A Copy of the Renewal Binder Letter for the Fidelity Joint Insured Bond
(Attached). The renewal policy is in the process of being issued by the
underwriters and will follow shortly in a separate mailing.
CHUBB [LOGO]
CHUBB GROUP OF INSURANCE COMPANIES
55 Water Street, 29th-30th Floors, New York, New York 10041-2899 Telephone (212 612-4000
Facsimile (212) .112-2600
REVISED BINDER EFFECTIVE: AUGUST 8, 2006
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DUE TO INCREASED LIMITS
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THIS CERTIFIES THAT pending issuance of a Bond in the form described below,
the Vigilant Insurance Company , hereinafter called the Company, is binding
coverage described as follows:
1. Named of Assured: Japan Smaller Capitalization
Fund, Inc. Korea Equity Fund, Inc.
Address: Two World Financial Center, Building B
New York, NY 10281-1712
2. Producer: Marsh USA, Inc
Attn: Meredith Frick
Address: 1166 Ave Of Americas
New York, NY 10036
3. Bond Number: 81392052
4. Bond Type/Form No.: Financial Institution Investment Company
Asset Protection Bond (Ed. 5-98)
Form 1.7-02-1422 and Form 17-02-142
5. Term of Binder From: 12:01 a.m. on 07/31/2006
To: 12:01 a.m. on Policy Issuance
6. Bond Period: From: 12:01 a.m. on 07/31/2006
To: 12:01 a.m. on 07/31/2007
7. Limits of Liability:
Insuring Clause Limits of Liability Deductible Amount
--------------- ------------------- -----------------
1. Employee $1,200,000 $ 25,000
2. On Premises $1,200,000 $ 25,000
3. In Transit $1,200,000 $ 25,000
4. Forgery or Alteration $1,200,000 $ 25,000
5. Extended Forgery $1,200,000 $ 25,000
6. Counterfeit Money $1,200,000 $ 25,000
7. Threat to Person $ Not Covered $ N/A
8. Computer System $ Not Covered $ N/A
9. Voice Initiated Funds $ Not Covered $ N/A
Transfer Instruction
10. Uncollectible Items of $ Not Covered $ N/A
Deposit
11. Audit Expense $ Not Covered $ N/A
8. Endorsements: 1) Amended Employee Definition Endorsement- Manuscript
2) New York Amendatory Endorsement- 17-02-2863
3) Deleting Valuation-Other Property Endorsement-17-02-2437
4) Compliance with Applicable Trade Sanction Laws- 14-02-9228
9. Premium: $ 8,900(1 Year Prepaid Premium)
10.Commission Payable: 10%
The above Binder is expressly contingent upon receipt, review and acceptance
of the subjectivity's listed below. The Company must receive all of the items
identified below on or before the Binder Expiration Date shown above. If all
of these items are not received and approved by the Company on or before this
date, this Binder will automatically expire without further action or notice.
- None
The foregoing Binder for coverage is subject to modification or withdrawal by
the Company if, before the proposed inception date, any new, corrected or
updated information becomes known which relates to any proposed Assured's
claims history or risk exposure or which could otherwise change the
underwriting evaluation of any proposed Assured and the Company, in its sole
discretion, determines that the terms of this Binder are no longer
appropriate.
This Binder may be canceled at any time by the entity referred to in Item 1 by
giving written notice of cancellation to the Company. This Binder may be
canceled at any time by the Company upon ten (10) days written notice of
cancellation to the entity referred to in item 1 or its agent.
This Binder shall terminate automatically upon the expiration date shown
above, or upon issuance of the Bond, whichever occurs first. A short rate
premium charge will be made for this Binder unless the Bond is issued by the
Company and accepted by the entity referred to above. The Company reserves the
right to modify the policies, terms and conditions upon underwriting review of
any information received.
This binder does not apply to the extent that trade or economic sanctions or
other laws or regulations prohibit us from offering or providing insurance. To
the extent any such prohibitions apply, this binder is void ab initio.
