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<SEC-DOCUMENT>0000905148-05-005498.txt : 20051114
<SEC-HEADER>0000905148-05-005498.hdr.sgml : 20051111
<ACCEPTANCE-DATETIME>20051114101517
ACCESSION NUMBER:		0000905148-05-005498
CONFORMED SUBMISSION TYPE:	N-2/A
PUBLIC DOCUMENT COUNT:		10
FILED AS OF DATE:		20051114
DATE AS OF CHANGE:		20051114

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:		051197450

	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:		051197451

	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>efc5-2324_formn2a.txt
<TEXT>


   As filed with the Securities and Exchange Commission on November 14, 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

   /X/      REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
   /X/                   PRE-EFFECTIVE AMENDMENT NO. 2
   / /                POST-EFFECTIVE AMENDMENT NO. AND/OR
   /X/   REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
   /X/                          AMENDMENT NO. 12

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

                    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.  / /

<TABLE>
<CAPTION>

                          CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

==================================== ================= ==================== ===================== =====================
                                                            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)           5,282,128               $17.00          $89,796,176            $10,569.01 (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 November 8, 2005 (i.e., a specified date within 5
     business days prior to the date of filing this registration statement).
(2)  $118.00 of which was 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.


PRELIMINARY PROSPECTUS         Subject to Completion         November 14, 2005
- ------------------------------------------------------------------------------

[LOGO]
Japan Smaller Capitalization Fund, Inc.
5,282,128 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 November 21, 2005 (the "Record Date") entitling the
holders of these Rights to subscribe (the "Offer") for an aggregate of
5,282,128 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 three 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 90% 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 December 16, 2005,
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 November 14, 2005 (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)                                     $             $
- -------------------------------------------------------------------------------- ------------- ----------------
                                                                   (footnotes continued on inside front cover)
                              UBS Investment Bank

</TABLE>
              The date of this prospectus is November [ ], 2005

                                      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 (800) 814-0439.


(notes from previous page)


(1)  Estimated on the basis of 90% of the last reported sales price per share
     at the close of trading on November 14, 2005. 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 $650,000, 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
Use of proceeds.............................................................24
The Fund....................................................................24
Investment objective and policies...........................................27
Investment restrictions.....................................................30
Risk factors and special considerations.....................................31
Portfolio composition.......................................................39
Management of the Fund......................................................47
Code of ethics..............................................................52
Management and investment advisory arrangements.............................52
Legal proceedings...........................................................56
Proxy voting policy.........................................................56
Portfolio transactions and brokerage........................................57
Portfolio turnover..........................................................59
Net asset value of Common Stock.............................................59
Dividends and capital gain distributions; dividend reinvestment plan........59
Taxation....................................................................62
Capital stock...............................................................68
Custodian, transfer agent, dividend disbursing agent and registrar..........73
Experts.....................................................................73
Distribution arrangements...................................................74
Legal matters...............................................................74
Financial statements........................................................76



                                     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 November 21, 2005 (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 three Rights held (1 for 3). 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 three.


The Rights will expire at, and therefore cannot be exercised after, 5:00 p.m.,
New York City time, on December 16, 2005, unless the Offer is extended by the
Fund (the "Expiration Date"). The Rights are transferable and application has
been 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 90% 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 (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:


     Computershare Shareholder Services, Inc.
     161 Bay State Drive
     Braintree, Massachusetts 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
December 13, 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                                                                  November 21, 2005

Subscription Period                                                          November 21, 2005--
                                                                             December 16, 2005*

Expiration Date                                                              December 16, 2005*

Deadline for Subscription Certificates and Payment for Shares+               December 16, 2005*

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


                                      3
<PAGE>


- --------------------------------------------------------------------------------------------------
Deadline for Notice of Guaranteed Delivery+                                  December 16, 2005*

Deadline for Payment Pursuant to Notice of Guaranteed Delivery               December 21, 2005*

Confirmation Mailed to Exercising Rights Holders                             December 28, 2005*

Final Payment for Shares**                                                   January 9, 2006*



</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 November 14, 2005, the Fund's net
asset value per share ("NAV") was $[______]. See "The Fund."


NYSE Listed


As of November 14, 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 November 14, 2005, the last reported sales price of a Share of
the Fund was $[_____]. The Rights are transferable and the Fund has applied 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

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


                                      4
<PAGE>


- ------------------------------------------------------------------------------
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 the 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 this 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."

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 NAV on November 14, 2005), (ii) a
subscription price of $[__] (which is 90% of the Fund's market price on
November 14, 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 November 14, 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 equipment 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 consistent with
applicable SEC guidelines. 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 would be taxed in the same manner as an ordinary corporation and all
distributions from earnings and profits (as determined under U.S. federal
income tax principles) to its Stockholders would be taxable as ordinary
dividend income eligible for the maximum 15% tax rate for non-corporate
shareholders and the dividends-received deduction for corporate shareholders.
See "Taxation--U.S. Tax Status;" and "Risk factors and special
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."

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


                                      8
<PAGE>


- ------------------------------------------------------------------------------
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 "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."


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

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


                                      9
<PAGE>


- ------------------------------------------------------------------------------
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>

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

<TABLE>
<CAPTION>

Fund expenses

    <S>                                                                                                <C>
    Stockholder transaction expenses
         Sales load (as a percentage of the subscription price)(1)...................................  3.75%
         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 $12,500 and $5,000, respectively,
         plus reimbursement for their out-of-pocket expenses related to the
         Offer. Total offering expenses are estimated to be $650,000, 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
         November 14, 2005), and that, as a result, based on the Fund's net
         assets of $[_______] on November 14, 2005, 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
- ------------------- ------------------- ------------------ -------------------
       $51                  $79                $110                $196

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 3.75% 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 Ernst & Young LLP, 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
                                     ------------- ------------ -----------  ------------  -----------  ----------  -----------
  Rights offerings costs++                 --           --           --           --           --           --         (0.16)
  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
Decrease in net asset value due to shares
issued through rights offering++....       --           --           --           --           --           --         (1.19)
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%
Net asset value total return++++           --           --           --           --           --           --         179.7%
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>



                                     ---------------------------------------------------
                                                                              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
                                     -----------  -----------  ------------  -----------
  Rights offerings costs++                --           --           --           --
  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
Decrease in net asset value due to shares
issued through rights offering++....       --           --           --           --
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%)
Net asset value total return++++         20.9%       (23.4%)      (17.2%)      (9.0%)
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.
++   Decrease is due to rights offering.
+++  Based on average shares outstanding.
++++ Based on net asset value per share, adjusted for reinvestment of income
     dividends and capital share transactions. Total return does not reflect
     sales commissions.
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 5,282,128 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 three Rights held (1-for-3).
Rights may be exercised at any time during the subscription period, which
commences on November 21, 2005, the Record Date, and ends at 5:00 p.m., New
York City time, on December 16, 2005, 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 three.

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 90% 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 (90% of market price).


                                      14
<PAGE>


Since the Expiration Date will be December 16, 2005 (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 November 9, 2005. The NAV at the close of business on November 9, 2005
(the last trading date on which the Fund publicly reported its NAV prior to
the announcement) and on November 14, 2005 (the last trading date on which the
Fund publicly reported its NAV prior to the date of this prospectus) was
$13.72 and $[____], respectively, and the last reported sale price of a Share
on the NYSE on those dates was $17.20 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 December 16, 2005,
the Expiration Date, unless extended by the Fund.

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


                                      15
<PAGE>


scheduled Expiration Date. Without limiting the manner in which the Fund may
choose to make such announcement, the Fund will not, unless otherwise required
by law, have any obligation to publish, advertise or otherwise communicate any
such announcement other than by making a release to the Dow Jones News Service
or such other means of announcement as the Fund deems appropriate.

SUBSCRIPTION AGENT

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 $12,500, 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, Massachusetts 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, Massachusetts 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 Floor
Lyndhurst, New Jersey 07071
(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
$5,000, 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 November 16, 2005, until and including on or about November 28, 2005.
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 December 14, 2005 (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.

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


                                      18
<PAGE>


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.

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
December 13, 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


                                      19
<PAGE>


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 (90% of $[____], the last reported sale price of a Share on the
     NYSE on November 14, 2005). 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 December 21, 2005 (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, you are strongly urged to pay, or arrange for payment, by means of
certified or cashier's check or money order.


On December 28, 2005 (the "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


                                      20
<PAGE>


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 by January 9, 2006. 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 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


                                      21
<PAGE>


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 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


                                      22
<PAGE>


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.

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.


                                      23
<PAGE>


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, after giving effect to the
Offer, 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. 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, New
York 10281. As of November 1, 2005, the Fund had net assets of approximately
$217 million. The


                                      24
<PAGE>


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 21,128,512.

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
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, 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.


                                      25
<PAGE>



At the close of business on November 14, 2005, 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 through
investments in Japanese smaller capitalization companies.

The Fund's investment policy is 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 the 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 this 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 the 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
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.


                                      27
<PAGE>


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


                                      28
<PAGE>


         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 consistent with
         applicable SEC guidelines.



                                      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


                                      30
<PAGE>


connection with borrowings mentioned in (4) above or except as may be
necessary in connection with futures and options transactions.

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 NAV on November 14, 2005), (ii) a
subscription price of $[__] (which is 90% of the Fund's market price on
November 14, 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 November 14, 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.


                                      31
<PAGE>


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 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


                                      32
<PAGE>


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.

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


                                      33
<PAGE>


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.

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 November 1, 2005, the most actively traded interbank rate on the Tokyo
foreign exchange market, as reported by The Bank of Japan, was $1.00 = yen
116.55. 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.


                                      34
<PAGE>


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 equipment 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


                                      35
<PAGE>


amount consistent with applicable SEC guidelines. 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."


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 would be taxed in the same manner as an
ordinary corporation and all distributions from earnings and profits (as
determined under U.S. federal income tax principles) to its Stockholders would
be taxable as ordinary dividend income eligible for the maximum 15% tax rate
for non-corporate shareholders and the dividends-received deduction for
corporate shareholders. 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


                                      36
<PAGE>


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 "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 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


                                      37
<PAGE>


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."

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

</TABLE>



                                      39

<PAGE>

                    JAPAN SMALLER CAPITALIZATION FUND, INC.

                     SCHEDULE OF INVESTMENTS -- Continued

                                AUGUST 31, 2005
                                  (Unaudited)

<TABLE>
<CAPTION>

                                                                                                             % of Net
EQUITY SECURITIES                                          Shares             Cost           Market Value     Assets
                                                           ------             ----           ------------     ------

<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

</TABLE>


                                      40
<PAGE>


                    JAPAN SMALLER CAPITALIZATION FUND, INC.

                     SCHEDULE OF INVESTMENTS -- Continued

                                AUGUST 31, 2005
                                  (Unaudited)

<TABLE>
<CAPTION>

                                                                                                             % of Net
                                                           Shares             Cost           Market Value     Assets
                                                           ------             ----           ------------     ------

<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

</TABLE>


                                      41
<PAGE>


                    JAPAN SMALLER CAPITALIZATION FUND, INC.

                     SCHEDULE OF INVESTMENTS -- Continued

                                AUGUST 31, 2005
                                  (Unaudited)

<TABLE>
<CAPTION>

                                                                                                   Market       % of Net
                                                              Shares              Cost             Value         Assets
                                                              ------              ----             -----         ------

<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


                                                  See notes to financial statements
</TABLE>


                                      42
<PAGE>


                    JAPAN SMALLER CAPITALIZATION FUND, INC.

                     SCHEDULE OF INVESTMENTS -- Continued

                                AUGUST 31, 2005
                                  (Unaudited)

<TABLE>
<CAPTION>

                                                                                                Market       % of Net
                                                            Shares             Cost             Value         Assets
                                                            ------             ----             -----         ------

<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


                                             See notes to financial statements
</TABLE>


                                      43
<PAGE>


                    JAPAN SMALLER CAPITALIZATION FUND, INC.

                     SCHEDULE OF INVESTMENTS -- Continued

                                AUGUST 31, 2005
                                  (Unaudited)

<TABLE>
<CAPTION>

                                                                                                             % of Net
                                                                Shares           Cost         Market Value    Assets
                                                                ------           ----         ------------    ------

<S>                                                               <C>      <C>              <C>                  <C>
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
</TABLE>


                                      44
<PAGE>


                    JAPAN SMALLER CAPITALIZATION FUND, INC.

                     SCHEDULE OF INVESTMENTS -- Continued

                                AUGUST 31, 2005
                                  (Unaudited)

<TABLE>
<CAPTION>

                                                                                                             % of Net
                                                           Shares             Cost           Market Value     Assets
                                                           ------             ----           ------------     ------
<S>                                                          <C>       <C>                <C>                   <C>
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

</TABLE>


                                      45
<PAGE>


                    JAPAN SMALLER CAPITALIZATION FUND, INC.

                     SCHEDULE OF INVESTMENTS -- Continued

                                AUGUST 31, 2005
                                  (Unaudited)

<TABLE>
<CAPTION>

                                                                                                                   % of Net
                                                                      Shares            Cost        Market Value    Assets
                                                                      ------            ----        ------------    ------

<S>                                                              <C>              <C>             <C>                <C>
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


                                      46
<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."


                                      47
<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               portfolios
                                                               2003 to 2005; General
                                                               Manager, Fixed Income
                                                               Investment Department
                                                               of the Investment
                                                               Adviser from
                                                               2000 to 2003.

*    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.
</TABLE>


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
SmartPros Ltd.            Director           January 2004      co-founder since 1981      investment           Ltd.
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.



                                                             48
<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.

*    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.
</TABLE>


                                                             49
<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 9, 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                                      $10,001-$50,000                         $10,001-$50,000
Arthur R. Taylor                                         None                                   None
Hiroshi Terasaki                                         None                                   None
John F. Wallace                                    $10,001-$50,000                         $10,001-$50,000
</TABLE>

As of November 9, 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 Ernst & Young LLP ("E&Y"),
the Fund's independent registered public accounting firm, and has discussed
with E&Y its independence. The Audit Committee has also reviewed and discussed
the audited financial statements with Fund management and E&Y, and discussed
certain matters with E&Y required to be discussed by Statements on Auditing
Standards 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


                                      50
<PAGE>

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.

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


                                      51
<PAGE>

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

- -----------------
*    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.
</TABLE>

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.
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
(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).


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).


                                      52
<PAGE>

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 ($531 million 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."

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



                                      53
<PAGE>

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
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.


                                      54
<PAGE>

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
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


                                      55
<PAGE>

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 its investment advisory affiliates,
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).

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


                                      56
<PAGE>

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 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 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



                                      57
<PAGE>

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 0.1% 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.

          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



                                      58
<PAGE>

               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 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


                                      59
<PAGE>

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 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


                                      60
<PAGE>

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.

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


                                      61
<PAGE>

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.

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,


                                      62
<PAGE>

securities or currencies and (ii) net income from an interest in a "qualified
publicly traded partnership" 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), 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 described 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.

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 would be taxed in the same manner as an
ordinary corporation and all distributions form earnings and profits (as
determined under U.S. federal income tax principles) to its Stockholders would
be taxable as ordinary dividend income eligible for the maximum 15% tax rate
for non-corporate shareholders and the dividends-received deduction for
corporate shareholders. 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.



                                      63
<PAGE>


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.

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

                                      64
<PAGE>

corporations whose stock is readily tradable on an established securities
market in the United States, but not a foreign corporation which for its
taxable year in which such dividends were paid, or the preceding taxable year,
is a "passive foreign investment company," as defined in the Code) are treated
as "qualified dividend income" eligible for taxation at a maximum tax rate of
15% in the hands of non-corporate Stockholders. 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 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.


                                      65
<PAGE>

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 foreign 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 foreign 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 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.


                                      66
<PAGE>


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 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


                                      67
<PAGE>

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. The 2004 Tax Act
also modifies the treatment of distributions attributable to the gain on the
sale or exchange of a U.S. real property interest. Foreign stockholders are
urged to consult their own tax advisors with respect to the changes made by
the 2004 Tax Act.


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.

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
Fund's Charter authorizes the


                                      68
<PAGE>


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 November 14, 2005, 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
                                                    Amount and Nature of Reported                   Common Stock
        Name and Address of Owner                        Beneficial Ownership                    Beneficially Owned
- ------------------------------------------    -----------------------------------------   ----------------------------------
      <S>                                                <C>                                             <C>
          Dudley & Shanley, LLC
             130 Maple Avenue                              899,000 shares -
        Red Bank, New Jersey 07701                       beneficial ownership                            5.7%
       Van Den Berg Management Inc.
        DBA Century Management
          805 Las Cimas Parlway
                Suite 430                                 1,473,297 shares -
           Austin, Texas 78746                           beneficial ownership                            9.3%
</TABLE>


Van Den Berg Management Inc. DBA Century Management ("Century Management") has
reported beneficial ownership of approximately 9.3% of the Fund's Common Stock
as of January 5, 2005. Century Management 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.

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.


                                      69
<PAGE>


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 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.


                                      70
<PAGE>


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 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.


                                      71
<PAGE>


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 certain 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:

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


                                      72
<PAGE>


     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, have
been audited by Ernst & Young LLP, 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
Ernst & Young LLP is located at 5 Times Square, New York, New York 10036. 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.


                                      73
<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
November 14, 2005 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



                                      74
<PAGE>

and Clifford Chance US LLP will rely as to certain matters of Maryland law on
the opinion of Venable LLP, Baltimore, Maryland. Matters of Japanese law will
be passed upon for the Fund and the Dealer Manager by Mori Hamada & Matsumoto,
Tokyo, Japan.


                                      75
<PAGE>

Financial statements


The Fund's financial statements for the fiscal year ended February 28, 2005,
together with the report of Ernst & Young LLP 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 (800) 814-0439 or at 1200 Wall Street West, 3rd Floor, Lyndhurst,
New Jersey 07071.



                                      76
<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 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 (c)

b)   Amended and Restated Bylaws of the Fund (c)

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 Subscription Certificate

     4)   Form of Notice of Guaranteed Delivery and Form of Beneficial Owner
          Certification Form

     5)   Form of Subscription Agent Agreement between Registrant and
          Computershare Shareholder Services, Inc.


<PAGE>

     6)   Form of Information Agent Agreement between Registrant and The
          Altman Group, Inc.

e)   Dividend Reinvestment Plan (a)

f)   Not Applicable

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

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

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

i)   Not applicable

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

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

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

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

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

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

m)   Not applicable

n)   Consent of Ernst & Young LLP, independent registered public accounting
     firm for the Fund with respect to the financial statements for the year
     ended February 28, 2005

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(c)

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

- ---------------
(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)  Filed on November 8, 2005 as an exhibit to the Registrant's Registration
     Statement on Form N-2 (File Nos. 333-128763, 811-5992).

ITEM 26.  MARKETING ARRANGEMENTS

Not Applicable


                                      2
<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


<TABLE>
<CAPTION>
<S>                                                                 <C>
TITLE OF CLASS                                                      NUMBER OF RECORD HOLDERS AT OCTOBER 18, 2005

Common Stock, par value $0.10 per share                             11,550
</TABLE>



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,



                                      3
<PAGE>

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. 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



                                      4
<PAGE>

director of the Fund. The Fund, however, may not purchase insurance on behalf
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 and      Secretary of the Fund since 2002.
                                  Chief Compliance Officer


                                                               5
<PAGE>


Sanjiv Jhaveri                    Senior Vice President          _____
Ryuhei Matsuda                    Senior Vice President          _____
Michael Morrongiello              Senior Vice President          _____
</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           _____

                                                               6
<PAGE>

                                          Position With                 Other Substantial Business, Profession,
             Name                     The Investment Adviser                     Vocation or Employment

Tamon Watanabe                   Senior Managing Officer          _____
Mitsugu Toyota                   Senior Managing Officer          _____
</TABLE>


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.


                                      7
<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 14th 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 14, 2005
/s/ Hiroshi Terasaki*                                  (Principal Executive Officer)
- -----------------------------------------------
              (Hiroshi Terasaki)

                                                              Treasurer                      November 14, 2005
/s/ Rita Chopra-Brathwaite                         (Principal Financial Officer)
- -----------------------------------------------
          (Rita Chopra-Brathwaite )

/s/ William G. Barker, Jr.*                                   Director                       November 14, 2005
- -----------------------------------------------
           (William G. Barker, Jr.)

/s/ William K. Grollman*                                      Director                       November 14, 2005
- -----------------------------------------------
            (William K. Grollman)

/s/ Chor Weng Tan*                                            Director                       November 14, 2005
- -----------------------------------------------
               (Chor Weng Tan)

/s/ Arthur R. Taylor*                                         Director                       November 14, 2005
- -----------------------------------------------
              (Arthur R. Taylor)

/s/ John F. Wallace*                                          Director                       November 14, 2005
- -----------------------------------------------
              (John F. Wallace)

/s/ Rita Chopra-Brathwaite                                                                   November 14, 2005
- -----------------------------------------------
</TABLE>


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

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2D3
<SEQUENCE>2
<FILENAME>efc5-2324_ex992d3.txt
<DESCRIPTION>EXHIBIT 99.2(D)(3)
<TEXT>
                                                                Exhibit (d)(3)


                      [Form of Subscription Certificate]

        VOID IF NOT RECEIVED BY THE SUBSCRIPTION AGENT BEFORE 5:00 P.M.
           NEW YORK TIME ON THE EXPIRATION DATE OF DECEMBER 16, 2005

Control No.          Maximum Primary Subscription Shares Available

                    JAPAN SMALLER CAPITALIZATION FUND, INC.
                     SUBSCRIPTION RIGHTS FOR COMMON STOCK
Dear Stockholder:

     IN ORDER TO EXERCISE YOUR RIGHTS, YOU MUST COMPLETE BOTH SIDES OF THE
TEAR-OFF CARD.

     As the registered owner of the Subscription Certificate below, you are
entitled to subscribe for the number of shares of Common Stock, $.10 par value
per share (the "Shares"), of Japan Smaller Capitalization Fund, Inc. (the
"Fund"), shown above pursuant to the Primary Subscription and upon the terms
and conditions and at the Subscription Price for each Share specified in the
Prospectus relating thereto. The Rights represented hereby include the
Over-Subscription Privilege for Record Date Rights Holders, as described in
the Prospectus. Each Record Date Stockholder who fully exercises all Rights
issued to him is entitled to subscribe for Shares which were not otherwise
subscribed for by others in the Primary Subscription (the "Over-Subscription
Privilege"). If enough Shares are available, all of these requests will be
honored in full. To the extent Shares are not available to honor all requests,
the available Shares will be allocated pro rata among those Record Date
Stockholders who over-subscribe based on the number of Rights originally
issued to them by the Fund.

     Stock certificates for Shares subscribed for pursuant to the Primary
Subscription will be delivered as soon as practicable after receipt of the
required completed Subscription Certificate and after full payment has been
received and cleared. Shares, however, may be issued to the Dealer Manager
pursuant to the exercise of Rights in the Primary Subscription promptly after
exercise and payment as permitted in the Subscription Agent Agreement between
the Fund and the Subscription Agent. Stock certificates for over-subscriptions
will be delivered as soon as practicable after full payment for such Shares
has been received and cleared and after all allocations have been effected.

               THE PRIMARY SUBSCRIPTION RIGHTS ARE TRANSFERABLE

     Payment must be in U.S. dollars. Only money orders or checks drawn on a
bank located in the continental United States and made payable to "Japan
Smaller Capitalization Fund, Inc." will be accepted. Please reference your
RIGHTS CARD CONTROL NUMBER on your check, money order or Notice of Guaranteed
Delivery. You may request that your bank, trust company or broker (if a member
of the New York Stock Exchange) submit a Notice of Guaranteed Delivery on your
behalf by 5:00 p.m. on the Expiration Date.

