Edgar Filing: JAPAN SMALLER CAPITALIZATION FUND INC

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 |_|
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.ss. 240.14a-12

JAPAN SMALLER CAPITALIZATION FUND, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

--------------------------------------------------------------------------------
(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:
--------------------------------------------------------------------------------

(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------------

(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):
--------------------------------------------------------------------------------

(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------------

(5) Total fee paid:

|_| 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:
--------------------------------------------------------------------------------

(2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------------------

(3) Filing Party:
--------------------------------------------------------------------------------

(4) Date Filed:
--------------------------------------------------------------------------------

PRELIMINARY NOTICE SUBJECT TO COMPLETION

JAPAN SMALLER CAPITALIZATION FUND, INC.
Two World Financial Center, Building B
New York, New York 10281
--------------------

NOTICE OF 2006 ANNUAL MEETING OF SHAREHOLDERS
November 17, 2006
--------------------

TO THE SHAREHOLDERS OF
JAPAN SMALLER CAPITALIZATION FUND, INC.:

Notice is hereby given that the 2006 Annual Meeting of Shareholders (the
"Meeting") of Japan Smaller Capitalization Fund, Inc., a Maryland corporation
(the "Fund"), will be held at the offices of Nomura Asset Management U.S.A.
Inc., Two World Financial Center, Building B, New York, New York, on Friday,
November 17, 2006, at 10:30 A.M. to consider and vote on the following matters:

(1) The election of two Directors to serve as Class III Directors, each to
serve for a term to expire in 2009 and until their successors are duly elected
and qualify;

(2) A proposal to amend the fundamental investment restrictions of the
Fund to permit the Fund to lend its portfolio securities; and

(3) The transaction of 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 September 25,
2006 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: October [ ], 2006

The enclosed proxy card may be executed by holders of record as of the Record
Date. You are urged to complete, sign and date the enclosed proxy card and
return it in the enclosed envelope whether or not you plan to attend the
Meeting.

[This page intentionally left blank]

PRELIMINARY PROXY STATEMENT SUBJECT TO COMPLETION

PROXY STATEMENT

JAPAN SMALLER CAPITALIZATION FUND, INC.
Two World Financial Center, Building B
New York, New York 10281
--------------------

2006 ANNUAL MEETING OF SHAREHOLDERS
November 17, 2006
--------------------

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 2006 Annual
Meeting of Shareholders of the Fund (the "Meeting") to be held at the offices of
Nomura Asset Management U.S.A. Inc., Two World Financial Center, Building B, New
York, New York, on Friday, November 17, 2006, at 10:30 A.M. The approximate
mailing date of this Proxy Statement is October [ ], 2006.

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 III Directors (Proposal 1) and FOR
the proposal to amend the fundamental investment restrictions of the Fund to
permit the Fund to lend its portfolio securities (Proposal 2).

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 September 25,
2006, 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 September 25,
2006, the Fund had outstanding 21,179,542 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 III Directors and the amendment of the fundamental
investment restrictions of the Fund to be considered at the Meeting. 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
report succeeding such annual report to shareholders upon request to the Fund at
Two World Financial Center, Building B, New York, New York 10281 (or by calling
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. Each year the term of office of one class of Directors will expire. The
term of office for Class I Directors expires at the Annual Meeting of
Shareholders to be held in 2007, for Class II Directors at the Annual Meeting of
Shareholders to be held in 2008 and for Class III Directors at the Meeting and
when their successors are duly elected and qualify. The current Directors
consist of two Class I Directors, two Class II Directors and two Class III
Directors. None of the Class I Directors or the Class II Directors is a nominee
for election at the Meeting and all of them 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, subject to any applicable requirement of the
Investment Company Act of 1940, as amended (the "Investment Company Act"). Any
Director elected by the Board to fill a vacancy would hold office for 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 AS CLASS III DIRECTORS

Messrs. Rodney A. Buck and David B. Chemidlin have been nominated to serve
as Class III Directors for a three-year term to expire at the Annual Meeting of
Shareholders to be held in 2009 and until their successors are duly elected and
qualify. The nominees have indicated an intention to serve if elected and have
consented to be named in this Proxy Statement.

