JAPAN OTC EQUITY FUND INC, DEF 14A, 2000-07-13

JAPAN OTC EQUITY FUND INC
DEF 14A, 2000-07-13

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As Filed with the Securities and Exchange Commission on July 13, 2000

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:

|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2)
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12

JAPAN OTC EQUITY 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)(4) 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):

<PAGE>

__________________________________________________________________________

4. Proposed maximum aggregate value 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 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:

____________________________________________________________________

<PAGE>

JAPAN OTC EQUITY FUND, INC.
180 Maiden Lane
New York, New York 10038-4936

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

NOTICE OF 2000 ANNUAL MEETING OF SHAREHOLDERS
August 15, 2000

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

To the Shareholders of
Japan OTC Equity Fund, Inc.:

Notice is hereby given that the 2000 Annual Meeting of Shareholders (the
"Meeting") of Japan OTC Equity Fund, Inc. (the "Fund") will be held at the
offices of Nomura Asset Management U.S.A. Inc., 180 Maiden Lane, New York, New
York, on Tuesday, August 15, 2000, at 11:00 A.M. for the following purposes:

(1) To elect six Directors to serve for the ensuing year;

(2) To consider and act upon a proposal to ratify the selection of
PricewaterhouseCoopers LLP as independent accountants of the Fund for its fiscal
year ending February 28, 2001;

(3) To consider and act upon a proposal to approve a new Management
Agreement between the Fund and Nomura Asset Management U.S.A. Inc.;

(4) To consider and act upon a proposal to approve a new Investment
Advisory Agreement between Nomura Asset Management U.S.A. Inc. and Nomura Asset
Management Co., Ltd.;

(5) To amend the Fund's principal investment strategy concerning
investment in the Japanese over-the-counter market; and

(6) To transact such other business as may properly come before the
Meeting or any adjournment thereof.

The Board of Directors has fixed the close of business on June 30, 2000 as
the record date for the determination of shareholders entitled to notice of and
to vote at the meeting or any adjournment thereof.

A complete list of the shareholders of the Fund entitled to vote at the
Meeting will be available and open to the examination of any shareholder of the
Fund for any purpose germane to the Meeting during ordinary business hours from
and after July 24, 2000, at the offices of the Fund, 180 Maiden Lane, New York,
New York.

<PAGE>

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

John J. Boretti
Secretary

New York, New York
Dated: July 13, 2000

<PAGE>

[This Page intentionally left blank]

<PAGE>

PROXY STATEMENT

JAPAN OTC EQUITY FUND, INC.
180 Maiden Lane
New York, New York 10038-4936

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

2000 ANNUAL MEETING OF SHAREHOLDERS
August 15, 2000

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

INTRODUCTION

This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Japan OTC Equity Fund, Inc., a
Maryland corporation (the "Fund"), to be voted at the 2000 Annual Meeting of
Shareholders of the Fund (the "Meeting") to be held at the offices of Nomura
Asset Management U.S.A. Inc., 180 Maiden Lane, New York, New York, on Tuesday,
August 15, 2000, at 11:00 A.M. The approximate mailing date of this Proxy
Statement is July 14, 2000.

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 (a) FOR the election of six Directors, (b) FOR the ratification of
the selection of independent accountants, (c) FOR approval of a new Management
Agreement between the Fund and Nomura Asset Management U.S.A. Inc.
("NAM-U.S.A."), (d) FOR approval of a new Investment Advisory Agreement between
NAM-U.S.A. and Nomura Asset Management Co., Ltd. ("NAM") and (e) FOR the
amendment of the Fund's principal investment strategy concerning investment in
the Japanese over-the-counter market. 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 or by voting in person at the Meeting.

The Board of Directors has fixed the close of business on June 30, 2000,
as the record date for the determination of shareholders entitled to notice of
and to vote at the Meeting and at any adjournment 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 30, 2000, 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 that
mentioned in Proposals 1, 2, 3, 4 and 5 of the Notice of Meeting which will be
presented for consideration 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.

1
<PAGE>

PROPOSAL 1. ELECTION OF DIRECTORS

At the Meeting six Directors will be elected to serve until the next
Annual Meeting of Shareholders and until their successors are elected and
qualified. It is the intention of the persons named in the enclosed proxy to
nominate and vote in favor of the election of the persons listed below unless
otherwise indicated.

In the event that any of these nominees are unable to serve, the proxies
received will be voted for such substitute nominees as the Board of Directors
may recommend. It is currently expected that any substitute nominee for Director
who is not an "interested person" of the Fund (within the meaning of the
Investment Company Act of 1940) also will be a non-interested person.

Certain information concerning the nominees is set forth as follows:

<TABLE>
<CAPTION>
Principal Occupations Shares of Common
During Past Five Stock of the Fund
Years and Public Director Beneficially Owned
Name and Address of Nominee Directorships(l) Age Since at June 30, 2000
--------------------------- --------------------- --- -------- ------------------
<S> <C> <C> <C> <C>
William G. Barker, Jr.(2).. Director of What's For 67 1990 -0-
111 Parsonage Road Free Technologies, Inc.
Greenwich, Connecticut 06830 since 2000 and Consultant
to the televsion industry
since 1991.

George R. Chittenden(2).... Director of Bank 83 1990 750
155 Buffalo Bay, Neck Road Audi (USA).
Madison, Connecticut 06443

Nobuo Katayama(3).......... President of the Fund 53 1999 -0-
180 Maiden Lane since 1999; President and
New York, New York 10038 Director of NAM-U.S.A. since
1999; Marketing Officer of
NAM from 1997 to 1999;
Director and Chief Portfolio
Manager of NAM from 1993 to
1997.

Chor Weng Tan(2)........... Managing Director for 65 1990 1,000
3 Park Avenue Education, The American
New York, New York 10016 Society of Mechanical
Engineering since 1991;
Director of Tround
International, Inc. from
1984 to 1997.
</TABLE>

2
<PAGE>

<TABLE>
<CAPTION>
Principal Occupations Shares of Common
During Past Five Stock of the Fund
Years and Public Director Beneficially Owned
Name and Address of Nominee Directorships(l) Age Since at June 30, 2000
--------------------------- --------------------- --- -------- ------------------
<S> <C> <C> <C> <C>
Arthur R. Taylor(2)........ President of Muhlenberg 65 1990 -0-
2400 Chew Street College since 1992; Dean
Allentown, Pennsylvania 18104 of the Faculty of Business
of Fordham University from
1985 to 1992; Chairman of
Arthur R. Taylor & Co.
(Investment firm); and
Director of Louisiana Land
& Exploration Company and
Pitney Bowes, Inc. from
1982 to 1997.

John F. Wallace(3)......... Vice President of the 71 1990 700
17 Rhoda Street Fund from 1997 to 2000
West Hempstead, New York and Secretary and Treasurer
11552 of the Fund from 1993 to
1997; Senior 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.
</TABLE>

----------
(1) Each of the nominees is also a director of Jakarta Growth Fund, Inc.,
Korea Equity Fund, Inc., and Nomura Pacific Basin Fund, Inc., investment
companies for which NAM-U.S.A. acts as manager and NAM acts as investment
adviser.