- -------------------------------------------------------------------------------
        VOID IF NOT RECEIVED BY THE SUBSCRIPTION AGENT BEFORE 5:00 P.M.
            NEW YORK TIME ON THE EXPIRATION DATE: DECEMBER 16, 2005

Control No.                 Rights Represented by this Subscription Certificate

                            Maximum Shares Available

                    JAPAN SMALLER CAPITALIZATION FUND, INC.
                     SUBSCRIPTION RIGHTS FOR COMMON STOCK
          (Complete appropriate section on reverse side of this form)

     The registered holder (the "Holder") of this Subscription Certificate
named below, or assignee, is entitled to the number of Rights shown above to
subscribe for the Common Stock, $.10 par value (the "Shares"), of Japan
Smaller Capitalization Fund, Inc. (the "Fund"), in the ratio of one share of
Common Stock for each three Rights, pursuant to the Primary Subscription and
upon the terms and conditions and at the price for each share of Common Stock
specified in the Prospectus relating thereto. To subscribe for Shares the
Holder must present to ComputerShare Shareholders Services, Inc. (the
"Subscription Agent" or "ComputerShare"), prior to 5:00 p.m., New York City
time, on the Expiration Date of December 16, 2005, either: (a) a properly
completed and executed Subscription Certificate and a money order or check
drawn on a bank located in the United States and payable to "Japan Smaller
Capitalization Fund, Inc." for an amount equal to the number of Shares
subscribed for under the Primary Subscription (and, if such Holder is a Record
Date Stockholder electing to exercise the Over-Subscription Privilege, under
the Over-Subscription Privilege) multiplied by the estimated Subscription
Price; or (b) a Notice of Guaranteed Delivery guaranteeing delivery of (i) a
properly completed and executed Subscription Certificate and (ii) a money
order or check drawn on a bank located in the United States and payable to
"Japan Smaller Capitalization Fund, Inc." for an amount equal to the number of
Shares subscribed for under the Primary Subscription (and, if such Holder is a
Record Date Stockholder electing to exercise the Over-Subscription Privilege,
under the Over-Subscription Privilege) multiplied by the estimated
Subscription Price (which certificate and full payment must then be delivered
by the close of business on the third Business Day after the Expiration Date).
Under the Over-Subscription Privilege, as described in the Prospectus, any
number of additional Shares may be purchased by a Record Date Stockholder if
such Shares are available and the owner's Rights under the Primary
Subscription have been fully exercised and the pro rata allocation
requirements have been satisfied. Any excess payment to be refunded by the
Fund to a Record Date Stockholder who is not allocated the full amount of
Shares subscribed for pursuant to the Over-Subscription Privilege will be
returned to him or her by mail by the Subscription Agent as soon as
practicable. An exercising Rights Holder will have no right to rescind a
purchase after the Subscription Agent has received payment, either by means of
a Notice of Guaranteed Delivery or a money order or check. This Subscription
Certificate may be transferred, in the same manner and with the same effect as
in the case of a negotiable instrument payable to specific persons, by duly
completing and signing the assignment on the reverse side hereof. Capitalized
terms used but not defined in this Subscription Certificate shall have the
meanings assigned to them in the Prospectus, dated [   ], 2005, relating to the
Rights. To subscribe pursuant to the Primary Subscription or the
Over-Subscription Privilege, three Rights and the estimated Subscription
Price, which is $[    ], are required for each Share. Payment of $[    ] per
Share must accompany the Subscription Certificate. See reverse side for forms.






                                      1
<PAGE>


To subscribe for your primary shares please complete line "A" on the card
below.

Example:

88 shares = 88 rights (88 rights will be AUTOMATICALLY rounded down to 87
rights, the nearest number of rights divisible by three)

87 rights divided by 3 = 29 primary shares. The maximum number of Primary
Subscription shares would be 29. Fractional shares will be dropped.

                    A.    29        x  $ _____=     $___________
                        (No. of        (Estimated    (Payment
                        shares)       Subscription     to be
                                          Price)      Remitted)

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


Please note that $[   ] is an estimated price only. The Subscription Price will
be determined on December 16, 2005, the Expiration Date (unless extended) and
could be higher or lower than the Estimated Subscription Price depending on
changes in the net asset value and share price of the Common Stock.

To subscribe for any over-subscription shares please complete line "B" below.

Please Note: Only Record Date Stockholders who have exercised their Primary
Subscription in full may apply for shares pursuant to the Over-Subscription
Privilege.

Payment of Shares: Full payment for both the primary and over-subscription
shares or a Notice of Guaranteed Delivery must accompany this subscription.
Please reference your rights card control number on your check, money order or
Notice of Guaranteed Delivery.

Return Subscription Certificate by hand, first class mail or overnight courier
to: ComputerShare.
<TABLE>
<CAPTION>

        <S>                             <C>                         <C>
                By Mail:                       By Hand:             By Express Mail or Overnight Courier:
              ComputerShare                  ComputerShare                       ComputerShare
             P.O. Box 859208                   Floor 11                      161 Bay State Drive
        Braintree, MA 02185-9208        17 Battery Park Place,               Braintree, MA 02184
                                          New York, NY 10004

</TABLE>

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

              Expiration Date (December 16, 2005 unless extended)
<TABLE>
<CAPTION>

                   ----------------------------------------------------
                   PLEASE FILL IN ALL APPLICABLE INFORMATION
                   ----------------------------------------------------

<S>                                     <C>                 <C>              <C>             <C>
A.        Primary        ________   /   3   =  ________     x  $ __________   =   $  ______  D.      The following broker-dealer is
       Subscription      (Rights               (No. of           (Estimated                          being designated as having been
        (3 Rights = 1    Exercised)            Shares)          Subscription                         been instrumental in the
           Share)                                                  Price)                            exercise of this Subscription
                                                                                                     Right:
                                                                                               [ ]   UBS Securities LLC
                                                                                               [ ]   ______________________________
                                                                                                     Representative
B.   Over-Subscription                         ________     x  $ __________   =   $  ______          Name:           ______________
          Privilege                            (No. of           (Estimatd
                                               Shares)         Subscription
                                                                   Price)
                                                                                             E.      Sell any remaining Rights [  ]
                                                                                             F.      Sell all of my Rights     [  ]
C.   Amount of Check Enclosed (A + B)                                         =  $  _______
     (or amount in Notice of Guaranteed
     Delivery)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>

<S>                                                                         <C>
SECTION 1. TO SUBSCRIBE: I hereby irrevocably subscribe for the number      SECTION 2. TO TRANSFER RIGHTS (except pursuant to E
of shares of Common Stock indicated as the total of A and B hereon upon     or F above):  For value received, __________ of the
the terms and conditions specified in the Prospectus relating thereto,      Rights represented by this Subscription Certificate
receipt of which is acknowledged.  I hereby agree that if I fail to pay     are assigned to:
for the shares of Common Stock for which I have subscribed (or are deemed
to have subscribed for as set forth above), the Fund may exercise           _______________________________________________________
any of the remedies set forth in the Prospectus.                           (Print Full Name of Assignee      Social Security Number


TO SELL:  If I have checked  either the box on line E or line F,
I authorize the sale of Rights by the Subscription Agent according          _______________________________________________________
to the procedures described in the Prospectus.                              (Print Full Address)             Social Security Number


________________________________________________________________________    _______________________________________________________
                                                                           (Print Full Address)

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

________________________________________________________________________    _______________________________________________________

________________________________________________________________________    _______________________________________________________
                                                                            (Signature(s) of Assignor(s)



                                                2

<PAGE>

Address for delivery of shares if other than shown on front                 IMPORTANT:  The signature(s) must correspond in
                                                                            every particular, without alteration, with the
If permanent change of address, check here [  ]                             name(s) as printed on your Subscription
                                                                            Certificate.
Please give your telehone number:      ( ) _____________________            Your Signature must be guaranteed by an Eligible
                                                                            Guarantor Institution as that term is defined
Please give your e-mail address:   _____________________________            under Rule 17Ad-15 of the Securities Exchange Act
                                                                            of 1934, which may include:
                                                                            a) a commercial bank or trust company, or
                                                                            b) a member firm of a domestic stock exchange, or
                                                                            c) a savings bank or credit union.
                                                                            Signature
                                                                            Guaranteed   ______________________________________
                                                                            By           (name of Bank or Firm)

                                                                                         ______________________________________
                                                                                         (Signature of Officer and Title)


</TABLE>




                                                                      3
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2D4
<SEQUENCE>3
<FILENAME>efc5-2324_ex992d4.txt
<DESCRIPTION>EXHIBIT 99.2(D)(4)
<TEXT>
                                                        Exhibit (d)(4)

                    [Form of Notice of Guaranteed Delivery]

                         NOTICE OF GUARANTEED DELIVERY
                         For Shares of Common Stock of

                    JAPAN SMALLER CAPITALIZATION FUND, INC.
                   Subscribed for under Primary Subscription
                      and the Over-Subscription Privilege


As set forth in the Prospectus dated [    ], 2005 (the "Prospectus"), this form
or one substantially equivalent hereto may be used as a means of effecting
subscription and payment for all shares of the Fund's Common Stock (the
"Shares") subscribed for under the Primary Subscription and the
Over-Subscription Privilege. Such form may be delivered by hand or sent by
facsimile transmission, overnight courier or first class mail to the
Subscription Agent and must be received prior to 5:00 p.m., New York time, on
December 16, 2005 (the "Expiration Date"), unless extended. The terms and
conditions of the Offer set forth in the Prospectus are incorporated by
reference herein. Capitalized terms used and not otherwise defined herein have
the meaning attributed to them in the Prospectus.
<TABLE>
<CAPTION>

                          The Subscription Agent is:

                   ComputerShare Shareholder Services, Inc.

<S>                                                             <C>
            By First Class Mail                                 By Express Mail or Overnight Courier:

               ComputerShare                                                ComputerShare
              P.O. Box 859208                                            161 Bay State Drive
         Braintree, MA 02185-9208                                        Braintree, MA 02184

                 By Hand:                                                   By Facsimile:

               ComputerShare                                                781-380-3388
                 Floor 11                                 With the original Subscription Certificate to be
          17 Battery Park Place,                          sent by mail, hand or overnight courier. Confirm
            New York, NY 10004                            facsimile by telephone to: 781-843-1833 ext. 200.

</TABLE>

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

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



<PAGE>

                                   GUARANTEE

The undersigned, a member firm of the New York Stock Exchange or a bank or
trust company having an office or correspondent in the United States,
guarantees delivery to the Subscription Agent by no later than 5:00 p.m., New
York City time, on the third Business Day after the Expiration Date (December
16, 2005, unless extended, as described in the Prospectus) of (a) a properly
completed and executed Subscription Certificate and (b) payment of the full
Subscription Price for Shares subscribed for on Primary Subscription and for
any additional Shares subscribed for pursuant to the Over-Subscription
Privilege, as subscription for such Shares is indicated herein or in the
Subscription Certificate.
<TABLE>
<CAPTION>

JAPAN SMALLER CAPITALIZATION FUND, INC.                                     Broker Assigned Control # _______

<S>                          <C>                      <C>                               <C>
1.  Primary Subscription     Number of Rights to be   Number of Primary Shares          Payment to be made in
                             exercised                requested for which you are       connection with Primary
                                                      guaranteeing delivery of          Shares
                                                      Rights and Payment

                             ________  Rights         ________ Shares                   $  ___________
                                                     (Rights / by 3)

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

                                                      ________  Shares                  $  ___________

3.  Totals                   Total Number of Rights
                             to be Delivered

                             ________  Rights                                           $  ___________
                                                                                           Total Payment

Method of delivery (circle one)

A.     Through The Depository Trust Company ("DTC")*

B.     Direct to ComputerShare., as Subscription Agent. Please reference below the registration of the Rights to be delivered.

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

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

         ------------------------------
</TABLE>

<TABLE>
<CAPTION>

Please assign a unique control number for each guarantee submitted. This number needs to be referenced on any direct delivery
of Rights or any delivery through DTC. In addition, please note that if you are guaranteeing for Over-Subscription Shares and
are a DTC participant, you must also execute and forward to ComputerShare, a DTC participant Over-Subscription Exercise Form.

<S>                                                          <C>
___________________________________________________________  _____________________________________________________________________
Name of Firm                                                 Authorized Signature

___________________________________________________________  _____________________________________________________________________
DTC Participant Number                                       Title

___________________________________________________________  _____________________________________________________________________
Address                                                      Name (Please Type or Print)

___________________________________________________________  _____________________________________________________________________
                                                   Zip Code  Phone Number
___________________________________________________________  _____________________________________________________________________
Contact Name                                                 Date
___________________________________________________________  _____________________________________________________________________

* If the Rights are to be delivered through DTC, call the Subscription Agent to obtain a protected identification number, which
needs to be communicated by you to DTC.


</TABLE>


<PAGE>


BENEFICIAL OWNER LISTING CERTIFICATION

Japan Smaller Capitalization Fund, Inc. Rights Offering

The undersigned, a bank, broker or other nominee holder of Rights (the
"Rights") to purchase Shares of common stock, $0.10 par value, of Japan
Smaller Capitalization Fund, Inc. (the "Fund") pursuant to the Rights Offering
(the "Offer") described and provided for in the Fund's Prospectus dated [ ],
2005 (the "Prospectus"), hereby certifies to the Fund and to ComputerShare, as
Subscription Agent for such Offer, that for each numbered line filled in
below, the undersigned has exercised, on behalf of the beneficial owner
thereof (which may be the undersigned), the number of Rights specified on such
line pursuant to the Primary Subscription (as defined in the Prospectus) and
such beneficial owner wishes to subscribe for the purchase of additional
Shares pursuant to the Over-Subscription Privilege (as defined in the
Prospectus), in the amount set forth in the third column of such line.

<TABLE>
<CAPTION>

                Number of Record Date                NUMBER OF RIGHTS                      NUMBER OF SHARES
                    Shares Owned                 exercised pursuant to the            requested pursuant to the
                                                   Primary Subscription              Over-Subscription Privilege
- ---------------------------------------------------------------------------------------------------------------------
<S>       <C>                              <C>                                      <C>
    1     _______________________________  _______________________________________  _________________________________
    2     _______________________________  _______________________________________  _________________________________
    3     _______________________________  _______________________________________  _________________________________
    4     _______________________________  _______________________________________  _________________________________
    5     _______________________________  _______________________________________  _________________________________
    6     _______________________________  _______________________________________  _________________________________
    7     _______________________________  _______________________________________  _________________________________
    8     _______________________________  _______________________________________  _________________________________
    9     _______________________________  _______________________________________  _________________________________
   10.    _______________________________  _______________________________________  _________________________________
_____________________________________________________________________________________________________________________

</TABLE>

________________________________    vested

Name of Nominee Holder
By:       ___________________________

Name:     ___________________________

Title:    ___________________________

Dated:    ____________________, 2005
<TABLE>
<CAPTION>

<S>                                                   <C>
Provide the following information, if applicable:

- ------------------------------------------------      ------------------------------------------------------
Depository Trust Corporation ("DTC") Participant      Name of Broker
Number


- ------------------------------------------------      ------------------------------------------------------
DTC Primary Subscription Confirmation Number(s)       Address



</TABLE>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2D5
<SEQUENCE>4
<FILENAME>efc5-2324_ex992d5.txt
<DESCRIPTION>EXHIBIT 99.2(D)(5)
<TEXT>

                                                               Exhibit (d)(5)


                         SUBSCRIPTION AGENT AGREEMENT
                         ----------------------------

     This Subscription Agent Agreement (the "Agreement") is made as of
November , 2005 between Japan Smaller Capitalization Fund, Inc. (the "
Company"), Computershare Shareholder Services, Inc., a Delaware corporation
and its fully owned subsidiary EquiServe Trust Company, N.A., a national
banking (collectively, the "Agent" or individually "CSS" and the "Trust
Company", respectively). All terms not defined herein shall have the meaning
given in the prospectus (the "Prospectus") included in the (Registration
Statement on Form N-2, File Nos. 333-128763 and 811-5992 filed by the Company
with the Securities and Exchange Commission on October 3, 2005, as amended by
any amendment filed with respect thereto (the "Registration Statement").

     WHEREAS, the Company proposes to make subscription offer by issuing
certificates or other evidences of subscription rights, in the form designated
by the Company (the "Subscription Certificates") to shareholders of record
(the "Shareholders") of its Common Stock, par value $.10per share ("Common
Stock"), as of a record date specified by the Company (the "Record Date"),
pursuant to which each Shareholder will have certain rights (the "Rights") to
subscribe for shares of Common Stock, as described in and upon such terms as
are set forth in the Prospectus, a final copy of which has been or, upon
availability will promptly be, delivered to the Agent; and

     WHEREAS, the Company wishes the Agent to perform certain acts on behalf
of the Company, and the Agent is willing to so act, in connection with the
distribution of the Subscription Certificates and the issuance and exercise of
the Rights to subscribe therein set forth, all upon the terms and conditions
set forth herein.

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

1.   Appointment.
     The Company hereby appoints the Agent to act as subscription agent in
connection with the distribution of Subscription Certificates and the issuance
and exercise of the Rights in accordance with the terms set forth in this
Agreement and the Agent hereby accepts such appointment.

2.   Form and Execution of Subscription Certificates.
     A. Each Subscription Certificate shall be irrevocable . The Agent shall,
in its capacity as Transfer Agent of the Company, maintain a register of
Subscription Certificates and the holders of record thereof (each of whom
shall be deemed a "Shareholder" hereunder for purposes of determining the
rights of holders of Subscription Certificates).

3.   Rights and Issuance of Subscription Certificates.
     A. Each Subscription Certificate shall evidence the Rights of the
Shareholder therein named to purchase Common Stock upon the terms and
conditions therein and herein set forth.


<PAGE>


     B. Upon the written advice of the Company, signed by any of its duly
authorized officers, as to the Record Date, the Agent shall, from a list of
the Company Shareholders as of the Record Date to be prepared by the Agent in
its capacity as Transfer Agent of the Company, prepare and record Subscription
Certificates in the names of the Shareholders, setting forth the number of
Rights to subscribe for the Company's Common Stock calculated on the basis of
three Rights for one share of Common Stock recorded on the books in the name of
each such Shareholder as of the Record Date. One Right will beissued to each
Record Date Shareholder for each share of Common Stock such Record Shareholder
holds on the Record Date. No fractional shares of Common Stock will be issued
upon the exercise of Rights; accordingly, Rights may be exercised only in
multiples of Fractional shares will not be issued; accordingly Rights may only
be exercised in multiples of three and Rights will be rounded down by the
Subscription Agent to the nearest number divisible by three. Each
Subscription Certificate shall be dated as of the Record Date and shall be
executed manually or by facsimile signature of a duly authorized officer of
the Subscription Agent. Upon the written advice, signed as aforesaid, as to
the effective date of the Registration Statement, the Agent shall promptly
countersign and deliver the Subscription Certificates, together with a copy of
the Prospectus, instruction letter and any other document as the Company deems
necessary or appropriate, to all Shareholders with record addresses in the
United States (including its territories and possessions and the District of
Columbia). Delivery shall be by first class mail (without registration or
insurance), except for those Shareholders having a registered address outside
the United States (who will only receive copies of the Prospectus, instruction
letter and other documents as the Company deems necessary or appropriate, if
any), delivery shall be by air mail (without registration or insurance) and by
first class mail (without registration or insurance) to those Shareholders
having APO or FPO addresses. No Subscription Certificate shall be valid for
any purpose unless so executed.

     C. The Agent will mail a copy of the Prospectus, instruction letter, a
special notice and other documents as the Company deems necessary or
appropriate, if any, but not Subscription Certificates to Record Date
Shareholders whose record addresses are outside the United States (including
its territories and possessions and the District of Columbia ) ("Foreign
Record Date Shareholders"). The Rights to which such Subscription Certificates
relate will be held by the Agent for such Foreign Record Date Shareholders'
accounts until instructions are received to exercise, sell or transfer the
Rights.

4.   Exercise.
     A. Record Date Shareholders may acquire shares of Common Stock on Primary
Subscription and pursuant to the Over-Subscription Privilege by delivery to
the Agent as specified in the Prospectus of (i) the Subscription Certificate
with respect thereto, duly executed by such Shareholder in accordance with and
as provided by the terms and conditions of the Subscription Certificate,
together with (ii) the estimated purchase price, as disclosed in the
Prospectus, for each share of Common Stock subscribed for by exercise of such
Rights, in U.S. dollars by money order or check drawn on a bank in the United
States, in each case payable to the order of the Company.

     B. Rights may be exercised at any time after the date of issuance of the
Subscription Certificates with respect thereto but no later than 5:00 P.M. New
York time on such date as the Company shall designate to the Agent in writing
(the "Expiration Date"). For the purpose of determining the time of the
exercise of any Rights, delivery of any material to the Agent shall be deemed
to occur when such materials are received at the Shareholder Services Division
of the Agent specified in the Prospectus.


                                      2
<PAGE>


     C. Notwithstanding the provisions of Section 4 (a) and 4 (b) regarding
delivery of an executed Subscription Certificate to the Agent prior to 5:00
P.M. New York time on the Expiration Date, if prior to such time the Agent
receives a Notice of Guaranteed Delivery by facsimile (telecopy) or otherwise
from a bank, a trust company or a New York Stock Exchange member guaranteeing
delivery of (i) payment of the full Subscription Price for the shares of
Common Stock subscribed for on Primary Subscription and any additional shares
of Common Stock subscribed for pursuant to the Over-Subscription Privilege,
and (ii) a properly completed and executed Subscription Certificate, then such
exercise of Primary Subscription Rights and Over-Subscription Rights shall be
regarded as timely, subject, however, to receipt of the duly executed
Subscription Certificate and full payment for the Common Stock by the Agent
within three Business Days (as defined below) after the Expiration Date (the
"Protect Period") and full payment for their Common Stock within ten Business
Days after the Confirmation Date (as defined in Section 4(d)). For the
purposes of the Prospectus and this Agreement, "Business Day" shall mean any
day on which trading is conducted on the New York Stock Exchange.

     D. The Company will determine the Subscription Price by taking 90% of the
average of the last reported sale prices of shares of Common Stock on the New
York Stock Exchange on the Expiration Date (the "Pricing Date") and the
four preceding trading days. As soon as practicable after the Pricing Date
(but no later than December 28, 2005) (the "Confirm Date"), CSS shall send to
each exercising shareholder (or, if shares of Common Stock on the Record Date
are held by Cede & Co. or any other depository or nominee, to Cede & Co. or
such other depository or nominee) a confirmation showing the number of shares
of Common Stock acquired pursuant to the Primary Subscription, and, if
applicable, the Over-Subscription Privilege, the per share and total purchase
price for such shares, and any additional amount payable to the Company by
such shareholder or any excess to be refunded by the Company to such
shareholder in the form of a check and stub, along with a letter explaining
the allocation of shares of Common Stock pursuant to the Over-Subscription
Privilege.

     E. Any additional payment required from a shareholder must be received by
CSS no later than January 9, 2005 and any excess payment to be refunded by the
Company to a shareholder will be mailed by CSS as promptly as practicable
after the Confirmation Date. If a shareholder does not make timely payment of
any additional amounts due in accordance with Section 4(D), CSS will consult
with the Company in accordance with Section 5 as to the appropriate action to
be taken. CSS will not issue or deliver certificates or Statements of Holding
for shares subscribed for until payment in full therefore has been received,
including collection of checks and payment pursuant to notices of guaranteed
delivery.

5.   Validity of Subscriptions.
     Irregular subscriptions not otherwise covered by specific instructions
herein shall be submitted to an appropriate officer of the Company and handled
in accordance with his or her instructions. Such instructions will be
documented by the Agent indicating the instructing officer and the date
thereof.

6.   Over-Subscription.
     If, after allocation of shares of Common Stock to Record Date
Shareholders, there remain unexercised Rights, then the Agent shall allot the
shares issuable upon exercise of such unexercised Rights (the "Remaining
Shares") to shareholders who have exercised all the Rights initially issued to
them and who wish to acquire more than the number of shares for which the
Rights issued to them are


                                      3
<PAGE>


exercisable. Shares subscribed for pursuant to the Over-Subscription Privilege
will be allocated in the amounts of such over-subscriptions. If the number of
shares for which the Over-Subscription Privilege has been exercised is greater
than the Remaining Shares, the Agent shall allocate the Remaining Shares to
Record Date Shareholders exercising Over-Subscription Privilege based on the
number of shares of Common Stock owned by them on the Record Date. The
percentage of Remaining Shares each over-subscribing Record Date Shareholder
may acquire will be roundeddown to result in delivery of whole shares of
Common Stock. The Agent shall advise the Company immediately upon the
completion of the allocation set forth above as to the total number of shares
subscribed and distributable.

7.   Delivery of Shares.
     The Agent will deliver (i) certificates or Statement of Holding
reflecting new shares of Company Common Stock in the Direct Registration
System, representing those shares of Common Stock purchased pursuant to
exercise of Primary Subscription Rights as soon as practicable after the
corresponding Rights have been validly exercised and full payment for such
shares has been received and cleared and (ii) certificates or Statements of
Holding representing those shares purchased pursuant to the exercise of the
Over-Subscription Privilege as soon as practicable after the Expiration Date
and after all allocations have been effected.

8.   Holding Proceeds of Rights Offering.
     A. All proceeds received by CSS from Shareholders in respect of the
exercise of Rights shall be held by CSS, on behalf of the Company, in a
segregated account (the "Account"). No interest shall accrue to the Company or
shareholders on funds held in the Account pending disbursement in the manner
described in Section 4(E) above.

     B. CSS shall deliver all proceeds received in respect of the exercise of
Rights to the Company as promptly as practicable, but in no event later than
ten business days after the Confirmation Date.

     C. The Company acknowledges that the bank accounts maintained by CSS in
connection with the services provided under this Agreement will be in its name
and that CSS may receive investment earnings in connection with the investment
at CSS's risk and for its benefit of funds held in those accounts from time to
time.

