UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-12
JAPAN SMALLER CAPITALIZATION FUND, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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2
PRELIMINARY NOTICE
SUBJECT TO COMPLETION
JAPAN SMALLER CAPITALIZATION FUND, INC.
535 Madison Avenue
New York, New York 10022
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NOTICE OF 2004 ANNUAL MEETING OF SHAREHOLDERS
August 11, 2004
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TO THE SHAREHOLDERS OF
JAPAN SMALLER CAPITALIZATION FUND, INC.:
Notice is hereby given that the 2004 Annual Meeting of Shareholders (the
"Meeting") of Japan Smaller Capitalization Fund, Inc. (the "Fund") will be
held at the offices of Nomura Asset Management U.S.A. Inc., Two World
Financial Center - Building B, 22nd Floor, New York, New York, on Wednesday,
August 11, 2004, at 10:30 A.M. for the following purposes:
(1) To elect two Directors to serve as Class I Directors, each to serve
for a term to expire in 2007;
(2) To ratify the appointment of PricewaterhouseCoopers LLP as
independent accountants for the fiscal year ending February 28, 2005;
(3) To amend the Fund's principal investment policy concerning investment
in smaller capitalization companies in Japan; and
(4) To transact such other business as may properly come before the
Meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on June 18, 2004
as the record date for the determination of shareholders entitled to notice of
and to vote at the Meeting or any adjournment or postponement thereof.
You are cordially invited to attend the Meeting. Shareholders who do not
expect to attend the Meeting in person are requested to complete, date and
sign the enclosed form of proxy and return it promptly in the envelope
provided for that purpose. The enclosed proxy is being solicited on behalf of
the Board of Directors of the Fund.
By Order of the Board of Directors
NEIL A. DANIELE
Secretary
New York, New York
Dated: July [ ], 2004
[This Page intentionally left blank]
PRELIMINARY PROXY STATEMENT
SUBJECT TO COMPLETION
PROXY STATEMENT
JAPAN SMALLER CAPITALIZATION FUND, INC.
535 Madison Avenue
New York, New York 10022
----------------
2004 ANNUAL MEETING OF SHAREHOLDERS
August 11, 2004
----------------
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Japan Smaller Capitalization
Fund, Inc., a Maryland corporation (the "Fund"), to be voted at the 2004
Annual Meeting of Shareholders of the Fund (the "Meeting") to be held at the
offices of Nomura Asset Management U.S.A. Inc. ("NAM-U.S.A."), Two World
Financial Center - Building B, 22nd Floor, New York, New York, on Wednesday,
August 11, 2004, at 10:30 A.M. The approximate mailing date of this Proxy
Statement is July [ ], 2004.
All properly executed proxies received prior to the Meeting will be voted
at the Meeting in accordance with the instructions marked thereon or otherwise
as provided therein. Unless instructions to the contrary are marked, proxies
will be voted FOR the election of two Class I Directors (Proposal 1), FOR the
ratification of the appointment of PricewaterhouseCoopers LLP ("PWC") as
independent accountants for the Fund (Proposal 2), and FOR the amendment of
the Fund's principal investment strategy concerning investment in smaller
capitalization companies in Japan. (Proposal 3).
Any proxy may be revoked at any time prior to the exercise thereof by
giving written notice to the Secretary of the Fund at the Fund's address
indicated above, by submitting a subsequently executed proxy or by voting in
person at the Meeting.
Only shareholders can attend the Meeting and any adjournment or
postponement thereof. To gain admittance, if you are a shareholder of record,
you must bring a form of personal identification to the Meeting, where your
name will be verified against our shareholder list. If a broker or other
nominee holds your shares and you plan to attend the Meeting, you should bring
a recent brokerage statement showing your ownership of the shares, as well as
a form of personal identification.
The Board of Directors has fixed the close of business on June 18, 2004,
as the record date for the determination of shareholders entitled to notice of
and to vote at the Meeting and at any adjournment or postponement thereof.
Shareholders on the record date will be entitled to one vote for each share
held, with no shares having cumulative voting rights. As of June 18, 2004, the
Fund had outstanding [15,846,384] shares of Common Stock, par value $0.10 per
share.
The Board of Directors of the Fund knows of no business other than the
election of two Class I Directors, the ratification of the appointment of PWC
as the Fund's independent accountants, and the amendment of the Fund's
principal investment policy. If any other matter is properly presented, it is
the intention of the persons named in the enclosed proxy to vote in accordance
with their best judgment.
The Fund sends annual and semi-annual reports to shareholders. The Fund
will furnish, without charge, a copy of its most recent annual and semi-annual
reports succeeding such annual report, if any, to shareholders upon request to
the Fund at 535 Madison Avenue, New York, New York 10022 (or call
1-800-833-0018).
PROPOSAL 1. ELECTION OF DIRECTORS
The Fund's Board of Directors is divided into three classes of Directors
serving staggered three-year terms and until their successors are elected and
qualify. The term of office for Directors in Class I expires at the 2004
Annual Meeting, Class II at the next succeeding annual meeting and Class III
at the following succeeding annual meeting. Each year the term of office of
one class will expire. Each of the two Class I Director nominees proposed in
this Proxy Statement for election to the Board of Directors is currently a
Director of the Fund. The balance of the current Directors consists of two
Class II Directors and two Class III Directors, none of whom is a nominee for
election at the Meeting and all of whom will continue in office after the
Meeting.
Should any vacancy occur on the Board of Directors, the remaining
Directors would be able to fill such vacancy by the affirmative vote of a
majority of the remaining Directors in office, even if the remaining Directors
do not constitute a quorum. Any Director elected by the Board to fill a
vacancy would hold office until the remainder of the full term of the class of
Directors in which the vacancy occurred and until a successor is elected and
qualifies. If the size of the Board is increased, additional Directors will be
apportioned among the three classes to make all classes as nearly equal as
possible.
NOMINEES PROPOSED FOR ELECTION
Messrs. William G. Barker, Jr. and John F. Wallace have been nominated by
the Nominating Committee of the Board of Directors of the Fund, consisting of
the Directors who are not interested persons of the Fund, to serve as Class I
Directors for a three-year term expiring at the annual meeting of
shareholders to be held in 2007 and until their successors are duly elected
and qualified. The nominees have indicated an intention to serve if elected
and have consented to be named in this Proxy Statement.
Unless authority is withheld in the proxy or properly revoked, it is the
intention of the persons named in the accompanying form of proxy to vote each
proxy for the election of the following Class I Director nominees: William G.
Barker, Jr. and John F. Wallace.
The Board of Directors knows of no reason why either of the Class I
Director nominees will be unable to serve, but in the event of any such
unavailability, the proxies received will be voted for such substitute
nominee(s) as the Board of Directors may recommend. Mr. Wallace
2
may be considered an "interested person" of the Fund (within the meaning of
the Investment Company Act of 1940, as amended (the "Investment Company Act"))
as a result of his prior service as a director and officer of NAM-U.S.A. Mr.
Barker is not an "interested person" of the Fund within the meaning of the
Investment Company Act. It is currently expected that any such substitute
nominee for Mr. Barker will not be an "interested person."
Nominees Proposed for Election at the Meeting
The following tables contain information about the nominees for election
as Class I Directors and about Directors whose terms will continue after the
Meeting. Each Director has served as a Director of the Fund since the Fund's
inception in December 1993, except for Mr. Suzuki, who was elected to the Board
effective May 8, 2003, and Mr. Grollman, who was elected to the Board to fill a
vacancy on the Board effective January 1, 2004.