(2) Member of Audit Committee and Nominating Committee of the Board of
Directors.

(3) "Interested person" of the Fund, as defined in the Investment Company Act
of 1940, as amended (the "Investment Company Act").

Committees and Directors' Meetings. The Board of Directors has a standing
Audit Committee and 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. The principal purpose of the Audit Committee is to
assist the Board of Directors in its oversight of the Fund's accounting and
financial reporting policies, its internal controls and the preparation of its
financial statements and also to act as a liaison between the Fund and its
independent public accountants. The principal purpose of the Nominating
Committee is to select and nominate the Directors who are not "interested
persons" of the Fund as defined in the Investment Company Act. The Nominating
Committee will consider nominees recommended by shareholders of the

3
<PAGE>

Fund. Shareholders should submit nominees to the Secretary of the Fund. The Fund
has no standing Compensation Committee.

During the fiscal year ended February 29, 2000, the Board of Directors
held nine meetings, and the Audit Committee held two meetings and the Nominating
Committee held one meeting. Each Director attended at least 75% of the meetings
of the Board of Directors, and each Director who is a member of the Audit and
Nominating Committees attended at least 75% of the meetings of such Committees
held during such period.

Interested Persons. The Fund considers two nominees, Messrs. Katayama and
Wallace, to be "interested persons" of the Fund within the meaning of Section
2(a) (19) of the Investment Company Act. Mr. Katayama is President of the Fund
and the President and a director of NAM-U.S.A. Mr. Wallace is a former Vice
President of the Fund and a former Senior Vice President, Secretary, Treasurer
and director of NAM-U.S.A.

Compensation of Directors. The Manager pays all compensation of all
Directors of the Fund who are affiliated with the Manager or any of its
affiliates. The Fund pays to each Director not affiliated with the Manager an
annual fee of $5,000 plus $500 per meeting attended, together with such
Director's actual out-of-pocket expenses relating to attendance at meetings.
Such fees and expenses aggregated $57,825 for the fiscal year ended February 29,
2000. The Fund has paid affiliated Directors' out-of-pocket expenses in
connection with attendance at meetings of the Board of Directors; such expenses
aggregated $4,071 for this fiscal year ended February 29, 2000.

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 investment companies managed by NAM-U.S.A. or advised by NAM:

<TABLE>
<CAPTION>
Aggregate Pension or Retirement Total Compensation
Compensation Benefit Accrued as from Fund Complex
from Fund for its Part of Fund Expenses Paid to Directors
Fiscal Year for its Fiscal Year During the Calendar
Ended February Ended February 29, Year Ended
Name of Director 29, 2000 2000 December 31, 1999*
----------------------- ----------------- --------------------- -------------------
<S> <C> <C> <C>
William G. Barker......... $9,500 None $32,500
George H. Chittenden...... $9,000 None $32,500
Nobuo Katayama............ -- None --
Chor Weng Tan............. $9,000 None $30,500
Arthur R. Taylor.......... $9,500 None $32,500
John F. Wallace........... -- None --
</TABLE>

----------
* In addition to the Fund, the "Fund Complex" includes Jakarta Growth Fund,
Inc., Korea Equity Fund, Inc., and Nomura Pacific Basin 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, 1999.

4
<PAGE>

Officers of the Fund. The following table sets forth information
concerning the 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.

<TABLE>
<CAPTION>
Shares of
Common Stock
of the Fund
Beneficially
Officer Owned at
Name and Principal Occupation During Past Five Years Office Age Since June 30, 2000
---------------------------------------------------- ------------- --- ------- -------------
<S> <C> <C> <C> <C>
Nobuo Katayama......................................... President 53 1999 -0-
President and Director of NAM-U.S.A. since 1999;
Marketing Officer of NAM from 1997 to 1999; Director
and Chief Portfolio Manager of NAM from 1993 to 1997.

Keisuke Haruguchi...................................... Vice President 49 1999 -0-
Senior Vice President and Director of NAM-U.S.A. since
1999; Senior Manager of NAM from 1997 to 1998; Manager
of The Nomura Securities Co., Ltd. from 1994 to 1996.

David G. Stoeffel...................................... Vice President 41 1999 100
Senior Vice President of NAM-U.S.A. since 1999 and
Vice President of NAM-U.S.A. since 1998; Eastern
Division Manager of Brinson Funds from 1997 to 1998;
Northeast Region Funds Coordinator of Prudential
Investments from 1994 to 1997.

John J. Boretti........................................ Secretary and 48 1997 -0-
Senior Vice President of NAM-U.S.A. and since 1996 Treasurer
Compliance Officer of NAM-U.S.A. since 1997; Vice
President and Chief Financial Officer of Kidder Peabody
Asset Management, Inc. and Kidder, Peabody Mutual Funds
and Vice President of Kidder, Peabody & Co. Inc. from
1993 to 1995.
</TABLE>

Stock Ownership. At June 30, 2000, the Directors and officers of the Fund
as a group (9 persons) owned an aggregate of 2,550 shares of the Fund,
representing less than 1% of the outstanding shares of the Fund. The officers of
the Fund together own less than 1% of the shares of The Nomura Securities Co.,
Ltd. ("Nomura"), an affiliate of both NAM-U.S.A. and NAM.

5
<PAGE>

PROPOSAL 2. SELECTION OF INDEPENDENT ACCOUNTANTS

The Board of Directors of the Fund, including a majority of the Directors
who are not interested persons of the Fund, has selected the firm of
PricewaterhouseCoopers LLP ("PWC"), as independent accountants, to audit the
financial statements of the Fund for the fiscal year ending February 28, 2001.
PWC has acted as the Fund's independent accountants since the inception of the
Fund. The Fund knows of no direct or indirect financial interest of such firm in
the Fund. Such appointment is subject to ratification or rejection by the
shareholders of the Fund. Unless a contrary specification is made, the
accompanying proxy will be voted in favor of ratifying the selection of such
accountants.

PWC also acts as independent accountants for Nomura and certain of its
affiliated entities, including NAM-U.S.A., and for three other investment
companies for which NAM-U.S.A. acts as manager. The Board of Directors 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 respond to questions from shareholders and to make a
statement if such person so desires.

PROPOSAL 3. APPROVAL OR DISAPPROVAL OF THE MANAGEMENT AGREEMENT

NAM-U.S.A. has served as the management company for the Fund since the
Fund commenced operations in 1990. NAM-U.S.A. provides management and
administrative services, including administering shareholder accounts and
handling shareholder relations, to the Fund. NAM-U.S.A. is an affiliate of both
Nomura and NAM.