9.   Reports.
     Daily, during the period commencing on November 21, 2005, until
termination of the Subscription Period, the Agent will report by telephone or
telecopier, confirmed by letter, to an Officer of the Company, data regarding
Rights exercised, the total number of shares of Common Stock subscribed for,
and payments received therefor, bringing forward the figures from the previous
day's report in each case so as to show the cumulative totals and any such
other information as may be mutually determined by the Company and the Agent.

10.  Loss or Mutilation.
     If any Subscription Certificate is lost, stolen, mutilated or destroyed,
the Agent may, on such terms which will indemnify and protect the Company and
the Agent as the Agent may in its discretion impose (which shall, in the case
of a mutilated Subscription Certificate include the surrender and


                                      4
<PAGE>


cancellation thereof), issue a new Subscription Certificate of like
denomination in substitution for the Subscription Certificate so lost, stolen,
mutilated or destroyed.

11.  Compensation for Services.
     The Company agrees to pay to the Agent compensation for its services
hereunder in accordance with its Fee Schedule to act as Agent attached hereto
as Exhibit A. The Company further agrees that it will reimburse the Agent for
its reasonable out-of-pocket expenses incurred in the performance of its
duties as such.

12.  Instructions, Indemnification and Limitation of Liability.
     The Agent undertakes the duties and obligations imposed by this Agreement
upon the following terms and conditions:

     A. The Agent shall be entitled to rely upon any instructions or
directions furnished to it by an appropriate officer of the Company, whether
in conformity with the provisions of this Agreement or constituting a
modification hereof or a supplement hereto. Without limiting the generality of
the foregoing or any other provision of this Agreement, the Agent, in
connection with its duties hereunder, shall not be under any duty or
obligation to inquire into the validity or invalidity or authority or lack
thereof of any instruction or direction from an officer of the Company which
conforms to the applicable requirements of this Agreement and which the Agent
reasonably believes to be genuine and shall not be liable for any delays,
errors or loss of data occurring by reason of circumstances beyond the Agent's
control.

     B. The Company will indemnify the Agent and its nominees against, and
hold it harmless from, all liability and expense which may arise out of or in
connection with the services described in this Agreement or the instructions
or directions furnished to the Agent relating to this Agreement by an
appropriate officer of the Company, except for any liability or expense which
shall arise out of the gross negligence, bad faith or willful misconduct of
the Agent, or such nominees or independent contractors.

     Promptly after the receipt by the Agent of notice of any demand or claim
or the commencement of any action, suit, proceeding or investigation, the
Agent shall, if a claim in respect thereof is to be made against the Company,
notify the Company thereof in writing. The Company shall be entitled to
participate as its own expense in the defense of any such claim or proceeding,
and, if it so elects at any time after receipt of such notice, it may assume
the defense of any suit brought to enforce any such claim or of any other
legal action or proceeding. For the purposes of this Section 12, the term
"expense or loss" means any amount paid or payable to satisfy any claim,
demand, action, suit or proceeding settled with the express written consent of
the Agent, and all reasonable costs and expenses, including, but not limited
to, reasonable counsel fees and disbursements, paid or incurred in
investigating or defending against any such claim, demand, action, suit,
proceeding or investigation.

     C. The Agent shall be responsible for and shall indemnify and hold the
Company harmless from and against any and all losses, damages, costs, charges,
counsel fees, payments, expenses and liability arising out of or attributable
to Agent's refusal or failure to comply with the terms of this Agreement, or
which arise out of Agent's or an independent contractor's


                                      5
<PAGE>


negligence or willful misconduct or which arise out of the breach of any
representation or warranty of the Agent hereunder, for which the Agent is not
entitled to indemnification under this Agreement; provided, however, that
Agent's aggregate liability during any term of this Agreement with respect to,
arising from, or arising in connection with this Agreement, or from all
services provided or omitted to be provided under this Agreement, whether in
contract, or in tort, or otherwise, is limited to, and shall not exceed, the
amounts paid hereunder by the Company to Agent as fees and charges.

13.  Changes in Subscription Certificate.
     The Agent may, without the consent or concurrence of the Shareholders in
whose names Subscription Certificates are registered, by supplemental
agreement or otherwise, concur with the Company in making any changes or
corrections in a Subscription Certificate that it shall have been advised by
counsel (who may be counsel for the Company) is appropriate to cure any
ambiguity or to correct any defective or inconsistent provision or clerical
omission or mistake or manifest error therein or herein contained, and which
shall not be inconsistent with the provision of the Subscription Certificate
except insofar as any such change may confer additional rights upon the
Shareholders.

14.  Assignment/Delegation.
     A. Except as provided in Section 14(B) below, neither this Agreement nor
any rights or obligations hereunder may be assigned or delegated by either
party without the written consent of the other party.

     B. The Agent may, without further consent on the part of the Company,
subcontract with other subcontractors for systems, processing, telephone and
mailing services, and post-exchange activities, as may be required from time
to time; provided, however, that the Agent shall be as fully responsible to
the Company for the acts and omissions of any subcontractor as it is for its
own acts and omissions.

     C. Except as explicitly stated elsewhere in this Agreement, nothing under
this Agreement shall be construed to give any rights or benefits in this
Agreement to anyone other than the Agent and the Company and the duties and
responsibilities undertaken pursuant to this Agreement shall be for the sole
and exclusive benefit of the Agent and the Company.

15.  Governing Law.
     The validity, interpretation and performance of this Agreement shall be
governed by the law of the Commonwealth of Massachusetts and shall inure to
the benefit of and the obligations created hereby shall be binding upon the
successors and permitted assigns of the parties hereto.

16.  Third Party Beneficiaries.
     This Agreement does not constitute an agreement for a partnership or
joint venture between the Agent and the Company. Neither party shall make any
commitments with third parties that are binding on the other party without the
other party's prior written consent.

17.  Force Majeure.


                                      6
<PAGE>


     In the event either party is unable to perform its obligations under the
terms of this Agreement because of acts of God, strikes, terrorist acts,
equipment or transmission failure or damage reasonably beyond its control, or
other cause reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to perform or
otherwise solely from such causes. Performance under this Agreement shall
resume when the affected party or parties are able to perform substantially
that party's duties.

18.  Consequential Damages.
     Neither party to this Agreement shall be liable to the other party for
any consequential, indirect, special or incidental damages under any
provisions of this Agreement or for any consequential, indirect, penal,
special or incidential damages arising out of any act or failure to act
hereunder even if that party has been advised of or has foreseen the
possibility of such damages.

19.  Severability.
     If any provision of this Agreement shall be held invalid, unlawful, or
unenforceable, the valididty, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired.

20.  Counterparts.
     This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original and all of which together shall be considered one
and the same agreement.

21.  Captions.
     The captions and descriptive headings herein are for the convenience of
the parties only. They do not in any way modify, amplify, alter or give full
notice of the provisions hereof.

22.  Confidentiality.
     The Agent and the Company agree that all books, records, information and
data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement
including the fees for services set forth in the attached schedule shall
remain confidential, and shall not be voluntarily disclosed to any other
person, except as may be required by law.

23.  Term and Termination.
     This Agreement shall remain in effect until the earlier of (a) thirty
(30) days after the Expiration Date; (b) it is terminated by either party upon
a material breach of this Agreement which remains uncured for 30 days after
written notice of such breach has been provided; or (c) 30 days' written
notice has been provided by either party to the other. Upon termination of the
Agreement, the Agent shall retain all canceled Certificates and related
documentation as required by applicable law.

24.  Notices.
     Until further notice in writing by either party hereto to the other
party, all


                                      7
<PAGE>


written reports, notices and other communications between the Exchange Agent
and the Company required or permitted hereunder shall be delivered or mailed
by first class mail, postage prepaid, telecopier or overnight courier
guaranteeing next day delivery, addressed as follows:

     If to the Company, to:

     Keiko, Tani, Esq.
     Japan Smaller Capitalization Fund, Inc.
     Two World Financial Center, Building B
     New York, NY 10281

     If to the Agent, to:

           EquiServe Trust Company, N.A.
c/o Computershare Shareholder Services, Inc.
           150 Royall Street
           Canton, MA 02021
           Attn:  Reorganization Department
or
           525 Washington Boulevard
           Jersey City, NJ 07310
         Attn:  Reorganization Department

25.  Survival.
     The provisions of Paragraphs 12, 15, 17-19, 22, and 24-26 shall survive
any termination, for any reason, of this Agreement.

26.  Merger of Agreement.
     This Agreement constitutes the entire agreement between the parties
hereto and supercedes any prior agreement with respect to the subject matter
hereof whether oral or written.


     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers, hereunto duly authorized, as of the day
and year first above written.


EQUISERVE TRUST COMPANY, NA.                 COMPANY

By:______________________________            By:_______________________

Date:____________________________            Date:______________________

Title:____________________________           Title:______________________


                                      8
<PAGE>


COMPUTERSHARE SHAREHOLDER SERVICES, INC.

By:______________________________

Date:_____________________________

Title:_____________________________


                                      9

<PAGE>

[GRAPHIC OMITTED] EquiServe(R)


                         EQUISERVE TRUST COMPANY, N.A.

                  PROPOSAL TO SERVE AS SUBSCRIPTION AGENT FOR

                            JAPAN SMALLER CAP FUND
<TABLE>
A.  FEES FOR SERVICES *
<CAPTION>
    ===================================================================================================

         <S>                     <C>
         $      12,500.00        Project Management Fee*

         $           9.50        Per subscription form processed (registered and beneficial)

         $          15.00        Per defective subscription form received

         $          15.00        Per notice of guaranteed delivery received

         $           2.00        Per broker split certificate issued

         $           3.00        Per sale of right (if applicable)

         $           4.50        Per invoice mailed  (if applicable)

         $           1.75        Per refund check issued and mailed (if applicable)

         $           5.00        Per solicitation check processed and mailed (if applicable)

         $          15.00        Per withdrawal of subscription certificate (if applicable)

         $          50.00        Per wire (if applicable)

         $       2,500.00        New York window fee for Midnight expiration (if applicable)

         $       3,000.00        Per offer extension

         $       5,000.00        Minimum charge should the project be canceled for any reason prior to
                                 the mailing of the subscription form
    ===================================================================================================
         $       5,000.00        Information Agent Services (as described below)
    ===================================================================================================
</TABLE>

         *Excludes out-of-pocket expenses as described in Section C, "Items
          Not Covered"

B.       SERVICES COVERED

         o     Designating an operational team to carry out Subscription,
               Distribution and Information Agent duties, including document
               review and execution of legal agreement, review of subscription
               form and communication materials, project management,
               distribution of materials, communications and on-going project
               updates and reporting

         o     Converting Japan Smaller Cap Fund's records to EquiServe's
               Corporate Actions System

         o     Calculating Rights to be distributed to each shareholder and
               printing shareholder information on the subscription form

         o     Printing, enclosing and mailing subscription forms to
               registered shareholders

         o     Establishing Rights Offering with the Depositary Trust Company
               (DTC) to facilitate Broker/Street Shareholder participation

<PAGE>

         o     Opening and processing Rights received and exercised

         o     Tracking and reporting the number of exercises made, as
               required

         o     Processing sale of Rights requests received, if applicable

         o     Deposit participant checks daily and forward all participant
               funds to Japan Smaller Cap Fund at the end of the offering
               period

         o     Providing receipt summation of checks received

         o     Prorating, calculating and allocating shares upon the
               expiration of the offer

         o     Issuing and mailing stock certificates, checks and/or invoices

         o     Affixing legends to appropriate stock certificates, where
               applicable

         o     Calculating, issuing and mailing of proration and/or
               over-subscription shares and refund checks, if applicable

         o     Calculating, issuing and mailing of solicitation checks, if
               applicable

         INFORMATION AGENT SERVICES

         o     Requesting banks/brokers/dealers listing from DTC

         o     Contacting banks/brokers/dealers to inform them of the offering
               and requesting the number of sets of materials they will
               require to distribute to their shareholders

         o     Distributing requested materials to banks/brokers/dealers

         o     Establishing fulfillment telephone number to be include in the
               prospectus and DTC's electronic notice to banks/brokers/dealers

         o     Distributing additional sets of materials as requested through
               the fulfillment number

         o     Establishing toll-free number to be include in the prospectus
               and DTC's electronic notice to banks/brokers/dealers to
               facilitate banks/brokers/dealers/shareholders telephone
               inquiries

         o     Responding to banks/brokers/dealers/shareholders telephone and
               correspondence inquiries

         o     Tracking and reporting the number of telephone calls received
               and their nature


C.       ITEMS NOT COVERED

         o     Items not specified in the "Services Covered" section set forth
               in this Agreement, including any services associated with new
               duties, legislation or regulatory fiat which become effective
               after the date of this Agreement (these will be provided on an
               appraisal basis)

         o     All out-of-pocket expenses such as telephone line charges,
               overprinting, certificates, checks, postage, stationery, wire
               transfers, and excess material disposal (these will be billed
               as incurred)

         o     Reasonable legal review fees if referred to outside counsel

         o     Overtime charges assessed in the event of late delivery of
               material for mailings unless the target mail date is
               rescheduled

<PAGE>

D.       ASSUMPTIONS


         o     Proposal based upon document review and information known at
               this time about the transaction.

         o     Significant changes made in the terms or requirements of this
               transaction could require modifications to this proposal

         o     Proposal must be executed prior to the initial mailing

         o     Fund responsible for printing of materials (Rights Card,
               Prospectus and ancillary documents)

         o     Material to be mailed to shareholders must be received no less
               than five (5) business days prior to the start of the mailing
               project

         o     No interest shall accrue to the Fund or the shareholders



E.       PAYMENT FOR SERVICES

         The Project Management Fee will be rendered and payable on the
         effective date of the transaction. An invoice for any out-of-pockets
         and per item fees realized will be rendered and payable on a monthly
         basis, except for postage expenses in excess of $5,000. Funds for
         such mailing expenses must be received one (1) business day prior to
         the scheduled mailing date.

<TABLE>
<CAPTION>

         <S>                                            <C>
         EquiServe Trust Company, N.A.                  Japan Smaller Cap Fund


         By:                                            By:
            --------------------------------------          --------------------------------------------
                          Erik Schwendenman

         Title:  Director, Business Development         Title:
               -----------------------------------             -----------------------------------------


         Date:               11/13/05                   Date:
               -----------------------------------            ------------------------------------------

</TABLE>

         EquiServe, Inc.


         By:
            --------------------------------------
                          Erik Schwendenman

         Title: Director, Business Development
               -----------------------------------

         Date:               11/13/05
               -----------------------------------
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2D6
<SEQUENCE>5
<FILENAME>efc5-2324_ex992d6.txt
<DESCRIPTION>EXHIBIT 99.2(D)(6)
<TEXT>
                                                                  Exhibit (d)(6)



[LOGO OMITTED] TheAltmanGroup                             Winner of TOPS Award
                                       - Highest Rated Proxy Solicitation Firm
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
               <S>                      <C>                        <C>                                  <C>
               PROXY SOLICITATION   o   CORPORATE GOVERNANCE   o   SECURITY HOLDER IDENTIFICATION   o   BANKRUPTCY SERVICES
</TABLE>



November 7, 2005

Japan Smaller Capitalization Fund, Inc.
C/O Nomura Asset Management
Two World Financial Center, Building B, 22nd Floor
New York, NY  10281-1712
Attn:  Rita Chopra-Brathwaite
       Treasurer


RE:  Information Agent for the Rights Offering of Japan Smaller
     Capitalization Fund, Inc.


Dear Rita:

This letter will serve as the agreement (the "Agreement") between The Altman
Group, Inc. ("The Altman Group") and the Japan Smaller Capitalization Fund,
Inc. (the "Equity Fund"), pursuant to which The Altman Group will provide the
services set forth below in connection with the Equity Fund's rights offering,
which is expected to commence on or about November 2005.

     1.  Description of Services
         -----------------------

           a)  The services to be provided by The Altman Group under this
               agreement include, but are not limited to:

               i)    The contacting of banks, brokers and intermediaries to
                     determine the number of beneficial owners service by
                     each;

               ii)   The distribution of the offering documents to banks,
                     brokers and intermediaries and the forwarding of
                     additional materials as requested;

               iii)  The printing of documents if requested;

               iv)   The set up of a dedicated toll-free number to respond to
                     inquiries, provide assistance to Shareholders and monitor
                     the response to the offer;

               v)    The enclosing and mailing of the offering documents to
                     interested Shareholders;

               vi)   Providing periodic reports, as requested.


The Altman Group, Inc.  o  1200 Wall Street West, 3rd Fl., Lyndhurst, NJ  07071
o   Tel: 201.806.7300  o  Fax: 201.460.0050  o  www.altmangroup.com

<PAGE>

           b)  If requested by the Equity Fund, The Altman Group will, for an
               additional fee (set forth below), proactively contact
               registered Shareholders and/ or non-objecting beneficial
               holders (NOBOs) to help promote a high level of participation
               in the offer.

2.  Fees
- --------

           a)  The Altman Group agrees to perform the services described above
               for a base fee of $5,000 plus reasonable out-of-pocket
               expenses. The base fee shall be paid at such time as this
               agreement is executed.

           b)  The Equity Fund will reimburse The Altman Group for reasonable
               out-of-pocket expenses, which may include postage, telephone
               and courier charges, data transmission charges and other
               expenses approved by the Equity Fund. Any out-of-pocket
               expenses incurred will be invoiced to the Equity Fund after the
               completion of the rights offering. Copies of supplier invoices
               and other back-up material in support of The Altman Group's
               out-of-pocket expenses shall be available for review upon
               reasonable notice at the offices of The Altman Group during
               normal business hours.

           c)  In addition to the base fee, a $4.00 per telephone call fee
               will be charged for every inbound telephone call received from
               a shareholder regarding the Equity Fund's rights offering.

           d)  The additional fee for contacting NOBOs and registered
               shareholders, if requested, will include a fee of $4.00 per
               shareholder contacted, a $300 set up fee and out-of-pocket
               expenses related to telephone number lookups and line charges.

3.  Confidentiality
- -------------------

                  The Altman Group and the Equity Fund agree that all books,
                  records, information and data pertaining to the business of
                  the other party which are exchanged or received pursuant to
                  the negotiation or the carrying out of the Agreement shall
                  remain confidential and shall not be voluntarily disclosed to
                  any other person, except as may be required by law. The Altman
                  Group shall not disclose or use any nonpublic information (as
                  that term is defined in SEC Regulation S-P promulgated under
                  Title V of the Gramm-Leach-Bliley Act of 1999 relating to the
                  customers of the Equity Fund and/or it's affiliates ("Customer
                  Information") except as may be necessary to carry out the
                  purposes of this Agreement. The Altman Group shall use best
                  efforts to safeguard and maintain the confidentiality of such
                  Customer Information and to limit access to and usage of such
                  Customer Information to those employees, officers, agents and
                  representatives of The Altman Group who have a need to know
                  the information or as necessary to provide the services under
                  this Agreement.

4.  Indemnification
- -------------------

           a)  The Altman Group shall be entitled to rely upon any written
               instructions or directions furnished to it by an appropriate
               Officer of the Equity Fund (President, Vice President,
               Secretary, Assistant Secretary or Treasurer) in conformity with
               the provisions of this Agreement. The Altman Group shall not be
               under any duty or obligation to inquire into the validity or
               invalidity or authority or lack thereof of any instruction or
               direction from an Officer of the Equity Fund which conforms to
               the applicable requirements of this Agreement and which The
               Altman Group reasonably believes to be genuine.

<PAGE>

           b)  The Equity Fund will indemnify The Altman Group against and
               hold it harmless from all liability and expense which may arise
               out of, or, in connection with the services described in this
               Agreement or the instructions or directions furnished to The
               Altman Group relating to this Agreement by an appropriate
               Officer of the Equity Fund, except for any liability or expense
               which shall arise out of the negligence, bad faith or willful
               misconduct of The Altman Group.

           c)  The Altman Group shall be responsible for and shall indemnify
               and hold the Equity Fund harmless from and against any and all
               losses, damages, costs charges, counsel fees, payments,
               expenses, and liability arising out of, or, attributable to the
               Altman Group's negligence, bad faith, or, willful misconduct.

5.  Termination
- ---------------

               This Agreement shall remain in effect until the conclusion of
               the Equity Fund rights offering, or, prior to that, upon 30
               days' written notice by either party to the other.

6.  Governing Law
- -----------------

               This Agreement will be governed and construed in accordance
               with the laws of the State of Massachusetts, without regard to
               the principles of conflicts of law.

7.  Amendments
- --------------

               This Agreement, or any term of this Agreement, may be changed
               or waived only by written amendment signed by a duly authorized
               representative of each party to this Agreement.

8.  Assignment
- --------------

               This Agreement shall not be assigned without the prior written
               consent of each party to the Agreement.

9.  Counterparts
- ----------------

               This Agreement may be executed in two or more counterparts,
               each of which shall be deemed an original, but, all of which
               shall constitute one and the same Agreement.

10.  Captions
- -------------

               The captions and descriptive headings in this Agreement are
               only for the Convenience of the parties. They do not in any way
               define or limit any of the terms of this Agreement.

11.  Severability
- -----------------

               If any of provision of this Agreement shall be held invalid by
               a court decision, statute rule or otherwise, the remainder of
               the Agreement shall not be affected.

12.  Survival
- -------------

               The provisions of Sections 3, 4 and 6 shall survive any
               termination, for any reason, this Agreement.

<PAGE>

               If you are in agreement with the above, kindly sign a copy of
               this Agreement in the space provided for that purpose below and
               return one copy to us. Additionally, an invoice for the base
               fee is attached and The Altman Group requires that we receive
               this fee prior to the mailing of the offering materials.

               Sincerely,

               THE ALTMAN GROUP, INC.



                /s/ Charlotte Brown
               ----------------------

               Charlotte Brown
               Executive Managing Director





               AGREED:

               Japan Smaller Capitalization Fund, Inc.



               -------------------------------
               Print Authorized Name


               -------------------------------
               Authorized Signature


               -------------------------------
               Title


               -------------------------------
               Date
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2(H)
<SEQUENCE>6
<FILENAME>efc5-2324_exhibit992h.txt
<TEXT>

                                                             CC DRAFT 11/11/05


                                                                   Exhibit (h)



                       5,282,128 Shares of Common Stock
                 Issuable Upon Exercise of Transferable Rights
                         to Subscribe for such Shares

                           DEALER MANAGER AGREEMENT


                                              New York, New York
                                              November 14, 2005


UBS Securities LLC
299 Park Avenue
New York, New York 10171-0026

Ladies and Gentlemen:

     Each of Japan Smaller Capitalization Fund, Inc., a Maryland corporation
(the "Fund"), and Nomura Asset Management U.S.A. Inc., a New York corporation
(the "Manager"), hereby confirms the agreement with and appointment of UBS
Securities LLC to act as dealer manager (the "Dealer Manager") in connection
with the issuance by the Fund to the holders of record (the "Record Date
Stockholders") at the close of business on the record date set forth in the
Prospectus (as defined herein) (the "Record Date") transferable rights
entitling such Record Date Stockholders to subscribe for up to 5,282,128
shares (each a "Share" and, collectively, the "Shares") of common stock, par
value $0.10 per share (the "Common Shares"), of the Fund (the "Offer").
Pursuant to the terms of the Offer, the Fund is issuing each Record Date
Stockholders one transferable right (each a "Right" and, collectively, the
"Rights") for each Common Share held by such Record Date Stockholder on the
Record Date. Such Rights entitle their holders to acquire during the
subscription period set forth in the Prospectus (the "Subscription Period"),
at the price set forth in such Prospectus (the "Subscription Price"), one
Share for each three Rights exercised, on the terms and conditions set forth
in such Prospectus. No fractional shares will be issued. Any Record Date
Stockholder who fully exercises all Rights initially issued to such Record
Date Stockholder (other than those Rights that cannot be exercised because
they represent the right to acquire less than one Share) will be entitled to
subscribe for, subject to allocation, additional Shares (the
"Over-Subscription Privilege") on the terms and conditions set forth in the
Prospectus. The Rights are transferable and are expected to be listed on the
New York Stock Exchange, Inc. under the symbol "JOF.RT".

     The Fund has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form N-2 (Nos. 333-128763 and
811-05992) and a related preliminary prospectus under the Investment Company
Act of 1940, as amended (the "Investment Company Act"), the Securities Act of
1933, as amended (the "Securities Act"), and the rules and regulations of the
Commission under the Investment Company Act (the "Investment Company Act Rules
and Regulations") and the rules and regulations of the Commission under the
Securities Act (the "Securities Act Rules and Regulations" and, together with
the Investment Company Act Rules and Regulations, the "Rules and
Regulations"), and has filed such amendments to such registration statement on
Form N-2, if any, and such amended preliminary prospectuses as may have been
required to the date hereof. If the registration statement has not become
effective, a further amendment to such registration statement, including forms
of a final prospectus necessary to permit such registration statement to
become effective, will promptly be filed by the Fund with the Commission. If
the registration statement has become effective and any prospectus contained
therein omits certain information at the time of effectiveness pursuant to
Rule 430A


<PAGE>


of the Rules and Regulations, a final prospectus containing such omitted
information will promptly be filed by the Fund with the Commission in
accordance with Rule 497(h) of the Rules and Regulations. The term
"Registration Statement" means the registration statement, as amended, at the
time it becomes or became effective, including financial statements and all
exhibits and all documents, if any, incorporated therein by reference, and any
information deemed to be included by Rule 430A. The term "Prospectus" means
(except as otherwise specified herein) the final prospectus in the form filed
with the Commission pursuant to Rule 497(c), (e), (h) or (j) of the Rules and
Regulations, as the case may be, as from time to time amended or supplemented
pursuant to the Securities Act.