Interested Director
Biographical and other information relating to the Class I Director
nominee who is an "interested person," as defined in the Investment Company
Act, of the Fund is set forth below.
Other
Position(s) Term of Number of Public
Held Office and Funds in the Directorships
with the Length of Principal Occupation(s) Fund Complex Held by the
Name, Address and Age* Fund Time Served During Past Five Years Overseen** Director
---------------------- ----------- ----------- ----------------------- ------------ -------------
Class I (Nominee for a Term Expiring at the Annual Meeting of Shareholders to be held in 2007)
John F. Wallace (75)*** Class I Director Retired since 2000; Vice 2 registered None
17 Rhoda Street Director since 1990 President of the Fund from investment
West Hempstead, New 1997 to 2000 and Secretary companies
York 11552 and Treasurer of the Fund consisting of 2
from 1993 to 1997; Senior portfolios
Vice President of NAM-
U.S.A. from 1981 to 2000,
Secretary from 1976 to 2000,
Treasurer from 1984 to 2000
and Director from 1986 to
2000.
----------------
* Mr. Wallace, if elected, will serve as a Class I Director for a
three-year term expiring at the Annual Meeting of Shareholders to be held
in 2007 and until his successor is elected and qualified or until his
earlier resignation or removal.
** In addition to the Fund, the "Fund Complex" includes Korea Equity Fund,
Inc. at June [ ], 2004.
*** Mr. Wallace is a director of Korea Equity Fund, Inc. for which NAM-U.S.A.
acts as manager and for which Nomura Asset Mamangement ("NAM") acts as
investment adviser. The Fund currently treats Mr. Wallace as an
"interested person," as defined in the Investment Company Act, of the
Fund because of the positions he has previously held with the Fund and
NAM-U.S.A.
3
Non-Interested Director
Biographical and other information relating to the Class I Director nominee
who is not an "interested person," as defined in the Investment Company Act,
of the Fund is set forth below.
Other
Position(s) Term of Number of Public
Held Office and Funds in the Directorships
with the Length of Principal Occupation(s) Fund Complex Held by the
Name, Address and Age* Fund Time Served During Past Five Years Overseen** Director
------------------------------ ----------- ----------- ----------------------- ------------ -------------
Class I (Nominee for a Term Expiring at the Annual Meeting of Shareholders to be held in 2007)
William G. Barker, Jr.*** (71) Class I Director since Retired. 2 registered None
111 Parsonage Road Director 1993 investment
Greenwich, Connecticut companies
06830 consisting of 2
portfolios
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* Mr. Barker, if elected, will serve as a Class I Director for a three-year
term expiring at the Annual Meeting of Shareholders to be held in 2007
and until his successor is elected and qualified or until his earlier
resignation or removal.
** In addition to the Fund, the "Fund Complex" includes Korea Equity Fund,
Inc. at June [ ], 2004.
*** Mr. Barker is also a director of Korea Equity Fund, Inc. for which
NAM-U.S.A. acts as manager and NAM acts as investment adviser, and is a
member of the Audit and Nominating Committees of Korea Equity Fund, Inc.
and a member of the Audit and Nominating Committees of the Fund.
INFORMATION REGARDING OTHER DIRECTORS
Class II Directors
Interested Director
Biographical and other information relating to the Class II Director who is
an "interested person," as defined in the Investment Company Act, of the Fund
is set forth below.
Other
Position(s) Term of Number of Public
Held Office and Funds in the Directorships
with the Length of Principal Occupation(s) Fund Complex Held by the
Name, Address and Age* Fund Time Served During Past Five Years Overseen** Director
---------------------- ----------- ----------- ----------------------- ------------ -------------
Class II (Term Expiring at the Annual Meeting of Shareholders to be held in 2005)
Yasushi Suzuki (50)* President President President of the Fund since 2 registered None
Nomura Asset and Class and Director May 2003; President and investment
Management U.S.A. Inc. II Director since May Director of NAM-U.S.A. companies
535 Madison Avenue 2003 since May 2003; consisting of 2
New York, New York Management Executive of portfolios
10022 NAM from December
1999 to April 2003;
Deputy Managing Director
of Nomura International
PLC (UK) from July 1997
to November 1999.
----------------
* Mr. Suzuki is a director and the president of Korea Equity, Inc. for
which NAM-U.S.A. acts as manager and for which NAM acts as investment
adviser. Mr. Suzuki is an "interested person," as defined in the
Investment Company Act, of the Fund based on his positions as President
of the Fund, and as President and Director of NAM-U.S.A. and former
Management Executive of NAM.
** In addition to the Fund, the "Fund Complex" includes Korea Equity Fund,
Inc. at June [ ], 2004.
Non-Interested Director
Biographical and other information relating to the Class II Director who is
not an "interested person," as defined in the Investment Company Act, of the
Fund is set forth below.
Other
Position(s) Term of Number of Public
Held Office and Funds in the Directorships
with the Length of Principal Occupation(s) Fund Complex Held by the
Name, Address and Age* Fund Time Served During Past Five Years Overseen** Director
---------------------- ----------- ----------- ----------------------- ------------ -------------
Class II (Term Expiring at the Annual Meeting of Shareholders to be held in 2005)
Chor Weng Tan (68)* Class II Director since Managing Director for 2 registered None
The American Society of Director 1990 Education, The American investment
Mechanical Engineering Society of Mechanical companies
3 Park Avenue Engineering since 1991; consisting of 2
New York, New York Director of Tround portfolios
10016 International, Inc. from
1984 to 1997.
-------------------
* Mr. Tan is also a director of Korea Equity Fund, Inc. for which
NAM-U.S.A. acts as manager and NAM acts as investment adviser, and is a
member of the Audit and Nominating Committees of Korea Equity Fund, Inc.
and a member of the Audit and Nominating Committees of the Fund.
** In addition to the Fund, the "Fund Complex" includes Korea Equity Fund,
Inc. at June [ ], 2004.
Class III Directors
Non-Interested Directors
Biographical and other information relating to the Class III Directors, each
of which is not an "interested person," as defined in the Investment Company
Act, of the Fund is set forth below.
Other
Position(s) Term of Number of Public
Held Office and Funds in the Directorships
with the Length of Principal Occupation(s) Fund Complex Held by the
Name, Address and Age* Fund Time Served During Past Five Years Overseen** Director
---------------------- ----------- ----------- ----------------------- ------------ -------------
Class III (Term Expiring at the Annual Meeting of Shareholders to be held in 2006)
Arthur R. Taylor (68) Class III Director since Retired since 2002; 2 registered None
3731 Devonshire Street Director 1990 President of Muhlenberg investment
Allentown, Pennsylvania College from 1992 to companies
18103 2002. consisting of 2
portfolios
William K. Grollman (62) Class III Director since President since 1981 and 2 registered None
SmartPros Ltd. Director January 2004 co-founder of SmartPros investment
5
12 Skyline Drive Ltd. (continuing education companies
Hawthorne, New York provider); former Partner consisting of 2
10532 and National Director of
BDO portfolios Seidman (accounting
firm) former professor at
Fordham University
Graduate School of
Business Administration,
1987 to 1992.