Following changes in Japanese regulations, Nomura has announced that it
intends to reorganize into a holding company. As part of the process toward the
holding company concept, Nomura has increased its share ownership in NAM from
4.99% to a majority shareholder positioning with an ultimate goal of acquiring
100% of NAM. At May 31, 2000, Nomura had acquired 74.5% of the outstanding
voting shares of NAM and NAM-U.S.A. had become a wholly-owned subsidiary of NAM.

NAM-U.S.A. has advised the Board of Directors that the changes in the
ownership structure of NAM-U.S.A. and NAM have not affected the Fund's
day-to-day operations or portfolio management. However, these changes may have
constituted an "assignment" of the relevant contracts under the Investment
Company Act, which may have resulted in a termination of the Fund's management
agreement. Accordingly, in light of the ownership changes in NAM-U.S.A. and NAM
and in order to ensure the continuity of management services provided to the
Fund by NAM-U.S.A., on March 24, 2000 the Board of Directors of the Fund
approved, pursuant to Rule 15a-4 under the Investment Company Act, an interim
Management Agreement (the "Interim Management Agreement") for up to 150 days
after the termination of the former agreement while the Fund seeks shareholder
approval of a new agreement. A new management agreement between the Fund and
NAM-U.S.A. (the "New Management Agreement") is proposed

6
<PAGE>

to be approved by a majority of the Fund's outstanding voting securities (as
defined in the Investment Company Act).

The Interim Management Agreement under which the Fund is operating is
substantially identical to the agreement under which the Fund previously
operated. The services provided by NAM-U.S.A. since the ownership change have
been identical to the services previously provided by NAM-U.S.A. NAM-U.S.A. has
advised the Board of Directors that it believes that there will be no reduction
in the quality of any of the services presently furnished by NAM-U.S.A. As
described below, the New Management Agreement does not alter the rate of
management compensation presently payable by the Fund.

In their consideration of the New Management Agreement, the Board of
Directors received information relating to, among other things, alternatives to
the Fund's New Management Agreement, the nature, quality and extent of the
management and other services to be provided to the Fund by NAM-U.S.A., other
comparative data with respect to the management fees paid by other international
funds, the operating expenses and expense ratio of the Fund as compared to such
funds and the performance of the Fund as compared to such funds. The independent
Directors also considered NAM-U.S.A.'s representations that there will be no
material adverse change in the services provided to the Fund after the ownership
change, the relative profitability of the New Management Agreement to
NAM-U.S.A., and information about the services to be performed and the personnel
performing such services under the New Management Agreement. The independent
Directors were advised by separate counsel in connection with their review of
the New Management Agreement of the Fund. After considering the factors stated
above, the Board of Directors approved the New Management Agreement of the Fund.

If approved by the Fund's shareholders at the Meeting, the New Management
Agreement will remain in effect until August 1, 2002, unless terminated as
described below. The former Management Agreement was last approved by the Fund's
shareholders on September 24, 1997. Although the management and investment
advisory agreements consist of two separate contracts, neither of the agreements
will become effective unless both are approved by shareholders.

Information Concerning NAM-U.S.A.

NAM-U.S.A. provides global investment advisory services, primarily with
respect to Japanese and other Pacific Basin securities, for U.S. institutional
clients. NAM-U.S.A. acts as one of the investment advisors to five other
investment companies, three of which are U.S. registered investment companies.
Effective March 31, 2000, NAM-U.S.A. became a wholly owned subsidiary of NAM.

The following table sets forth the name, title and principal occupations
of the principal executive officer and each director of NAM-U.S.A. at June 1,
2000.

7
<PAGE>

Name* Title with NAM-U.S.A. Present Principal Occupation
--------------------- ----------------------- ----------------------------

Nobuo Katayama Director and President Director and President of
NAM-U.S.A.

Marti G. Subrahmanyam Director Professor of Finance and
Economics, New York
University, Leonard N.
Stern School of Business
Administration

Keisuke Haruguchi Director, Senior Vice Director, Senior Vice
President and Treasurer President and Treasurer
of NAM-U.S.A.

John J. Boretti Senior Vice President Senior Vice President and
and Compliance Officer Compliance Officer of
NAM-U.S.A.

Michael A. Morrongiello Senior Vice President Senior Vice President of
NAM-U.S.A.

Kenneth L. Munt Senior Vice President Senior Vice President and
and Secretary Secretary of NAM-U.S.A.

David G. Stoeffel Senior Vice President Senior Vice President of
NAM-U.S.A.

----------
* The address of Messrs. Katayama, Haruguchi, Boretti, Morrongiello, Munt and
Stoeffel is 180 Maiden Lane, New York, New York 10038. The address of Mr.
Subrahmanyam is New York University, Leonard N. Stern School of Business, Henry
Kaufman Management Center, 44 West Fourth Street, New York, New York 10012.

Terms of the New Management Agreement

A copy of the form of the New Management Agreement is set forth as Exhibit
A. Set forth below is a summary of the terms of that Agreement. As discussed
above, the New Management Agreement is substantively identical to the agreement
under which the Fund currently operates. The New Management Agreement does not
change the amount of management fees payable by the Fund.

Under the New Management Agreement between the Fund and NAM-U.S.A.,
NAM-U.S.A. agrees to provide, or arrange for the provision of, investment
advisory and management services to the Fund, subject to the oversight and
supervision of the Board of Directors of the Fund. In addition to the management
of the Fund's portfolio in accordance with the Fund's investment policies and
the responsibility for making decisions to buy, sell or hold

8
<PAGE>

particular securities, NAM-U.S.A. is obligated to perform, or arrange for the
performance of, the administrative and management services necessary for the
operation of the Fund. NAM-U.S.A. is also obligated to provide all the office
space, facilities, equipment and personnel necessary to perform its duties
thereunder. Pursuant to such Agreement, NAM-U.S.A. is authorized to retain NAM
to act as an investment advisor for the Fund.

Compensation and Expenses

As described above, the management compensation presently payable by the
Fund will remain the same under the New Management Agreement. As compensation
for its services to the Fund, NAM-U.S.A. will receive a monthly fee, computed
daily, as set below.

---------------------------------------------------------------------
Annual Rate of Based on Average Weekly
Compensation Net Assets
---------------------------------------------------------------------
1.10% not in excess of $50 million
---------------------------------------------------------------------
1.00% in excess of $50 but not exceeding $100 million
---------------------------------------------------------------------
.90% in excess of $100 but not exceeding $175 million
---------------------------------------------------------------------
.80% in excess of $175 million
---------------------------------------------------------------------

The fee payable to NAM-U.S.A. is higher than that paid by most management
investment companies, but NAM-U.S.A. believes it is comparable to fees paid by
other international funds. For the services it rendered during the fiscal year
ended February 29, 2000, the Fund accrued, under generally accepted accounting
principles, fees of $1,491,104 and paid NAM-U.S.A. fees of $1,371,135 on a cash
basis. At June 1, 2000, the net assets of the Fund aggregated approximately
$200.1 million. At this net asset level, the annual management fee would
aggregate approximately $1,926,000.

