UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-21782
Small Cap Value Fund, Inc.
(Exact name of registrant as specified in charter)
8150 N. Central Expressway #M1120 Dallas, Texas 75206
(Address of principal executive offices)
Laura S. Adams
8150 N. Central Expressway #M1120 Dallas, Texas 75206
(Name and address of agent for service)
Registrants telephone number, including area code: 800-704-6072
Date of fiscal year end: December 31
Date of Reporting Period: December 31, 2010
Item 1. Report to Shareholders.
SMALL CAP VALUE FUND, INC.
ANNUAL REPORT
DECEMBER 31, 2010
Small Cap Value Fund, Inc.
8150 N. Central Expressway #M1120
Dallas, Texas 75206
1-800-704-6072
Fund Symbol: SCAPX
Dear shareholders of Small Cap Value Fund, Inc.,
The Fund began 2010 with a Net Asset Value per share of $16.53 and
ended with a Net Asset Value per share of $22.29. No dividend
distributions were paid in 2010.
The total return of the Fund for 2010 was 34.85% versus 26.32% for the
S&P 600 Index and 26.87% for the Russell 2000 Small Cap Value Index.
The turnover rate of the Fund in 2010 was higher than we would usually
expect. This is primarily due to the fact the Fund has very large tax
loss carryforwards and therefore the portfolio manager has been quicker
to realize shorter term moves in individual stocks without the concern
of generating higher taxed short-term gains. Normally the Fund seeks
to generate long term gains by holding positions at least one year.
While this higher trading activity results in higher brokerage charges,
taking advantage of some of these shorter term moves in individual
stocks likely contributed to a portion of the relative outperformance
of the Fund.
The Fund continues to own many companies that have little or no net
debt on their balance sheets and valuations that are very compelling.
We feel that as credit markets continue to stabilize capital will flow
back into the type of securities in our portfolio.
The top holdings and industry group exposures of the Fund as of
12/31/10 are listed on the following page.
We look forward to continued absolute and relative results in 2011.
Sincerely,
Steven Adams
Portfolio Manager
SMALL CAP VALUE FUND, INC.
Top Ten Holdings and Asset Allocation
December 31, 2010
Top Ten Holdings*
(% of Net Assets)
ViroPharma Inc. 7.96%
Sanderson Farms Inc. 6.39%
Neutral Tandem 5.89%
Nutrisystem Inc. 5.72%
FUQI International 5.55%
Amedisys Inc. 5.47%
SWS Group 5.08%
Corinthian Colleges Inc. 4.96%
Cooper Tire Rubber 4.68%
Amsurg Corp. 4.60%
------
56.30%
Asset Allocation
(% of Net Assets)
Pharmaceutical Preparation 12.49%
Poultry, Slaughtering and Processing 6.39%
Telephone Communications 5.89%
Retail-Nonstore Retailers 5.72%
Jewelry, Precious Metals 5.55%
Home Health Care Services 5.47%
Security Brokers, Dealers, and Flotation Companies 5.08%
Colleges, Universities, and Professional Schools 4.96%
Fabricated Rubber Products 4.68%
Hospitals 4.60%
Services-Offices, Clinics of Doctors of Medicine 4.56%
Hospital and Medical Service Plans 4.38%
Retail-Computer & Computer Software Stores 4.36%
Services-Computer Processing & Data Prep 4.18%
Sawmills and Planing Mills 4.02%
Small Arms 3.86%
Medical Laboratories 3.83%
Other Assets less liabilities, net 9.99%
-------
100.00%
*Portfolio holdings are subject to change and are not recommendations
of individual stocks
SMALL CAP VALUE FUND, INC.
PERFORMANCE SUMMARY
The graph below represents the changes in value for an initial $10,000
investment in the Small Cap Value Fund from its inception(the beginning
of investment operations), December 16, 2005 through December 31, 2010.
These changes are then compared to a $10,000 investment in the S&P 600
Small Cap Index for the same period. Returns shown include the
reinvestment of all dividends. Past performance is not predictive of
future performance. Investment return and principal value will
fluctuate, so that your shares, when redeemed, may be worth more or
less than the original cost.
