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)
Registrant?s telephone number, including area code: 800-704-6072
Date of fiscal year end: December 31
Date of Reporting Period: December 31, 2018
Item 1. Report to Shareholders.
SMALL CAP VALUE FUND, INC.
ANNUAL REPORT
DECEMBER 31, 2018
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 2018 with a Net Asset Value per share of $49.04 and
ended with a Net Asset Value per share of $38.99 after paying total
dividends and capital gains of $0.985 per share.
The total return of the Fund for 2018 was down 18.43% versus down 8.52%
for the S&P 600 Index, down 11.03% for the Russell 2000 Small Cap Index
and down 12.84% for the Ishares S&P 600 value etf. It should be noted
that the Fund outperformed the S&P 600 Index by about 15% in 2017 last
year. Small Cap growth stocks outperformed value stocks in 2018 and
this was our largest headwind as we have a value oriented strategy.
Our holdings in LCI, LKSD and SWM also contributed to underperformance
relative to the Indices.
The Fund continues to hold what we feel are very high quality companies
with stable cash flows and relatively transparent balance sheets.
Fund turnover was 63.30%, which is higher than we would normally
expect, but there was no meaningful net capital gain generated as we
offset winners with losers and thus no tax implications. Brokerage
costs are negligible.
The top holdings and industry group exposures of the Fund as of
December 31, 2018 are listed on the following page.
We look forward to a prosperous year in 2019.
Sincerely,
Steven Adams
Portfolio Manager
SMALL CAP VALUE FUND, INC.
Top Ten Holdings and Asset Allocation
December 31, 2018
Top Ten Holdings*
(% of Net Assets)
Cooper Tire Battery 7.81%
Tupperware Brands 5.58%
Kirkland?s Inc. 5.55%
Hyster-Yale Materials Handling Inc. 5.54%
Schweiter-Mauduit Intl Inc. 5.53%
Universal Corp. 5.39%
Hawaiian Holdings Inc. 5.27%
Sanderson Farms Inc. 4.72%
Abercrombie & Fitch 4.51%
Cirrus Logic Inc. 4.47%
------
54.37%
Asset Allocation
(% of Net Assets)
Tires/Tubes 7.81%
Patent Owners 7.77%
Family Stores 6.50%
Plastic Products 5.58%
Miscellaneous Retail Sales 5.55%
Industrial Trucks 5.54%
Crude Petrol/NG 5.53%
Raw Farm Product 5.39%
Air Transportation, Scheduled 5.27%
Poultry Slaughter 4.72%
Semiconductors 4.47%
Medical/Hospital Equipment 4.43%
Eating Place 4.36%
Computer Software 4.32%
Gold Ore Mining 4.20%
Durable Goods 3.70%
Drill Oil/Gas 2.98%
Retail Apparel 2.87%
Retail Furniture 2.81%
Commercial Printing 2.70%
Concrete Product 2.15%
Other Assets, Less Liabilities, Net 1.35%
-------
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 $100,000
investment in the Small Cap Value Fund from its inception(the beginning
of investment operations), December 16, 2005 through December 31, 2018.
These changes are then compared to a $100,000 investment in the S&P 600
Small Cap Index for the same period but do not reflect deduction for
taxes that a shareholder would pay on distributions or redemption of
Fund shares. 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.