     The Prospectus and letters to owners of Common Shares of the Fund,
subscription certificates and other forms used to exercise rights, brochures,
wrappers, any letters from the Fund to securities dealers, commercial banks
and other nominees and any newspaper announcements, press releases and other
offering materials and information that the Fund may use, approve, prepare or
authorize for use in connection with the Offer are collectively referred to
hereinafter as the "Offering Materials".

1.   Representations and Warranties.
     -------------------------------

     (a)  The Fund and the Manager jointly and severally represent and warrant
          to, and agree with, the Dealer Manager as of the date hereof, as of
          the date of the commencement of the Offer (such date being
          hereinafter referred to as the "Representation Date") and as of the
          Expiration Date (as defined below) that:

          (i)  The Fund meets the requirements for use of Form N-2 under the
               Securities Act and the Investment Company Act and the Rules and
               Regulations. At the time the Registration Statement became or
               becomes effective, the Registration Statement did or will
               contain all statements required to be stated therein in
               accordance with, and did or will comply in all material
               respects with, the requirements of the Securities Act, the
               Investment Company Act and the Rules and Regulations and did
               not or will not contain an untrue statement of a material fact
               or omit to state any material fact required to be stated
               therein or necessary to make the statements therein not
               misleading. From the time the Registration Statement became or
               becomes effective through the expiration date of the Offer set
               forth in the Prospectus, as it may be extended as provided in
               the Prospectus (the "Expiration Date"), the Prospectus and the
               Offering Materials will not contain an untrue statement of a
               material fact or omit to state any material fact required to be
               stated therein or necessary in order to make the statements
               therein, in the light of the circumstances under which they
               were made, not misleading; provided, however, that the
               representations and warranties in this subsection shall not
               apply to statements in or omissions from the Registration
               Statement, Prospectus or Offering Materials made in reliance
               upon and in conformity with information relating to the Dealer
               Manager furnished to the Fund in writing by the Dealer Manager
               expressly for use in the Registration Statement, Prospectus or
               Offering Materials.

          (ii) The Fund (i) has been duly incorporated and is validly existing
               as a corporation in good standing under the laws of the State
               of Maryland, (ii) has full corporate power and authority to
               own, lease and operate its properties and conduct its business
               as described in the Registration Statement and the Prospectus,
               (iii) currently maintains all necessary licenses, permits,
               consents, orders, approvals, and other authorizations
               (collectively, the "Licenses and Permits") necessary to carry
               on its business as contemplated in the Prospectus, (iv) is duly
               qualified to


                                      2
<PAGE>


               do business as a foreign corporation, (v) has made all
               necessary filings required under any federal, state, local or
               foreign law, regulation or rule, and (vi) is in good standing
               in each jurisdiction wherein it owns or leases real property or
               in which the conduct of its business requires such
               qualification, except where the failure to obtain or maintain
               such Licenses and Permits, to be qualified as a foreign
               corporation, to make such filings or be in good standing would
               not have a material adverse effect upon the Fund's business,
               properties, management, prospects, financial condition or
               results of operations. The Fund has no subsidiaries.

         (iii) The Fund is duly registered with the Commission under the
               Investment Company Act as a closed-end, non-diversified
               management investment company, no order of suspension or
               revocation of such registration has been issued or proceedings
               therefor initiated or, to the best of the Fund's and the
               Manager's knowledge, threatened by the Commission, all required
               action has been taken by the Fund under the Securities Act and
               the Investment Company Act to make the public offering and to
               consummate the issuance of the Rights and the issuance and sale
               of the Shares by the Fund upon exercise of the Rights, and the
               provisions of the Fund's articles of incorporation and by-laws
               comply as to form in all material respects with the
               requirements of the Investment Company Act and the Investment
               Company Act Rules and Regulations.

          (iv) Ernst & Young LLP, the independent registered public accounting
               firm that certified the financial statements of the Fund set
               forth or incorporated by reference in the Registration
               Statement and the Prospectus, is an independent registered
               public accounting firm as required by the Investment Company
               Act, the Securities Act, the Rules and Regulations and by the
               rules of the Public Company Accounting Oversight Board.

          (v)  The financial statements of the Fund, together with the related
               notes and schedules thereto, set forth or incorporated by
               reference in the Registration Statement and the Prospectus
               present fairly in all material respects the financial condition
               of the Fund as of the dates or for the periods indicated in
               conformity with U.S. generally accepted accounting principles
               applied on a consistent basis; and the information set forth in
               the Prospectus under the headings "Fund expenses" and
               "Financial highlights" presents fairly in all material respects
               the information stated therein.

          (vi) The Fund has an authorized and outstanding capitalization as
               set forth in the Prospectus; the issued and outstanding Common
               Shares have been duly authorized and are validly issued, fully
               paid and non-assessable and conform in all material respects to
               the description thereof in the Prospectus under the heading
               "Capital stock"; the Rights have been duly authorized by all
               requisite action on the part of the Fund for issuance pursuant
               to the Offer; the certificates for the Shares are in due and
               proper form; the Shares have been duly authorized by all
               requisite action on the part of the Fund for issuance and sale
               pursuant to the terms of the Offer and, when issued and
               delivered by the Fund pursuant to the terms of the Offer
               against payment of the consideration set forth in the
               Prospectus, will be validly issued, fully paid and
               non-assessable; the Shares and the Rights conform in all
               material respects to all statements relating thereto contained
               in the Registration Statement, the Prospectus and the other
               Offering


                                      3
<PAGE>


               Materials; and the issuance of each of the Rights and the
               Shares has been done in compliance with all applicable federal
               and state securities laws and is not subject to any preemptive
               rights.

         (vii) Except as set forth in the Prospectus, subsequent to the
               respective dates as of which information is given in the
               Registration Statement and the Prospectus, (A) the Fund has not
               incurred any liabilities or obligations, direct or contingent,
               or entered into any transactions, other than in the ordinary
               course of business, that are material to the Fund and (B) there
               has not been any material change in the Common Shares or
               long-term debt of the Fund, or any material adverse change, or,
               to the Fund's or the Manager's knowledge, any development
               involving a prospective material adverse change, in the
               condition (financial or other), business, prospects, net worth
               or results of operations of the Fund, (C) there has been no
               dividend or distribution declared in respect of the Fund's
               capital stock and (D) the Fund has not incurred any long-term
               debt.

        (viii) Each of this agreement (the "Agreement"); the Subscription
               Agency Agreement (the "Subscription Agency Agreement") dated as
               of November [  ], 2005 between the Fund and EquiServe Trust
               Company, N.A. (the "Subscription Agent"); the Information Agent
               Letter Agreement (the "Information Agent Agreement") dated as
               of November 7, 2005 between the Fund and The Altman Group, Inc.
               (the "Information Agent"); the Management Agreement dated as of
               November 13, 2001 between the Fund and the Manager (the
               "Management Agreement"); the Custodian Agreement dated as of
               April 26, 2002 between the Fund and Brown Brothers Harriman &
               Co. (the "Custodian Agreement"); and the Registrar, Transfer
               Agency and Service Agreement dated as of [    ], 200[ ] between
               the Fund and EquiServe Trust Company, N.A. (the "Transfer
               Agency Agreement") (collectively, all the foregoing are
               referred to herein as the "Fund Agreements"), has been duly
               authorized, executed and delivered by the Fund; each of the
               Fund Agreements complies with all applicable provisions of the
               Investment Company Act, the Investment Advisers Act of 1940, as
               amended (the "Advisers Act"), and the rules and regulations
               under such Acts; and, assuming due authorization, execution and
               delivery by the other parties thereto, each of the Fund
               Agreements constitutes a legal, valid, binding and enforceable
               obligation of the Fund, subject to the qualification that the
               enforceability of the Fund's obligations thereunder may be
               limited by U.S. bankruptcy, insolvency, reorganization,
               moratorium and similar laws of general applicability relating
               to or affecting creditors' rights and to general principles of
               equity (regardless of whether enforceability is considered in a
               proceeding in equity or at law), except as enforcement of
               rights to indemnity and contribution hereunder may be limited
               by federal or state securities laws or principles of public
               policy.

          (ix) Neither the issuance of the Rights, nor the issuance and sale
               of the Shares upon the exercise of the Rights, nor the
               execution, delivery, performance and consummation by the Fund
               of any other of the transactions contemplated in this
               Agreement, or to the extent applicable to the Rights or the
               Shares in the Fund Agreements, nor the consummation of the
               transactions contemplated in this Agreement or in the
               Registration Statement nor the fulfillment of the terms thereof
               will conflict with or violate the articles of incorporation,
               by-laws or similar organizational documents of the Fund, or
               conflict with, result in a breach or violation of, or
               constitute a default or an event of default under, or result in
               the


                                      4
<PAGE>


               creation or imposition of any lien, charge or encumbrance upon
               any properties or assets of the Fund under the charter, by-laws
               or similar organizational documents of the Fund, or the terms
               and provisions of any agreement, indenture, mortgage, loan
               agreement, note, insurance or surety agreement, lease or other
               instrument to which the Fund is a party or by which it may be
               bound or to which any of the property or assets of the Fund is
               subject, nor will such action by the Fund result in any
               violation of any order, law, rule or regulation of any court or
               governmental agency or body having jurisdiction over the Fund
               or any of its properties.

          (x)  Except as set forth in the Registration Statement, there is no
               pending or, to the Fund's or the Manager's knowledge,
               threatened action, suit, claim, investigation or proceeding
               affecting the Fund or to which the Fund is a party before or by
               any court or governmental agency, authority or body or any
               arbitrator which would result in any material adverse change in
               the condition (financial or other), business prospects, net
               worth or operations of the Fund, or which would materially and
               adversely affect the properties or assets thereof of a
               character required to be disclosed in the Registration
               Statement or the Prospectus or the consummation of the
               transactions contemplated hereby.

          (xi) There are no franchises, contracts or other documents of the
               Fund required to be described in the Registration Statement or
               the Prospectus, or to be filed or incorporated by reference as
               exhibits to the Registration Statement which are not described
               or filed or incorporated by reference therein as required by
               the Securities Act, the Investment Company Act or the Rules and
               Regulations.

         (xii) No consent, approval, authorization, notification or order of,
               or filing with, any federal, state, local or foreign court or
               governmental or regulatory agency, commission, board, authority
               or body or with any self-regulatory organization or other
               non-governmental regulatory authority is required for the
               consummation by the Fund of the transactions contemplated by
               the Fund Agreements or the Registration Statement, except such
               as have been obtained, or if the Registration Statement filed
               with respect to the Shares is not effective under the
               Securities Act as of the time of execution hereof, such as may
               be required (and shall be obtained prior to commencement of the
               Offer) under the Investment Company Act, the Securities Act and
               the Securities Exchange Act of 1934, as amended (the "Exchange
               Act").

        (xiii) The Common Shares have been duly listed on the New York Stock
               Exchange, Inc. and prior to their issuance the Shares and the
               Rights will have been duly approved for listing, subject to
               official notice of issuance, on the New York Stock Exchange,
               Inc.

         (xiv) The Fund (A) has not taken, directly or indirectly, any action
               designed to cause or to result in, or that has constituted or
               which might reasonably be expected to constitute, the
               stabilization or manipulation of the price of any security of
               the Fund to facilitate the issuance of the Rights or the sale
               or resale of the Rights and the Shares, (B) has not since the
               filing of the Registration Statement sold, bid for or
               purchased, or paid anyone any compensation for soliciting
               purchases of, Common Shares of the Fund (except for the
               solicitation of exercises of the Rights pursuant to this
               Agreement) and (C) will not, until the later of the expiration
               of the Rights or the completion of the distribution (within the
               meaning of the anti-


                                      5
<PAGE>


               manipulation rules under the Exchange Act) of the Shares, sell,
               bid for or purchase, pay or agree to pay to any person any
               compensation for soliciting another to purchase any other
               securities of the Fund (except for the solicitation of
               exercises of the Rights pursuant to this Agreement); provided
               that any action in connection with the Fund's Dividend
               Reinvestment Plan will not be deemed to be within the terms of
               this Section 1.a.xiv.

          (xv) The Fund has complied in all previous tax years and intends to
               direct the investment of the proceeds of the Offer described in
               the Registration Statement and the Prospectus in such a manner
               as to continue to comply, with the requirements of Subchapter M
               of the Internal Revenue Code of 1986, as amended ("Subchapter M
               of the Code"), and is qualified and intends to continue to
               qualify as a regulated investment company under Subchapter M of
               the Code.

         (xvi) The Fund has complied in the last five years, and intends to
               direct the investment of the proceeds of the Offer described in
               the Registration Statement and the Prospectus in such a manner
               as to continue to comply, with the asset coverage requirements
               of the Investment Company Act.

        (xvii) The Fund has (a) appointed a Chief Compliance Officer and (b)
               adopted and implemented written policies and procedures which
               the Board of Directors of the Fund has determined are
               reasonably designed to prevent violations of the federal
               securities laws in a manner required by and consistent with
               Rule 38a-1 of the Rules and Regulations under the Investment
               Company Act and is in compliance in all material respects with
               such Rule.

       (xviii) The Prospectus and the Offering Materials complied and
               comply with the requirements of the Securities Act and the
               Securities Act Rules and Regulations. Other than the Prospectus
               and the Offering Materials, the Fund has not, without the
               written permission of the Dealer Manager, used, approved,
               prepared or authorized any letters to beneficial owners of the
               shares of Common Stock of the Fund, forms used to exercise
               rights, any letters from the Fund to securities dealers,
               commercial banks and other nominees or any newspaper
               announcements or other offering materials and information in
               connection with the Offer; provided, however, that any use of
               transmittal documentation and subscription documentation
               independently prepared by the Dealer Manager, broker-dealers,
               trustees, nominees or other financial intermediaries shall not
               cause a violation of this section (xviii).

         (xix) The Fund maintains a system of internal accounting controls
               sufficient to provide reasonable assurance that (A)
               transactions are executed in accordance with management's
               general or specific authorization; (B) transactions are
               recorded as necessary to permit preparation of financial
               statements in conformity with U.S. generally accepted
               accounting principles and to maintain accountability for
               assets; (C) access to assets is permitted only in accordance
               with management's general or specific authorization; and (D)
               the recorded accountability for assets is compared with
               existing assets at reasonable intervals and appropriate action
               is taken with respect to any differences.

          (xx) The Fund has established and maintains disclosure controls and
               procedures; such disclosure controls and procedures (as such
               term is defined in Rule 30a-3 under


                                      6
<PAGE>


               the Investment Company Act) are designed to ensure that
               material information relating to the Fund is made known to the
               Fund's Chief Executive Officer and its Chief Financial Officer
               by others within the Fund, and such disclosure controls and
               procedures are effective to perform the functions for which
               they were established; the Fund's independent registered public
               accounting firm and the Audit Committee of the Board of
               Directors of the Fund have been advised of: (A) any significant
               deficiencies in the design or operation of internal controls
               over financial reporting which could adversely affect the
               Fund's ability to record, process, summarize, and report
               financial data; and (B) any fraud, whether or not material,
               that involves management or other employees who have a role in
               the Fund's internal controls over financial reporting; any
               material weaknesses in the Fund's internal controls over
               financial reporting have been identified for the Fund's
               independent registered public accounting firm; and since the
               date of the most recent evaluation of such disclosure controls
               and procedures, there have been no significant changes in
               internal controls over financial reporting or in other factors
               that could materially affect internal controls over financial
               reporting, including any corrective actions with regard to
               significant deficiencies and material weaknesses.

         (xxi) The Fund and its officers and directors, in their capacities
               as such, are in compliance in all material respects with the
               applicable provisions of the Sarbanes-Oxley Act of 2002 and the
               rules and regulations promulgated thereunder.

     (b)  The Manager represents and warrants to, and agrees with, the Dealer
          Manager as of the date hereof, as of the Representation Date and as
          of the Expiration Date that:

          (i)  Each of the Manager and Nomura Asset Management Co., Ltd., a
               Japanese corporation (the "Investment Adviser"), and together
               with the Manager, the "Advisers") has been duly incorporated
               and is validly existing as a corporation under the laws of the
               State of New York, with respect to the Manager, and as a
               corporation under the laws of Japan, with respect to the
               Investment Adviser, has full power and authority (corporate and
               other) to own its properties and conduct its business as
               described in the Registration Statement and the Prospectus,
               currently maintains all Licenses and Permits material to the
               conduct of its business and necessary to enable such Adviser to
               continue to supervise investments in securities as contemplated
               in the Prospectus.

          (ii) Each Adviser is duly registered as an investment adviser under
               the Advisers Act, and is not prohibited by the Advisers Act or
               the Investment Company Act, or the rules and regulations under
               such Acts, from acting as investment adviser for the Fund as
               contemplated in the Prospectus and the Management Agreement and
               the Investment Advisory Agreement, to which it is a party.

         (iii) Each of this Agreement, the Management Agreement and the
               Investment Advisory Agreement dated as of November 13, 2001
               between the Manager and the Investment Adviser (the "Investment
               Advisory Agreement" and, together with this Agreement and the
               Management Agreement, the "Adviser Agreements") has been duly
               authorized, executed and delivered by each Adviser that is a
               party to such Agreement, and complies with all applicable
               provisions of the Investment Company Act, the Advisers Act and
               the rules and regulations


                                      7
<PAGE>


               under such Acts, and is, assuming due authorization, execution
               and delivery by the other parties thereto, a legal, valid,
               binding and enforceable obligation of each Adviser that is a
               party to such Agreement, subject to the qualification that the
               enforceability of the Manager's and/or Investment Adviser's
               obligations thereunder may be limited by U.S. bankruptcy,
               insolvency, reorganization, moratorium and similar laws of
               general applicability relating to or affecting creditors'
               rights and to general principles of equity (regardless of
               whether enforceability is considered in a proceeding in equity
               or at law), except as enforcement of rights to indemnity and
               contribution hereunder may be limited by federal or state
               securities laws or principles of public policy.

          (iv) Neither the execution, delivery, performance and consummation
               by an Adviser of its obligations under this Agreement or any
               other Adviser Agreement, to which it is a party, nor the
               consummation of the transactions contemplated therein or in the
               Registration Statement nor the fulfillment of the terms thereof
               will conflict with or violate the articles of incorporation,
               by-laws or similar organizational documents of such Adviser, or
               conflict with, result in a breach or violation of, or
               constitute a default or an event of default under, or result in
               the creation or imposition of any lien, charge or encumbrance
               upon any properties or assets of such Adviser under the
               articles of incorporation, bylaws or similar organizational
               document, the terms and provisions of any indenture, mortgage,
               loan agreement, note, insurance or surety agreement, or any
               other material lease, instrument or agreement to which such
               Adviser is a party or by which it may be bound or to which any
               of the property or assets of such Adviser is subject, nor will
               such action result in any violation of any order, law, rule or
               regulation of any court or governmental agency or body having
               jurisdiction over such Adviser or any of its properties.

          (v)  Except as set forth in the Registration Statement, there is no
               pending or, to the best of the Manager's knowledge, threatened
               action, suit or proceeding affecting either Adviser or to which
               either Adviser is a party before or by any court or
               governmental agency, authority or body or any arbitrator which
               would result in any material adverse change in either Adviser's
               condition (financial or other), business prospects, net worth
               or operations, or which would materially and adversely affect
               the properties or assets thereof of a character required to be
               disclosed in the Registration Statement or Prospectus.

          (vi) No consent, approval, authorization, notification or order of,
               or filing with, any court or governmental agency or body is
               required for the consummation by an Adviser of the transactions
               contemplated by this Agreement or any other Adviser Agreement,
               to which such Adviser is a party, except where the failure to
               obtain such consent, approval, authorization, notification or
               order, or make such filing would have a material adverse effect
               on such Adviser's business, properties, management, prospects,
               financial condition or results of operations.

         (vii) Each Adviser (A) has not taken, directly or indirectly, any
               action designed to cause or to result in, or that has
               constituted or which might reasonably be expected to
               constitute, the stabilization or manipulation of the price of
               any security of the Fund to facilitate the issuance of the
               Rights or the sale or resale of the Rights and the Shares, (B)
               has not since the filing of the Registration Statement sold,
               bid for or purchased, or paid anyone any compensation for


                                      8
<PAGE>


               soliciting purchases of, Common Shares of the Fund (except for
               the solicitation of exercises of the Rights pursuant to this
               Agreement) and (C) will not, until the later of the expiration
               of the Rights or the completion of the distribution (within the
               meaning of the anti-manipulation rules under the Exchange Act)
               of the Shares, sell, bid for or purchase, pay or agree to pay
               any person any compensation for soliciting another to purchase
               any other securities of the Fund (except for the solicitation
               of exercises of the Rights pursuant to this Agreement);
               provided that any action in connection with the Fund's Dividend
               Reinvestment Plan will not be deemed to be within the terms of
               this Section 1.b.vii.

        (viii) The Manager intends to direct the Investment Adviser with
               respect to the investment of the proceeds of the Offer
               described in the Registration Statement and the Prospectus in
               such a manner as to cause the Fund to comply with the
               requirements of Subchapter M of the Code. The Investment
               Adviser intends to direct the investment of the proceeds of the
               Offer described in the Registration Statement and the
               Prospectus in such a manner as to cause the Fund to comply with
               the requirements of Subchapter M of the Code.

     (c)  Any certificate required by this Agreement that is signed by any
          officer of the Fund or the Manager and delivered to the Dealer
          Manager or counsel for the Dealer Manager shall be deemed a
          representation and warranty by the Fund or the Manager, as the case
          may be, to the Dealer Manager, as to the matters covered thereby.

2.   Agreement to Act as Dealer Manager.
     -----------------------------------

     (a)  On the basis of the representations and warranties contained herein,
          and subject to the terms and conditions of the Offer:

          (i)  The Fund hereby appoints the Dealer Manager to solicit the
               exercise of Rights and authorizes the Dealer Manager to sell
               Shares purchased by the Dealer Manager from the Fund through
               the exercise of Rights as described herein in accordance with
               the Securities Act, the Investment Company Act and the Exchange
               Act; the Fund hereby authorizes the Dealer Manager to form and
               manage a group of selling broker-dealers (each a "Selling Group
               Member" and collectively the "Selling Group") that enter into a
               Selling Group Agreement with the Dealer Manager in the form
               attached hereto as Exhibit A to solicit the exercise of Rights
               and to sell Shares purchased by the Selling Group Member from
               the Dealer Manager as described herein; and the Fund hereby
               authorizes other soliciting broker-dealers (each a "Soliciting
               Dealer" and collectively the "Soliciting Dealers") that enter
               into a Soliciting Dealer Agreement with the Dealer Manager in
               the form attached hereto as Exhibit B to solicit the exercise
               of Rights. The Dealer Manager hereby agrees to solicit the
               exercise of Rights in accordance with its customary practice
               subject to the terms and conditions of this Agreement, the
               procedures described in the Registration Statement, the
               Prospectus and, where applicable, the terms and conditions of
               such Selling Group Agreement or Soliciting Dealer Agreement;
               and the Dealer Manager hereby agrees to form and manage the
               Selling Group to solicit the exercise of Rights and to sell
               Shares to the Selling Group purchased by the Dealer Manager
               from the Fund through the exercise of Rights as described
               herein in accordance with its customary practice subject to the
               terms and conditions of this Agreement, the


                                      9
<PAGE>


               procedures described in the Registration Statement, the
               Prospectus and, where applicable, the terms and conditions of
               the Selling Group Agreement.

          (ii) The Fund hereby authorizes the Dealer Manager to buy and
               exercise Rights, including unexercised Rights delivered to the
               Subscription Agent for resale and Rights of Record Date
               Shareholders whose record addresses are outside the United
               States held by the Subscription Agent for which no instructions
               are received, on the terms and conditions set forth in such
               Prospectus, and to sell Shares to the public or to Selling
               Group Members at the offering price set by the Dealer Manager
               from time to time. Sales of Shares by the Dealer Manager or
               Selling Group Members shall not be at a price higher than the
               offering price set by the Dealer Manager from time to time.