Inception Year Year Year Year Year
End End End End End
(12/16/05) 2005 2006 2007 2008 2009
--------- ------ ------- ------- ------ ------
Small Cap Value Fund $10,000 $9,891 $12,340 $10,010 $5,862 $8,351
S&P 600 Small Cap Index $10,000 $9,879 $11,409 $11,374 $7,849 $9,855
Year
End
2010
--------
Small Cap Value Fund $11,261
S&P 600 Small Cap Index $12,448
$13,000|
$12,000| # *
$11,000| * * #
$10,000| # * # * #
$ 9,000| *
$ 8,000| * #
$ 7,000|
$ 6,000| #
__________________________________________________________________
Inception 2005 2006 2007 2008 2009 2010
(12/16/2005)
# = Small Cap Value Fund * = S&P 600 Small Cap Index
15 Day Annual Annual Annual Annual
Return Return Return Return Return
2005 2006 2007 2008 2009
------ ------ ------ ------ ------
Small Cap Value Fund (1.09%) 24.76% (18.87%) (41.49)% 42.46%
S&P 600 Index (1.21%) 15.49% ( 0.30%) (30.99)% 25.56%
Compounded
Annual Average
Return Annual
2010 Return since Inception
------ ----------------------
Small Cap Value Fund 34.85% 2.38%
S&P 600 Index 26.32% 4.44%
SMALL CAP VALUE FUND, INC.
EXPENSES
DECEMBER 31, 2010
As a shareholder of the Fund you incur ongoing costs including
management fees and other operating expenses. This example is intended
to help you understand your ongoing costs (in dollars) of investing in
the Fund and to compare these costs with the ongoing costs of investing
in other mutual funds. This example is based on an investment of
$1,000 invested on June 30, 2010 and held for the entire six month
period to December 31, 2010.
Actual Expenses
The first line of the table below provides information about actual
account values and actual expenses. You may use the information in
this line, together with the amount you invested at the beginning of
the period, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,500
account value divided by $1,000 equals 8.5), then multiply this result
by the number in the first line under the heading ?Expenses Paid During
Period? to estimate the expenses you paid on your account during the
period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about
hypothetical account values and hypothetical expenses based on the
Fund?s actual expense ratio and an assumed rate of return of 5% per
year before expenses, which is not the Fund?s actual return. The
hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing
in the Fund to other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the
shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only and do not reflect any transactional costs such
as sales charges (loads), redemption fees, or exchange fees.
Therefore, the second line of the table is useful in comparing ongoing
costs only.
Expenses Paid
Beginning Ending During Period*
Account Value Account Value June 30, 2010,
June 30, 2010 December 31, 2010 December 31, 2010
----------------- ------------- -----------------
Actual $ 1,000 $ 1,286 $ 5.47
Hypothetical** $ 1,000 $ 1,020 $ 4.84
*Expenses are equal to the Fund's annualized expense ratio of 0.95%,
multiplied by the average account value over the period, multiplied by
184 days/365 days to reflect the one-half year period.
** Hypothetical return assumes 5% return before expenses.
SMALL CAP VALUE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2010
ASSETS
Investment securities, at fair
value (cost $15,634,637) $ 18,396,904
Dividends receivable 5,350
Accrued Interest receivable 14
-----------
Total assets 18,402,268
-----------
LIABILITIES
Advisory fees payable 14,213
-----------
Total liabilities 14,213
-----------
NET ASSETS ?
Equivalent to $22.29 per
share based on 824,797 shares
of common stock issued and outstanding;
100,000,000 shares authorized,
$0.001 par value $ 18,388,055
============
NET ASSETS CONSIST OF:
Common stock $ 825
Paid-in capital 25,708,887
Net unrealized appreciation
of investments 2,762,267
Accumulated investment loss (8,894)
Accumulated net realized loss (10,075,030)
- ------------
Net assets $ 18,388,055
============
See accompanying notes to these financial statements
SMALL CAP VALUE FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2010
DESCRIPTION SHARES FAIR VALUE
- ----------- ------ -------
COMMON STOCKS ? 90.01%
Sawmills and Planing Mills-4.02%
Universal Forest Products 19,000 $ 739,100
Fabricated Rubber Products-4.68%
Cooper Tire Rubber 36,500 860,670
Hospital and Medical Service Plans-4.38%
Amerigroup Corp (a) 18,340 805,493
Pharmaceutical Preparation-12.49%
ViroPharma Inc. (a) 84,470 1,463,020
Santarus (a) 255,000 833,850
--------
2,296,870
Services-Computer Processing &
Data Prep-4.18%
Total System Services 50,000 769,000
Telephone Communications-5.89%
Neutral Tandem (a) 75,000 1,083,000
Small Arms-3.86%
Smith & Wesson Holding Corp. (a) 190,000 710,600
Retail-Nonstore Retailers-5.72%
Nutrisystem Inc. 50,000 1,051,500
Retail-Computer & Computer Software
Stores-4.36%
GameStop (a) 35,000 800,800
Services-Offices, Clinics of Doctors
of Medicine-4.56%
Coventry Health Care (a) 31,730 837,672
- - Continued -
SMALL CAP VALUE FUND, INC.