---------------------
* Each Class III Director is also a director of Korea Equity Fund, Inc. for
which NAM-U.S.A. acts as manager and NAM acts as investment adviser, and
each is a member of the Audit and Nominating Committees of Korea Equity
Fund, Inc. and a member of the Audit and Nominating Committees of the
Fund.
** In addition to the Fund, the "Fund Complex" includes Korea Equity Fund,
Inc. at June [ ], 2004.
Committees and Directors' Meetings. The Board of Directors has a standing
Audit Committee and a standing Nominating Committee, each of which consists of
the Directors who are not "interested persons" of the Fund within the meaning
of the Investment Company Act and are "independent" as defined in the New York
Stock Exchange listing standards. Currently, Messrs. Barker, Grollman, Tan and
Taylor are members of these Committees. The principal responsibilities of the
Audit Committee and the Nominating Committee are described below. The Fund has
no standing Compensation Committee. The non-interested Directors have retained
independent legal counsel to assist them in connection with their duties.
During the fiscal year ended February 28, 2004, the Board of Directors
held four meetings, the Audit Committee held two meetings and the Nominating
Committee held one regular meeting and one special meeting. Each incumbent
Director attended at least 75% of the aggregate number of meetings of the
Board of Directors held during the fiscal year and, if a member, of the
aggregate number of meetings of the Audit and Nominating Committees held
during the period for which he served.
Report of the Audit Committee
The following is a report by the Fund's Audit Committee regarding the
responsibilities and functions of the Audit Committee.
Pursuant to the Audit Committee Charter, as revised by the Fund's Board of
Directors on August 6, 2003, the Audit Committee's principal responsibilities
are to: (i) recommend to the Board the selection, retention or termination of
the Fund's independent accountants; (ii) review with the independent
accountants the scope, performance and anticipated cost of their audit; (iii)
discuss with the independent accountants certain matters relating to the
Fund's financial statements, including any adjustment to such financial
statements recommended by such independent accountants, or any other results
of any audit; (iv) ensure that the independent accountants submit on a
periodic basis a formal written statement as to their independence, discuss
with the independent accountants any relationships or services disclosed in
the statement that may impact the objectivity and independence of the Fund's
independent accountants and recommend that the Board take appropriate action
in response to this statement to satisfy itself of the independent
accountants' independence; and (v) consider the comments of the independent
accountants and management's responses thereto with respect to the quality and
adequacy of the
6
Fund's accounting and financial reporting policies and practices and internal
controls. A copy of the Audit Committee charter is attached as Exhibit I.
The Audit Committee has received written disclosures and the letter
required by Independence Standards Board Standard No. 1 from PWC, the Fund's
independent accountants, and discussed with PWC certain matters required to be
discussed by Statement on Auditing Standards No. 61. The Audit Committee has
considered whether the provision of non-audit services by PWC is compatible
with maintaining the independence of those accountants. At its meeting held
December 17, 2003, the Audit Committee reviewed and discussed the audit of the
Fund's financial statements with Fund management and PWC. The Audit Committee
discussed with PWC their independence and considered whether the provision of
services by PWC to the Fund and to NAM-U.S.A. and its affiliates was
compatible with maintaining PWC's independence. Based upon these reviews and
discussions, the Audit Committee recommended to the Board of Directors that
the Fund's audited financial statements be included in the Fund's 2004 Annual
Report to shareholders for the fiscal year ended February 28, 2004.
The Audit Committee's Charter for the Fund requires the Audit Committee
(a) to pre-approve all auditing services to be provided to the Fund by the
Fund's independent accountants; (b) to pre-approve all non-audit services,
including tax services, to be provided to the Fund by the Fund's independent
accountants in accordance with the Securities Exchange Act of 1934, as amended
(the "1934 Act"); provided, however, that the pre-approval requirement with
respect to the provision of non-audit services to the Fund by the Fund's
independent accountants may be waived by the Audit Committee under the
circumstances described in the 1934 Act and (c) to pre-approve non-audit
services to be provided to the Fund's investment adviser (and any entity
controlling, controlled by or under common control with the investment adviser
that provides ongoing services to the Fund) if the engagement relates directly
to the operations and financial reporting of the Fund.
Submitted by the Audit Committee of the Board of Directors of the Fund:
William G. Barker, Jr.
William K. Grollman
Chor Weng Tan
Arthur R. Taylor
Nominating Committee; Consideration of Potential Director Nominees. The
principal purpose of the Nominating Committee is to select and nominate the
Directors of the Fund. It evaluates candidates' qualifications for Board
membership and, with respect to nominees for positions as independent
directors, their independence from the Fund's manager and its affiliates and
other principal service providers. The Committee periodically reviews director
compensation and will recommend any appropriate changes to the Board as a
group. This Committee also reviews and may make recommendations to the Board
relating to those issues that pertain to the effectiveness of the Board in
carrying out its responsibilities in governing the Fund and overseeing the
management of the Fund.
The Nominating Committee will consider potential director candidates
recommended by Fund shareholders provided that the proposed candidates satisfy
the director qualification
7
requirements provided in the Nominating Committee's Charter; are not
"interested persons" of the Fund or the Fund's investment adviser within the
meaning of the Investment Company Act; and are "independent" as defined in the
New York Stock Exchange listing standards. The Committee has determined that
potential director candidates recommended by Fund shareholders must satisfy
the Securities and Exchange Commission's ("SEC") nominee requirements found in
Regulation 14A of the 1934 Act. A copy of the Nominating Committee Charter is
attached as Exhibit II.
Shareholders recommending potential director candidates must substantiate
compliance with these requirements at the time of submitting their proposed
director candidate to the attention of the Fund's Secretary. Notice to the
Fund's Secretary should be provided in accordance with the deadline specified
in the Fund's Bylaws and include the information required by the Fund's
Bylaws.
The Nominating Committee identifies prospective candidates from any
reasonable source and has the ability to engage third-party services for the
identification and evaluation of potential nominees. Generally, the Committee
meets annually to identify and evaluate nominees for Director and makes its
recommendations to the Board. The Committee may meet more frequently if
vacancies on the Board occur during a given year. In identifying and
evaluating a potential nominee to serve as an independent Director of the
Fund, the Nominating Committee will consider, among other factors: (i) whether
the individual has any material relationships that could create any appearance
of impropriety with respect to or a lack of independence from NAM-U.S.A. or
any of its affiliates; (ii) whether the individual has the integrity,
independence of mind and personal qualities to fulfill the fiduciary duties of
an independent Director of the Fund and to protect the interests of Fund
shareholders; (iii) the individual's corporate or other business experience in
significant positions which demonstrate sound business judgment; (iv) whether
the individual has financial and accounting experience; (v) the individual's
ability to attend at least four regular meetings a year and (vi) whether the
individual can add to the balance of experience of the present independent
Directors. The standard of the Nominating Committee is to treat all equally
qualified nominees in the same manner.
No nominee recommendations have been received from shareholders. 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.
Communications with the Board of Directors. Shareholders may send written
communications to the Fund's Board of Directors or to an individual Director
by mailing such correspondence to the Secretary of the Fund (addressed to 535
Madison Avenue, New York, New York 10022). Such communications must be signed
by the shareholder and identify the class and number of shares held by the
shareholder. Properly submitted shareholder communications will, as
appropriate, be forwarded to the entire Board or to the individual Director.
Any shareholder proposal submitted pursuant to Rule 14a-8 under the 1934 Act,
must continue to meet all the requirements of Rule 14a-8. See "Additional
Information -- Proposals of Shareholders" below.