Messrs. Buck and Chemidlin have been nominated for election as Directors
by the Nominating Committee of the Board of Directors. As described below, this
Committee nominated Messrs. Buck and Chemidlin after the two current Class III
Directors, Messrs. William K. Grollman and Arthur R. Taylor, advised the Board
of Directors that they did not wish to stand for re-election. Mr. Taylor has
served as a Director since the Fund commenced operations in 1990, and Mr.
Grollman has served as a Director since 2004.

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 III Director nominees: Rodney A.
Buck and David B. Chemidlin.

The Board of Directors knows of no reason why either of the Class III
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. Each of the Class III
Director nominees 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 each of them will also not be an "interested person."

The following table contains information about the nominees for election
as Class III Directors.

Non-Interested Directors

Each of the Class III Director nominees is not an "interested person," as
defined in the Investment Company Act, of the Fund. Biographical and other
information relating to the Class III Director nominees is set out below.

Other
Term of Number of Public
Office and Funds in the Directorships
Name, Address and Position(s) Held Length of Principal Occupation(s) Fund Complex Held by the
Age with the Fund Time Served* During Past Five Years Overseen*** Director
----------------- ---------------- ------------ -------------------------- ------------ -------------

Class III (Nominees for a Term Expiring at the Annual Meeting of Shareholders to be held in 2009)

Rodney A. Buck (58)** __ __ Owner, Buck Capital 1 registered None
1857 West County Road Management (private investment
Calais investment management company
Vermont 05648 firm) since 2005;
Executive Vice President
and Chief Investment
Officer, National Life
Group (insurance holding
company) from 2000 to
2005; Chief Executive
Officer, Sentinel Advisors
Company (investment
adviser) from 1996 to 2005.

David B. Chemidlin (49)** __ __ Corporate Controller, 1 registered None
67 Glen Eagle Drive Advance Magazine investment
Watchung Publishers, Inc. (d/b/a company
New Jersey 07060 Conde Nast) since 1995

----------

* If elected by the shareholders and qualified, each Class III Director
nominee will serve for a three-year term expiring at the Annual Meeting of
Shareholders to be held in 2009 and until his successor is elected and
qualified or until his earlier resignation or removal.
** Each Class III Director nominee is also a director of Korea Equity Fund,
Inc. for which Nomura Asset Management U.S.A. Inc. ("NAM-U.S.A.") acts as
manager and Nomura Asset Management Co., Ltd. ("NAM") acts as investment
adviser, and each is a member of the Audit and Nominating Committees of
Korea Equity Fund, Inc.
*** In addition to the Fund, the "Fund Complex" includes Korea Equity Fund,
Inc.

INFORMATION REGARDING OTHER DIRECTORS

Class I Directors

Non-Interested Directors

Each of the Class I Directors is not an "interested person," as defined in
the Investment Company Act, of the Fund. Biographical and other information
relating to the Class I Directors is set out below.

Other
Term of Number of Public
Office and Funds in the Directorships
Position(s) Held Length of Principal Occupation(s) Fund Complex Held by the
Name, Address and Age with the Fund Time Served* During Past Five Years Overseen*** Director
------------------------ ---------------- -------------- ---------------------------- -------------- ---------------

Class I (Term Expiring at the Annual Meeting of Shareholders to be held in 2007)

William G. Barker, Jr.** Class I Director Director since Retired. 2 registered None
(73) 1990 investment
111 Parsonage Road companies
Greenwich consisting of 2
Connecticut 06830 portfolios
John F. Wallace (78)** Class I Director Director since Retired since 2000; Vice 2 registered None
17 Rhoda Street 1990 President of the Fund from investment
West Hempstead 1997 to 2000 and Secretary companies
New 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.

---------------
* Each Class I Director serves 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.
** Each Class I 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
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.

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 out below.

Class II (Term Expiring at the Annual Meeting of Shareholders to be held in 2008)

Hiroshi Terasaki (51)** Class II Director Director since Managing Director and 2 registered None
Two World Financial June 2005 Chief Executive Officer, investment
Center, Building B Nomura Asset Management companies
New York U.K. Limited from 2003 to consisting of 2
New York 10281 2005; General Manager, portfolios
Fixed Income Investment
Department of NAM from
2000 to 2003.