SCHEDULE OF INVESTMENTS, continued
DECEMBER 31, 2010
DESCRIPTION SHARES FAIR VALUE
- ----------- ------ -------
Home Health Care Services-5.47%
Amedisys Inc. (a) 30,000 $ 1,005,000
Hospitals-4.60%
Amsurg Corp. (a) 40,400 846,380
Colleges, Universities, and Prof
Schools-4.96%
Corinthian Colleges Inc. (a) 175,000 911,750
Medical Laboratories-3.83%
Genoptix Inc. (a) 37,000 703,740
Poultry, Slaughtering & Processing-6.39%
Sanderson Farms Inc. 30,000 1,174,500
Security Brokers/Dealers, & Flotation
Companies-5.08%
SWS Group 185,000 934,250
Jewelry, Precious Metal-5.55%
FUQI International(a) 160,000 1,020,800
--------
Total common stocks (cost $13,788,858) 16,551,125
SHORT-TERM INVESTMENTS ? 10.04%
Schwab Money Market Fund-current interest
at 0.01%
1,845,779 1,845,779
--------
Total short-term investments (cost $1,845,779) 1,845,779
--------
Total investment securities ? 100.05% (cost $15,634,637) 18,396,904
Other assets less liabilities ? (0.05)% (8,849)
--------
Net assets ? 100.00% $ 18,388,055
============
(a) Non-income producing securities
See accompanying notes to these financial statements
SMALL CAP VALUE FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2010
INVESTMENT INCOME
Dividends $ 162,627
Interest 87
------------
Total investment income 162,714
------------
EXPENSES ?
Advisory fees 171,608
------------
Net investment loss (8,894)
------------
GAIN (LOSS) ON INVESTMENTS ?
Net realized loss on investments (835,183)
Net change in unrealized appreciation of securities 6,187,685
------------
Net realized loss and
unrealized gain on investments 5,352,502
- ------------
Net increase in net assets resulting from operations $ 5,343,608
============
See accompanying notes to these financial statements
SMALL CAP VALUE FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended Year Ended
Dec. 31, 2010 Dec. 31, 2009
INCREASE(DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income(loss) $ (8,894) $ 24,458
Net realized loss on investments (835,183) (3,952,001)
Net change in unrealized appreciation
of securities 6,187,685 8,955,245
----------- ------------
Net increase in net assets
resulting from operations 5,343,608 5,027,702
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income 0 (24,458)
----------- ------------
Total Distributions 0 (24,548)
CAPITAL SHARE TRANSACTIONS-NET (4,335,442) (3,848,335)
----------- ------------
TOTAL INCREASE IN NET ASSETS 1,008,166 1,154,909
NET ASSETS, beginning of year 17,379,889 16,224,980
----------- ------------
NET ASSETS, end of year $18,388,055 $17,379,889
=========== ============
See accompanying notes to these financial statements
SMALL CAP VALUE FUND, INC.