8
Director Attendance at Shareholder Meetings. The Fund has no formal
policy regarding director attendance at shareholder meetings. Each member of
the Board of Directors then in office was present at the Fund's 2003 annual
meeting of shareholders.
Compliance with Section 16(a) of the Securities Exchange Act of 1934.
Section 16(a) of the 1934 Act requires the officers and directors of the Fund
and persons who own more than 10% of a registered class of the Fund's equity
securities to file reports of ownership and changes in ownership on Forms 3, 4
and 5 with the SEC, the New York Stock Exchange and the Boston Stock Exchange.
Officers, directors and greater than 10% shareholders are required by SEC
regulations to furnish the Fund with copies of all Forms 3, 4 and 5 that they
file.
Based solely on the Fund's review of the copies of such forms, and
amendments thereto, furnished to it during or with respect to its most recent
fiscal year, and written representations from certain reporting persons that
they were not required to file Form 5 with respect to the most recent fiscal
year, the Fund believes that all of its officers, directors, greater than 10%
beneficial owners and other persons subject to Section 16 of the 1934 Act due
to the requirements of Section 30 of the Investment Company Act (i.e., any
advisory board member, investment adviser or affiliated person of the Fund's
investment adviser), have complied with all filing requirements applicable to
them with respect to transactions during the Fund's most recent fiscal year.
Interested Persons. The Fund currently treats one Class I Director
nominee, Mr. Wallace, as an "interested person" of the Fund within the meaning
of Section 2(a)(19) of the Investment Company Act because of the positions he
held with the Fund and NAM-U.S.A. Prior to his retirement from NAM-U.S.A. in
2000, Mr. Wallace was a Vice President, Treasurer and Secretary of the Fund
and a Senior Vice President, Secretary, Treasurer and Director of NAM-U.S.A.
Compensation of Directors. NAM-U.S.A. pays all compensation of all
Directors of the Fund who are affiliated with NAM-U.S.A. or any of its
affiliates. The Fund pays to each Director not affiliated with NAM-U.S.A. or
any of its affiliates an annual fee of $5,000 plus $500 per Board or committee
meeting attended, together with such Director's actual out-of-pocket expenses
relating to attendance at meetings. Such fees and expenses aggregated
$35,090 for the fiscal year ended February 28, 2004.
The following table sets forth for the periods indicated compensation
paid by the Fund to its Directors and the aggregate compensation paid to the
Directors by all U.S. registered investment companies managed by NAM-U.S.A. or
advised by NAM:
Aggregate Pension or Retirement Aggregate Compensation from
Compensation Benefit Accrued as Part of Fund Complex Paid to
from Fund For Fund Expenses for its Directors During the
its Fiscal Year Ended Fiscal Year Ended Calendar Year Ended
Name of Director February 28, 2004 February 28, 2004 December 31, 2003*
---------------- ----------------- ----------------- ------------------
William G. Barker, Jr............. $ 8,500 None $17,000
William K. Grollman**............. - None -
Yasushi Suzuki.................... - None -
Chor Weng Tan..................... $ 8,000 None $16,000
Arthur R. Taylor.................. $ 8,500 None $17,000
John F. Wallace................... $ 7,500 None $15,000
9
------------------
* 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, 2003.
** Mr. Grollman was appointed a Director of the Fund effective January 1,
2004.
Officers of the Fund. Officers of the Fund are elected and appointed by
the Directors and hold office until they resign, are removed or are otherwise
disqualified to serve. Biographical and other information relating to the
officers of the Fund is set forth below:
Name, Address*
and Position(s) Held Term of Office** and Principal Occupation(s)
Age of Officers with the Fund Length of Time Served During Past Five Years
----------------------- ------------------------ ------------------------- ----------------------------------------
Yasushi Suzuki President and Director President since 2003 President of the Fund since May 2003;
(50) President and Director of
NAM-U.S.A. since May 2003;
Management Executive of NAM from
1999 to April 2003.
Kenneth L. Munt Vice President Vice President since Senior Vice President and
(57) 2001 Secretary of NAM-U.S.A. since
1999; Senior Vice President of
Human Resources for Middlesex
Mutual Assurance Company
(insurance company) from 1996 to
1999.
Rita Chopra- Treasurer Treasurer since 2002 Vice President of NAM-U.S.A. since
Brathwaite (35) 2001: Assistant Vice President of
NAM-U.S.A. from 1999 to 2000.
Senior Accounting Manager from
1997 to 1998.
Neil Daniele Secretary Secretary since 2002 Senior Vice President of
(43) NAM-U.S.A. Inc. 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 535 Madison Avenue, New York,
New York 10022.
** Elected by and serves at the pleasure of the Board of Directors.
Stock Ownership. Information relating to the share ownership by each
Director nominee and each current Director at June [ ], 2004 is set forth
below.
Aggregate Dollar Range of
Shares of Common Aggregate Dollar Range Securities in All Registered
Name of Director Nominee/ Stock of the Fund of Equity Securities Funds in the Fund Complex
Current Directors Beneficially Owned in the Fund Overseen by Director Nominee
----------------- ------------------ ----------- ----------------------------
Nominees
William G. Barker, Jr.............. -0- None None
John F. Wallace.................... 700 $1-$10,000 $10,000-$50,000
10
Current Directors
Yasushi Suzuki .................... -0- None None
Chor Weng Tan...................... 1,000 $10,000-$50,000 $10,000-$50,000
William K. Grollman................ -0- None None
Arthur R. Taylor................... -0- None None
As of July [ ], 2004, the Directors and officers of the Fund as a group
(nine 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 (four
persons) owned an aggregate of less than 1% of the outstanding shares of
Nomura Holdings, Inc., the parent company of each of NAM-U.S.A. and NAM.
PROPOSAL 2. RATIFICATION OF APPOINTMENT OF
INDEPENDENT ACCOUNTANTS
The Audit Committee has approved PWC as independent accountants for the
Fund for the fiscal year ending February 28, 2005. A majority of members of
the Board of Directors, including a majority of the members of the Board of
Directors who are not "interested" persons of the Fund, has ratified the
appointment of PWC as the Fund's independent accountants for that fiscal year.
Based principally on representations from PWC, the Fund knows of no direct
financial or material indirect financial interest of PWC in the Fund. PWC, or
a predecessor firm, has served as the independent accountants for the Fund
since inception.
PWC also acts as independent accountants for NAM-U.S.A. and certain of
its affiliated entities and for one other investment company for which
NAM-U.S.A. acts as a manager. The Audit Committee of the Fund considered the
fact that PWC has been retained as the independent accountants for these other
entities in its evaluation of the ability of PWC to also function in that
capacity for the Fund.
A representative of PWC is expected to be present at the Meeting and will
have the opportunity to make a statement and is expected to be available to
answer appropriate questions from shareholders concerning the Fund's financial
statements.
PROPOSAL 3. AMENDMENT OF THE FUND'S PRINCIPAL INVESTMENT POLICY
CONCERNING INVESTMENT IN SMALLER CAPITALIZATION COMPANIES IN
JAPAN
The Fund's Board of Directors unanimously recommends that all of the
Fund's shareholders vote FOR Proposal 3.