-------------
* Mr. Terasaki serves as a Class II Director for a three-year term expiring
at the Annual Meeting of Shareholders to be held in 2008 and until his
successor is elected and qualified or until his earlier resignation or
removal.
** Mr. Terasaki is an "interested person," as defined in the Investment
Company Act, of the Fund based on his positions with NAM and its
affiliates. Mr. Terasaki is a director of Korea Equity Fund, Inc. for
which NAM-U.S.A. acts as manager and NAM acts as investment adviser.
*** In addition to the Fund, the "Fund Complex" includes Korea Equity Fund,
Inc.

Non-Interested Director

Biographical and other information relating to the Class II Director
nominee who is not an "interested person," as defined in the Investment Company
Act, of the Fund is set out below.

Class II (Term Expiring at the Annual Meeting of Shareholders to be held in 2008)

Chor Weng Tan (70)** Class II Director Director since Retired since 2004; 2 registered None
6245 Paseo Privado 1990 Managing Director for investment
Carlsbad Education, The American companies
California 92009 Society of Mechanical consisting of 2
Engineers from 1991 to portfolios
2004.

----------------
* Mr. Tan serves as a Class II Director for a three-year term expiring at
the Annual Meeting of Shareholders to be held in 2008 and until his
successor is elected and qualified or until his earlier resignation or
removal.
** 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.

ADDITIONAL INFORMATION CONCERNING DIRECTORS

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,
Taylor and Wallace 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, 2006, the Board of Directors
held eleven meetings, the Audit Committee held two meetings and the Nominating
Committee held one meeting. Each incumbent Director attended at least 75% of the
aggregate number of meetings of the Board of Directors held during the period
for which he served 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 adopted by the Fund's Board of
Directors on August 6, 2003, the Audit Committee's principal responsibilities
are to: (i) select and oversee 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
Fund's accounting and financial reporting policies and practices and internal
controls. A copy of the Audit Committee Charter was attached as Exhibit I to the
Fund's 2004 Proxy Statement.

The Audit Committee has received written disclosures and the letter
required by Independence Standards Board Standard No. 1 from Ernst & Young LLP
("Ernst &Young"), the Fund's independent accountants, and discussed with Ernst &
Young 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 Ernst & Young is compatible with maintaining the
independence of those accountants. At its meeting held on April 20, 2006, the
Audit Committee reviewed and discussed the audit of the Fund's financial
statements with Fund management and Ernst & Young. The Audit Committee discussed
with Ernst & Young their independence and considered whether the provision of
services by Ernst & Young to the Fund and to NAM-U.S.A. and its affiliates was
compatible with maintaining Ernst & Young'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
Annual Report to shareholders for the fiscal year ended February 28, 2006.

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
John F. Wallace

Nominating Committee; Consideration of Potential Director Nominees. The
principal purpose of the Nominating Committee is to select and nominate the
independent (i.e., non-interested) 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 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 was attached as Exhibit II to the Fund's 2004 Proxy Statement.

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 make 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.

As indicated above, Messrs. William K. Grollman and Arthur R. Taylor, the
current Class III Directors, advised the Board of Directors that they did not
wish to stand for re-election as Directors. In accordance with its Charter, the
Nominating Committee met and considered recommendations for candidates. The
Nominating Committee has nominated Messrs. Rodney A. Buck and David B. Chemidlin
for election as Class III Directors. Mr. Buck was initially recommended to the
Nominating Committee by the Fund's counsel and Mr. Chemidlin was initially
recommended to the Nominating Committee by an independent Director. No nominee
recommendation was 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 Two World
Financial Center, Building B, New York, New York 10281). 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.

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 2005 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, and the New York 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, except that
William K. Grollman, a Director of the Fund, inadvertently made a late Form 4
filing reporting one purchase transaction and two sales transactions in shares
of the Fund. In addition, Hiroshi Terasaki, the President and a Director of the
Fund, and Keiko Tani, a Vice President of the Fund, filed Forms 3 subsequent to
their due date.

Interested Persons. The Fund currently treats one Class II Director
nominee, Mr. Terasaki, as an "interested person" of the Fund within the meaning
of Section 2(a)(19) of the Investment Company Act based on his positions with
NAM and its affiliates.

