There is a seal that goes in the hole in the case that the shift shaft runs through to keep it sealed. The shifter is adjusted by tightning or loosening the linkage connected to it. Try adjusting it with a couple wrenches, and see what happens. To take the seal out, you must remove the right side case, and remove the external shift assembly, and pull the shifter out (if the right side) You have to pry or push the seal out. The seal is fairly easy to replace, but it would be better to follow a manual than have me tell you how to do it, just to make sure you get everything right.
THE 80's RAGE! Currently owns:
81, 85 Yamaha Tri Moto 125
83 Yamaha Tri Moto 200 x2
82,83 Yamaha Tri Moto 175 project
85 Yamaha Tri Z 250
84 Kawasaki Tecate 250
84 Honda ATC 70
85 Honda ATC 350X
84 Honda ATC 250R
(2) 84 Honda ATC 200x
82, 83 Honda ATC 185s
81 ATC 200
Lots of other parts and bikes