Background. The Fund was organized in 1990 to invest primarily in the
equity securities of emerging companies in Japan. At that time, the equity
securities of emerging companies were primarily traded on the Japanese
over-the-counter market ("OTC market"), the principal trading market for small
capitalization growth companies in Japan.
11
Since that time, the Japanese equity market for emerging companies in
Japan has changed significantly. The formation of other markets in Japan
designed for the listing of equity securities of emerging companies has
provided an increased opportunity for emerging companies in Japan to list
their equity securities in a wider range of markets.
As a result, the Fund's Board of Directors approved, and thereafter the
Fund's shareholders approved at the Fund's 2000 Annual Meeting of
Shareholders, an amendment to the Fund's principal investment strategy whereby
the Fund will, under normal circumstances, invest at least 65% of its total
assets in equity securities traded in the Japan OTC market and up to 35% of
its total assets in equity securities of emerging companies traded in other
markets determined by NAM-U.S.A. to be appropriate markets for emerging
companies in Japan.
Since 2000, further trading market developments have provided additional
opportunities for emerging companies in Japan to list their equity securities.
The JASDAQ, which has taken over as the successor market to what was
previously known as the OTC market, has experienced strong competition for
listings of the equity securities of emerging companies from newly developed
trading markets (such as Mothers, Hercules and Centrex) and from established
stock exchanges through the relaxation of listing requirements, particularly
the Tokyo Stock Exchange. In 2002, the Fund's Board of Directors adopted a
non-fundamental investment objective and policy whereby the Fund, under normal
circumstances, invests at least 80% of its total assets in smaller
capitalization Japanese equity securities traded in the Japanese OTC market,
Second Section of the Tokyo, Osaka and Nagoya Stock Exchanges, JASDAQ,
Mothers, NASDAQ Japan, and other Japanese equity securities included in the
indices determined by NAM-U.S.A. to be appropriate indices for smaller
capitalization companies in Japan.
Proposal. In order to address trading market developments in Japan, the
Fund's Board of Directors has approved, and recommends that the shareholders
of the Fund approve, a proposal that would modify the Fund's principal
investment strategy concerning investment in smaller capitalization companies
in Japan. If the proposal is approved by stockholders, the Fund will adopt the
following principal investment strategy whereby the Fund will, under normal
circumstances:
invest at least 80% of its total assets in smaller capitalization
Japanese equity securities traded on the Tokyo, Osaka and Nagoya Stock
Exchanges, JASDAQ, Mothers, Hercules, Centrex, and other indices or
markets determined by Nomura Asset Management U.S.A. Inc. to be
appropriate indices or markets for smaller capitalization companies in
Japan ("Smaller Capitalization Companies").
The proposed principal investment strategy will allow the Fund to provide
a more effective vehicle for investment in Smaller Capitalization Companies by
increasing the Fund's ability to invest in Smaller Capitalization Companies
listed on the broadest possible range of stock exchange and off-exchange
trading markets. Since the proposed principal investment strategy will be
substantially similar to the Fund's current non-fundamental investment
objective and policy, the Fund's Board of Directors has removed the Fund's
non-fundamental policy.
Defining Smaller Capitalization Companies. Currently, NAM-U.S.A.
considers Smaller Capitalization Companies as those companies whose equity
securities are included, at the time of
12
purchase, in the RUSSELL/NOMURA Small Cap(TM) Index (the "RN Small Cap
Index"). This index represents the bottom 15% of the total market
capitalization of the RUSSELL/NOMURA Total Market (TM) Index (the "RN Total
Index"). The RN Small Cap Index measures the performance of small companies
and currently consists of approximately 1,250 of the smallest securities in
the RN Total Index. The RN Total Index represents approximately 98% of the
investable Japan equity market, and is currently comprised of approximately
1,600 of the largest Japanese equity securities as determined by total market
capitalization and measures the performance of the broad market.
NAM-USA also considers Smaller Capitalization Companies as those equity
securities that, at the time of purchase, are not included in the RN Total
Index. Currently, the largest of the Smaller Capitalization Companies has an
approximate market capitalization of 82.5 billion Yen (approximately US$750
million).
The Fund's Investment Objective Remains the Same. The Fund's investment
objective is, and will remain, to provide shareholders with long-term capital
appreciation primarily through investments in Smaller Capitalization
Companies. Since its inception, the Fund has established itself as a vehicle
for investment in Smaller Capitalization Companies.
The New Investment Strategy Will Provide the Fund with Greater Investment
Flexibility. By amending its principal investment strategy, the Fund may
invest in a broader range of emerging companies in Japan and maintain its
position as an effective vehicle for investment in newly established companies
in Japan.
Possible Risks Associated With Newly Organized Trading Exchanges. Trading
on newly organized trading exchanges may be more sensitive to adverse changes
in economic or political conditions than the well-established stock exchanges.
Such new financial markets also will be subject to governmental regulation and
may be adversely affected by government policies. There can be no assurance
that new trading markets will be successful in attracting new listings of
companies or survive for any particular period of time.
Your Board's Recommendation. The Board has concluded that the revised
investment strategy will benefit the Fund and its shareholders. The Directors
recommend that all shareholders vote FOR the proposal. Upon shareholder
approval, the proposed principal investment strategy will become effective
immediately. If the proposal is not approved by the Fund's shareholders, the
Fund's current principal investment strategy will remain in effect and the
Board will readopt the Fund's previous non-fundamental policy.
ADDITIONAL INFORMATION
Expenses and Methods of Proxy Solicitation
The expense of preparation, printing and mailing of the enclosed form of
proxy, this Proxy Statement and the accompanying Notice of Meeting will be
borne by the Fund. The Fund will reimburse banks, brokers and others for their
reasonable expenses in forwarding proxy solicitation material to the
beneficial owners of the shares of the Fund. In addition to the solicitation
of proxies by mail, proxies may be solicited in person or by telephone. The
Fund has retained The Altman Group ("Altman"), a firm that specializes in
proxy solicitation services, to
13
assist in the solicitation of proxies for the Meeting for a fee of
approximately [$4,000], together with reimbursement of such firm's expenses.
Altman is obligated to provide proxy solicitation services including, but not
limited to, distribution of proxies to broker-dealers, telephonic
communication with shareholders and broker-dealers, and monitoring of voting
results.
Independent Accountants' Fees
The SEC's auditor independence rules require the Fund's Audit Committee
to pre-approve: (a) all audit and permissible non-audit services provided by
the Fund's independent accountants directly to the Fund and (b) those
permissible non-audit services provided by the Fund's independent accountants
to NAM-U.S.A. and entities controlling, controlled by or under common control
with NAM-U.S.A., if the services relate directly to the operations and
financial reporting of the Fund.
The following table sets forth the aggregate fees paid to PWC,
independent accountants for the Fund, for the Fund's fiscal year ended
February 28, 2004 for professional services rendered for: (i) the audit of the
Fund's annual financial statements and the review of financial statements
included in the Fund's reports to shareholders; (ii) financial information
systems design and implementation services provided to the Fund, NAM-U.S.A.
and entities controlling, controlled by or under common control with
NAM-U.S.A. that provide services to the Fund; and (iii) all other non-audit
services provided to the Fund, NAM-U.S.A. and entities controlling, controlled
by or under common control with NAM-U.S.A. that provide services to the Fund.
For the Fund's fiscal year ended February 28, 2004, the independent
accountants did not render any other audit-related services to the Fund,
except as described under clauses (i) above. The Fund's Audit Committee has
determined that the provision of non-audit services under clause (iii) is
compatible with maintaining the independence of the independent accountants
from the Fund.
