of the Corporation in excess of a majority
thereof which may be required by the laws of the State of Maryland, the
Investment Company Act of 1940, as amended (the "1940 Act"), other applicable
statute, the Charter or these Bylaws, for action upon any given matter shall
not prevent action at such meeting upon any other matter or matters which may
properly come before the meeting, if there shall be present thereat, in person
or by proxy, holders of the number of shares of stock of the Corporation
required for action in respect of such other matter or matters.

         Section 6. Organization and Conduct. Every meeting of stockholders
shall be conducted by an individual appointed by the Board of Directors to be
chairman of the meeting or, in the absence of such appointment, by the
Chairman of the Board or, in the case of a vacancy in the office or absence of
the Chairman of the Board, by one of the following officers present at the
meeting: the President, the Vice Presidents in their order of rank and
seniority, or, in the absence of such officers, a chairman chosen by the
stockholders by the vote of a majority of the votes cast by stockholders
present in person or by proxy. The Secretary, or, in the Secretary's absence,
an Assistant Secretary, or in the absence of both the Secretary and Assistant
Secretaries, a person appointed by the Board of Directors or, in the absence
of such appointment, a person appointed by the chairman of the meeting shall
act as secretary. In the event that the Secretary presides at a meeting of the
stockholders, an Assistant Secretary, or in the absence of Assistant
Secretaries, an individual appointed by the Board of Directors or the chairman
of the meeting, shall record the minutes of the meeting. The order of business
and all other matters of procedure at any meeting of stockholders shall be
determined by the chairman



                                      8
<PAGE>



of the meeting. The chairman of the meeting may prescribe such rules,
regulations and procedures and take such action as, in the discretion of such
chairman, are appropriate for the proper conduct of the meeting, including,
without limitation, (a) restricting admission to the time set for the
commencement of the meeting; (b) limiting attendance at the meeting to
stockholders of record of the Corporation, their duly authorized proxies and
other such individuals as the chairman of the meeting may determine; (c)
limiting participation at the meeting on any matter to stockholders of record
of the Corporation entitled to vote on such matter, their duly authorized
proxies and other such individuals as the chairman of the meeting may
determine; (d) limiting the time allotted to questions or comments by
participants; (e) determining when the polls should be opened and closed; (f)
maintaining order and security at the meeting; (g) removing any stockholder or
any other individual who refuses to comply with meeting procedures, rules or
guidelines as set forth by the chairman of the meeting; and (h) concluding a
meeting or recessing or adjourning the meeting to a later date and time and at
a place announced at the meeting. Unless otherwise determined by the chairman
of the meeting, meetings of stockholders shall not be required to be held in
accordance with the rules of parliamentary procedure.

         Section 7. Voting. A majority of the votes entitled to be cast in the
election of directors shall be required to elect a director. Each share may be
voted for as many individuals as there are directors to be elected and for
whose election the share is entitled to be voted. A majority of the votes cast
at a meeting of stockholders duly called and at which a quorum is present
shall be sufficient to approve any other matter which may properly come before
the meeting, unless more than a majority of the votes cast is required by
statute or by the Charter. Unless otherwise provided by statute or by the



                                      9
<PAGE>


Charter, each outstanding share, regardless of class, shall be entitled to one
vote on each matter submitted to a vote at a meeting of stockholders. Voting
on any question or in any election may be viva voce unless the chairman of the
meeting shall order that voting be by ballot.

         Section 8. Proxies. A stockholder may cast the votes entitled to be
cast by the shares of stock owned of record by the stockholder in person or by
proxy executed by the stockholder or by the stockholder's duly authorized
agent in any manner permitted by law. Such proxy or evidence of authorization
of such proxy shall be filed with the Secretary of the Corporation before or
at the meeting. No proxy shall be valid more than eleven months after its date
unless otherwise provided in the proxy.

         Section 9. Voting of Stock by Certain Holders. Stock of the
Corporation registered in the name of a corporation, partnership, trust or
other entity, if entitled to be voted, may be voted by the president or a Vice
President, a general partner or trustee thereof, as the case may be, or a
proxy appointed by any of the foregoing individuals, unless some other person
who has been appointed to vote such stock pursuant to a bylaw or a resolution
of the governing body of such corporation or other entity or agreement of the
partners of a partnership presents a certified copy of such bylaw, resolution
or agreement, in which case such person may vote such stock. Any director or
other fiduciary may vote stock registered in his or her name as such
fiduciary, either in person or by proxy.

         Shares of stock of the Corporation directly or indirectly owned by it
shall not be voted at any meeting and shall not be counted in determining the
total number of outstanding shares entitled to be voted at any given time,
unless they are held by it in a



                                      10
<PAGE>


fiduciary capacity, in which case they may be voted and shall be counted in
determining the total number of outstanding shares at any given time.

         The Board of Directors may adopt by resolution a procedure by which a
stockholder may certify in writing to the Corporation that any shares of stock
registered in the name of the stockholder are held for the account of a
specified person other than the stockholder. The resolution shall set forth
the class of stockholders who may make the certification, the purpose for
which the certification may be made, the form of certification and the
information to be contained in it; if the certification is with respect to a
record date or closing of the stock transfer books, the time after the record
date or closing of the stock transfer books within which the certification
must be received by the Corporation; and any other provisions with respect to
the procedure which the Board of Directors considers necessary or desirable.
On receipt of such certification, the person specified in the certification
shall be regarded as, for the purposes set forth in the certification, the
stockholder of record of the specified stock in place of the stockholder who
makes the certification.

         Section 10. Inspectors. The Board may, in advance of any meeting of
stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the meeting may, and on the
request of any stockholder entitled to vote thereat shall, appoint inspectors.
Each inspector, before entering upon the discharge of his duties, shall take
and sign an oath to execute faithfully the duties of inspector at such meeting
with strict impartiality and according to the best of his ability. The
inspectors shall determine the number of shares outstanding and the voting
powers of



                                      11
<PAGE>


each, the number of shares represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all stockholders. On request of the chairman
of the meeting or any stockholder entitled to vote thereat, the inspectors
shall make a report in writing of any challenge, request or matter determined
by them and shall execute a certificate of any fact found by them. No director
or candidate for the office of director shall act as inspector of an election
of directors. Inspectors need not be stockholders.

         Section 11. Advance Notice of Stockholder Nominees for Director and
Other Stockholder Proposals.

                (a) Annual Meetings of Stockholders. (1) Nominations of
individuals for election to the Board of Directors and the proposal of other
business to be considered by the stockholders may be made at an annual meeting
of stockholders (i) pursuant to the Corporation's notice of meeting, (ii) by
or at the direction of the Board of Directors or (iii) by any stockholder of
the Corporation who was a stockholder of record both at the time of giving of
notice by the stockholder as provided for in this Section 11(a) and at the
time of the annual meeting, who is entitled to vote at the meeting and who has
complied with this Section 11(a).

                (2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (iii) of
paragraph (a)(1) of this Section 11, in addition to providing sufficient
information, with appropriate verification



                                      12
<PAGE>



of the accuracy thereof, to enable the Nominating Committee of the Board of
Directors to make the determination as to the nominee's qualifications
required under the Statement of Criteria for Selection of Independent
Directors contained in the Nominating Committee's charter, the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation and such other business must otherwise be a proper matter for
action by the stockholders. To be timely, a stockholder's notice shall set
forth all information required under this Section 11 and shall be delivered to
the Secretary at the principal executive office of the Corporation not earlier
than the 120th day nor later than 5:00 p.m., Eastern Time, on the 90th day
prior to the first anniversary of the date of mailing of the notice for the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced or delayed by more than 30 days from
the first anniversary of the date of the preceding year's annual meeting,
notice by the stockholder to be timely must be so delivered not earlier than
the 120th day prior to the date of such annual meeting and not later than 5:00
p.m., Eastern Time, on the later of the 90th day prior to the date of such
annual meeting or the tenth day following the day on which public announcement
of the date of such meeting is first made. The public announcement of a
postponement or adjournment of an annual meeting shall not commence a new time
period for the giving of a stockholder's notice as described above. Such
stockholder's notice shall set forth (i) as to each individual whom the
stockholder proposes to nominate for election or reelection as a director, (A)
the name, age, business address and residence address of such individual, (B)
the class, series and number of any shares of stock of the Corporation that
are beneficially owned by such individual, (C) the date such shares were
acquired and the investment intent of such acquisition, (D) whether



                                      13
<PAGE>


such stockholder believes any nominee will be an "interested person" of the
Corporation, as defined in the 1940 Act and, if not an "interested person",
information regarding each such nominee that will be sufficient for the
Corporation to make such determination, (E) sufficient information, with
appropriate verification of the accuracy thereof, to enable the Nominating
Committee of the Board of Directors to make a determination as to the
nominee's qualifications and (F) all other information relating to such
individual that is required to be disclosed in solicitations of proxies for
election of directors in an election contest (even if an election contest is
not involved), or is otherwise required, in each case pursuant to Regulation
14A (or any successor provision) under the Exchange Act and the rules
thereunder (including such individual's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected); (ii) as
to any other business that the stockholder proposes to bring before the
meeting, a description of such business, the reasons for proposing such
business at the meeting and any material interest in such business of such
stockholder and any Stockholder Associated Person (as defined below),
individually or in the aggregate, including any anticipated benefit to the
stockholder and the Stockholder Associated Person therefrom; (iii) as to the
stockholder giving the notice and any Stockholder Associated Person, the
class, series and number of all shares of stock of the Corporation which are
owned by such stockholder and by such Stockholder Associated Person, if any,
and the nominee holder for, and number of, shares owned beneficially but not
of record by such stockholder and by any such Stockholder Associated Person;
(iv) as to the stockholder giving the notice and any Stockholder Associated
Person covered by clauses (ii) or (iii) of this paragraph (2) of this Section
11(a), the name and address of such stockholder, as they appear on the
Corporation's



                                      14
<PAGE>


stock ledger and current name and address, if different, and of such
Stockholder Associated Person; and (v) to the extent known by the stockholder
giving the notice, the name and address of any other stockholder supporting
the nominee for election or reelection as a director or the proposal of other
business on the date of such stockholder's notice.

                (3) Notwithstanding anything in this subsection (a) of this
Section 11 to the contrary, in the event that the number of directors to be
elected to the Board of Directors is increased and there is no public
announcement of such action at least 100 days prior to the first anniversary
of the date of mailing of the notice for the preceding year's annual meeting,
a stockholder's notice required by this Section 11(a) shall also be considered
timely, but only with respect to nominees for any new positions created by
such increase, if it shall be delivered to the Secretary at the principal
executive office of the Corporation not later than 5:00 p.m., Eastern Time, on
the tenth day following the day on which such public announcement is first
made by the Corporation.

                (4) For purposes of this Section 11, "Stockholder Associated
Person" of any stockholder shall mean (i) any person controlling, directly or
indirectly, or acting in concert with, such stockholder, (ii) any beneficial
owner of shares of stock of the Corporation owned of record or beneficially by
such stockholder and (iii) any person controlling, controlled by or under
common control with such Stockholder Associated Person.

                (b) Special Meetings of Stockholders. Only such business
shall be conducted at a special meeting of stockholders as shall have been
brought before the meeting pursuant to the Corporation's notice of meeting.
Nominations of individuals for



                                      15
<PAGE>



election to the Board of Directors may be made at a special meeting of
stockholders at which directors are to be elected (i) pursuant to the
Corporation's notice of meeting, (ii) by or at the direction of the Board of
Directors or (iii) provided that the Board of Directors has determined that
directors shall be elected at such special meeting, by any stockholder of the
Corporation who is a stockholder of record both at the time of giving of
notice provided for in this Section 11 and at the time of the special meeting,
who is entitled to vote at the meeting and who complied with the notice
procedures set forth in this Section 11. In the event the Corporation calls a
special meeting of stockholders for the purpose of electing one or more
individuals to the Board of Directors, any such stockholder may nominate an
individual or individuals (as the case may be) for election as a director as
specified in the Corporation's notice of meeting, if the stockholder's notice
required by paragraph (2) of this Section 11(a) shall be delivered to the
Secretary at the principal executive office of the Corporation not earlier
than the 120th day prior to such special meeting and not later than 5:00 p.m.,
Eastern Time, on the later of the 90th day prior to such special meeting or
the tenth day following the day on which public announcement is first made of
the date of the special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting. The public announcement of a
postponement or adjournment of a special meeting shall not commence a new time
period for the giving of a stockholder's notice as described above.

                (c) General. (1) Upon written request by the Secretary or
the Board of Directors or any committee thereof, any stockholder proposing a
nominee for election as a director or any proposal for other business at a
meeting of stockholders shall provide, within five Business Days of delivery
of such request (or such other period as may be



                                      16
<PAGE>


specified in such request), written verification, satisfactory, in the
discretion of the Board of Directors or any committee thereof or any
authorized officer of the Corporation, to demonstrate the accuracy of any
information submitted by the stockholder pursuant to this Section 11. If a
stockholder fails to provide such written verification within such period, the
information as to which written verification was requested may be deemed not
to have been provided in accordance with this Section 11.

                (2) Only such individuals who are nominated in accordance
with this Section 11 shall be eligible for election by stockholders as
directors, and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in accordance with
this Section 11. The chairman of the meeting shall have the power to determine
whether a nomination or any other business proposed to be brought before the
meeting was made or proposed, as the case may be, in accordance with this
Section 11.

                (3) For purposes of this Section 11, (a) the "date of
mailing of the notice" shall mean the date of the proxy statement for the
solicitation of proxies for election of directors and (b) "public
announcement" shall mean disclosure (i) in a press release reported by the Dow
Jones News Service, Associated Press, Business Wire, PR Newswire or comparable
news service or (ii) in a document publicly filed by the Corporation with the
Securities and Exchange Commission (the "SEC") pursuant to the Exchange Act.

                (4) Notwithstanding the foregoing provisions of this Section
11, a stockholder shall also comply with all applicable requirements of state
law and of the Exchange Act and the rules and regulations thereunder with
respect to the matters set



                                      17
<PAGE>


forth in this Section 11. Nothing in this Section 11 shall be deemed to affect
any right of a stockholder to request inclusion of a proposal in, nor the
right of the Corporation to omit a proposal from, the Corporation's proxy
statement pursuant to Rule 14a-8 (or any successor provision) under the
Exchange Act.

                                  ARTICLE III

                              Board of Directors
                              ------------------

         Section 1. General Powers. The business and affairs of the
Corporation shall be managed under the direction of its Board of Directors.

         Section 2. Number. At any regular meeting or at any special meeting
called for that purpose, a majority of the entire Board of Directors may
establish, increase or decrease the number of directors; provided, however,
that the tenure of office of a director shall not be affected by any decrease
in the number of directors.

         Section 3. Tenure of Directors. The directors (other than any
director elected solely by holders of one or more classes or series of
Preferred Stock in connection with dividend arrearages) shall be classified,
with respect to the terms for which they severally hold office, into three
classes, with Class I directors to hold office initially for a term expiring
at the annual meeting of stockholders in 2004, Class II directors to hold
office initially for a term expiring at the annual meeting of stockholders in
2005 and Class III directors to hold office initially for a term expiring at
the annual meeting of stockholders in 2006, with each director to hold office
until her or his successor is duly elected and qualifies. At each annual
meeting of the stockholders, commencing with the 2004 annual meeting, the
successors to the class of directors whose term expires at such meeting shall
be elected to hold office for a term expiring at the third succeeding annual
meeting of



                                      18
<PAGE>


stockholders following the meeting at which they were elected and until their
successors are duly elected and qualify.

         Section 4. Resignation. A director of the Corporation may resign at
any time by giving written notice of his resignation to the Board or the
Chairman of the Board or the President or the Secretary. Any such resignation
shall take effect at the time specified therein or, if the time when it shall
become effective shall not be specified therein, immediately upon its receipt;
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.

         Section 5. Vacancies. If for any reason any or all the directors
cease to be directors, such event shall not terminate the Corporation or
affect these Bylaws or the powers of the remaining directors hereunder.
Subject to the 1940 Act and except as may be provided by the Board of
Directors in setting the terms of any class or series of preferred stock, any
vacancy on the Board of Directors may be filled only by a majority of the
remaining directors, even if the remaining directors do not constitute a
quorum. Any director elected to fill a vacancy shall serve for the remainder
of the full term of the class in which the vacancy occurred and until a
successor is elected and qualifies.

         Section 6. Annual and Regular Meetings. An annual meeting of the
Board of Directors shall be held immediately after and at the same place as
the annual meeting of stockholders, no notice other than this Bylaw being
necessary. In the event such meeting is not so held, the meeting may be held
at such time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the Board of Directors. The Board of
Directors may provide, by resolution, the time and place for the holding of
regular meetings of the Board of Directors without other notice than such
resolution.



                                      19
<PAGE>


         Section 7. Special Meetings. Special meetings of the Board of
Directors may be called by or at the request of the Chairman of the Board, the
President or by a majority of the directors then in office. The person or
persons authorized to call special meetings of the Board of Directors may fix
any place as the place for holding any special meeting of the Board of
Directors called by them. The Board of Directors may provide, by resolution,
the time and place for the holding of special meetings of the Board of
Directors without other notice than such resolution.

         Section 8. Remote Meetings. Members of the Board of Directors or of
any committee thereof may participate in a meeting by means of a conference
telephone or other communications equipment if all persons participating in
the meeting can hear each other at the same time. Subject to the provisions of
the 1940 Act, participation in a meeting by these means constitutes presence
in person at the meeting.

         Section 9. Waiver of Notice of Meetings. Notice of any special
meeting need not be given to any director who shall, either before or after
the meeting, sign a written waiver of notice which is filed with the records
of the meeting or who shall attend such meeting. Except as otherwise
specifically required by these By-Laws, a notice or waiver or notice of any
meeting need not state the purposes of such meeting.

         Section 10. Quorum and Voting. A majority of the directors shall
constitute a quorum for the transaction of business at any meeting of the
Board of Directors, provided that, if less than a majority of such directors
are present at a meeting, a majority of the directors present may adjourn the
meeting from time to time without further notice, and provided further that
if, pursuant to applicable law, the Charter or these Bylaws, the vote of a
majority of a particular group of directors is required for action, a quorum
must also



                                      20
<PAGE>


include a majority of such group. The directors present at a meeting which has
been duly called and convened may continue to transact business until
adjournment, notwithstanding the withdrawal of enough directors to leave less
than a quorum.

         The action of the majority of the directors present at a meeting at
which a quorum is present shall be the action of the Board, unless the
concurrence of a greater proportion is required for such action by applicable
law, the Charter or these Bylaws.

         If enough directors have withdrawn from a meeting to leave less than
a quorum but the meeting is not adjourned, the action of the majority of that
number of directors necessary to constitute a quorum at such meeting shall be
the action of the Board of Directors, unless the concurrence of a greater
proportion is required for such action by applicable law, the Charter or these
Bylaws.

         Section 11. Organization. The Board may, by resolution adopted by a
majority of the entire Board, designate a Chairman of the Board, who shall
preside at each meeting of the Board. In the absence or inability of the
Chairman of the Board to preside at a meeting, the President or, in his
absence or inability to act, another director chosen by a majority of the
directors present, shall act as chairman of the meeting and preside thereat.
The Secretary (or, in his absence or inability to act, any person appointed by
the Chairman) shall act as Secretary of the meeting and keep the minutes
thereof.

         Section 12. Written Consent of Directors in Lieu of a Meeting.
Subject to the 1940 Act, any action required or permitted to be taken at any
meeting of the Board of Directors may be taken without a meeting, if a consent
in writing or by electronic transmission to such action is given by each
director and is filed with the minutes of proceedings of the Board of
Directors.



                                      21
<PAGE>


         Section 13. Compensation. Directors shall not receive any stated
salary for their services as directors but, by resolution of the Board of
Directors, may receive compensation per year and/or per meeting and/or per
visit to real property or other facilities owned or leased by the Corporation
and for any service or activity they performed or engaged in as directors.
Directors may be reimbursed for expenses of attendance, if any, at each
annual, regular or special meeting of the Board of Directors or of any
committee thereof and for their expenses, if any, in connection with each
property visit and any other service or activity they performed or engaged in
as directors; but nothing herein contained shall be construed to preclude any
directors from serving the Corporation in any other capacity and receiving
compensation therefor.

         Section 14. Investment Policies. It shall be the duty of the Board of
Directors to direct that the purchase, sale, retention and disposal of
portfolio securities and the other investment practices of the Corporation are
at all times consistent with the investment policies and restrictions with
respect to securities investments and otherwise of the Corporation, as recited
in the Prospectus of the Corporation included in the registration statement of
the Corporation relating to the initial public offering of its capital stock,
as filed with the SEC (or as such investment policies and restrictions may be
modified by the Board of Directors, or, if required, by majority vote of the
stockholders of the Corporation in accordance with the 1940 Act and as
required by the 1940 Act). The Board however, may delegate the duty of
management of the assets and the administration of its day to day operations
to an individual or corporate management company and/or investment adviser
pursuant to a written contract or contracts which have obtained the requisite
approvals, including the requisite approvals of renewals thereof, of



                                      22
<PAGE>


the Board of Directors and/or the stockholders of the corporation in
accordance with the provisions of the 1940 Act.

         Section 15. Loss of Deposits. No director shall be liable for any
loss which may occur by reason of the failure of the bank, trust company,
savings and loan association, or other institution with whom moneys or stock
have been deposited.

         Section 16. Surety Bonds. Unless required by law, no director shall
be obligated to give any bond or surety or other security for the performance
of any of his or her duties.

         Section 17. Reliance. Each director, officer, employee and agent of
the Corporation shall, in the performance of his or her duties with respect to
the Corporation, be fully justified and protected with regard to any act or
failure to act in reliance in good faith upon the books of account or other
records of the Corporation, upon an opinion of counsel or upon reports made to
the Corporation by any of its officers or employees or by the adviser,
accountants, appraisers or other experts or consultants selected by the Board
of Directors or officers of the Corporation, regardless of whether such
counsel or expert may also be a director.

                                  ARTICLE IV

                                  Committees
                                  ----------

         Section 1. Number Tenure and Qualifications. The Board of Directors
may appoint from among its members an Executive Committee, an Audit Committee,
a Nominating Committee and other committees, composed of one or more
directors, to serve at the pleasure of the Board of Directors.



                                      23
<PAGE>


         Section 2. Powers. The Board of Directors may delegate to committees
appointed under Section 1 of this Article any of the powers of the Board of
Directors, except as prohibited by law.

         Section 3. Meetings. Notice of committee meetings shall be given in
the same manner as notice for special meetings of the Board of Directors. A
majority of the members of the committee shall constitute a quorum for the
transaction of business at any meeting of the committee. The act of a majority
of the committee members present at a meeting shall be the act of such
committee. The Board of Directors may designate a chairman of any committee,
and such chairman or, in the absence of a chairman, any two members of any
committee (if there are at least two members of the Committee) may fix the
time and place of its meeting unless the Board shall otherwise provide. In the
absence of any member of any such committee, the members thereof present at
any meeting, whether or not they constitute a quorum, may appoint another
director to act in the place of such absent member. Each committee shall keep
minutes of its proceedings.

         Section 4. Remote Meetings. Members of a committee of the Board of
Directors may participate in a meeting by means of a conference telephone or
other communications equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
shall constitute presence in person at the meeting.

         Section 5. Consent By Committees In Lieu of a Meeting. Any action
required or permitted to be taken at any meeting of a committee of the Board
of Directors may be taken without a meeting, if a consent in writing or by
electronic transmission to such



                                      24
<PAGE>


action is given by each member of the committee and is filed with the minutes
of proceedings of such committee.

         Section 6. Vacancies. Subject to the provisions hereof, the Board of
Directors shall have the power at any time to change the membership of any
committee, to fill all vacancies, to designate alternate members to replace
any absent or disqualified member or to dissolve any such committee. Subject
to the power of the Board, the members of the committee shall have the power
to fill any vacancies on the committee.

                                   ARTICLE V

                                   Officers
                                   --------

         Section 1. General Provisions. The officers of the Corporation shall
include a President, a Secretary and a Treasurer and may include a Chairman of
the Board, a vice Chairman of the Board, a chief executive officer, one or
more Vice Presidents, a chief operating officer, a chief financial officer,
one or more Assistant Secretaries and one or more Assistant Treasurers. In
addition, the Board of Directors may from time to time elect such other
officers with such powers and duties as they shall deem necessary or
desirable. The officers of the Corporation shall be elected annually by the
Board of Directors, except that President may from time to time appoint one or
more Vice Presidents, Assistant Secretaries and Assistant Treasurers or other
officers. Each officer shall hold office until his or her successor is elected
and qualifies or until his or her death, or his or her resignation or removal
in the manner hereinafter provided. Any two or more offices except President
and Vice President may be held by the same person. Election of an officer or
agent shall not of itself create contract rights between the Corporation and
such officer or agent.



                                      25
<PAGE>


         Section 2. Removal and Resignation. Any officer or agent of the
Corporation may be removed, with or without cause, by the Board of Directors
if in its judgment the best interests of the Corporation would be served
thereby, but such removal shall be without prejudice to the contract rights,
if any, of the person so removed. Any officer of the Corporation may resign at
any time by giving written notice of his or her resignation to the Board of
Directors, the Chairman of the Board, the President or the Secretary. Any
resignation shall take effect immediately upon its receipt or at such later
time specified in the notice of resignation. The acceptance of a resignation
shall not be necessary to make it effective unless otherwise stated in the
resignation. Such resignation shall be without prejudice to the contract
rights, if any, of the Corporation.

         Section 3. Vacancies. A vacancy in any office may be filled by the
Board of Directors for the balance of the term.

         Section 4. President. The President shall be the chief executive
officer and the chief operating officer of the corporation. The President
shall in general supervise and control all of the business and affairs of the
Corporation. He or she may execute any deed, mortgage, bond, contract or other
instrument, except in cases where the execution thereof shall be expressly
delegated by the Board of Directors or by these Bylaws to some other officer
or agent of the Corporation or shall be required by law to be otherwise
executed; and in general shall perform all duties incident to the office of
President and such other duties as may be prescribed by the Board of Directors
from time to time.

         Section 5. Vice President. In the absence of the President or in the
event of a vacancy in such office, the Vice President (or in the event there
be more than one Vice President, the Vice Presidents in the order designated
at the time of their election or, in



                                      26
<PAGE>


the absence of any designation, then in the order of their election) shall
perform the duties of the President and when so acting shall have all the
powers of and be subject to all the restrictions upon the President; and shall
perform such other duties as from time to time may be assigned to such Vice
President by the President or by the Board of Directors. The Board of
Directors may designate one or more Vice Presidents as executive Vice
President, senior Vice Presidents, or as Vice President for particular areas
of responsibility.

         Section 6. Treasurer. The Treasurer shall (a) have charge and custody
of, and be responsible for, all the funds and securities of the Corporation,
except those which the Corporation has placed in the custody of a bank or
trust company or member of a national securities exchange (as that term is
defined in the Exchange Act) pursuant to a written agreement designating such
bank or trust company or member of a national securities exchange as custodian
of the property of the Corporation; (b) keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation; (c) cause
all moneys and other valuables to be deposited to the credit of the
Corporation; (d) receive, and give receipts for, moneys due and payable, to
the Corporation from any source whatsoever; (e) disburse the funds of the
Corporation and supervise the investment of its funds as ordered or authorized
by the Board, taking proper vouchers therefor; and (f) in general, perform all
the duties incident to the office of Treasurer and such other duties as from
time to time may be assigned to him by the Board or the President.

         Section 7. Secretary. The Secretary shall (a) keep or cause to be
kept in one or more books provided for the purpose, the minutes of all
meetings of the Board, the



                                      27
<PAGE>


committees of the Board and the stockholders; (b) see that all notices are
duly given in accordance with the provisions of these Bylaws and as required
by law; (c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all stock certificates of the Corporation (unless
the seal of the Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all other documents to
be executed on behalf of the Corporation under its seal; (d) see that the
books, reports, statements, certificates and other documents and records
required by law to be kept and filed are properly kept and filed; and (e) in
general, perform all the duties incident to the office of Secretary and such
other duties as from time to time may be assigned to him by the Board or the
President.

         Section 8. Assistant Secretaries and Assistant Treasurers. The
Assistant Secretaries and Assistant Treasurers, in general, shall perform such
duties as shall be assigned to them by the Secretary or Treasurer,
respectively, or by the President or the Board of Directors. The Assistant
Treasurers shall, if required by the Board of Directors, give bonds for the
faithful performance of their duties in such sums and with such surety or
sureties as shall be satisfactory to the Board of Directors.

                                  ARTICLE VI

                    Indemnification and Advance of Expenses
                    ---------------------------------------

         To the maximum extent permitted by Maryland law and the 1940 Act in
effect from time to time, the Corporation shall indemnify and, without
requiring a preliminary determination of the ultimate entitlement to
indemnification, shall pay or reimburse reasonable expenses in advance of
final disposition of a proceeding to (a) any individual who is a present or
former director or officer of the Corporation and who is made or



                                      28
<PAGE>


threatened to be made a party to the proceeding by reason of his or her
service in that capacity or (b) any individual who, while a director or
officer of the Corporation and at the request of the Corporation, serves or
has served as a director, officer, partner or trustee of such corporation,
real estate investment trust, partnership, joint venture, trust, employee
benefit plan or other enterprise and who is made or threatened to be made a
party to the proceeding by reason of his or her service in that capacity. The
Corporation may, with the approval of its Board of Directors or any duly
authorized committee thereof, provide such indemnification and advance for
expenses to a person who served a predecessor of the Corporation in any of the
capacities described in (a) or (b) above and to any employee or agent of the
Corporation or a predecessor of the Corporation. The indemnification and
payment of expenses provided in these Bylaws shall not be deemed exclusive of
or limit in any way other rights to which any person seeking indemnification
or payment of expenses may be or may become entitled under any bylaw,
regulation, insurance, agreement or otherwise

         Neither the amendment nor repeal of this Article, nor the adoption or
amendment of any other provision of the Bylaws or charter of the Corporation
inconsistent with this Article, shall apply to or affect in any respect the
applicability of the preceding paragraph with respect to any act or failure to
act which occurred prior to such amendment, repeal or adoption.

         No provision of this Article VI shall be effective to protect or
purport to protect any director or officer of the Corporation against
liability to the Corporation or its stockholders to which he or she would
otherwise be subject by reason of willful



                                      29
<PAGE>


misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.

                                  ARTICLE VII

                                     Stock
                                     -----

         Section 1. Certificates. In the event that the Corporation issues
shares of stock represented by certificates, such certificates shall be signed
by the officers of the Corporation in the manner permitted by the Maryland
General Corporation Law (the "MGCL") and contain the statements and
information required by the MGCL. In the event that the Corporation issues
shares of stock without certificates, the Corporation shall provide to holders
of such shares a written statement of the information required by the MGCL to
be included on stock certificates.

         Section 2. Transfers When Certificates are Issued. Upon surrender to
the Corporation or the transfer agent of the Corporation of a stock
certificate duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, the Corporation shall issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.

         The Corporation shall be entitled to treat the holder of record of
any share of stock as the holder in fact thereof and, accordingly, shall not
be bound to recognize any equitable or other claim to or interest in such
share or on the part of any other person, whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of the State
of Maryland.



                                      30
<PAGE>


         Notwithstanding the foregoing, transfers of shares of any class of
stock will be subject in all respects to the charter of the Corporation and
all of the terms and conditions contained therein.

         Section 3. Replacement Certificate. Any officer designated by the
Board of Directors may direct a new certificate to be issued in place of any
certificate previously issued by the Corporation alleged to have been lost,
stolen or destroyed upon the making of an affidavit of that fact by the person
claiming the certificate to be lost, stolen or destroyed. When authorizing the
issuance of a new certificate, an officer designated by the Board of Directors
may, in his or her discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
the owner's legal representative to advertise the same in such manner as he
shall require and/or to give bond, with sufficient surety, to the Corporation
to indemnify it against any loss or claim which may arise as a result of the
issuance of a new certificate.

         Section 4. Closing of Transfer Books or Fixing of Record Date. The
Board of Directors may set, in advance, a record date for the purpose of
determining stockholders entitled to notice of or to vote at any meeting of
stockholders or determining stockholders entitled to receive payment of any
dividend or the allotment of any other rights, or in order to make a
determination of stockholders for any other proper purpose. Such date, in any
case, shall not be prior to the close of business on the day the record date
is fixed and shall be not more than 90 days and, in the case of a meeting of
stockholders, not less than ten days, before the date on which the meeting or
particular action requiring such determination of stockholders of record is to
be held or taken.



                                      31
<PAGE>


         In lieu of fixing a record date, the Board of Directors may provide
that the stock transfer books shall be closed for a stated period but not
longer than 20 days. If the stock transfer books are closed for the purpose of
determining stockholders entitled to notice of or to vote at a meeting of
stockholders, such books shall be closed for at least ten days before the date
of such meeting.