(12/16/05) 2005 2006 2007 2008 2009
Small Cap Value -------- ------- -------- ------- ------- ------
Fund $100,000 $98,910 $123,400 $100,114 $58,577 $83,439
S&P 600 Index $100,000 $98,790 $114,093 $113,751 $78,500 $98,565
2010 2011 2012 2013 2014 2015
Small Cap Value -------- -------- -------- -------- ------- ------
Fund $112,532 $111,418 $135,885 $195,280 $184,813 $144,265
S&P 600 Index $124,507 $125,752 $146,275 $206,672 $218,514 $222,884
2016 2017 2018
Small Cap Value -------- -------- --------
Fund $201,942 $258,849 $211,143
S&P 600 Index $281,792 $318,819 $291,656
$340,000|
$320,000| *
$300,000| *
$280,000| *
$260,000| #
$240,000|
$220,000| * * #
$200,000| #* #
$180,000| #
$160,000| *
$140,000| # #
$120,000| # * * *
$100,000| #* * # * # #
$ 80,000| * #
$ 60,000| #
_______________________________________________________________________
2 2 2 2 2 2 2 2 2 2 2 2 2 2
0 0 0 0 0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 1 1 1 1 1 1 1 1 1
5 6 7 8 9 0 1 2 3 4 5 6 7 8
# = Small Cap Value Fund * = S&P 600 Small Cap Index
15 Day Annual Annual Annual Annual Annual Annual
Return Return Return Return Return Return Return
2005 2006 2007 2008 2009 2010 2011
Small Cap Value ------- ------ ------ ------ ------ ------ ------
Fund (1.09%) 24.76% (18.87%) (41.49)% 42.46% 34.85% (0.00%)
S&P 600 Index (1.21%) 15.49% ( 0.30%) (30.99)% 25.56% 26.32% 1.00%
Annual Annual Annual Annual Annual Annual Annual
Return Return Return Return Return Return Return
2012 2013 2014 2015 2016 2017 2018
Small Cap Value ------ ------ ------ ------ ------ ------ ------
Fund 21.96% 43.71% (5.36%) (21.94)% 39.98% 28.18% (18.43%)
S&P 600 Index 16.32% 41.29% 5.73% 2.00% 26.43% 13.14% (8.52%)
Compounded Avg.
Annual Return
5 Year 10 Year
Small Cap Value ------ ------
Fund 1.57% 13.67%
S&P 600 Index 6.28% 13.56%
SMALL CAP VALUE FUND, INC.
EXPENSES
DECEMBER 31, 2018
As a shareholder of the Fund you incur ongoing costs including
management fees, transaction costs, potential early redemption fess 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, 2018 and held for the entire six month period to
December 31, 2018.
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, 2018,
June 30, 2018 December 31, 2018 December 31, 2018
----------------- ------------ -----------------
Actual $ 1,000.00 $ 773.36 $ 4.25
Hypothetical** $ 1,000.00 $ 1,020.00 $ 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, 2018
ASSETS
Investment securities, at fair
value (cost $20,653,644) $ 19,306,348
Dividends receivable 23,212
-----------
Total assets 19,329,560
-----------
LIABILITIES
Advisory fees payable 15,936
-----------
Total liabilities 15,936
-----------
NET ASSETS ?
Equivalent to $38.99 per
share based on 495,322 shares
of common stock issued and outstanding;
100,000,000 shares authorized,
$0.001 par value $ 19,313,624
============
NET ASSETS CONSIST OF:
Common stock $ 495
Paid-in capital 20,697,539
Net unrealized appreciation (1,347,297)
Undistributed investment loss (37,113)
------------
Net assets $ 19,313,624
============
Net asset value per share $ 38.99
See accompanying notes to these financial statements.
SMALL CAP VALUE FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2018
DESCRIPTION SHARES FAIR VALUE
----------- ------ ------------
COMMON STOCKS ? 98.65%
Tires/Tubes-7.81%
Cooper Tire & Rubber 46,634 $ 1,507,677
Air Transportation, Scheduled-5.27%
Hawaiian Holdings Inc. 38,541 1,017,868
Gold Ore Mining-4.20%
IAMGOLD (a) 220,371 810,965
Retail Apparel-2.87%
Express Inc. (a) 108,315 553,490
Family Stores-6.50%
Abercrombie & Fitch 43,478 871,734
Buckle Inc. 19,861 384,112
----------
1,255,846
Patent Owners-7.77%
Acacia Research Corp (a) 220,977 658,511
InterDigital Inc 12,678 842,200
----------
1,500,711
Concrete Products-2.15%
Forterra (a) 110,227 414,454
Computer Software-4.32%
GameStop 66,139 834,674
Semiconductors-4.47%
Cirrus Logic Inc (a) 26,007 862,912
Drill Oil/Gas-2.98%
Rowan Companies (a) 68,493 574,656
Retail Furniture-2.81%
Tile Shop Holdings 99,039 542,734
Eating Place-4.36%
Del Taco Restaurants (a) 84,221 841,368
Misc. Retail Sales-5.55%
Kirkland?s Inc. (a) 112,376 1,070,943
Industrial Trucks-5.54%
Hyster-Yale Materials Handling 17,254 1,069,058
- Continued ?