FINANCIAL HIGHLIGHTS
PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
ENDED:
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
2010 2009 2008 2007 2006
------ ------ ------ ------ ------
Net asset value,
beginning of year $16.53 $11.62 $19.90 $24.58 $19.87
------ ------- ------ ------ ------
Income from investment
operations:
Net investment
Income (loss) (0.01) 0.02 0.32 (0.01) 0.35
Net realized and
unrealized
gains (losses)on 5.77 4.91 (8.28) (4.64) 4.57
investments
----- ------- ------ ------ ------
Total income (loss)from
investment operations 5.76 4.93 (7.96) (4.64) 4.92
- ---- ------- ------- ------- ------
Less distributions from:
Net investment income 0.00 (0.02) (0.32) (0.04) (0.13)
Net realized gains 0.00 (0.00) (0.00) (0.00) (0.08)
------ ------- ------- ------ -----
Total distributions 0.00 (0.02) (0.32) (0.04) (0.21)
------ ------- ------- ------ -----
Net asset value,
end of year $ 22.29 $ 16.53 $ 11.62 $ 19.90 $24.58
======= ======== ====== ======= ======
Total Return 34.85% 42.43% (41.49)% (18.87)% 24.76%
Ratios & Supplemental Data:
Net assets, end, of year
(in 1,000?s) $18,388 $17,380 $16,225 $26,574 $6,080
Ratio of expenses to 0.97% 0.94% 0.94% 0.95% 0.85%
average net assets (a)
Ratio of net investment (0.05)% 0.16% 0.20% 0.00% 1.42%
Income(loss) to average
net assets
Portfolio turnover rate 80.53% 29.12% 23.30% 72.70% 24.65%
(a) The Fund?s actual expenses are calculated daily at 0.95% of net
asset value (NAV).
See accompanying notes to these financial statements
SMALL CAP VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Small Cap Value Fund, Inc. (the ?Fund?) was incorporated in the
State of Texas on June 16, 2005 and is registered under the
Investment Company Act of 1940 as a non-diversified, open-end
management investment company. The investment objective of the
Fund is to achieve growth by investing primarily in small
capitalization common stocks. The Fund had no operations until
June 24, 2005, when it sold 7,500 shares of its common stock to its
original shareholder, Mrs. Laura S. Adams. Investment operations
commenced on December 16, 2005. The effective date of the Fund?s
Registration under the Securities Act of 1933 was October 27, 2005.
2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting
period. Actual results could differ from these estimates.
Security Valuation
Securities listed on a national securities exchange or in the over-
the-counter market are valued at the last quoted sales price on the
day of valuation, or if no quoted sales price was reported on that
date, the last quoted bid price. Short-term investments are valued
at cost which approximates fair value. Securities for which
quotations are not readily available are valued at their estimated
fair value as determined in good faith by the Fund?s Board of
Directors.
Securities Transactions and Investment Income
Securities transactions are recorded on a trade-date basis.
Dividend income is recorded on the ex-dividend date and interest
income is recorded on the accrual basis. Realized gains and losses
are determined on a specific identification basis of the securities
sold. Unrealized gains and losses resulting from the appreciation
and depreciation of securities carrying values are included in the
statement of operations.
Distribution of Income and Gains
The Fund declares and pays dividends annually from net investment
income and from net realized gains, if any. Distributions from
realized gains for book purposes may include short-term capital
gains, which are included in ordinary income for tax purposes.
Dividends are paid upon Board approval by the end of each calendar
year.
SMALL CAP VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Federal Income Taxes
The Fund?s policy is to continue to comply with the requirements of
the Internal Revenue Code that are applicable to regulated
investment companies and to distribute all of its taxable income,
including any realized gains on investments, to its shareholders.
The Fund also intends to distribute sufficient net investment income
and net capital gains, if any, so that it will not be subject to
excise tax on undistributed income and gains. Therefore, no federal
income tax or excise provision is required.
Net investment income (loss), net realized gains (losses) and the
cost of investments in securities may differ for financial statement
and income tax purposes. The character of distributions from net
investment income (loss) or net realized gains (losses) may differ
from their ultimate characterization for income tax purposes. At
December 31, 2010, there were no material differences. Also, due to
the timing of dividend distributions, the year in which amounts are
distributed may differ from the year that the income or realized
gains were recorded by the Fund.
Subsequent events
Subsequent events are defined as events or transactions that occur
after the balance sheet date, but before the financial statements
are issued. There are two types of subsequent events: recognized
subsequent events, which provide additional evidence about
conditions that existed at the balance sheet date, and non-
recognized subsequent events, which provide evidence about
conditions that did not exist at the balance sheet date, but arose
before the financial statements were issued. Recognized subsequent
events are required to be recognized in the financial statements,
and non-recognized subsequent events are required to be disclosed.
GAAP requires entities to disclose the date through which subsequent
events have been evaluated, and the basis for that date. This is
consistent with current practice and did not have any impact on the
Fund?s financial statements. Subsequent events were evaluated
through February 11, 2011, the date in which these financials were
issued.