         If no record date is fixed and the stock transfer books are not
closed for the determination of stockholders, (a) the record date for the
determination of stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day on which the notice
of meeting is mailed or the 30th day before the meeting, whichever is the
closer date to the meeting; and (b) the record date for the determination of
stockholders entitled to receive payment of a dividend or an allotment of any
other rights shall be the close of business on the day on which the resolution
of the directors, declaring the dividend or allotment of rights, is adopted.

         When a determination of stockholders entitled to vote at any meeting
of stockholders has been made as provided in this section, such determination
shall apply to any adjournment thereof, except when (i) the determination has
been made through the closing of the transfer books and the stated period of
closing has expired or (ii) the meeting is adjourned to a date more than 120
days after the record date fixed for the original meeting, in either of which
case a new record date shall be determined as set forth herein.

         Section 5. Stock Ledger. The Corporation shall maintain at its
principal office or at the office of its counsel, accountants or transfer
agent, an original or duplicate share



                                      32
<PAGE>


ledger containing the name and address of each stockholder and the number of
shares of each class held by such stockholder.

         Section 6. Fractional Stock; Issuance of Units. The Board of
Directors may issue fractional stock or provide for the issuance of scrip, all
on such terms and under such conditions as they may determine. Notwithstanding
any other provision of the charter or these Bylaws, the Board of Directors may
issue units consisting of different securities of the Corporation. Any
security issued in a unit shall have the same characteristics as any identical
securities issued by the Corporation, except that the Board of Directors may
provide that for a specified period securities of the Corporation issued in
such unit may be transferred on the books of the Corporation only in such
unit.

                                 ARTICLE VIII

                                     Seal
                                     ----

         Section 1. Seal. The Board of Directors may authorize the adoption of
a seal by the Corporation. The seal shall contain the name of the Corporation,
the year of its incorporation and the words "Corporate Seal" and "Maryland".
The Board of Directors may authorize one or more duplicate seals and provide
for the custody thereof.

         Section 2. Affixing Seal. Whenever the Corporation is permitted or
required to affix its seal to a document, it shall be sufficient to meet the
requirements of any law, rule or regulation relating to a seal to place the
word "(SEAL)" adjacent to the signature of the person authorized to execute
the document on behalf of the Corporation.



                                      33
<PAGE>


                                  ARTICLE IX

                                  Fiscal Year
                                  -----------

         Unless otherwise determined by the Board, the fiscal year of the
Corporation shall end on the 31st day of October.

                                   ARTICLE X

                          Depositories and Custodians
                          ---------------------------

         Section 1. Depositories. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors of
the Corporation may from time to time determine.

         Section 2. Custodians. All securities and other investments shall be
deposited in the safekeeping of such banks or other companies as the Board of
Directors of the Corporation may from time to time determine. Every
arrangement entered into with any bank or other company for the safekeeping of
the securities and investments of the Corporation shall contain provisions
complying with the 1940 Act, and the general rules and regulations thereunder.

                                  ARTICLE XI

                           Execution of Instruments
                           ------------------------

         Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as
the Board of Directors by resolution shall from time to time designate.

         Section 2. Sale or Transfer of Securities. Stock certificates, bonds
or other securities at any time owned by the Corporation may be held on behalf
of the Corporation



                                      34
<PAGE>


or sold, transferred or otherwise disposed of subject to any limits imposed by
these Bylaws and pursuant to authorization by the Board and, when so
authorized to be held on behalf of the Corporation or add, transferred or
otherwise disposed of, may be transferred from the name of the Corporation by
the signature of the President or a Vice President or the Treasurer or
pursuant to any procedure approved by the Board of Directors, subject to
applicable law.

                                  ARTICLE XII

                        Independent Public Accountants
                        ------------------------------

         The firm of independent public accountants which shall sign or
certify the financial statements of the Corporation which are filed with the
SEC shall be selected annually by the Board of Directors and ratified by the
stockholders in accordance with the provisions of the 1940 Act.

                                 ARTICLE XIII

                               Annual Statement
                               ----------------

         The books of account of the corporation shall be examined by an
independent firm of public accountants at the close of each annual period of
the Corporation and at such other times as may be directed by the Board. A
report to the stockholders based upon each such examination shall be mailed to
each stockholder of record of the Corporation on such date with respect to
each report as may be determined by the Board, at his address as the same
appears on the books of the Corporation. Such annual statement shall also be
available at the annual meeting of stockholders and be placed on file at the
Corporation's principal office in the state of Maryland. Each such report
shall show the assets and liabilities of the Corporation as of the close of
the annual or quarterly



                                      35
<PAGE>


period covered by the report and the securities in which the funds of the
Corporation were then invested. Such report shall also show the Corporation's
income and expenses for the period from the end of the Corporation's preceding
fiscal year to the close of the annual or quarterly period covered by the
report and any other information required by the 1940 Act, and shall set forth
such other matters as the Board or such firm of independent public accountants
shall determine.

                                  ARTICLE XIV

                               Waiver of Notice
                               ----------------

         Whenever any notice is required to be given pursuant to the charter
of the Corporation or these Bylaws or pursuant to applicable law, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice. Neither the business to be transacted at nor the
purpose of any meeting need be set forth in the waiver of notice, unless
specifically required by statute. The attendance of any person at any meeting
shall constitute a waiver of notice of such meeting, except where such person
attends a meeting for the express purpose of objecting to the transaction of
any business on the ground that the meeting is not lawfully called or
convened.

                                  ARTICLE XV

                              Amendment of Bylaws
                              -------------------

         The Board of Directors shall have the exclusive power to adopt, alter
or repeal any provision of these Bylaws and to make new Bylaws.


                                      36
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2(G)(1)
<SEQUENCE>4
<FILENAME>efc5-2269_57843712ex992g1.txt
<TEXT>
                                                                 Exhibit (g)(1)



                             MANAGEMENT AGREEMENT

         AGREEMENT made this 13th day of November 2001, by and between JAPAN
OTC EQUITY FUND, INC., a Maryland corporation (hereinafter referred to as the
"Fund"), and NOMURA ASSET MANAGEMENT U.S.A. INC., a New York corporation
(hereinafter referred to as the "Manager").

                             W I T N E S S E T H:

         WHEREAS, the Fund is engaged in business as a non-diversified,
closed-end, management investment company registered under the Investment
Company Act of 1940, as amended (hereinafter referred to as the "Investment
Company Act"); and

         WHEREAS, the Manager is willing to provide management and investment
advisory services to the Fund on the terms and conditions hereinafter set
forth;

         NOW, THEREFORE, in consideration of the mutual covenants and
agreements of the parties hereto as herein set forth, the parties covenant and
agree as follows:

                                   ARTICLE I

                             Duties of the Manager

         The Fund hereby retains the Manager to act as the manager of the Fund
and to furnish the Fund with the management and investment advisory services
described below, subject to the policies of, review by and overall control of
the Board of Directors of the Fund, for the period and on the terms and
conditions set forth in this Agreement. The Manager hereby accepts such
employment and agrees during such period, at its own expense, to render, or
arrange for the rendering of, such services and to assume the obligations
herein set forth for the compensation provided for herein.

         (a) Management and Administrative Services. The Manager shall
perform, or supervise the performance of, the management and administrative
services necessary for the operation of the Fund including administering
shareholder accounts and handling shareholder relations. The Manager shall
provide the Fund with office space, equipment and facilities and such other
services as the Manager, subject to review by the Board of Directors of the
Fund, shall from time to time determine to be necessary or useful to perform
its obligations under this Agreement. The Manager shall also, on behalf of the
Fund, conduct relations with custodians, depositories, transfer agents,
dividend disbursing agents, other shareholder servicing agents, accountants,
attorneys, underwriters, brokers and dealers, corporate fiduciaries, insurers,
banks and such other persons in any such other capacity deemed to be necessary
or desirable. The Manager shall generally monitor the Fund's compliance with
investment policies and restrictions as set forth in filings made by the Fund
under Federal securities laws. The Manager shall make reports to the Board of
Directors of the Fund of the performance of its obligations hereunder and
furnish advice and recommendations with respect to such other aspects of the
business and affairs of the




<PAGE>

Fund as it shall determine to be desirable. The Manager and each of its
affiliates shall for all purposes herein be deemed to be an independent
contractor and shall, unless otherwise expressly provided or authorized, have
no authority to act for or represent the Fund in any way or otherwise be deemed
an agent of the Fund.

         (b) Investment Advisory Services. The Manager shall provide the Fund
with such investment research, advise and supervision as the latter may from
time to time consider necessary for the proper supervision of the assets of
the Fund. The Manager shall act as investment adviser to the Fund and as such
shall furnish continuously an investment program for the Fund and shall
determine from time to time which securities shall be purchased, sold or
exchanged and what portion of the assets of the Fund shall be held in the
various securities in which the Fund invests, options, futures, options on
futures or in cash, subject always to the restrictions of the Articles of
Incorporation and By-Laws of the Fund, as amended from time to time, the
provisions of the Investment Company Act and the statements relating to the
Fund's investment objective, investment policies and investment restrictions
as the same are set forth in filings made by the Fund under Federal securities
laws. The Manager shall make decisions for the Fund as to foreign currency
matters and make determinations as to foreign exchange contracts. The Manager
shall make recommendations as to the manner in which voting rights, rights to
consent to corporate action and any other rights pertaining to the Fund's
portfolio securities shall be exercised. Should the Board of Directors of the
Fund at any time, however, make any definite determination as to investment
policy and notify the Manager thereof in writing, the Manager shall be bound
by such determination for the period, if any, specified in such notice or
until similarly notified that such determination has been revoked. The Manager
shall take, on behalf of the Fund, all actions which it deems necessary to
implement the investment policies determined as provided above, and in
particular to place all orders for the purchase or sale of portfolio
securities for the Fund's account with brokers or dealers selected by it, and
to that end, the Manager is authorized as the agent of the Fund to give
instructions to the Custodian of the Fund as to deliveries of securities and
payments of cash for the account of the Fund. In connection with the selection
of such brokers and dealers and the placing of such orders, the Manager is
directed at all times to seek to obtain execution and price within the policy
guidelines determined by the Board of Directors of the Fund and set forth in
the filings made by the Fund under Federal securities laws. Subject to this
requirement and the provisions of the Investment Company act, the Securities
Exchange Act of 1934, as amended, and other applicable provisions of law, the
Manager may select brokers or dealers with which it, or the Fund, is
affiliated.

                                  ARTICLE II

                      Allocation of Charges and Expenses

         (a) The Manager. The Manager assumes and shall pay for maintaining
the staff and personnel necessary to perform its obligations under this
Agreement and shall, at its own expense, provide the office space, equipment
and facilities which it is obligated to provide under Article I hereof, and
shall pay all compensation of officers of the Fund and all directors of the
Fund who are "affiliated persons" (as defined in the Investment Company Act)
of the Manager.


                                      2
<PAGE>


         (b) The Fund. The Fund assumes and shall pay or cause to be paid all
other expenses of the Fund, including, without limitation: organization costs,
taxes, expenses for legal and auditing services, costs of printing proxies,
stock certificates, shareholder reports, prospectuses, charges of the
Custodian, any Sub-Custodian and Transfer and Dividend Disbursing Agent,
expenses of portfolio transactions, Securities and Exchange Commission and
stock exchange fees, expenses of registering the Fund's shares under Federal,
state and foreign laws, expenses of administering any dividend reinvestment
plan (except to the extent set forth in such plan), fees and actual
out-of-pocket expenses of directors who are not affiliated persons of the
Manager, accounting and pricing costs (including the calculation of the net
asset value), insurance, interest, brokerage costs, litigation and other
extraordinary or non-recurring expenses, and other like expenses properly
payable by the Fund.

                                  ARTICLE III

                          Compensation of the Manager

         For the services rendered, the equipment and facilities furnished and
expenses assumed by the Manager, the Fund shall pay to the Manager at the end
of each calendar month a fee at the annual rate of 1.10% of the Fund's average
weekly net assets (i.e., the average weekly value of the total assets of the
Fund, minus the sum of liabilities of the Fund), not in excess of $50 million,
1.00% of the Fund's average weekly net assets in excess of $50 million but not
in excess of $100 million, .90% of the Fund's average weekly net assets in
excess of $100 million but not in excess of $175 million and .80% of the
average weekly net assets in excess of $175 million, commencing on the day
following effectiveness hereof. For purposes of this calculation, average
weekly net assets is determined at the end of each month on the basis of the
average net assets of the Fund for each week during the month. The assets for
each weekly period are determined by averaging the net assets at the last
business day of the prior week. If this Agreement becomes effective subsequent
to the first day of a month or shall terminate before the last day of a month,
compensation for that part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculation of the fee as set forth
above. During any period when the determination of net asset value is
suspended by the Board of Directors of the Fund, the average net asset value
of a share for the last week prior to such suspension shall for this purpose
be deemed to be the net asset value at the close of each succeeding week until
it is again determined.

                                  ARTICLE IV

                        Retention of Investment Adviser

         This Agreement is entered into with the understanding that the
Manager will enter into a separate Investment Advisory Agreement with Nomura
Asset Management Co., Ltd., in the form attached hereto as Exhibit A, in which
the Manager will contract for advisory services and pay the Investment Adviser
compensation for its services out of the compensation received hereunder
pursuant to Article III at the rates set forth therein. Such Investment
Advisory Agreement will be coterminous with this Management Agreement. The
Fund acknowledges that the Manager, with



                                      3
<PAGE>

the prior authorization of the Fund's Board of Directors, may delegate its
investment discretion set forth in Article I(b) hereof to the Investment
Adviser.

                                   ARTICLE V

                    Limitation of Liability of the Manager

         The Manager shall not be liable for any error of judgment or mistake
of law or for any loss arising out of any investment or for any act or
omission in the execution and management of the Fund, except for willful
misfeasance, bad faith or gross negligence in the performance of its duties,
or by reason of reckless disregard of its obligations and duties hereunder. As
used in this Article V, the term "Manager" shall include any affiliates of the
Manager performing services for the Fund contemplated hereby and directors,
officers and employees of the Manager as well as the corporation itself.

                                  ARTICLE VI

                           Activities of the Manager

         The services of the Manager to the Fund are not to be deemed to be
exclusive, the Manager and any person controlled by or under common control
with the Manager (for purposes of this Article VI referred to as "affiliates")
being free to render services to others. It is understood that directors,
officers, employees and shareholders of the Fund are or may become interested
in the Manager and its affiliates, as directors, officers, employees,
partners, and shareholders or otherwise and that directors, officers,
employees, partners, and shareholders of the Manager and its affiliates are or
may become similarly interested in the Fund, and that the Manager is or may
become interested in the Fund as shareholder or otherwise.

                                  ARTICLE VII

                  Duration and Termination of this Agreement

         This Agreement shall become effective as of the date first above
written and shall remain in force until November 1, 2003 and thereafter, but
only so long as such continuance is specifically approved at least annually by
(i) the Board of Directors of the Fund, or by the vote of a majority of the
outstanding voting securities of the Fund, and (ii) a majority of those
directors who are not parties to this Agreement or interested persons of any
such party cast in person at a meeting called for the purpose of voting on
such approval.

         This Agreement may be terminated at any time, without the payment of
any penalty, by the Board of Directors of the Fund or by vote of a majority of
the outstanding voting securities of the Fund, or by the Manager, on sixty
days' written notice to the other party. This Agreement shall automatically
terminate in the event of its assignment.


                                      4
<PAGE>

                                 ARTICLE VIII

                          Amendments of the Agreement

         This Agreement may be amended by the parties only if such amendment
is specifically approved in accordance with applicable requirements under the
Investment Company Act.

                                  ARTICLE IX

                         Definitions of Certain Terms

         The terms "vote of a majority of outstanding voting securities,"
"assignment," "affiliated person" and "interested person," when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act and the rules and regulations thereunder, subject, however, to
such exemptions as may be granted by the Securities and Exchange Commission
under said Act.

                                   ARTICLE X

                                 Governing Law

         This Agreement shall be construed in accordance with the laws of the
State of New York and the applicable provisions of the Investment Company Act.
To the extent that the applicable laws of the State of New York, or any of the
provisions herein, conflict with applicable provisions of the Investment
Company Act, the latter shall control.



                                      5
<PAGE>



        IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.


                                         JAPAN OTC EQUITY FUND, INC.

                                         By /s/ David Stoeffel
                                            --------------------------
                                            David Stoeffel
                                            Vice President

                                         NOMURA ASSET MANAGEMENT U.S.A. INC.

                                         By  /s/ Kazuhito Hama
                                            --------------------------
                                            Kazuhito Hama



                                      6
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2(G)(2)
<SEQUENCE>5
<FILENAME>efc5-2269_exhibit992g2.txt
<TEXT>
                                                             Exhhibit (g)(2)


                         INVESTMENT ADVISORY AGREEMENT

         AGREEMENT made this 13th day of November 2001, by and between NOMURA
ASSET MANAGEMENT U.S.A. INC., a New York corporation (hereinafter referred to
as the "Manager"), and NOMURA ASSET MANAGEMENT CO., LTD., a Japanese
corporation (hereinafter referred to as the "Investment Adviser").

                             W I T N E S S E T H :

         WHEREAS, Japan OTC Equity Fund, Inc. (the "Fund") is engaged in
business as a non-diversified, closed-end, management investment company
registered under the Investment Company Act of 1940, as amended (hereinafter
referred to as the "Investment Company Act"); and

         WHEREAS, the Manager and the Investment Adviser are engaged in
business as registered investment advisers under the Investment Advisers Act
of 1940, as amended; and

         WHEREAS, the Manager has entered into a Management Agreement with the
Fund of even date herewith (the "Management Agreement"); and

         WHEREAS, the Investment Adviser is willing to provide investment
advisory services to the Manager in connection with the Fund's operations on
the terms and conditions hereinafter set forth;

         NOW, THEREFORE, in consideration of the mutual covenants and
agreements of the parties hereto as herein set forth, the parties covenant and
agree as follows:

                                   ARTICLE I

                       DUTIES OF THE INVESTMENT ADVISER

            The Manager hereby retains the Investment Adviser to act as the
investment adviser of the Fund and to furnish the Fund with the investment
advisory services described below, subject to the policies of, review by and
overall control of the Board of Directors of the Fund, for the period and on
the terms and conditions set forth in this Agreement. In addition, the Manager
may delegate to the Investment Adviser investment discretion over all or a
portion of the Fund's assets. The Investment Adviser hereby accepts such
employment and agrees during such period, at its own expense, to render, or
arrange for the rendering of, such services and to assume the obligations
herein set forth for the compensation provided for herein.

            (a) Research Services. Subject to the broad supervision of the
Manager and the Fund, the Investment Adviser shall provide the Manager with
such economic research and securities analysis as the latter may from time to
time consider necessary for the proper supervision of the Fund's assets.



<PAGE>

            (b) Investment Discretionary Services. To the extent that the
Manager, with the prior authorization of the Fund's Board of Directors,
delegates investment discretion in writing to the Investment Adviser, the
Investment Adviser shall provide the Fund with such investment advice and
supervision as the Fund may from time to time consider necessary for the
proper supervision of those assets of the Fund for which the Investment
Adviser has been delegated investment discretion. The Investment Adviser shall
furnish continuously an investment program for such assets of the Fund and
shall determine from time to time which securities shall be purchased, sold or
exchanged and what portion of such assets of the Fund shall be held in the
various securities in which the Fund invests, options, futures, options on
futures or in cash, subject always to the restrictions of the Articles of
Incorporation and By-Laws of the Fund, as amended from time to time, the
provisions of the Investment Company Act and the statements relating to the
Fund's investment objective, investment policies and investment restrictions
as the same are set forth in filings made by the Fund under Federal securities
laws. The Investment Adviser shall make decisions for the Fund as to foreign
currency matters and make determinations as to foreign exchange contracts. The
Investment Adviser shall make recommendations as to the manner in which voting
rights, rights to consent to corporate action and any other rights pertaining
to such portfolio securities shall be exercised. Should the Board of Directors
of the Fund at any time, however, make any definite determination as to
investment policy and notify the Investment Adviser thereof in writing, the
Investment Adviser shall be bound by such determination for the period, if
any, specified in such notice or until similarly notified that such
determination has been revoked. The Investment Adviser shall take, on behalf
of the Fund, all actions which it deems necessary to implement the investment
policies determined as provided above.

            To the extent that the Manager delegates such authority in writing
to the Investment Adviser, the Investment Adviser shall place all orders for
the purchase or sale of portfolio securities for the Fund's account with
brokers or dealers selected by it, and to that end, the Investment Adviser is
authorized as the agent of the Fund to give instructions to the Custodian of
the Fund as to deliveries of securities and payments of cash for the account
of the Fund. In connection with the selection of such brokers or dealers and
the placing of such orders, the Investment Adviser is directed at all times to
seek to obtain execution and price within the policy guidelines determined by
the Board of Directors of the Fund and set forth in the filings made by the
Fund under Federal securities laws. Subject to this requirements and the
provisions of the Investment Company Act, the Securities Exchange Act of 1934,
as amended, and other applicable provisions of law, the Investment Adviser may
select brokers or dealers with which it, or the Fund, is affiliated.

                                  ARTICLE II

                      ALLOCATION OF CHARGES AND EXPENSES

         The Investment Adviser shall furnish, at its own expense, all
administrative services, office space, equipment and facilities, investment
advisory, statistical and research services, and executive, supervisory and
clerical personnel necessary to carry out its obligations under this
Agreement.



                                      2
<PAGE>

                                  ARTICLE III

                    COMPENSATION OF THE INVESTMENT ADVISER

         For the services to be rendered as provided herein, the Manager shall
pay to the Investment Adviser at the end of each calendar month a fee at the
annual rate of 0.50% of the Fund's average weekly net assets (i.e., the
average weekly value of the total assets of the Fund minus the sum of accrued
liabilities of the Fund), not in excess of $50 million, 0.45% of the Fund's
average weekly net assets in excess of $50 million but not in excess of $100
million, 0.40% of the Fund's average weekly net assets in excess of $100
million but not in excess of $175 million and 0.35% of the Fund's average
weekly net assets in excess of $175 million, commencing on the day following
effectiveness hereof.

            For purposes of this calculation, average weekly net assets is
determined at the end of each month on the basis of the average net assets of
the Fund for each week during the month. The assets for each weekly period are
determined by averaging the net assets at the last business day of the prior
week. If this Agreement becomes effective subsequent to the first day of a
month or shall terminate before the last day of a month, compensation for that
part of the month that this Agreement is in effect shall be prorated in a
manner consistent with the calculation of the fee as set forth above. During
any period when the determination of net asset value is suspended by the Board
of Directors of the Fund, the average net asset value of a share for the last
week prior to such suspension shall for this purpose be deemed to be the net
asset value at the close of each succeeding week until it is again determined.

                                  ARTICLE IV

               LIMITATION OF LIABILITY OF THE INVESTMENT ADVISER

         The Investment Adviser shall not be liable for any error of judgment
or mistake of law or for any loss arising out of any investment or for any act
or omission in the execution and management of the Fund, except for willful
misfeasance, bad faith or gross negligence in the performance of its duties,
or by reason of reckless disregard of its obligations and duties hereunder. As
used in this Article IV, the term "Investment Adviser" shall include any
affiliates of the Investment Adviser performing services for the Fund
contemplated hereby and directors, officers, partners and employees of the
Investment Adviser as well as that corporation itself.

                                   ARTICLE V

                     ACTIVITIES OF THE INVESTMENT ADVISER

         The services of the Investment Adviser to the Fund are not to be
deemed to be exclusive, the Investment Adviser and any person controlled by or
under common control with the Investment Adviser (for the purpose of this
Article V referred to as "affiliates") being free to render services to
others. It is understood that directors, officers, employees and shareholders


                                      3
<PAGE>


of the Manager are or may become interested in the Investment Adviser and its
affiliates, as directors, officers, employees, partners and shareholders or
otherwise and that directors, officers, employees, partners and shareholders
of the Investment Adviser and its affiliates are or may become similarly
interested in the Manager or the Fund, and that the Investment Adviser is or
may become interested in the Manager or the Fund as shareholder or otherwise.

                                  ARTICLE VI

                  DURATION AND TERMINATION OF THIS AGREEMENT

         This Agreement shall become effective as of the date first above
written and shall remain in force until November 1, 2003 and thereafter, but
only so long as the Management Agreement remains in force and provided that
such continuance is specifically approved at least annually by (i) the Board
of Directors of the Fund or by the vote of a majority of the outstanding
voting securities of the Fund and (ii) a majority of those directors who are
not parties to this Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such approval.

         This Agreement may be terminated at any time, without the payment of
any penalty, by the Manager, by the Board of Directors of the Fund, by vote of
a majority of the outstanding voting securities of the Fund or by the
Investment Adviser, on sixty days' written notice to the parties. This
Agreement shall automatically terminate in the event of its assignment or upon
the termination of the Management Agreement.

                                  ARTICLE VII

                         AMENDMENTS OF THIS AGREEMENT

         This Agreement may be amended by the parties only if such amendment
is specifically approved in accordance with applicable requirements under the
Investment Company Act.

                                 ARTICLE VIII

                         DEFINITIONS OF CERTAIN TERMS

         The terms "vote of a majority of the outstanding voting securities,"
"assignment," "affiliated person" and "interested person," when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act of 1940 and the Rules and Regulations thereunder, subject,
however, to such exemptions as may be granted by the Securities and Exchange
Commission under said Act.

                                  ARTICLE IX

                                 GOVERNING LAW

                                      4
<PAGE>

         This Agreement shall be construed in accordance with laws of the
State of New York and the applicable provisions of the Investment Company Act.
To the extent that the applicable laws of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.



                                      5
<PAGE>


         IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.


                                       NOMURA ASSET MANAGEMENT U.S.A. INC.

                                       By  /s/ Kazuhito Hama
                                          -------------------------------

                                       NOMURA ASSET MANAGEMENT CO., LTD.

                                       By /s/ Hisaaki Hino
                                          -------------------------------




                                      6
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2(J)
<SEQUENCE>6
<FILENAME>efc5-5783159ex992j.txt
<TEXT>
                                                                   Exhibit (j)




                              CUSTODIAN AGREEMENT
                              -------------------

     THIS AGREEMENT, dated as of ___________ 2002, between JAPAN SMALLER
CAPITALIZATION FUND, INC., a closed-end management investment company
organized under the laws of the State of Maryland and registered with the
Commission under the 1940 Act (the "Fund"), and BROWN BROTHERS HARRIMAN & CO.,
a limited partnership formed under the laws of the State of New York
("BBH&Co." or the "Custodian"),

                                  WITNESSETH:

     WHEREAS, the Fund wishes to employ BBH&Co. to act as custodian for the
Fund and to provide related services, all as provided herein, and BBH&Co. is
willing to accept such employment, subject to the terms and conditions herein
set forth;

     NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the Fund and BBH&Co. hereby agree, as follows:

1.   Appointment of Custodian. The Fund hereby appoints BBH&Co. as the Fund's
custodian, and BBH&Co. hereby accepts such appointment. All Investments of the
Fund delivered to the Custodian or its agents or Subcustodians shall be dealt
with as provided in this Agreement. The duties of the Custodian with respect
to the Fund's Investments shall be only as set forth expressly in this
Agreement which duties are generally comprised of safekeeping and various
administrative duties that will be performed in accordance with Instructions
and as reasonably required to effect Instructions.

2.   Representations, Warranties and Covenants of the Fund. The Fund hereby
represents, warrants and covenants each of the following:

          2.1 This Agreement has been, and at the time of delivery of each
     Instruction such Instruction will have been, duly authorized, executed
     and delivered by the Fund. This Agreement does not violate any Applicable
     Law or conflict with or constitute a default under the Fund's prospectus
     or other organic document, agreement, judgment, order or decree to which
     the Fund is a party or by which it or its Investments is bound.

          2.2 By providing an Instruction with respect to the first
     acquisition of an Investment in a jurisdiction other than the United
     States of America, the Fund shall be deemed to have confirmed to the
     Custodian that the Fund has (a) assessed and accepted all material
     Country or Sovereign Risks and accepted responsibility for their
     occurrence, (b) made all determinations required to be made by the Fund
     under the 1940 Act, and (iii) appropriately and adequately disclosed to
     its shareholders, other investors and all persons who have rights in or
     to such Investments, all material investment risks, including those
     relating to the custody and settlement infrastructure or the servicing of
     securities in such jurisdiction.

          2.3 The Fund shall safeguard and shall solely be responsible for the
     safekeeping of any testkeys, identification codes, passwords, other
     security devices or statements of account with which the Custodian
     provides it. In furtherance and not limitation of the foregoing, in the
     event the Fund utilizes any on-line service offered by

<PAGE>

     the Custodian, the Fund and the Custodian shall be fully responsible for
     the security of each party's connecting terminal, access thereto and the
     proper and authorized use thereof and the initiation and application of
     continuing effective safeguards in respect thereof. Additionally, if the
     Fund uses any on-line or similar communications service made available by
     the Custodian, the Fund shall be solely responsible for ensuring the
     security of its access to the service and for the use of the service, and
     shall only attempt to access the service and the Custodian's computer
     systems as directed by the Custodian. If the Custodian provides any
     computer software to the Fund relating to the services described in this
     Agreement, the Fund will only use the software for the purposes for which
     the Custodian provided the software to the Fund, and will abide by the
     license agreement accompanying the software and any other security
     policies which the Custodian provides to the Fund.

3.   Representation and Warranty of BBH&Co. BBH&Co. hereby represents and
warrants that this Agreement has been duly authorized, executed and delivered
by BBH&Co. and does not and will not violate any Applicable Law or conflict
with or constitute a default under BBH&Co.'s limited partnership agreement or
any agreement, instrument, judgment, order or decree to which BBH&Co. is a
party or by which it is bound.

4.   Instructions. Unless otherwise explicitly indicated herein, the Custodian
shall perform its duties pursuant to Instructions. As used herein, the term
"Instruction" shall mean a directive initiated by the Fund, acting directly or
through its board of directors, officers or other Authorized Persons, which
directive shall conform to the requirements of this Section 4.

     4.1 Authorized Persons. For purposes hereof, an Authorized Person shall
be a person or entity authorized to give Instructions for or on behalf of the
Fund by written notices to the Custodian or otherwise in accordance with
procedures delivered to and acknowledged by the Custodian, including without
limitation the Fund's Investment Adviser or Foreign Custody Manager. The
Custodian may treat any Authorized Person as having full authority of the Fund
to issue Instructions hereunder unless the notice of authorization contains
explicit limitations as to said authority. The Custodian shall be entitled to
rely upon the authority of Authorized Persons until it receives appropriate
written notice from the Fund to the contrary.

     4.2 Form of Instruction. Each Instruction shall be transmitted by such
secured or authenticated electromechanical means as the Custodian shall make
available to the Fund from time to time unless the Fund shall elect to
transmit such Instruction in accordance with Subsections 4.2.1 through 4.2.3
of this Section.

          4.2.1 Fund Designated Secured-Transmission Method. Instructions may
     be transmitted through a secured or tested electro-mechanical means
     identified by the Fund or by an Authorized Person entitled to give
     Instruction and acknowledged and accepted by the Custodian; it being
     understood that such acknowledgment shall authorize the Custodian to
     receive and process such means of delivery but shall not represent a
     judgment by the Custodian as to the reasonableness or security of the
     method determined by the Authorized Person.



                                      2
<PAGE>

          4.2.2 Written Instructions. Instructions may be transmitted in a
     writing that bears the manual signature of Authorized Persons.

          4.2.3 Other Forms of Instruction. Instructions may also be
     transmitted by another means determined by the Fund or Authorized Persons
     and acknowledged and accepted by the Custodian (subject to the same
     limits as to acknowledgements as is contained in Subsection 4.2.1, above)
     including Instructions given orally or by SWIFT, telex or telefax
     (whether tested or untested).

     When an Instruction is given by means established under Subsections 4.2.1
through 4.2.3, it shall be the responsibility of the Custodian to use
reasonable care to adhere to any security or other procedures established in
writing between the Custodian and the Authorized Person with respect to such
means of Instruction, but such Authorized Person shall be solely responsible
for determining that the particular means chosen is reasonable under the
circumstances. Oral Instructions shall be binding upon the Custodian only if
and when the Custodian takes action with respect thereto. With respect to
telefax instructions, the parties agree and acknowledge that receipt of
legible instructions cannot be assured, that the Custodian cannot verify that
authorized signatures on telefax instructions are original or properly
affixed, and that the Custodian shall not be liable for losses or expenses
incurred through actions taken in reliance on inaccurately stated, illegible
or unauthorized telefax instructions. The provisions of Section 4A of the
Uniform Commercial Code shall apply to Funds Transfers performed in accordance
with Instructions. The Funds Transfer Services Schedule to this Agreement
shall comprise a designation of form of a means of delivering Instructions for
purposes of this Section 4.2.