By: Humphreys Fulani Date: August 8, 2006
------------------------------- -----------------------------
Authorized Representative
CHUBB [LOGO]
IMPORTANT NOTICE TO POLICYHOLDER
OF TERRORISM INSURANCE COVERAGE
(new policies and renewals with no terrorism
exclusion or sublimit and no premium charge)
You are hereby notified that, under the Terrorism Risk Insurance Act of 2002
(the "Act") effective November 26, 2002, we are making available to you
insurance for losses arising out of certain acts of international terrorism.
The policy you are purchasing already includes insurance for such acts.
Terrorism is defined as any act certified by the Secretary of the Treasury, in
concurrence with the Secretary of State and the Attorney General of the United
States, to be an act of terrorism; to be a violent act or an act that is
dangerous to human life, property or infrastructure; to have resulted in
damage within the United States, or outside the United States in the case of
an air carrier or vessel or the premises of a United States Mission; and to
have been committed by an individual or individuals acting on behalf of any
foreign person or foreign interest, as part of an effort to coerce the
civilian population of the United States or to influence the policy or affect
the conduct of the United States Government by coercion.
You should know that the insurance provided by your policy for losses caused
by acts of terrorism is partially reimbursed by the United States under the
formula set forth in the Act. Under this formula, the United States pays 90%
in 2006 and 85% in 2007 of covered terrorism losses that exceed the
statutorily established deductible to be paid by the insurance company
providing the coverage. The portion of the offered policy's annual premium
that is attributable to insurance for acts of terrorism is: $ -0-.
If you have any questions about this notice, please contact your agent or
broker.
Resolutions of a majority of the board of directors who are not
"interested persons" of the Fund approving the amount, type, form and coverage
of the bond and the portion of the premium paid by the Fund (Attached)
JAPAN SMALLER CAPITALIZATION FUND, INC.
KOREA EQUITY FUND, INC.
(Collectively, the "Funds")
Special Meeting of Boards of Directors
July 28, 2006
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RESOLVED, that the terms and amount of joint
insured fidelity bond to be obtained from Vigilant
Insurance Company of the Chubb Group of Insurance
Companies in the aggregate amount of $1,200,000
covering the Funds, be, and they hereby are
approved;
FURTHER RESOLVED, that the proper officers
of the Funds be, and they hereby are, authorized
to the cause Japan Small Capitalization Fund, Inc.
to pay 62.5 percent of the total premium payable
with respect to such bond and Korea Equity Fund,
Inc. to pay the remaining 37.5 per cent of such
premium payable with respect to such bond;
FURTHER RESOLVED, that the amount of the
fidelity bond coverage be, and it hereby is,
approved after consideration of all factors deemed
relevant by the Board, including, but not limited
to, the other parties named as insureds, the
nature of the business activities of such other
parties, the amount of the joint insured bond, the
amount of the premium for such bond, the value of
the assets of each Fund, the type and terms of the
arrangement made for custody of each Fund's
assets, and the nature of the securities in each
Fund's portfolio;
FURTHER RESOLVED, that the form of Joint
Fidelity Bond Agreement between each Fund and the
other named joint insureds utilized with respect
to the current year is approved for another year;
FURTHER RESOLVED, that the proper officers
of the Funds be, and they hereby are, authorized
and directed to take such action as they deem
necessary and appropriate with respect to
obtaining additional fidelity bond coverage
pursuant to Rule 17g-1 under the Investment
Company Act of 1940, as amended (the "1940 Act");
and
FURTHER RESOLVED, that the Secretary be, and
he hereby is, designated as the officer
responsible for making the necessary filings and
giving the notices with respect to such bond
required by paragraph (g) of Rule 17g-1 under the
1940 Act.
----------------------------
Neil Daniele
Secretary
According to the insurance underwriter, the premium paid under the Joint
Fidelity Bond Agreement by Japan Smaller Capitalization Fund, Inc. would be
$6,500 had the Fund not been named as an insured under a joint insured
fidelity bond.
The premium paid by the Fund ($5,563) is for the period July 31, 2006
through July 30, 2007.
A copy of the agreement among the Fund and the other named insureds
(Attached). The Fund was formerly known as the Japan OTC Equity Fund, Inc.
FIDELITY BOND AGREEMENT
AGREEMENT made as of July 31, 2005, by and among JAPAN SMALLER
CAPITALIZATION FUND, INC., and KOREA EQUITY FUND, INC. each of which is a
Maryland corporation.