SMALL CAP VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
3. FAIR VALUE OF INVESTMENTS
In accordance with GAAP, fair value is defined as the price that
the Fund would receive to sell an asset or pay to transfer a
liability in an orderly transaction between market participants at
the measurement date. GAAP also establishes a framework for
measuring fair value, and a three-level hierarchy for fair value
measurements based upon the transparency of inputs to the valuation
of an asset or liability. Inputs may be observable or unobservable
and refer broadly to the assumptions that market participants would
use in pricing the asset or liability. Observable inputs reflect the
assumptions market participants would use in pricing the asset or
liability based on market data obtained from sources independent of
the Fund. Unobservable inputs reflect the Fund's own assumptions
about the assumptions that market participants would use in pricing
the asset or liability developed based on the best information
available in the circumstances. Each investment is assigned a level
based upon the observability of the inputs which are significant to
the overall valuation. The three-tier hierarchy of inputs is
summarized below.
Level 1 - quoted prices in active markets for identical investments.
Level 2 - other significant observable inputs (including quoted
prices for similar investments, interest rates, prepayment speeds,
credit risk, etc.)
Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
The following table summarizes the valuation of the Fund's
investments by the above fair value hierarchy levels as of December
31, 2010:
Investments Other
in Financial
Level Securities Instruments *
----- ---------- ------------
Level 1:
Common Stock $16,551,125 $ 0
Short term investments 1,845,779 0
----------- ------------
Total Level 1: 18,396,904 0
Level 2 0 0
Level 3 0 0
----------- ------------
Total $18,396,904 $ 0
=========== ============
* Other financial instruments are derivative instruments not
reflected in the Portfolio of Investments, such as futures forwards
and swap contracts, which are valued at the unrealized appreciation
depreciation on the instrument. As of December 31, 2010, the Fund
did not own any other financial instruments.
SMALL CAP VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
4. CAPITAL SHARE TRANSACTIONS
Capital share transactions in the Fund?s $0.001 par value common
stock were as follows:
Year Ended Year Ended
December 31, 2010 December 31, 2009
------------------- ---------------------
Shares Amount Shares Amount
Shares sold 74,665 $1,489,500 124,316 $1,779,000
Shares issued in
reinvestment of
dividends 0 0 1,472 24,458
------ -------- --------- ----------
74,665 1,489,500 125,788 1,803,458
Shares redeemed (301,064) ($5,824,942) (470,706) (5,651,793)
------ -------- --------- ----------
Net (decrease) (226,398) (4,335,442) (344,918) (3,848,335)
Beginning of year 1,051,195 $30,045,154 1,396,113 $33,893,489
------ -------- ------- ----------
End of year 824,797 $25,709,712 1,051,195 $30,045,154
========= ========== ========= ==========
5. INVESTMENT TRANSACTIONS
The cost basis of purchases and proceeds from sales of investment
securities, excluding short-term investments, aggregated
$14,269,565 and $19,503,988, respectively, for the year ended
December 31, 2010. The aggregate cost basis of investment
securities, excluding money market funds, for federal income tax
purposes was $13,788,858 as of December 31, 2010. There were no
differences between the financial reporting basis and the income
tax basis in the cost or net unrealized appreciation (depreciation)
of the Fund?s investments as of December 31, 2010.
As of December 31, 2010 and 2009, the aggregate unrealized
appreciation and depreciation of investment securities was as
follows:
Description 2010 2009
- ----------- ------- ------
Unrealized appreciation $ 3,561,176 $ 2,007,373
Unrealized depreciation (798,909) ( 5,432,791)
------------ -----------
Net unrealized appreciation
(depreciation) $ 2,762,267 $ ( 3,425,418)
============ ============
SMALL CAP VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
6. DISTRIBUTION TO SHAREHOLDERS
No distributions were paid to shareholders in 2010.
7. ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund and the Advisor are under common control and the existence
of that control may create operating results and financial position
different than if they were autonomous.
The Fund has an investment advisory agreement with Adams Asset
Advisors, LLC (the ?Advisor?) to provide investment advisory
services to the Fund. Laura S. Adams is the managing member of the
Advisor and is an officer, director and shareholder of the Fund.
Under the terms of the agreement, the Fund will pay the Advisor a
monthly fee at the annual rate of 0.95% of the Fund?s average daily
net assets. The fee is computed daily and payable monthly. The
Advisor has contractually agreed to pay all operating expenses of
the Fund, except brokerage fees and commissions, interest, taxes and
extraordinary expenses.