     4.3 Completeness and Consents of Instructions. The Authorized Person
shall be responsible for assuring the adequacy and accuracy of Instructions.
Particularly, upon any acquisition or disposition or other dealing in the
Fund's Investments and upon any delivery and transfer of any Investment or
moneys, the person initiating such Instruction shall give the Custodian an
Instruction with appropriate detail, including, without limitation:

          4.3.1 The transaction date and the date and location of settlement;

          4.3.2 The specification of the type of transaction;

          4.3.3 A description of the Investments or moneys in question,
     including, as appropriate, quantity, price per unit, amount of money to
     be received or delivered and currency information. Where an Instruction
     is communicated by electronic means, or otherwise where an Instruction
     contains an identifying number such as a CUSIP, SEDOL or ISIN number, the
     Custodian shall be entitled to rely on such number as controlling
     notwithstanding any inconsistency contained in such Instruction,
     particularly with respect to Investment description; and

          4.3.4 The name of the broker or similar entity concerned with
     execution of the transaction.

     If the Custodian shall determine that an Instruction is either unclear or
incomplete, the Custodian may give prompt notice of such determination to the
Fund, and the Fund shall thereupon amend or otherwise reform such Instruction.
In such event, the Custodian shall have



                                      3
<PAGE>

     no obligation to take any action in response to the Instruction initially
     delivered until the redelivery of an amended or reformed Instruction.

     4.4 Timeliness of Instructions. In giving an Instruction, the Fund shall
take into consideration delays which may occur due to the involvement of a
Subcustodian or agent, differences in time zones, and other factors particular
to a given market, exchange or issuer. When the Custodian has established
specific timing requirements or deadlines with respect to particular classes
of Instruction, or when an Instruction is received by the Custodian at such a
time that it could not reasonably be expected to have acted on such
instruction due to time zone differences or other factors beyond its
reasonable control, the execution of any Instruction received by the Custodian
after such deadline or at such time (including any modification or revocation
of a previous Instruction) shall be at the risk of the Fund.

5.   Safekeeping of Fund Assets. The Custodian shall hold Investments delivered
to it or Subcustodians for the Fund in accordance with the provisions of this
Section. The Custodian shall not be responsible for (a) the safekeeping of
Investments not delivered or that are not caused to be issued to it or its
Subcustodians; or, (b) pre-existing faults or defects in Investments that are
delivered to the Custodian, or its Subcustodians. The Custodian is hereby
authorized to hold with itself or a Subcustodian, and to record in one or more
accounts, all Investments delivered to and accepted by the Custodian, any
Subcustodian or their respective agents pursuant to an Instruction or in
consequence of any corporate action. The Custodian shall hold Investments for
the account of the Fund and shall segregate Investments from assets belonging
to the Custodian and shall cause its Subcustodians to segregate Investments
from assets belonging to the Subcustodian in an account held for the Fund or
in an account maintained by the Subcustodian generally for non-proprietary
assets of the Custodian.

     5.1 Use of Securities Depositories. The Custodian may deposit and
maintain Investments in any Securities Depository, either directly or through
one or more Subcustodians appointed by the Custodian. Investments held in a
Securities Depository shall be held (a) subject to the agreement, rules,
statement of terms and conditions or other document or conditions effective
between the Securities Depository and the Custodian or the Subcustodian, as
the case may be, and (b) in an account for the Fund or in bulk segregation in
an account maintained for the non-proprietary assets of the entity holding
such Investments in the Depository. If market practice or the rules and
regulations of the Securities Depository prevent the Custodian, the
Subcustodian or (any agent of either) from holding its client assets in such a
separate account, the Custodian, the Subcustodian or other agent shall as
appropriate segregate such Investments for benefit of the Fund or for benefit
of clients of the Custodian generally on its own books.

     5.2 Certificated Assets. Investments which are certificated may be held
in registered or bearer form: (a) in the Custodian's vault; (b) in the vault
of a Subcustodian or agent of the Custodian or a Subcustodian; or (c) in an
account maintained by the Custodian, Subcustodian or agent at a Securities
Depository; all in accordance with customary market practice in the
jurisdiction in which any Investments are held.

     5.3 Registered Assets. Investments which are registered may be registered
in the name of the Custodian, a Subcustodian, or in the name of the Fund or a
nominee for any of the



                                      4
<PAGE>

foregoing, and may be held in any manner set forth in paragraph 5.2 above with
or without any identification of fiduciary capacity in such registration.

     5.4 Book Entry Assets. Investments which are represented by book-entry
may be so held in an account maintained by the Book-entry Agent on behalf of
the Custodian, a Subcustodian or another agent of the Custodian, or a
Securities Depository.

     5.5 Replacement of Lost Investments. In the event of a loss of
Investments for which the Custodian is responsible under the terms of this
Agreement, the Custodian shall replace such Investment, or in the event that
such replacement cannot be effected, the Custodian shall pay to the Fund the
fair market value of such Investment based on the last available price as of
the close of business in the relevant market on the date that a claim was
first made to the Custodian with respect to such loss, or, if less, such other
amount as shall be agreed by the parties as the date for settlement.

6.   Administrative Duties of the Custodian. The Custodian shall perform the
following administrative duties with respect to Investments of the Fund.

     6.1 Purchase of Investments. Pursuant to Instruction, Investments
purchased for the account of the Fund shall be paid for (a) against delivery
thereof to the Custodian or a Subcustodian, as the case may be, either
directly or through a Clearing Corporation or a Securities Depository (in
accordance with the rules of such Securities Depository or such Clearing
Corporation), or (b) otherwise in accordance with an Instruction, Applicable
Law, generally accepted trade practices, or the terms of the instrument
representing such Investment.

     6.2 Sale of Investments. Pursuant to Instruction, Investments sold for
the account of the Fund shall be delivered (a) against payment therefor in
cash, by check or by bank wire transfer, (b) by credit to the account of the
Custodian or the applicable Subcustodian, as the case may be, with a Clearing
Corporation or a Securities Depository (in accordance with the rules of such
Securities Depository or such Clearing Corporation), or (c) otherwise in
accordance with an Instruction, Applicable Law, generally accepted trade
practices, or the terms of the instrument representing such Investment.

     6.3 Delivery and Receipt in Connection with Borrowings of the Fund, or
other Collateral and Margin Requirements. Pursuant to Instruction, the
Custodian may deliver or receive Investments or cash of the Fund in connection
with borrowings or loans by the Fund and other collateral and margin
requirements.

     6.4 Futures and Options. If, pursuant to an Instruction, the Custodian
shall become a party to an agreement with the Fund and a futures commission
merchant regarding margin ("Tri-Party Agreement"), the Custodian shall (a)
receive and retain, to the extent the same are provided to the Custodian,
confirmations or other documents evidencing the purchase or sale by the Fund
of exchange-traded futures contracts and commodity options, (b) when required
by such Tri-Party Agreement, deposit and maintain in an account opened
pursuant to such Agreement ("Margin Account"), segregated either physically or
by book-entry in a Securities Depository for the benefit of any futures
commission merchant, such Investments as the Fund shall have designated as
initial, maintenance or variation "margin" deposits or other collateral
intended to



                                      5
<PAGE>

secure the Fund's performance of its obligations under the terms of any
exchange-traded futures contracts and commodity options; and (c) thereafter
pay, release or transfer Investments into or out of the margin account in
accordance with the provisions of such Agreement. Alternatively, the Custodian
may deliver Investments, in accordance with an Instruction, to a futures
commission merchant for purposes of margin requirements in accordance with
Rule l7f-6. The Custodian shall in no event be responsible for the acts and
omissions of any futures commission merchant to whom Investments are delivered
pursuant to this Section; for the sufficiency of Investments held in any
Margin Account; or, for the performance of any terms of any exchange-traded
futures contracts and commodity options.

     6.5 Contractual Obligations and Similar Investments. From time to time,
the Fund's Investments may include Investments that are not ownership
interests as may be represented by certificate (whether registered or bearer),
by entry in a Securities Depository or by book entry agent, registrar or
similar agent for recording ownership interests in the relevant Investment. If
the Fund shall at any time acquire such Investments, including without
limitation deposit obligations, loan participations, repurchase agreements and
derivative arrangements, the Custodian shall (a) receive and retain, to the
extent the same are provided to the Custodian, confirmations or other
documents evidencing the arrangement, and (b) perform on the Fund's account in
accordance with the terms of the applicable arrangement, but only to the
extent directed to do so by Instruction. The Custodian shall have no
responsibility for agreements running to the Fund as to which it is not a
party other than to retain, to the extent the same are provided to the
Custodian, documents or copies of documents evidencing the arrangement and, in
accordance with Instruction, to include such arrangements in reports made to
the Fund.

     6.6 Exchange of Securities. Unless otherwise directed by Instruction, the
Custodian shall: (a) exchange securities held for the account of the Fund for
other securities in connection with any reorganization, recapitalization,
conversion, split-up, change of par value of shares or similar event, and (b)
deposit any such securities in accordance with the terms of any reorganization
or protective plan.

     6.7 Surrender of Securities. Unless otherwise directed by Instruction,
the Custodian may surrender securities: (a) in temporary form for definitive
securities; (b) for transfer into the name of an entity allowable under
Section 5.3; and (c) for a different number of certificates or instruments
representing the same number of shares or the same principal amount of
indebtedness.

     6.8 Rights, Warrants, Etc. Pursuant to Instruction, the Custodian shall
(a) deliver warrants, puts, calls, rights or similar securities to the issuer
or trustee thereof, or to any agent of such issuer or trustee, for purposes of
exercising such rights or selling such securities, and (b) deposit securities
in response to any invitation for the tender thereof.

     6.9 Mandatory Corporate Actions. Unless otherwise directed by
Instruction, the Custodian shall: (a) comply with the terms of all mandatory
or compulsory exchanges, calls, tenders, redemptions or similar rights of
securities ownership affecting securities held on the Fund's account and
promptly notify the Fund of such action, and (b) collect all stock dividends,
rights and other items of like nature with respect to such securities.



                                      6
<PAGE>

     6.10 Income Collection. Unless otherwise directed by Instruction, the
Custodian shall collect any amount due and payable to the Fund with respect to
Investments and promptly credit the amount collected to a Principal or Agency
Account; provided, however, that the Custodian shall not be responsible for:
(a) the collection of amounts due and payable with respect to Investments that
are in default, or (b) the collection of cash or share entitlements with
respect to Investments that are not registered in the name of the Custodian or
its Subcustodians. The Custodian is hereby authorized to endorse and deliver
any instrument required to be so endorsed and delivered to effect collection
of any amount due and payable to the Fund with respect to Investments.

     6.11 Ownership Certificates and Disclosure of the Fund's Interest. The
Custodian is hereby authorized to execute on behalf of the Fund ownership
certificates, affidavits or other disclosure required under Applicable Law or
established market practice in connection with the receipt of income, capital
gains or other payments by the Fund with respect to Investments, or in
connection with the sale, purchase or ownership of Investments.

     With respect to securities issued in the United States of America, the
     Custodian [ ] may [ ] may not release the identity of the Fund to an
     issuer which requests such information pursuant to the Shareholder
     Communications Act of 1985 for the specific purpose of direct
     communications between such issuer and the Fund. IF NO BOX IS CHECKED,
     THE CUSTODIAN SHALL RELEASE SUCH INFORMATION UNTIL IT RECEIVES CONTRARY
     INSTRUCTIONS FROM THE FUND. With respect to securities issued outside of
     the United States of America, information shall be released in accordance
     with law or custom of the particular country in which such security is
     located.

     6.12 Proxy Materials. The Custodian shall deliver, or cause to be
delivered, to the Fund proxy forms, notices of meeting, and any other notices
or announcements materially affecting or relating to Investments received by
the Custodian or any nominee.

     6.13 Taxes. The Custodian shall, where applicable, assist the Fund in the
reclamation of taxes withheld on dividends and interest payments received by
the Fund. In the performance of its duties with respect to tax withholding and
reclamation, the Custodian shall be entitled to rely on the advice of counsel
and upon information and advice regarding the Fund's tax status that is
received from or on behalf of the Fund without duty of separate inquiry.

     6.14 Other Dealings. The Custodian shall otherwise act as directed by
Instruction, including without limitation effecting the free payments of
moneys or the free delivery of securities, provided that such Instruction
shall indicate the purpose of such payment or delivery and that the Custodian
shall record the party to whom such payment or delivery is made.

     The Custodian shall attend to all nondiscretionary details in connection
with the sale or purchase or other administration of Investments, except as
otherwise directed by an Instruction, and may make payments to itself or
others for minor expenses of administering Investments under this Agreement;
provided that the Fund shall have the right to request an accounting with
respect to such expenses.



                                      7
<PAGE>

     In fulfilling the duties set forth in Sections 6.6 through 6.10 above,
the Custodian shall provide to the Fund all material information pertaining to
a corporate action which the Custodian actually receives; provided that the
Custodian shall not be responsible for the completeness or accuracy of such
information. Any advance credit of cash or shares expected to be received as a
result of any corporate action shall be subject to actual collection and may,
when the Custodian deems collection unlikely, be reversed by the Custodian.

     The Custodian may at any time or times in its discretion appoint (and may
at any time remove) agents (other than Subcustodians) to carry out some or all
of the administrative provisions of this Agreement ("Agents"), provided,
however, that the appointment of such agent shall not relieve the Custodian of
its administrative obligations under this Agreement.

7.   Cash Accounts, Deposits and Money Movements. Subject to the terms and
conditions set forth in this Section 7, the Fund hereby authorizes the
Custodian to open and maintain, with itself or with Subcustodians, cash
accounts in United States Dollars, in such other currencies as are the
currencies of the countries in which the Fund maintains Investments or in such
other currencies as the Fund shall from time to time request by Instruction.

     7.1 Types of Cash Accounts. Cash accounts opened on the books of the
Custodian ("Principal Accounts") shall he opened in the name of the Fund. Such
accounts collectively shall be a deposit obligation of the Custodian and shall
be subject to the terms of this Section 7 and the general liability provisions
contained in Section 9. Cash accounts opened on the books of a Subcustodian
may be opened in the name of the Fund or the Custodian or in the name of the
Custodian for its customers generally ("Agency Accounts"). Such deposits shall
be obligations of the Subcustodian and shall be treated as an Investment of
the Fund. Accordingly, the Custodian shall be responsible for exercising
reasonable care in the administration of such accounts but shall not be liable
for their repayment in the event such Subcustodian, by reason of its
bankruptcy, insolvency or otherwise, fails to make repayment.

     7.2 Payments and Credits with Respect to the Cash Accounts. The Custodian
shall make payments from or deposits to any of said accounts in the course of
carrying out its administrative duties, including but not limited to income
collection with respect to the Fund's Investments, and otherwise in accordance
with Instructions. The Custodian and its Subcustodians shall be required to
credit amounts to the cash accounts only when moneys are actually received in
cleared funds in accordance with banking practice in the country and currency
of deposit. Any credit made to any Principal or Agency Account before actual
receipt of cleared funds shall be provisional and may be reversed by the
Custodian in the event such payment is not actually collected. Unless
otherwise specifically agreed in writing by the Custodian or any Subcustodian,
all deposits shall be payable only at the branch of the Custodian or
Subcustodian where the deposit is made or carried.

     7.3 Currency and Related Risks. The Fund bears risks of holding or
transacting in any currency. The Custodian shall not be liable for any loss or
damage arising from the applicability of any law or regulation now or
hereafter in effect, or from the occurrence of any event, which may delay or
affect the transferability, convertibility or availability of any currency in
the country (a) in which such Principal or Agency Accounts are maintained or
(b) in which such currency is issued, and in no event shall the Custodian be
obligated to make payment of a



                                      8
<PAGE>

deposit denominated in a currency during the period during which its
transferability, convertibility or availability has been affected by any such
law, regulation or event. Without limiting the generality of the foregoing,
neither the Custodian nor any Subcustodian shall be required to repay any
deposit made at a foreign branch of either the Custodian or Subcustodian if
such branch cannot repay the deposit due to a cause for which the Custodian
would not be responsible in accordance with the terms of Section 9 of this
Agreement unless the Custodian or such Subcustodian expressly agrees in
writing to repay the deposit under such circumstances. All currency
transactions in any account opened pursuant to this Agreement are subject to
exchange control regulations of the United States and of the country where
such currency is the lawful currency or where the account is maintained. Any
taxes, costs, charges or fees imposed on the convertibility of a currency held
by the Fund shall be for the account of the Fund.

     7.4 Foreign Exchange Transactions. The Custodian shall, subject to the
terms of this Section, settle foreign exchange transactions (including
contracts, futures, options and options on futures) on behalf and for the
account of the Fund with such currency brokers or banking institutions,
including Subcustodians, as the Fund may direct pursuant to Instructions. The
Custodian may act as principal in any foreign exchange transaction with the
Fund in accordance with Section 7.4.2 of this Agreement. The obligations of
the Custodian in respect of all foreign exchange transactions (whether or not
the Custodian shall act as principal in such transaction) shall be contingent
on the free, unencumbered transferability of the currency transacted on the
actual settlement date of the transaction.

          7.4.1 Third Party Foreign Exchange Transactions. The Custodian shall
     process foreign exchange transactions (including without limitation
     contracts, futures, options, and options on futures), where any third
     party acts as principal counterparty to the Fund on the same basis it
     performs duties as agent for the Fund with respect to any other of the
     Fund's Investments. Accordingly the Custodian shall only be responsible
     for delivering or receiving currency on behalf of the Fund in respect of
     such contracts pursuant to Instructions. The Custodian shall not be
     responsible for the failure of any counterparty (including any
     Subcustodian) in such agency transaction to perform its obligations
     thereunder. The Custodian (a) shall transmit cash and Instructions to and
     from the currency broker or banking institution with which a foreign
     exchange contract or option has been executed pursuant hereto, (b) may
     make free outgoing payments of cash in the form of Dollars or foreign
     currency without receiving confirmation of a foreign exchange contract or
     option or confirmation that the countervalue currency completing the
     foreign exchange contract has been delivered or received or that the
     option has been delivered or received., and (c) shall hold all
     confirmations, certificates and other documents and agreements received
     by the Custodian and evidencing or relating to such foreign exchange
     transactions in safekeeping. The Fund accepts full responsibility for its
     use of third party foreign exchange dealers and for execution of said
     foreign exchange contracts and options and understands that the Fund
     shall be responsible for any and all costs and interest charges which may
     be incurred by the Fund or the Custodian as a result of the failure or
     delay of third parties to deliver foreign exchange.

          7.4.2 Foreign Exchange with the Custodian as Principal. The
     Custodian may undertake foreign exchange transactions with the Fund as
     principal as the Custodian and the Fund may agree from time to time. In
     such event, the foreign exchange transaction



                                      9
<PAGE>

     will be performed in accordance with the particular agreement of the
     parties, or in the event a principal foreign exchange transaction is
     initiated by Instruction in the absence of specific agreement, such
     transaction will be performed in accordance with the usual commercial
     terms of the Custodian.

     7.5 Delays. If no event of Force Majeure shall have occurred and be
continuing and in the event that a delay shall have been caused by the
negligence or willful misconduct of the Custodian in carrying out an
Instruction to credit or transfer cash, the Custodian shall be liable to the
Fund: (a) with respect to Principal Accounts, for interest to be calculated at
the rate customarily paid on such deposit and currency by the Custodian on
overnight deposits at the time the delay occurs for the period from the day
when the transfer should have been effected until the day it is in fact
effected; and, (b) with respect to Agency Accounts, for interest to be
calculated at the rate customarily paid on such deposit and currency by the
Subcustodian on overnight deposits at the time the delay occurs for the period
from the day when the transfer should have been effected until the day it is
in fact effected. The Custodian shall not be liable for delays in carrying out
such Instructions to transfer cash which are not due to the Custodian's own
negligence or willful misconduct.

     7.6 Advances. If, for any reason in the conduct of its safekeeping duties
pursuant to Section 5 hereof or its administration of the Fund's assets
pursuant to Section 6 hereof, the Custodian or any Subcustodian advances
monies to facilitate settlement or otherwise for benefit of the Fund (whether
or not any Principal or Agency Account shall be overdrawn either during, or at
the end of, any Business Day), the Fund hereby does:

          7.6.1 acknowledge that the Fund shall have no right or title to any
     Investments purchased with such Advance save a right to receive such
     Investments upon: (a) the debit of the Principal or Agency Account; or,
     (b) if such debit would produce an overdraft in such account, other
     reimbursement of the associated Advance;

          7.6.2 grant to the Custodian a security interest in all Investments;
     and

          7.6.3 agree that the Custodian may secure the resulting Advance by
     perfecting a security interest in all Investments under Applicable Law.

     Neither the Custodian nor any Subcustodian shall be obligated to advance
monies to the Fund, and in the event that such Advance occurs, any transaction
giving rise to an Advance shall be for the account and risk of the Fund and
shall not be deemed to be a transaction undertaken by the Custodian for its
own account and risk. If such Advance shall have been made by a Subcustodian
or any other person, the Custodian may assign the security interest and any
other rights granted to the Custodian hereunder to such Subcustodian or other
person. If the Fund shall fail to repay when due the principal balance of an
Advance and accrued and unpaid interest thereon, the Custodian or its
assignee, as the case may be, shall be entitled to utilize the available cash
balance in any Agency or Principal Account and to dispose of any Investments
to the extent necessary to recover payment of all principal of, and interest
on, such Advance in full. The Custodian may assign any rights it has hereunder
to a Subcustodian or third party. Any security interest in Investments taken
hereunder shall be treated as financial assets credited to securities accounts
under Articles 8 and 9 of the Uniform Commercial Code (1997). Accordingly, the



                                      10
<PAGE>

Custodian shall have the rights and benefits of a secured creditor that is a
securities intermediary under such Articles 8 and 9.

     7.7 Integrated Account. For purposes hereof, deposits maintained in all
Principal Accounts (whether or not denominated in Dollars) shall collectively
constitute a single and indivisible current account with respect to the Fund's
obligations to the Custodian, or its assignee, and balances in such Principal
Accounts shall be available for satisfaction of the Fund's obligations under
this Section 7. The Custodian shall further have a right of offset against the
balances in any Agency Account maintained hereunder to the extent that the
aggregate of all Principal Accounts is overdrawn.

8.   Subcustodians and Securities Depositories. Subject to the provisions
hereinafter set forth in this Section 8, the Fund hereby authorizes the
Custodian to utilize Securities Depositories to act on behalf of the Fund and
to appoint from time to time and to utilize Subcustodians. With respect to
securities and funds held by a Subcustodian, either directly or indirectly
(including by a Securities Depository or Clearing Corporation),
notwithstanding any provisions of this Agreement to the contrary, payment for
securities purchased and delivery of securities sold may be made prior to
receipt of securities or payment, respectively, and securities or payment may
be received in a form, in accordance with (a) governmental regulations, (b)
rules of Securities Depositories and clearing agencies, (c) generally accepted
trade practice in the applicable local market, (d) the terms and
characteristics of the particular Investment, or (e) the terms of
Instructions.

     8.1 Domestic Subcustodians and Securities Depositories. The Custodian may
deposit and/or maintain, either directly or through one or more agents
appointed by the Custodian, Investments of the Fund in any Securities
Depository in the United States, including The Depository Trust Company,
provided such Depository meets applicable requirements of the Federal Reserve
Bank or of the Securities and Exchange Commission. The Custodian may, at any
time and from time to time, appoint any bank as defined in Section 2(a)(5) of
the 1940 Act meeting the requirements of a custodian under Section 17(f) of
the 1940 Act and the rules and regulations thereunder, to act on behalf of the
Fund as a Subcustodian for purposes of holding Investments of the Fund in the
United States.

     8.2 Foreign Subcustodians and Securities Depositories. Unless instructed
otherwise by the Fund, the Custodian may deposit and/or maintain non-U.S.
Investments of the Fund in any non-U.S. Securities Depository provided such
Securities Depository meets the requirements of an "eligible securities
depository" under Rule 17f-7 promulgated under the 1940 Act, or any successor
rule or regulation ("Rule 17f-7") or which by order of the Securities and
Exchange Commission is exempted therefrom. Prior to the time that securities
are placed with such depository, but subject to the provisions of Section
8.2.4 below, the Custodian shall have prepared an assessment of the custody
risks associated with maintaining assets with the Securities Depository and
shall have established a system to monitor such risks on a continuing basis in
accordance with subsection 8.2.3 of this Section. Additionally, the Custodian
may, at any time and from time to time, appoint (a) any bank, trust company or
other entity meeting the requirements of an "eligible foreign custodian" under
Rule 17f-5 or which by order of the Securities and Exchange Commission is
exempted therefrom, or (b) any bank as defined in Section 2(a)(5) of the 1940
Act meeting the requirements of a custodian under Section 17(f) of



                                      11
<PAGE>

the 1940 Act and the rules and regulations thereunder, to act on behalf of the
Fund as a Subcustodian for purposes of holding Investments of the Fund outside
the United States. Such appointment of foreign Subcustodians shall be subject
to approval of the Fund in accordance with Subsections 8.2.1 and 8.2.2 hereof,
and use of non-U.S. Securities Depositories shall be subject to the terms of
Subsections 8.2.3 and 8.2.4 hereof. An Instruction to open an account in a
given country shall comprise authorization of the Custodian to hold assets in
such country in accordance with the terms of this Agreement. The Custodian
shall not be required to make independent inquiry as to the authorization of
the Fund to invest in such country.

          8.2.1 Board Approval of Foreign Subcustodians. Unless and except to
     the extent that the Board has delegated to and the Custodian has accepted
     delegation of review of certain matters concerning the appointment of
     Subcustodians pursuant to Subsection 8.2.2, the Custodian shall, prior to
     the appointment of any Subcustodian for purposes of holding Investments
     of the Fund outside the United States, obtain written confirmation of the
     approval of the Board of Trustees or Directors of the Fund with respect
     to (a) the identity of a Subcustodian, and (b) the Subcustodian agreement
     which shall govern such appointment, such approval to be signed by an
     Authorized Person.

          8.2.2 Delegation of Board Review of Subcustodians. From time to
     time, the Custodian may agree to perform certain reviews of Subcustodians
     and of Subcustodian Contracts as delegate of the Fund's Board. In such
     event, the Custodian's duties and obligations with respect to this
     delegated review will be performed in accordance with the terms of the
     attached 17f-5 Delegation Schedule to this Agreement.

          8.2.3 Monitoring and Risk Assessment of Securities Depositories.
     Prior to the placement of any assets of the Fund with a non-U.S.
     Securities Depository, the Custodian: (a) shall provide to the Fund or
     its authorized representative an assessment of the custody risks
     associated with maintaining assets within such Securities Depository; and
     (b) shall have established a system to monitor the custody risks
     associated with maintaining assets with such Securities Depository on a
     continuing basis and to promptly notify the Fund or its Investment
     Adviser of any material changes in such risk. In performing its duties
     under this subsection, the Custodian shall use reasonable care and may
     rely on such reasonable sources of information as may be available
     including but not limited to: (i) published ratings; (ii) information
     supplied by a Subcustodian that is a participant in such Securities
     Depository; (iii) industry surveys or publications; (iv) information
     supplied by the depository itself, by its auditors (internal or external)
     or by the relevant Foreign Financial Regulatory Authority. It is
     acknowledged that information procured through some or all of these
     sources may not be independently verifiable by the Custodian and that
     direct access to Securities Depositories is limited under most
     circumstances. Accordingly, the Custodian shall not be responsible for
     errors or omissions in its duties hereunder provided that it has
     performed its monitoring and assessment duties with reasonable care. The
     risk assessment shall be provided to the Fund or its Investment Advisor
     by such means as the Custodian shall reasonably establish. Advices of
     material change in such assessment may be provided by the Custodian in
     the manner established as customary between the Fund and the Custodian
     for transmission of material market information.



                                      12
<PAGE>

          8.2.4 Special Transitional Rule. It is acknowledged that Rule 17f-7
     has an effective date of July 1, 2001 and that the Custodian will require
     a period of time to fully prepare risk assessment information and to
     establish a risk monitoring system as provided in Subsection 8.2.3.
     Accordingly, until July 1, 2001, the Custodian shall use reasonable
     efforts to implement the measures required by Subsection 8.2.3, and shall
     in the interim provide to the Fund or its Investment Advisor the
     depository information customarily provided and shall promptly inform the
     Fund or its Investment Advisor of any material development affecting the
     custody risks associated with the maintenance of assets with a particular
     Securities Depository of which it becomes aware in the course of its
     general duties under this Agreement or from its duties under Section
     8.2.3 as such duties have been implemented at any given time.

     8.3 Responsibility for Subcustodians. With respect to securities and
funds held by a Subcustodian, either directly or indirectly (including by a
Foreign Depository, Securities System or foreign clearing agency), including
demand deposit and interest bearing deposits, currencies or other deposits and
foreign exchange contracts as referred to herein, the Custodian shall be
liable to the Fund if and only to the extent that such Subcustodian is liable
to the Custodian and the Custodian recovers under the applicable subcustodian
agreement.

     8.4 New Countries. The Fund shall be responsible for informing the
Custodian sufficiently in advance of a proposed investment which is to be held
in a country in which no Subcustodian is authorized to act in order that the
Custodian shall, if it deems appropriate to do so, have sufficient time to
establish a subcustodial arrangement in accordance herewith. In the event,
however, the Custodian is unable to establish such arrangements prior to the
time such investment is to be acquired, the Custodian is authorized to
designate at its discretion a local safekeeping agent, and the use of such
local safekeeping agent shall be at the sole risk of the Fund, and accordingly
the Custodian shall be responsible to the Fund for the actions of such agent
if and only to the extent the Custodian shall have recovered from such agent
for any damages caused the Fund by such agent.

9.   Responsibility of the Custodian. In performing its duties and obligations
hereunder, the Custodian shall use reasonable care under the facts and
circumstances prevailing in the market where performance is effected, Subject
to the specific provisions of this Section, the Custodian shall be liable for
any direct damage incurred by the Fund in consequence of the Custodian's
negligence, bad faith or willful misconduct. In no event shall the Custodian
be liable hereunder for any special, indirect, punitive or consequential
damages arising out of, pursuant to or in connection with this Agreement even
if the Custodian has been advised of the possibility of such damages. It is
agreed that the Custodian shall have no duty to assess the risks inherent in
the Fund's Investments or to provide investment advice with respect to such
Investments and that the Fund as principal shall bear any risks attendant to
particular Investments such as failure of counterparty or issuer.

     9.1 Limitations of Performance. The Custodian shall not be responsible
under this Agreement for any failure to perform its duties, and shall not
liable hereunder for any loss or damage in association with such failure to
perform, for or in consequence of the following causes:



                                      13
<PAGE>

          9.1.1 Force Majeure. Force Majeure shall mean any circumstance or
     event which is beyond the reasonable control of the Custodian, a
     Subcustodian or any agent of the Custodian or a Subcustodian and which
     adversely affects the performance by the Custodian of its obligations
     hereunder, by the Subcustodian of its obligations under its Subcustody
     Agreement or by any other agent of the Custodian or the Subcustodian,
     including any event caused by, arising out of or involving (a) an act of
     God, (b) accident, fire, water damage or explosion, (c) any computer,
     system or other equipment failure or malfunction caused by any computer
     virus or the malfunction or failure of any communications medium, (d) any
     interruption of the power supply or other utility service, (e) any strike
     or other work stoppage, whether partial or total, (f) any delay or
     disruption resulting from or reflecting the occurrence of any Sovereign
     Risk, (g) any disruption of, or suspension of trading in, the securities,
     commodities or foreign exchange markets, whether or not resulting from or
     reflecting the occurrence of any Sovereign Risk, (h) any encumbrance on
     the transferability of a currency or a currency position on the actual
     settlement date of a foreign exchange transaction, whether or not
     resulting from or reflecting the occurrence of any Sovereign Risk, or (i)
     any other cause similarly beyond the reasonable control of the Custodian.

          9.1.2 Country Risk. Country Risk shall mean, with respect to the
     acquisition, ownership, settlement or custody of Investments in a
     jurisdiction, all risks relating to, or arising in consequence of,
     systemic and markets factors affecting the acquisition, payment for or
     ownership of Investments including (a) the prevalence of crime and
     corruption, (b) the inaccuracy or unreliability of business and financial
     information, (c) the instability or volatility of banking and financial
     systems, or the absence or inadequacy of an infrastructure to support
     such systems, (d) custody and settlement infrastructure of the market in
     which such Investments are transacted and held, (e) the acts, omissions
     and operation of any Securities Depository, (f) the risk of the
     bankruptcy or insolvency of banking agents, counterparties to cash and
     securities transactions, registrars or transfer agents, and (g) the
     existence of market conditions which prevent the orderly execution or
     settlement of transactions or which affect the value of assets.