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 $10,000 plus $1,000 per Board or committee
meeting attended, together with such Director's actual out-of-pocket expenses
relating to attendance at meetings. Mr. Barker, who has been designated by the
Directors not affiliated with the Fund to serve as Lead Director, is paid an
additional annual fee of $5,000, effective June 2005. Such fees and expenses
aggregated $107,095 for the fiscal year ended February 28, 2006.

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
Compensation Pension or Retirement Aggregate Compensation from Fund
from Fund For Benefit Accrued as Part of Complex Paid to Directors During
its Fiscal Year Ended Fund Expenses for its Fiscal the Calendar Year Ended
Name of Director February 28, 2006 Year Ended February 28, 2006 December 31, 2005*
---------------- --------------------- ---------------------------- --------------------------------

William G. Barker, Jr......... $29,461 - $45,000
William K. Grollman........... 22,000 - 34,500
Chor Weng Tan................. 22,000 - 34,500
Arthur R. Taylor.............. 22,000 - 34,500
Hiroshi Terasaki**............ - - -
John F. Wallace............... 21,000 - 33,500

-----------
* 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, 2005.
** Mr. Terasaki was elected a Director of the Fund effective June 20, 2005.
Mr. Terasaki is an "interested person" of the Fund.

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. Certain biographical and other information relating to
the officers of the Fund is set out 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
--------------- ------------- --------------------- ----------------------

Hiroshi Terasaki (51) President President since 2005 Managing Director and Chief Executive
Officer, Nomura Asset Management U.K.
Limited from 2003 to 2005; General Manager,
Fixed Income Investment Department of the
NAM from 2000 to 2003.

Kenneth L. Munt (59) Vice President Vice President since 2001 Senior Vice President and Secretary of
NAM-U.S.A. since 1999.

Keiko Tani (43) Vice President Vice President since 2005 Senior Vice President and General Counsel of
NAM-U.S.A. since 2005; Leader, Legal Team,
Product Documentation & Legal Department of
NAM from 2003 to 2005, General Manager of
Legal Department from 1999 to 2003.

Rita Chopra-Brathwaite (37) Treasurer Treasurer since 2002 Vice President of NAM-U.S.A. since 2001.

Neil Daniele (46) Secretary Secretary since 2002 Senior Vice President of NAM-U.S.A. 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.

----------------
* The address of each officer listed above is Two World Financial Center,
Building B, New York, New York 10281.
** 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 who will continue to serve as a
Director after the Meeting, at October [3], 2006 is set out below:

Aggregate Dollar Range of
Shares of Common Stock of Aggregate Dollar Range of Securities in All Registered
Name of Continuing Directors the Fund Beneficially Equity Securities Funds in the Fund Complex
and Nominees Owned in the Fund Overseen by Director
------------ ----- ----------- --------------------

Current Directors
William G. Barker, Jr.... -0- None None
Chor Weng Tan............ 2,340 $10,001-$50,000 $50,000-$100,000
Hiroshi Terasaki......... -0- None None
John F. Wallace.......... 2,211 $10,001-$50,000 $10,001-$50,000

Nominees
Rodney A. Buck........... 3,477 $10,001-$50,000 $10,001-$50,000
David B. Chemidlin....... -0- None None

As of October [3], 2006, the Directors and officers of the Fund as a group
(9 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 (5 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. CONSIDERATION OF AMENDMENT OF A
FUNDAMENTAL INVESTMENT RESTRICTION

The Fund has adopted fundamental investment restrictions relating to the
investment of its assets and its activities. These restrictions may not be
changed without the approval of the holders of a majority of the Fund's
outstanding voting securities.

One fundamental restriction provides that the Fund may not make loans to
other persons except in enumerated circumstances. The Board of Directors of the
Fund believes that it would be in the Fund's interest if it had the authority to
lend its portfolio securities under a program of the type described below. In
order to permit this activity, the Board of Directors recommends that the
relevant restriction be revised as follows (the language proposed to be added is
in italics):

[The Fund may not:] 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,
and except further that the Fund may lend its portfolio securities
in accordance with applicable law.

In a securities lending program, the Fund would seek to increase its
investment income by lending securities it owns to broker-dealers and other
institutional borrowers. The Fund's participation in such a program would be
administered by a thirty-party experienced securities lending agent selected by
the Fund. The Board of Directors has not considered or approved a securities
lending agent, nor has it considered or determined the terms of a specific
securities lending arrangement for the Fund. However, as indicated above, the
Board believes it would be appropriate for the fundamental investment
restriction to be amended so that the Fund is not prohibited from entering into
a securities lending program.