The advisory fee for 2010, as computed pursuant to the investment
advisory agreement, totaled $171,608, of which $14,213 was payable
on December 31, 2010.
The Advisor acts as the transfer agent for the Fund, with Fidelity
Investments as the sub-transfer agent. There are no fees associated
with these services.
The Fund acts as its own custodian, effective September 1, 2008, and
is in compliance per requirements of Rule 17f-2. There are no fees
associated with these services.
8. ACCOUNTING FOR UNCERTAIN TAX POSITIONS
Per generally accepted accounting principles (?GAAP?) the Fund
evaluates its tax positions taken on previously filed tax returns or
expected to be taken on future returns. These positions must meet a
?more likely than not? standard that, based on the technical merits,
have a more than fifty percent likelihood of being sustained upon
examination. In evaluating whether a tax position has met the
recognition threshold, the Fund must presume that the position will
be examined by the appropriate taxing authority that has full
knowledge of all relevant information. Tax positions not deemed to
meet the ?more-likely-than-not? threshold are recorded as a tax
expense in the current year.
GAAP requires the Fund to analyze all open tax years, as defined by
the Statute of Limitations, for all major jurisdictions. Open tax
years are those that are open for exam by taxing authorities. Major
jurisdiction for the Fund include Federal. As of December 31, 2010,
open Federal tax years include the tax years ended December 31, 2007
through December 31, 2009. The Fund has no examination in progress.
SMALL CAP VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
The Fund has reviewed all open tax years and major jurisdictions. As
a result, the Fund has determined there is no effect to the Fund?s
financial position or results of operations. There is no tax
liability resulting from unrecognized tax benefits relating to
uncertain income tax positions taken or expected to be taken on a
tax return. The Fund is also not aware of any tax positions for
which it is reasonably possible that the total amounts of
unrecognized tax benefits will significantly change in the next
twelve months.
Additional Information (Unaudited)
Proxy Voting Information
Small Cap Value Fund, Inc. management is responsible for exercising the
voting rights associated with the securities held by the Fund. A
description of our philosophy on fulfilling this responsibility is
available without charge, upon request, by calling 1-800-704-6072.
Quarterly Filing of Portfolio Holdings
The Fund files a complete schedule of portfolio holdings with the
Securities and Exchange Commission (SEC) for the first and third
quarters of each fiscal year on Form N-Q. The Fund?s Form N-Q?s are
available on the SEC?s website at http://www.sec.gov, and can also be
reviewed and copied at the SEC?s public reference room in Washington
D.C. Information on the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330.
Approval of Investment Advisory Contract
The Board of Directors, including all Directors that are independent,
held a separate, in-person meeting, specifically called for the purpose
of reviewing and re-approving the Advisory Agreement on February 10,
2010. In approving the Advisory Agreement for 2010, the Directors
considered the following:
1) Nature, extent and quality of services provided by the Advisor ?
The Directors reviewed the nature, quality and scope of current
services provided by the Advisor under the Advisory Agreement.
This includes portfolio management, supervision of Fund
operations, compliance and regulatory matters.
2) Investment performance ? The Directors reviewed the performance of
the Fund, as compared to market benchmarks. This review focused
on investment strategy and long term performance potential.
3) Cost of services to the Fund and profitability of the Advisor ?
The Directors considered the Fund?s management fee and total
expense ratio relative to industry averages. The Directors
determined that the Advisor is receiving a fee that is in line
with fees charged for separate accounts and that the Advisor is
operating profitably, is viable and should remain an ongoing
entity.
4) Economies of Scale ? The Directors considered information
regarding economies of scale with respect to management of the
Fund and noted that the Fund and its shareholders are already
experiencing and benefitting from an expense ratio that would be
expected from that of funds with significantly larger asset bases.
5) Conclusions ? Based on the above review and discussions, the
Directors concluded that it is in the best interest of the Fund
and the shareholders to approve the Advisory Agreement.
Additional Information (Unaudited)
Board of Directors Information
The business and affairs of the Fund are managed under the direction of
the Board of Directors of the Fund. Information pertaining to the
Directors of the Fund are set forth below. The SAI of the Fund
includes additional information about the Directors of the Fund and is
available, without charge, by calling 800-704-6072. Each Director may
be contacted by writing to that Director c/o Small Cap Value Fund,
Inc., 8150 N. Central Expressway, #M1120, Dallas, Texas 75206.