          9.1.3 Sovereign Risk. Sovereign Risk shall mean, in respect of any
     jurisdiction, including the United States of America, where Investments
     is acquired or held hereunder or under a Subcustody Agreement, (a) any
     act of war, terrorism, riot, insurrection or civil commotion, (b) the
     imposition of any investment, repatriation or exchange control
     restrictions by any Governmental Authority, (c) the confiscation,
     expropriation or nationalization of any Investments by any Governmental
     Authority, whether de facto or de jure, (iv) any devaluation or
     revaluation of the currency, (d) the imposition of taxes, levies or other
     charges affecting Investments, (vi) any change in the Applicable Law, or
     (c) any other economic or political risk incurred or experienced.

          9.2 Limitations on Liability. The Custodian shall not be liable for
     any loss, claim, damage or other liability arising from the following
     causes:

          9.2.1 Failure of Third Parties. The failure of any third party
     including: (a) any issuer of Investments or book-entry or other agent of
     and issuer; (b) any counterparty with respect to any Investment,
     including any issuer of exchange-traded or other futures,



                                      14
<PAGE>

     option, derivative or commodities contract; (c) failure of an Investment
     Advisor, Foreign Custody Manager or other agent of the Fund; or (d)
     failure of other third parties similarly beyond the control or choice of
     the Custodian.

          9.2.2 Information Sources. The Custodian may rely upon information
     received from issuers of Investments or agents of such issuers,
     information received from Subcustodians and from other commercially
     reasonable sources such as commercial data bases and the like, but shall
     not be responsible for specific inaccuracies in such information,
     provided that the Custodian has relied upon such information in good
     faith, or for the failure of any commercially reasonable information
     provider.

          9.2.3 Reliance on Instruction. Action by the Custodian or the
     Subcustodian in accordance with an Instruction, even when such action
     conflicts with, or is contrary to any provision of, the Funds declaration
     of trust, certificate of incorporation or by-laws, Applicable Law, or
     actions by the trustees, directors or shareholders of the Fund.

          9.2.4 Restricted Securities. The limitations inherent in the rights,
     transferability or similar investment characteristics of a given
     investment of the Fund.

10.  Indemnification. The Fund hereby indemnifies the Custodian and each
Subcustodian, and their respective agents, nominees and the partners,
employees, officers and directors, and agrees to hold each of them harmless
from and against all claims and liabilities, including counsel fees and taxes,
incurred or assessed against any of them in connection with the performance of
this Agreement and any Instruction. If a Subcustodian or any other person
indemnified under the preceding sentence, gives written notice of claim to the
Custodian, the Custodian shall promptly give written notice to the Fund. Not
more than thirty days following the date of such notice, unless the Custodian
shall be liable under Section 8 hereof in respect of such claim, the Fund will
pay the amount of such claim or reimburse the Custodian for any payment made
by the Custodian in respect thereof.

11.  Reports and Records. The Custodian shall:

     11.1 create and maintain records relating to the performance of its
obligations under this Agreement;

     11.2 make available to the Fund, its auditors, agents and employees,
during regular business hours of the Custodian, upon reasonable request and
during normal business hours of the Custodian, all records maintained by the
Custodian pursuant to paragraph 11.1 above, subject, however, to all
reasonable security requirements of the Custodian then applicable to the
records of its custody customers generally; and

     11.3 make available to the Fund all Electronic Reports; it being
understood that the Custodian shall not be liable hereunder for the inaccuracy
or incompleteness thereof or for errors in any information included therein.

     The Fund shall examine all records, howsoever produced or transmitted,
promptly upon receipt thereof and notify the Custodian promptly of any
discrepancy or error therein. Unless the Fund delivers written notice of any
such discrepancy or error within a reasonable time after its



                                      15
<PAGE>

receipt thereof, such records shall be deemed to be true and accurate. It is
understood that the Custodian now obtains and will in the future obtain
information on the value of assets from outside sources which may be utilized
in certain reports made available to the Fund. The Custodian deems such
sources to be reliable but it is acknowledged and agreed that the Custodian
does not verify nor represent nor warrant as to the accuracy or completeness
of such information and accordingly shall be without liability in selecting
and using such sources and furnishing such information.

12.  Miscellaneous.

     12.1 Proxies, etc. The Fund will promptly execute and deliver, upon
request, such proxies, powers of attorney or other instruments as may be
necessary or desirable for the Custodian to provide, or to cause any
Subcustodian to provide custody services.

     12.2 Entire Agreement. Except as specifically provided herein, this
Agreement constitutes the entire agreement between the Fund and the Custodian
with respect to the subject matter hereof. Accordingly, this Agreement
supersedes any custody agreement or other oral or written agreements
heretofore in effect between the Fund and the Custodian with respect to the
custody of the Fund's Investments.

     12.3 Waiver and Amendment. No provision of this Agreement may be waived,
amended or modified, and no addendum to this Agreement shall be or become
effective, or be waived, amended or modified, except by an instrument in
writing executed by the party against which enforcement of such waiver,
amendment or modification is sought; provided, however, that an Instruction
shall, whether or not such Instruction shall constitute a waiver, amendment or
modification for purposes hereof, shall be deemed to have been accepted by the
Custodian when it commences actions pursuant thereto or in accordance
therewith.

     12.4 GOVERNING LAW AND JURISDICTION. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH, AND BE GOVERNED BY THE LAWS OF, THE STATE OF NEW YORK,
WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW OF SUCH STATE. THE PARTIES
HERETO IRREVOCABLY CONSENT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE
STATE OF NEW YORK AND THE FEDERAL COURTS LOCATED IN NEW YORK CITY IN THE
BOROUGH OF MANHATTAN.

     12.5 Notices. Notices and other writings contemplated by this Agreement,
other than Instructions, shall be delivered (a) by hand, (b) by first class
registered or certified mail, postage prepaid, return receipt requested, (c)
by a nationally recognized overnight courier, or (d) by facsimile
transmission, provided that any notice or other writing sent by facsimile
transmission shall also be mailed, postage prepaid, to the party to whom such
notice is addressed. All such notices shall be addressed, as follows:



                                      16
<PAGE>

          If to the Fund:

          Japan Smaller Capitalization Fund, Inc.
          Nomura Asset Management U.S.A.  Inc
          180 Maiden Lane 26th Floor
          New York NY 10038-4936

               Attn: John Boretti, Senior Vice President


          Telephone: [                 ]

          Facsimile: [                 ]

          If to the Custodian:

          Brown Brothers Harriman & Co.
          40 Water Street
          Boston, Massachusetts 02109
               Attn: Manager, Securities Department
          Telephone: (617) 772-1818
          Facsimile: (617) 772-2263,

     or such other address as the Fund or the Custodian may have designated in
writing to the other.

     12.6 Headings. Paragraph headings included herein are for convenience of
reference only and shall not modify, define, expand or limit any of the terms
or provisions hereof.

     12.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered
by the Fund and the Custodian.

     12.8 Confidentiality. The parties hereto agree that each shall treat
confidentially the terms and conditions of this Agreement and all information
provided by each party to the other regarding its business and operations. All
confidential information provided by a party hereto shall be used by any other
party hereto solely for the purpose of rendering or obtaining services
pursuant to this Agreement and, except as may be required in carrying out this
Agreement, shall not be disclosed to any third party without the prior consent
of such providing party. The foregoing shall not be applicable to any
information that is publicly available when provided or thereafter becomes
publicly available other than through a breach of this Agreement, or that is
required to be disclosed by or to any bank examiner of the Custodian or any
Subcustodian, any Regulatory Authority, any auditor of the parties hereto, or
by judicial or administrative process or otherwise by Applicable law.

     12.9 Counsel. In fulfilling its duties hereunder, the Custodian shall be
entitled to receive and act upon the advice of (i) counsel regularly retained
by the Custodian in respect of



                                      17
<PAGE>

such matters, (ii) counsel for the Fund or (iii) such counsel as the Fund and
the Custodian may agree upon, with respect to all matters, and the Custodian
shall be without liability for any action reasonably taken or omitted pursuant
to such advice.

     12.10 Conflict. Nothing contained in this Agreement shall prevent the
Custodian and its associates from (i) dealing as a principal or an
intermediary in the sale, purchase or loan of the Fund's Investments to, or
from the Custodian or its associates; (ii) acting as a custodian, a
subcustodian, a trustee, an agent, securities dealer, an investment manager or
in any other capacity for any other client whose interests may be adverse to
the interest of the Fund; or (iii) buying, holding, lending, and dealing in
any way in any assets for the benefit of its own account, or for the account
of any other client whose interests may be adverse to the Fund notwithstanding
that the same or similar assets may be held or dealt in by or for the account
of the Fund by the Custodian. The Fund hereby voluntarily consents to, and
waives any potential conflict of interest between the Custodian and/or its
associates and the Fund, and agrees that:

          (a)  the Custodian's and/or its associates' engagement in any such
               transaction shall not disqualify the Custodian from continuing
               to perform as the custodian of the Fund under this Agreement;

          (b)  the Custodian and/or its associates shall not be under any duty
               to disclose any information in connection with any such
               transaction to the Fund;

          (c)  the Custodian and/or its associates shall not be liable to
               account to the Fund for any profits or benefits made or derived
               by or in connection with any such transaction; and

          (d)  the Fund shall use all reasonable efforts to disclose this
               provision, among other provisions in this Agreement, to its
               shareholders.

13.  Definitions. The following defined terms will have the respective meanings
set forth below.

     13.1 "Advance" shall mean any extension of credit by or through the
Custodian or by or through any Subcustodian and shall include amounts paid to
third parties for account of the Fund or in discharge of any expense, tax or
other item payable by the Fund.

     13.2 "Agency Account(s)" shall mean any deposit account opened on the
books of a Subcustodian or other banking institution in accordance with
Section 7.1.

     13.3 "Agent(s)" shall have the meaning set forth in the last sentence of
Section 6.

     13.4 "Applicable Law" shall mean with respect to each jurisdiction, all
(a) laws, statutes, treaties, regulations, guidelines (or their equivalents);
(b) orders, interpretations, licenses and permits; and (c) judgments, decrees,
injunctions, writs, orders and similar actions by a court of competent
jurisdiction; compliance with which is required or customarily observed in
such jurisdiction.



                                      18
<PAGE>

     13.5 "Authorized Person(s)" shall mean any person or entity authorized to
give Instructions on behalf of the Fund in accordance with Section 4.1.

     13.6 "Book-entry Agent(s)" shall mean an entity acting as agent for the
issuer of Investments for purposes of recording ownership or similar
entitlement to Investments, including without limitation a transfer agent or
registrar.

     13.7 "Clearing Corporation" shall mean any entity or system established
for purposes of providing securities settlement and movement and associated
functions for a given market.

     13.8 "Delegation Agreement" shall mean any separate agreement entered
into between the Custodian and the Fund or its authorized representative with
respect to certain matters concerning the appointment and administration of
Subcustodians delegated to the Custodian pursuant to Rule 17f-5.

     13.9 "Foreign Custody Manager" shall mean the Fund's foreign custody
manager appointed pursuant to Rule 17f-5 of the 1940 Act.

     13.10 "Foreign Financial Regulatory Authority" shall have the meaning
given by Section 2(a)(50) of the 1940 Act.

     13.11 "Funds Transfer Services Schedule" shall mean any separate schedule
entered into between the Custodian and the Bank or its authorized
representative with respect to certain matters concerning the processing of
payment orders from Principal Accounts of the Bank.

     13.12 "Instruction(s)" shall have the meaning assigned in Section 4.

     13.13 "Investment Advisor" shall mean any person or entity who is an
Authorized Person to give Instructions with respect to the investment and
reinvestment of the Fund's Investments.

     13.14 "Investment(s)" shall mean any investment asset of the Fund,
including without limitation securities, bonds, notes, and debentures as well
as receivables, derivatives, contractual rights or entitlements and other
intangible assets.

     13.15 "Margin Account" shall have the meaning set forth in Section 6.4
hereof.

     13.16 "Principal Account(s)" shall mean deposit accounts of the Fund
carried on the books of BBH&Co. as principal in accordance with Section 7.

     13.17 "Safekeeping Account" shall mean an account established on the
books of the Custodian or any Subcustodian for purposes of segregating the
interests of the Fund (or clients of the Custodian or Subcustodian) from the
assets of the Custodian or any Subcustodian.

     13.18 "Securities Depository" shall mean a central or book entry system
or agency established under Applicable Law for purposes of recording the
ownership and/or entitlement to investment securities for a given market that,
if a foreign Securities Depository, meets the definitional requirements of
Rule 17f-7 under the 1940 Act.



                                      19
<PAGE>

     13.19 "Subcustodian(s)" shall mean each foreign bank appointed by the
Custodian pursuant to Section 8, but shall not include Securities
Depositories.

     13.20 "Tri-Party Agreement" shall have the meaning set forth in Section
6.4 hereof.

     13.21 "1940 Act" shall mean the Investment Company Act of 1940.

14.  Compensation. The Fund agrees to pay to the Custodian (a) a fee in an
amount set forth in the fee letter between the Fund and the Custodian in
effect on the date hereof or as amended from time to time, and (b) all
out-of-pocket expenses incurred by the Custodian, including the fees and
expenses of all Subcustodians, and payable from time to time. Amounts payable
by the Fund under and pursuant to this Section 14 shall be payable by wire
transfer to the Custodian at BBH&Co in New York, New York.

15.  Termination. This Agreement may be terminated by either party in
accordance with the provisions of this Section. The provisions of this
Agreement and any other rights or obligations incurred or accrued by any party
hereto prior to termination of this Agreement shall survive any termination of
this Agreement.

     15.1 Notice and Effect. This Agreement may be terminated by either party
by written notice effective no sooner than seventy-five (75) consecutive
calendar days following the date that notice to such effect shall be delivered
to other party at its address set forth in paragraph 12.5 hereof.

     15.2 Successor Custodian. In the event of the appointment of a successor
custodian, it is agreed that the Investments of the fund held by the Custodian
or any Subcustodian shall be delivered to the successor custodian in
accordance with reasonable Instructions. The Custodian agrees to cooperate
with the Fund in the execution of documents and performance of other actions
necessary or desirable in order to facilitate the succession of the new
custodian. If no successor custodian shall be appointed, the Custodian shall
in like manner transfer the Fund's Investments in accordance with
Instructions.

     15.3 Delayed Succession. If no Instruction has been given as of the
effective date of termination, Custodian may at any time on or after such
termination date and upon ten (10) consecutive calendar days written notice to
the Fund either (a) deliver the Investments of the Fund held hereunder to the
Fund at the address designated for receipt of notices hereunder; or (b)
deliver any investments held hereunder to a bank or trust company having a
capitalization of $2,000,000 USD equivalent and operating under the Applicable
law of the jurisdiction where such Investments arc located, such delivery to
be at the risk of the Fund. In the event that Investments or moneys of the
Fund remain in the custody of the Custodian or its Subcustodians after the
date of termination owing to the failure of the Fund to issue Instructions
with respect to their disposition or owing to the fact that such disposition
could not be accomplished in accordance with such Instructions despite
diligent efforts of the Custodian, the Custodian shall be entitled to
compensation for its services with respect to such Investments and moneys
during such period as the Custodian or its Subcustodians retain possession of
such items and the provisions of this Agreement shall remain in full force and
effect until disposition in accordance with this Section is accomplished.



                                      20
<PAGE>

     IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be duly executed as of the date first above written.

BROWN BROTHERS HARRIMAN & CO.             JAPAN SMALLER CAPITALIZATION
                                          FUND, INC.


By:  /s/ Stokley P. Towles                By:  /s/ David G. Stoeffel
   ----------------------------------         ---------------------------------
Name:   Stokley P. Towles                 Name:   David G. Stoeffel
Title:  Partner                           Title:  Vice President
Date:   April 23, 2002                    Date:   April 26, 2002



                                      21
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2(K)(1)
<SEQUENCE>7
<FILENAME>efc5-2269_5783275ex992k1.txt
<TEXT>
                                                                Exhibit (k)(1)



                          ACCOUNTING AGENCY AGREEMENT

     THIS ACCOUNTING AGENCY AGREEMENT is made as of ____________, 2002 by and
between BROWN BROTHERS HARRIMAN & CO., a limited partnership organized under
the laws of the State of New York (the "Accounting Agent"), and JAPAN SMALLER
CAPITALIZATION FUND, INC. (the "Fund").

     WHEREAS, the Fund is registered as management investment company under
the Investment Company Act of 1940 (the "1940 Act"); and

     WHEREAS, the Fund desires to retain the Accounting Agent to perform
certain accounting and recordkeeping services on behalf of the Fund, and the
Accounting Agent is willing to render such services.

     NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:

     1. Employment of Accounting Agent. The Fund hereby employs and appoints
the Accounting Agent to act as its fund accounting agent on the terms set
forth in this Agreement, and the Accounting Agent accepts such appointment.

     2. Delivery of Documents. The Fund will (i) furnish the Accounting Agent
with properly certified or authenticated copies of resolutions of the Fund's
Board of Directors or Trustees authorizing the appointment of the Accounting
Agent to provide certain fund accounting services to the Fund and approving
this Agreement; (ii) provide the Accounting Agent with any other documents or
resolutions (including but not limited to directions or resolutions of the
Fund's Board of Directors or Trustees) which relate to or affect the
Accounting Agent's performance of its duties hereunder or which the Accounting
Agent may reasonably request; and (iii) notify the Accounting Agent promptly
of any matter affecting the performance by the Accounting Agent of its
services under this Agreement.

     3. Recordkeeping and Calculation of Net Asset Value. The Accounting Agent
shall compute and determine the net asset value per share of the Fund as of
the close of business on the New York Stock Exchange on each day on which such
Exchange is open, unless otherwise directed by Proper Instructions. Such
computation and determination shall be made in accordance with (1) the
provisions of the Fund's Declaration of Trust or Certificate of Incorporation
and By-Laws, as they may from time to time be amended and delivered to the
Accounting Agent, (2) the votes of the Board of Trustees or Directors of the
Fund at the time in force and applicable, as they may from time be delivered
to the Accounting Agent; and (3) Proper Instructions. On each day that the
Accounting Agent shall compute the net asset value per share of the Fund, the
Accounting Agent shall provide the Fund's investment adviser with written
reports which the investment adviser will use to verify that portfolio
transactions have been recorded in accordance with the Fund's instructions and
are reconciled with the Fund's trading records.

     In computing the net asset value, the Accounting Agent may rely upon any
information furnished by Proper Instructions, including without limitation any
information (1) as to accrual of liabilities of the Fund and as to liabilities
of the Fund not appearing on the books of account

<PAGE>

kept by the Accounting Agent, (2) as to the existence, status and proper
treatment of reserves, if any, authorized by the Fund, (3) as to the sources
of quotations to be used in computing the net asset value, including those
listed in Appendix B, (4) as to the fair value to be assigned to any
securities or other property for which price quotations are not readily
available, and (5) as to the sources of information with respect to "corporate
actions" affecting portfolio securities of the Fund, including those listed in
Appendix B. (Information as to "corporate actions" shall include information
as to dividends, distributions, stock splits, stock dividends, rights
offerings, conversions, exchanges, recapitalizations, mergers, redemptions,
calls, maturity dates and similar transactions, including the ex- and record
dates and the amounts or other terms thereof). The Fund may instruct the
Accounting Agent to utilize a particular source for the valuation of a
specific Security or other Property and the Accounting Agent shall protected
in utilizing the valuation provided by such source without further inquiry in
order to effect calculation of the Fund's net asset value. Notwithstanding
anything in this Agreement to the contrary, the Accounting Agent shall not be
responsible for the failure of the Fund or its investment adviser to provide
the Accounting Agent with Proper Instructions regarding liabilities which
ought to be included in the calculation of the Fund's net asset value.

     In like manner, the Accounting Agent shall compute and determine the net
asset value as of such other times as the Board of Trustees or Directors of
the Fund from time to time may reasonably request.

     4. Expenses and Compensation. For the services to be rendered and the
facilities to be furnished by the Accounting Agent as provided for in this
Agreement, the Fund shall pay the Accounting Agent for its services rendered
pursuant to this Agreement a fee based on such fee schedule as may from time
to time be agreed upon in writing by the Fund and the Accounting Agent. In
addition to such fee, the Accounting Agent shall bill the Fund separately for
any out-of-pocket disbursements of the Accounting Agent. Out-of-pocket
disbursements shall include, but shall not be limited to, postage, including
courier services; telephone; telecommunications; printing, duplicating and
photocopying charges; forms and supplies; filing fees; legal expenses; and
travel expenses. The foregoing fees and disbursements shall be billed to the
Fund by the Accounting Agent and shall be paid promptly by wire transfer or
other appropriate means to the Accounting Agent.

     5. Standard of Care. The Accounting Agent shall be held only to the
exercise of reasonable care in computing and determining net asset value as
provided in this Agreement, but shall not be held accountable or liable for
any losses or damages the Fund or any shareholder or former shareholder of the
Fund or any other person may suffer or incur arising from or based upon errors
or delays in the determination of such net asset value resulting from any
event beyond the reasonable control of the Accounting Agent unless such error
or delay was due to the Accounting Agent's negligence or reckless or willful
misconduct in determination of such net asset value. (The parties hereto
acknowledge, however, that the Accounting Agent's causing an error or delay in
the determination of net asset value may, but does not in and of itself,
constitute negligence or reckless or willful misconduct.) In no event shall
the Accounting Agent be liable or responsible to the Fund, any present or
former shareholder of the Fund or any other person for any error or delay
which continued or was undetected after the date of an audit performed by the
certified public accountants employed by the Fund if, in the exercise of
reasonable care in accordance with generally accepted accounting standards,
such accountants should have become



                                      2
<PAGE>

aware of such error or delay in the course of performing such audit. The
Accounting Agent's liability for any such negligence or reckless or willful
misconduct which results in an error in determination of such net asset value
shall be limited exclusively to the direct, out-of-pocket loss the Fund,
shareholder or former shareholder shall actually incur, measured by the
difference between the actual and the erroneously computed net asset value,
and any expenses the Fund shall incur in connection with correcting the
records of the Fund affected by such error (including charges made by the
Fund's registrar and transfer agent for making such corrections) or
communicating with shareholders or former shareholders of the Fund affected by
such error.

     Without limiting the foregoing, the Accounting Agent shall not be held
accountable or liable to the Fund, any shareholder or former shareholder
thereof or any other person for any delays or losses, damages or expenses any
of them may suffer or incur resulting from (1) the Accounting Agent's failure
to receive timely and suitable notification concerning quotations or corporate
actions relating to or affecting portfolio securities of the Fund or (2) any
errors in the computation of the net asset value based upon or arising out of
quotations or information as to corporate actions if received by the
Accounting Agent either (i) from a source which the Accounting Agent was
authorized pursuant to the third paragraph of this Section to rely upon, (ii)
from a source which in the Administrator's reasonable judgment was as reliable
a source for such quotations or information as the sources authorized pursuant
to that third paragraph, or (iii) relevant information known to the Fund or
the Investment Adviser which would impact the calculation of net asset value
but which is not communicated by the Fund or the investment adviser to the
Accounting Agent.

     In the event of any error or delay in the determination of such net asset
value for which the Accounting Agent may be liable, the Fund and the
Accounting Agent will consult and make good faith efforts to reach agreement
on what actions should be taken in order to mitigate any loss suffered by the
Fund or its present or former shareholders, in order that the Accounting
Agent's exposure to liability shall be reduced to the extent possible after
taking into account all relevant factors and alternatives. Such actions might
include the Fund or the Accounting Agent taking reasonable steps to collect
from any shareholder or former shareholder who has received any overpayment
upon redemption of shares such overpaid amount or to collect from any
shareholder who has underpaid upon a purchase of shares the amount of such
underpayment or to reduce the number of shares issued to such shareholder. It
is understood that in attempting to reach agreement on the actions to be taken
or the amount of the loss which should appropriately be borne by the
Accounting Agent, the Fund and the Accounting Agent will consider such
relevant factors as the amount of the loss involved, the Fund's desire to
avoid loss of shareholder good will, the fact that other persons or entities
could have been reasonably expected to have detected the error sooner than the
time it was actually discovered, the appropriateness of limiting or
eliminating the benefit which shareholders or former shareholders might have
obtained by reason of the error, and the possibility that other parties
providing services to the Fund might be induced to absorb a portion of the
loss incurred.

     6. Limitation of Liability.

          (a) The Accounting Agent shall incur no liability with respect to any
telecommunications, equipment or power failures, or any failures to perform on
delays in performance by postal or courier services or third-party information
providers. The Accounting



                                      3
<PAGE>

Agent shall also incur no liability under this Agreement if the Accounting
Agent or any agent or entity utilized by the Accounting Agent shall be
prevented, forbidden or delayed from performing, or omits to perform, any act
or thing which this Agreement provides shall be performed or omitted to be
performed, by reason of causes or events beyond its control, including but not
limited to (x) any Sovereign Risk, or (y) any provision of any present or
future law, regulation or order of the United States or any state thereof, or
of any foreign country or political subdivision thereof, or of any securities
depository or clearing agency, or (z) any provision of any order or judgment
of any court of competent jurisdiction. A "Sovereign Risk" shall mean any
nationalization; expropriation; devaluation; revaluation; confiscation;
seizure; cancellation; destruction; strike; act of war, terrorism,
insurrection or revolution; or any other act or event beyond the Accounting
Agent's control.

          (b) Notwithstanding any other provision of this Agreement, the
Accounting Agent shall not be held accountable or liable for any losses,
damages or expenses the Fund or any shareholder or former shareholder of the
Fund or any other person may suffer or incur arising from acts, omissions,
errors or delays of the Accounting Agent in the performance of its obligations
and duties hereunder, including without limitation any error of judgment or
mistake of law, except a damage, loss or expense resulting from the Accounting
Agent's willful malfeasance, bad faith or negligence in the performance of
such obligations and duties. The Accounting Agent shall in no event be
required to take any action which is in contravention of any applicable law,
rule or regulation or any order or judgment of any court of competent
jurisdiction. The Fund hereby agrees to indemnify the Accounting Agent against
and hold it harmless from any and all losses, claims, damages, liabilities or
expenses (including reasonable counsel fees and expenses) resulting from any
act, omission, error or delay or any claim, demand, action or suit, in
connection with or arising out of performance of its obligations and duties
under this Agreement, not resulting from the willful malfeasance, bad faith or
negligence of the Accounting Agent in the performance of such obligations and
duties.

     The Accounting Agent shall in no event be liable or responsible to the
Fund, any present or former shareholder of the Fund or any other person for
any error or delay which continued or was undetected after the date of an
audit performed by the certified public accountants employed by the Fund if,
in the exercise of reasonable care in accordance with generally accepted
accounting standards, such accountants should have become aware of such error
or delay in the course of performing such audit. It is also agreed that, in
the event of an act, omission, error or delay which leads to losses, costs or
expenses for which the Accounting Agent may be liable, the Fund and the
Accounting Agent will consult and make good faith efforts to reach agreement
on what actions should be taken in order to mitigate any loss suffered by the
Fund or its present or former shareholders, in order that the Accounting
Agent's exposure to liability shall be reduced to the extent possible after
taking into account all relevant factors and alternatives. It is understood
that in attempting to reach agreement on the actions to be taken or the amount
of the loss which should appropriately be borne by the Accounting Agent, the
Fund and the Accounting Agent will consider such relevant factors as the
amount of the loss involved, the Fund's desire to avoid loss of shareholder
good will, the fact that other persons or entities could have been reasonably
expected to have detected the error sooner than the time it was actually
discovered, the appropriateness of limiting or eliminating the benefit which
shareholders or former shareholders might have obtained by reason of the
error, and the possibility that other parties providing services to the Fund
might be induced to absorb a portion of the loss incurred.



                                      4
<PAGE>

          (c) Notwithstanding anything else in this Agreement to the contrary,
the Accounting Agent's entire liability to the Fund for any loss or damage
arising or resulting from its performance hereunder or for any other cause
whatsoever, and regardless of the form of action, shall be limited to the
Fund's actual and direct out-of-pocket expenses and losses which are
reasonably incurred by the Fund. In no event and under no circumstances shall
the Accounting Agent or a Fund be held liable to the other party for
consequential or indirect damages, loss of profits, damage to reputation or
business or any other special damages arising under or by reason of any
provision of this Agreement or for any act or omission hereunder.

     7. Reliance by the Accounting Agent on Proper Instructions and Opinions
of Counsel and Opinions of Certified Public Accountants.

          (a) The Accounting Agent shall not be liable for, and shall be
indemnified by the Fund against any and all losses, costs, damages or expenses
arising from or as a result of, any action taken or omitted in reliance upon
Proper Instructions or upon any other written notice, request, direction,
instruction, certificate or other instrument believed by it to be genuine and
signed or authorized by the proper party or parties.

     Proper Instructions shall include a written request, direction,
instruction or certification signed or initialed on behalf of the Fund by one
or more persons as the Board of Trustees or Directors of the Fund shall have
from time to time authorized. These persons authorized to give Proper
Instructions may be identified by the Board of Trustees or Directors by name,
title or position and will include at least one officer empowered by the Board
to name other individuals who are authorized to give Proper Instructions on
behalf of the Fund. Telephonic or other oral instructions or instructions
given by telefax transmission may be given by any one of the above persons and
will also be considered Proper Instructions if the Accounting Agent believes
them to have been given by a person authorized to give such instructions with
respect to the transaction involved.

     With respect to telefax transmissions, the Fund hereby acknowledges that
(i) receipt of legible instructions cannot be assured, (ii) the Accounting
Agent cannot verify that authorized signatures on telefax instructions are
original, and (iii) the Accounting Agent shall not be responsible for losses
or expenses incurred through actions taken in reliance on such telefax
instructions. The Fund agrees that such telefax instructions shall be
conclusive evidence of the Fund's Proper Instruction to the Accounting Agent
to act or to omit to act.

     Proper Instructions given orally will be confirmed by written
instructions in the manner set forth above, including by telefax, but the lack
of such confirmation shall in no way affect any action taken by the Accounting
Agent in reliance upon such oral instructions. The Fund authorizes the
Accounting Agent to tape record any and all telephonic or other oral
instructions given to the Accounting Agent by or on behalf of the Fund
(including any of its officers, Directors, Trustees, employees or agents or
any investment manager or adviser or person or entity with similar
responsibilities which is authorized to give Proper Instructions on behalf of
the Fund to the Accounting Agent.)

          (b) The Accounting Agent may consult with its counsel or the Fund's
counsel in any case where so doing appears to the Accounting Agent to be
necessary or desirable. The



                                      5
<PAGE>

Accounting Agent shall not be considered to have engaged in any misconduct or
to have acted negligently and shall be without liability in acting upon the
advice of its counsel or of the Fund's counsel.

          (c) The Accounting Agent may consult with a certified public
accountant or the Fund's Treasurer in any case where so doing appears to the
Accounting Agent to be necessary or desirable. The Accounting Agent shall not
be considered to have engaged in any misconduct or to have acted negligently
and shall be without liability in acting upon the advice of such certified
public accountant or of the Fund's Treasurer.

     8. Termination of Agreement.

          (a) This Agreement shall continue in full force and effect until
terminated by the Accounting Agent or the Fund by an instrument in writing
delivered or mailed, postage prepaid, to the other party, such termination to
take effect not sooner than ninety (90) days after the date of such delivery
or mailing. In the event a termination notice is given by a party herein, all
expenses associated with the movement of records and materials and the
conversion thereof shall be paid by the Fund for which services shall cease to
be performed hereunder. The Accounting Agent shall be responsible for
completing all actions in progress when such termination notice is given
unless otherwise agreed.

     Notwithstanding anything in the foregoing provisions of this clause, if
it appears impracticable in the circumstances to effect an orderly delivery of
the necessary and appropriate records of the Accounting Agent to a successor
within the time specified in the notice of termination as aforesaid, the
Accounting Agent and the Fund agree that this Agreement shall remain in full
force and effect for such reasonable period as may be required to complete
necessary arrangements with a successor.

          (b) If a party hereto shall fail to perform its duties and
obligations hereunder (a "Defaulting Party") resulting in material loss to
another party (the "Non-Defaulting Party"), the Non-Defaulting Party may give
written notice thereof to the Defaulting Party, and if such material breach
shall not have been remedied within thirty (30) days after such written notice
is given, then the Non-Defaulting Party may terminate this Agreement by giving
thirty (30) days' written notice of such termination to the Defaulting Party.
If the Accounting Agent is the Non-Defaulting Party, its termination of this
Agreement shall not constitute a waiver of any other rights or remedies of the
Accounting Agent with respect to payment for services performed prior to such
termination or rights of the Accounting Agent to be reimbursed for
out-of-pocket expenses. In all cases, termination by the Non-Defaulting Party
shall not constitute a waiver by the Non-Defaulting Party of any other rights
it might have under this Agreement or otherwise against the Defaulting Party.