     (b)  To the extent permitted by applicable law, the Fund agrees to
          furnish, or cause to be furnished, to the Dealer Manager, lists, or
          copies of those lists, showing the names and addresses of, and
          number of Common Shares held by, Record Date Stockholders as of the
          Record Date, and the Dealer Manager agrees to use such information
          only in connection with the Offer, and not to furnish the
          information to any other person except for securities brokers and
          dealers that have been requested by the Dealer Manager to solicit
          exercises of Rights.

     (c)  The Dealer Manager agrees to provide to the Fund, in addition to the
          services described in paragraph 2(a), financial advisory and
          marketing services in connection with the Offer. No advisory fee,
          other than the fees provided for in Section 3 of this Agreement and
          the reimbursement of the Dealer Manager's out-of-pocket expenses as
          described in Section 5 of this Agreement, will be payable by the
          Fund, or any other party hereto, to the Dealer Manager in connection
          with the financial advisory and marketing services provided by the
          Dealer Manager pursuant to this Section 2(c).

     (d)  The Fund and the Dealer Manager agree that the Dealer Manager is an
          independent contractor with respect to the solicitation of the
          exercise of the Rights, and that the Dealer Manager's performance of
          financial advisory and marketing services for the Fund is pursuant
          to a contractual relationship created solely by this Agreement
          entered into on an arm's length basis, and in no event do the
          parties intend that the Dealer Manager act or be responsible as a
          fiduciary to the Fund, its management, stockholders, creditors or
          any other person, including Selling Group Members and Soliciting
          Dealers, in connection with any activity that the Dealer Manager may
          undertake or has undertaken in furtherance of its engagement
          pursuant to this Agreement, either before or after the date hereof.
          The Dealer Manager, Selling Group Members and Soliciting Dealers
          hereby expressly disclaim any fiduciary or similar obligations to
          the Fund, either in connection with the transactions contemplated by
          this Agreement or any matters leading up to such transactions, and
          the Fund hereby confirms its understanding and agreement to that
          effect. The Fund, Dealer Manager, Selling Group Members and
          Soliciting Dealers agree that they are each responsible for making
          their own independent judgments with respect to any such
          transactions, and that any opinions or views expressed by the Dealer
          Manager, Selling Group Members or Soliciting Dealers to the Fund
          regarding such transactions, including but not limited to any
          opinions or views with respect to the subscription price or market
          for the Fund's Shares, do not constitute advice or recommendations
          to the Fund. The Fund hereby waives and releases, to the fullest
          extent permitted by law, any claims that the Fund may have against
          the Dealer Manager, Selling Group Members and Soliciting Dealers
          with respect to any breach or alleged breach of


                                      10
<PAGE>


          any fiduciary or similar duty to the Fund in connection with the
          transactions contemplated by this Agreement or any matters leading
          up to such transactions; provided that this release shall not
          protect or purport to protect the Dealer Manager, Selling Group
          Members and Soliciting Dealers against any liability to which they
          would otherwise be subject by reason of willful misfeasance, bad
          faith or gross negligence, in the performance of their duties, or by
          reason of their reckless disregard of their obligations and duties
          under this Agreement.

     (e)  In rendering the services contemplated by this Agreement, the Dealer
          Manager will not be subject to any liability to the Fund or the
          Manager or any of their affiliates, for any act or omission on the
          part of any soliciting broker or dealer (except with respect to the
          Dealer Manager acting in such capacity) or any other person, and the
          Dealer Manager will not be liable for acts or omissions in
          performing its obligations under this Agreement, except for any
          losses, claims, damages, liabilities and expenses that are finally
          judicially determined to have resulted primarily from the bad faith,
          willful misconduct or gross negligence or reckless disregard of the
          Dealer Manager or by reason of the reckless disregard of the
          obligations and duties of the Dealer Manager under this Agreement.

3.   Dealer Manager Fees. In full payment for the financial advisory,
     marketing and soliciting services rendered and to be rendered hereunder
     by the Dealer Manager, the Fund agrees to pay the Dealer Manager a fee
     (the "Dealer Manager Fee") equal to 3.75% of the aggregate Subscription
     Price for the Shares issued pursuant to the exercise of Rights and the
     Over-Subscription Privilege. In full payment for the soliciting efforts
     to be rendered, the Dealer Manager agrees to reallow selling fees (the
     "Selling Fees") to Selling Group Members equal to 2.50% of the
     Subscription Price per Share for each Share issued pursuant to either (a)
     the exercise of Rights and the Over-Subscription Privilege where such
     Selling Group Member is so designated on the subscription form or (b) the
     purchase for resale from the Dealer Manager in accordance with the
     Selling Group Agreement. In full payment for the soliciting efforts to be
     rendered, the Dealer Manager agrees to reallow soliciting fees (the
     "Soliciting Fees") to Soliciting Dealers equal to 0.50% of the
     Subscription Price per Share for each Share issued pursuant to the
     exercise of Rights and the Over-Subscription Privilege where such
     Soliciting Dealer is so designated on the subscription form, subject to a
     maximum fee based on the number of Common Shares held by such Soliciting
     Dealer through The Depository Trust Company ("DTC") on the Record Date.
     The Dealer Manager agrees to pay the Selling Fees or Soliciting Fees, as
     the case may be, to the broker-dealer designated on the applicable
     portion of the form used by the holder to exercise Rights and the
     Over-Subscription Privilege, and if no broker-dealer is so designated or
     a broker-dealer is otherwise not entitled to receive compensation
     pursuant to the terms of the Selling Group Agreement or Soliciting Dealer
     Agreement, then the Dealer Manager shall retain such Selling Fee or
     Solicitation Fee for Shares issued pursuant to the exercise of Rights and
     the Over-Subscription Privilege. Payment to the Dealer Manager by the
     Fund will be in the form of a wire transfer of same day funds to an
     account or accounts identified by the Dealer Manager. Such payment will
     be made on each date on which the Fund issues Shares after the Expiration
     Date. Payment to a Selling Group Member or Soliciting Dealer will be made
     by the Dealer Manager directly to such Selling Group Member or Soliciting
     Dealer by check to an address identified by such broker-dealer. Such
     payments shall be made on or before the tenth business day following the
     day the Fund issues Shares after the Expiration Date.


                                      11
<PAGE>


4.   Other Agreements.
     -----------------

     (a)  The Fund covenants with the Dealer Manager as follows:

          (i)  The Fund will use its best efforts to cause the Registration
               Statement to become effective and maintain its effectiveness
               under the Securities Act, and will advise the Dealer Manager
               promptly as to the time at which the Registration Statement and
               any amendments thereto (including any post-effective amendment)
               becomes so effective.

          (ii) The Fund will notify, and confirm the notice in writing to, the
               Dealer Manager immediately (A) of the effectiveness of the
               Registration Statement and any amendment thereto (including any
               post-effective amendment), (B) of the receipt of any comments
               from the Commission, (C) of any request by the Commission for
               any amendment to the Registration Statement or any amendment or
               supplement to the Prospectus or for additional information, (D)
               of the issuance by the Commission of any stop order suspending
               the effectiveness of the Registration Statement or the
               initiation of any proceedings for that purpose and (E) of the
               receipt of any written notice regarding the suspension of the
               qualification of the Shares or the Rights for offering or sale
               in any jurisdiction. The Fund will make every reasonable effort
               to prevent the issuance of any stop order described in
               subsection (D) hereunder and, if any such stop order is issued,
               to obtain the lifting thereof at the earliest possible moment.

         (iii) The Fund will give the Dealer Manager notice of its intention
               to file any amendment to the Registration Statement (including
               any post-effective amendment) or any amendment or supplement to
               the Prospectus (including any revised prospectus which the Fund
               proposes for use by the Dealer Manager in connection with the
               Offer, which differs from the prospectus on file at the
               Commission at the time the Registration Statement becomes
               effective, whether or not such revised prospectus is required
               to be filed pursuant to Rule 497(c), (e) or (h) of the Rules
               and Regulations), whether pursuant to the Investment Company
               Act, the Securities Act, or otherwise, and will furnish the
               Dealer Manager with copies of any such amendment or supplement
               a reasonable amount of time prior to such proposed filing or
               use, as the case may be, and will not file any such amendment
               or supplement to which the Dealer Manager or counsel for the
               Dealer Manager shall reasonably object.

          (iv) The Fund will, without charge, deliver to the Dealer Manager,
               as soon as practicable, the number of copies (one of which is
               manually executed) of the Registration Statement as originally
               filed and of each amendment thereto as it may reasonably
               request, in each case with the exhibits filed therewith.

          (v)  The Fund will, without charge, furnish to the Dealer Manager,
               from time to time during the period when the Prospectus is
               required to be delivered under the Securities Act, such number
               of copies of the Prospectus (as amended or supplemented) as the
               Dealer Manager may reasonably request for the purposes
               contemplated by the Securities Act or the Securities Act Rules
               and Regulations.

          (vi) If any event shall occur as a result of which it is necessary,
               in the reasonable opinion of counsel for the Dealer Manager, to
               amend or supplement the


                                      12
<PAGE>


               Registration Statement or the Prospectus (or the other Offering
               Materials) to make the Prospectus (or such other Offering
               Materials) not contain an untrue statement of material fact or
               omit to state a material fact required to be stated therein or
               necessary in order to make the statements therein not
               misleading in the light of the circumstances existing at the
               time it is delivered to a Record Date Stockholder, the Fund
               will forthwith amend or supplement the Prospectus by preparing
               and filing with the Commission (and furnishing to the Dealer
               Manager a reasonable number of copies of) an amendment or
               amendments of the Registration Statement or an amendment or
               amendments of or a supplement or supplements to the Prospectus
               (in form and substance reasonably satisfactory to counsel for
               the Dealer Manager), at the Fund's expense, which will amend or
               supplement the Registration Statement or the Prospectus (or
               otherwise will amend or supplement such other Offering
               Materials) so that the Prospectus (or such other Offering
               Materials) will not contain an untrue statement of a material
               fact or omit to state a material fact required to be stated
               therein or necessary in order to make the statements therein,
               in the light of the circumstances existing at the time the
               Prospectus (or such other Offering Materials) is delivered to a
               Record Date Stockholder, not misleading.

         (vii) The Fund will endeavor, in cooperation with the Dealer Manager
               and its counsel, to qualify the Rights and the Shares for
               offering and sale under the applicable securities laws of such
               states and other jurisdictions of the United States as the
               Dealer Manager may designate and maintain such qualifications
               in effect for the duration of the Offer; provided, however,
               that the Fund will not be obligated to file any general consent
               to service of process, or to qualify as a foreign corporation
               or as a dealer in securities in any jurisdiction in which it is
               not now so qualified. The Fund will file such statements and
               reports as may be required by the laws of each jurisdiction in
               which the Rights and the Shares have been qualified as above
               provided.

        (viii) The Fund will make generally available to its security
               holders as soon as practicable, but no later than April 30,
               2007, an earnings statement (which need not be audited) (in
               form complying with the provisions of Rule 158 of the
               Securities Act Rules and Regulations) covering a twelve-month
               period beginning not later than the first day of the Fund's
               fiscal semi-annual period next following the "effective" date
               (as defined in said Rule 158) of the Registration Statement.

          (ix) For a period of 180 days from the date of this Agreement, the
               Fund will not, without the prior consent of the Dealer Manager,
               offer or sell, or enter into any agreement to sell, any equity
               or equity related securities of the Fund or securities
               convertible into such securities, other than the Rights and the
               Shares and the Common Shares issued in reinvestment of
               dividends or distributions.

          (x)  The Fund will use the net proceeds from the Offer to acquire
               portfolio securities as set forth under "Use of proceeds" in
               the Prospectus.

          (xi) The Fund will use its best efforts to cause the Rights and the
               Shares to be duly authorized for listing by the New York Stock
               Exchange, Inc. prior to the time the Rights and the Shares are
               issued, respectively.


                                      13
<PAGE>


         (xii) The Fund will use its best efforts to maintain its
               qualification as a regulated investment company under
               Subchapter M of the Code.

        (xiii) The Fund will apply the net proceeds from the Offer in such a
               manner as to continue to comply with the requirements of the
               Prospectus and the Investment Company Act.

         (xiv) The Fund will advise or cause the Subscription Agent (A) to
               advise the Dealer Manager and, only where specifically noted,
               each Selling Group Member who specifically requests, from day
               to day during the period of, and promptly after the termination
               of, the Offer, as to the names and addresses of all Record Date
               Stockholders exercising Rights, the total number of Rights
               exercised by each Record Date Stockholder during the
               immediately preceding day, indicating the total number of
               Rights verified to be in proper form for exercise, rejected for
               exercise and being processed and, for the Dealer Manager and
               each Selling Group Member, the number of Rights exercised on
               subscription certificates indicating the Dealer Manager or such
               Selling Group Member, as the case may be, as the broker-dealer
               with respect to such exercise, and as to such other information
               as the Dealer Manager may reasonably request; and will notify
               the Dealer Manager and each Selling Group Member, not later
               than 5:00 P.M., New York City time, on the first business day
               following the Expiration Date, of the total number of Rights
               exercised and Shares related thereto, the total number of
               Rights verified to be in proper form for exercise, rejected for
               exercise and being processed and, for the Dealer Manager and
               each Selling Group Member, the number of Rights exercised on
               subscription certificates indicating the Dealer Manager or such
               Selling Group Member, as the case may be, as the broker-dealer
               with respect to such exercise, and as to such other information
               as the Dealer Manager may reasonably request; (B) to sell any
               Rights received for resale from Record Date Stockholders
               exclusively to or through the Dealer Manager, which may, at its
               election, purchase such Rights as principal or act as agent for
               the resale thereof; and (C) to issue Shares upon the Dealer
               Manager's exercise of Rights no later than the close of
               business on the business day following the day that full
               payment for such Shares has been received by the Subscription
               Agent.

     (b)  Neither the Fund nor the Manager will take, directly or indirectly,
          any action designed to cause or to result in, or that has
          constituted or which might reasonably be expected to constitute, the
          stabilization or manipulation of the price of any security of the
          Fund to facilitate the issuance of the Rights or the sale or resale
          of the Rights or the Shares; provided that any action in connection
          with the Fund's Dividend Reinvestment Plan will not be deemed to be
          within the meaning of this Section 4.b.

     (c)  Except as required by applicable law, the use of any reference to
          the Dealer Manager in any Offering Materials or any other document
          or communication prepared, approved or authorized by the Fund or the
          Manager in connection with the Offer is subject to the prior
          approval of the Dealer Manager, provided that if such reference to
          the Dealer Manager is required by applicable law, the Fund and the
          Manager agree to notify the Dealer Manager within a reasonable time
          prior to such use but the Fund and the Manager are nonetheless
          permitted to use such reference.

5.   Payment of Expenses.
     --------------------


                                      14
<PAGE>


     (a)  The Fund will pay all expenses incident to the performance of its
          obligations under this Agreement and in connection with the Offer,
          including, but not limited to, (i) expenses relating to the printing
          and filing of the Registration Statement as originally filed and of
          each amendment thereto, (ii) expenses relating to the preparation,
          issuance and delivery of the certificates for the Shares and
          subscription certificates relating to the Rights, (iii) the fees and
          disbursements of the Fund's counsel (including the fees and
          disbursements of local counsel) and accountants, (iv) expenses
          relating to the qualification of the Rights and the Shares under
          securities laws in accordance with the provisions of Section
          4.a.vii. of this Agreement, including filing fees, (v) expenses
          relating to the printing or other production and delivery to the
          Dealer Manager of copies of the Registration Statement as originally
          filed and of each amendment thereto and of the Prospectus and any
          amendments or supplements thereto, (vi) the fees and expenses
          incurred with respect to filing with the NASD, Inc., including the
          fees and disbursements of the Dealer Manager's counsel with respect
          thereto, (vii) the fees and expenses incurred in connection with the
          listing of the Rights and the Shares on the New York Stock Exchange,
          Inc., (viii) expenses relating to the printing or other production,
          mailing and delivery expenses incurred in connection with Offering
          Materials, including all reasonable out-of-pocket fees and expenses,
          if any, incurred by the Dealer Manager, Selling Group Members,
          Soliciting Dealers and other brokers, dealers and financial
          institutions in connection with their customary mailing and handling
          of materials related to the Offer to their customers, (ix) the fees
          and expenses incurred with respect to the Subscription Agent and the
          Information Agent and (x) all other fees and expenses (excluding the
          announcement, if any, of the Offer in The Wall Street Journal)
          incurred in connection with or relating to the Offer.

     (b)  In addition to any fees that may be payable to the Dealer Manager
          under this Agreement, the Fund agrees to reimburse the Dealer
          Manager upon request made from time to time for a portion of its
          reasonable expenses incurred in connection with its activities under
          this Agreement, including the reasonable fees and disbursements of
          its legal counsel (excluding fees and expenses pursuant to Section
          5.a.iv which are to be paid directly by the Fund), upon proper
          presentation of documentation therefor, in an amount not to exceed
          $100,000.

     (c)  If this Agreement is terminated by the Dealer Manager in accordance
          with the provisions of Section 6 or Section 9.a., the Fund agrees to
          reimburse the Dealer Manager for all of its reasonable out-of-pocket
          expenses incurred in connection with its performance hereunder,
          including the reasonable fees and disbursements of counsel for the
          Dealer Manager. In the event the transactions contemplated hereunder
          are not consummated, the Fund agrees to pay all of the costs and
          expenses set forth in paragraphs 5.a. and 5.b. which the Fund would
          have paid if such transactions had been consummated.

6.   Conditions of the Dealer Manager's Obligations. The obligations of the
     Dealer Manager hereunder (including any obligation to pay for Shares
     issuable upon exercise of Rights by the Dealer Manager) are subject to
     the accuracy of the respective representations and warranties of the Fund
     and the Manager contained herein, to the performance by the Fund and the
     Manager of their respective obligations hereunder, and to the following
     further conditions:

     (a)  The Registration Statement shall have become effective not later
          than 5:30 P.M., New York City time, on the Record Date, or at such
          later time and date as may be approved by the Dealer Manager; the
          Prospectus and any amendment or supplement thereto shall have been
          filed with the Commission in the manner and within the time period
          required by


                                      15
<PAGE>


          Rule 497(c), (e), (h) or (j), as the case may be, under the
          Securities Act; no stop order suspending the effectiveness of the
          Registration Statement or any amendment thereto shall have been
          issued, and no proceedings for that purpose shall have been
          instituted or threatened or, to the knowledge of the Fund, the
          Manager or the Dealer Manager, shall be contemplated by the
          Commission; and the Fund shall have complied with any request of the
          Commission for additional information (to be included in the
          Registration Statement, the Prospectus or otherwise).



                                      16
<PAGE>

     (b)  On the Representation Date and the Expiration Date, the Dealer
          Manager shall have received:

          (i)  The favorable opinion, dated the Representation Date and the
               Expiration Date, of Sidley Austin Brown & Wood LLP, counsel for
               the Fund, in form and substance satisfactory to counsel for the
               Dealer Manager, to the effect that:

               (1)  The Fund is a corporation duly incorporated and existing
                    under and by virtue of the laws of the State of Maryland
                    and is in good standing with the State Department of
                    Assessments and Taxation, and the Fund has corporate power
                    to own its properties and assets and to conduct its
                    business as described in the Registration Statement and
                    the Prospectus. The Fund is duly qualified to do business
                    as a foreign corporation in each jurisdiction wherein it
                    owns or leases material properties or conducts material
                    business, except where the failure to be so qualified,
                    considering all such cases in the aggregate would have a
                    material adverse effect on the Fund.

               (2)  The Fund is registered with the Commission under the
                    Investment Company Act as a closed-end, non-diversified
                    management investment company; to the best of such
                    counsel's knowledge, no order of suspension or revocation
                    of such registration has been issued or proceedings
                    therefor initiated or threatened by the Commission; all
                    required action has been taken by the Fund under the
                    Securities Act and the Investment Company Act to make the
                    Offer and consummate the issuance of the Rights and the
                    issuance and sale of the Shares upon exercise of the
                    Rights; and the provisions of the Fund's articles of
                    incorporation and Bylaws comply as to form in all material
                    respects with the requirements of the Investment Company
                    Act and the Investment Company Act Rules and Regulations.

               (3)  The Fund has the authority to issue the number of Common
                    Shares set forth in the Prospectus under the caption
                    "Capital Stock" and the Fund has the number of authorized
                    shares of stock set forth in the Prospectus under the
                    caption "Capital Stock;" the authorized stock of the
                    Company conforms in all material respects as to legal
                    matters to the description thereof contained in the
                    Prospectus under the heading "Capital Stock;" the Common
                    Shares issued and outstanding as of the date hereof
                    (immediately prior to the issuance of the Rights, as of
                    the Representation Date and the Shares, as of the
                    Expiration Date) have been duly authorized and validly
                    issued and are fully paid and nonassessable; the issuance
                    of the Rights has been duly authorized and the sale and
                    issuance of the Shares has been duly authorized and, when
                    issued and delivered to and paid for by the Dealer Manager
                    in accordance with the terms of the Offer and the
                    resolutions of the Board of Directors of the Fund, the
                    Shares will be validly issued, fully paid and
                    nonassessable; the form of certificate representing the
                    Shares complies in all material respects with the
                    applicable statutory requirements of the Maryland General
                    Corporation Law (the "MGCL") and with any applicable
                    requirements of the Certificate of Incorporation (the
                    "Charter") of the Fund and the Bylaws (the "Bylaws") of
                    the Fund; and, the Shares are not subject to


                                      17
<PAGE>

                    preemptive or other similar rights under the MGCL, the
                    Charter or the Bylaws; the Rights and the Shares conform
                    as to legal matters in all material respects to all
                    statements relating thereto contained in the Registration
                    Statement, the Prospectus and the other Offering
                    Materials.

               (4)  Each of the Fund Agreements has been duly authorized,
                    executed and delivered by the Fund; each of the Fund
                    Agreements complies in all material respects with all
                    applicable provisions of the Investment Company Act and
                    the Investment Company Act Rules and Regulations, the
                    Advisers Act and the rules and regulations under such Act;
                    and, assuming due authorization, execution and delivery by
                    the other parties thereto, each of the Fund Agreements
                    constitutes a legal, valid and legally binding obligation
                    of the Fund enforceable in accordance with its terms,
                    subject to the qualification that the enforceability of
                    the Fund's obligations thereunder may be limited by U.S.
                    bankruptcy, insolvency, reorganization, moratorium and
                    similar laws of general applicability relating to or
                    affecting creditors' rights and to general principles of
                    equity (regardless of whether enforceability is considered
                    in a proceeding in equity or at law) and, with respect to
                    this Agreement, subject to the qualification that the
                    right to indemnity and contribution hereunder may be
                    limited by federal or state laws.

               (5)  Neither the issuance of the Rights, nor the issuance and
                    sale of the Shares upon exercise of the Rights, nor the
                    execution, delivery, performance and consummation by the
                    Fund of any other of the transactions contemplated in this
                    Agreement, or to the extent relevant to the Rights or the
                    Shares, in the Fund Agreements, nor the consummation of
                    the transactions contemplated herein or therein or in the
                    Registration Statement nor the fulfillment of the terms
                    thereof will conflict with or violate the charter, bylaws
                    or similar organizational documents of the Fund, or will
                    result in a breach or violation of, or constitute a
                    default or an event of default under, or result in the
                    creation or imposition of any lien, charge or encumbrance
                    upon any properties or assets of the Fund under the
                    charter, bylaws or similar organizational documents of the
                    Fund, the terms and provisions of any agreement,
                    indenture, mortgage, loan agreement, note, insurance or
                    surety agreement, lease or other instrument, known to such
                    counsel after reasonable inquiry, to which the Fund is a
                    party or by which it may be bound or to which any of the
                    property or assets of the Fund is subject, nor, to the
                    best of such counsel's knowledge, will such action by the
                    Fund result in any material violation of any order, law,
                    rule or regulation of any U.S. federal, New York or
                    Maryland state court or governmental agency or body having
                    jurisdiction over the Fund or any of its properties or
                    published rule or regulation of the Maryland General
                    Corporation Law; provided, however, that solely for
                    purposes of this paragraph (5) and not for purposes of the
                    opinions expressed in other paragraphs, such counsel need
                    express no opinion with respect to the antifraud
                    provisions of Federal securities laws, state securities
                    laws, laws governing fiduciary relationships, fraudulent
                    transfer laws, antitrust laws, the Employee Retirement
                    Income Security Act of 1974 or laws governing the
                    solicitation of deposits and provided, further, that
                    insofar as performance by the Fund of its obligations
                    under this Agreement and


                                      18
<PAGE>

                    the Fund Agreements is concerned, such counsel need
                    express no opinion as to U.S. bankruptcy, insolvency,
                    reorganization, moratorium, and similar laws of general
                    applicability relating to or affecting creditors' rights.