The New Management Agreement obligates NAM-U.S.A. to pay all compensation
of and furnish office space for officers and employees of the Fund, as well as
the fees of all Directors of the Fund who are affiliated persons of NAM-U.S.A.
or any of its affiliates. The Fund pays all other expenses incurred in the
operation of the Fund, including, among other things, taxes, expenses for legal,
tax and auditing services, costs of printing proxies, listing fees, stock
certificates, shareholder reports, prospectuses, charges of the custodian,
sub-custodians and transfer agent, Securities and Exchange Commission (the
"Commission") fees, expenses of registering the shares under Federal, state and
foreign laws, fees and expenses of unaffiliated Directors, accounting and
pricing costs (including the daily/weekly calculation of net asset value),
insurance, interest, brokerage costs, litigation and other extraordinary or
non-recurring expenses, and other expenses properly payable by the Fund.

For the fiscal year ended February 29, 2000, the Fund paid brokerage
commissions of $449,051. Nomura earned $94,259 (21%) in commissions from the
Fund on the execution of such portfolio security transactions.

The following table sets forth information relating to the registered
investment companies which invest primarily in securities of companies domiciled
in Pacific Basin countries with the

9
<PAGE>

investment objective of long-term capital appreciation for which NAM-U.S.A. and
its affiliates act as manager:

Approximate
Net Assets at
June 1, 2000
Investment Company Annual Advisory Fees (Millions)
------------------------------ ------------------------ -------------

Jakarta Growth Fund, Inc.
Manager: Management Fee: $ 7.6
NAM-U.S.A. 1.10% of net assets(1)

Korea Equity Fund, Inc.
Manager: Management Fee: $41.8
NAM-U.S.A. 1.10% of net assets(2)

Nomura Pacific Basin Fund, Inc. $16.2
Manager: Management Fee:
NAM-U.S.A. .75% of net assets(3)

----------

(1) On June 30, 2000, NAM-U.S.A. voluntarily agreed to reduce the management
fee to 1.0% of the Jakarta Growth Fund Inc.'s average weekly net assets.
This reduction will remain in effect until May 31, 2001 unless NAM-U.S.A.
and the Board of Directors of the Jakarta Growth Fund, Inc. mutually agree
to reinstate the full management fee.

(2) On June 30, 2000, NAM-U.S.A. voluntarily agreed to reduce the management
fee to .95% of the Korea Equity Fund Inc.'s net assets. This reduction
will remain in effect until May 31, 2001 unless NAM-U.S.A. and the Board
of Directors of the Korea Equity Fund Inc. mutually agree to reinstate the
full management fee.

(3) For the fiscal year ended March 31, 2000 NAM-U.S.A. waived its entire
management fee.

Duration and Termination. As indicated above, the New Management Agreement
will remain in effect until August 1, 2002, and from year to year thereafter if
approved annually (a) by the Board of Directors of the Fund or by a majority of
the outstanding shares of the Fund and (b) by a majority of the Directors who
are not parties to such contract or interested persons (as defined in the
Investment Company Act) of any such party. Such contract is not assignable and
may be terminated without penalty on 60 days' written notice at option of either
party thereto or by the vote of the shareholders of the Fund.

PROPOSAL 4. APPROVAL OR DISAPPROVAL OF THE INVESTMENT ADVISORY AGREEMENT

NAM, the parent company of NAM-U.S.A., has served as the investment
advisor for the Fund since the Fund commenced operations in 1990. NAM is a
subsidiary of Nomura, which is the largest securities company in Japan. NAM
provides economic research, securities analysis and investment recommendations
to the Fund.

As described above, following changes in Japanese regulations, Nomura
announced its intention to reorganize into a holding company. As part of the
process toward the holding company concept, Nomura has increased its share
ownership in NAM from 4.99% to a majority shareholder positioning with the
ultimate goal of acquiring 100% of NAM. At May 31, 2000, Nomura had acquired
74.5% of the outstanding voting shares of NAM.

NAM-U.S.A. has advised the Board of Directors that the changes in the
ownership structure of NAM-U.S.A. and NAM have not affected the Fund's
day-to-day operations or

10
<PAGE>

portfolio management. However, these changes may have constituted an
"assignment" of the relevant contracts under the Investment Company Act, which
may have resulted in a termination of the Fund's investment advisory agreement.
Accordingly, in light of the ownership changes in NAM-U.S.A. and NAM and in
order to ensure the continuity of investment advisory services provided to the
Fund by NAM, on March 24, 2000, the Board of Directors of the Fund approved,
pursuant to Rule 15a-4 under the Investment Company Act an interim Investment
Advisory Agreement (the "Interim Investment Advisory Agreement") for up to 150
days after the termination of the former agreement while the Fund seeks
shareholder approval of a new agreement. A new investment advisory agreement
between NAM-U.S.A. and NAM (the "New Investment Advisory Agreement") is proposed
to be approved by a majority of the Fund's outstanding voting securities (as
defined in the Investment Company Act).

The Interim Investment Advisory Agreement under which the Fund is
operating is substantially identical to the agreement under which the Fund
previously operated. The services provided by NAM since the ownership change
have been identical to the services previously provided by NAM. NAM-U.S.A. has
further advised the Board of Directors that it believes that there will be no
reduction in the quality of any of the services presently furnished by NAM. As
described below, the New Investment Advisory Agreement does not alter the rate
of investment advisory compensation presently payable by NAM-U.S.A. to NAM. The
Fund does not compensate NAM for its investment advisory services.

In their consideration of the New Investment Advisory Agreement, the Board
of Directors received information relating to, among other things, alternatives
to the Fund's New Investment Advisory Agreement, the nature, quality and extent
of the advisory and other services to be provided to the Fund by NAM, other
comparative data with respect to the management fees paid by other international
funds, the operating expenses and expense ratio of the Fund as compared to such
funds and the performance of the Fund as compared to such funds. The independent
Directors also considered NAM-U.S.A.'s and NAM's representations that there will
be no material adverse change in the services provided to the Fund after the
ownership change, the relative profitability of the New Investment Advisory
Agreement to NAM, and information about the services to be performed and the
personnel performing such services under the New Investment Advisory Agreement.
The independent Directors were advised by separate counsel in connection with
their review of the New Investment Advisory Agreement of the Fund. After
considering the factors stated above, the Board of Directors approved the New
Investment Advisory Agreement of the Fund.

If approved by the Fund's shareholders at the Meeting, the New Investment
Advisory Agreement will remain in effect until August 1, 2002, unless terminated
as described below. The former Investment Advisory Agreement was last approved
by the Fund's shareholders on September 24, 1997. Although the management and
investment advisory agreements consist of two separate contracts, neither of the
agreements will become effective unless both are approved by shareholders.

Information Concerning NAM

NAM provides investment advisory services for Japanese and international
clients. In addition to the Fund, NAM acts as an investment advisor with respect
to the following registered

11
<PAGE>

investment companies: Jakarta Growth Fund, Inc., Korea Equity Fund, Inc., and
Nomura Pacific Basin Fund, Inc.