          (c) This Section 7 shall survive any termination of this Agreement,
whether for cause or not for cause.

     9. Amendment of this Agreement. This Agreement constitutes the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof. No



                                      6
<PAGE>

provision of this Agreement may be amended or terminated except by a statement
in writing signed by the party against which enforcement of the amendment or
termination is sought.

     In connection with the operation of this Agreement, the Fund and the
Accounting Agent may agree in writing from time to time on such provisions
interpretive of or in addition to the provisions of this Agreement as may in
their joint opinion be consistent with the general tenor of this Agreement. No
interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Agreement.

     In the event any provision of this Agreement is determined to be void or
unenforceable, such determination shall not affect the remainder of this
Agreement, which shall continue to be in force.

     The section headings and the use of defined terms in the singular or
plural tenses in this Agreement are for the convenience of the parties and in
no way alter, amend, limit or restrict the contractual obligations of the
parties set forth in this Agreement.

     10. GOVERNING LAW AND JURISDICTION. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH, AND BE GOVERNED BY THE LAWS OF, THE STATE OF NEW YORK,
WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW OF SUCH STATE. THE PARTIES
HERETO IRREVOCABLY CONSENT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE
STATE OF NEW YORK AND THE FEDERAL COURTS LOCATED IN NEW YORK CITY IN THE
BOROUGH OF MANHATTAN.

     11. Notices. Notices and other writings delivered or mailed postage
prepaid to a Fund addressed to the Fund at [______________________] or to such
other address as the Fund may have designated to the Accounting Agent in
writing, or to the Accounting Agent at 40 Water Street, Boston, MA 02109,
Attention: Manager, Fund Accounting Department, or to such other address as
the Accounting Agent may have designated to the Fund in writing, shall be
deemed to have been properly delivered or given hereunder to the respective
addressee.

     12. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Fund and the Accounting Agent and their respective successors
and assigns, provided that no party hereto may assign this Agreement or any of
its rights or obligations hereunder without the written consent of the other
party.

     13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and which
collectively shall be deemed to constitute only one instrument. This Agreement
shall become effective when one or more counterparts have been signed and
delivered by each of the parties.



                                      7
<PAGE>

     14. Exclusivity. The services furnished by the Accounting Agent hereunder
are not to be deemed exclusive, and the Accounting Agent shall be free to
furnish similar services to others.

     15. Authorization. The Fund hereby represents and warrants that the
execution and delivery of this Agreement have been authorized by the Fund's
Board of Directors or Trustees and that this Agreement has been signed by an
authorized officer of the Fund.

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their duly authorized officers as of the date
first written above.



BROWN BROTHERS HARRIMAN & CO.               JAPAN SMALLER CAPITALIZATION
                                            FUND, INC.

By: /s/ James R. Kent                       By: /s/ Rita Chopra-Braithwaite
   -----------------------------------         --------------------------------
   Name:   James R. Kent                       Name:   Rita Chopra-Braithwaite
   Title:  Managing Director                   Title:  Treasurer




                                      8
<PAGE>

                                  APPENDIX B

                    JAPAN SMALLER CAPITALIZATION FUND, INC.
                    ---------------------------------------

THE FOLLOWING AUTHORIZED SOURCES ARE TO BE USED FOR PRICING AND FOREIGN
EXCHANGE QUOTATIONS, CORPORATE ACTIONS, DIVIDENDS AND RIGHTS OFFERINGS:

                              AUTHORIZED SOURCES
                              ------------------

                                   BLOOMBERG
                                 FUND MANAGERS
                        FT INTERACTIVE DATA CORPORATION
                               REPUTABLE BROKERS
                                    REUTERS
                              SUBCUSTODIAN BANKS
                                   TELEKURS
                       REPUTABLE FINANCIAL PUBLICATIONS
                                STOCK EXCHANGES
                        FINANCIAL INFORMATION INC. CARD
                                   JJ KENNY
                                FRI CORPORATION
                         MERRILL LYNCH PRICING SERVICE
                                    BRIDGE
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2(K)(2)
<SEQUENCE>8
<FILENAME>efc5-2269_ex992k2.txt
<TEXT>
                                                                Exhibit (k)(2)


=======================================================================


                           FEE AND SERVICE SCHEDULE
                          FOR STOCK TRANSFER SERVICES

                                    between

                JAPAN SMALLER CAPITALIZATION FUND, INC.

                                      and
                                EQUISERVE, INC.

                                      and
                         EQUISERVE TRUST COMPANY, N.A.

TERM

This Fee and Service Schedule is by and between, EquiServe, Inc. and
EquiServe Trust Company, N.A. (collectively, the "Transfer Agent")
and Japan Smaller Capitalization Fund, Inc. hereinafter referred to
as ("the Customer"), whereby the Transfer Agent will perform the
following services for the Common Stock of the Customer.

The term of this Fee and Service Schedule shall be for a period of three (3)
years, commencing from March 1, 2005 the effective date of this Fee and
Service Schedule (the "Initial Term").

After the Initial Term of the Agreement, providing that service mix and
volumes remain constant, the fees listed in the Fee and Service Schedule shall
be increased (a) by the accumulated change in the National Employment Cost
Index for Service Producing Industries (Finance, Insurance, Real Estate) for
the preceding years of the contract, as published by the Bureau of Labor
Statistics of the United States Department of Labor or (b) to the Transfer
Agent's minimum fee then in effect, whichever is greater. Fees will be
increased on this basis on each successive contract anniversary thereafter.

FEES AND SERVICES
Transfer Agent and Registrar Fee
$ 833.33    Monthly Stock Transfer/Registrar Fee

            Includes the standard Transfer Agent and Registrar services as
            stated in the following sections:

      Administrative Services
      o  Annual administrative services as Transfer Agent and Registrar
         for the Common Stock of the Customer
      o  Assignment of Account Manager
      o  Remote inquiry access to the Customer records via PC or
         terminal with telecommunication software

      Account Maintenance


                                    Page 1
<PAGE>

=======================================================================

      o  Maintaining 1,000 record shareholder accounts per year, (additional
         shareholder accounts to be billed at $6.00 each per year,) to include
         the following services:
            o  Processing of new shareholder accounts
            o  Posting and acknowledging address changes
            o  Processing other routine file maintenance adjustments
            o  Posting all transactions, including debit and credit
               certificates to the stockholder file
            o  Researching and responding to all registered shareholder
               inquiries
            o  Responding to requests for audit confirmations
            o  Shareholder Internet Access

      Routine Certificate Issuance
      o  Issuance, cancellation and registration of up to 1,000 certificates
         per year (excess to be billed at $1.50 each) to include the following
         services:
            o  Production and mailing of daily transfer reports
            o  Processing of all legal transfers including New York window and
               mail items
            o  Combining certificates into large and/or smaller denominations
            o  Replacing lost certificates
            o  Placing, maintaining and removing stop-transfer notations

      Special Certificate Issuance
      o  The processing of up to 50 stock option issuances, to include DWAC
         processing where required, per annum, additional to be billed at
         $15.00 per stock option issuance
      o  The processing of up to 50 restricted transfers per annum, additional
         to be billed at $20.00 per restricted transfer

      Annual Meeting Services
      o  Preparing a full stockholder list as of the Annual Meeting
         Record Date
      o  Addressing proxy cards for all registered shareholders
      o  Enclosing and mailing proxy card, proxy statement, return
         envelope and Annual Report to all registered shareholders
      o  Receiving, opening and examining returned proxies
      o  Writing in connection with unsigned or improperly executed
         proxies
      o  Tabulating returned proxies; up to five (5) proposals,
         additional billed at $0.03 per proposal per shareholder
      o  Provide on-line access to proxy vote status
      o  Attending Annual Meeting as Inspector of Election (Travel
         expenses billed as  incurred)
      o  Preparing a final Annual Meeting List reflecting how each
         account has voted on each proposal
      Mailing, Reporting and Miscellaneous Services
      o  Addressing and enclosing company-provided materials, three (3)
         per annum for registered shareholders
      o  Providing six (6) standard reports per annum, at Customer's
         discretion


                                    Page 2
<PAGE>

=======================================================================

      o  Coding "multiple" accounts at a single household to suppress
         duplicate mailings of reports

      Dividend Services

      As Dividend Disbursing Agent and Paying Agent, the Agent, will perform
      the dividend related services indicated below, pursuant to the following
      terms and conditions:

      o    All funds must be received before or on mailing date by 11:00
           a.m., Eastern Standard Time via Federal Funds Wire, ACH or
           Demand Deposit Account debit
      o    Preparing and mailing quarterly dividends with an additional
           enclosure with each dividend check
      o    Direct Deposit of dividends via ACH, for shareholders who have
           enrolled in this service.
      o    Preparing a hard copy dividend list as of each dividend record
           date
      o    Preparing and filing Federal Information Returns (Form 1099) of
           dividends paid in a year and mailing a statement to each
           stockholder
      o    Preparing and filing State Information Returns of dividends
           paid in a year to stockholders resident within such state
      o    Preparing and filing annual withholding return (Form 1042) and
           payments to the government of income taxes withheld from
           Non-Resident Aliens
      o    Replacing lost dividend checks
      o    Reconciling paid and outstanding checks
      o    Coding "undeliverable" accounts to suppress mailing dividend
           checks to same
      o    Processing and recordkeeping of accumulated uncashed dividends
      o    Furnishing requested dividend information to stockholders
      o    Performing the following duties as required by the Interest and
           Dividend Tax Compliance Act of 1983:
                o   Withholding tax from shareholder accounts not in compliance
                    with the provisions of the Act
                o   Reconciling and reporting taxes withheld, including
                    additional 1099 reporting requirements, to the Internal
                    Revenue Service
                o   Responding to shareholder inquiries regarding the
                    Regulations
                o   Mailing to new accounts who have had taxes withheld, to
                    inform them of procedures to be followed to curtail
                    subsequent back-up withholding
                o   Performing shareholder file adjustments to reflect
                    certification of accounts

      Dividend Reinvestment Services

      As Administrator of your original issue Dividend Reinvestment and Stock
      Purchase Plan ("DRP"), the Transfer Agent will perform the following DRP
      related services:


                                    Page 3
<PAGE>

=======================================================================

      o    Investing  Dividend Reinvestment and Optional Cash Purchases
           quarterly
      o    Reinvestment and/or cash investment transactions of Dividend
           Reinvestment Plan participant accounts
      o    Preparing and mailing a dividend reinvestment detailed statement
           with an additional enclosure to each Dividend Reinvestment Plan
           participant
      o    Processing automatic monthly investments via ACH
      o    Preparing and mailing a cash investment detailed statement with
           an additional enclosure to each Dividend Reinvestment
           participant
      o    Maintaining DRP accounts and establishing new participant
           accounts
      o    Processing termination and withdrawal requests
      o    Supplying summary reports for each reinvestment/investment to
           the Fund
      o    Certificate depository
      o    Handling stockholder and customer inquiries concerning the Plan
      o    Preparing and mailing Form 1099 to participants, including DRP
           participants and related filings with the IRS

      Direct Filing of Abandoned Property
      o    Processing and mailing Due Diligence notices to all qualifying
           shareholder accounts as defined by the State Filing Matrix
      o    Processing returned Due Diligence notices and remitting
           property to shareholders prior to escheatment
      o    Preparing and filing Preliminary and Final Abandoned Property
           Reports
      o    Preparing and filing checks for each state covering unclaimed
           funds as per state requirements
      o    Issuing and filing stock certificate(s) registered to the
           applicable state(s) representing returned (RPO) certificates and
           underlying share certificates
      o    Retaining, as required by law or otherwise, records of property
           escheated to the several States and responding, after appropriate
           research, to shareholder inquiries relating to same

            Lost Owner/Shareholder Search Services
            SEC Electronic Database Search                 $2.00 per account
                                                           searched
            National Change of Address (NCOA) Search       $.01 per account
                                                           (all accounts)


Additional Services
Items not included in the fees and services set forth in this Fee and Service
Schedule including, but not limited to, services associated with the payment
of a stock dividend, stock split, corporate reorganization, or any services
associated with a special project are to be billed separately, on an appraisal
basis.

Services required by legislation or regulatory fiat which become effective
after the date of acceptance of this Fee and Service Schedule shall not be a
part of the Standard Services and shall


                                    Page 4
<PAGE>

=======================================================================

be billed by appraisal. All additional services not specifically covered under
this Fee and Service Schedule will be billed by appraisal, as applicable.

Billing Definition of Number of Accounts
For billing purposes, the number of accounts will be based on open accounts on
file at the beginning of each billing period, plus any new accounts added
during that period. An open account shall mean the account of each Shareholder
which account shall hold any full or fractional shares of stock held by such
Shareholder and/or outstanding funds or tax reporting to be done.

Out-of-Pocket Expenses
In addition to the fees above, the Customer agrees to reimburse the Transfer
Agent for out-of-pocket expenses, including but not limited to postage,
Transfer Agent administrative costs, forms, telephone, microfilm, microfiche,
taxes, records storage, exchange and broker fees, or advances incurred by the
Transfer Agent for the items set out in Exhibit A attached hereto. In
addition, any other expenses incurred by the Transfer Agent at the request or
with the consent of the Customer, will be reimbursed by the Customer.



                                    Page 5
<PAGE>

=======================================================================

                                  ACCEPTANCE

In witness whereof, the parties hereto have caused this Fee and Service
Schedule to be executed by their respective officers, hereunto duly agreed and
authorized, as of the effective date of this Fee and Service Schedule.


EquiServe, Inc.
EquiServe Trust Company, N. A.          Japan Smaller Capitalization Fund, Inc.
On Behalf of Both Entities:


By:                                     By:
   ---------------------------------       --------------------------------
Name:       Dennis V. Moccia            Name:
      ------------------------------         ------------------------------
Title:      Managing Director           Title:
      ------------------------------          -----------------------------


























This Fee and Service Schedule shall serve as an attachment to the Transfer
Agency and Stock Transfer Services Agreement dated March 1, 2002.



                                    Page 6
<PAGE>

=======================================================================

                                   Exhibit A
                            Out of Pocket Expenses

Out of pocket expenses associated with, but not limited to, the following are
not included in the fees quoted in this Fee and Service Schedule and are
billable as incurred.
Postage (Outgoing and Business Reply)
Envelopes
Labels
Forms and Stationery and Proxy Cards
Fulfillment, i.e., transfer packages, new account packages
Proxy Proof Set-up
Record Retention
Insurance Premiums (Mailing certificates)
Delivery and Freight charges (including overnight delivery; Airborne
Express, FedEx, etc.)
Typesetting (proxy cards, due diligence mailings, etc.)
Printing (proxy cards, etc.)
Destruction of excess/obsolete material
DTC trade transaction expenses (Treasury buybacks, etc.)
Custody Settlement charges
Telephone usage and line expenses
Lost Shareholder Program database search

Please Note:

Good funds to cover postage expenses in excess of $10,000 for shareholder
mailings must be received in full by 12:00 p.m. Eastern Time on the scheduled
mailing date. Postage expenses less than $10,000 will be billed as incurred.

SKU numbers are required on all material received for mailing. A special
handling fee of $10.00 per box will be assessed for all material not marked
with a SKU number. Such material includes, but is not limited to: proxy
statements, annual and quarterly reports, and news releases. Overtime charges
will be assessed in the event services are required to be performed
after-business hours due to late delivery of material for mailings to
shareholders by the Customer unless the mail date is rescheduled. Exhibit B
provides the Specifications for packing and shipping materials to EquiServe.








                                   EXHIBIT B

                                    Page 7
<PAGE>

=======================================================================

[OBJECT OMITTED] EQUISERVE

         SPECIFICATIONS FOR PACKING & SHIPPING MATERIALS TO EQUISERVE

                               Revised 1/22/04

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

Special Notes   1. Please contact your client services team when you
                   or your print vendor ships materials and provide the SKU #,
                   date shipped, shipped to location, quantity shipped and
                   tracking number(s).
                2. Please follow these packing, shipping and SKU # (page 3)
                   guidelines to help us receive and utilize your materials
                   efficiently.
                3. For specifics concerning your company's mailing, please
                   contact your client services team.

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

Delivery timing Please ship your materials to arrive according to the
                following schedule:

               ----------------------------------------------------------------
                  # of Pieces                  Delivery Deadline
               ----------------------------------------------------------------
               1-25,000           Prior to 12 noon, 3 business days prior to
                                  mail date
               ----------------------------------------------------------------
               25,001-50,000      Prior to 12 noon, 4 business days prior to
                                  mail date
               ----------------------------------------------------------------
               50,001-200,000     Prior to 12 noon, 5 business days prior to
                                  mail date
               ----------------------------------------------------------------
               Over 200,001       Establish delivery schedule with your
               pieces             client services team.  Large mailings will
                                  require more time. Your client service team
                                  will work with you to schedule the
                                  appropriate delivery timeframe to ensure
                                  processing of your mailing.
               ----------------------------------------------------------------
Shipping
addresses
               ----------------------------------------------------------------
               Letter size & Proxy Card        EquiServe
               material                        118 Fernwood Avenue
                                               Edison NJ 08837-3857
                                               Attn: Receiving
                                               Tel: 732-417-2684
               ----------------------------------------------------------------
               All other Proxy material        EquiServe
                                               200 McGaw Drive
                                               Edison NJ 08837-3857
                                               Attn: Receiving
                                               Tel: 732-417-2684
               ----------------------------------------------------------------
               Standard Register               Standard Register Warehouse
                                               311 Prestige Park Road
                                               East Hartford CT 06108
                                               OR
                                               Parker Warehouse
                                               21 Parker Drive
                                               Avon MA 02322
               ----------------------------------------------------------------

               ----------------------------------------------------------------
                                                      Continued on next page


                                    Page 8
<PAGE>

===============================================================================

SPECIFICATIONS FOR PACKING & SHIPPING MATERIALS TO EQUISERVE,
Continued

Receiving       Monday through Friday, 8:00 a.m. to 4:00 p.m.*
Hours           *During Proxy season, extended receiving hours are offered
                with advanced notice.  To arrange for extended receiving hours
                (after 4:00 p.m. and on weekends) contact your client services
                team.

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

Receiving       Every shipment, including courier deliveries, requires proper
Documentation   documentation including a delivery receipt and a packing
                list. Both should include the following information:

               ----------------------------------------------------------------
                 1    Name of Client
               ----------------------------------------------------------------
                 2    Description of material
               ----------------------------------------------------------------
                 3    Material SKU Number
               ----------------------------------------------------------------
                 4    Total number of boxes/packages delivered
               ----------------------------------------------------------------
                 5    Quantity per box/package
               ----------------------------------------------------------------
                 6    Total number of pieces delivered/volume
               ----------------------------------------------------------------
                 7    Identification of partial shipment
               ----------------------------------------------------------------
                 8    Purchase order number, if available
               ----------------------------------------------------------------

                o  Each box must be marked with the Client Name, Material
                   Description, SKU #, Quantity per box, Box # and Total # of
                   boxes.
                o  The same document can be used for both the delivery receipt
                   and packing list. Please provide delivery point with a copy.
                   Attach the packing list to the outside of one box in an
                   envelope or plastic pouch.

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

Packing         o  Do not shrink-wrap materials individually or in
pointers           bundles.  This includes Annual Reports.
                o  Use only paper bands if sending banded material. Please
                   do not use string, strapping or rubber bands.
                o  When bundling or grouping material, please make sure
                   that all pieces in the bundle or group face in the same
                   direction.
                o  Box or package each type of enclosure separately.
                   Please do not mix enclosures in cartons.
                o  Label cartons to show the type of material and number of
                   pieces.
                o  Attach a sample of the material to the outside of each
                   carton.
                o  Maximum weight per carton should not exceed 50 lbs.


                ---------------------------------------------------------------
                                                      Continued on next page


SPECIFICATIONS FOR PACKING & SHIPPING MATERIALS TO EQUISERVE,
Continued

                                    Page 9
<PAGE>

===============================================================================

Quarterly       o  Folded material must be a "C" or "Barrel" fold. Do not
Reports,           have enclosures "Z" folded.
Folded          o  Paper band material in groups of 50 to 100 pieces.
Proxy           o  Use paper bands that are at least 2 1/2 to 3 inches wide.
Statements and  o  Place cardboard sheets between each layer.
Newsletters     o  To eliminate the need for cardboard, crisscross the groups
                   of reports or statements.

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

Annual Reports  o  Layer in groups of 50.
and flat Proxy  o  Do not shrink-wrap individual pieces or groups of pieces.
Statements      o  Place cardboard sheets between each layer.
                o  To eliminate the need for cardboard, you can crisscross the
                   groups of reports or statements.
                o  Do not place layers of paper or cardboard between
                   individual reports.

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

Using Skids     o  Place only one type of material on each skid. If
                   you load cartons on a skid, each carton should contain the
                   same number of pieces.
                o  Maximum skid size: 40" x 48"
                o  Maximum height: 54" (including pallet)
                o  Maximum weight: 3,000 lbs.
                o  Pallet must be forklift accessible on the 40" side.
                o  Pallet should be stretch-wrapped to prevent spillage of
                   contents.

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

Using Skid      >> Most printers are able to wrap material neatly and securely
packs or           on skids without using cartons. We strongly recommend
Power              this packing method, especially for clients with
packs              shareholder bases of more than 40,000. Please do not
                   shrink-wrap materials in bundles.
                >> Skid packs, also known as Power packs or Gaylords, cut
                   expenses and processing time. Unnecessary cartons cost
                   money, delay processing and must be disposed of for
                   recycling. Skid packs can be used for nearly any kind of
                   mailing enclosure, including quarterly and annual reports,
                   proxy statements and newsletters.
                >> Ship 90% of your material on skid packs. Ship the remaining
                   10% in cartons. We will use the skid packs (90%) first for
                   efficiency and better inventory control, and the carton
                   packs (10%) last and for return shipping of surplus
                   materials.
                >> Have your printer stretch-wrap the cardboard sides of each
                   skid pack for added protection against inclement weather.
                   Do not shrink-wrap individual items or bundles of items.

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

SPECIFICATIONS FOR PACKING & SHIPPING MATERIALS TO EQUISERVE, Continued


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



                                   Page 10

<PAGE>

===============================================================================

Surplus         We regret that we do not have warehousing facilities to store
material        surplus material after your mail date.  Please let your client
                services team know before your mailing whether you would like
                us to dispose of your material or ship it back at your
                expense. Special arrangements can be made by contacting your
                client services team.

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

SKU Number      WHAT IS A SKU NUMBER?
information     A SKU number is a unique Stock Keeping Unit (SKU) number
                assigned to your specific enclosure and printed on each piece
                to be enclosed and mailed. It is expected that all print
                vendors will print the SKU number on all material delivered to
                Print/Mail locations.

                WHY USE SKU NUMBERS?
                In an effort to continuously improve service, enhanced quality
                control practices for receiving and inventory tracking
                purposes have been implemented at Print/Mail locations.
                Improved client specific receiving and inventory tracking is
                made possible through the printing of a unique SKU number on
                your enclosures by your printer.

                WHO ASSIGNS THE SKU NUMBERS?
                The recommended SKU number patter is as follows: Company
                number or Issue ID (client identification number) followed by
                the specific material abbreviation and the current
                quarter/year. This number is communicated to the printer by
                the client for whom the material is being printed, and
                assigned by the Account Administrator at EquiServe.

                Sample SKU Number Patterns
                Betterworks Company 2003 Annual Report:  BTWCM-AR-04
                Betterworks Company 2003 Proxy Statement: BTWCM-PS-04

                ARE THERE SPECIFIC LIMITATIONS & PRINTING
                CONSIDERATIONS?
                YES!!!
                o     Character limitation of 15 spaces
                o     Dashes recommended (to separate key information)
                o     Each dash represents a character limitation
                o     Location of your SKU #:
                      Booklet style material: reverse side of document, lower
                      right corner
                      One page material: front of document, lower right corner




                                   Page 11

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2(R)(1)
<SEQUENCE>9
<FILENAME>efc5-2269_ex992r1.txt
<TEXT>
                                                                Exhibit (r)(1)



                    Japan Smaller Capitalization Fund, Inc.
                    ---------------------------------------
                            Korea Equity Fund, Inc.
                            -----------------------

                      Nomura Asset Management U.S.A. Inc.
                      -----------------------------------


                                CODE OF ETHICS
                                --------------


                            Effective February 2005
                            -----------------------


<PAGE>


                                Code of Ethics
                                      for
                    Japan Smaller Capitalization Fund, Inc.
                            Korea Equity Fund, Inc.
                      Nomura Asset Management U.S.A. Inc.

                            Effective February 2005


     Nomura Asset Management U.S.A. Inc.'s ("NAM-USA" or the "firm")
reputation for integrity and ethics is one of our most important assets. In
order to safeguard this reputation, we believe it is essential not only to
comply with relevant U.S. and foreign laws and regulations but also to
maintain high standards of personal and professional conduct at all times.
This Code of Ethics (the "Code") is designed to ensure that our conduct is at
all times consistent with these standards, with our fiduciary obligations to
our clients, and with industry and regulatory standards for investment
managers.

     The fundamental principles underlying the Code are as follows:

     1.   The interests of our clients must always come first;

     2.   Our personal securities transactions must be conducted in such a
          manner as to be consistent with the Code;

     3.   Both actual and potential conflicts of interest must be avoided at
          all times;

     4.   Even if our clients are not harmed, we cannot take inappropriate
          advantage of our position as fiduciaries;

     5.   We must preserve the confidentiality of our clients' security
          holdings and transactions, financial circumstances and other client
          information that we have obtained within the scope of the
          manager-client relationship; and

     6.   Our independence in the investment decision-making process is
          paramount. Accordingly, we cannot participate in any business
          relationship or accept gifts that could reasonably be expected to
          affect our independence, objectivity, or loyalty to clients.

     This Code contains detailed rules concerning personal securities
transactions and other issues. In addition, the Code sets forth the general
principles that will apply even when the specific rules do not address a
specific situation or are unclear or potentially inapplicable. In addition,
this Code is intended to prevent employees from engaging in any act, practice
or course of business prohibited by Rule 17j-1 under the Investment Company
Act of 1940 and Rule 204A-1 under the Investment Advisers Act


                                                                             2
<PAGE>


of 1940. The U.S. registered investment companies covered by this Code are
listed on Schedule A.

     Although the Code provides guidance with respect to many common types of
situations, please remember that the Code cannot address every possible
circumstance that could give rise to a conflict of interest, a potential
conflict of interest, or an appearance of an impropriety. Whether or not a
specific provision of this Code applies, you must conduct your activities in
accordance with the general principles embodied in the Code, and in a manner
that is designed to avoid any actual or potential conflict of interest or any
abuse of your position of trust and responsibility. Our policy is to avoid
conflicts and, where they unavoidably occur, to resolve them in a manner that
clearly places the interests of our clients first.

     It bears emphasis that technical compliance with the letter of the Code's
requirements and procedures will not automatically insulate from scrutiny,
transactions or actions that appear to indicate a pattern of abuse of your
fiduciary duties to the firm's clients.

     You should consider whether a particular action might give rise to an
appearance of impropriety, even if the action itself is consistent with your
duties to NAM-USA and its clients. Therefore, to protect yourself and the
firm, please be alert for the potential for conflicts of interest, and please
consult NAM-USA's Compliance Department ("Compliance Department") whenever
questions arise concerning the application of the Code to a particular
situation.


                                                                             3
<PAGE>


                                I. INTRODUCTION


     The primary responsibility of NAM-USA as an investment adviser is to
render to its clients on a professional basis unbiased and continuous advice
regarding their investments. As an investment adviser, NAM-USA has a fiduciary
relationship with all of its clients, which means that it has an absolute duty
of undivided loyalty, fairness and good faith toward its clients and fund
shareholders and a corresponding obligation to refrain from taking any action
or seeking any benefit for itself which would, or which would appear to,
prejudice the rights of any client or fund shareholder or conflict with his or
her best interests. Please remember that a conflict of interest (or the
appearance of a conflict of interest) can arise even if there is no financial
loss to NAM-USA or to any NAM-USA client, and regardless of the motivation of
the employee involved.

     The potential for conflicts of interest is apparent with respect to
personal securities transactions, but conflicts of interest can arise in a
variety of situations. Some of the more common examples are described in this
Code. The rules contained in the Code are designed to minimize conflicts of
interest and to avoid appearances of impropriety. As a result, all employees
and members of their immediate families are required to adhere carefully to
the elements of the Code that are applicable to them. Compliance with
NAM-USA's Code is a condition of your employment. The sanctions that may
result from violations of the Code, which can include fines and/or dismissal,
are outlined below.

     If you have questions about whether a conflict of interest exists in a
particular situation, please contact the Compliance Department.

     Industry standards pertaining to matters such as personal securities
trading can change over time, and NAM-USA is committed to maintaining high
ethical standards for itself and its employees. Therefore, NAM-USA reserves
the right to change any or all of the requirements of the Code from time to
time, as NAM-USA deems necessary or appropriate. NAM-USA also reserves the
right, when in its judgment particular circumstances warrant, to impose more
stringent requirements on particular employees or on all employees generally
or to grant exceptions to the requirements of the Code in circumstances in
which it believes an exception is warranted.

A.   Persons Covered


                                                                             4
<PAGE>


     The Code applies to all employees of the firm. For purposes of this Code,
the term "employees" includes all officers, directors and employees of
NAM-USA, as well as all temporary employees and all contractors who work on
NAM-USA's premises.

     All of the provisions and requirements of the Code, including the rules
pertaining to pre-clearance of personal securities transactions, also apply to
persons who are closely connected persons, which include any family member who
is presently living in your household, or to whose financial support you make
a significant contribution, and trusts or estates over which you have
investment control. In case of any doubt, please contact the Compliance
Department.

     Although persons who are not closely connected to you are not required to
comply with the preclearance and other procedures contained in the Code, such
persons may not take improper advantage of information that they may receive
from you regarding the activity or holdings of NAM-USA clients. In addition,
it would be a violation of the Code and potentially a violation NAM-USA's
Insider Trading Policy for any NAM-USA employee to arrange for a friend or
relative to trade in a security in which that NAM-USA employee would be
precluded from trading for his or her own account. It may also be a violation
of the Code or the Insider Trading Policy for a NAM-USA employee to give
information about the activity or holdings of NAM-USA clients to any person
for the purpose of facilitating securities trading by that person. You can
also be held liable as a tippee if you trade on or pass along material
nonpublic information to others. NAM-USA reserves the right, when NAM-USA
deems it necessary or appropriate, to apply the requirements of the Code to
persons who are not necessarily members of your immediate family.

     Except as otherwise provided, the provisions and requirements of the Code
relating to preclearance, blackout periods, and holding periods do not
generally apply to persons who are (i) directors of NAM-USA or (ii) directors
of the U.S.-registered investment companies managed by NAM-USA who are not
affiliated persons of NAM-USA, and who do not, in the ordinary course of their
official duties, have access to specific client purchase or sale
recommendations or decisions or client holdings information ("Disinterested
Directors").

     A Disinterested Director is not required to preclear personal securities
transactions unless such Disinterested Person knows or, in the ordinary course
of the fulfillment of his or her official duties as a director or officer of
NAM-USA or one of the Funds, should have known that during the 15-day period
immediately preceding or after the date of a transaction in a security by that
Disinterested Person such a security was purchased or sold by NAM-USA's
clients, or that the purchase or sale of that security was considered by
NAM-USA for its clients. In addition, Disinterested Directors are not required
to report their personal securities transactions on a quarterly basis, or to
report their holdings on an annual basis, to NAM-USA (see Section V. Personal
Securities Transactions Policy).

B.   Compliance with the Code and Supervisory Responsibility


                                                                             5
<PAGE>


     Compliance with this Code and the principles and standards described
herein is a condition of your employment. A violation of this Code or its
principles may be cause for disciplinary action by NAM-USA, including
termination of employment. Other disciplinary actions can include warnings and
periods of "probation" during which all personal investment activities (except
for specifically approved liquidation of current positions) are prohibited.

     Moreover, you should be aware that failure to comply with certain
elements of the Code may constitute a violation of federal and/or state law,
and may subject you and the firm to a wide range of criminal and/or civil
liability. Violations or potential violations of the Code may be reported to
federal or state authorities, such as the Securities and Exchange Commission
("SEC"), and if warranted, the Independent Directors of the U.S. registered
investment companies managed by NAM-USA (the "Funds").

     In addition, the federal securities laws require NAM-USA and individual
supervisors reasonably to supervise employees with a view toward preventing
violations of law and of the Code. As a result, all employees who have
supervisory responsibility should endeavor to ensure that the employees they
supervise, including temporary employees and contractors, are familiar with
and remain in compliance with the requirements of the Code.