Financial
Information
Systems Design
Audit Fees and
Charged to Audit-Related Implementation All Other Fiscal Year
Fund the Fund Fees Tax Fees Fees Fees* End
---- -------- ---- -------- ---- ----- ---
Japan Smaller
Capitalization Fund,
Inc.................... $ 58,000 None $ 7,500 None $371,375 February 28,
2004
---------------
* These fees relate to tax advisory serves for NAM, NAM-U.S.A., Nomura
Asset Management Hong Kong Limited ("NAM-Hong Kong") and Nomura Asset
Management Singapore Limited; audit and audit-related services for
NAM-Hong Kong; and non-audit services for the Fund.
Voting Requirements
The holders of a majority of the shares of stock of the Fund entitled to
vote at the Meeting, present in person or by proxy, shall constitute a quorum
for the transaction of business at the Meeting. If, by the time scheduled for
the Meeting, a quorum of the Fund's shareholders is not present, or if a
quorum is present but sufficient votes to act upon the proposals are not
received from the shareholders, the chairman of the meeting may propose one or
more
14
adjournments of the Meeting to permit further solicitation of proxies from
shareholders. No additional notice will be provided to you in the event the
Meeting is adjourned unless otherwise required by Maryland law.
All shares represented by properly executed proxies, unless such proxies
have previously been revoked, will be voted at the Meeting in accordance with
the directions on the proxies; if no direction is indicated, the shares will
be voted FOR the election of two Class I Director nominees (Proposal 1), FOR
the ratification of the appointment of PWC as independent accountants for the
Fund (Proposal 2), and FOR the amendment of the Fund's principal investment
policy (Proposal 3). Provided that a quorum has been established at the
Meeting, approval of the election of two Class I Directors to the Board of
Directors (Proposal 1) requires the affirmative vote of a majority of the
shares outstanding and entitled to vote thereon, in person or by proxy.
Approval of the ratification of PWC as independent accountants for the Fund
requires the affirmative vote of a majority of the votes cast at the Meeting
(Proposal 2). Approval of the proposal to modify the Fund's fundamental
investment policy (Proposal 3) requires the affirmative vote of a majority of
the outstanding voting securities of the Fund, as defined in the Investment
Company Act, which is the vote (a) of 67% or more of the shares of the Fund
present at the meeting of the holders if more than 50% of the outstanding
shares are present or represented by proxy, or (b) of more than 50% of the
outstanding shares, whichever is less. Approval of any other routine matter
which may properly come before the Meeting for consideration requires the
affirmative vote of a majority of the votes cast.
Broker Non-Votes and Abstentions
The Fund expects that broker-dealer firms holding shares of the Fund in
"street name" for the benefit of their customers and clients may request the
instructions of such customers, clients and beneficial shareholders, on how to
vote their shares on each proposal before the Meeting. The Fund understands
that under the rules of the New York Stock Exchange, broker-dealers may,
without instructions from such customers, clients and beneficial shareholders,
grant authority to the proxies designated by the Fund to vote on certain
matters to be considered if no instructions have been received prior to the
date specified in the broker-dealer firm's at the Meeting request for voting
instructions. Certain broker-dealer firms may exercise discretion over shares
held in their name for which no instructions are received by voting such
shares in the same proportion as they have voted shares for which they have
received instructions.
The shares as to which the proxies so designated are granted authority by
broker-dealer firms to vote on the proposals to be considered at the Meeting,
the shares as to which broker-dealer firms have declined to vote ("broker
non-votes"), as well as the shares as to which proxies are returned by record
shareholders but which are marked "abstain" on any proposal will be included
in the Fund's tabulation of the total number of votes present for purposes of
determining whether the necessary quorum of shareholders exists. However,
abstentions and broker non-votes will not be counted as votes cast. Therefore,
abstentions and broker non-votes will have the same effect as a vote against
the election of Director nominees (Proposal 1) and the proposal to amend the
Fund's principal investment policy (Proposal 3). Abstentions and broker
non-votes will have no effect on the vote required to ratify the appointment
of PWC as independent accountants for the Fund (Proposal 2).
15
Address of Manager, Investment Adviser and Investment Sub-Advisers
The address of NAM-U.S.A. is 535 Madison Avenue, New York, New York
10022. The address of NAM is 1-12-1 Chome, Nihonbashi, Chuo-ku, Tokyo
103-8260, Japan.
Proposals of Shareholders
Proposals of shareholders intended to be presented at the next annual
meeting of shareholders of the Fund, which is expected to be held in
___________ 2005, must be received by the Fund for inclusion in its proxy
statement and form of proxy relating to that meeting by ___________, 2005. The
persons named as proxies in future proxy materials of the Fund may exercise
discretionary authority with respect to any shareholder proposal presented at
any subsequent shareholder meeting if written notice of such proposal has not
been received by the Fund by _____________, 2005. Written proposals with
regard to the Fund should be sent to the Secretary of the Fund, 535 Madison
Avenue, New York, New York 10022.
Shareholders wishing to present proposals at the next annual meeting of
shareholders of the Fund that they do not wish to be included in the Fund's
proxy statement and form of proxy, must send written notice of such proposals
to the Secretary of the Fund, 535 Madison Avenue, New York, New York 10022,
and such notice must be received by the Secretary no sooner than _________,
2005 and no later than _________, 2005 in the form prescribed from time to
time in the Fund's Bylaws.
By Order of the Board of Directors
Neil A. Daniele
Secretary
New York, New York
Dated: July [ ], 2004
16
Exhibit 1
JAPAN SMALLER CAPITALIZATION FUND, INC.
KOREA EQUITY FUND, INC.
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
For the purpose of this Audit Committee Charter, the Audit Committee of
each of Japan Smaller Capitalization Fund, Inc. and Korea Equity Fund, Inc.
(each a "Fund") will be referred to as the "Audit Committee".
I. Composition of the Audit Committee
The Audit Committee shall be composed of all of the Directors who satisfy
the following criteria:
(a) each of whom shall not be an "interested person" of the Fund, as
defined in Section 2(a)(19) of the Investment Company Act of 1940,
as amended;
(b) each of whom shall not accept directly or indirectly any consulting,
advisory, or other compensatory fee from the Fund (other than in his
or her capacity as a member of the Board of Directors or any
committee thereof) or have any other relationship to the Fund or
Nomura Asset Management U.S.A. Inc. or its affiliates that may
interfere with the exercise of such person's independence from the
Fund and Fund management;
(c) each of whom shall otherwise satisfy the applicable independence
requirements for any stock exchange on which Fund shares are listed;
(d) each of whom shall be financially literate, as such qualification is
interpreted by the Board of Directors in its business judgment, or
shall become financially literate within a reasonable period of time
after his or her appointment to the Audit Committee; and
(e) at least one of whom shall have accounting or related financial
management expertise, as the Board of Directors interprets such
qualification in its business judgment.
The Audit Committee shall make a determination from time to time whether
at least one member of the Audit Committee is a "financial expert" as defined
in rules promulgated by the U.S. Securities and Exchange Commission (the
"SEC") under the Sarbanes-Oxley Act of 2002 and shall consider whether any
member thereof serves on the audit committee of any other public companies.