The following table sets forth the name, title and principal occupation of
the principal executive officers of NAM at June 1, 2000.

Name* Title with NAM Present Principal Occupation
------------------ ----------------------- --------------------------------

Akira Kiyokawa President and CEO President and CEO of NAM

Atsushi Kinebuchi Executive Vice President Executive Vice President of NAM

Takanori Tanabe Director and Principal Director and Principal
Executive Officer Executive Officer of NAM

Hisaaki Hino Director and Principal Director and Principal
Executive Officer Executive Officer of NAM

Kenjiro Hayashi Director Executive Vice President of
Nomura Research Institute Ltd.

Akio Nakaniwa Director and Senior Director and Senior Executive
Executive Officer Officer of NAM

Takanori Shimiziu Director and Senior Director and Senior Executive
Executive Officer Officer of NAM

Masato Tanaka Director and Senior Director and Senior Executive
Executive Officer Officer of NAM

Haruo Miyako Senior Executive Officer Senior Executive Officer of NAM

Takahide Mizuno Senior Executive Officer Senior Executive Officer of NAM

Yukio Suzuki Senior Executive Officer Senior Executive Officer of NAM

Yasunobu Watase Senior Executive Officer Senior Executive Officer of NAM

Shigeru Fujinuma Executive Officer Executive Officer of NAM

Takashi Harino Executive Officer Executive Officer of NAM

Masami Kitaoka Executive Officer Executive Officer of NAM

Norio Kinoshita Executive Officer Executive Officer of NAM

Takahisa Matsuura Executive Officer Executive Officer of NAM

12
<PAGE>

<TABLE>
<CAPTION>
Name* Title with NAM Present Principal Occupation
--------------------- ------------------------------- ----------------------------------
<S> <C> <C>
Mitsunori Minamio Executive Officer Executive Officer of NAM

Yuji Miyachi Executive Officer Executive Officer of NAM

Hirokatsu Ogawa Executive Officer Executive Officer of NAM

Toshiki Sada Executive Officer Executive Officer of NAM

Hideyuki Suzuki Executive Officer Executive Officer of NAM

Kazuhiro Yamashita Executive Officer Executive Officer of NAM
</TABLE>

----------
* The address of the principal executive officer and each director is 1-14,
2-chome, Nihonbashi, Chuo-ku, Tokyo 103-8260, Japan.

Terms of the New Investment Advisory Agreement

A copy of the form of the New Investment Advisory Agreement is set forth
as Exhibit B. Set forth below is a summary of the terms of that Agreement. As
discussed above, the New Investment Advisory Agreement is substantively
identical to the agreement under which the Fund currently operates. The New
Investment Advisory Agreement does not change the amount of investment advisory
fees payable by NAM-U.S.A. to NAM.

Pursuant to the New Investment Advisory Agreement between NAM-U.S.A. and
NAM, NAM agrees to furnish NAM-U.S.A. with economic research, securities
analysis and investment recommendations and to review and render investment
advice with respect to the Fund. NAM will not be responsible for the actual
portfolio decisions of the Fund.

Compensation and Expenses

As described above, the investment advisory compensation presently payable
by NAM-U.S.A. to NAM will remain the same under the New Investment Advisory
Agreement. As compensation for its services to the Fund, NAM-U.S.A. will pay NAM
monthly fees as set forth below.

<TABLE>
<CAPTION>
------------------------------------ --------------------------------------------------------
Based on Average Weekly
Annual Rate of Compensation Net Assets
------------------------------------ --------------------------------------------------------
<S> <C>
.50% not in excess of $50 million
------------------------------------ --------------------------------------------------------
.45% in excess of $50 but not exceeding $100 million
------------------------------------ --------------------------------------------------------
.40% in excess of $100 but not exceeding $175 million
------------------------------------ --------------------------------------------------------
.35% in excess of $175 million
------------------------------------ --------------------------------------------------------
</TABLE>

13
<PAGE>

For the services rendered during the fiscal year ended February 29, 2000,
NAM-U.S.A. accrued, under generally accepted accounting principles, fees of
$669,370 and paid NAM fees of $65,500 on a cash basis. At June 1, 2000, the net
assets of the Fund aggregated approximately $200.1 million. At this net asset
level, the fee received by NAM from NAM-U.S.A. would aggregate approximately
$863,000.

The New Investment Advisory Agreement obligates NAM to provide economic
research, securities analysis and investment recommendations to the Fund.

The following table sets forth information relating to the registered
investment companies which invest primarily in securities of companies domiciled
in Pacific Basin countries with the investment objective of long-term capital
appreciation for which NAM and its affiliates act as investment advisor:

Approximate Net
Assets at
June 1, 2000
Investment Company Annual Advisory Fees (Millions)
------------------------------- ----------------------------------------------- ----------------------
<S> <C> <C>
Jakarta Growth Fund, Inc. Investment Advisory Fee:
Investment Advisor:
NAM .50% of net assets; paid by NAM-U.S.A. to $7.6
NAM(1)

Nomura Asset Management .25% of net assets; paid by NAM-U.S.A. to
Singapore Ltd. NAM

Korea Equity Fund, Inc. Investment Advisory Fee: $41.8
Investment Advisor:
NAM .55% of net assets.

Nomura Pacific Basin Fund, Investment Advisory Fee:
Inc.
Investment Advisors: .26125% of net assets: paid by NAM-U.S.A. $16.2
NAM to NAM(2)

NAM-Singapore .0275% of net assets; paid by NAM-U.S.A.
to NAM-Singapore(2)
</TABLE>

---------------
(1) Nomura Asset Management Singapore Ltd. ("NAM-Singapore"), which is an
affiliate of NAM-U.S.A. and NAM acts as investment sub-advisor to Jakarta
Growth Fund, Inc. for which it receives compensation of 0.25% of net
assets paid by NAM.

(2) For the fiscal year ended March 31, 2000, NAM and NAM-Singapore waived
their entire investment advisory fee.

Duration and Termination. As indicated above, the New Investment Advisory
Agreement will remain in effect until August 1, 2002, and from year to year
thereafter if approved annually

14
<PAGE>

(a) by the Board of Directors of the Fund or by a majority of the outstanding
shares of the Fund and (b) by a majority of the Directors who are not parties to
such contract or interested persons (as defined in the Investment Company Act)
of any such party. Such contract is not assignable and may be terminated without
penalty on 60 days' written notice at option of either party thereto or by the
vote of the shareholders of the Fund.

PROPOSAL 5. TO AMEND THE PRINCIPAL INVESTMENT STRATEGY
CONCERNING INVESTMENT IN THE JAPANESE OVER-THE COUNTER MARKET.