C.   Questions Regarding the Code

     Given the seriousness of the potential consequences of violations of the
Code, all employees are urged to seek guidance with respect to issues that may
arise. Resolving whether a particular situation may create a conflict of
interest, or the appearance of a conflict, may not always be easy, and a
situation inevitably will arise from time to time that will require
interpretation of the Code to particular circumstances. Please do not attempt
to resolve such questions yourself. In the event that a question arises as to
whether a proposed transaction is consistent with the Code, please address
that question to the Compliance Department before the transaction is
initiated.



                           II. STANDARDS OF CONDUCT


     The Code sets forth certain minimum standards of conduct that must be
observed by all employees of NAM-USA in light of their relationship with
NAM-USA clients.

A.   Compliance with Securities Laws, Rules and Regulations


                                                                             6
<PAGE>


     Employees must comply with applicable federal securities laws(1) and
applicable foreign laws, rules and regulations. As part of this requirement,
employees are not permitted, in connection with the purchase or sale, directly
or indirectly, of a security held or to be acquired by a client:

     1)   To defraud a client in any manner;

     2)   To mislead a client, including by making a statement that omits
          material facts;

     3)   To engage in any act, practice or course of conduct that operates or
          would operate as a fraud or deceit upon a client; and

     4)   To engage in any manipulative practice with respect to securities,
          including price manipulation.

B.   Confidentiality

     The exercise of confidentiality extends to four major areas of our
operations: internal operating procedures and planning, clients and fund
shareholders, investment advice, and investment research. The duty to exercise
confidentiality applies not only when you are employed by the firm, but also
after you cease employment with the firm.

     1)   Internal Operating Procedures and Planning. The firm has developed
          unique methods of operations and portfolio management that we
          believe gives the firm a unique advantage over its competitors.
          Accordingly, you should be guarded in discussing our business
          practices with outsiders. Any requests from outsiders for specific
          information of this type should be cleared with your supervisor
          before it is released.

          Also, from time to time, management holds meetings with employees in
          which material, non-public information concerning the future plans
          of NAM-USA or any of its affiliates is disclosed. Employees should
          never discuss confidential information with, or provide copies of
          written material concerning the firm's internal operating procedures
          or projections for the future to, unauthorized persons outside the
          firm.

     2)   Clients and Fund Shareholders. In many instances, when clients
          employ NAM-USA's services, we ask them to disclose fully their
          financial status and needs. This is done only after we have assured
          them that every member of our organization will hold this
          information in strict confidence. It is essential that we respect
          their trust. A simple rule for employees to follow is that the names
          of our clients or fund shareholders or any information pertaining to
          their investments


- ---------
(1) Federal securities laws mean the Securities Act of 1933, the Securities
Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, the Investment Company
Act of 1940; the Investment Advisers Act of 1940, Title V of the
Gramm-Leach-Bliley Act, any rules adopted by the SEC under any of these
statutes, the Bank Secrecy Act as it applies to funds and investment advisers,
and any rules adopted thereunder by the SEC or the Department of the Treasury.


                                                                             7
<PAGE>


          must never be divulged to anyone outside the firm, not even to
          members of their immediate families and must never be used as a
          basis for personal trades over which the employee has beneficial
          interest or control.

     3)   Investment Tips: There are two major considerations that dictate why
          we must not provide investment "tips":

          o    From the point of view of our clients, it is not fair to give
               other people information that clients must purchase.

          o    From the point of view of the firm, it is not desirable to
               create an outside demand for a security when we are trying to
               buy it for our clients, as this will only serve to push the
               price up. The reverse is true if we are selling.

          In light of these considerations, you must never disclose to
          outsiders our buy and sell recommendations, securities we are
          considering for future investment, or the portfolio holdings of our
          clients or funds unless the disclosure is required by law or is
          necessary in connection with your job responsibilities.

          The practice of giving investment advice informally to members of
          your immediate family should be restricted to very close relatives.
          Any transactions resulting from such advice are subject to the prior
          approval and reporting requirements of this Code (see Section V
          Personal Securities Transaction Policy). Under no circumstances
          should an employee receive compensation directly or indirectly
          (other than from NAM-USA or its affiliates) for rendering advice to
          either clients or non-clients.

     4)   Investment Research. Any report circulated by a research analyst
          employed by NAM-USA or its affiliates is confidential in its
          entirety and should not be reproduced or shown to anyone outside of
          our organization, except to our clients or prospective clients where
          appropriate.

     Understanding as to Clients' Accounts and Company Records. The accounts
of clients and fund shareholders are the sole property of NAM-USA. This
applies to all clients for whom NAM-USA acts as investment adviser, regardless
of how or through whom the client relationship originated and regardless of
with whom within the Nomura Group the client has a direct relationship. At the
time of termination of employment with NAM-USA, an employee must: (1)
surrender to NAM-USA in good condition all materials, reports or records
(including all copies in his or her possession or subject to his or her
control) developed by him or her or any other person which are confidential
information of NAM-USA (except copies of any research material in the
production of which the employee participated to a material extent); and (2)
refrain from communicating, transmitting or making known to any person or firm
any information relating to any materials or matters whatsoever which are
considered by NAM-USA to be confidential.


                                                                             8
<PAGE>


     Employees must use care in disposing of any confidential records or
correspondence. Confidential material that is to be discarded should be torn
up or shredded.

C.   Protection of Corporate Assets

     All employees are responsible for taking measures to ensure that
NAM-USA's assets are properly protected. This responsibility not only applies
to our business facilities, equipment and supplies, but also to intangible
assets such as proprietary research or marketing information, corporate
trademarks and service marks, and copyrights.

D.   Past and Certain Litigation

     As a condition of employment, new employees answer a disciplinary history
questionnaire regarding certain regulatory and related matters. NAM-USA uses
the information obtained through this questionnaire to answer questions asked
on United States, Quebec and other governmental registration forms and for
insurance and bonding purposes. Each employee is responsible for keeping
answers on the questionnaire current. If an employee becomes a party to any
proceeding that could lead to his or her conviction for any felony or
misdemeanor (other than traffic or other minor offenses) or becomes the
subject of a regulatory action by the SEC, a state, or any government,
regulatory agency, or self-regulatory organization relating to securities or
investment activities, he or she should notify the Compliance Department.

E.   Anti-Money Laundering

     The attempted use of financial institutions as instruments to launder
money is a significant problem that has resulted in the passage of strict laws
in many countries. Money laundering attempts to disguise money derived from
illegal activity including drug trafficking, terrorism, organized crime,
fraud, and many other crimes. Money launderers go to great lengths to hide
sources of their funds. Among the most common strategies are placing cash in
legitimate institutions (such as mutual funds), layering between numerous
financial institutions, and integrating the laundered proceeds back into the
economy as apparently legitimate funds.

     NAM-USA maintains strict policies regarding this matter. Such policies
are outlined in NAM-USA's Compliance Manual and the Nomura Funds' Compliance
Manual and should be reviewed for compliance with such procedures.

F.   Marketing and Sales Activities


                                                                             9
<PAGE>


     All written marketing materials and presentations (including performance)
must be in compliance with applicable SEC, National Association of Securities
Dealers, Inc. ("NASD"), and Association of Investment Management and Research
("AIMR") requirements. All advertisements, sales literature, and other written
marketing materials must be reviewed and approved by the Compliance Department
prior to use (see NAM-USA's Marketing Material Review Manual).

G.   Employee Political and Charitable Contributions

     NAM-USA realizes, as active members of the community and involved
citizens, its employees often participate in political and charitable projects
and activities that may include donations and contributions by employees to
political candidates or charitable organizations. Although NAM-USA encourages
civic and community involvement by its employees, NAM-USA desires to avoid any
situation that raises a conflict of interest or that creates an appearance of
impropriety in the context of NAM-USA's business relationships.

     NAM-USA's policy on political and charitable contributions is contained
in NAM-USA's Compliance Manual and should be reviewed.


H.   Speaking Engagements and Publications

     Employees may be asked to accept speaking engagements on the subject of
investments, finance or their own particular specialty with our organization.
This is encouraged by the firm, as it enhances our public relations, but you
must obtain approval from the Compliance Department before you accept such
requests.

     Before making any commitment to write or publish any article or book on a
subject related to investments or your work at NAM-USA, prior approval must be
obtained from the Compliance Department.


                       III. OUTSIDE BUSINESS ACTIVITIES


A.   General Guidelines

     There is no absolute prohibition on a NAM-USA employee participating in
outside business activities. As a practical matter, however, there may be
circumstances in which it would not be in NAM-USA's best interests to allow
employees to participate in outside activities. The first consideration must
be whether the activity will take so much of the employee's time that it will
affect his or her performance. As important, however, is whether the activity
will subject the employee to conflicts of interest that will reflect poorly on
both the individual and NAM-USA.


                                                                            10
<PAGE>


     Our business is such that we must adhere strictly to the highest ethical
standards and strive to avoid even the appearance of impropriety and conflict.
It is impossible to anticipate every conflict that may arise. Therefore,
activities should be limited to those that have the least probability of
creating them. For example, serving on the board of a publicly traded company
has clear potential for conflict, while serving on the board of a charitable
organization generally does not normally pose a conflict.

     Another consideration is that NAM-USA and its employees must not use
non-public material information improperly to benefit themselves or NAM-USA's
clients. It is conceivable, for example, that as an advisory board member, you
may receive material non-public information about certain public companies. If
this occurs, you would be prohibited from effecting transactions (either for
your account or client accounts) until the information either is made
available to the public or ceases to be material. You would also be required
to keep the information confidential and avoid using the information to effect
trades.

     Even if you are positive that you do not have "insider information,"
unforeseen market events may make it look as if you did, e.g., you sell
securities of a company that subsequently reports an adverse event (e.g., loss
of a major customer, departure of a key employee, etc.). It is virtually
impossible to prove a negative - that you didn't know about the event - and it
may make it difficult to win any lawsuit that is brought or to mitigate any
resulting adverse publicity.

B.   Approval Requirement

     If you wish to engage in an outside business activity, including
accepting a position with a corporation (public or private), charitable
organization, foundation, or similar group, you must obtain prior approval
from the Compliance Department by completing the Request to Engage in an
Outside Business Activity Form which is attached to this Code as Appendix 6.
Requests will be treated on a case-by-case basis with the interests of NAM-USA
and its clients being paramount.

     Note that all outside business activities must be reported on the form
attached to this Code as Appendix 5. In the event you have no outside business
activities that require reporting, the form should be so noted.

C.   Board of Director Participation

     Employees are not permitted to serve on boards of publicly traded
companies unless such service is approved in advance by the Compliance
Department and the President of NAM-USA on the basis that it would be
consistent with the interests of NAM-USA. In the case of portfolio managers
and analysts, service on the board of a public company must be consistent with
the interests of our clients as well as the shareholders of the Funds.


                                                                            11
<PAGE>


     As an outside board member, an employee may come into possession of
material non-public information about the outside company, or other public
companies. It is critical that a proper information barrier be in place
between the firm's business units and the outside organization, and that the
employee does not communicate such information to other NAM-USA employees or
business units in violation of any such information barrier.


                IV. OTHER POTENTIAL CONFLICTS OF INTEREST AREAS


A.   Accepting and Giving Gifts

     Employees should not accept or give gifts that might in any way create or
appear to create a conflict of interest or interfere with the impartial
discharge of our responsibilities to clients or place our firm in a difficult
or embarrassing position. For specific requirements on the receipt and giving
of gifts, please see NAM-USA's Gift and Entertainment Policy.

B.   Providing Investment Advice to Others

     In order to avoid conflicts with the interests of our clients, you may
not provide investment advice to anyone or manage any person's portfolio on a
discretionary basis, except for NAM-USA clients or members of your immediate
family (as noted elsewhere in this Code, transactions by members of your
immediate family are covered by the Code). Thus, you should not give advice to
anyone, other than members of your immediate family, concerning the purchase
or sale of any security, and you should be especially cautious with respect to
securities that are being purchased and sold (or are under consideration for
purchase and sale) for NAM-USA client accounts. In particular, you may not
provide investment advice or portfolio management services for compensation to
any person, other than a NAM-USA client, under any circumstances, unless that
arrangement is disclosed to and approved in writing by the Compliance
Department.

C.   Disclosure of Personal Interest and Interests of Family Members

     It may be a conflict of interest from recommending, implementing or
considering any securities transaction in that security, if you have a
personal interest in that security, without first disclosing that personal
interest. Therefore, if you are a portfolio manager or an analyst and have a
personal interest in a security, you must disclose that interest in writing to
your supervisor and to the Compliance Department before recommending or before
directing an investment decision with respect to that security. If you have
the power to direct any transaction in any such security, such an investment
decision must be reviewed by investment personnel with no personal interest in
the issuer.


                                                                            12
<PAGE>


     It is important to note that the potential for a conflict of interest
also can arise if a member of your immediate family is employed in the
securities industry, or has an economic interest in any organization with
which NAM-USA does business. If a member of your immediate family has such an
employment relationship or such an economic interest, please notify the
Compliance Department promptly.


                  V. PERSONAL SECURITIES TRANSACTIONS POLICY


     In accordance with the requirements of the securities laws of the United
States (i.e., the Investment Advisers Act of 1940, the Investment Company Act
of 1940, the Securities Exchange Act of 1934, the Insider Trading and
Securities Fraud Enforcement Act of 1988), NAM-USA and the Funds it manages
have adopted the following Personal Securities Trading Policy (the "Policy").
The Funds and the other client accounts in which NAM-USA manages are referred
to collectively in this section as "Clients."

A.   Purpose of Policy

     This Policy was developed to help guide NAM-USA, its officers, directors
and employees, and the independent directors of the Funds, including all
Access Persons as defined below, in the conduct of their personal transactions
and to:

     o    Eliminate the possibility of a transaction occurring that the SEC or
          other regulatory bodies would view as illegal, such as front running
          (see definition below);

     o    Avoid situations where it might appear that NAM-USA or the Funds or
          any of their officers, directors or employees had personally
          benefited at the expense of a Client or Fund shareholder or taken
          inappropriate advantage of their fiduciary positions; and

     o    Prevent, as well as detect, the misuse of material, non-public
          information.

     All those covered by this Policy are urged to consider the reasons for
the adoption of this Policy. NAM-USA and the Funds' reputations could be
adversely affected as a result of even a single transaction considered
questionable in light of the fiduciary duties of NAM-USA and the independent
directors of the Funds.

     Front Running. Front running is illegal. It is generally defined as the
     purchase or sale of a security by an officer, director or employee of an
     investment adviser or fund in anticipation of and prior to the adviser
     effecting similar transactions for its clients in order to take advantage
     of or avoid changes in market prices effected by the clients'
     transactions.


                                                                            13
<PAGE>


B.   Definitions

     1)   Classification of Personnel

     Personnel subject to the Code are divided into several general
categories. The Code imposes varying restrictions and reporting requirements
by category appropriate to the sensitivity of positions included in that
category.

Access Person

     Access Person is the broader category, and includes any "advisory person"
defined below and, except as provided below, any director, officer or other
employee of NAM-USA and the Funds. All Investment Personnel (as defined below)
are also considered "Access Persons." Any temporary or part-time employee of
NAM-USA shall not be considered an employee for purposes of the definition of
"Access Person" unless such person, in connection with his or her regular
functions or duties, makes, participates in, obtains or has access to timely
information regarding Client holdings or transactions.

     For purposes of the definition of Access Person, "advisory person" is
defined to include any natural person who is an employee of a company in a
control relationship with NAM-USA (other than a company whose code of ethics
has been approved by the Board of Directors of each Fund) who obtains
information concerning recommendations made to a Fund with regard to the
purchase or sale of a Security. An Access Person shall not include a
Disinterested Director (as defined below).

Disinterested Directors

     A Disinterested Director includes a director of NAM-USA who is not an
employee of the firm or an affiliate and who does not make or participate in
the making of recommendations for Client accounts and who does not receive
information about current recommendations or trading, or who obtains knowledge
of current recommendations or trading activity only infrequently or
inadvertently.

     A Disinterested Director also includes a director of a Fund who is not an
Interested Person of such Fund. An Interested Person of another person, when
used with respect to a Fund, means (i) any affiliated person of the Fund, (ii)
any member of the immediate family of any natural person who is an affiliated
person of the Fund; (iii) any interested person of any investment adviser or
principal underwriter for the Fund; (iv) any person or partner or employee of
any person who at any time since the beginning of the last two completed
fiscal years of the Fund has acted as legal counsel for the Fund; (v) any
broker or dealer registered under the Securities Exchange Act of 1934 or any
affiliated person of such broker or dealer; or (vi) any natural person whom
the SEC by order shall have determined to be an interested person by reason of
having had, at any time since the beginning of the last two completed fiscal
years of the Fund, a material business or professional relationship with the
Fund or with the principal


                                                                            14
<PAGE>


executive officer of such company or with any other investment company having
the same investment adviser or principal underwriter or with the principal
executive officer of such other investment company, provided, that no person
shall be deemed to be an interested person of an investment company solely by
reason of (aa) his being a member of its Board of Directors or advisory board
or an owner of its securities, or (bb) his or her membership in the immediate
family of any person specified in clause (aa) of this provision.

Investment Personnel

     Investment Personnel means every employee of NAM-USA (or of a controlling
company, other than a company whose code of ethics has been approved by the
Board of Directors of each Fund) who, in connection with his or her regular
functions or duties, makes or participates in making recommendations regarding
the purchase or sale of securities by a Client, including individuals who
place orders or otherwise arrange transactions for the Funds. Investment
Personnel would include traders, research analysts, and portfolio managers.
Because Investment Personnel occupy a comparably sensitive position,
additional rules outlined herein apply to such individuals.

Portfolio Managers

     Portfolio Managers are Investment Personnel entrusted with the direct
responsibility and authority to make investment decisions affecting a Client.
In their capacities of fiduciaries, Portfolio Managers occupy a more sensitive
position than many members of the firm because they are originating
transactions for their Clients.

     2)   Other Key Terms


Beneficial Ownership

     You are considered to have Beneficial Ownership of Securities if you have
or share a direct or indirect Pecuniary Interest in such Securities.

     You have a Pecuniary Interest in Securities if you have the opportunity,
directly or indirectly, to profit or share in any profit derived from a
transaction in the Securities. Therefore, you would be considered to have
Beneficial Ownership in any Security that is held by you, or by others for
your benefit (such as custodians, trustees, executors, etc.); held by you as a
trustee for members of your immediate family (child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, partner, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law,
and any adoptive relationship); or held in the name of your spouse, or minor
children (including custodians under the Uniform Gifts to Minors Act) or any
relative of yours or of your


                                                                            15
<PAGE>


spouse (including an adult child) who is sharing your home, whether or not you
supervise such investments. You will also be considered to have Beneficial
Ownership of any Security for which you have a contract, understanding,
relationship, agreement, or other arrangement that gives you, or any person
described above, a present or future direct or indirect benefit substantially
equivalent to an ownership interest in that Security. For example, you would
have Beneficial Ownership of the following:

     o    A Security held by a partnership in which you are a partner.

     o    A Security held by a limited liability company in which you are a
          manager or member.

     o    A Security held by an investment club in which you are a member.

     o    An investment held by a trust of which you are the settlor, unless
          the consent of all of the beneficiaries is required in order for you
          to revoke the trust.

     There is the presumption that you can exert some measure of influence or
control over accounts in which you serve as guardian, executor or trustee for
individuals that are not considered members of your immediate family, but this
presumption may be rebutted if you certify in writing (and annually,
re-certify, as applicable) that you have no such control or influence.

     Note: The above list of examples is non-exhaustive. If in doubt as to
whether you have Beneficial Ownership of Securities, the Compliance Department
should be consulted.



Control

     Control means the power to exercise a controlling influence over
management or policies of a company, whether through ownership of securities,
by contract, or otherwise. Any person who owns beneficially, either directly
or through one or more controlled companies, 25% or more of a company's
outstanding voting securities is presumed to control such company. Such
presumption may be countered by the facts and circumstances of a given
situation.

Private Placement

     A private placement is defined as an offering of a security not being
made to "the public," but made rather to a limited number of investors and
deemed not to require registration with the SEC. A private placement includes
stocks of privately held companies, non-publicly traded limited partnerships
and hedge funds.


                                                                            16
<PAGE>


Securities

     The following are Securities:

     Any note, stock, treasury stock, bond debenture, evidence of
indebtedness, certificate of interest or participation in any profit-sharing
agreement, collateral-trust certificate, preorganization certificate or
subscription transferable share, investment contract, voting-trust
certificate, certificate of deposit for a security, futures contracts and
options traded on a commodities exchange, including currency futures,
fractional undivided interest in oil, gas, or other mineral rights, any put,
call, straddle, option or privilege on any security (including a certificate
of deposit) or on any group or index of securities (including any interest
therein or based on the value thereof), or any put, call, straddle, option or
privilege entered into on a national securities exchange relating to foreign
currency or, in general, any interest or instrument commonly known as a
security or any certificate of interest or participation in, temporary or
interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to or purchase, any security.

     A Security shall also include commodities contracts as defined in Section
2(a)(1)(A) of the Commodities Exchange Act. This includes, but is not limited
to, futures and options on futures on any group or index of Securities. For
purposes of this Code, the term Securities does not include the following
Exempt Securities:

     1.   Securities that are direct obligations of the U.S. Government (i.e.,
          U.S. Treasury obligations).

     2.   Bankers' acceptances, bank certificates of deposit, commercial
          paper, and high quality short-term debt instruments, including
          repurchase agreements. High quality short-term debt instruments are
          interpreted to mean any instrument that has a maturity at issuance
          of less than 366 days and that is rated in one of the two highest
          rating categories by a Nationally Recognized Statistical Rating
          Organization.

     3.   Shares of "non-affiliated" open-end investment companies registered
          under the Investment Company Act of 1940 or foreign law.

          An investment company is considered "affiliated" if NAM-USA acts as
          a manager or adviser to the fund, or if "control affiliates" of
          NAM-USA serve as the manager, adviser or principal underwriter to
          the fund. Control affiliates are persons who control the NAM-USA,
          who are controlled by NAM-USA, or who are under common control with
          NAM-USA.

C.   General Trading Prohibitions


                                                                            17
<PAGE>


     No Access Person may purchase or sell, directly or indirectly, any
Security in which he or she has, or by reason of the transaction would
acquire, any direct or indirect Beneficial Ownership, and which, within seven
(7) calendar days before and after the transaction:

          (a)  is being considered for purchase or sale for a Client (for this
               purpose, a Security is "being considered for purchase or sale"
               when a recommendation to purchase or sell the Security has been
               made or communicated and, with respect to the person making the
               recommendation, when such person seriously considers making
               such a recommendation); or

          (b)  is being purchased or sold by a Client.

     The seven-day blackout period before a Client trades is designed to deter
front-running transactions, which typically involve a quick trading pattern to
capitalize on a short-lived market impact of a trade by one of our Clients.
The blackout period after a Client trades is designed to allow dissipation of
the market effect of a Client's trade before an Access Person trades. It is
also designed to prevent Access Persons from benefiting from a trade that is
opposite a Client's trade (e.g., the sale of a Security shortly after the
Client purchased the Security and boosted its price).

     NAM-USA recognizes that the application of the blackout period seven
calendar days after a Client transaction poses certain procedural difficulties
and may result in inadvertent violations. If such violations do occur, the
transactions may need to be reversed, or if reversal is impractical or
impossible, may require profit realized from the transactions, net of
commissions but before tax effect, to be disgorged.

D.   30-Day Trading Rule

     Investment Personnel may not profit from the purchase and sale, or sale
and purchase, of the same (or equivalent) Securities within thirty (30)
calendar days in which he or she has Beneficial Ownership. Generally,
Securities transactions that do not require preclearance are exempt from the
30-day rule (see Section F. below for a list of transactions exempt from
preclearance). The rule is designed to deter potential conflicts of interest
and front-running transactions.

     You are considered to profit from a trade if Securities of which you have
Beneficial Ownership are sold for more than their purchase price, even though
the Securities purchased or sold are held of record or are beneficially-owned
by different persons or entities.

     Please remember the 30-day rule is measured on a first-in first-out basis
(FIFO). For example, if you purchase 100 shares of a security on day 1, and
100 more shares on day 200, you can sell up to 100 shares on day 220 (because
you are matching the


                                                                            18
<PAGE>


sale on day 220 against the purchase on day 1). If you sell 200 shares on day
220, though, any profit on the second 100 shares may be required to be
disgorged.

     It is recognized that this prohibition effectively limits the utility of
options trading, short sales of Securities, and various legitimate and
non-abusive hedging activities by Investment Personnel. Accordingly,
exceptions to this prohibition may be allowed by the Compliance Department on
a case-by-case basis, but only where no abuse is involved and the equities of
the situation strongly support an exception.

E.   Preclearance of Personal Securities Transactions

     1)   Circumstances Requiring Preclearance

     All Access Persons must obtain approval from the Compliance Department
prior to entering into personal securities transactions involving the purchase
or sale of any Security, including any Security to be acquired in a private
transaction or initial public offering.

     Once granted, preclearance is effective only until the close of trading
on the day it is granted (or in the case of a private placement purchase, the
closing of a private placement transaction. If preclearance is given after the
market is closed, it is valid for the next working day. If the trade is not
executed before preclearance expires, the Access Person must again obtain
preclearance. Preclearance approval is requested by submitting a Transaction
Preclearance Form attached to this Code as Appendix 1.

     If circumstances are such that NAM-USA lacks the ability to preclear a
particular transaction, permission to execute that transaction will not be
granted.

     No Access Person will receive approval to execute a Securities
transactions when any Client has a pending "buy" or "sell" order in that same
(or a related) Security until all such Client orders are executed or withdrawn
.. Examples of related Securities include options, warrants, rights,
convertible securities and American Depository Receipts, each of which is
considered "related" to the Security into which it can be converted or
exchanged.

     2)   Limit, GTC and Stop-Loss Orders

     Access Persons are permitted to use limit, GTC and stop-loss orders for
trading purposes. Such orders must follow the usual pre-clearance mechanisms
for personal securities transactions. In the case of a limit, GTC or stop-loss
order, however, the trading date is the date on which you place the order with
your broker, subject to the price instructions that you have given to your
broker, even if the trade is ultimately executed on a later date. If the
limit, GTC or stop-loss order is not subsequently canceled or modified, but is
executed without further instructions on a subsequent date, you do not need to
obtain an additional pre-clearance. You should, however, report


                                                                            19
<PAGE>


execution of that transaction on the Quarterly Securities Transactions Report
(see Section G. below). In addition, if you change the instructions related to
any limit, GTC or stop-loss order (for example, if you change the limit
price), you must obtain a new pre-clearance.

     Limit, GTC and stop-loss orders create the potential for Access Persons
to be trading in the same securities, at the same time, as NAM-USA clients are
trading in such securities. Because of this possibility, it is particularly
important to be scrupulous about following the procedures regarding limit, GTC
and stop-loss orders, and to obtain a new preclearance whenever you change the
broker's instructions with respect to such orders. If you follow the
appropriate procedures, and if the date on which you place the order does not
fall within the blackout period described above, you will not be deemed to
have violated the Code or required to break your trade if your limit order or
stop-loss order is executed on the same day as trades in that security are
executed on behalf of NAM-USA clients.

     3)   Initial Public Offerings

     The purchase of Securities in initial public offerings ("IPOs") by
Investment Personnel can create an appearance that such persons have taken
inappropriate advantage of their positions for personal benefit. As such,
Investment Personnel and members of their immediate family may not acquire
Beneficial Ownership of any Securities (other than Exempt Securities) in an
IPO unless they have obtained prior written approval from the President of
NAM-USA and received special preclearance from the Compliance Department
(using the Special Transaction Preclearance Form attached to this Code as
Appendix 2). Note: this approval requirement extends to the immediate family
members of Investment Personnel.

     Approval will not be given unless a determination is made that the
investment opportunity should not be reserved for a Client, and that the
opportunity to invest has not been offered to the individual by virtue of his
or her position with NAM-USA. A record of the approval and rationale
supporting any direct or indirect acquisition by Investment Personnel of a
beneficial interest in an IPO, will be created and maintained by the
Compliance Department.

     Further, Investment Personnel are prohibited from using NAM-USA
facilities to secure an IPO purchase, directly or indirectly, for any
non-NAM-USA client, or to directly or indirectly, (that is, in circumvention
of the NAM-USA's procedures for allocation of IPO purchases among clients)
secure an IPO issue for any NAM-USA Client.

     If an Access Person is an employee, manager, director, officer or partner
of Nomura Securities International, Inc. ("NSI"), or if the Access Person is a
person controlling, controlled by or in common control with NSI, NASD rules
generally prohibit the individual from purchasing any securities (both Exempt
and non-Exempt Securities) in a new issue (i.e., a public offering of an
equity security).


                                                                            20
<PAGE>


     4)   Private Placements and other Limited Offerings

     Investment Personnel and members of their immediate family may not
acquire Beneficial Ownership of any Securities (other than Exempt Securities)
in a private placement unless they have obtained prior written approval from
the President of NAM-USA and received special preclearance from the Compliance
Department (using the Special Transaction Preclearance Form attached to this
Code as Appendix 2).

     Approval will not be given unless a determination is made that the
investment opportunity should not be reserved for a Client, and that the
opportunity to invest has not been offered to the individual by virtue of his
or her position with NAM-USA. A record of the approval and the rationale
supporting any direct or indirect acquisition by Investment Personnel of a
beneficial interest in a private placement will be created and maintained by
the Compliance Department.

     If an Investment Personnel acquired Beneficial Ownership of Securities in
a private placement, he or she must disclose the investment when playing a
part in any consideration of the investment by a Client in the issuer of the
Securities, and any decision to make such an investment must be independently
reviewed by portfolio management personnel who do not have Beneficial
Ownership of any Securities of the issuer.

     5) Additional Preclearance Requirements for Investment Personnel

          o    When research analysts buy or sell, from an account in which
               they have Beneficial Ownership, a Security in an industry they
               cover, they must obtain prior written approval from the
               Compliance Department (using the Special Transaction
               Preclearance Form attached to this Code as Appendix 2).

          o    When a Portfolio Manager sells a Security, from an account in
               which he or she has Beneficial Ownership, that is held by a
               Client account that he or she manages, the Portfolio Manager
               must receive prior written approval from the Compliance
               Department (using the Special Transaction Preclearance Form
               attached to this Code as Appendix 2). The Portfolio Manager
               must explain his or her reasons for selling the Securities.

          o    When a Portfolio Manager wants to purchase, from an account in
               which he or she has Beneficial Ownership, a Security eligible
               for purchase by one or more Clients accounts he or she manages,
               the Portfolio Manager must receive prior written approval from
               the Compliance Department (using the Special Transaction
               Preclearance Form attached to this Code


                                                                            21
<PAGE>


               as Appendix 2). The Portfolio Manager must explain his or her
               reasons for purchasing the Securities.

     6)   Maintaining Margin Accounts

     Access Persons are permitted to maintain margin accounts. Sales by Access
Persons pursuant to margin calls must be precleared in accordance with
standard preclearance procedures.

     7)   Non-Volitional Transactions

     The preclearance requirements of the Code do not apply to transactions as
to which you do not exercise investment discretion at the time of the
transaction. For example, if a security that you own is called by the issuer
of that security, you do not need to pre-clear that transaction, and you may
deliver that security without preclearance. Similarly, if an option that you
have written is exercised against you, you may deliver securities pursuant to
that option without preclearing that transaction (however, if it is necessary
to purchase securities to deliver them, you must preclear that purchase
transaction). Likewise, if the rules of an exchange provide for automatic
exercise or liquidation of an in-the-money derivative instrument upon
expiration, the exercise or liquidation of that position by the exchange does
not require preclearance. Please remember, however, that you must report
non-volitional trades on your quarterly personal securities transaction report
(see Section G. below).

     8)   Gifts of Securities

     Gifts of securities made to others, such as relatives or charities, are
treated as a disposition of Beneficial Ownership, and must be precleared like
any other securities transaction prior to the transfer of the securities.
There may be instances where it may not be possible to identify with precision
the date on which a gift transfer will actually take place. For that reason,
the Compliance Department may, in its discretion, waive certain technical
violations of the pre-clearance requirement with respect to gifts of
securities if (i) the gift transaction was precleared in advance, but the
transfer of the securities was delayed beyond the pre-clearance date, or (ii)
if the facts and circumstances warrant.

     Gifts of securities received depend on the nature of the gift. In the
ordinary case, if you receive securities as a gift, receipt of that gift is
non-volitional on your part, and you cannot control the timing of the gift.
Therefore, as a practical matter, you are not required to pre-clear receipts
of securities in such cases. Please remember, however, that you cannot use the
gift rules to circumvent the preclearance requirements. Therefore, if a gift
of securities that you receive is not truly non-volitional, you must preclear
that gift like any other securities acquisition.