               (6)  To the best knowledge of such counsel, there is no pending
                    or threatened action, suit or proceeding to which the Fund
                    is a party before or by any court or governmental agency,
                    authority or body or any arbitrator which might result in
                    any material adverse change in the condition (financial or
                    other), business prospects, net worth or operations of the
                    Fund, or which might materially and adversely affect the
                    properties or assets thereof of a character required to be
                    disclosed in the Registration Statement or the Prospectus
                    which is not adequately disclosed therein and there is no
                    contract or other document of the Fund of a character
                    required to be described in the Registration Statement or
                    the Prospectus, or to be filed or incorporated by
                    reference as exhibits to the Registration Statement which
                    are not described or filed or incorporated by reference
                    therein as required by the Securities Act, the Investment
                    Company Act or the Rules and Regulations.

               (7)  No consent, approval, authorization, notification or order
                    of, or filing with, any court or governmental agency or
                    body under the laws of New York or U.S. Federal law that
                    would be normally applicable to transactions of the type
                    contemplated by this Agreement or the Fund Agreements is
                    required for the consummation by the Fund of the
                    transactions contemplated by this Agreement or the Fund
                    Agreements, except (A) such as have been obtained under
                    the Securities Act, the Exchange Act, the Investment
                    Company Act or from the New York Stock Exchange, (B) such
                    as may be required under the blue sky laws of any
                    jurisdiction in connection with the transactions
                    contemplated hereby and (C) such other approvals as have
                    been obtained or the failure to have obtained will not
                    have a material adverse effect on the Fund or its ability
                    to perform its obligations under this Agreement or the
                    Fund Agreements.

               (8)  The outstanding Common Shares have been duly listed on the
                    New York Stock Exchange, Inc. and the Shares and the
                    Rights have been duly approved for listing, subject to
                    official notice of issuance, on the New York Stock
                    Exchange, Inc.

               (9)  The Registration Statement has become effective under the
                    Securities Act; any required filing of the Prospectus or
                    any supplement thereto pursuant to Rule 497(c), (e), (h)
                    or (j) required to be made prior to the date hereof has
                    been made in the manner and within the time period
                    required by Rule 497(c), (e), (h) or (j), as the case may
                    be; to the best knowledge of such counsel, no stop order
                    suspending the effectiveness of the Registration Statement
                    has been issued, and no proceedings for that purpose have
                    been instituted or threatened; and the Registration
                    Statement, the Prospectus and each amendment thereof or
                    supplement thereto (other than the financial statements,
                    schedules, the notes thereto and the schedules and other
                    financial data contained or incorporated by reference
                    therein or omitted therefrom, as to which such counsel
                    need


                                      19
<PAGE>

                    express no opinion) as of their respective effective or
                    issue dates complied as to form in all material respects
                    with the applicable requirements of the Securities Act and
                    the Investment Company Act and the Rules and Regulations.

               (10) The statements in the Prospectus under the headings "The
                    Offer--Federal income tax consequences of the Offer" and
                    "Taxation," insofar as such statements describe or
                    summarize United States tax laws, treaties, doctrines or
                    practices, provide an accurate description thereof as of
                    the date of the Prospectus.

               In rendering such opinion, such counsel may rely as to matters
               of Maryland law on the opinion of Venable LLP and as to matters
               of fact, to the extent they deem proper, on certificates of
               responsible officers of the Fund and public officials.

               Such counsel shall also have stated that, while they have not
               themselves checked the accuracy and completeness of or
               otherwise verified, and are not passing upon and assume no
               responsibility for the accuracy or completeness of, the
               statements contained in the Registration Statement or the
               Prospectus, in the course of their review and discussion of the
               contents of the Registration Statement and Prospectus with
               certain officers and employees of the Fund and its independent
               registered public accounting firm, no facts have come to their
               attention which cause them to believe that the Registration
               Statement, on the date it became effective, contained any
               untrue statement of a material fact or omitted to state any
               material fact required to be stated therein or necessary to
               make the statements contained therein not misleading or that
               the Prospectus, as of its date and on the Representation Date
               or the Expiration Date, as the case may be, contained any
               untrue statement of a material fact or omitted to state any
               material fact required to be stated therein or necessary to
               make the statements therein, in the light of the circumstances
               under which they were made, not misleading (except that such
               counsel need not express any statement or belief with respect
               to the financial statements, schedules or other financial data
               included or incorporated by reference in the Registration
               Statement or Prospectus or omitted therefrom).

          (ii) The favorable opinions, dated the Representation Date and the
               Expiration Date, of Sidley Austin Brown & Wood LLP, counsel for
               the Manager and the Investment Adviser, in form and substance
               satisfactory to counsel for the Dealer Manager to the effect
               that:

               (1)  The Manager is a corporation duly incorporated and validly
                    existing under the laws of State of New York and, based
                    solely on a good standing certificate from the Secretary
                    of State of the State of New York, the Manager is in good
                    standing under the laws of the State of New York, and the
                    Manager has the corporate power to own its properties and
                    assets and conduct its business as described in the
                    Registration Statement and the Prospectus. To the best
                    knowledge of such counsel, each Adviser currently
                    maintains all governmental licenses, permits, consents,
                    orders, approvals, and other authorizations under New York
                    or United States law material to the conduct of its
                    business and necessary to enable such Adviser to continue
                    to supervise investment in securities as contemplated in
                    the Adviser Agreements to which such Adviser is a party.


                                      20
<PAGE>


                    The Manager is duly qualified to do business as a foreign
                    corporation in each jurisdiction wherein it owns or leases
                    material properties or conducts material business, except
                    where the failure to be so qualified, considering all such
                    cases in the aggregate would not have a material adverse
                    effect on the Manager.

               (2)  Each Adviser is registered as an investment adviser under
                    the Advisers Act, and is not prohibited by the Advisers
                    Act or the Investment Company Act, or the rules and
                    regulations under such Acts, from acting as a manager or
                    an investment adviser, as the case may be, for the Fund as
                    contemplated in the Management Agreement and the
                    Investment Advisory Agreement, to which such Adviser is a
                    party.

               (3)  Each of this Agreement and the Management Agreement has
                    been duly authorized, executed and delivered by the
                    Manager and complies in all material respects with all
                    applicable provisions of the Investment Company Act, the
                    Advisers Act and the rules and regulations under such
                    Acts, and is, assuming due authorization, execution and
                    delivery by the other parties thereto, a legal, valid and
                    legally binding obligation of the Manager enforceable in
                    accordance with its terms, subject to the qualification
                    that the enforceability of the Manager's obligations
                    thereunder may be limited by U.S. bankruptcy, insolvency,
                    reorganization, moratorium and similar laws of general
                    applicability relating to or affecting creditors' rights
                    and to general principles of equity (regardless of whether
                    enforceability is considered in a proceeding in equity or
                    at law) and, with respect to this Agreement, subject to
                    the qualification that the right to indemnity and
                    contribution hereunder may be limited by federal and state
                    laws.

               (4)  The Investment Advisory Agreement complies in all material
                    respects with all applicable provisions of the Investment
                    Company Act, the Advisers Act and the rules and
                    regulations under such Acts. The Investment Advisory
                    Agreement has been duly authorized, executed and delivered
                    by the Manager, and, assuming due authorization, execution
                    and delivery by the other parties thereto and assuming
                    that the Investment Advisory Agreement is enforceable
                    under Japanese law, the Investment Advisory Agreement is a
                    legal, valid, binding and enforceable obligation of the
                    Manager and the Investment Adviser in accordance with its
                    terms, subject to the qualification that the
                    enforceability of the obligations of the Manager and the
                    Investment Adviser thereunder may be limited by U.S.
                    bankruptcy, insolvency, reorganization, moratorium and
                    similar laws of general applicability relating to or
                    affecting creditors' rights and to general principles of
                    equity (regardless of whether enforceability is considered
                    in a proceeding in equity or at law).

               (5)  The execution, delivery, performance and consummation by
                    the Manager of its obligations under this Agreement or any
                    of the Adviser Agreements will not materially conflict
                    with or materially violate the charter, by-laws or similar
                    organizational documents of the Manager, or materially
                    conflict with, result in a material breach or violation
                    of, or


                                      21
<PAGE>

                    constitute a material default under, or result in the
                    creation or imposition of any material lien, charge or
                    encumbrance upon any properties or assets of the Manager
                    under the charter, by-laws or similar organizational
                    documents of the Manager, the terms and provisions of any
                    material agreement, indenture, mortgage, loan agreement,
                    note, insurance or surety agreement, lease or other
                    instrument, known to such counsel after reasonable
                    inquiry, to which the Manager is a party or by which it
                    may be bound or to which any of the property or assets of
                    the Manager is subject, nor will such action result in any
                    material violation of any U.S. federal law; provided,
                    however, that solely for purposes of this paragraph (4)
                    and not for purposes of the opinions expressed in other
                    paragraphs, such counsel need express no opinion with
                    respect to the antifraud provisions of the Federal
                    securities laws, state securities laws, laws governing
                    fiduciary relationships, fraudulent transfer laws,
                    antitrust laws, the Employee Retirement Income Security
                    Act of 1974 or laws governing the solicitation of
                    deposits; and provided, further, that in so far as
                    performance by the Manager of its obligations under the
                    Adviser Agreements is concerned, such counsel need express
                    no opinion as to U.S. bankruptcy, insolvency,
                    reorganization, moratorium and similar laws of general
                    applicability relating to or affecting creditors' rights.

               (6)  To the best of such counsel's knowledge, the consummation
                    by the Investment Adviser of its obligations under the
                    Investment Advisory Agreement will not materially conflict
                    with or materially violate any law, rule or regulation
                    applicable to the Investment Adviser of any United States
                    court, regulatory body, administrative agency,
                    governmental body or arbitrator having jurisdiction over
                    the Investment Adviser or any its properties.

               (7)  To the best knowledge of such counsel, there is no pending
                    or threatened action, suit or proceeding to which the
                    Manager is a party before or by any court or governmental
                    agency, authority or body or any arbitrator which would
                    result in a material adverse effect upon the Fund or upon
                    the ability of the Manager to perform its obligations
                    under this Agreement or the Adviser Agreements.

               In rendering such opinion, such counsel has relied as to
               matters of Maryland law, with the Dealer Manager's consent and
               without making any investigation with respect thereto, on the
               opinion of Venable LLP and as to matters of the Investment
               Company Act, the Investment Advisers Act, the Securities Act of
               1933 and the rules and regulations under such Acts, on the
               opinion of Sidley Austin Brown & Wood LLP pursuant to Section
               6.b.i. of this Agreement, and as to matters of fact, to the
               extent they deem proper, on certificates of responsible
               officers of the Investment Adviser and public officials.

               Such counsel shall also have stated that, while they have not
               themselves checked the accuracy and completeness of or
               otherwise verified, and are not passing upon and assume no
               responsibility for the accuracy or completeness of, the
               statements contained in the Registration Statement or the
               Prospectus, in the course of their review and discussion of the
               contents of the Registration Statement and Prospectus with
               certain officers and employees of the Manager, no facts have


                                      22
<PAGE>

               come to their attention which cause them to believe that the
               Registration Statement, on the date it became effective,
               contained any untrue statement of a material fact or omitted to
               state any material fact required to be stated therein or
               necessary to make the statements contained therein not
               misleading or that the Prospectus, as of its date and on the
               Representation Date or the Expiration Date, as the case may be,
               contained any untrue statement of a material fact or omitted to
               state any material fact required to be stated therein or
               necessary to make the statements therein, in the light of the
               circumstances under which they were made, not misleading
               (except that such counsel need not express any statement or
               belief with respect to the financial statements, schedules or
               other financial data included or incorporated by reference in
               the Registration Statement or Prospectus or omitted therefrom).

         (iii) The favorable opinions, dated the Representation Date and the
               Expiration Date, of Keiko Tani, internal counsel for the
               Manager, in form and substance satisfactory to counsel for the
               Dealer Manager to the effect that:

               (1)  To the best knowledge of such counsel, there is no pending
                    or threatened action, suit or proceeding to which the
                    Investment Adviser is a party before or by any court or
                    governmental agency, authority or body or any arbitrator
                    which would result in a material adverse effect upon the
                    Fund or upon the ability of the Investment Adviser to
                    perform its obligations under the Investment Advisory
                    Agreement.

          (iv) The favorable opinion, dated the Representation Date and the
               Expiration Date, of Mori, Hamada & Matsumoto, Japanese counsel
               for the Fund, in form and substance satisfactory to counsel for
               the Dealer Manager, to the effect that, under existing Japanese
               laws and regulations:

               (1)  the Investment Adviser has been duly organized and is
                    validly existing as a corporation under the laws of Japan,
                    and has full corporate power and authority to own its
                    properties and conduct its business as described in the
                    Prospectus;

               (2)  no consent, approval, authorization or order of any court
                    or governmental agency or body is required under the laws
                    of Japan for the issuance of the Rights, the issuance and
                    sale of the Shares by the Fund outside Japan or for the
                    consummation by the Fund of the transactions contemplated
                    in the Fund Agreements based on the representations and
                    warranties contained herein;

               (3)  such counsel does not know of any Japanese statutes,
                    regulations or legal or governmental proceedings
                    materially affecting the operation of the Fund as
                    contemplated in the Prospectus and which would be material
                    to an investor considering an investment in the Fund,
                    except as are described in the Prospectus;

               (4)  the statements in the Prospectus, insofar as such
                    statements describe or summarize Japanese laws, treaties,
                    legal doctrines or legal practices, provide an accurate
                    description thereof in all material respects as of the
                    date of the Prospectus;


                                      23
<PAGE>

               (5)  no taxes or charges of any kind are or will be payable in
                    or to Japan, or any political subdivision thereof, by the
                    Dealer Manager with respect to the Fund Agreements or for
                    the issuance of the Rights and the issuance and sale of
                    the Shares by the Fund assuming all such agreements are
                    signed outside of Japan and such issuance of Rights and
                    the issuance and sale of the Shares are made outside of
                    Japan;

               (6)  except as set forth in the Prospectus, to the best
                    knowledge of such counsel, there is no pending or
                    threatened action, suit or proceeding in Japan before any
                    court or governmental agency, authority or body or any
                    arbitrator involving the Fund, which questions the
                    validity of the Fund Agreements;

               (7)  the Investment Advisory Agreement has been duly
                    authorized, executed and delivered by the Investment
                    Adviser;

               (8)  neither the performance by the Investment Adviser of its
                    obligations under the Investment Advisory Agreement nor
                    the consummation of the transactions contemplated herein
                    or therein nor the fulfillment of the terms hereof or
                    thereof will conflict with, or result in a breach of, or
                    constitute a default under, or result in the creation or
                    imposition of any lien, charge or encumbrance upon any
                    property or assets of the Investment Adviser pursuant to
                    the constitutive documents of the Investment Adviser or,
                    to the knowledge of such counsel, the terms of any
                    material agreement, indenture, mortgage, lease or other
                    instrument to which the Investment Adviser is a party or
                    is bound or to which any of its property or assets is
                    subject, which conflict, breach or default would have a
                    material adverse effect on the ability of the Investment
                    Adviser to carry out its obligations under such
                    agreements, or any Japanese law, order of which such
                    counsel has knowledge, rule or regulation applicable to
                    the Investment Adviser of any Japanese court, regulatory
                    body, administrative agency, governmental body, stock
                    exchange or securities association having jurisdiction
                    over the Investment Adviser or its properties or
                    operations; no consent, approval, authorization or order
                    of any court or governmental agency or body is required
                    under the laws of Japan in connection with the execution,
                    performance and delivery of the Investment Advisory
                    Agreement by the Investment Adviser; and

               (9)  the Investment Adviser owns, possesses or has obtained and
                    currently maintains all material authorizations under
                    Japanese law as are necessary for the Investment Adviser
                    to perform its obligation under the Investment Advisory
                    Agreement as set forth in and contemplated by the
                    Prospectus.

               Such counsel shall also have stated that, while they have not
               themselves checked the accuracy and completeness of or
               otherwise verified, and are not passing upon and assume no
               responsibility for the accuracy or completeness of, the
               statements contained in the Registration Statement or the
               Prospectus, in the course of their review and discussion of the
               contents of the Registration Statement and Prospectus with
               certain officers and employees of the Investment Adviser, no
               facts relating to Japanese laws, treaties, legal doctrines or
               legal practices have come to their attention which cause them
               to believe that the Registration


                                      24
<PAGE>


               Statement, on the date it became effective, contained any
               untrue statement of a material fact or omitted to state any
               material fact required to be stated therein or necessary to
               make the statements contained therein not misleading or that
               the Prospectus, as of its date and on the Representation Date
               or the Expiration Date, as the case may be, contained any
               untrue statement of a material fact or omitted to state any
               material fact required to be stated therein or necessary to
               make the statements therein, in the light of the circumstances
               under which they were made, not misleading (except that such
               counsel need not express any statement or belief with respect
               to the financial statements, schedules or other financial data
               included or incorporated by reference in the Registration
               Statement or Prospectus).

     (c)  The Dealer Manager shall have received from Clifford Chance US LLP,
          counsel for the Dealer Manager, such opinion or opinions, dated the
          Representation Date and the Expiration Date, with respect to the
          Offer, the Registration Statement, the Prospectus and other related
          matters as the Dealer Manager may reasonably require, and the Fund
          shall have furnished to such counsel such documents as they
          reasonably request for the purpose of enabling them to pass upon
          such matters.

     (d)  The Fund shall have furnished to the Dealer Manager certificates of
          the Fund, signed on behalf of the Fund by the President of the Fund,
          dated the Representation Date and the Expiration Date, to the effect
          that the signer(s) of such certificate carefully examined the
          Registration Statement, the Prospectus, any supplement to the
          Prospectus and this Agreement and that, to the best of their
          knowledge:

          (i)  the representations and warranties of the Fund in this
               Agreement are true and correct in all material respects on and
               as of the Representation Date or the Expiration Date, as the
               case may be, with the same effect as if made on the
               Representation Date or the Expiration Date, as the case may be,
               and the Fund has complied with all the agreements and satisfied
               all the conditions on its part to be performed or satisfied at
               or prior to the Representation Date or the Expiration Date, as
               the case may be;

          (ii) no stop order suspending the effectiveness of the Registration
               Statement has been issued and no proceedings for that purpose
               have been instituted or threatened; and

         (iii) since the date of the most recent balance sheet included or
               incorporated by reference in the Prospectus, there has been no
               material adverse change, or any development involving a
               prospective material adverse change, in the condition
               (financial or other), business, prospects, net worth or results
               of operations of the Fund (excluding fluctuations in the Fund's
               net asset value due to investment activities in the ordinary
               course of business), except as set forth in or contemplated in
               the Prospectus.

     (e)  Each Adviser shall have furnished to the Dealer Manager certificates
          of such Adviser, signed on behalf of the Adviser by the Chairman or
          other senior official, dated the Representation Date and the
          Expiration Date, to the effect that the signer(s) of such
          certificate carefully examined the Registration Statement, the
          Prospectus, any supplement to the Prospectus and this Agreement and,
          to the best of their knowledge, that the representations and
          warranties with respect to such Adviser in this Agreement are true
          and correct in all material respects on and as of the Representation
          Date or the Expiration


                                      25
<PAGE>


          Date, as the case may be, with the same effect as if made on the
          Representation Date or the Expiration Date, as the case may be.

     (f)  Ernst & Young LLP shall have furnished to the Dealer Manager
          letters, dated the Representation Date and the Expiration Date, in
          form and substance satisfactory to the Dealer Manager and Ernst &
          Young LLP, stating in effect that:

          (i)  it is an independent registered public accounting firm with
               respect to the Fund within the meaning of the Securities Act
               and the applicable Securities Act Rules and Regulations, and
               the rules and regulations adopted by the Commission and the
               Public Accounting Oversight Board (United States);

          (ii) in its opinion, the audited financial statements examined by it
               and included or incorporated by reference in the Registration
               Statement comply as to form in all material respects with the
               applicable accounting requirements of the Securities Act and
               the Investment Company Act and the respective Rules and
               Regulations with respect to registration statements on Form
               N-2;

         (iii) it has performed procedures specified by the Public Accounting
               Oversight Board for a review of the interim financial
               information for the period ended June 30, 2005;

          (iv) it has performed specified procedures, not constituting an
               audit in accordance with generally accepted auditing standards,
               including a reading of the latest available unaudited financial
               information of the Fund, a reading of the minute books of the
               Fund, and inquiries of officials of the Fund responsible for
               financial and accounting matters, and on the basis of such
               inquiries and procedures nothing came to its attention that
               caused it to believe that at a specified date prior to the
               Representation Date or the Expiration Date, as the case may be,
               there was any change in the Common Shares, any decrease in net
               assets or any increase in long-term debt of the Fund as
               compared with amounts shown in the most recent statement of
               assets and liabilities included or incorporated by reference in
               the Registration Statement, except as the Registration
               Statement discloses has occurred or may occur, or they shall
               state any specific changes, increases or decreases; and

          (v)  in addition to the procedures referred to in clause (iii)
               above, it has compared certain dollar amounts (or percentages
               as derived from such dollar amounts) and other financial
               information regarding the operations of the Fund appearing in
               the Registration Statement, which have previously been
               specified by the Dealer Manager and which shall be specified in
               such letter, and have found such items to be in agreement with
               the accounting and financial records of the Fund.

     (g)  Subsequent to the respective dates as of which information is given
          in the Registration Statement and the Prospectus (excluding an
          amendment or supplement subsequent to the Representation Date), (i)
          there shall not have been any change, increase or decrease specified
          in the letter or letters referred to in paragraph 6(f), (ii) no
          material adverse change, or any development involving a prospective
          material adverse change, in the business, properties, management,
          financial condition or results of operations of the Fund shall have
          occurred or become known and (iii) no transaction which is material
          and adverse to the Fund shall have been entered into by the Fund.


                                      26
<PAGE>

     (h)  Prior to the Representation Date, the Fund shall have furnished to
          the Dealer Manager such further information, certificates and
          documents as the Dealer Manager may reasonably request.

     (i)  If any of the conditions specified in this Section 6 shall not have
          been fulfilled in all material respects when and as provided in this
          Agreement, or if any of the opinions and certificates mentioned
          above or elsewhere in this Agreement shall not be reasonably
          satisfactory in form and substance to the Dealer Manager and its
          counsel, this Agreement and all obligations of the Dealer Manager
          hereunder may be canceled at, or at any time prior to, the
          Expiration Date by the Dealer Manager. Notice of such cancellation
          shall be given to the Fund in writing or by telephone confirmed in
          writing.

7.   Indemnity and Contribution.
     --------------------------

     (a)  Each of the Fund and the Manager, jointly and severally, agrees to
          indemnify, defend and hold harmless the Dealer Manager, each Selling
          Group Member and each Soliciting Dealer, and their respective
          partners, directors and officers, and any person who controls the
          Dealer Manager, a Selling Group Member and or a Soliciting Dealer
          within the meaning of Section 15 of the Securities Act or Section 20
          of the Exchange Act, and the successors and assigns of all of the
          foregoing persons from and against any loss, damage, expense,
          liability or claim (including the reasonable cost of investigation)
          which, jointly or severally, the Dealer Manager, a Selling Group
          Member, a Soliciting Dealer or any such person may incur under the
          Securities Act, the Exchange Act, the Investment Company Act, the
          Advisers Act, common law or otherwise, insofar as such loss, damage,
          expense, liability or claim arises out of or is based upon any
          untrue statement or alleged untrue statement of a material fact
          contained in the Registration Statement (or in the Registration
          Statement as amended by any post-effective amendment thereof by the
          Fund) or in a Prospectus (the term "Prospectus" for the purpose of
          this Section 7 being deemed to include any preliminary prospectus,
          the Offering Materials, the Prospectus and the Prospectus as amended
          or supplemented by the Fund), or arises out of or is based upon any
          omission or alleged omission to state a material fact required to be
          stated in either such Registration Statement or Prospectus or
          necessary to make the statements made therein not misleading, except
          insofar as any such loss, damage, expense, liability or claim arises
          out of or is based upon any untrue statement or omission or alleged
          untrue statement or omission of a material fact contained in and in
          conformity with information furnished in writing by or on behalf of
          the Dealer Manager to the Fund or the Manager expressly for use with
          reference to the Dealer Manager, Selling Group Members or Soliciting
          Dealers in such Registration Statement or such Prospectus.