In participating in securities lending, the Fund would lend securities to
broker-dealers and other institutional borrowers that meet credit requirements
and other criteria. The Fund expects that its policies will require that the
borrower pledge to the Fund cash collateral (or other approved high quality
collateral) in an amount at least equal to 100% of the market value of the
securities loaned (with such collateralization determined by the securities
lending agent on a daily basis and adjusted accordingly). The securities lending
agent would pay to the

Fund a negotiated percentage of the interest earned on investments of cash
collateral and of the lending fee paid by the borrower (when non-cash collateral
is pledged by the borrower).

In determining whether to lend securities to a particular broker-dealer or
institutional borrower, securities lending agents generally consider specific
facts and circumstances of the securities loan, including the creditworthiness
of the borrower. Investment companies participating in securities lending
programs generally pay administrative and custodial fees in connection with each
securities loan, and a negotiated portion of the interest earned on the
investment of the cash collateral first to the borrower and, to the extent of
any remaining earned interest, to the securities lending agent. These investment
companies generally receive from the borrower amounts equivalent to any
dividends, interest, or other distributions while the securities are on loan
("substitute payments"). Investment companies typically retain certain ownership
rights as to the loaned securities (such as voting and subscription rights, and
rights to dividends, interest, or other distributions). The cash collateral
received from each borrower is typically invested by the securities lending
agent in high-quality investments (including money market instruments and
repurchase agreements).

While the Fund would expect to benefit from securities lending by
increasing its investment income, there are certain risks and special
considerations. For example, there is borrower default risk (e.g., the borrower
fails to return a loaned security and there is a shortfall on the collateral
posted by the borrower), cash collateral investment risk (e.g., principal loss
resulting from the investment of the cash collateral) and security recall/return
risk (e.g., the Fund is unable to recall a security in time to exercise valuable
rights or sell the security). In addition, substitute payments are not treated
as a dividend and may not be eligible as qualified dividend income for U.S.
federal income tax purposes.

The Fund would be subject to certain regulatory requirements in lending
portfolios securities. Interpretations by the Securities and Exchange Commission
limit the amount of securities a registered investment company may lend to
33 1/3 of the fund's total assets.

The Board of Directors recommends that the shareholders of the Fund vote
FOR the proposal to amend the Fund's fundamental investment restriction on
lending.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

Dudley & Shanley, LLC ("Dudley") has reported beneficial ownership of
approximately 5.2% of the Fund's Common Stock as of June 30, 2006. Dudley is
located at 130 Maple Avenue, Red Bank, N.J. 07701. To the knowledge of the
management of the Fund, Dudley is the only beneficial owner of more than 5% of
the Fund's outstanding shares.

Shares of Common Stock Percentage of the Fund's
of the Fund Reported Common Stock
Name of Beneficial Owner Beneficially Owned Beneficially Owned
------------------------ ------------------ ------------------
Dudley & Shanley, LLC 1,096,800 5.2%

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 assist in the solicitation of proxies for the Meeting for an
estimated fee of approximately $100,000, 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.

Change in Accountants

During November 2004, PricewaterhouseCoopers LLP ("PwC") resigned as the
independent registered public accountant of the Fund because PwC has been
appointed to provide non-audit services to certain affiliates of NAM-U.S.A.,
which could be viewed as inconsistent with auditor independence with respect to
the Fund. The resignation of PwC was not the result of any disagreement with
management. Based on the recommendation of the Audit Committee of the Fund, the
Board of Directors voted to appoint Ernst & Young as the independent registered
public accountant for the Fund's fiscal year ended February 28, 2005. During the
fiscal year ended February 28, 2005, PwC's audit report contained no adverse
opinion or disclaimer of opinion; nor was the report qualified or modified as to
uncertainty, audit scope, or accounting principles. Further, there were no
disagreements between the Fund and PwC on accounting principles, financial
statement disclosure, or audit scope, which if not resolved to the satisfaction
of PwC would have caused it to make reference to the disagreements in connection
with their report.