     9)   Waiver from Preclearance


                                                                            22
<PAGE>


     A waiver from preclearance exempts certain accounts from the preclearance
requirements discussed above (however, no waiver shall be granted for
Investment Personnel from the prior approval requirements with respect to IPOs
and private placements). An Access Person may apply for a certificate of
waiver from preclearance under the following circumstances:

          o    An account under the exclusive discretion of an Access Person's
               spouse, where the spouse is employed by an investment firm and
               where the spouse is subject to comparable preclearance
               requirements;

          o    An account whose exclusive investment discretion is delegated
               to an outside party; provided such outside party is not
               associated with NAM-USA or any affiliate of NAM-USA and is not
               a relative of such Access Person. Note that such delegation
               must be subject to a written contract and a copy must be
               provided to the Compliance Department. The Access Person must
               certify in writing that he or she has not discussed, and will
               not discuss, potential investment decisions with the party to
               whom investment discretion has been delegated; and

          o    Any other situation where a waiver of preclearance is deemed
               appropriate by the Compliance Department.

     A certification of waiver from preclearance is available at the
discretion of the Compliance Department. Transactions occurring in accounts
that have obtained a waiver from preclearance are not exempt from the
reporting requirements described in Section G of this Policy.

F.   Exempt Transactions

     The following Securities transactions ("Exempt Transactions") are not
subject to the trading prohibitions described in Sections C and D and the
preclearance requirements described in Section E of this Policy:

     1.   Purchases or sales effected in any account over which the Access
          Person has no direct or indirect influence or control;

     2.   Purchases or sales that are non-volitional on the part of the Access
          Person. Non-volitional trades include the acquisition of stock
          dividends, dividends reinvestments, stock splits, reverse stock
          splits, mergers, consolidations, spin-offs, or other similar
          corporate reorganizations or distributions generally applicable to
          all holders of the same class of securities (see Section E.7.
          above);

     3.   Purchases which are part of an automatic investment plan (including
          dividend reinvestment plans) (other than purchases pursuant to a
          cash purchase plan option);


                                                                            23
<PAGE>


     4.   Purchases effected upon the exercise of rights issued by a issuer
          pro rata to all holders of a class of its securities, to the extent
          the rights were acquired from that issuer, and sales of the rights
          so acquired;

     5.   Purchases or sales of direct obligations of the U.S. Government
          (i.e., U.S. Treasury obligations); bankers' acceptances, bank
          certificates of deposit, commercial paper, and high quality
          short-term debt instruments, including repurchase agreements (high
          quality short-term debt instruments are interpreted to mean any
          instrument that has a maturity at issuance of less than 366 days and
          that is rated in one of the two highest rating categories by a
          Nationally Recognized Statistical Rating Organization), and shares
          of open-end investment companies registered under the Investment
          Company Act.

     6.   Acquisitions by gifts in an account in which the Access Person has
          no Beneficial Ownership (see Section E.8. above);

     7.   The rounding of fractional shares;

     8.   The exercise of options (prior approval is required for the sale of
          stock received as the result of the exercise of options) (see
          Section E.7. above);

     9.   Purchases or sales of futures or options on a broad-based stock
          market index(2), a foreign currency or commodity index;

     10.  Purchases or sales of exchange traded broad-based index funds (ETFs)
          such as NASDAQ 100 shares (Qubes), S&P Depository Receipts
          (SPIDERS), Dow 30 shares (DIAMONDS), etc.

     11.  Purchases or sales of fixed income Securities;

     12.  Purchases and sales of "affiliated" open-end investment companies
          registered under the Investment Company Act or foreign law; and

     13.  Other Securities that may be so designated by the Compliance
          Department.

G.   Reporting of Securities Transactions and Holdings by Access Persons

     1)   Exemptions from Reporting

     The reporting requirements of this Section apply to all Access Persons,
unless otherwise noted. The requirements will also apply to all transactions
in the accounts of spouses, dependent relatives and members of the same
household, trustee and


- ---------
(2) For purposes of this Code, the term "broad-based index" means an index
with 10 securities or more.


                                                                            24
<PAGE>


custodial accounts or any other account in which the Access Person has a
financial interest or over which the Access Person has investment discretion.
The reporting requirements do not apply to accounts over which the employee
has no direct of indirect control or influence. In addition, transactions in
or holdings of the following securities do not require reporting:

          a)   Direct obligations of the U.S. Government (i.e., U.S. Treasury
               obligations);

          b)   Bankers' acceptances, bank certificates of deposit, commercial
               paper, and high quality short-term debt instruments, including
               repurchase agreements (high quality short-term debt instruments
               are interpreted to mean any instrument that has a maturity at
               issuance of less than 366 days and that is rated in one of the
               two highest rating categories by a Nationally Recognized
               Statistical Rating Organization);

          c)   Shares of money market funds;

          d)   Shares of "non-affiliated" open-end investment companies
               registered under the Investment Company Act of 1940 or foreign
               law; and

          e)   Shares of unit investment trusts that are invested exclusively
               in one or more "non-affiliated" open-end investment companies.

     2)   Initial Holdings Report


     Within 10 calendar days of commencement of employment (or within 10
calendar days of obtaining Access Person status) all Access Persons must
disclose to the Compliance Department all personal Securities holdings in
which they have Beneficial Ownership. The form for this purpose is attached to
the Code as Appendix 3. The report must contain the information listed below
and must be current as of a date no more than 45 days prior to the date the
person becomes an Access Person:

          a)   The title and type of security, and as applicable the exchange
               ticker symbol or CUSIP number, number of shares, and principal
               amount of each Security holding;

          b)   The name of each broker, dealer or bank with which the Access
               Person maintains an account in which Securities are held for
               the Access Person's direct or indirect benefit; and

          c)   The date the Access Person submits the report to the Compliance
               Department.

     3)   Annual Holdings Report


                                                                            25
<PAGE>


     All Access Persons must submit to the Compliance Department an annual
holdings report prior to February 15th of each year reflecting holdings as of
a date no earlier than December 31st of the preceding year. The report must
contain the information listed below:

          a)   The title and type of security, and as applicable the exchange
               ticker symbol or CUSIP number, number of shares, and principal
               amount of each Security holding;

          b)   The name of each broker, dealer or bank with which the Access
               Person maintains an account in which Securities are held for
               the Access Person's direct or indirect benefit; and

          c)   The date the Access Person submits the report to the Compliance
               Department.

     4)   Quarterly Securities Transactions Report


     Not later than 15 calendar days after the end of each calendar quarter,
each Access Person must submit a quarterly transactions report with respect to
all transactions in Securities effected during the quarter, including those
not executed through a broker, dealer or bank (e.g., trades executed with the
issuer of a Security). Note that transactions effected pursuant to an
automatic investment plan are not required to be reported. However, any
transaction that overrides the preset schedule or allocations of the automatic
investment plan must be included in a quarterly transaction report.

     With respect to transactions, the report must contain the information
listed below:

          a)   The date of the transaction, a description of the Security, and
               as applicable the exchange ticker symbol or CUSIP number,
               interest rate and maturity date, number of shares, and
               principal amount of the Security;

          b)   The nature of the transaction (i.e., purchase, sale, or any
               other type of acquisition or disposition);

          c)   The price of the Security at which the transaction was
               effected;

          d)   The name of the broker, dealer, bank or other institution with
               or through which the transaction was effected;

          e)   For any brokerage account opened during the quarter in which
               the Access Person has Beneficial Ownership, the name of the
               broker, dealer or bank and date the account was established;
               and


                                                                            26
<PAGE>


          f)   The date the Access Person submits the report to the Compliance
               Department.

     With respect to any account established by the Access Person in which
Securities were held during the quarter, the report must contain the
information listed below:

          a)   The name of the broker, dealer, bank or other institution with
               whom the Access Person established the account;

          b)   The date the account was established; and

          c)   The date the Access Person submits the report to the Compliance
               Department.

     In filing the report please note:

          a)   You must file a report every quarter whether or not there were
               any reportable transactions.

          b)   Reports must show sales, purchases, or other acquisitions or
               dispositions, including securities received as gifts, exercise
               of conversion rights and the exercise or sale of subscription
               rights.

          c)   Upon termination of employment with NAM-USA (or upon
               discontinuance as an Access Person), an Access Person is
               required to complete this report, which indicates all
               transactions in Securities of which he or she has Beneficial
               Ownership executed from the date of the last report through the
               date of termination/discontinuance.

     Note that a Disinterested Director is not required to submit a quarterly
transaction report unless the Disinterested Director knew or, in the ordinary
course of fulfilling his or her official duties as a Client director, should
have known that during the 15-day period immediately before or after the
director's transaction in a Security, the Client purchased or sold the
Security, or the Client or NAM-USA considered purchasing or selling the
Security.

     5)   Investment Clubs

     An Access Person is prohibited from participating in an investment club
unless such participation has been approved in writing by the Compliance
Department. The following conditions must be satisfied:

          1.   The Access Person's participation does not create any actual or
               potential conflicts of interest;

          2.   The Access Person does not control investment decision-making
               for the investment club; and


                                                                            27
<PAGE>


          3.   The Access Person has made satisfactory arrangements to ensure
               that duplicate trade confirmations of investment club activity
               and quarterly statements of investment club holdings are
               provided to the Compliance Department by brokers acting on
               behalf of the investment club.

     Should the Access Person contribute, but not necessarily control,
investment decision-making for the investment club, all transactions by the
investment club would be subject to preclearance.

     6)   Review of Transactions and Holding Reports

     All transactions reports and holding reports will be reviewed by
appropriate management or compliance personnel according to procedures
established by the Compliance Department.

     7)   Brokerage Confirmations and Statements

     All Access Persons must direct their brokers to supply to the Compliance
Department, on a timely basis, duplicate copies of confirmations of all
personal Securities transactions and copies of all periodic statements for all
Securities accounts. These confirmations and statements will be used to check
for conflicts of interest by comparing the information on the confirmations
and statements against NAM-USA's preclearance records and Quarterly Securities
Transaction Reports.

H.   Excessive Trading

     NAM-USA believes that it is appropriate for its members to participate in
the public securities markets as part of their overall personal securities
investment programs. As in other areas, however, this should be done in a way
that creates no potential conflicts with the interests of our clients or our
firm. Further, it is important for members to recognize that otherwise
appropriate trading, if excessive (measured in terms of frequency, complexity
of trading programs or number of trades), or if conducted during work-time or
using firm resources, can give rise to conflicts of a different category such
as by distracting time, focus, and energy from our efforts on behalf of our
clients or by exceeding a reasonable standard of firm accommodation of its
members' basic personal needs. Accordingly, personal trading rising to such
dimension as to create this possibility is not consistent with the Code,
should be avoided, may be reported to managers, and may ultimately not be
approved.

I.   Insider Trading


                                                                            28
<PAGE>


     Various SEC rules, and federal and state laws prohibit the misuse of
confidential non-public information. Accordingly, NAM-USA has developed an
insider trading policy which defines insider trading, as well as offers
guidance on steps employees must tale when they believe they are in possession
of material non-public information. Violations of this policy can not only
lead to job termination, but could expose both you and the firm to criminal
and civil liability.

     Employees may not transact in a security while in possession of material,
non-public information relating to the issuer of the security. This
prohibition applies to trading on behalf of client accounts and personal
accounts. In addition, employees may not convey material non-public
information about publicly traded issuers to others outside the company.
Please see the firm's Insider Trading Policy, which can be found in NAM-USA's
Compliance Manual.

J.   Trading in Securities of Nomura

     Keep in mind that while investing in securities issued by Nomura
Holdings, Inc. or by any of its subsidiaries or affiliates (collectively,
"Nomura"") is encouraged, any actions, whether sales or purchases of such
securities, that are based on having knowledge of non-public material
information regarding Nomura's affairs, may violate not only your fiduciary
duty to our Clients, but the law as well. To avoid any perceived or actual
conflict of interest, no Access Person may, for speculative purposes, engage
in option transactions or short sales of Nomura securities.

K.   Trading by Compliance Department Staff

     NAM-USA's Chief Compliance Officer ("CCO") is responsible for monitoring
the trading activity of each staff member of the Compliance Department.
Specifically, the CCO's responsibilities include:


          o    Preclearing staff's trades;

          o    Reviewing staff's code of ethics and insider trading reports;
               and

          o    Reviewing staff's supplicate transaction confirmations and
               brokerage statements.

     With respect to the trading activity of the CCO, the Compliance staff
will be responsible for reviewing all reports submitted by the CCO in
accordance with the Code and the Insider Trading Policy. The staff will also
be responsible for reviewing the CCO's transaction confirmations and brokerage
statements. The CCO's personal trades must be approved by NAM-USA's President
or Head of Corporate Administration by signing off on the respective
preclearance form.

L.   Identification of Access Persons and Investment Personnel


                                                                            29
<PAGE>


     The Compliance Department shall identify all persons who are considered
to be Access Persons and Investment Personnel, inform such persons of their
respective duties under the Code and provide them with copies of the Code and
any related procedures adopted by the firm.

M.   Additional Requirements for Registered Representatives

     NAM-USA employees who have their securities licenses maintained by Nomura
Securities International, Inc. ("NSI") are required to comply with the
requirements of this Code and NSI's requirements regarding personal trading,
gifts and entertainment and outside business activities. NSI's requirements
are summarized in Appendix 7.

N.   Additional Requirements for Expatriate Employees

     Expatriate employees are reminded that in addition to the requirements
outlined in this Policy, the personal trading requirements of their local
Nomura company also apply to them. When a conflict arises between NAM-USA's
requirements and the requirements of employees' local company, the Compliance
Department should be consulted for guidance.

O.   Supplemental Compliance and Review Procedures

     The firm may establish, at its discretion, compliance and review
procedures that are supplemental to those set forth in this Policy in order to
provide additional assurance that the purpose of this Policy are fulfilled
and/or assist the firm in the administration of the Policy. These procedures
may be more, but shall not be less, restrictive than the provisions of this
Policy. These procedures, and amendments made to them, do not require the
approval of the directors of the Funds.

                    VI. RESPONSIBILITIES OF FUND DIRECTORS

A.   Approval by the Funds' Directors


     The directors of each Fund are required to make a determination that this
Code contains provisions reasonably necessary to prevent Access Persons from
violating the anti-fraud provisions of Rule 17j-1 under the Investment Company
Act. A majority of


                                                                            30
<PAGE>


each Fund's directors, including a majority of each Fund's independent
directors, is required to:

     1.   Approve the Code when the Fund initially engages NAM-USA; and

     2.   Approve any subsequent material changes to the Code within six
          months of the change.


     Prior to approving the Code or any material change to the Code, the
directors of each Fund must receive a certification from NAM-USA that it has
adopted procedures reasonably necessary to prevent employees from violating
the Code.

B.   Annual Report to the Funds' Directors


     Management of NAM-USA will provide a written report, at least annually,
to the directors of each Fund, summarizing efforts to ensure compliance by the
directors, officers and employees of NAM-USA with their fiduciary obligations
to the Funds. The report will, at a minimum:

     1)   Summarize existing procedures regarding personal Securities
          transactions, and any material changes in such procedures during the
          prior year;

     2)   Describe issues that arose under this Code, including material
          violations of this Code, if any, which resulted in remedial action
          during the prior year;

     3)   Describe any significant conflicts of interest that arose involving
          personal investment policies of the organization, even if the
          conflicts did not result in a violation of the Code;

     4)   Discussion of any material waivers to the Code that were granted
          during the prior year.

     5)   Describe any recommended changes in existing procedures or
          restrictions based upon experience with this Code, evolving industry
          practices, or developments in applicable laws or regulations; and

     6)   Certify to the directors that the organization has adopted
          procedures reasonably necessary to prevent Access Persons from
          violating the Code.

C.   Confidentiality


                                                                            31
<PAGE>


         All Securities transactions reports and any other information filed
with the Compliance Department pursuant to this Policy shall, to the greatest
extent practicable, be treated as confidential.


                VII. REPORTING APPARENT VIOLATIONS OF THE CODE

     NAM-USA believes that maintaining a strong compliance culture is in the
best interest of the firm and its clients, in that it helps both to maintain
client and employee confidence, and to avoid the costs (both reputational and
monetary) associated with compliance violations. While reducing compliance
violations to a minimum is our goal, realistically speaking, violations may
occur from time to time. When violations occur, it is important that they be
dealt with immediately by the appropriate members of the organization.
Employees are required to report apparent compliance violations to the firm's
CCO. If the CCO is unavailable, violations may be reported to NAM-USA's
Secretary or President (note that, in this case, the Secretary or President is
required to also report the violation to the CCO). If warranted, the CCO will
report violations to the Fund's Independent Directors. Violations that go
unreported have the potential to cause far more damage than violations that
are addressed immediately upon discovery.

     Reports of apparent compliance violations will be treated confidentially
to the fullest extent possible. In no event will the firm tolerate retaliation
against persons who report apparent compliance violations. We realize that
employees lack the training to distinguish actual from apparent compliance
violations, and accordingly, the fact that a reported incident proves, after
investigation, not to have involved a compliance violation will not result in
any sanction against the reporter, provided that the report was made in good
faith.


                         VIII. WRITTEN ACKNOWLEDGMENTS

A.   Certification of Receipt

     The Compliance Department will distribute the Code and any amendments
thereon, to all employees. Within 10 calendar days of receipt of the Code or
any such amendments, you are required to provide a written acknowledge of your
receipt of the code and any amendments by completing the form attached to the
Code as Appendix 4.

B.   Annual Certification of Compliance


                                                                            32
<PAGE>


     You must certify annually that you (a) have read and understand the Code;
(b) complied with the principles and requirements of the Code; and (c)
disclosed or reported all transactions required to be disclosed or reported
under the Code.

                              IX. RECORD KEEPING

     The Compliance Department is responsible for ensuring the following
record keeping requirements are met:

     1)   A copy of the Code, and any NAM-USA code of ethics that was in
          effect within the past five years, must be maintained in an easily
          accessible place;

     2)   A record of any violation of the Code, and of any action taken as a
          result of the violation, must be maintained in an easily accessible
          place for at least five years;

     3)   A list of all persons who, within the last five years have been
          required to make reports pursuant to this Code, or who were required
          to view these reports; and

     4)   A copy of each report and approvals filed pursuant to this Code must
          be maintained for at least five years, two years in an easily
          assessable place.


                                                                            33
<PAGE>


                                  Schedule A
                                  ----------

                     U.S. Registered Investment Companies
                     ------------------------------------
                         Covered by the Code of Ethics
                         -----------------------------




Japan Smaller Capitalization Fund, Inc.
- ---------------------------------------


Korea Equity Fund, Inc.
- -----------------------






                                                                            34
<PAGE>


                                  APPENDIX 1
                      NOMURA ASSET MANAGEMENT U.S.A. INC.
                         TRANSACTION PRECLEARANCE FORM
                         -----------------------------

<TABLE>
<CAPTION>

Your Name:_____________________________ Title:____________________  Request Date:______________


I.   Description of Proposed Transactions

- ------------------------------------------------------------------------------------------------------------------------------------
<S>         <C>         <C>                                    <C>        <C>           <C>                 <C>
Buy /Sell   Security             Issuer/Company Name           Ticker /   Units         Expected Trade      Is this a Limit, GTC, or
              Type      Description if Fixed Income / Option     Cusip     /Shares       Amount (US $)      Stop-Loss Order? If Yes,
                                                                                                             Provide Limit Price and
                                                                                                                      Date
- ------------------------------------------------------------------------------------------------------------------------------------


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


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


- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


II.  Certifications

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

A.   By signing this form I certify that the information stated above is
     accurate and the following statements are true:

o    I believe that this transaction(s) is not in conflict with the interests
     of any Client, unless otherwise described in the attached Special
     Transaction Preclearance Form.

o    I do not have current inside information in these exact same Securities
     or issuers of such Securities.

B.   If I am in the Investment Personnel category (as defined by the Code), I
     certify that the statements in II A. and the following statements are
     true:

o    I have not, for my own account or for any account the investments of
     which are attributed to me, entered into any transaction within the past
     30 days in the Security(ies) identified or a related Security (within the
     meaning of the Code) which, together with the proposed transaction, would
     result in a profit prohibited by the Code.

o    Unless otherwise explained in the attached Special Transaction
     Preclearance Form, I do not believe this (i) Security (ies) is
     appropriate for purchase by, or sale by, the portfolio of any client
     account that I manage; or (ii) is a Security (ies) in an industry that I
     follow in my capacity as a research analyst.

C.   If I am a Portfolio Manager (as defined in the Code), I certify that the
     statements in Part II A. and B. and the following statements are true:

o    No Client, including any registered investment company, of which I am a
     Portfolio Manager has executed a transaction in the Security identified
     above within the past seven (7) calendar days.

o    I have determined (by checking with the investment department head, if
     other than myself) that no client, including any registered investment
     company, of which I am a Portfolio Manager intends to place a transaction
     in the Security identified above with the next seven (7) calendar days.
- --------------------------------------------------------------------------------


III. Special Transactions (For Investment Personnel Only): Check one of the
     following:


                                                                            35
<PAGE>


- --------------------------------------------------------------------------------
[ ] The proposed transaction(s) does not involve any of the following (a
"special transaction(s)"):

     a)   The sale for my own account or an account attributable to me of a
          Security that is currently held in a Client account that I manage;

     b)   The purchase for my own account or an account attributable to me of
          a Security that is eligible for purchase by a Client account that I
          manage;

     c)   The purchase of an IPO (initial public offering);

     d)   A private placement transaction (including a transaction in a hedge
          fund or private fund); and

     e)   The purchase or sale for my account or an account attributable to me
          of a Security in an industry that I follow in my capacity as a
          research analyst.

[ ] The proposed transaction(s) involves a "special transaction," and I have
attached a completed Special Transaction Preclearance Form. I understand
special transactions are prohibited unless specifically approved as provided
in the Code.
- --------------------------------------------------------------------------------


IV.  Access Person Signature

- --------------------------------------------------------------------------------
I understand that the approval, if granted, is valid only until the close of
today's trading (or in the case of a private placement purchase, the closing
of the private placement transaction.)


- ------------------------------------              ---------------------------
Signature                                         Date
- --------------------------------------------------------------------------------


V.   Approval


                                                                            36
<PAGE>


<TABLE>
<CAPTION>

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

<S>                                                     <C>                               <C>
This proposed transaction(s) described above is         [    ]  Approved                  [     ]  Disapproved



- -----------------------------------------------                        -----------------
Investment Department Signature (or Delegate thereof)                  Date

Investment Department approval certifies that the Securities listed above are
presently not being traded and are not under consideration for any Fund or
other NAM-USA Client, and are not intended to be traded by any Fund or other
NAM-USA Client within the next seven (7) calendar days.

This proposed transaction(s) described above is         [    ]  Approved                  [     ]  Disapproved



- ----------------------------------------------                -----------------
Compliance Department Signature                               Date

Compliance Department approval certifies that, among other things, the
Compliance Department has confirmed that for Investment Personnel, the
Securities listed above have not been traded by any Fund or other NAM-USA
Client within the previous seven (7) calendar days, unless the transaction
qualifies for exemption as permitted in the Code of Ethics.

Approval by NAM-USA President (Required only for Transactions Proposed by the Head of the Investment Department)


This proposed transaction(s) described above is         [    ]  Approved                  [     ]  Disapproved


- --------------------------------------------------------------------------------------
NAM-USA President Signature                                Date
- ---------------------------------------------------------------


NAM-USA President approval certifies that he or she has spoken with the
appropriate personnel in the Compliance and Investment Departments and has
determined that there are no potential or actual conflicts of interest arising
from the Head of the Investment Department trading in the Securities listed
above.
- ----------------------------------------------------------------------------------------------------------------
</TABLE>


                                                                            37
<PAGE>


                                  APPENDIX 2
                      NOMURA ASSET MANAGEMENT U.S.A. INC.
                     SPECIAL TRANSACTION PRECLEARANCE FORM
                     -------------------------------------

<TABLE>
<CAPTION>

Your Name:_______________________________Title:___________________________  Request Date:______________


I.   Description of Proposed Transaction

- ------------------------------------------------------------------------------------------------------------------------------------
<S>        <C>          <C>                                    <C>        <C>          <C>                 <C>
Buy /Sell  Security             Issuer/Company Name            Ticker /   Units        Expected Trade       Is this a Limit, GTC, or
             Type       Description if Fixed Income/ Option      Cusip     /Shares      Amount (US $)       Stop-Loss Order? If Yes,
                                                                                                           Provide Limit Price & Dat
- ------------------------------------------------------------------------------------------------------------------------------------


- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


This transaction involves (check all that apply)
     The purchase of an IPO (initial public offering)
     A private placement transaction (including an investment in a hedge fund or
     private fund).
     The purchase for my own account or an account attributed to me of a
     Security that is eligible for purchase by a Client account that I
     manage.
     The sale by me for my own account or an account attributed to
     me of a Security that is currently held in a Client account that I
     manage.
     The purchase by me for my own account or an account attributed to me
     of a Security in an industry that I follow in my capacity as a
     research analyst.
     The sale by me for my own account or an account attributed to me of a
     Security in an industry that I follow in my capacity as a research analyst.
     Other (describe):

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

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

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


II.  Potential Conflicts


                                                                            38
<PAGE>


- --------------------------------------------------------------------------------
1.   Describe any Beneficial Ownership that you (or any accounts attributed to
     you) currently have in the Security described in Section I. above or any
     related securities.

Account     Issuer and Security    #Units/Shares    Date Acquired          Cost
- --------------------------------------------------------------------------------


2.   Describe generally any interest that any Client account(s) managed by you
     currently has in the Security described above or in any related
     securities.


3.   Describe any personal or professional relationship you may have with the
     issuer of the Security described in 1. above, or with its officers,
     directors, controlling persons or affiliates.


4.   If the proposed transaction involves the sale for your own (or an
     attributed) account of Securities held in one or more Client accounts
     managed by you, explain why you believe it is appropriate for you to sell
     that Security when the client is not.


5.   If the proposed transaction involves the sale for your own (or an
     attributed) account of Securities held in one or more Client accounts
     managed by you, give transaction details (account(s), units, date
     acquired, cost) of any Client accounts that have acquired the security
     within the last 15 days.


6.   If the proposed transaction involves the purchase for your own (or an
     attributed) account of a Security that is eligible for purchase by one or
     more client accounts that you manage, explain why you believe this
     Security is not appropriate for inclusion in the client's portfolio?


7.   If the proposed transaction involves a purchase or sale by you of a
     Security in an industry you follow in your capacity as a research
     analyst, explain why you have not recommended such Security for purchase
     or sale, as applicable, by a Client account.


8.   Describe any potential conflict of interest presented by the proposed
     transaction that has not been described above.


9.   To the best of your knowledge, is any client a co-investor or co-partner
     with this venture or does any Client have a pre-existing interest or
     expect to invest in this venture?


10.  Describe how this investment opportunity came to your attention and any
     personal or professional relationship you may have to any underwriter or
     placement agent for the transaction.


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


                                                                            39
<PAGE>


III. Certification

- --------------------------------------------------------------------------------
I hereby certify that the foregoing information is correct and complete to the
best of my knowledge.


- ----------------------------------------               -------------------------
Signature                                              Date
- --------------------------------------------------------------------------------


IV.  Approval by NAM-USA President (To be Obtained Prior to Submission for
     Preclearance)

(Only applicable for: (a) Investment Personnel desiring to purchase an IPO or
purchase or sell a private placement, (b) any Investment Personnel involved in
a contemplated Client purchase of a Security of an issuer in the event that
such Investment Personnel also holds a privately placed security of such
issuer, and (c) trades proposed by the Head of the Investment Department.


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

- ------------------------------------               ---------------------------
NAM-USA President Signature                        Date

- ------------------------------------
Print Name

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


V.   Approval (To be Completed by the Compliance Department)


                                                                            40
<PAGE>


- --------------------------------------------------------------------------------
                Purchase                                           Approved
The proposed    Sale                described above is:            Disapproved


- ------------------------------------                ---------------------------
Compliance Signature                                Date



- ------------------------------------
Print Name


     |_|  The proposed transaction has been discussed with the following
          investment supervisory personnel:

     -------------------------------------------------------------------
                                     Names


Analysis:












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


                                                                            41
<PAGE>


                                  APPENDIX 3
                      NOMURA ASSET MANAGEMENT U.S.A. INC.
                                CODE OF ETHICS

                            INITIAL HOLDINGS REPORT

As an alternative to completing the tables below, you may attach copies of
your most recent Securities statements, provided that the information is
current and the statements include ALL of your Securities holdings and open
Securities accounts. Any holdings and/or accounts not reflected in these
statements must be noted below. Note: Securities accounts include (1)
brokerage accounts and (2) mutual fund accounts in which you are able to
invest in affiliated open-end investment companies.

The following is a list of all my personal Securities holdings, including
holdings in my personal Securities accounts, in any account in which I have
direct or indirect beneficial interest, and in any account over which I have
investment discretion or provide investment advice.

<TABLE>
<CAPTION>

- ----------------------------- ------------------- ----------------- ------------------------------------- --------------------------
                                                         Number of
                                                            Shares
                              CUSIP/SEDOL/          Held/Principal  Name of Broker /
Security Description/Title    Ticker Symbol                 Amount  Dealer or Bank                        Account Number
<S>                           <C>                   <C>             <C>                                   <C>
- ----------------------------- ------------------- ----------------- ------------------------------------- --------------------------

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

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

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

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

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

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

- ----------------------------- ------------------- ----------------- ------------------------------------- --------------------------
</TABLE>

The following is a list of all Securities accounts currently established for
myself, my spouse, domestic partner, minor children, and any immediate family
member living in my residence, and for any other account in which I have
Beneficial Ownership or for which I have investment discretion or provide
investment advice.

<TABLE>
<CAPTION>

     ------------------------- ---------------------------- -------------------- ---------------------------
     Name of Broker /                                       Date Account
     Dealer or Bank            Account Number               Established          Name on the Account
     <S>                       <C>                          <C>                  <C>
     ------------------------- ---------------------------- -------------------- ---------------------------

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

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

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

     ------------------------- ---------------------------- -------------------- ---------------------------
</TABLE>


- ------------------------------------                 -------------------------
Signature                                            Date


- -----------------------------------
Printed Name


                                                                            42
<PAGE>


PLEASE RETURN THIS FORM TO THE COMPLIANCE DEPARTMENT NO LATER THAN 10 CALENDAR
                   DAYS AFTER RECEIPT OF THE CODE OF ETHICS


                                                                            43
<PAGE>


                                  APPENDIX 4
                      NOMURA ASSET MANAGEMENT U.S.A. INC.
                                CODE OF ETHICS

                           CERTIFICATION OF RECEIPT


I hereby acknowledge that I have received and read the Nomura Asset Management
U.S.A. Inc. ("NAM-USA") Code of Ethics. I understand and agree that as an
Access Person, I am subject to and will abide by their provisions and all
amendments thereto. I further undertake to obey the rules of any regulatory
body with which NAM-USA may be required to comply either directly or
indirectly prevailing from time to time and any addition, amendment or
replacement that is set out in any written notice which is subsequently given
to me. I understand that failure to follow such policies and procedures can
result in disciplinary action by my employer as well as possible civil and
criminal penalties.











- --------------------------------------               ---------------
Signature                                            Date





- --------------------------------------
Print Name


PLEASE RETURN THIS FORM TO THE COMPLIANCE DEPARTMENT NO LATER THAN 10 CALENDAR
                   DAYS AFTER RECEIPT OF THE CODE OF ETHICS


                                                                            44
<PAGE>


                                  APPENDIX 5
                      NOMURA ASSET MANAGEMENT U.S.A. INC.

                        OUTSIDE BUSINESS ACTIVITY FORM
                        ------------------------------

<TABLE>
<CAPTION>

Do you have any outside business activities that require reporting*:   Yes |_|      No |_|

If yes, complete the following questions.
- ------------------------------------------------------------------------------------------------------------------------------------
                          Title of Your                                                                     Describe
                          Position in      Description of            Amount of                              Organization's
Name of the Outside       Outside          the Service               Time the             Compensation      Relationship with
Organization              Organization     Provided by You           Service Requires     (if Any)          NAM-USA (if any)
<S>                       <C>              <C>                       <C>                  <C>               <C>
- ------------------------------------------------------------------------------------------------------------------------------------



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



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



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



- ---------------------------------------       -----------------------------------       ------------------
Signature                                     Printed Name                              Date
</TABLE>

* All outside business activities, including your service as a partner,
officer, director, owner or trustee, must be reported to the Compliance
Department. You are prohibited from participating in an investment club or
from serving on the board of directors or other governing board of a publicly
traded entity, absent prior written authorization from the President of
NAM-USA.