SMALL CAP VALUE FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2018
DESCRIPTION SHARES FAIR VALUE
----------- ------ -----------
Commercial Printing-2.70%
LSC Communications 74,380 $ 520,660
Medical/Hospital Equip-4.43%
Patterson Cos Inc 43,478 854,777
Durable Goods-3.70%
Schnitzer Steel Industries 33,145 714,275
Poultry Slaughter-4.72%
Sanderson Farms 9,183 911,780
Crude Petroleum/NG-5.53%
Schweitzer_Maudiut Intl (a) 42,615 1,067,506
Plastic Products-5.58%
Tupperware Brands 34,135 1,077,642
Raw Farm Product-5.39%
Universal Corp 19,216 1,040,546
----------
Total common stocks (cost $20,391,838.37) 19,044,542
SHORT-TERM INVESTMENTS ? 1.36%
Schwab Money Market Fund-current interest
at 1.77% (Single Class Fund)
261,806 261,806
--------
Total short-term investments (cost $261,806) 261,806
--------
Total investment securities ? 99.96% (cost $20,653,644) 19,306,348
Other assets less liabilities ? 0.04% 7,276
--------
Net assets ? 100.00% $ 19,313,624
============
(a) Presently non-income producing
See accompanying notes to these financial statements.
SMALL CAP VALUE FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2018
INVESTMENT INCOME
Dividends $ 577,674
Interest 8,818
------------
Total investment income 586,492
------------
EXPENSES ?
Advisory fees 223,136
------------
223,136
Net investment income 363,356
------------
GAIN (LOSS) ON INVESTMENTS ?
Net realized gain on investments 112,219
Net increase in unrealized depreciation of investments (4,895,061)
------------
Net realized gain and
unrealized gain on investments (4,782,842)
------------
Net decrease in net assets resulting from operations $ 4,419,486
============
See accompanying notes to these financial statements.
SMALL CAP VALUE FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended Year Ended
Dec. 31, 2018 Dec. 31, 2017
INCREASE(DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income (loss) $ 363,356 $ 266,315
Net realized gain/(loss) on investments 112,219 3,399,964
Unrealized appreciation of investments (4,895,061) 1,598,451
----------- ------------
Net increase(decrease) in net assets
resulting from operations (4,419,486) 5,264,730
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income (363,356) (266,315)
Net capital gains (112,219) (93,244)
----------- ------------
Total Distributions (475,575) (359,559)
CAPITAL SHARE TRANSACTIONS-NET 225,612 (179,927)
----------- ------------
TOTAL INCREASE(DECREASE)IN NET ASSETS (4,669,449) 5,085,097
NET ASSETS, beginning of year 23,983,073 18,897,975
----------- ------------
NET ASSETS, end of year (includes $19,313,624 $23,983,073
undistributed net income of $- =========== ============
$-, respectively)
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
2018 2017 2016 2015 2014
----- ------ ------ ------ ------
Net asset value,
beginning of year $49.04 $38.84 $27.89 $35.99 $38.03
------ ------ ------ ------ ------
Income (loss) from investment
operations:
Net investment income 0.75 0.55 0.17 (0.20) (0.05)
Net realized and
unrealized gain
(loss)on investments (9.82) 10.40 10.98 (7.70) (1.99)
----- ----- ------ ----- -----
Total from
investment operations (9.07) 10.95 11.15 (7.90) (2.04)
----- ----- ------ ----- -----
Less distributions from:
Net investment income (0.75) (0.55) (0.17) (0.20) 0.00
Net realized gains ( 0.23) (0.19) (0.03) 0.00 0.00
----- ----- ----- ------ ----
Total distributions (0.98) (0.75) (0.20) (0.20) 0.00
----- ----- ----- ------ ----
Net asset value,
end of year $38.99 $49.04 $38.84 $27.89 $35.99
----- ------ ------ ------ ------
Total Return (18.43)% 28.18% 39.98% (21.94)% (5.36)%
Net assets, end of
year(in 1000's) $19,314 $23,983 $18,898 $14,020 $20,978
Ratio of expenses to
average net
assets(a) 0.96% 0.94% 0.94% 0.98% 0.94%
Ratio of net investment
income (loss)to average
net assets 1.57% 1.32% 0.52% 0.61% (0.14)%
Portfolio turnover
rate (annualized) 63.30% 97.65% 77.65% 48.14% 68.02%
(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 effective date of the Fund?s
Registration under the Securities Act of 1933 was October 27, 2005.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been
prepared on the accrual method of accounting in
accordance with accounting principles generally
accepted in the United States of America.