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 and Ernst &
Young, independent account-ants for the Fund, for the Fund's fiscal years ended
February 29, 2005 and February 28, 2006 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 two fiscal years, 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
Audit Fees Audit Systems Design and
Charged to Related Tax Implementation All Other
Fiscal Year End Accountant the Fund Fees Fees Fees Fees*
--------------- ---------- -------- ---- ---- ---- -----

February 28, 2005 PwC $0 $15,000 $5,400 $0 $0
Ernst & Young $64,000 $ 9,000 $7,500 $0 $0

February 28, 2006 Ernst & Young $65,000 $26,500 $9,000 $0 $0

----------------
* These fees relate to tax advisory services for NAM and NAM-U.S.A., 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 proposal are not received from
the shareholders, the chairman of the meeting may propose one or more
adjournments of the Meeting to permit further solicitation of proxies from
shareholders. No additional notice will be provided to shareholders 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 III Director nominees (Proposal 1) and FOR
the proposed amendment of the fundamental investment restrictions of the Fund
(Proposal 2). Provided that a quorum has been established at the Meeting,
approval of the election of two Class III 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
proposed amendment of the fundamental investment restrictions of the Fund
(Proposal 2) 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 of (a) 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) 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 will request the
instructions of such customers and clients 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 and clients, grant authority to the proxies designated by the Fund to
vote on the election of Directors (Proposal 1) if no instructions have been
received prior to the date specified in the broker-dealer firm's 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 Fund understands that broker-dealer firms will not be
permitted to grant voting authority with respect to shares for which no
instructions have been received in connection with the proposed amendment of the
fundamental investment restrictions of the Fund (Proposal 2).

The shares as to which the proxies so designated are granted authority by
broker-dealer firms to vote on the proposal 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 "withheld authority to vote for all nominees"
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, broker non-votes and proxies marked "withheld authority to vote for all
nominees" 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 proposed amendment of the fundamental investment
restrictions of the Fund (Proposal 2).

Other Matters

With regard to any other business matters that may properly come before
the Meeting for consideration, it is the intention of the persons named in the
enclosed proxy to use their discretionary voting authority and to vote in
accordance with their best judgment.

Address of Manager and Investment Adviser

The address of NAM-U.S.A. is Two World Financial Center, Building B, New
York, New York 10281. The address of NAM is 1-12-1, Nihombashi, 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 November
2007, must be received by the Fund for inclusion in its Proxy Statement and form
of proxy relating to that meeting by June [ ], 2007. Written proposals with
regard to the Fund should be sent to the Secretary of the Fund, Two World
Financial Center, Building B, New York, New York 10281.

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, Two World Financial Center, Building B, New York, New
York 10281, and such notice must be received by the Secretary no sooner than
June [ ], 2007 and no later than July [ ], 2007 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: October [ ], 2006

PRELIMINARY PROXY SUBJECT TO COMPLETION

JAPAN SMALLER CAPITALIZATION FUND, INC.
Two World Financial Center, Building B
New York, New York 10281

PROXY

This Proxy is Solicited on Behalf of the Board of Directors

The undersigned hereby appoints Hiroshi Terasaki 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 of the
shares of common stock of Japan Smaller Capitalization Fund, Inc. (the "Fund")
held of record by the undersigned on September [25], 2006 at the Annual Meeting
of the Shareholders of the Fund to be held on November 17, 2006, or any
adjournment thereof.

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

PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY USING THE ENCLOSED
ENVELOPE

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

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?

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

|X| PLEASE MARK VOTES
AS IN THIS EXAMPLE

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

JAPAN SMALLER CAPITALIZATION FUND, INC.

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

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 and 2.

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

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

1. Election of two Class III Directors for a three-year term:

Withhold Authority to vote
For All Nominees for all Nominees For All Nominees Except*

Rodney A. Buck |_| |_| |_|

David B. Chemidlin

*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.

2. Amendment of the fundamental investment restrictions of the Fund to permit
the Fund to lend its portfolio securities:

FOR |_| AGAINST |_| ABSTAIN |_|

3. In the discretion of such proxies, upon such other business as may properly
come before the meeting or any adjournments thereof.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL CLASS III DIRECTOR NOMINEES
AND "FOR" PROPOSAL 2.

Date ______________

________ Shareholder sign here _________________ Co-owner sign here ___________