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the above-named registered investment companies (the "Funds")
are joint named insureds under a bond issued by the Vigilant Insurance Company
of the Chubb Group of Insurance Companies (the "Bond");
WHEREAS, Rule 17g-1 under the Investment Company Act of 1940 requires
that each registered investment company named as an insured on a joint insured
bond enter into an agreement with the other named insureds containing certain
provisions regarding the respective shares to be received by said insured in
the event recovery is received under the joint insured bond as a result of a
loss sustained by them;
NOW, THEREFORE, the parties hereto, in consideration of the premises and
the mutual covenants contained herein, hereby agree as follows:
1. Joint Insured Bond. The Funds shall maintain in effect a joint
fidelity insurance bond from one or more reputable fidelity insurance
companies which shall be authorized to do business in the place where the bond
is issued, insuring the Funds against larceny and embezzlement and covering
such of their officers and employees who may, singly or jointly with others,
have access, directly or indirectly, to their securities or funds. The Bond
shall name each party as an insured and shall comply with the requirements of
such bonds established by Rule 17g-1.
2. Allocation of Premium. Each party hereto shall pay a percentage of
the total premium of the Bond which equals the portion of the aggregate amount
of coverage allocated to such party.
3. Allocation of Proceeds.
a) If one or more parties sustain a single loss for which recovery
is received under the Bond, each party shall receive that portion of the
recovery which is sufficient in amount to indemnify that party in full
for the loss sustained by it, unless the recovery is inadequate to fully
indemnify all parties sustaining a single loss.
(b) If the recovery is inadequate to indemnify fully all parties
sustaining a single loss, the recovery shall be allocated among the
parties as follows:
(i) Each party sustaining a loss shall be allocated an
amount equal to the lesser of its actual loss or the minimum
amount of the fidelity bond coverage which would be required to be
maintained by such party under a single insured bond (determined
as of the time of the loss in accordance with the provisions of
Rule 17g-1); and
(ii) The remaining portion of the recovery (if any) shall be
allocated to each party sustaining a loss not fully indemnified by
the allocation under subparagraph (i) in the same proportion as
the portion of each party's loss which is not fully indemnified
bears to the sum of the unindemnified losses of all parties. If
such allocation would result in any party's receiving a portion of
the recovery in excess of the loss actually sustained by it, the
aggregate of such excess portion shall be reallocated to the other
parties whose losses would not be fully indemnified as a result of
the foregoing allocation.
4. Claims and Settlements. Each party shall, within ten days after the
making of any claim under the Bond, provide the other parties with written
notice of the amount and nature of such claim. Each party shall, within ten
days after the receipt thereof, provide the other parties with written notice
of the terms of settlement of any claim made under the Bond by such party.
5. Modification and Withdrawal. Each party hereby consents to additional
investment companies advised by Nomura Asset Management U.S.A. Inc. being
named as a joint insured under the Bond and this Agreement. If pursuant to
Rule 17g-1, any party shall determine that the coverage described herein
should otherwise be modified, it shall so notify the other parties hereto,
indicating the nature of the modification which it believes to be appropriate.
This Agreement shall be so modified with the written consent of a majority of
the parties. Any party may withdraw from this Agreement at any time and cease
to be a party hereto (except with respect to losses occurring prior to such
withdrawal) by giving not less than thirty days' prior written notice to the
other parties of such withdrawal. Upon withdrawal, such party shall cease to
be a named insured on the Bond and shall be entitled to receive any premium
rebated by the fidelity company with respect to such withdrawal.
6. Governing Law. This Agreement shall be construed in accordance with
the laws of the State of New York.
7. No Assignment. This Agreement is not assignable.
8. Notices. All Notices and other communications hereunder shall be in
writing and shall be addressed to the appropriate party at Two World Financial
Center, Building B, New York, New York 10281.
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement as of the day and year first above written.
JAPAN SMALLER CAPITALIZATION FUND, INC.
By /s/ Neil Daniele Secretary
_____________________________
Neil Daniele Secretary
KOREA EQUITY FUND, INC.
By /s/ Neil Daniele Secretary
_____________________________
Neil Daniele Secretary