INDEPENDENT DIRECTORS
Name and Age Position Term Principal Occupation Other Public
Past five years Directorships
- ------------------- -------- ---- --------------------- -------------
Vicky L. Hubbard Director 1 Yr Private investor Stock
Age 53 since 2000, Tech Co. Dividend Fund,
prior Inc.
Yolawnde F. Malone Director 1 Yr CPA/Tax Specialist- Stock
Age 47 Family Legacy Trust, Dividend Fund,
Tax mngr Cain Waters Inc.
prior, Tolleson Wealth
mgmt tax specialist prior
Melissa D. Gordon, Director 1 Yr Pathologist, North Stock
M.D. Dallas Pathology Dividend Fund,
Age 47 Partner Inc.
INTERESTED DIRECTORS
Laura S. Adams Director, 1 Yr President of Fund, Stock
Age 49 President Member of Adams Dividend Fund,
Secretary Asset Advisors, Inc.
Treasurer Private investor
prior
Report of Independent Registered Public Accounting Firm
To the Shareholders and
Board of Directors of
Small Cap Value Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
Small Cap Value Fund, Inc., including the schedule of investments, as
of December 31, 2010, and the related statement of operations for the
year then ended, the statements of changes in net assets for each of
the two years in the period then ended, and the financial highlights
for each of the five years in the period ended. These financial
statements and financial highlights are the responsibility of the
Fund?s management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 2010, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Small Cap Value Fund, Inc. as of December 31,
2010, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then
ended, and the financial highlights for the each of the five years in
the period then ended, in conformity with accounting principles
generally accepted in the United States of America.
PMB Helin Donovan, LLP
Dallas, Texas
February 11, 2011
Item 2. Code of Ethics. The registrant, as of the end of the period
covered by this report, has adopted a code of ethics that applies to
all officers and employees of the Fund. The registrant has not made
any amendments to its code of ethics or granted any waivers or
exceptions to the code during the covered period.
Item 3. Audit Committee Financial Expert. The entire Board of
Directors, in effect, acts as the audit committee. The Board has two
financial experts serving on the Board. Laura Adams and Yolawnde
Malone are the financial experts. Mrs. Adams is an ?interested?
Director and Mrs. Malone is an ?independent? Director.
Item 4. Principal Accountant fees and services. As part of the
Registrants contract with the Investment Advisor of the Fund, the
Investment Advisor is responsible for paying all accountant and related
audit fees as part of the Advisory fee paid by the Fund.
Item 5. Audit Committee of listed Registrants. (Not applicable for
open end investment companies)
Item 6. Schedule of Investments. Schedule of Investments is included
as part of the report to shareholders filed under Item 1 of this Form.
Item 7. Disclosure of proxy voting policies and procedures for closed-
end management investment companies. (Not applicable)
Item 8. Portfolio Managers of Closed-End Management Investment
Companies. Not Applicable to open-end investment companies.
Item 9. Purchase of equity securities by closed-end management
investment companies. (Not applicable)
Item 10. Submission of Matters to a vote of security holders. (None)
Item 11. Controls and Procedures
a) The Fund?s president has concluded that the Fund?s disclosure
controls and procedures are sufficient to ensure that information
required to be disclosed by the Fund in this Form N-CSR was
recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission?s rules and
forms, based upon such officers? evaluation of these controls and
procedures as of a date within 90 days of the filing date of the
report.
b) There were no significant changes or corrective actions with
regard to deficiencies or material weaknesses in the Fund?s internal
controls or in other factors that could significantly affect the
Fund?s internal controls subsequent to the date of their evaluation.
Item 12. Exhibits.
a) (1)Code of Ethics-Filed with Form N-CSR and is hereby incorporated
by reference
(2)Certifications pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002- Attached
b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of
2002- Attached
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Small Cap Value Fund
By /s/ Laura S. Adams
- --------------------------------------
Laura S. Adams
President
Principal Executive Officer and Principal Financial Officer
Date 2/11/11
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below
by the following persons on behalf of the registrant and in the
capacities and dates indicated.
Small Cap Value Fund
By /s/ Laura S. Adams
- --------------------------------------
Laura S. Adams
President
Principal Executive Officer and Principal Financial Officer
Date 2/11/11