At its inception, the Fund was organized to invest primarily in the equity
securities of emerging companies in Japan. At that time, these emerging
companies were primarily traded on the Japanese over-the-counter market, the
principal trading market for small capitalization growth companies in Japan.
However, recent developments have led to the formation of other markets in Japan
designed for the listing of equity securities of emerging companies and further
developments are expected to provide an increased opportunity for emerging
companies in Japan to list their equity securities in a wider range of markets.

The 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 the Japanese over-the-counter
market. The Fund's current principal investment strategy provides that the Fund
will, under normal circumstances,"invest at least 80% of its total assets in
equity securities traded in the Japan OTC market."

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 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.

Under the proposed investment strategy, except during temporary defensive
Periods, the Fund will invest at least 65% of its total assets in equity
securities of emerging companies traded in the Japanese over-the-counter market.
The Fund will continue to have the ability to invest in assets which are not
invested in the Japanese over-the-counter market in securities deemed by
NAM-U.S.A. to be appropriate investments for the Fund in light of the Fund's
investment objective ("non-OTC investments"). The proposed investment strategy
will permit, but not obligate, the Fund to invest all or a portion of its
non-OTC investments, up to 35% of its total assets, in markets such as the
Market for the High-Growth and Emerging Stocks ("Mothers"), Nasdaq-Japan and
markets determined by NAM-U.S.A. to be appropriate markets for emerging
companies in Japan. However, the Fund is not required to invest in markets such
as Mothers and Nasdaq-Japan, and the Fund may choose not to invest in those
markets.

The Fund's Investment Objective Will Remain the Same. The Fund's
fundamental investment objective is, and will remain, to provide shareholders
with long-term capital appreciation primarily through investments in equity
securities traded in the Japanese over-the-counter market. Since its inception,
the Fund has established itself as a vehicle for investment in new and emerging
companies in the Japanese market.

New Markets for Emerging Companies have Developed. When the Fund commenced
operations, the over-the-counter market was the only significant capital market
in Japan for new and emerging businesses. Recent competition among stock
exchange and off-exchange markets, including the relaxation of listing
requirements, and the development of new markets such as Mothers and
Nasdaq-Japan, have provided newly established companies with additional forums
on which to list or to register their shares at earlier stages of their
development. The proposed

15
<PAGE>

investment strategy will allow the Fund to provide a more effective vehicle for
investment in emerging companies in Japan by increasing the Fund's ability to
invest in companies listed on these new stock exchange and off-exchange markets.

Mothers. On November 11, 2000, the Tokyo Stock Exchange ("TSE"), the
primary market in Japan, formally launched Mothers; a new market designed
specifically for the public trading of start-up companies, emerging
high-technology companies and new technology firms. The goal of Mothers is to
help companies whose core business is in an expanding industry sector or
companies whose core business is run based upon new technology and innovations
raise funds in a flexible manner using the well established market facilities of
the TSE. Mothers will allow investors the opportunity to invest in such
companies from an earlier stage in their development.

Nasdaq-Japan. Nasdaq-Japan is a private, for-profit organization owned
equally by the National Association of Securities Dealers, Inc. and Softbank
Corp., a Japanese provider of information and distribution services for the
digital information industry. Nasdaq-Japan is structured as a hybrid stock
exchange-part market maker/part central driven order book system designed to
support the trading of securities of new issuers. The goal of Nasdaq-Japan is to
offer Japanese investors the opportunity to invest in the world's leading
high-technology and high-growth stocks and to provide access to capital for
emerging Japanese companies, especially high-tech, growth-oriented companies.
Nasdaq-Japan commenced operations on June 19, 2000.

The New Investment Strategy Will Provide the Fund with Investment
Flexibility. By amending its principal investment strategy, the Fund may direct
a larger percentage of its total assets to investments in companies listed on
newly established and future financial markets and stock exchanges. Providing
the Fund with the ability to invest up to 35% of its total assets in equity
securities listed on newly created financial markets such as Mothers and Nasdaq-
Japan will allow the Fund to 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 New Investment Strategy. The amended
investment strategy may expose the Fund to greater risks. Trading on newly
organized stock 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 such
new markets will be successful in attracting new listings of companies or
survive for any particular period of time. In addition, companies traded in
other markets may have short operating histories and may not yet be profitable.
The securities of such companies may be less financially secure than larger,
more established companies listed on other stock exchanges, may depend on a
small number of key personnel, and may trade in lower volumes than larger, more
established companies on other markets. Emerging and newly established companies
often face the challenge of maintaining personnel and systems adequate to
respond to market demands and as a result, may be subject to more abrupt and
erratic price movements than other more established companies.

Your Board's Recommendation. The Board has concluded that the revised
investment strategy will benefit the Fund and its shareholders. The Directors
recommend voting FOR the proposal. Upon shareholder approval, the proposed
principal investment strategy will become

16
<PAGE>

effective immediately. If the proposal is not approved by the shareholders of
the Fund, the Fund's current principal investment strategy will remain in
effect.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

To the knowledge of the management of the Fund, there are no persons that
are beneficial owners of more than 5% of the Fund's outstanding shares.

ADDITIONAL INFORMATION

The expense of preparation, printing and mailing of the enclosed form of
proxy and accompanying Notice and Proxy Statement will be borne by the Fund,
except to the extent such expenses are attributable to the proposed new
management and investment advisory agreements in which case they will be borne
by NAM-U.S.A. The Fund's cost in connection with the printing, mailing and
solicitation of proxies relating to the Meeting will not exceed $18,000. Any
costs relating to the above services in excess of $18,000 will be borne by
NAM-U.S.A. 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
Corporate Investor Communications, Inc. ("CIC"), a firm that specializes in
proxy solicitation services, to assist in the solicitation of proxies for the
Meeting, for a fee of approximately $4,000, together with reimbursement of such
firm's expenses. CIC 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.

The election of Directors (Proposal 1) requires a plurality of the votes
cast, in person or by proxy, at a meeting at which a quorum is duly constituted.
Ratification of the selection of independent accountants (Proposal 2) requires
the affirmative vote of a majority of shares present and voting on the proposal
at a meeting at which a quorum is present.

Approval of each of the Management Agreement (Proposal 3), the Investment
Advisory Agreement (Proposal 4) and the amendment of the Fund's principal
investment strategy concerning investment in the Japanese over-the-counter
market (Proposal 5) requires the vote of a majority of the outstanding voting
securities of the Fund which, under the Investment Company Act, is the vote (a)
67% or more of the shares of the Fund present at the meeting of its shareholders
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. If the
Management and Investment Advisory Agreement are not approved by shareholders
at the Meeting, the Board of Directors will reconsider the Fund's management and
investment advisory agreements. If the proposal to amend the principal
investment strategy concerning investment in the Japanese over-the-counter
market is not approved by the shareholders of the Fund, the Fund's principal
investment strategy will remain in effect.