<PAGE>


                                  APPENDIX 6
                      NOMURA ASSET MANAGEMENT U.S.A. INC.
               REQUEST TO ENGAGE IN AN OUTSIDE BUSINESS ACTIVITY

TO:              Compliance Department

FROM:            _______________________________________________

DEPARTMENT:      _______________________________________________


<TABLE>
<CAPTION>

Are you registered with the NASD?         Yes    No
<S>                                                                        <C>

I understand that I must obtain prior approval from Nomura Asset management
U.S.A. Inc. ("NAM-USA") to engage in an outside business or activity, or to
receive compensation from an outside person or entity. I have familiarized
myself and agree to abide by NAM-USA's Outside Business Activity policy and
hereby submit my request (and applicable attachments) to engage in the
following activity.

1. Name of company or entity______________________________________________

2. Check appropriate category:

Sole proprietorship   Family business or enterprise   Privately-held corporation

Publicly held corporation (if yes, where traded) ____________

Partnership (if yes, attach partnership agreement and list of all partners and their
business affiliates)

Charitable or non-profit organization    Municipal or political entity     Bank or financial institution

Broker-dealer, investment advisory or other securities-related business
(if yes, is the entity registered with the

          NASD     SEC      Not registered)

Other (please specify) ___________________________________________

3. Nature of business _______________________________________________________

4. Amount of Investments $ ___________________ Degree of Ownership ____________%

5. Capacity in which I will be involved (check appropriate description):

Employee    Officer   Director or Trustee   Owner (Passive)   Owner (Active)    Consultant

Elected Official (such as school board or other political office)

Other (please describe) _______________________________________________________________________

6. Capacity in which I will be involved (check appropriate description):

7. Term of office or projected period of involvement? ___________

8. How much time will be devoted to this activity? ____________ Amount of
   compensation, if any? ___________

9. Will you be absent from NAM-USA during normal business hours on behalf of this activity? Yes No

10. Are you aware of any potential conflicts of interest your involvement in this activity may
    pose?

       Yes    No  (If yes, please explain) _________________________________________________________

____________________________________________________________________________________________________


<PAGE>


11.  Have you ever or do you intend to recommend investment in or the purchase or sale of securities
     of the entity identified at item #1 above? Yes  No
     (If yes, please explain) ______________________________________________________________________

12.  Does the entity identified at item #1 maintain a securities account at an affiliated broker-
     dealer of NAM-USA? Yes No (if yes: Name of brokerdealer _______________________________________

     Account # _______________________  Investment Executive ________________________________________

13.  Does the entity identified at item #1 above currently maintain or intend to engage in an
     investment banking relationship with NAM-USA or its affiliates? Yes No
     (If yes, please explain) ______________________

I hereby warrant that the above information (and attachments, if applicable)
is current and accurate to the best of my knowledge. In addition, I agree to
promptly notify NAM-USA's Compliance Department of any material changes by
amending this request.

____________________________________________________________________________



_______________________________________________________       _____________________________
Employee Signature                                            Date

_______________________________________________________       _____________________________
Compliance Department Signature                               Date

_______________________________________________________
Compliance Department Name
</TABLE>


<PAGE>


                                  APPENDIX 7
                                  ----------

                          ADDITIONAL REQUIREMENTS FOR
                          ---------------------------
                         REGISTERED REPRESENTATIVES OF
                         -----------------------------
                 NOMURA SECURITIES INTERNATIONAL, INC. ("NSI")
                 ---------------------------------------------


- ->   Personal Trading
     |_|  May not trade in securities on NSI's Restricted List.
     |_|  Cannot sell a security within 30 days of purchase (does not apply to
          U.S. open-end investment companies).
     |_|  Prior written approval from NSI required for trades in securities
          issued by Nomura entities (e.g., NHI ADRs).
     |_|  May not purchase securities sold in an initial public offering or a
          secondary offering.
- ->   Outside Activities - prior written consent from NSI is required for all
     outside activities, whether compensation is received or not.
- ->   Gifts and Entertainment
     |_|  Giving Gifts
          -> May not give gifts valued in excess of $100 per year to any one
             person/entity.
          -> Gifts valued in excess of $50 to any employee of the New York Stock
             Exchange is prohibited.
          -> Prior written approval required for gifts/entertainment to public
             officials.
          -> Political contributions must be reported to NSI.
     |_|  Accepting Gifts - may not accept any gift valued in excess of $100
          from any individual/entity with which NSI has a current or potential
          business relationship.







</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2(R)(2)
<SEQUENCE>10
<FILENAME>efc5-2269_ex992r2.txt
<TEXT>
Part I                                                          Exhibit (r)(2)


Revisions May 13, 2005

                                           [JAPANESE TEXT AS TRANSLATED BELOW]
                                                              January 25, 2005

                      [JAPANESE TEXT AS TRANSLATED BELOW]
                       Code of Ethics for Access Persons
                       ---------------------------------

                       Nomura Asset Management Co., Ltd.


[JAPANESE TEXT AS TRANSLATED BELOW]

As an investment adviser to U.S. registered investment companies (the
"Funds"), and other clients, including those who have contracted with Nomura
Asset Management U.S.A. Inc. ("NAM-USA clients") (the "Funds" and "NAM-USA
clients," together with all other clients, are collectively referred to as
"clients"), Nomura Asset Management Co., Ltd. ("NAM") has an obligation to
implement and maintain a meaningful Code of Ethics governing the personal
securities trading activities of its directors and employees.

[JAPANESE TEXT AS TRANSLATED BELOW]

This Code of Ethics (the "Code"), adopted pursuant to Rule 17(j)-1 under the
Investment Company Act of 1940, and to Rule 204A-1 under the Investment
Advisers Act of 1940, applies to all Access Persons (defined below) of NAM.
Note that this is a multi-document Code consisting of this document entitled
Code of Ethics for Access Persons, and Chapter 1 of NAM's Compliance Manual.
Chapter 1 of the Compliance Manual sets forth standards of conduct that must
be adhered to by all of NAM's directors and employees.

[JAPANESE TEXT AS TRANSLATED BELOW]

The Code is designed to prevent directors and employees who have access to
information concerning NAM-USA clients' securities holdings and


                                       1
<PAGE>


Revisions May 13, 2005

transactions from using that information for their personal benefit.

[JAPANESE TEXT AS TRANSLATED BELOW]

In addition, the Code prohibits any Access Person from purchasing or selling a
security for his or her personal account if he or she knows or should know
that NAM-USA clients are purchasing or selling, or considering purchasing or
selling, such security.

[JAPANESE TEXT AS TRANSLATED BELOW]

NAM recognizes that the Code inevitably restricts Access Persons from
executing certain personal securities transactions, but this is a necessary
consequence of meeting the firm's fiduciary obligations to its clients.


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


- -----------------------------------
[JAPANESE TEXT AS TRANSLATED BELOW]
- -----------------------------------

Section 1:  Definitions

[JAPANESE TEXT AS TRANSLATED BELOW]

1. "Access Person":

[JAPANESE TEXT AS TRANSLATED BELOW]

Means any director of NAM (excluding nonexecutive directors) and any employee
of NAM who, in connection with his or her regular functions or duties,
participates in investment decisions or trades for NAM-USA clients, or has
access to nonpublic information regarding NAM-USA clients' securities holdings
and/or transactions. If and when an employee of a controlling company of NAM
obtains information as described in the definition of Access Person, such
person will be considered an Access Person under this Code.

[JAPANESE TEXT AS TRANSLATED BELOW]

2. "Investment Personnel":

[JAPANESE TEXT AS TRANSLATED BELOW]


                                       2
<PAGE>


Revisions May 13, 2005

Means any Access Person who, in connection with his or her regular functions
or duties, makes investment decisions or trades securities for NAM-USA
clients. This includes research analysts. If and when an employee of a
controlling company of NAM who, in connection with his or her regular
functions or duties, engages in the same duties as described in the definition
of Investment Personnel, such person will be considered Investment Person
under the Code.


[JAPANESE TEXT AS TRANSLATED BELOW]

3. "Securities":

[JAPANESE TEXT AS TRANSLATED BELOW]

Includes equities, bonds (includes US Treasuries and US Government agency
bonds), bonds with warrants, bonds with options, warrants, options, investment
trusts (includes SEC registered funds), commercial papers, etc.


[JAPANESE TEXT AS TRANSLATED BELOW]

4.. "Equity-related Securities":

[JAPANESE TEXT AS TRANSLATED BELOW]

Includes equities, convertible bonds, bonds with warrants, bonds with options,
warrants, options etc., but excludes open end investment trusts .


[JAPANESE TEXT AS TRANSLATED BELOW]

5. "Pending Buy or Sell Order for NAM-USA clients":

[JAPANESE TEXT AS TRANSLATED BELOW]

Means securities for which a decision of an order to purchase or sell for a
NAM-USA client has been made and instructed by the Portfolio Manager to the
Trading Department or securities for which instruction is planned to be made
by the Portfolio Manager.


                                       3
<PAGE>


Revisions May 13, 2005

[JAPANESE TEXT AS TRANSLATED BELOW]

6. "Personal Securities Transactions":

[JAPANESE TEXT AS TRANSLATED BELOW]

Means an Access Person's purchases or sales of securities, including
investments in an Initial Public Offering ("IPO") or a private placement. For
purposes of this Code, the term "Personal Securities Transactions" includes
transactions for accounts of family members that live in the Access Person's
household, but excludes purchases or sales effected in any account over which
the Access Person has no direct or indirect influence or control.


- -----------------------------------
[JAPANESE TEXT AS TRANSLATED BELOW]
- -----------------------------------


Section 2:  General Fiduciary Principles

[JAPANESE TEXT AS TRANSLATED BELOW]

The fundamental principles underlying the Code are as follows:

[JAPANESE TEXT AS TRANSLATED BELOW]

1. The duty at all times to place the interests of NAM's clients first;

[JAPANESE TEXT AS TRANSLATED BELOW]

2. The requirement that all Personal Securities Transactions be conducted in a
manner consistent with this Code and to avoid any actual or potential
conflicts of interest or any abuse of an employee's position of trust and
responsibility; and

[JAPANESE TEXT AS TRANSLATED BELOW]

3. Access Persons should not take inappropriate advantage of their position
with NAM.


- -----------------------------------
[JAPANESE TEXT AS TRANSLATED BELOW]
- -----------------------------------

Section 3:  Prohibited Transactions

[JAPANESE TEXT AS TRANSLATED BELOW]


                                       4
<PAGE>


Revisions May 13, 2005

1.An Access Person may not engage in transactions in margin trading, futures
trading or options trading. Trading in stock options is permitted..

[JAPANESE TEXT AS TRANSLATED BELOW]

2. An Access Person may not acquire beneficial ownership in an Equity-related
  Security through a public offering.


[JAPANESE TEXT AS TRANSLATED BELOW]

3. An Access Person may not purchase and sell, or sell and purchase, the same
  (or equivalent) Equity-related Security within six months in which he or she
  has acquired beneficial ownership.

[JAPANESE TEXT AS TRANSLATED BELOW]

4. Investment Personnel may not execute a Personal Securities Transaction
within seven (7) calendar days before or after the same Equity-related
Security has been traded for a NAM-USA client. However, when a pending buy or
sell order for an Equity-related Security is withdrawn for NAM-USA clients,,
approval may be granted.


- -----------------------------------
[JAPANESE TEXT AS TRANSLATED BELOW]
- -----------------------------------

Section 4:  Pre-clearance Requirements

[JAPANESE TEXT AS TRANSLATED BELOW]

1. An Access Person must obtain approval from the NAM's Compliance Department
and the Head of his or her Department prior to executing Personal Securities
Transactions in any private placement or Equity-related Security.

[JAPANESE TEXT AS TRANSLATED BELOW]

2. Once granted, pre-clearance is effective for five (5) business days
including the day approval is given by the Compliance Department. However, for
Investment Personnel, pre-clearance is effective only for one (1) business
day.

[JAPANESE TEXT AS TRANSLATED BELOW]

3. With respect to NAM's automatic investment plans, the following actions


                                       5
<PAGE>


Revisions May 13, 2005

require  pre-clearance.

[JAPANESE TEXT AS TRANSLATED BELOW]

o NAM's employee stock ownership plan: opening a new account, changing an
investment amount, suspending or resuming investments, and actions related to
the firm's temporary bonus purchase plan.

[JAPANESE TEXT AS TRANSLATED BELOW]

o Cumulative stock investment plan: opening a new account, changing an
investment amount, changing the security(ies) to be purchased, changing the
timing of a transaction, suspending or resuming investments, and selling a
security.

[JAPANESE TEXT AS TRANSLATED BELOW]

4. For the purpose of this section, the following transactions are exempt from
pre-clearance.

[JAPANESE TEXT AS TRANSLATED BELOW]

    o Purchase transactions effected pursuant to an automatic investment plan
      (including those transactions effected through NAM's employee stock
      ownership plan and cumulative stock investment plan) provided that the
      Access Person is unable to flexibly change investment amount and
      transaction timing.

    o Transfer of securities from an automatic investment plan to a personal
      securities account.


[JAPANESE TEXT AS TRANSLATED BELOW]

5. Pre-clearance Procedures .

[JAPANESE TEXT AS TRANSLATED BELOW]

   When an Investment Personnel submits his of her pre-clearance request to
   execute a Personal Securities Transaction, the Compliance Department shall:

[JAPANESE TEXT AS TRANSLATED BELOW]

   1) Confirm with the Trading Department that the security is not currently
   being traded for NAM-USA clients.


                                       6
<PAGE>


Revisions May 13, 2005

[JAPANESE TEXT AS TRANSLATED BELOW]

   2) Confirm with the Portfolio Management Department that it does not intend
   to trade in the security for NAM-USA clients over the next 7 calendar days.

[JAPANESE TEXT AS TRANSLATED BELOW]

   3) Review NAM-USA client transaction records to ensure the security was not
   traded for NAM-USA clients over the past 7 calendar days.


- -----------------------------------
[JAPANESE TEXT AS TRANSLATED BELOW]
- -----------------------------------

Section 5:  Reporting Requirements

[JAPANESE TEXT AS TRANSLATED BELOW]

1. Quarterly transactions report

[JAPANESE TEXT AS TRANSLATED BELOW]

1) Not later than 30 calendar days after the end of each calendar quarter,
each Access Person must submit a quarterly transactions report to the
Compliance Department with respect to all transactions in securities
(excluding transactions for the Money Management Fund and Money Reserve Fund)
effected during the quarter.

[JAPANESE TEXT AS TRANSLATED BELOW]

 i. A report must be filed every quarter whether or not there were any
reportable transactions.

[JAPANESE TEXT AS TRANSLATED BELOW]

 ii. With respect to transactions, the report must contain the information
listed below :

[JAPANESE TEXT AS TRANSLATED BELOW]

(1)The date of the transaction, the title, and as applicable, the ticker
symbol, SEDOL number or other identification number, the interest rate and
maturity date, and the principal amount of each security involved.

[JAPANESE TEXT AS TRANSLATED BELOW]

(2)The nature of the transaction (i.e., purchase, sale, etc.).

[JAPANESE TEXT AS TRANSLATED BELOW]

(3)The price at which the transaction was effected.

[JAPANESE TEXT AS TRANSLATED BELOW]

(4)The name of the broker, dealer or bank through whom the transaction was


                                       7
<PAGE>


Revisions May 13, 2005

effected.

[JAPANESE TEXT AS TRANSLATED BELOW]

(5)With respect to any securities account established by the Access Person
during the quarter for the benefit of the Access Person, the name of the
broker, dealer or bank with whom the account was established and the date the
account was established.

[JAPANESE TEXT AS TRANSLATED BELOW]

(6)The date the Access Person submits the report to the Compliance Department.

[JAPANESE TEXT AS TRANSLATED BELOW]

2) With respect to NAM's automatic investment plans, the following actions
shall be reported.

[JAPANESE TEXT AS TRANSLATED BELOW]


o NAM's payroll deduction type investment plan: opening a new account,
changing the fund(s) to be purchased, changing the investment amount,
suspending or resuming investments, and the sale or redemption or funds.

[JAPANESE TEXT AS TRANSLATED BELOW]

o NAM's director stock ownership plan: opening a new account, suspending or
resuming investments, and changing the investment amount.

[JAPANESE TEXT AS TRANSLATED BELOW]

o NAM's employee stock ownership plan: opening a new account, changing the
investment amount, suspending or resuming investments and actions related to
the firm's temporary bonus purchase.

[JAPANESE TEXT AS TRANSLATED BELOW]

o NAM's cumulative stock investment plan: opening a new account, changing the
investment amount, changing the security(ies) to be purchased, changing the
timing of a transaction, suspending or resuming investments, and selling
securities..

[JAPANESE TEXT AS TRANSLATED BELOW]

o NAM's cumulative fund investment plan: opening a new account, changing the
fund(s) to be purchased, suspending or resuming investments, and selling
funds.

[JAPANESE TEXT AS TRANSLATED BELOW]

o NAM's tax exempt annuity plan: opening a new account and changing the funds
to be purchased.

[JAPANESE TEXT AS TRANSLATED BELOW]


                                       8
<PAGE>


Revisions May 13, 2005

3) The following transactions are not required to be reported:.

[JAPANESE TEXT AS TRANSLATED BELOW]


      o  Purchase transactions effected pursuant to an automatic investment
        plan, such as, payroll deduction type investment plan, NAM's
        director/employee stock ownership plan, cumulative stock investment
        plan, cumulative fund investment plan, and tax exempt annuity plan,
        provided that one is unable to flexibly change the investment amount
        and transaction timing.

      o  Transfer of securities from an automatic investment plan to a personal
        securities account.


[JAPANESE TEXT AS TRANSLATED BELOW]

4) Excludes purchases or sales of securities effected in any account over
which an Access Person has no direct or indirect influence or control.


[JAPANESE TEXT AS TRANSLATED BELOW]

5) Includes transactions for accounts of family members that live in the
Access Person's household.


[JAPANESE TEXT AS TRANSLATED BELOW]

2. Annual/Initial holdings reports

[JAPANESE TEXT AS TRANSLATED BELOW]

1) Within 10 calendar days of obtaining Access Person status, all Access
Person must disclose to the Compliance Department all personal securities
holdings (excluding shares in the Money Management Fund and the Money Reserve
Fund) in which they have beneficial ownership. (Initial holdings report)

[JAPANESE TEXT AS TRANSLATED BELOW]

All Access Persons must submit to the Compliance Department an annual holdings
report each year listing all personal securities holdings (excluding shares in
the Money Management Fund and the Money Reserve Fund) (Annual holdings report)


                                       9
<PAGE>


Revisions May 13, 2005

[JAPANESE TEXT AS TRANSLATED BELOW]

These holdings reports must contain the information listed below and must
reflect holdings as of a date no more than 45 days before the report is
submitted.

[JAPANESE TEXT AS TRANSLATED BELOW]

(1)The title and type of security, ticker symbol, SEDOL number or other
identification number.

[JAPANESE TEXT AS TRANSLATED BELOW]

(2)For equity securities, the number of shares held.

[JAPANESE TEXT AS TRANSLATED BELOW]

(3)For fixed income securities, the security's principal amount or face value.

[JAPANESE TEXT AS TRANSLATED BELOW]

(4)The name of each broker, dealer of bank with which the Access Person
maintains an account.

[JAPANESE TEXT AS TRANSLATED BELOW]

(5) The date the Access Person submits the report to the Compliance
Department.


[JAPANESE TEXT AS TRANSLATED BELOW]

2) Securities held through automatic investment plans, such as NAM's payroll
deduction type investment plan, director/employee stock ownership plan,
cumulative stock investment plan, cumulative fund investment plan, tax exempt
annuity plan, shall be reported.

[JAPANESE TEXT AS TRANSLATED BELOW]

3) An Access Person is not required to report securities holdings in an
account in which he or she has no direct or indirect influence or control.


[JAPANESE TEXT AS TRANSLATED BELOW]

4) Securities holdings to be reported include securities held in accounts of
immediate family members that live in the Access Person's household.


- -----------------------------------
[JAPANESE TEXT AS TRANSLATED BELOW]
- -----------------------------------

Section 6 : Monitoring Personal Securities Transactions.

[JAPANESE TEXT AS TRANSLATED BELOW]


                                      10
<PAGE>


Revisions May 13, 2005

The Compliance Department has implemented the following procedures to monitor
Personal Securities Transactions.

[JAPANESE TEXT AS TRANSLATED BELOW]

1. The Compliance Department shall confirm that the security traded in the
Access Person's account was not traded within 7 calendar days after NAM-USA
clients traded in the security. The Compliance Department will investigate all
instances where an Access Person traded in a security within 7 calendar days
after a NAM-USA client trades in the security. Questionable trades may lead to
disciplinary action , if necessary.


[JAPANESE TEXT AS TRANSLATED BELOW]

2. The Compliance Department shall check, every quarter, that the securities
pre-cleared by an Access Person are properly reported on his or her quarterly
transaction report. The Compliance Department shall also conduct a careful
examination of each Access Person's Personal Securities Transactions for the
following abusive activities:

[JAPANESE TEXT AS TRANSLATED BELOW]

(1)Was there any potential front running activities conducted by Access
Persons, particularly Investment Personnel?

[JAPANESE TEXT AS TRANSLATED BELOW]

(2)Were there any transactions that indicate that a portfolio manager placed
  his or her personal interests above clients' interest? For example, did a
  portfolio manager take a limited investment opportunity for his or her own
  personal account rather than having eligible NAM-USA clients participate?

[JAPANESE TEXT AS TRANSLATED BELOW]

(3)Were there any inappropriate short-term trades for investment trusts?

[JAPANESE TEXT AS TRANSLATED BELOW]

3. The Compliance Department shall, on an annual basis, review each Access
Person's annual holdings report to ensure consistency with the transactions
the Access Person reported during the year on his or her quarterly transaction
reports.


                                      11
<PAGE>


Revisions May 13, 2005

- -----------------------------------
[JAPANESE TEXT AS TRANSLATED BELOW]
- -----------------------------------

Section 7 : Violation of Code of Ethics

[JAPANESE TEXT AS TRANSLATED BELOW]

All Access  Persons are required to report  apparent  violations of this Code
to  the Head of the Compliance Department.   *1



- -----------------------------------
[JAPANESE TEXT AS TRANSLATED BELOW]
- -----------------------------------

Section 8:  Reporting to the Boards of Directors of the Funds

[JAPANESE TEXT AS TRANSLATED BELOW]

Any material amendment to this Code shall be subject to the approval by the
Boards of Directors of the Funds within six months after adoption of any
material change.

[JAPANESE TEXT AS TRANSLATED BELOW]

In addition, on an annual basis, NAM shall provide each such Board with a
written report that:

[JAPANESE TEXT AS TRANSLATED BELOW]

(1)Describes issues that arose during the preceding year under the Code,
including any material violations of the Code and any disciplinary action
taken with respect to such violations; and

[JAPANESE TEXT AS TRANSLATED BELOW]

(2)Certifies that NAM has adopted procedures reasonably designed to prevent
Access Persons from violating this Code.












- ------------------------------------------------------------------------------
*1 The Procedure Manual of the Compliance Department states that, when the
Head of the Compliance Department receives the violation report, he/she


                                      12
<PAGE>


Revisions May 13, 2005

needs to give notice of it to the Chief Compliance Officer (CCO).

*2 The Procedure Manual of the Compliance Department states that, when the
"Code of Ethics for Access Persons" is revised, the Compliance Department
needs to distribute the new version to all the Access persons and to receive
the "Acknowledgement and Undertaking" (Please see the attached sheet) from
each director and employee.



To   Nomura Asset Management Co., Ltd.




                        ACKNOWLEDGEMENT AND UNDERTAKING

I, as a director/employee of Nomura Asset Management Co., Ltd. ("NAM"), an
investment adviser to U.S. registered investment companies ("Funds") and
clients who have contracted with Nomura Asset Management U.S.A. Inc. ("NAM-USA
clients"), hereby undertake to observe NAM's Code of Ethics for Access Persons
and also not to disclose or leak any information, obtained during the course
of business, relating to the Funds and NAM-USA clients, to any third parties
whether internal or external.

I fully understand that any failure to comply with the above mentioned Code of
Ethics or disclosure or leakage of any information to any third parties, may
subject me to legal liability and undertake me to compensate any losses caused
to NAM due to my failure to comply with the above.




                                    Date :



                                               _______________________________
                                              (Name:                         )




                                      13
<PAGE>


Part II
                                                                        041202
                                                              December 2, 2004

[JAPANESE TEXT AS TRANSLATED BELOW]

Code of Ethics of - Nomura Asset Management Co., Ltd ("NAM").
- -------------------------------------------------------------

[JAPANESE TEXT AS TRANSLATED BELOW]

(1) Purpose

[JAPANESE TEXT AS TRANSLATED BELOW]

     o    Nomura Asset Management Co. Ltd.'s reputation for integrity and
          ethics is one of our most important assets. In order to safeguard
          this reputation, we believe it is essential not only to comply with
          relevant Japanese and foreign laws and regulations but also to
          maintain high standards of personal and professional conduct at all
          times. NAM's Code of Ethics is designed to ensure that our conduct
          is at all times consistent with these standards, with our fiduciary
          obligations to our clients, and with industry standards for
          investment managers.

[JAPANESE TEXT AS TRANSLATED BELOW]

(2) Fiduciary duty

[JAPANESE TEXT AS TRANSLATED BELOW]

     o    NAM and its directors and employees have fiduciary duty to its
          clients.

[JAPANESE TEXT AS TRANSLATED BELOW]

     o    Fiduciary duty means that NAM must always act in the best interests
          of its clients.

[JAPANESE TEXT AS TRANSLATED BELOW]

     o    As an investment manager, fiduciary duty to our clients are the
          underlying fundamental principles:


<PAGE>


[JAPANESE TEXT AS TRANSLATED BELOW]
          1)   Through the firm's investment management activities, directors
               and employees must not act to seek profits for oneself.

[JAPANESE TEXT AS TRANSLATED BELOW]

          2)   Through the firm's investment management activities, directors
               and employees must not act to seek profits for a third party
               (other than the firm's clients).

[JAPANESE TEXT AS TRANSLATED BELOW]

          3)   Directors and employees must not put themselves in a position
               that will create or appear to create conflicts of interest with
               the firm's clients.

[JAPANESE TEXT AS TRANSLATED BELOW]

     o    Directors and employees must ensure that they will comply with
          theseo principles through its investment management activities.

[JAPANESE TEXT AS TRANSLATED BELOW]

(3)  Compliance with Law, Rules & Regulations etc.

[JAPANESE TEXT AS TRANSLATED BELOW]

     o    Directors and employees must comply with all the applicable laws and
          regulations including U.S. federal securities law.

[JAPANESE TEXT AS TRANSLATED BELOW]

     o    Directors and employees must comply with the "Securities Investment
          Trust Law" and related laws and regulations when conducting
          investment trust activities, and the "Law for Regulating Securities
          Investment Advisory Business" and related laws and regulations when
          conducting investment advisory activities.

[JAPANESE TEXT AS TRANSLATED BELOW]

     o    In addition, directors and employees must comply with NAM's
          internalo rules and policies, and conduct their functions and duties
          in good faith.


                                      2
<PAGE>


[JAPANESE TEXT AS TRANSLATED BELOW]

(4)  Prohibited Acts

[JAPANESE TEXT AS TRANSLATED BELOW]

     o    Directors and employees must comply with following internal rules
          and policies and must not engage in any prohibited acts.

[JAPANESE TEXT AS TRANSLATED BELOW]

          1.   Fund managers for investment trust funds must comply with the
               "Fund Manager Rule for Investment Trusts."

[JAPANESE TEXT AS TRANSLATED BELOW]

          2.   Account managers for investment trust funds must comply with
               the "Account Manager Rule for Investment Trusts."

[JAPANESE TEXT AS TRANSLATED BELOW]

          3.   Portfolio managers for advisory accounts must comply with the
               "Portfolio Manager Rule for Advisory Accounts."

[JAPANESE TEXT AS TRANSLATED BELOW]

          4.   Account managers for advisory account must comply with the
               "Account Manager Rule for Advisory Accounts."

[JAPANESE TEXT AS TRANSLATED BELOW]

          5.   Marketing executives for advisory accounts must comply with the
               "Marketing Executive Rule for Advisory Accounts."

[JAPANESE TEXT AS TRANSLATED BELOW]

          6.   Traders must comply with the "Trader Rule."

[JAPANESE TEXT AS TRANSLATED BELOW]

(5)  Confidentiality

[JAPANESE TEXT AS TRANSLATED BELOW]

     o    Directors and employees may not disclose to others confidential
          information about NAM or its clients.


                                      3
<PAGE>


[JAPANESE TEXT AS TRANSLATED BELOW]

     o    Directors and employees must comply with the "Rule for Confidential
          Information"

[JAPANESE TEXT AS TRANSLATED BELOW]

(6)  Inside Information

[JAPANESE TEXT AS TRANSLATED BELOW]

     o    When obtaining inside information, directors and employees must
          handle it with the utmost care.

[JAPANESE TEXT AS TRANSLATED BELOW]

     o    Directors and employees must comply with the "Rule for Inside
          Information."

[JAPANESE TEXT AS TRANSLATED BELOW]

(7)  Personal Securities Transactions

[JAPANESE TEXT AS TRANSLATED BELOW]

     o    When making securities transactions for one's personal account,
          directors and employees must avoid any conflicts of interest with
          its clients.

[JAPANESE TEXT AS TRANSLATED BELOW]

     o    Directors and employees must comply with the "Rule for Personal
          Trading."

[JAPANESE TEXT AS TRANSLATED BELOW]

(8)  Gifts & Entertainment

[JAPANESE TEXT AS TRANSLATED BELOW]

     o    Directors and employees must not accept or give gifts or
          entertainment that might in any way create or appear to create a
          conflict of interest, interfere with the impartial discharge of our
          responsibilities to clients, or place NAM in a difficult or
          embarrassing position.

[JAPANESE TEXT AS TRANSLATED BELOW]

     o    Directors and employees must comply with the "Rule for Gifts &
          Entertainment."


                                      4
<PAGE>


[JAPANESE TEXT AS TRANSLATED BELOW]

(9)  Self Supervision

[JAPANESE TEXT AS TRANSLATED BELOW]

     o    Investment management is a profession that requires directors and
          employees to develop his or her capability and expertise.

[JAPANESE TEXT AS TRANSLATED BELOW]

(10) Self Assessment

[JAPANESE TEXT AS TRANSLATED BELOW]

     o    Directors and employees must act with responsibility and with sound
          judgement. The following excuses are not justified.

[JAPANESE TEXT AS TRANSLATED BELOW]

          -    Because my superior told me that it was an appropriate action
               to take.

          -    Because it has always been done so in the past.

          -    Because everyone does it.

[JAPANESE TEXT AS TRANSLATED BELOW]

     o    Directors and employees, when in doubt to take a particular action
          or engage in a particular activity, should perform a self-assessment
          of the situation by reviewing following points.

[JAPANESE TEXT AS TRANSLATED BELOW]

          -    Does the action or activity violate the relevant laws, rules
               and regulations?

[JAPANESE TEXT AS TRANSLATED BELOW]

          -    Does the action or activity contradict the social
               responsibility principles of NAM?

[JAPANESE TEXT AS TRANSLATED BELOW]

          -    Does the action or activity have the potential to damage NAM's
               reputation for integrity and ethics?

[JAPANESE TEXT AS TRANSLATED BELOW]

          -    Is it accountable to anyone in any situation?

[JAPANESE TEXT AS TRANSLATED BELOW]

          -    If you were the client, will you allow such action or activity?

[JAPANESE TEXT AS TRANSLATED BELOW]

          -    Does the action or activity have the potential to mislead a
               client and result in a lawsuit?


                                      5
<PAGE>


[JAPANESE TEXT AS TRANSLATED BELOW]

          -    Is this a shameful action or activity for a professional
               person?

[JAPANESE TEXT AS TRANSLATED BELOW]

          -    Will you be going against your conscience if you were to engage
               in such an action or activity?

[JAPANESE TEXT AS TRANSLATED BELOW]

(11) Violation of Code of Ethics

[JAPANESE TEXT AS TRANSLATED BELOW]

     o    Directors and employees are required to report apparent compliance
          violations to the Head of the firm's Compliance Department. *1


                                      6
<PAGE>


*1 The Procedure Manual of the Compliance Department states that, when the
Head of the Compliance Department receives the violation report, he/she needs
to give notice of it to the Chief Compliance Officer (CCO).

*2 The Second Chapter of the Compliance Manual (Internal Control Structure)
specifically states that, when the "Code of Ethics" is revised, the Compliance
Department needs to distribute the new version to all the directors and
employees and to receive the "Acknowledgement" (Please see the attached sheet)
from all of them.



To   Nomura Asset Management Co., Ltd.




                                ACKNOWLEDGEMENT



I, as a director/employee of Nomura Asset Management Co., Ltd. ("NAM"), have
acknowledged the Code in Chapter 1 of NAM's Compliance Manual.












                                    Date :



                                       7
<PAGE>



                     ______________________________________
                     (Name):









                                       8












</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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