II. Purposes of the Audit Committee
The Audit Committee, in its capacity as a committee of the Board of
Directors, is directly responsible for the appointment, compensation, and
oversight of the Fund's independent accountants (including the resolution of
disagreements between Fund management and such independent accountants
regarding financial reporting) for the purpose of preparing or issuing an
audit report or related work. The Audit Committee shall report regularly to
the Board of
Directors with respect to the matters described in Section III of this Audit
Committee Charter. The Fund's independent accountants report directly to the
Audit Committee.
III. Responsibilities and Duties of the Audit Committee
The policies and procedures of the Audit Committee shall remain flexible
to facilitate its ability to react to changing conditions and to generally
discharge its functions. The following listed responsibilities describe areas
of attention in broad terms.
To carry out its purposes, the Audit Committee shall have the following
responsibilities and duties:
(a) upon submission of an application form by the Fund's independent
public accountants to the Public Company Accounting Oversight Board,
to request (i) a copy of such application form; (ii) any material
amendments to such application form; and (iii) the written findings
of the Public Company Accounting Oversight Board in connection with
that Board's inspection of the Fund's independent accountants;
(b) to preapprove all auditing services to be provided to the Fund by
the Fund's independent accountants*;
(c) to preapprove all non-audit services, including tax services, to be
provided to the Fund by the Fund's independent accountants in
accordance with the Securities Exchange Act of 1934, as amended (the
"1934 Act"); provided, however, that the preapproval requirement
with respect to the provision of non-audit services to the Fund by
the Fund's independent accountants may be waived by the Audit
Committee under the circumstances described in the 1934 Act**;
(d) to preapprove non-audit services to be provided to the Fund's
investment adviser (and any entity controlling, controlled by or
under common control with the investment adviser that provides
ongoing services to the Fund) if the engagement relates directly to
the operations and financial reporting of the Fund;
(e) to ensure that the Fund's independent accountants submit on a
periodic basis to the Audit Committee a formal written statement
delineating all relationships between such independent accountants
and the Fund, consistent with
----------------------
* The Audit Committee may delegate to one or more designated members of the
Audit Committee the authority to grant such preapprovals; provided,
however, that the Audit Committee shall not delegate preapproval of the
audit required by the 1934 Act. The decisions of any member or members of
the Audit Committee to whom such authority has been given shall be
reported to the full Audit Committee at each of its scheduled meetings.
** The Audit Committee may delegate to one or more designated members of the
Audit Committee the authority to grant such preapprovals. The decisions
of any member or members of the Audit Committee to whom such authority
has been granted shall be reported to the full Audit Committee at each of
its scheduled meetings.
2
Independence Standards Board Standard No. 1, to actively engage in a
dialogue with the Fund's independent accountants with respect to any
disclosed relationships or services that affect the objectivity and
independence of such independent accountants and, if deemed
appropriate by the Audit Committee, to recommend that the Board of
Directors take appropriate action in response to the report of such
independent accountants to satisfy itself of the independence of
such independent accountants;
(f) to receive and consider specific written representations from the
Fund's independent public accountants with respect to the
independence of such accountants, audit partner rotation, and
conflicts of interest described in Section 10A(l) of the 1934 Act,
and to consider whether the provision of any non-audit services to
the Fund by the Fund's independent accountants as described in
Section III(c) of this Audit Committee Charter is compatible with
maintaining the independence of those accountants;
(g) to review arrangements for annual and special audits and the scope
of such audits with the Fund's independent accountants;
(h) to review and discuss the Fund's audited financial statements with
Fund management;
(i) to discuss with the independent accountants those matters required
to be discussed by Statement of Accounting Standards Nos. 61 and 90,
as may be modified or supplemented, relating to the Fund's financial
statements, including, without limitation, any adjustment to such
financial statements recommended by such independent accountants, or
any other results of any audit;
(j) to cause to be prepared and to review and submit any report,
including any recommendation of the Audit Committee, required to be
prepared by the Audit Committee by rules or regulations promulgated
by the SEC ("SEC Rules") to be included in the Fund's annual proxy
statement;
(k) to review and discuss any report required to be reviewed by the
Audit Committee pursuant to SEC Rules, as well as any reports
prepared by the independent accountants of the Fund with respect to
all services provided by the independent accountants to the Fund and
the Fund's investment adviser and the fees related to such services;
(l) to review legal and regulatory matters presented by counsel and the
Fund's independent accountants that may have a material impact on
the Fund's financial statements;
(m) to establish and administer policies and procedures relating to (i)
the hiring of employees and former employees of the Fund's
independent accountants and (ii) the resolution of any disagreements
between Fund management and the Fund's independent accountants
regarding accounting and/or financial reporting policies and
procedures;
3
(n) to consider with the Fund's independent accountants their comments
with respect to the quality and adequacy of the Fund's accounting
and financial reporting policies, practices and internal controls
and management's responses thereto, including, without limitation,
the effect on the Fund of any recommendation of changes in
accounting principles or practices by management or the independent
public accountants;
(o) to receive and consider reports from the Fund's independent
accountants regarding (i) all critical accounting policies and
practices to be used; (ii) all alternative treatments of financial
information within generally accepted accounting principles that
have been discussed with Fund management, including the
ramifications of the use of such alternative disclosures and
treatments, and the treatment preferred by the independent
accountants; (iii) other material written communications between the
independent accountants and Fund management, such as any management
letter or schedule of unadjusted differences; and (iv) all non-audit
services provided to any entity in the Fund's investment company
complex that were not pre-approved by the Fund's Audit Committee;
(p) to receive reports from the principal executive officer and the
principal financial officer, or persons performing similar
functions, regarding: (i) all significant deficiencies in the design
or operation of Fund internal controls that could adversely affect
the Fund's ability to record, process, summarize, and report
financial data and have identified for the Fund's independent
accountants any material weaknesses in internal controls; (ii) any
fraud, whether or not material, that involves Fund management or
other employees who have a significant role in the Fund's internal
controls; and (iii) whether or not there have been significant
changes in the Fund's internal controls or in other factors that
could significantly affect the Fund's internal controls subsequent
to the date of their most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses;
(q) to establish procedures for (i) the receipt, retention and treatment
of complaints received by the Fund regarding accounting, internal
accounting controls, or auditing matters; and (ii) the confidential,
anonymous submission of concerns regarding questionable accounting
or auditing matters;
(r) to discuss with Fund management and the Fund's independent
accountants policies with respect to risk assessment and risk
management and the quality and adequacy of the Fund's internal
controls and processes that could materially affect the Fund's
financial statements and financial reporting;
(s) to assist the Fund, if necessary, in preparing any written
affirmation or written certification required to be filed with any
stock exchange on which Fund shares are listed;
(t) to review and assess the adequacy of this Audit Committee Charter on
an annual basis and recommend any changes to the Board of Directors;
and
4
(u) to perform such other functions consistent with this Audit Committee
Charter, the Fund's Articles of Incorporation, as applicable, the
Fund's By-laws and applicable law, as the Audit Committee or the
Board of Directors deems necessary or appropriate.
In fulfilling their responsibilities under this Audit Committee Charter,
it is recognized that members of the Audit Committee are not full-time
employees of the Fund. As such, it is not the duty or responsibility of the
Audit Committee or its members to conduct "field work" or other types of
auditing or accounting reviews or procedures. Each member of the Audit
Committee shall be entitled to rely on (i) the integrity of those persons and
organizations within and outside the Fund from which the Audit Committee
receives information and (ii) the accuracy of the financial and other
information provided to the Audit Committee by such persons or organizations
absent actual knowledge to the contrary (which actual knowledge shall be
promptly reported to the Board of Directors).