Use of Estimates
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles 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. The Fund?s significant
estimates include primarily the fair value of investments. 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
SMALL CAP VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
gains, which are included in ordinary income for tax purposes.
Dividends are paid upon Board approval by the end of each calendar
year.
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, 2018, 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 were evaluated through February 18, 2019, the date
the financial statements were available for issuance.
SMALL CAP VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
3. FAIR VALUE OF INVESTMENTS
In accordance with U.S. generally accepted accounting principles
(?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 - observable inputs, other than quoted prices (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, 2018:
Investments Other
in Financial
Level Securities Instruments *
----- ---------- ------------
Level 1:
Common Stock $19,044,542 $ 0
Short term investments 261,806 0
----------- ------------
Total Level 1: 19,306,348 0
Level 2 0 0
Level 3 0 0
----------- ------------
Total $19,306,348 $ 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, 2018, the Fund
did not own any other financial instruments.
SMALL CAP VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
3. FAIR VALUE OF INVESTMENTS (continued)
Transfers between levels are recognized at the end of the
reporting period. There were no transfers between level 1 and
level 2 during the year. There were no level 3 investments held by
the Fund during the year ended December 31, 2018.
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, 2018 December 31, 2017
------------------- ---------------------
Shares Amount Shares Amount
Shares sold 12,168 $ 600,037 0 $ 0
Shares issued in
reinvestment of
dividends 12,535 $ 475,575 7,295 $ 359,561
------ -------- --------- ----------
24,703 $ 1,075,612 7,295 $ 359,561
Shares redeemed (18,468) (850,000) (4,748) (179,634)
------ -------- --------- ----------
Net increase(decrease) 6,235 $ 225,612 2,457 $ 179,927
Beginning of year 489,087 $20,472,422 486,540 $ 20,292,495
------ -------- ------- ----------
End of year 495,322 $20,698,034 489,087 $ 20,472,422
========= ========== ========= ==========
5. INVESTMENT TRANSACTIONS
The aggregate cost of purchases and proceeds from sales of
investment securities, excluding short-term investments, aggregated
$14,698,657 and $14,705,362, respectively, for the year ended
December 31, 2018.
6. TAX MATTERS
Income and long-term capital gain distributions are determined in
accordance with Federal income tax regulations, which may differ
from accounting principles generally accepted in the United States.
On December 21, 2018, the Fund paid an income distribution of
$0.7526 per share to shareholders of record on December 20, 2018
for a total distribution of $363,356, and a long-term capital gain
distribution of $0.2324 per share for a total distribution of
$112,219.
On December 22, 2017, the Fund paid an income distribution of
$0.5528 per share to shareholders of record December 21, 2017 for a
total distribution of $266,315, and a long-term capital gain
distribution of $0.1935 per share for a total distribution of
$93,244.
SMALL CAP VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
6. TAX MATTERS (continued)
The Fund?s distributable earnings on a tax basis are determined
only at the end of each fiscal year. As of December 31, 2018, the
Fund?s most recent fiscal year-end, the components of
distributable earnings on a tax basis were as follows:
Unrealized Depreciation $(1,347,297)
Undistributed Realized Long-Term Gains $ 0
Undistributed Ordinary Income $ 0
----------
Total Distributable Earnings, Net $(1,347,297)
As of December 31, 2018, the tax basis components of unrealized
appreciation (depreciation) and cost of investments were as
follows:
Gross tax appreciation of investments $ 1.066,811
Gross tax depreciation of investments $ (2,414,108)
------------
Net tax appreciation of investments $ (1,347,297)
Federal tax cost of investments,
including short-term investments $ 20,653,644
As of December 31, 2018, open Federal tax years, subject to
examination, include the tax years ended December 31, 2016 through
December 31, 2018. As of and during the year ended December 31,
2018, the Fund did not have a liability for any unrecognized tax
benefits. The Fund has no examination in progress and is not aware
of any tax positions for which it is reasonably possible that the
total tax amounts of unrecognized tax benefits will significantly
change in the next twelve months.
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. Steven Adams is the managing member of the
Advisor and is an officer and shareholder of the Fund and his wife,
Laura S. Adams is a director 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 2018, as computed pursuant to the investment
advisory agreement, totaled $223,136, of which $15,936 was payable
on December 31, 2018.
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. Redemption Fee
To discourage short-term trades by investors and to compensate the
Fund for costs that may be incurred by such trades, the Fund may
impose a redemption fee of 2% of the total redemption amount if
shares are held less than 365 days. For the year ended December 31,
2018, there were no redemption fees received by the Fund.
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
At an in-person meeting held on January 18, 2019, the Board of
Directors, including a majority of Directors that are not "interested"
persons of the Fund(as the term is defined in the 1940 Act), re-
approved the Advisory Agreement based upon its review of the
qualitative and quantitative information provided by the Investment
Advisor. The Directors considered, among other things, the following
information regarding the Investment Advisor:
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. The
Directors also analyzed the experience of the Investment Advisor
and capabilities as a portfolio manager, noting that the Advisor
has managed separate account portfolios successfully with assets
far in excess of the Fund?s NAV for decades. The Advisor?s Form
ADV was reviewed as well as internal compliance policies and
experience managing other portfolios. In addition, the portfolio
and brokerage transactions were reviewed. Based on this review,
the Directors concluded that the range and quality of services to
be provided by the Investment Advisor to the Fund were appropriate
and to support the selection of the original Investment Advisor.
2) Investment performance ? The Directors reviewed the performance of
the Fund as compared to market benchmarks for various time
periods. This review focused on investment strategy and long term
performance potential. In 2018 the Fund was down 18.43% versus
the S&P 600 Small Cap Index down 8.50% and the Ishares S&P 600
value etf down 12.84%. In 2017 the Fund was up 28.18% versus the
S&P 600 Small Cap Index up 13.14%. The Directors concluded that
the performance of the Fund, both short term and long term,
managed by the Investment Advisor, was satisfactory.
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 (0.95%) that is in
line with fees charged for other funds and that the Advisor is
operating profitability, is viable and should remain an ongoing
entity. The Directors also noted that the Advisor is paying all
expenses (except transaction commissions) associated with managing
the Fund out of the management fee, which is very advantageous to
shareholders versus other funds.
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 (0.95%) 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
Yrs* Past five years Directorships
Served**
------------------ -------- ---- --------------------- -------------
Vicky L. Hubbard Director 1 Private Investor, Stock Dividend
Age 61 Technology Mngr prior Fund, Inc.
Yolawnde F. Malone Director 1 Pres. Whitford Capital,Stock Dividend
Age 55 Senior Tax Mngr- Fund, Inc.
Montgomery Coscia
Greilich LLP prior,
CPA Family Legacy
Trust prior
Melissa D. Gordon, Director 1 Vice Chair Pathologist Stock Dividend
M.D. prior Partner at North Fund, Inc.
Age 55 Dallas Pathology
INTERESTED DIRECTORS
Laura S. Adams Director,1 Member, Adams Stock Dividend
Age 57 President Asset Advisors Fund, Inc.
Secretary since 2002, Private
Treasurer Investor prior
*All Directors have served since Fund?s Effective date of registration
with SEC, October 27, 2005.
**The number of portfolios in each Fund complex overseen is one. Each
Director oversees two portfolios, one for each complex overseen.
This report and the financial statements contained herein are submitted
for the general information of shareholders and are not authorized for
distribution to prospective investors unless preceded or accompanied by
an effective prospectus. Nothing herein contained is to be considered
an offer of sale or solicitation of an offer to buy shares of Small Cap
Value Fund, Inc. Such offering is made only by prospectus, which
includes details as to offering price and material information.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Small Cap Value Fund,
Inc.
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Small Cap Value Fund, Inc.
(the ?Fund?) as of December 31, 2018, the related statements of
operations and changes in net assets for the year ended December 31,
2018, including the related notes, and the financial highlights for the
year ended December 31, 2018 (collectively referred to as the
?financial statements?). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the
Fund as of December 31, 2018 and the results of its operations and its
changes in net assets for the year then ended, in conformity with
accounting principles generally accepted in the United States of
America.
Basis for Opinion
These financial statements are the responsibility of the Fund?s
management. Our responsibility is to express an opinion on the Fund?s
financial statements based on our audit. We are a public accounting
firm registered with the Public Company Accounting Oversight Board
(United States) (?PCAOB?) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audit of these financial statements in accordance with
the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement, whether due to
error or fraud. The Fund is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting.
As part of our audit we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of
expressing an opinion on the effectiveness of the Fund?s internal
control over financial reporting. Accordingly, we express no such
opinion.
Our audit included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the financial statements. Our procedures
also included confirmation of securities owned as of December 31, 2018
by correspondence with the custodian and others; when replies were not
received, we performed other appropriate auditing procedures. Our
audit also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our
audit provides a reasonable basis for our opinion.
/s/ Turner, Stone & Company, L.L.P.
Dallas, Texas
February 18, 2019
This is the first year we have served as the Fund?s auditor.
2017
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
from previous Auditor for Year Ending 2017
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, 2017, 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, 2017, 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,
2017, 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
Austin, Texas
February 16, 2018
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.
(a)-(d) Total fees billed to the registrant for the last two fiscal
years for professional services rendered by the registrant?s
independent auditor were as follows:
December 31,2018 December 31, 2017
Audit $14,000 $8,000
Audit-Related fees $0 $0
Tax preparation fees $0 $0
Other fees $0 $0
Audit fees include amounts related to the annual audit of the
registrant?s financial statements, spot checks for compliance with Rule
17f-2 and services normally provided by the auditor in connection with
statutory and regulatory filings. The registrant performance tax
preparation internally.
(e)(1) The directors have not adopted pre-approval policies and
procedures described in paragraph (c)(7) of Rule 2-10 of Regulation S-
X.
(e)(2) None
(f) Not applicable
(g) The aggregate fees billed for the most recent fiscal year and the
preceding year by the registrant?s independent auditor for non-audit
services rendered to the registrant, its investment advisor, and any
entity controlling, controlled by, or under common control with the
advisor that provided ongoing services to the registrant were $0 and
$0, respectively.
(h) Not applicable
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. Disclosure of Securities Lending Activities for Closed-End
Management Investment Companies. (Not applicable)
Item 13. Exhibits.
a) (1)Code of Ethics-Filed with Form N-CSR and is hereby
incorporated
by reference as Exhibit (p) of Post-Effective Amendment No. 14
(485BPOS)of our Registration under the Securities Act of
1933 filed on 2/12/2016, which can be viewed on the SEC.gov
website under company filings. A copy of the Code of Ethics can
also be obtained by calling us at 1-800-704-6072.
(2)Certifications pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002- Attached
b) Certifications pursuant to Section 906 of the Sarbanes-Oxley A
ct 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 2/18/19
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 2/18/19