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

17
<PAGE>

at the Meeting. 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, clients and beneficial shareholders,
on how to vote their shares on each proposal before the Meeting. Under the rules
of the New York Stock Exchange, broker-dealers, without instructions from such
customers, clients and beneficial shareholders, grant authority to the proxies
designated by the Fund to vote on the election of Directors (Proposal 1), the
ratification of the selection of the independent accountants (Proposal 2) and
the approval of each of the Management Agreement (Proposal 3) and the Investment
Advisory Agreement (Proposal 4) if no instructions have been received prior to
the date specified in the broker-dealer firm's request for voting instructions.
Broker-dealer firms will not be permitted to grant voting authority without
instructions with respect to Proposal 5. 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 items 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 item 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 not have an effect on the election of
Directors (Proposal 1), the ratification of independent accountants (Proposal
2), and the approval of each of the Management Agreement (Proposal 3) and
Investment Advisory Agreement (Proposal 4). Abstentions and broker non-votes
will have the same effect as a vote against the amendment of the principal
investment strategy concerning investment in the Japanese over-the-counter
market (Proposal 5).

Address of Manager and Investment Advisor

The address of NAM-U.S.A. is 180 Maiden Lane, New York, New York
10038-4936. The address of NAM is 1-14, 2-chome, Nihonbashi, Chuo-ku, Tokyo
103-8260, Japan.

Annual Report Delivery

The Fund sends annual, semi-annual and quarterly reports to shareholders.
The Fund will furnish, without charge, a copy of its most recent annual and any
semi-annual and quarterly reports succeeding such annual report, if any, to
shareholders upon request to the Fund at 180 Maiden Lane, New York, New York
10038-4936 (or call 1-800-833-0018).

Proposals of Shareholders

Proposals of shareholders intended to be presented at the next annual
meeting of shareholders of the Fund must be received by the Fund for inclusion
in its proxy statement and form of proxy relating to that meeting by March 2,
2001.

18
<PAGE>

By Order of the Board of Directors

John J. Boretti
Secretary

New York, New York
Dated: July 13, 2000

19
<PAGE>

Exhibit A

AMENDED AND RESTATED MANAGEMENT AGREEMENT

AGREEMENT made this __ day of ________, 2000, by and between JAPAN OTC
EQUITY FUND, INC., a Maryland corporation (hereinafter referred to as the
"Fund"), and NOMURA ASSET MANAGEMENT U.S.A. INC., a New York corporation
(hereinafter referred to as the "Manager").

W I T N E S S E T H:

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

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

WHEREAS, the Manager has been providing management and investment advisory
services to the Fund pursuant to an amended and restated management agreement
dated October 13, 1999;

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

ARTICLE I

Duties of the Manager

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

(a) Management and Administrative Services. The Manager shall perform, or
supervise the performance of, the management and administrative services
necessary for the operation of the Fund including administering shareholder
accounts and handling shareholder relations. The Manager shall provide the Fund
with office space, equipment and facilities and such other services as the
Manager, subject to review by the Board of Directors of the Fund, shall from
time to time determine to be necessary or useful to perform its obligations
under this Amended and Restated Agreement. The Manager shall also, on behalf of
the Fund, conduct relations with custodians, depositories, transfer agents,
dividend disbursing agents, other shareholder servicing agents, accountants,
attorneys, underwriters, brokers and dealers, corporate fiduciaries, insurers,

A-1
<PAGE>

banks and such other persons in any such other capacity deemed to be necessary
or desirable. The Manager shall generally monitor the Fund's compliance with
investment policies and restrictions as set forth in filings made by the Fund
under Federal securities laws. The Manager shall make reports to the Board of
Directors of the Fund of the performance of its obligations hereunder and
furnish advice and recommendations with respect to such other aspects of the
business and affairs of the Fund as it shall determine to be desirable. The
Manager and each of its affiliates shall for all purposes herein be deemed to be
an independent contractor and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Fund in any way or
otherwise be deemed an agent of the Fund.

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

ARTICLE II

Allocation of Charges and Expenses

(a) The Manager. The Manager assumes and shall pay for maintaining the
staff and personnel necessary to perform its obligations under this Amended and
Restated Agreement and

A-2
<PAGE>

shall, at its own expense, provide the office space, equipment and facilities
which it is obligated to provide under Article I hereof, and shall pay all
compensation of officers of the Fund and all directors of the Fund who are
"affiliated persons" (as defined in the Investment Company Act) of the Manager.

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

ARTICLE III

Compensation of the Manager

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

ARTICLE IV

Investment Advisory Agreement

This Amended and Restated Agreement is entered into with the understanding
that the Manager will enter into an Investment Advisory Agreement with Nomura
Asset Management

A-3
<PAGE>

Co., Ltd., in the form attached hereto as Exhibit A, in which the Manager will
contract for advisory services and pay the Investment Adviser compensation for
its services out of the compensation received hereunder pursuant to Article III
at the rates set forth therein. Such Investment Advisory Agreement will be
coterminous with this Management Agreement. The Fund and the Manager agree that,
upon approval by the Board of Directors of the Fund, including a separate
majority of the non-interested directors, the Manager may delegate investment
discretion for portfolio transactions to Nomura Asset Management Co., Ltd. as
set forth in the Investment Advisory Agreement in the form attached hereto as
Exhibit A.

ARTICLE V

Limitation of Liability of the Manager

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

ARTICLE VI

Activities of the Manager

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

ARTICLE VII

Duration and Termination of this Amended and Restated Agreement

This Amended and Restated Agreement shall become effective as of the date
first above written and shall remain in force until _______ __, 2002 and
thereafter, but only so long as such continuance is specifically approved at
least annually by (i) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the Fund, and (ii) a majority
of those directors who are not parties to this Amended and Restated Agreement or
interested persons of any such party cast in person at a meeting called for the
purpose of voting on such approval.

This Amended and Restated Agreement may be terminated at any time, without
the payment of any penalty, by the Board of Directors of the Fund or by vote of
a majority of the

A-4
<PAGE>

outstanding voting securities of the Fund, or by the Manager, on sixty days'
written notice to the other party. This Amended and Restated Agreement shall
automatically terminate in the event of its assignment.

ARTICLE VIII

Amendments of this Amended and Restated Agreement

This Amended and Restated Agreement may be amended by the parties only if
such amendment is specifically approved by (i) the vote of a majority of
outstanding voting securities of the Fund, and (ii) a majority of those
directors who are not parties to this Amended and Restated Agreement or
interested persons of any such party cast in person at a meeting called for the
purpose of voting on such approval.

ARTICLE IX

Definitions of Certain Terms

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

ARTICLE X

Governing Law

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

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

JAPAN OTC EQUITY FUND, INC.

By______________________________________________

NOMURA ASSET MANAGEMENT U.S.A. INC.

By______________________________________________

A-5
<PAGE>

EXHIBIT B

AMENDED AND RESTATED INVESTMENT ADVISORY AGREEMENT

AGREEMENT made this __ day of _________, 2000, by and between NOMURA ASSET
MANAGEMENT U.S.A. INC., a New York corporation (hereinafter referred to as the
"Manager"), and NOMURA ASSET MANAGEMENT CO., LTD., a Japanese corporation
(hereinafter referred to as the "Investment Adviser").