          If any action, suit or proceeding (together, a "Proceeding") is
          brought against the Dealer Manager, a Selling Group Member, a
          Soliciting Dealer or any such person in respect of which indemnity
          may be sought against the Fund pursuant to the foregoing paragraph,
          the Dealer Manager, a Selling Group Member, a Soliciting Dealer or
          such person shall promptly notify the Fund and the Manager in
          writing of the institution of such Proceeding and the Fund shall
          assume the defense of such Proceeding, including the employment of
          counsel reasonably satisfactory to such indemnified party and
          payment of all reasonable fees and expenses; provided, however, that
          the failure to so notify the Fund and the Manager shall not relieve
          the Fund from any liability which the Fund or the Manager may have
          to the Dealer Manager, a Selling Group Member, a Soliciting Dealer
          or any such person or otherwise, unless such omission results in the
          forfeiture of substantive rights or defenses by the indemnifying
          party. The Dealer Manager, a Selling Group


                                      27
<PAGE>

          Member, a Soliciting Dealer or such person shall have the right to
          employ its or their own counsel in any such case, but the fees and
          expenses of such counsel shall be at the expense of the Dealer
          Manager, a Selling Group Member, a Soliciting Dealer or of such
          person unless the employment of such counsel shall have been
          authorized in writing by the Fund in connection with the defense of
          such Proceeding or the Fund shall not have, within a reasonable
          period of time in light of the circumstances, employed counsel to
          have charge of the defense of such Proceeding or such indemnified
          party or parties shall have reasonably concluded (based on advice
          from counsel) that there may be defenses available to it or them
          which are different from, additional to or in conflict with those
          available to the Fund (in which case the Fund shall not have the
          right to direct the defense of such Proceeding on behalf of the
          indemnified party or parties, but the Fund may employ counsel and
          participate in the defense thereof, but the fees and expenses of
          such counsel shall be at the expense of the Fund), in any of which
          events the reasonable fees and expenses shall be borne by the Fund
          and paid as incurred (it being understood, however, that the Fund
          shall not be liable for the expenses of more than one separate
          counsel (in addition to any local counsel) in any one Proceeding or
          series of related Proceedings in the same jurisdiction representing
          the indemnified parties who are parties to such Proceeding). The
          Fund and the Manager shall not be liable for any settlement of any
          Proceeding effected without the Fund's written consent, but if
          settled with the written consent of the Fund, the Fund and the
          Manager agree to indemnify and hold harmless the Dealer Manager, a
          Selling Group Member, a Soliciting Dealer and any such person from
          and against any loss or liability by reason of such settlement.
          Notwithstanding the foregoing sentence, if at any time an
          indemnified party shall have requested an indemnifying party to
          reimburse the indemnified party for fees and expenses of counsel as
          contemplated by the second sentence of this paragraph, then the
          indemnifying party agrees that it shall be liable for any settlement
          of any Proceeding effected without its written consent if (i) such
          settlement is entered into more than 60 business days after receipt
          by such indemnifying party of the aforesaid request, (ii) such
          indemnifying party shall not have reimbursed the indemnified party
          in accordance with such request prior to the date of such settlement
          and (iii) such indemnified party shall have given the indemnifying
          party at least 30 days' prior notice of its intention to settle. No
          indemnifying party shall, without the prior written consent of the
          indemnified party, effect any settlement of any pending or
          threatened Proceeding in respect of which any indemnified party is
          or could have been a party and indemnity could have been sought
          hereunder by such indemnified party, unless such settlement includes
          an unconditional release of such indemnified party from all
          liability on claims that are the subject matter of such Proceeding
          and does not include an admission of fault, culpability or a failure
          to act, by or on behalf of such indemnified party unless such
          indemnified party gives written consent to such admission of fault,
          culpability or a failure to act.

     (b)  The Dealer Manager agrees to indemnify, defend and hold harmless the
          Fund and the Manager, and their directors and officers, and any
          person who controls the Fund or the Manager, within the meaning of
          Section 15 of the Securities Act or Section 20 of the Exchange Act,
          and the successors and assigns of all of the foregoing persons to
          the same extent as the foregoing indemnity from the Fund or the
          Manager to the Dealer Manager, from and against any loss, damage,
          expense, liability or claim (including the reasonable cost of
          investigation) which, jointly or severally, the Fund, the Manager or
          any such person may incur under the Securities Act, the Exchange
          Act, the Investment Company Act, the Advisers Act, the common law or
          otherwise, insofar as such loss, damage, expense, liability or claim
          arises out of or is based upon any untrue statement or alleged
          untrue statement of a material fact contained in and in conformity
          with information


                                      28
<PAGE>

          furnished in writing by or on behalf of the Dealer Manager to the
          Fund expressly for use with reference to the Dealer Manager in the
          Registration Statement (or in the Registration Statement as amended
          by any post-effective amendment thereof by the Fund) or in a
          Prospectus, or arises out of or is based upon any omission or
          alleged omission to state a material fact in connection with such
          information required to be stated in such Registration Statement or
          such Prospectus or necessary to make such information not misleading
          (with respect to the Prospectus, in light of the circumstances under
          which they were made).

          If any Proceeding is brought against the Fund, the Manager or any
          such person in respect of which indemnity may be sought against the
          Dealer Manager pursuant to the foregoing paragraph, the Fund, the
          Manager or such person shall promptly notify the Dealer Manager in
          writing of the institution of such Proceeding and the Dealer Manager
          shall assume the defense of such Proceeding, including the
          employment of counsel reasonably satisfactory to such indemnified
          party and payment of all reasonable fees and expenses; provided,
          however, that the omission to so notify the Dealer Manager shall not
          relieve the Dealer Manager from any liability which the Dealer
          Manager may have to the Fund or any such person or otherwise, unless
          such omission results in the forfeiture of substantive rights or
          defenses by the indemnifying party. The Fund, the Manager or such
          person shall have the right to employ its own counsel in any such
          case, but the fees and expenses of such counsel shall be at the
          expense of the Fund, the Manager or such person, as the case may be,
          unless the employment of such counsel shall have been authorized in
          writing by the Dealer Manager in connection with the defense of such
          Proceeding or such Dealer Manager shall not have, within a
          reasonable period of time in light of the circumstances, employed
          counsel to have charge of the defense of such Proceeding or such
          indemnified party or parties shall have reasonably concluded (based
          on advice from counsel) that there may be defenses available to it
          or them which are different from or additional to or in conflict
          with those available to the Dealer Manager (in which case the Dealer
          Manager shall not have the right to direct the defense of such
          Proceeding on behalf of the indemnified party or parties, but the
          Dealer Manager may employ counsel and participate in the defense
          thereof but the fees and expenses of such counsel shall be at the
          expense of the Dealer Manager), in any of which events the
          reasonable fees and expenses shall be borne by the Dealer Manager
          and paid as incurred (it being understood, however, that the Dealer
          Manager shall not be liable for the expenses of more than one
          separate counsel (in addition to any local counsel) in any one
          Proceeding or series of related Proceedings in the same jurisdiction
          representing the indemnified parties who are parties to such
          Proceeding). The Dealer Manager shall not be liable for any
          settlement of any such Proceeding effected without the written
          consent of the Dealer Manager but if settled with the written
          consent of the Dealer Manager, the Dealer Manager agrees to
          indemnify and hold harmless the Fund, the Manager and any such
          person from and against any loss or liability by reason of such
          settlement. Notwithstanding the foregoing sentence, if at any time
          an indemnified party shall have requested an indemnifying party to
          reimburse the indemnified party for fees and expenses of counsel as
          contemplated by the second sentence of this paragraph, then the
          indemnifying party agrees that it shall be liable for any settlement
          of any Proceeding effected without its written consent if (i) such
          settlement is entered into more than 60 business days after receipt
          by such indemnifying party of the aforesaid request, (ii) such
          indemnifying party shall not have reimbursed the indemnified party
          in accordance with such request prior to the date of such settlement
          and (iii) such indemnified party shall have given the indemnifying
          party at least 30 days' prior notice of its intention to settle. No
          indemnifying party shall, without the prior written consent of the
          indemnified party, effect any settlement of any pending or


                                      29
<PAGE>

          threatened Proceeding in respect of which any indemnified party is
          or could have been a party and indemnity could have been sought
          hereunder by such indemnified party, unless such settlement includes
          an unconditional release of such indemnified party from all
          liability on claims that are the subject matter of such Proceeding
          and does not include an admission of fault, culpability or a failure
          to act, by or on behalf of such indemnified party unless such
          indemnified party gives written consent to such admission of fault,
          culpability or a failure to act.

     (c)  If the indemnification provided for in this Section 7 is unavailable
          to an indemnified party under subsections (a) and (b) of this
          Section 7 in respect of any losses, damages, expenses, liabilities
          or claims referred to therein, then each applicable indemnifying
          party, in lieu of indemnifying such indemnified party, shall
          contribute to the amount paid or payable by such indemnified party
          as a result of such losses, damages, expenses, liabilities or claims
          (i) in such proportion as is appropriate to reflect the relative
          benefits received by the Fund or the Manager on the one hand and the
          Dealer Manager, Selling Group Member(s) or Soliciting Dealer(s) on
          the other hand from the offering of the Shares or (ii) if the
          allocation provided by clause (i) above is not permitted by
          applicable law, in such proportion as is appropriate to reflect not
          only the relative benefits referred to in clause (i) above but also
          the relative fault of the Fund or the Manager on the one hand and of
          the Dealer Manager on the other in connection with the statements or
          omissions which resulted in such losses, damages, expenses,
          liabilities or claims, as well as any other relevant equitable
          considerations with respect to the Offer. The relative benefits
          received by the Fund or the Manager on the one hand and the Dealer
          Manager, Selling Group Member(s) or Soliciting Dealer(s) on the
          other shall be deemed to be in the same respective proportions as
          the total proceeds from the Offer (net of the Dealer Manager Fee but
          before deducting expenses) received by the Fund or the Manager and
          the total Dealer Manager Fee received by the Dealer Manager, bear to
          the aggregate public offering price of the Shares. The relative
          fault of the Fund or the Manager on the one hand and of the Dealer
          Manager, Selling Group Member(s) or Soliciting Dealer(s) on the
          other shall be determined by reference to, among other things,
          whether the untrue statement or alleged untrue statement of a
          material fact or omission or alleged omission relates to information
          supplied by the Fund or the Manager or the Dealer Manager and the
          parties' relative intent, knowledge, access to information and
          opportunity to correct or prevent such statement or omission. The
          amount paid or payable by a party as a result of the losses,
          damages, expenses, liabilities and claims referred to in this
          subsection shall be deemed to include any legal or other fees or
          expenses reasonably incurred by such party in connection with
          investigating, preparing to defend or defending any Proceeding.

     (d)  The Fund, the Manager and the Dealer Manager agree that it would not
          be just and equitable if contribution pursuant to this Section 7
          were determined by pro rata allocation or by any other method of
          allocation that does not take account of the equitable
          considerations referred to in subsection (c) above. Notwithstanding
          the provisions of this Section 7, neither the Dealer Manager nor any
          Selling Group Member or Soliciting Dealer shall be required to
          contribute any amount in excess of the fees received by it. No
          person guilty of fraudulent misrepresentation (within the meaning of
          Section 11(f) of the Securities Act) shall be entitled to
          contribution from any person who was not guilty of such fraudulent
          misrepresentation.

     (e)  Notwithstanding any other provisions in this Section 7, no party
          shall be entitled to indemnification or contribution under this
          Dealer Manager Agreement against any loss, claim, liability, expense
          or damage arising by reason of such person's willful


                                      30
<PAGE>

          misfeasance, or gross negligence in the performance of its duties
          hereunder or by reason of such person's reckless disregard of such
          person's obligations and duties thereunder. The parties hereto
          acknowledge that the foregoing provision shall not be construed to
          impose upon any such parties any duties under this Agreement other
          than as specifically set forth herein (it being understood that the
          Dealer Manager, Selling Group Members and Soliciting Dealers have no
          duty hereunder to the Fund, the Manager or the Investment Adviser to
          perform any due diligence investigation).

     (f)  The indemnity and contribution agreements contained in this Section
          7 and the covenants, warranties and representations of the Fund and
          the Manager contained in this Agreement shall remain in full force
          and effect regardless of any investigation made by or on behalf of
          the Dealer Manager, a Selling Group Member, a Soliciting Dealer, and
          their respective partners, directors or officers or any person
          (including each partner, officer or director of such person) who
          controls the Dealer Manager, a Selling Group Member or a Soliciting
          Dealer within the meaning of Section 15 of the Securities Act or
          Section 20 of the Exchange Act, or by or on behalf of the Fund, the
          Manager or the Investment Adviser, its directors or officers or any
          person who controls the Fund or the Manager within the meaning of
          Section 15 of the Securities Act or Section 20 of the Exchange Act,
          and shall survive any termination of this Agreement or the issuance
          and delivery of the Rights. The Fund and the Manager and the Dealer
          Manager agree promptly to notify each other of the commencement of
          any Proceeding against it and, in the case of the Fund or the
          Manager against any of their officers or directors in connection
          with the issuance of the Rights, or in connection with the
          Registration Statement or Prospectus.

     (g)  The Fund and the Manager acknowledges that the statements under the
          caption "Distribution arrangements" in the Prospectus constitute the
          only information furnished in writing to the Fund by the Dealer
          Manager expressly for use in such document, and the Dealer Manager
          confirms that such statements are correct in all material respects.

8.   Representations, Warranties and Agreements to Survive Delivery. The
     respective agreements, representations, warranties, indemnities and other
     statements of the Fund or its officers, of the Manager and of the Dealer
     Manager set forth in or made pursuant to this Agreement shall survive the
     Expiration Date and will remain in full force and effect, regardless of
     any investigation made by or on behalf of Dealer Manager or the Fund or
     the Manager or any of their officers, directors or controlling persons
     referred to in Section 7 hereof, and will survive delivery of and payment
     for the Shares pursuant to the Offer. The provisions of Sections 5 and 7
     hereof shall survive the termination or cancellation of this Agreement.

9.   Termination of Agreement.
     -------------------------

     (a)  The obligations of the Dealer Manager hereunder shall be subject to
          termination in the absolute discretion of the Dealer Manager, by
          notice given to the Fund prior to 5:00 p.m., New York time on the
          Expiration Date, if (x) since the time of execution of this
          Agreement or the earlier respective dates as of which information is
          given in the Registration Statement and the Prospectus, there has
          been any material adverse change or any development involving a
          material adverse change in the business, properties, management,
          financial condition or results of operations of the Fund, which
          would, in the Dealer Manager's judgment, make it impracticable or
          inadvisable to proceed with the Offer on the terms and in the manner
          contemplated in the Registration Statement and the Prospectus, or
          (y) since the time of execution of this Agreement, there shall have


                                      31
<PAGE>

          occurred: (i) a suspension or material limitation in trading in
          securities generally on the New York Stock Exchange, Inc. ("NYSE"),
          the American Stock Exchange or the NASDAQ; (ii) a suspension or
          material limitation in trading in the Fund's Common Shares or in the
          Rights on the NYSE; (iii) a general moratorium on commercial banking
          activities declared by either federal or New York State authorities
          or a material disruption in commercial banking or securities
          settlement or clearance services in the United States; (iv) an
          outbreak or escalation of hostilities or acts of terrorism involving
          the United States or Japan or a declaration by the United States or
          Japan of a national emergency or war; or (v) any other calamity or
          crisis or any change in financial, political, economic, currency,
          banking or social conditions in the United States or Japan, if the
          effect of any such event specified in clause (iv) or (v) in the
          Dealer Manager's judgment makes it impracticable or inadvisable to
          proceed with the Offer on the terms and in the manner contemplated
          in the Registration Statement and the Prospectus.

     (b)  If this Agreement is terminated pursuant to this Section, such
          termination shall be without liability of any party to any other
          party except as provided in Section 5 and the Dealer Manager shall
          not have any obligation to purchase any Shares upon exercise of
          Rights.

10.  Notices. All communications hereunder will be in writing and effective
     only on receipt, and, if sent to the Dealer Manager, will be mailed,
     delivered or telegraphed and confirmed to UBS Securities LLC, 299 Park
     Avenue, New York, New York 10171-0026, Attn: Syndicate Department and, if
     to the Fund or the Manager, shall be sufficient in all respects if
     delivered or sent to the Fund or the Manager at Two World Financial
     Center, Building B, New York, New York 10281, Attention: Keiko Tani.

11.  Successors. This Agreement will inure to the benefit of and be binding
     upon the parties hereto and their respective successors and will inure to
     the benefit of the officers and directors and controlling persons
     referred to in Section 7 hereof, and no other person will have any right
     or obligation hereunder.

12.  Applicable Law. This Agreement will be governed by and construed in
     accordance with the laws of the State of New York.

13.  Submission to Jurisdiction. Except as set forth below, no claim (a
     "Claim") which relates to the terms of this Agreement or the transactions
     contemplated hereby may be commenced, prosecuted or continued in any
     court other than the courts of the State of New York located in the City
     and County of New York or in the United States District Court for the
     Southern District of New York, which courts shall have jurisdiction over
     the adjudication of such matters, and each of the Fund and the Manager
     consents to the jurisdiction of such courts and personal service with
     respect thereto. Each of the Fund and the Manager hereby consents to
     personal jurisdiction, service and venue in any court in which any Claim
     arising out of or in any way relating to this Agreement is brought by any
     third party against the Dealer Manager or any indemnified party. Each of
     the Dealer Manager, the Fund (on its behalf and, to the extent permitted
     by applicable law, on behalf of its stockholders and affiliates) and the
     Manager (on its behalf and, to the extent permitted by applicable law, on
     behalf of its stockholders and affiliates) waives all right to trial by
     jury in any action, proceeding or counterclaim (whether based upon
     contract, tort or otherwise) in any way arising out of or relating to
     this Agreement. Each of the Fund and the Manager agrees that a final
     judgment in any such action, proceeding or counterclaim brought in any
     such court shall be conclusive and binding upon the Fund or the Manager,
     as the case may be, and may be enforced in any other courts in the
     jurisdiction of which the Fund or the Manager is or may be subject, by
     suit upon such judgment.


                                      32
<PAGE>

14.  Counterparts. This Agreement may be executed in one or more counterparts,
     each of which shall be deemed to be an original, but all of which
     together shall constitute one and the same instrument.


                                      33
<PAGE>


     If the foregoing is in accordance with your understanding of our
agreement, please so indicate in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement among the Fund, the
Manager and the Dealer Manager.

                                     Very truly yours,

                                     JAPAN SMALLER CAPITALIZATION FUND, INC.


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


                                     NOMURA ASSET MANAGEMENT U.S.A. INC.


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





                                      34
<PAGE>



The foregoing Agreement is hereby confirmed
and accepted as of the date first above written.

UBS SECURITIES LLC


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


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




                                      35
<PAGE>


                                                                     Exhibit A

                    JAPAN SMALLER CAPITALIZATION FUND, INC.

                       5,282,128 Shares of Common Stock
                 Issuable Upon Exercise of Transferable Rights
                         to Subscribe for Such Shares

                            SELLING GROUP AGREEMENT

                                                     New York, New York
                                                     November [   ], 2005

UBS Securities LLC
299 Park Avenue
New York, New York 10171-0026

Ladies and Gentlemen:

     We understand that Japan Smaller Capitalization Fund, Inc., a Maryland
corporation (the "Fund"), proposes to issue to holders of record (the "Record
Date Stockholders") as of the close of business on the record date set forth
in the Prospectus (as defined herein) (the "Record Date") transferable rights
entitling such Record Date Stockholders to subscribe for up to 5,282,128
shares (each a "Share" and, collectively, the "Shares") of common stock, par
value $0.10 per share (the "Common Shares"), of the Fund (the "Offer").
Pursuant to the terms of the Offer, the Fund is issuing each Record Date
Stockholder one transferable right (each a "Right" and, collectively, the
"Rights") for each Common Share held by such Record Date Stockholder on the
Record Date. Such Rights entitle their holders to acquire during the
subscription period set forth in the Prospectus (the "Subscription Period"),
at the price set forth in such Prospectus (the "Subscription Price"), one
Share for each three Rights, on the terms and conditions set forth in such
Prospectus. No fractional shares will be issued. Any Record Date Stockholder
who fully exercises all Rights initially issued to such Record Date
Stockholder (other than those Rights that cannot be exercised because they
represent the right to acquire less than one Share) will be entitled to
subscribe for, subject to allocation, additional Shares (the
"Over-Subscription Privilege") on the terms and conditions set forth in such
Prospectus. The Rights are transferable and are listed on the New York Stock
Exchange, Inc. under the symbol "JOF.RT".

     We further understand that the Fund has appointed UBS Securities LLC to
act as the dealer manager (the "Dealer Manager") in connection with the Offer
and has authorized the Dealer Manager to form and manage a group of
broker-dealers (each a "Selling Group Member" and collectively the "Selling
Group") to solicit the exercise of Rights and to sell Shares purchased by the
Dealer Manager from the Fund through the exercise of Rights.

     We hereby express our interest in participating in the Offer as a Selling
Group Member.

     We hereby agree with you as follows:

     1.   We have received and reviewed the Fund's prospectus dated November
          14, 2005 (the "Prospectus") relating to the Offer and we understand
          that additional copies of the Prospectus (or of the Prospectus as it
          may be subsequently supplemented or amended, if applicable) and any
          other solicitation materials authorized by the Fund relating to the
          Offer ("Offering Materials") will be supplied to us in reasonable
          quantities upon our


                                     A-1
<PAGE>

          request therefor to you. We agree that we will not use any
          solicitation material other than the Prospectus (as supplemented or
          amended, if applicable) and such Offering Materials and we agree not
          to make any representation, oral or written, to any shareholders or
          prospective shareholders of the Fund that are not contained in the
          Prospectus, unless previously authorized to do so in writing by the
          Fund.

     2.   From time to time during the Subscription Period commencing on
          November 21, 2005 and ending at 5:00 p.m., New York City time, on
          the Expiration Date (the term "Expiration Date" means December 16,
          2005, unless and until the Fund shall, in its sole discretion, have
          extended the period for which the Offer is open, in which event the
          term "Expiration Date" with respect to the Offer will mean the
          latest time and date on which the Offer, as so extended by the Fund,
          will expire), we may solicit the exercise of Rights in connection
          with the Offer. We will be entitled to receive fees in the amounts
          and at the times described in Section 4 of this Selling Group
          Agreement with respect to Shares purchased pursuant to the exercise
          of Rights and with respect to which Computershares Shareholder
          Services, Inc. (the "Subscription Agent") has received, no later
          than 5:00 p.m., New York City time, on the Expiration Date, either
          (i) a properly completed and executed Subscription Certificate
          identifying us as the broker-dealer having been instrumental in the
          exercise of such Rights, and full payment for such Shares, or (ii) a
          Notice of Guaranteed Delivery guaranteeing to the Subscription Agent
          by the close of business of the third business day after the
          Expiration Date a properly completed and duly executed Subscription
          Certificate, similarly identifying us, and full payment for such
          Shares. We understand that we will not be paid these fees with
          respect to Shares purchased pursuant to an exercise of Rights for
          our own account or for the account of any of our affiliates. We also
          understand and agree that we are not entitled to receive any fees in
          connection with the solicitation of the exercise of Rights other
          than pursuant to the terms of this Selling Group Agreement and, in
          particular, that we will not be entitled to receive any fees under
          the Fund's Soliciting Dealer Agreement. We agree to solicit the
          exercise of Rights in accordance with the Securities Act of 1933, as
          amended, the Securities Exchange Act of 1934, as amended, the
          Investment Company Act of 1940, as amended, and the rules and
          regulations under each such Act, any applicable securities laws of
          any state or jurisdiction where such solicitations may be lawfully
          made, the applicable rules and regulations of any self-regulatory
          organization or registered national securities exchange and
          customary practice and subject to the terms of the Subscription
          Agent Agreement between the Fund and the Subscription Agent and the
          procedures described in the Fund's registration statement on Form
          N-2 (File Nos. 333-128763 and 811-05992), as amended (the
          "Registration Statement").

     3.   From time to time during the Subscription Period, we may indicate
          interest in purchasing Shares from the Dealer Manager. We understand
          that from time to time the Dealer Manager intends to offer Shares
          obtained or to be obtained by the Dealer Manager through the
          exercise of Rights to Selling Group Members who have so indicated
          interest at prices which shall be determined by the Dealer Manager
          (the "Offering Price"). We agree that, with respect to any such
          Shares purchased by us from the Dealer Manager, the sale of such
          Shares to us shall be irrevocable, and we will offer them to the
          public at the Offering Price at which we purchase them from the
          Dealer Manager. Shares not sold by us at such Offering Price may be
          offered by us after the next succeeding Offering Price is set at the
          latest Offering Price set by the Dealer Manager. The Dealer Manager
          agrees that, if requested by any Selling Group Member, and subject
          to applicable law, the Dealer Manager will set a new Offering Price
          prior to 4:00 p.m., New York City time, on any business day. We
          agree to advise the Dealer Manager from time to time upon request,


                                     A-2
<PAGE>


          prior to the termination of this Selling Group Agreement, of the
          number of Shares remaining unsold which were purchased by us from
          the Dealer Manager and, upon the Dealer Manager's request, we will
          resell to the Dealer Manager any of such Shares remaining unsold at
          the purchase price thereof if in the Dealer Manager's opinion such
          Shares are needed to make delivery against sales made to other
          Selling Group Members. Any shares purchased hereunder from the
          Dealer Manager shall be subject to regular way settlement through
          the facilities of The Depository Trust Company.

     4.   We understand that you will remit to us on or before the tenth
          business day following the day the Fund issues Shares after the
          Expiration Date, following receipt by you from the Fund of the
          Dealer Manager Fee (as defined in the Dealer Manager Agreement,
          dated November 14, 2005, among the Fund, the Manager and UBS
          Securities LLC as the dealer manager (the "Dealer Manager
          Agreement"), a fee (the "Selling Fee") equal to 2.50% of the
          Subscription Price per Share for (A) each Share issued pursuant to
          the exercise of Rights or the Over-Subscription Privilege pursuant
          to each Subscription Certificate upon which we are designated, as
          certified to you by the Subscription Agent, as a result of our
          solicitation efforts in accordance with Section 2 and (B) each Share
          sold by the Dealer Manager to us in accordance with Section 3 less
          any Shares resold to the Dealer Manager in accordance with Section
          3. Your only obligation with respect to payment of the Selling Fee
          to us is to remit to us amounts owing to us and actually received by
          you from the Fund. Except as aforesaid, you shall be under no
          liability to make any payments to us pursuant to this Selling Group
          Agreement. We also understand that the Fund and the Manager have
          agreed to indemnify us pursuant to the terms set forth in the Dealer
          Manager Agreement.

     5.   We agree that you, as Dealer Manager, have full authority to take
          such action as may seem advisable to you in respect of all matters
          pertaining to the Offer. You are authorized to approve on our behalf
          any amendments or supplements to the Registration Statement or the
          Prospectus.

     6.   We represent that we are a member in good standing of the NASD and,
          in making sales of Shares, agree to comply with all applicable rules
          of the NASD including, without limitation, Rule 2740 and Rule 2790
          of the NASD's Conduct Rules. We understand that no action has been
          taken by you or the Fund to permit the solicitation of the exercise
          of Rights or the sale of Shares in any jurisdiction (other than the
          United States) where action would be required for such purpose. We
          agree that we will not, without your approval in advance, buy, sell,
          deal or trade in, on a when-issued basis or otherwise, the Rights or
          the Shares or any other option to acquire or sell Shares for our own
          account or for the accounts of customers, except as provided in
          Sections 2 and 3 hereof and except that we may buy or sell Rights or
          Shares in brokerage transactions on unsolicited orders which have
          not resulted from activities on our part in connection with the
          solicitation of the exercise of Rights and which are executed by us
          in the ordinary course of our brokerage business. We will keep an
          accurate record of the names and addresses of all persons to whom we
          give copies of the Registration Statement, the Prospectus, any
          preliminary prospectus (or any amendment or supplement thereto) or
          any Offering Materials and, when furnished with any subsequent
          amendment to the Registration Statement and any subsequent
          prospectus, we will, upon your request, promptly forward copies
          thereof to such persons.

     7.   Nothing contained in this Selling Group Agreement will constitute
          the Selling Group Members partners with the Dealer Manager or with
          one another or create any association


                                     A-3
<PAGE>

          between those parties, or will render the Dealer Manager or the Fund
          liable for the obligations of any Selling Group Member. The Dealer
          Manager will be under no liability to make any payment to any
          Selling Group Member other than as provided in Section 4 of this
          Selling Group Agreement, and will be subject to no other liabilities
          to any Selling Group Member, and no obligations of any sort will be
          implied. We agree to indemnify and hold harmless the Fund, the
          Manager, you and each other Selling Group Member and each person, if
          any, who controls you and any such Selling Group Member within the
          meaning of either Section 15 of the Securities Act or Section 20 of
          the Exchange Act, against loss or liability caused by any breach by
          us of the terms of this Selling Group Agreement.

     8.   We agree to pay any transfer taxes which may be assessed and paid on
          account of any sales or transfers for our account.

     9.   All communications to you relating to the Offer will be addressed
          to: UBS Securities LLC, 299 Park Avenue, New York, New York
          10171-0026, Attn: Syndicate Department.

     10.  This Selling Group Agreement will be governed by the internal laws
          of the State of New York.


                                     A-4
<PAGE>


     A signed copy of this Selling Group Agreement will be promptly returned
to the Selling Group Member at the address set forth below.

                               Very truly yours,

                               UBS SECURITIES LLC

                               By:  _______________________________________
                                    Name:
                                    Title:


                               By:  _______________________________________
                                    Name:
                                    Title:


PLEASE COMPLETE THE INFORMATION BELOW


Printed Firm Name                                      Address


Contact at Selling Group Member


Authorized Signature                                   Area Code and Telephone


Number


Name and Title                                         Facsimile Number

Dated:

Payment of the Selling Fee shall be mailed
by check to the following address:


                                     A-5
<PAGE>



                                                                     Exhibit B

                    JAPAN SMALLER CAPITALIZATION FUND, INC.

                       5,282,128 Shares of Common Stock
                 Issuable Upon Exercise of Transferable Rights
                         to Subscribe for Such Shares

                          SOLICITING DEALER AGREEMENT

            THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,

                      DECEMBER 16, 2005, UNLESS EXTENDED

                                                         New York, New York
                                                          November [ ], 2005

To Securities Dealers and Brokers:

     Japan Smaller Capitalization Fund, Inc., a Maryland corporation (the
"Fund"), is issuing to its shareholders of record ("Record Date Stockholders")
as of the close of business on November 21, 2005 (the "Record Date")
transferable rights ("Rights") to subscribe for an aggregate of up to
5,282,128 shares (the "Shares") of common stock, par value $0.10 per share
(the "Common Shares"), of the Fund upon the terms and subject to the
conditions set forth in the Fund's prospectus (the "Prospectus") dated
November 14, 2005 (the "Offer"). Each such Record Date Stockholder is being
issued one Right for each full Common Share owned on the Record Date. Such
Rights entitle their holders to acquire during the Subscription Period (as
hereinafter defined) at the Subscription Price (as hereinafter defined) one
Share for each three Rights, on the terms and conditions set forth in such
Prospectus. No fractional shares will be issued. Any Record Date Stockholder
who fully exercises all Rights initially issued to such Record Date
Stockholder (other than those Rights that cannot be exercised because they
represent the right to acquire less than one Share) will be entitled to
subscribe for, subject to allocation, additional Shares (the
"Over-Subscription Privilege") on the terms and conditions set forth in such
Prospectus. The Rights are transferable and are listed on the New York Stock
Exchange, Inc. (the "NYSE") under the symbol "JOF.RT."

     The Subscription Price will be 90% 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 (as hereinafter defined) and the four preceding trading days.
The Subscription Period will commence on November 21, 2005 and end at 5:00
p.m., New York City time on the Expiration Date (the term "Expiration Date"
means December 16, 2005, unless and until the Fund shall, in its sole
discretion, have extended the period for which the Offer is open, in which
event the term "Expiration Date" with respect to the Offer will mean the
latest time and date on which the Offer, as so extended by the Fund, will
expire).

     For the duration of the Offer, the Fund has authorized and the Dealer
Manager (as hereinafter defined) has agreed to reallow a fee to any qualified
broker or dealer executing a Soliciting Dealer Agreement who solicits the
exercise of Rights and the Over-Subscription Privilege in connection with the
Offer and who complies with the procedures described below (a "Soliciting
Dealer"). Upon timely delivery to ComputerShares, the Fund's Subscription
Agent for the Offer, of payment for Shares purchased pursuant to the exercise
of Rights and the Over-Subscription Privilege and of properly completed and
executed documentation as set forth in this Soliciting Dealer Agreement, a
Soliciting Dealer will be entitled to receive a fee (the "Soliciting Fee")
equal to 0.50% of the Subscription Price per


                                     B-1
<PAGE>

Share so purchased subject to a maximum fee based on the number of Common
Shares held by such Soliciting Dealer through The Depository Trust Company on
the Record Date; provided, however, that no payment shall be due with respect
to the issuance of any Shares until payment therefor is actually received. A
qualified broker or dealer is a broker or dealer which is a member of a
registered national securities exchange in the United States or the NASD or
any foreign broker or dealer not eligible for membership who agrees to conform
to the Rules of Fair Practice of the NASD, including Sections 2730, 2740, 2420
and 2750 thereof, in making solicitations in the United States to the same
extent as if it were a member thereof.

     The Fund has authorized and the Dealer Manager has agreed to pay the
Soliciting Fees payable to the undersigned Soliciting Dealer, and the Fund and
the Manager have agreed to indemnify such Soliciting Dealer on the terms set
forth in the Dealer Manager Agreement, dated November 14, 2005, among the
Fund, the Manager and UBS Securities LLC as the dealer manager (the "Dealer
Manager"). Solicitation and other activities by Soliciting Dealers may be
undertaken only in accordance with the applicable rules and regulations of the
Securities and Exchange Commission and only in those states and other
jurisdictions where such solicitations and other activities may lawfully be
undertaken and in accordance with the laws thereof. Compensation will not be
paid for solicitations in any state or other jurisdiction in which, in the
opinion of counsel to the Fund or counsel to the Dealer Manager, such
compensation may not lawfully be paid. No Soliciting Dealer shall be paid
Soliciting Fees with respect to Shares purchased pursuant to an exercise of
Rights and the Over-Subscription Privilege for its own account or for the
account of any affiliate of the Soliciting Dealer. No Soliciting Dealer or any
other person is authorized by the Fund or the Dealer Manager to give any
information or make any representations in connection with the Offer other
than those contained in the Prospectus and other authorized solicitation
material furnished by the Fund through the Dealer Manager. No Soliciting
Dealer is authorized to act as agent of the Fund or the Dealer Manager in any
connection or transaction. In addition, nothing herein contained shall
constitute the Soliciting Dealers partners with the Dealer Manager or with one
another, or agents of the Dealer Manager or of the Fund, or create any
association between such parties, or shall render the Dealer Manager or the
Fund liable for the obligations of any Soliciting Dealer. The Dealer Manager
shall be under no liability to make any payment to any Soliciting Dealer, and
shall be subject to no other liabilities to any Soliciting Dealer, and no
obligations of any sort shall be implied.

     In order for a Soliciting Dealer to receive Soliciting Fees, the
Subscription Agent must have received from such Soliciting Dealer no later
than 5:00 p.m., New York City time, on the Expiration Date, either (i) a
properly completed and duly executed Subscription Certificate with respect to
Shares purchased pursuant to the exercise of Rights and the Over-Subscription
Privilege and full payment for such Shares or (ii) a Notice of Guaranteed
Delivery guaranteeing delivery to the Subscription Agent by close of business
on the third business day after the Expiration Date of (a) a properly
completed and duly executed Subscription Certificate with respect to Shares
purchased pursuant to the exercise of Rights and the Over-Subscription
Privilege and (b) full payment for such Shares. Soliciting Fees will only be
paid after receipt by the Subscription Agent of a properly completed and duly
executed Soliciting Dealer Agreement and a Subscription Certificate
designating the Soliciting Dealer in the applicable portion hereof. In the
case of a Notice of Guaranteed Delivery, Soliciting Fees will only be paid
after delivery in accordance with such Notice of Guaranteed Delivery has been
effected. Soliciting Fees will be paid by the Fund (through the Subscription
Agent) to the Soliciting Dealer by check to an address designated by the
Soliciting Dealer below by the tenth business day following the day the Fund
issues Shares after the Expiration Date.

     All questions as to the form, validity and eligibility (including time of
receipt) of this Soliciting Dealer Agreement will be determined by the Fund,
in its sole discretion, which determination shall be final and binding. Unless
waived, any irregularities in connection with a Soliciting Dealer Agreement or


                                     B-2
<PAGE>

delivery thereof must be cured within such time as the Fund shall determine.
None of the Fund, the Dealer Manager, the Subscription Agent, the Information
Agent for the Offer or any other person will be under any duty to give
notification of any defects or irregularities in any Soliciting Dealer
Agreement or incur any liability for failure to give such notification.

     The acceptance of Soliciting Fees from the Fund by the undersigned
Soliciting Dealer shall constitute a representation by such Soliciting Dealer
to the Fund that: (i) it has received and reviewed the Prospectus; (ii) in
soliciting purchases of Shares pursuant to the exercise of the Rights and the
Over-Subscription Privilege, it has complied with the applicable requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
applicable rules and regulations thereunder, any applicable securities laws of
any state or jurisdiction where such solicitations were made, and the
applicable rules and regulations of any self-regulatory organization or
registered national securities exchange; (iii) in soliciting purchases of
Shares pursuant to the exercise of the Rights and the Over-Subscription
Privilege, it has not published, circulated or used any soliciting materials
other than the Prospectus and any other authorized solicitation material
furnished by the Fund through the Dealer Manager; (iv) it has not purported to
act as agent of the Fund or the Dealer Manager in any connection or
transaction relating to the Offer; (v) the information contained in this
Soliciting Dealer Agreement is, to its best knowledge, true and complete; (vi)
it is not affiliated with the Fund; (vii) it will not accept Soliciting Fees
paid by the Fund pursuant to the terms hereof with respect to Shares purchased
by the Soliciting Dealer pursuant to an exercise of Rights and the
Over-Subscription Privilege for its own account or the account of any
affiliates; (viii) it will not remit, directly or indirectly, any part of
Soliciting Fees paid by the Fund pursuant to the terms hereof to any
beneficial owner of Shares purchased pursuant to the Offer; and (ix) it has
agreed to the amount of the Soliciting Fees and the terms and conditions set
forth herein with respect to receiving such Soliciting Fees. By returning a
Soliciting Dealer Agreement and accepting Soliciting Fees, a Soliciting Dealer
will be deemed to have agreed to indemnify the Fund, the Manager and the
Dealer Manager against losses, claims, damages and liabilities to which the
Fund may become subject as a result of the breach of such Soliciting Dealer's
representations made herein and described above. In making the foregoing
representations, Soliciting Dealers are reminded of the possible applicability
of the anti-manipulation rules under the Exchange Act if they have bought,
sold, dealt in or traded in any Shares for their own account since the
commencement of the Offer.

     Upon expiration of the Offer, no Soliciting Fees will be payable to
Soliciting Dealers with respect to Shares purchased thereafter.

     Capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in the Dealer Manager Agreement or, if not defined therein,
in the Prospectus.

     This Soliciting Dealer Agreement will be governed by the laws of the
State of New York.

     Please execute this Soliciting Dealer Agreement below accepting the terms
and conditions hereof and confirming that you are a member firm of the NASD or
a foreign broker or dealer not eligible for membership who has conformed to
the Rules of Fair Practice of the NASD, including Sections 2730, 2740, 2420
and 2750 thereof, in making solicitations of the type being undertaken
pursuant to the Offer in the United States to the same extent as if you were a
member thereof, and certifying that you have solicited the purchase of the
Shares pursuant to exercise of the Rights and the Over-Subscription Privilege,
all as described above, in accordance with the terms and conditions set forth
in this Soliciting Dealer Agreement. Please forward two executed copies of
this Soliciting Dealer Agreement to: UBS Securities LLC, 299 Park Avenue, New
York, New York 10171-0026, Attn: Syndicate Department.

     A signed copy of this Soliciting Dealer Agreement will be promptly
returned to the Soliciting Dealer at the address set forth below.


                                     B-3
<PAGE>

                                    Very truly yours,

                                    UBS SECURITIES LLC

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


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


PLEASE COMPLETE THE INFORMATION BELOW


Printed Firm Name                                      Address


Contact at Soliciting Dealer


Authorized Signature                                   Area Code and Telephone


Number


Name and Title                                         Facsimile Number

Dated:

Payment of the Soliciting Fee shall be mailed by check to
the following address:



                                     B-4

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2(L)(1)
<SEQUENCE>7
<FILENAME>efc5-2324_ex992l1.txt
<TEXT>
                                                                Exhibit (l)(1)



                        SIDLEY AUSTIN BROWN & WOOD LLP

      BEIJING                787 SEVENTH AVENUE              LOS ANGELES
       ----               NEW YORK, NEW YORK 10019               ----
     BRUSSELS             TELEPHONE 212 839 5300               NEW YORK
       ----                FACSIMILE 212 839 5599                ----
      CHICAGO                  www.sidley.com               SAN FRANCISCO
       ----                                                      ----
      DALLAS                    FOUNDED 1866                   SHANGHAI
       ----                                                      ----
      GENEVA                                                  SINGAPORE
       ----                                                      ----
     HONG KONG                                                   TOKYO
       ----                                                      ----
       LONDON                                               WASHINGTON, D.C.






                                                      November 14, 2005

Japan Smaller Capitalization Fund, Inc.
Two World Financial Center, Building B
New York, New York 10281

Dear Sirs:

     This opinion is furnished in connection with the registration by Japan
Smaller Capitalization Fund, Inc., a Maryland corporation (the "Fund"), of
5,282,128 shares of its common stock, par value $0.10 per share (the
"Shares"), under the Securities Act of 1933, as amended (the "Securities
Act"), to be issued to stockholders of the Fund upon the exercise of the
rights (the "Rights") to be distributed in accordance with the Fund's
registration statement on Form N-2 (File No. 333-128763) under the Securities
Act (the "Registration Statement").

     As counsel for the Fund, we are familiar with the proceedings taken by it
in connection with the authorization, issuance and sale of the Shares in the
manner referred to in the Registration Statement. In addition, we have
examined and are familiar with the articles of incorporation of the Fund, the
by-laws of the Fund, resolutions adopted by the Fund's Board of Directors
relating to the issuance of the Rights and the sale and issuance of the Shares
upon the exercise of the Rights (the "Resolutions") and such other documents
as we have deemed relevant to the matters referred to in this opinion.

  SIDLEY AUSTIN BROWN & WOOD LLP IS A DELAWARE LIMITED LIABILITY PARTNERSHIP
 PRACTICING IN AFFILIATION WITH OTHER SIDLEY AUSTIN BROWN & WOOD PARTNERSHIPS

<PAGE>

     Based upon the foregoing, we are of the opinion that the Shares, when
sold, issued and paid for upon the exercise of the Rights pursuant to the
Resolutions and in the manner referred to in the Registration Statement, will
be validly issued, fully paid and non-assessable shares of common stock of the
Fund.

     We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the prospectus
constituting a part thereof.

     In rendering the foregoing opinion, we have relied as to all matters
involving the laws of the State of Maryland upon the opinion of Venable LLP, a
copy of which is attached hereto.

                                             Very truly yours,

                                             /s/ Sidley Austin Brown & Wood LLP



                                      2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2(L)(2)
<SEQUENCE>8
<FILENAME>efc5-2324_ex992l2.txt
<TEXT>
                                                                Exhibit (l)(2)



                           [VENABLE LLP LETTERHEAD]



                               November 14, 2005

Sidley Austin Brown & Wood LLP
Attention:  John A. MacKinnon, Esq.
787 Seventh Avenue
New York, New York 10019


          Re:  Japan Smaller Capitalization Fund, Inc.:  Registration Statement
               on Form N-2 (1933 Act file no. 333-128763 and 1940 Act file no.
               811-05992)
               ----------------------------------------------------------------

Ladies and Gentlemen:

          We have served as Maryland counsel to Japan Smaller Capitalization
Fund, Inc., a Maryland corporation registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as a closed-end management investment
company (the "Company"), in connection with the filing by the Company of the
above-referenced Registration Statement on Form N-2 (the "Registration
Statement") with the United States Securities and Exchange Commission under
the Securities Act of 1933, as amended (the "1933 Act"), and the 1940 Act,
relating to the registration of 5,282,128 shares (the "Shares") of Common
Stock, $.10 par value per share (the "Common Stock"), of the Company to be
issued to stockholders of the Company upon exercise of rights (the "Rights")
distributed to stockholders of the Company in accordance with the Registration
Statement.

          In connection with our representation of the Company, and as a basis
for the opinion hereinafter set forth, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of the following
documents (hereinafter collectively referred to as the "Documents"):

          1. The Registration Statement, including the form of Prospectus
relating to the Rights and the Shares included therein (the "Prospectus");

          2. The charter (the "Charter") of the Company, certified as
of a recent date by the State Department of Assessments and Taxation of
Maryland (the "SDAT");

          3. The Bylaws of the Company, certified as of the date hereof by an
officer of the Company;

          4. A certificate of the SDAT as to the good standing of the Company,
dated as of a recent date;

<PAGE>

Japan Smaller Capitalization Fund, Inc.
November 14, 2005
Page 2


          5. Resolutions adopted by the Board of Directors of the Company
relating to the issuance of the Rights and the sale and issuance of the Shares
upon exercise of the Rights (the "Resolutions"), certified as of the date
hereof by an officer of the Company;

          6. The form of subscription certificate to be used for the purchase
of the Shares upon the exercise of the Rights, certified as of the date hereof
by an officer of the Company;

          7. A certificate executed by an officer of the Company, dated as of
the date hereof;

          8. Such other documents and matters as we have deemed necessary or
appropriate to express the opinion set forth below, subject to the
assumptions, limitations and qualifications stated herein.

          In expressing the opinion set forth below, we have assumed the
following:

          1. Each individual executing any of the Documents, whether on behalf
of such individual or any other person, is legally competent to do so.

          2. Each individual executing any of the Documents on behalf of a
party (other than the Company) is duly authorized to do so.

          3. Each of the parties (other than the Company) executing any of the
Documents has duly and validly executed and delivered each of the Documents to
which such party is a signatory, and such party's obligations set forth
therein are legal, valid and binding and are enforceable in accordance with
all stated terms.

          4. All Documents submitted to us as originals are authentic. The
form and content of all Documents submitted to us as unexecuted drafts do not
differ in any respect relevant to this opinion from the form and content of
such Documents as executed and delivered. All Documents submitted to us as
certified or photostatic copies conform to the original documents. All
signatures on all such Documents are genuine. All public records reviewed or
relied upon by us or on our behalf are true and complete. All representations,
warranties, statements and information contained in the Documents are true and
complete. There has been no oral or written modification of or amendment to
any of the Documents, and there has been no waiver of any provision of any of
the Documents, by action or omission of the parties or otherwise.

<PAGE>

Japan Smaller Capitalization Fund, Inc.
November 14, 2005
Page 3


          5. Upon any issuance of Shares, the total number of shares of Common
Stock issued and outstanding will not exceed the total number of shares of
Common Stock that the Company is then authorized to issue under the Charter.

          Based upon the foregoing, and subject to the assumptions,
limitations and qualifications stated herein, it is our opinion that:

          1. The Company is a corporation duly incorporated and existing under
and by virtue of the laws of the State of Maryland and is in good standing
with the SDAT.

          2. The Shares have been duly authorized and, when sold, issued and
paid for upon exercise of the Rights pursuant to the Resolutions and the
Prospectus, the Shares will be validly issued, fully paid and nonassessable.

          The foregoing opinion is limited to the substantive laws of the
State of Maryland and we do not express any opinion herein concerning any
other law. We express no opinion as to compliance with federal or state
securities laws, including the securities laws of the State of Maryland, or
the 1940 Act.

          The opinion expressed herein is limited to the matters specifically
set forth herein and no other opinion shall be inferred beyond the matters
expressly stated. We assume no obligation to supplement this opinion if any
applicable law changes after the date hereof or if we become aware of any fact
that might change the opinion expressed herein after the date hereof.

          We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the use of our name in the Prospectus constituting
a part thereof. In giving this consent, we do not admit that we are within the
category of persons whose consent is required by Section 7 of the 1933 Act.
This opinion may not be relied upon by, quoted in any manner to, or delivered
to any other person or entity without, in each instance, our prior written
consent.

                                                    Very truly yours,

                                                    /s/ Venable LLP
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2(L)(3)
<SEQUENCE>9
<FILENAME>efc5-2324_ex992l3.txt
<TEXT>
                                                                Exhibit (l)(3)





     Mori Hamada & Matsumoto
- -----------------------------

                                                  Marunouchi Kitaguchi Building
                                                  1-6-5 Marunouchi, Chiyoda-ku
                                                  Tokyo 100-8222, Japan
                                                  tel  81 3 5223 7777
                                                  fax  81 3 5223 7666



To: Japan Smaller Capitalization Fund, Inc.

      We hereby consent to the reference to our firm included in the
Registration Statement on Form N-2 (Securities Act File No. 333-128763), and
the prospectus constituting a part thereof, of Japan Smaller Capitalization
Fund, Inc.


                                        Very truly yours,

                                        MORI HAMADA & MATSUMOTO


                                        BY: /s/ Ken Miura
                                            ----------------------
                                            Ken Miura, Partner
                                            Tokyo, Japan
                                            November 10, 2005



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2(N)
<SEQUENCE>10
<FILENAME>efc5-2324_ex992n.txt
<TEXT>
                                                                   Exhibit (n)




           CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




We consent to the reference to our firm under the captions "Financial
Highlights," "Committees of the Board of Directors--Audit Committee,"
"Experts" and "Financial Statements" and to the use of our report dated April
1, 2005, which is incorporated by reference, in this Registration Statement
(Form N-2 File Nos. 333-128763 and 811-5992) of Japan Smaller Capitalization
Fund, Inc.





                                                /s/ Ernst & Young LLP

                                                ERNST & YOUNG LLP


New York, New York
November 9, 2005
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