Fund management is responsible for maintaining appropriate systems for
accounting. The Fund's independent public accountants are responsible for
conducting a proper audit of the Fund's financial statements and are directly
accountable to the Audit Committee. The Audit Committee has the ultimate
authority and responsibility to select (subject, if applicable, to shareholder
approval) and evaluate the Fund's independent accountants, to determine the
compensation of the Fund's independent accountants and, where appropriate, to
replace the Fund's independent public accountants (or to nominate the
independent accountants to be proposed for shareholder approval in the proxy
statement).
IV. Meetings
The Audit Committee shall meet at least annually with the Fund's
independent accountants (outside the presence of Fund management) and at least
annually with the representatives of Fund management responsible for the
financial and accounting operations of the Fund. The Audit Committee shall
hold special meetings when and if circumstances require. Members of the Audit
Committee may participate in a meeting of the Audit Committee by means of
conference call or similar communications equipment by means of which all
persons participating in such meeting can hear each other.
V. Assistance from Fund Management; Authority to Engage Advisers; Funding
The appropriate officers of the Fund shall provide or arrange to provide
such information, data and services as the Audit Committee may request. The
Audit Committee shall have the authority to discharge its responsibility,
including the power and authority to retain their own independent counsel and
other advisers. The Fund shall provide for appropriate funding, as determined
by the Audit Committee as a committee of the Board of Directors, for payment
of compensation to: (i) the Fund's independent accountants, (ii) any advisers
employed by the Audit Committee under this Section V and (iii) any ordinary
administrative expenses of the Audit Committee that are necessary or
appropriate in carrying out its duties.
Dated August 6, 2003
5
Exhibit II
JAPAN SMALLER CAPITALIZATION FUND, INC.
KOREA EQUITY FUND, INC.
CHARTER OF THE NOMINATING COMMITTEE
OF THE BOARD OF DIRECTORS
For the purpose of this Nominating Committee Charter, the Nominating
Committee of each of Japan Smaller Capitalization Fund, Inc. and Korea Equity
Fund, Inc. (each, a "Fund") will be referred to as the "Nominating Committee."
This charter relates to the responsibilities of the Nominating Committee in
connection with the nomination of Independent Directors.
1. Composition of the Nominating Committee
The members of the Nominating Committee shall be composed solely of all
of the Independent Directors.(1) The Chair of the Nominating Committee shall be
selected by the members. The Nominating Committee will meet at least annually
and at such dates and times as called by the Chair. A quorum shall consist of
at least two Independent Directors.
II. Purpose of the Nominating Committee
The Nominating Committee, in its capacity as a committee of the Board of
Directors, is responsible for the process of identifying, evaluating,
selecting and appointing Independent Directors to fill vacancies among the
Independent Directors in accordance with the Statement of Criteria for the
Selection of Independent Directors attached. Any person selected to serve as
an Independent Director shall be nominated and selected to fill such office
solely by the Nominating Committee. The Nominating Committee may retain
consultants or search firms to assist it to identify Independent Director
candidates on such terms and conditions, including fees, as the Nominating
Committee considers appropriate.
III. Qualifications of Candidates
The Nominating Committee will seek to identify candidates it believes are
highly qualified to serve as Independent Directors of the Fund. It may
consider Independent Director candidates recommended by shareholders, taking
into account the same criteria applied to candidates identified by the
Nominating Committee. In
----------------------
(1) Independent Directors are those who satisfy the following criteria: (a) each
shall not be an "interested person" of the Fund, as defined in Section
2(a)(19) of the Investment Company Act of 1940, as amended, and (b) each shall
otherwise satisfy the applicable independence requirements for any stock
exchange on which Fund shares are listed.
evaluating a candidate recommended by a shareholder, the Nominating Committee
may consider, in addition to the criteria discussed above, the objectives of
the shareholders in submitting the candidate's name for nomination and whether
or not such objectives are consistent with the interests of all shareholders.
2
Statement of Criteria
for Selection of Independent Directors
The Nominating Committee of the Fund has adopted this statement of its
views as to the appropriate criteria for the selection of Independent
Directors to fill vacancies among the Independent Directors of the Fund.
o The candidate must meet the definition of an Independent Director and
have no material relationships that could create any appearance of
impropriety with respect to or a lack of independence from Nomura Asset
Management (U.S.A.) Inc. or any of its affiliates.
o The candidate must have the integrity, independence of mind and personal
qualities to fulfill the fiduciary duties of an Independent Director of
the Fund and to protect the interests of Fund shareholders.
o The candidate needs to have corporate or other business experience in
significant positions demonstrating sound business judgment.
o The candidate should have financial and accounting experience and at
least one Independent Director should qualify as an "Audit Committee
Financial Expert."
o The candidate should have the ability to and attend at least four regular
meetings a year.
o The candidate should add to the balance of experience of the present
Independent Directors. Familiarity with the Asian markets in which the
Fund invests is desirable.
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PRELIMINARY PROXY
SUBJECT TO COMPLETION
JAPAN SMALLER CAPITALIZATION FUND, INC.
535 Madison Avenue
New York, New York 10022
PROXY
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Yasushi Suzuki and Neil A. Daniele as proxies,
each with the power to appoint his substitute, and hereby authorizes them to
represent and to vote, as designated on the reverse hereof, all the common
stock of Japan Smaller Capitalization Fund, Inc. (the "Fund") held of record
by the undersigned on June 18, 2004 at the Annual Meeting of the Shareholders
of the Fund to be held on August 11, 2004 or any adjournment thereof.
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PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY USING
THE ENCLOSED ENVELOPE.
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Please sign exactly as name(s) appear(s) hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give title as such. If a corporation, please sign
in full corporate name by president or other authorized officer. If a
partnership, please sign in partnership name by authorized persons.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
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|X| PLEASE MARK VOTES
AS IN THIS EXAMPLE
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JAPAN SMALLER CAPITALIZATION FUND, INC.
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This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this proxy
will be voted FOR Proposals 1, 2, and 3.
Mark box at right if an address change or comment has been noted on the
reverse side of this card. |_|
CONTROL NUMBER:
Please be sure to sign and date this Proxy
THE BOARD OF DIRECTORS For For All
RECOMMENDS A VOTE All With- Nominees
"FOR" ALL CLASS I DIRECTOR Nominees hold Except
NOMINEES |_| |_| [_|
1. Election of two Class I Directors for a three-year term:
William G. Barker, Jr.
John F. Wallace
NOTE: If you do not wish your shares voted "For" a particular nominee, mark
the "For All Nominees Except" box and strike a line through the nominee's
name. Your shares will be voted for the remaining nominee.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM 2.
2. To ratify the appointment of PricewaterhouseCoopers LLP as independent
accountants for the fiscal year ending February 28, 2005.
[_] FOR [_] AGAINST [_] ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM 3.
3. To amend the Fund's principal investment policy concerning investment in
smaller capitalization companies in Japan.
[_] FOR [_] AGAINST [_] ABSTAIN
2
4. In the discretion of such proxies, upon such other business as may
properly come before the meeting or any adjournments thereof.
Date ----------------
---------------- Shareholder sign here ----------- Co-owner sign here --------
3