W I T N E S S E T H :

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

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

WHEREAS, the Manager has entered into an amended and restated management
agreement with the Fund of even date herewith (the "Amended and Restated
Agreement"); and

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

WHEREAS, the Investment Adviser has been providing investment advisory
services to the Manager in connection with the Fund's operations pursuant to an
amended and restated investment advisory agreement dated October 13, 1999;

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

ARTICLE I

Duties of the Investment Adviser

(a) Subject to the broad supervision of the Manager and the Fund, the
Investment Adviser shall provide the Manager with such economic research,
securities analysis and investment recommendations as the latter may from time
to time consider necessary for the proper supervision of the Fund's assets. The
Investment Adviser shall continuously review the Fund's holdings and shall make
recommendations as to which securities shall be purchased, sold or exchanged and
what portion of the assets of the Fund shall be held in the various securities
in which the Fund invests, subject always to the restrictions of the Articles of
Incorporation and By-Laws of the Fund, as amended from time to time, the
provisions of the Investment Company Act and the statements relating to the
Fund's investment objective, investment policies and

B-1
<PAGE>

investment restrictions as the same are set forth in filings made by the Fund
under Federal securities laws. The Investment Adviser shall make recommendations
as to foreign currency matters and the advisability of entering into foreign
exchange contracts. The Investment Adviser shall also make recommendations as to
the manner in which voting rights, rights to consent to corporate action and any
other rights pertaining to the Fund's portfolio securities shall be exercised.

(b) The Investment Adviser understands that upon approval by the Board of
Directors of the Fund, including a separate majority of the Non-Interested
Directors, the Manager may delegate investment discretion for portfolio
transactions to the Investment Adviser as set forth in this Agreement. To the
extent that such discretion is delegated to the Investment Adviser, the
Investment Adviser, subject to the broad supervision of the Manager and the
Fund, shall take, on behalf of the Fund, all actions which it deems necessary to
implement the Fund's investment policies, and in particular to place all orders
for the purchase or sale of portfolio securities for the Fund's account with
brokers or dealers selected by it, and to that end, the Investment Adviser is
authorized as the agent of the Fund to give instructions to the Custodian of the
Fund as to deliveries of securities and payments of cash for the account of the
Fund. In connection with the selection of such brokers or dealers and the
placing of such orders, the Investment Adviser is directed at all times to seek
to obtain executions and price within the policy guidelines determined by the
Board of Directors of the Fund and set forth in the filings made by the Fund
under U.S. Federal securities laws. Subject to this requirement and the
provisions of the U.S. Investment Company Act of 1940, as amended, the U.S.
Securities Exchange Act of 1934, as amended, and other applicable provisions of
law, the Investment Adviser may select brokers or dealers with which it, or the
Fund, is affiliated.

ARTICLE II

Allocation of Charges and Expenses

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

ARTICLE III

Compensation of the Investment Adviser

For the services to be rendered as provided herein, the Manager shall pay
to the Investment Adviser at the end of each calendar month a fee based upon the
average weekly value of the net assets of the Fund at the annual rate of 0.50%
of the Fund's average weekly net assets (i.e., the average weekly value of the
total assets of the Fund minus the sum of accrued liabilities of the Fund), not
in excess of $50 million, .45% of the Fund's average weekly net assets in excess
of $50 million but not in excess of $100 million, .40% of the Fund's average
weekly net assets in excess of $100 million but not in excess of $175 million
and .35% of the Fund's average weekly net assets in excess of $175 million,
commencing on the day following effectiveness hereof. For purposes of this
calculation, average weekly net assets is determined at

B-2
<PAGE>

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

ARTICLE IV

Limitation of Liability of the Investment Adviser

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

ARTICLE V

Activities of the Investment Adviser

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

ARTICLE VI

Duration and Termination of this Amended and Restated Agreement

This Amended and Restated Agreement shall become effective as of the date
first above written and shall remain in force until ________ __, 2002 and
thereafter, but only so long as the Amended and Restated Agreement remains in
force and provided that such continuance is specifically approved at least
annually by (i) the Board of Directors of the Fund or by the vote of a majority
of the outstanding voting securities of the Fund and (ii) a majority of those
directors who are not parties to this Amended and Restated Agreement or
interested persons of any such party cast in person at a meeting called for the
purpose of voting on such approval.

B-3
<PAGE>

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

ARTICLE VII

Amendments of this Amended and Restated Agreement

ARTICLE VIII

Definitions of Certain Terms

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

ARTICLE IX

Governing Law

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

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

NOMURA ASSET MANAGEMENT U.S.A. INC.

By______________________________________________

NOMURA ASSET MANAGEMENT CO., LTD.

By______________________________________________

B-4
<PAGE>

|X| PLEASE MARK VOTES
AS IN THIS EXAMPLE

KOREA EQUITY FUND, INC.

Please be sure to sign and date this Proxy Date

Mark box at right if an address change or comment has been noted on the reverse
side of this card. | |

Shareholder sign here _______________________________________________

Co-owner sign here ________________________________________________

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL PROPOSALS

1. Election of Directors.

For For All
All Nominees
William G. Barker, Jr. Chor Weng Tan Nominees Withhold Except
George H. Chittenden Arthur R. Taylor
Nobuo Katayama 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(s).
Your shares will be voted for the remaining nominee(s).

<TABLE>
<S> <C> <C> <C> <C>
2. Proposal to ratify the selection of For Against Abstain
PricewaterhouseCoopers LLP as the independent |_| |_| |_|
accountants of the Fund.

3. Proposal to approve a new Management Agreement For Against Abstain
between the Fund and Nomura Asset Management |_| |_| |_|
U.S.A. Inc.

4. Proposal to approve a new Investment Advisory For Against Abstain
Agreement between Nomura Asset Management U.S.A. |_| |_| |_|
Inc. and Nomura Asset Management Co., Ltd.

5. Proposal to amend the Fund's principal investment For Against Abstain
strategy concerning investment in the Japanese |_| |_| |_|
over-the-counter market.

6. In the discretion of such proxies, upon such other For Against Abstain
business as may properly come before the meeting |_| |_| |_|
or any adjournment thereof.
</TABLE>

<PAGE>

JAPAN OTC EQUITY FUND, INC.

180 Maiden Lane

New York, New York 10038-4936

PROXY

This Proxy is Solicited on Behalf of the Board of Directors

The undersigned hereby appoints Nobuo Katayama and John J. Boretti 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 OTC Equity Fund, Inc. (the "Fund") held of record by the undersigned on
June 30, 2000 at the Annual Meeting of the Shareholders of the Fund to be held
on August 15, 2000 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?
________________________________ __________________________________________
________________________________ __________________________________________
________________________________ __________________________________________

<PAGE>

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, 3, 4 and 5.

RECORD DATE SHARES: