Date of fiscal year end:
|
February 29, 2020
|
|
|
Date of reporting period:
|
February 29, 2020
|
ITEM 1.
|
REPORT TO STOCKHOLDERS
|
DISCLOSURES
Sources: Nomura Asset Management U.S.A. Inc., Nomura Asset Management Co., Ltd., and Bloomberg L.P. Past performance
is not indicative of future results. There is a risk of loss.
The NAV price is adjusted for reinvestment of income dividends, ordinary income distributions, and long-term capital
gain distributions. The New York Stock Exchange’s closing market price is adjusted for reinvestment of income dividends, ordinary income distributions, and long-term capital gain distributions. The Fund’s performance does not reflect
sales commissions.
This material contains the current opinions of the Fund’s manager, which are subject to change
without notice. This material should not be considered investment advice. Statements concerning financial market trends are based on current market conditions, which will fluctuate. There is no guarantee that these investment
strategies will work under all market conditions, and each investor should evaluate their ability to invest for the long term.
Comparisons between changes in the Fund’s net asset value or market price per share and changes in the Fund’s
benchmark should be considered in light of the Fund’s investment policy and objective, the characteristics and quality of the Fund’s investments, the size of the Fund, and variations in the Yen/U.S. Dollar exchange rate. This report
is for informational purposes only. Investment products offered are not FDIC insured, may lose value, and are not bank guaranteed.
Indices are unmanaged. An index cannot be directly invested into.
Certain information discussed in this report may constitute forward-looking statements within the meaning of the U.S.
federal securities laws. The Fund believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions and can give no assurance that the Fund’s expectations will be achieved. Forward-looking
information is subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those projected.
The Russell/Nomura Small Cap™ Index represents approximately 15% of the total market capitalization of the Russell/Nomura Total Market™ Index. It measures the performance of the
smallest Japanese equity securities in the Russell/Nomura Total Market™ Index. As of February 29, 2020, there are 1,248 securities in the Russell/Nomura Small Cap™ Index.
|
CHANGE IN AUDITORS
The Fund was advised on February 24, 2020 by RSM US LLP (“RSM”), its independent public accounting firm, that RSM is not
independent under the Securities and Exchange Commission’s independence rules as it pertains to the Fund due to a discovery of certain non-attest services performed by a foreign affiliated firm. RSM subsequently resigned on
February 27, 2020.
The resignation of RSM was not the result of any disagreement with management. During the fiscal years ended February 28,
2019 and February 28, 2018, RSM’s audit reports contained no adverse opinion or disclaimer of opinion; nor were the reports qualified or modified as to uncertainty, audit scope, or accounting principles. Further, there were no
disagreements between the Fund and RSM on accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of RSM, would have caused it to make
reference to the disagreements in connection with their reports.
On March 30, 2020, the Audit Committee of the Fund and the Board of Directors of the Fund approved the selection of Ernst
& Young LLP as the independent registered public accounting firm to audit the Fund’s financial statements for its fiscal year ended February 29, 2020.
|
SHAREHOLDERS ACCOUNT INFORMATION
Shareholders whose accounts are held in their own name may contact the Fund’s registrar, Computershare Trust Company, N.A., at (800) 426-5523 for information concerning their
accounts.
|
PROXY VOTING
A description of the policies and procedures that the Fund uses to vote proxies relating to portfolio securities
is available (1) without charge, upon request, by calling toll-free 1-800-833-0018; and (2) on the website of the Securities and Exchange Commission (“SEC”) at http://www.sec.gov. Information about how the Fund voted
proxies relating to securities held in the Fund’s portfolio during the most recent 12-month period ended June 30 is available (1) without charge, upon request, by calling toll-free 1-800-833-0018; and (2) on the SEC’s web site
at http://www.sec.gov.
Additional information about the Fund’s Board of Directors is available (1) without charge, upon request, by calling
toll-free 1-800-833-0018; and (2) on the website of the SEC at http://www.sec.gov in the Fund’s most recent proxy statement filing.
|
AVAILABILITY OF QUARTERLY SCHEDULE OF INVESTMENTS
The Fund files a schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The
Fund’s Forms N-Q are available on the SEC’s web site at http://www.sec.gov.
|
FUND CERTIFICATIONS
In December 2019, the Fund filed its Principal Executive Officer Certification with the New York Stock Exchange
pursuant to Section 303A.12 (a) of the New York Stock Exchange Corporate Governance Listing Standards.
The Fund’s Principal Executive Officer and Principal Financial Officer Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 were filed with the Fund’s Form N-CSR and are available on the SEC’s web site at http://www.sec.gov.
|
SHARE REPURCHASES
Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940 that from time to time the Fund may repurchase shares of its common stock in the
open market.
|
INTERNET WEBSITE
Nomura Asset Management U.S.A. Inc. has established an Internet website which highlights its history, investment philosophy and
process and products, which include the Fund. The Internet web address is http://funds.nomura-asset.com/japan-smaller-capitalization.
|
Net Assets
|
|
$250,887,390
|
||
Net Asset Value per Share
|
|
$8.85
|
||
Market Price
|
|
$8.03
|
||
Percentage Change in Net Asset Value per Share*+
|
(6.7%)
|
|
||
Percentage Change in Market Price*+
|
(2.6%)
|
|
YEN
|
U.S. $
|
||||||
Russell/Nomura Small Cap™ Index
|
(10.3%)
|
(7.5%)
|
|||||
Tokyo Price Index
|
(6.0%)
|
(3.2%)
|
|||||
Nikkei Stock Average Index
|
(1.1%)
|
1.9%
|
% of
Net Assets
|
% of
Net Assets
|
||||||||
Retail Trade
|
15.3
|
Transportation Equipment
|
3.3
|
||||||
Chemicals
|
13.7
|
Transportation and Warehousing
|
3.0
|
||||||
Wholesale Trade
|
11.1
|
Utilities
|
2.9
|
||||||
Machinery
|
5.8
|
Electric Appliances
|
2.8
|
||||||
Iron and Steel
|
5.7
|
Other Products
|
2.7
|
||||||
Banks
|
5.3
|
Food
|
2.5
|
||||||
Services
|
5.2
|
Financing Business
|
2.2
|
||||||
Information and Communication
|
5.1
|
Real Estate
|
2.1
|
||||||
Metal Products
|
4.9
|
Textiles and Apparel
|
1.8
|
||||||
Construction
|
3.3
|
Precision Instruments
|
0.8
|
Security
|
% of
Net Assets
|
|||
Ryoden Corporation
|
4.1
|
|||
Okinawa Cellular Telephone Company
|
3.6
|
|||
Amiyaki Tei Co., Ltd.
|
3.4
|
|||
Osaka Steel Co., Ltd.
|
3.1
|
|||
SIIX Corporation
|
2.8
|
|||
Nichirei Corporation
|
2.5
|
|||
Hi-Lex Corporation
|
2.5
|
|||
The Okinawa Electric Power Company, Incorporated
|
2.3
|
|||
Sakata Inx Corporation
|
2.1
|
|||
Fujikura Kasei Co., Ltd.
|
2.0
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Japan Smaller Capitalization Fund, Inc.
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of Japan Smaller Capitalization Fund, Inc. (the “Fund”), including the schedule
of investments, as of February 29, 2020, and the related statement of operations, statement of changes in net assets, the financial highlights in the year then ended and the related notes (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 at February 29, 2020, the results of its operations, the changes in its net
assets and its financial highlights for the year then ended, in conformity with U.S. generally accepted accounting principles.
The statement of changes in net assets for the year ended February 28, 2019, and the financial highlights for each of the years in the four-year
period then ended, were audited by another independent registered public accounting firm whose report, dated April 26, 2019, expressed an unqualified opinion on that statement of changes in net assets and those financial
highlights.
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 Fund 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 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 the Fund’s 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 included confirmation of securities owned as of February 29, 2020, by correspondence with the
custodian or by other appropriate auditing procedures where replies from others were not received. 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.
We have served as the auditor of one or more Nomura investment companies since 2020.
New York, New York
April 29, 2020
|
Shares
|
Cost
|
Fair
Value |
% of
Net Assets |
|||||||||||||
JAPANESE EQUITY SECURITIES
|
||||||||||||||||
Banks
|
||||||||||||||||
Fukuoka Financial Group, Inc.
General banking services |
78,100
|
$
|
1,767,670
|
$
|
1,187,701
|
0.5
|
||||||||||
The Akita Bank, Ltd.
General banking services |
197,100
|
4,898,881
|
3,057,552
|
1.2
|
||||||||||||
The Bank of Okinawa, Ltd.
General banking services |
76,800
|
2,848,983
|
2,152,574
|
0.9
|
||||||||||||
The Keiyo Bank, Ltd.
General banking services |
482,500
|
3,553,989
|
2,271,796
|
0.9
|
||||||||||||
The Musashino Bank, Ltd.
General banking services |
119,400
|
3,037,007
|
1,645,678
|
0.6
|
||||||||||||
The Taiko Bank, Ltd.
General banking services |
130,500
|
2,448,007
|
1,715,374
|
0.7
|
||||||||||||
The Yamanashi Chuo Bank, Ltd.
|
164,000
|
2,646,818
|
1,240,942
|
0.5
|
||||||||||||
General banking services
|
||||||||||||||||
Total Banks
|
21,201,355
|
13,271,617
|
5.3
|
|||||||||||||
Chemicals
|
||||||||||||||||
Adeka Corporation
Manufactures chemical and food products |
328,500
|
4,954,538
|
4,324,088
|
1.7
|
||||||||||||
C. Uyemura & Co., Ltd.
Plating chemicals |
50,100
|
2,461,188
|
3,137,477
|
1.3
|
||||||||||||
Fujikura Kasei Co., Ltd.
Specialty coating materials and fine chemicals |
1,143,000
|
6,095,347
|
4,937,616
|
2.0
|
||||||||||||
Koatsu Gas Kogyo Co., Ltd.
High-pressured gases and chemicals |
565,600
|
3,706,122
|
3,463,551
|
1.4
|
||||||||||||
Sakata Inx Corporation
Manufactures printing ink |
613,500
|
7,439,384
|
5,357,236
|
2.1
|
||||||||||||
Sekisui Jushi Corporation
Manufactures plastics and other resin materials |
134,200
|
2,602,879
|
2,634,220
|
1.0
|
||||||||||||
Shikoku Chemicals Corporation
Manufactures chemical products |
152,600
|
1,699,404
|
1,528,753
|
0.6
|
||||||||||||
Shin-Etsu Polymer Co., Ltd.
Manufactures electronic devices, precision moldings, and dwelling materials |
53,300
|
371,721
|
416,618
|
0.2
|
||||||||||||
Soken Chemical & Engineering Co., Ltd.
Manufactures chemical products |
49,700
|
587,354
|
529,159
|
0.2
|
||||||||||||
Tenma Corporation
Manufactures synthetic resin products |
155,800
|
3,039,008
|
2,336,171
|
0.9
|
||||||||||||
T&K Toka Co., Ltd.
Manufactures specialized inks for printing applications |
347,800
|
3,301,087
|
2,625,270
|
1.0
|
||||||||||||
Yushiro Chemical Industry Co., Ltd.
|
286,700
|
3,871,611
|
3,195,722
|
1.3
|
||||||||||||
Manufactures metalworking fluids
|
||||||||||||||||
Total Chemicals
|
40,129,643
|
34,485,881
|
13.7
|
Shares
|
Cost
|
Fair
Value |
% of
Net Assets |
|||||||||||||
Construction
|
||||||||||||||||
Toenec Corporation
Construction of comprehensive building facilities |
82,300
|
$
|
2,214,255
|
$
|
2,493,248
|
1.0
|
||||||||||
Totetsu Kogyo Co., Ltd.
Operates construction-related businesses |
117,800
|
3,266,765
|
3,022,776
|
1.2
|
||||||||||||
Yondenko Corporation
Construction of electrical distribution systems |
54,800
|
1,197,033
|
1,203,922
|
0.5
|
||||||||||||
Yurtec Corporation
|
316,100
|
2,340,730
|
1,657,913
|
0.6
|
||||||||||||
Engineering company
|
||||||||||||||||
Total Construction
|
9,018,783
|
8,377,859
|
3.3
|
|||||||||||||
Electric Appliances
|
||||||||||||||||
AOI Electronics Co., Ltd.
Manufactured electronic components |
10,600
|
239,112
|
202,382
|
0.1
|
||||||||||||
Koito Manufacturing Co., Ltd.
Manufactures lighting equipment |
37,500
|
2,175,621
|
1,477,730
|
0.6
|
||||||||||||
Mabuchi Motor Co., Ltd.
Manufactures small motors |
119,500
|
5,319,131
|
4,139,748
|
1.6
|
||||||||||||
Maxell Holdings, Ltd.
Manufactures media devices, batteries and electrical appliances |
62,200
|
1,061,879
|
741,647
|
0.3
|
||||||||||||
Shindengen Electric Manufacturing Co., Ltd.
|
5,800 |
192,637 |
161,223 |
0.1 |
||||||||||||
Manufactures semiconductor products, electrical components, and power supplies
|
|
|
|
|||||||||||||
Shinko Electric Industries Co., Ltd.
|
34,300
|
277,055
|
376,616
|
0.1
|
||||||||||||
Manufactures semiconductor packages
|
||||||||||||||||
Total Electric Appliances
|
9,265,435
|
7,099,346
|
2.8
|
|||||||||||||
Financing Business
|
||||||||||||||||
Hitachi Capital Corporation
General financial services |
104,900
|
2,443,024
|
2,680,115
|
1.1
|
||||||||||||
Ricoh Leasing Company, Ltd.
Leasing and financial services |
73,200
|
2,441,583
|
2,515,499
|
1.0
|
||||||||||||
Tokai Tokyo Financial Holdings, Inc.
|
101,200
|
392,082
|
265,860
|
0.1
|
||||||||||||
Investment and financial services
|
||||||||||||||||
Total Financing Business
|
5,276,689
|
5,461,474
|
2.2
|
|||||||||||||
Food
|
||||||||||||||||
Nichirei Corporation
|
247,500
|
5,756,398
|
6,302,831
|
2.5
|
||||||||||||
Produces frozen foods and provides cold storage warehousing
|
||||||||||||||||
Total Food
|
5,756,398
|
6,302,831
|
2.5
|
Shares
|
Cost
|
Fair
Value |
% of
Net Assets |
|||||||||||||
Information and Communication
|
||||||||||||||||
NS Solutions Corporation
System consulting services and software development |
39,600
|
$
|
1,113,408
|
$
|
1,096,001
|
0.4
|
||||||||||
OBIC Co., Ltd.
Computer system integration |
12,500
|
1,059,763
|
1,536,700
|
0.6
|
||||||||||||
Okinawa Cellular Telephone Company
Telecommunications |
249,500
|
7,817,985
|
8,989,432
|
3.6
|
||||||||||||
Otsuka Corporation
|
30,000
|
1,110,405
|
1,280,699
|
0.5
|
||||||||||||
Computer information system developer
|
||||||||||||||||
Total Information and Communication
|
11,101,561
|
12,902,832
|
5.1
|
|||||||||||||
Iron And Steel
|
||||||||||||||||
Chubu Steel Plate Co., Ltd.
Manufactures steel-related products |
117,200
|
727,787
|
731,789
|
0.3
|
||||||||||||
Mory Industries Inc.
Manufactures steel tubing products |
51,500
|
954,419
|
1,055,677
|
0.4
|
||||||||||||
Nichia Steel Works, Ltd.
Manufactures steel-related products |
1,825,400 |
5,155,036 |
4,575,953 |
1.8 |
||||||||||||
Osaka Steel Co., Ltd.
Manufactures steel-related products |
598,400 |
10,631,768 |
7,788,250 |
3.1 |
||||||||||||
Sanyo Special Steel Co., Ltd.
|
24,300 |
329,651 |
264,118 |
0.1 |
||||||||||||
Steel, special material, and forging business
|
||||||||||||||||
Total Iron and Steel
|
17,798,661
|
14,415,787
|
5.7
|
|||||||||||||
Machinery
|
||||||||||||||||
Hisaka Works, Ltd.
Manufactures heat exchangers and other machinery |
112,200
|
994,296
|
831,343
|
0.3
|
||||||||||||
Miura Co., Ltd.
Manufactures boilers and related products |
46,900
|
1,218,286
|
1,531,446
|
0.6
|
||||||||||||
Nippon Pillar Packing Co., Ltd.
Manufactures mechanical seals |
131,200
|
1,514,189
|
1,541,316
|
0.6
|
||||||||||||
Nitto Kohki Co., Ltd.
Manufactures machine tools and motor pumps |
187,400
|
4,119,690
|
3,558,875
|
1.4
|
||||||||||||
Oiles Corporation
Manufactures bearing equipment |
306,880
|
5,395,825
|
4,025,307
|
1.6
|
||||||||||||
Shibuya Corporation
Packing plant business |
14,300
|
404,593
|
346,174
|
0.1
|
||||||||||||
Star Micronics Co., Ltd.
Manufactures machinery, electronic components, and precision parts |
56,600
|
740,100
|
635,084
|
0.3
|
||||||||||||
Takeuchi Mfg. Co., Ltd.
Manufactures construction machinery |
30,000
|
522,187
|
459,276
|
0.2
|
||||||||||||
Toshiba Machine Co., Ltd.
Manufactures industrial machinery and equipment |
43,000
|
802,971
|
1,179,363
|
0.5
|
||||||||||||
Yamashin-Filter Corporation
|
72,800
|
|
310,243
|
|
455,231
|
0.2
|
||||||||||
Manufactures filters
|
||||||||||||||||
Total Machinery
|
16,022,380
|
14,563,415
|
5.8
|
|||||||||||||
Metal Products
|
||||||||||||||||
Dainichi Co., Ltd.
Manufactures oil heating equipment |
206,100
|
1,435,596
|
1,138,168
|
0.5
|
||||||||||||
Maruzen Co., Ltd.
Manufactures and sells machinery |
10,000
|
191,461
|
181,490
|
0.1
|
||||||||||||
Neturen Co., Ltd.
Manufactures steel bars and induction heating equipment |
575,600
|
4,588,494
|
3,625,953
|
1.4
|
||||||||||||
Piolax, Inc.
Manufactures automobile-related products |
173,300
|
3,387,771
|
2,486,363
|
1.0
|
||||||||||||
Rinnai Corporation
Manufactures heating appliances and components |
69,100
|
5,604,127
|
4,710,855
|
1.9
|
||||||||||||
Shinpo Co., Ltd.
|
2,300
|
18,935
|
29,871
|
0.0
|
||||||||||||
Manufactures smokeless roasters
|
||||||||||||||||
Total Metal Products
|
15,226,384
|
12,172,700
|
4.9
|
|||||||||||||
Other Products
|
||||||||||||||||
Fuji Seal International, Inc.
Packaging-related materials and machinery |
13,300
|
410,894
|
236,338
|
0.1
|
||||||||||||
Komatsu Wall Industry Co., Ltd.
Manufactures various partitions |
28,200
|
508,902
|
492,499
|
0.2
|
||||||||||||
Nishikawa Rubber Co., Ltd.
Manufactures rubber automobile parts |
207,600
|
3,398,576
|
3,208,914
|
1.3
|
||||||||||||
Pigeon Corporation
Manufactures baby care products |
9,800
|
418,705
|
331,789
|
0.1
|
||||||||||||
The Pack Corporation
|
77,400
|
2,455,882
|
2,516,637
|
1.0
|
||||||||||||
Manufactures paper and chemical products
|
||||||||||||||||
Total Other Products
|
7,192,959
|
6,786,177
|
2.7
|
|||||||||||||
Precision Instrument
|
||||||||||||||||
Nakanishi Inc.
|
126,800
|
2,014,794
|
1,908,363
|
0.8
|
||||||||||||
Manufactures dental instruments
|
||||||||||||||||
Total Precision Instruments
|
2,014,794
|
1,908,363
|
0.8
|
|
Shares
|
Cost
|
Fair
Value |
% of
Net Assets |
||||||||||||
Real Estate
|
||||||||||||||||
Avantia Co., Ltd.
Designs and constructs housing |
383,600
|
$ |
3,628,825
|
$ |
2,718,076
|
1.1
|
||||||||||
Daibiru Corporation
Real estate leasing and building management |
122,700
|
1,256,651
|
1,365,414
|
0.5
|
||||||||||||
Starts Corporation Inc.
|
57,100
|
1,365,786
|
1,174,695
|
0.5
|
||||||||||||
Construction, leasing and management of real estate
|
||||||||||||||||
Total Real Estate
|
6,251,262
|
5,258,185
|
2.1
|
Retail Trade | ||||||||||||||||
ABC-Mart, Inc.
|
26,300
|
|
1,617,326
|
|
1,498,617
|
0.6
|
||||||||||
Retail sales of shoes
|
||||||||||||||||
AIN Holdings Inc.
|
1,300
|
74,598
|
75,038
|
0.0
|
||||||||||||
Operates pharmacies and drug store chains
|
||||||||||||||||
Amiyaki Tei Co., Ltd.
|
299,800
|
10,829,811
|
8,486,083
|
3.4
|
||||||||||||
Operates barbecue restaurant chains
|
||||||||||||||||
Cosmos Pharmaceutical Corporation
|
7,800
|
1,565,851
|
1,690,523
|
0.7
|
||||||||||||
Operates drug store chains
|
||||||||||||||||
Create SD Holdings Co., Ltd.
|
77,800
|
1,975,598
|
1,758,875
|
0.7
|
||||||||||||
Operates pharmacies and drug store chains
|
||||||||||||||||
Daikokutenbussan Co., Ltd.
|
161,900
|
7,467,169
|
4,560,247
|
1.8
|
||||||||||||
Operates supermarkets
|
||||||||||||||||
Hiday Hidaka Corp.
|
26
|
506
|
392
|
0.0
|
||||||||||||
Operates restaurant chains
|
||||||||||||||||
Izumi Co., Ltd.
|
99,400
|
4,530,345
|
2,724,409
|
1.1
|
||||||||||||
Operates shopping centers, real estate and credit card services
|
||||||||||||||||
JM Holdings Co., Ltd.
|
157,700
|
2,781,704
|
3,095,503
|
1.2
|
||||||||||||
Supermarket business and operation of eating-out stores
|
||||||||||||||||
Kusuri No Aoki Holdings Co., Ltd.
|
46,600
|
2,898,751
|
2,845,012
|
1.1
|
||||||||||||
Operates drug stores
|
||||||||||||||||
NAFCO Co., Ltd.
|
48,300
|
771,843
|
562,506
|
0.2
|
||||||||||||
Operates a chain of home and furniture retail outlets
|
||||||||||||||||
Pan Pacific International Holdings Corporation
|
73,500
|
962,663
|
1,215,651
|
0.5
|
||||||||||||
Operates discount stores
|
||||||||||||||||
San-A Co., Ltd.
|
86,200
|
3,858,765
|
3,121,715
|
1.3
|
||||||||||||
Retail sales of home goods
|
||||||||||||||||
Seria Co., Ltd.
|
183,800
|
6,288,440
|
4,910,174
|
2.0
|
||||||||||||
Discount retail sales
|
||||||||||||||||
Sundrug Co., Ltd.
|
24,800
|
978,838
|
774,247
|
0.3
|
||||||||||||
Operates pharmacies and drug store chains
|
||||||||||||||||
Yossix Co., Ltd.
|
55,500
|
1,203,521
|
1,110,975
|
0.4
|
||||||||||||
Operates restaurant chains
|
||||||||||||||||
Total Retail Trade
|
47,805,729
|
38,429,967
|
15.3
|
|
Shares
|
Cost
|
Fair
Value |
% of
Net Assets |
||||||||||||
Services | ||||||||||||||||
EPS Holdings, Inc.
|
94,100
|
$
|
1,391,365
|
$
|
979,256
|
0.4
|
||||||||||
Performs contract medical research services
|
||||||||||||||||
H.I.S. Co., Ltd.
|
75,600
|
2,447,787
|
1,489,552
|
0.6
|
||||||||||||
Travel business
|
||||||||||||||||
Kanamoto Co., Ltd.
|
56,200
|
1,494,027
|
1,241,957
|
0.5
|
||||||||||||
Construction related business
|
||||||||||||||||
Nihon M&A Center Inc.
|
45,500
|
1,078,499
|
1,380,510
|
0.6
|
||||||||||||
Provides merger and acquisition brokerage services
|
||||||||||||||||
Nippon Air Conditioning Services Co., Ltd.
|
356,900
|
2,293,168
|
2,274,678
|
0.9
|
||||||||||||
Provides maintenance and management of building facilities
|
||||||||||||||||
Nishio Rent All Co., Ltd..
|
102,100
|
2,932,898
|
2,506,576
|
1.0
|
||||||||||||
Leasing of construction and facility work equipment
|
||||||||||||||||
Sprix, Ltd.
|
76,900
|
1,158,127
|
591,839
|
0.2
|
||||||||||||
Educational service business
|
||||||||||||||||
Step Co., Ltd.
|
158,000
|
1,707,890
|
2,075,390
|
0.8
|
||||||||||||
Operates preparatory schools
|
||||||||||||||||
Tear Corporation
|
83,900
|
591,990
|
412,884
|
0.2
|
||||||||||||
Funeral business
|
||||||||||||||||
Total Services
|
15,095,751
|
12,952,642
|
5.2
|
|||||||||||||
Textiles and Apparel
|
||||||||||||||||
Seiren Co., Ltd.
|
351,000
|
5,309,520
|
4,506,619
|
1.8
|
||||||||||||
Manufactures synthetic fibers and textile products
|
||||||||||||||||
Total Textiles and Apparel
|
5,309,520
|
4,506,619
|
1.8
|
|||||||||||||
Transportation and Warehousing
|
||||||||||||||||
Alps Logistics Co., Ltd.
|
283,800
|
1,683,714
|
1,926,916
|
0.8
|
||||||||||||
General logistics services
|
||||||||||||||||
Japan Transcity Corporation
|
130,600
|
549,541
|
519,476
|
0.2
|
||||||||||||
General logistics services
|
||||||||||||||||
Meiko Trans Co., Ltd.
|
345,700
|
3,471,083
|
3,517,599
|
1.4
|
||||||||||||
Marine logistics services
|
||||||||||||||||
SG Holdings Co., Ltd.
|
65,900
|
1,434,760
|
1,297,213
|
0.5
|
||||||||||||
Delivery, logistics, real estate, and other business
|
||||||||||||||||
Trancom Co., Ltd.
|
3,800
|
233,801
|
241,839
|
0.1
|
||||||||||||
General logistics services
|
||||||||||||||||
Total Transportation and Warehousing
|
7,372,899
|
7,503,043
|
3.0
|
|
Shares
|
Cost
|
Fair Value |
% of Net Assets |
||||||||||||
Transportation Equipment | ||||||||||||||||
Hi-Lex Corporation
|
414,800
|
$
|
8,197,076
|
$
|
6,269,675
|
2.5
|
||||||||||
Manufacture control cables
|
||||||||||||||||
Morita Holdings Corporation
|
64,600
|
1,131,599
|
1,006,303
|
0.4
|
||||||||||||
Operates five business transportation segments
|
||||||||||||||||
Nichirin Co., Ltd.
|
27,700
|
401,657
|
409,203
|
0.2
|
||||||||||||
Manufactures hoses for automobiles
|
||||||||||||||||
Nippon Seiki Co., Ltd.
|
6,500
|
116,106
|
85,681
|
0.0
|
||||||||||||
Manufactures transportation equipment parts
|
||||||||||||||||
Tokai Rika Co., Ltd.
|
26,900
|
531,202
|
404,850
|
0.2
|
||||||||||||
Manufactures automobile parts
|
||||||||||||||||
Total Transportation Equipment
|
10,377,640
|
8,175,712
|
3.3
|
|||||||||||||
Utilities
|
||||||||||||||||
Keiyo Gas Co., Ltd.
|
50,900
|
1,275,614
|
1,408,749
|
0.6
|
||||||||||||
Produces gas and energy products
|
||||||||||||||||
The Okinawa Electric Power Company, Incorporated
|
336,177
|
5,297,028
|
5,768,543
|
2.3
|
||||||||||||
Produces thermal energy products
|
||||||||||||||||
Total Utilities
|
6,572,642
|
7,177,292
|
2.9
|
|||||||||||||
Wholesale Trade
|
||||||||||||||||
Ai Holdings Corporation
|
31,700
|
789,192
|
447,181
|
0.2
|
||||||||||||
Information and security equipment
|
||||||||||||||||
Elematec Corporation
|
18,500
|
154,924
|
157,440
|
0.1
|
||||||||||||
Electric materials, components, and mechanical parts
|
||||||||||||||||
Kanaden Corporation
|
242,100
|
2,488,410
|
2,631,400
|
1.1
|
||||||||||||
Factory automation business
|
||||||||||||||||
Kohsoku Corporation
|
340,500
|
3,260,958
|
3,310,351
|
1.3
|
||||||||||||
Food and industrial packaging materials
|
||||||||||||||||
Matsuda Sangyo Co., Ltd.
|
118,300
|
1,580,671
|
1,544,066
|
0.6
|
||||||||||||
Precious metals, electronic materials, and food
|
||||||||||||||||
Paltac Corporation
|
25,300
|
1,246,077
|
1,069,525
|
0.4
|
||||||||||||
Cosmetics and daily necessities
|
||||||||||||||||
Ryoden Corporation
|
748,200
|
10,654,383
|
10,381,573
|
4.1
|
||||||||||||
Purchases electronic and electrical devices
|
||||||||||||||||
SIIX Corporation
|
636,500
|
10,288,001
|
7,118,343
|
2.8
|
||||||||||||
Parts procurement, logistics, and manufacturing of electronics
|
||||||||||||||||
Sugimoto & Co., Ltd.
|
78,600
|
1,253,361
|
1,238,202
|
0.5
|
||||||||||||
Machine tools and measuring instruments
|
||||||||||||||||
Total Wholesale Trade
|
31,715,977
|
27,898,081
|
11.1
|
|||||||||||||
TOTAL INVESTMENTS IN JAPANESE EQUITY SECURITIES
|
$
|
290,506,462
|
$
|
249,649,823
|
99.5
|
|
Cost
|
Fair
Value
|
% of
Net
Assets
|
|||||||||
FOREIGN CURRENCY | ||||||||||||
Japanese Yen
|
||||||||||||
Interest bearing account
|
$
|
959,257
|
$
|
974,666
|
0.4
|
|||||||
TOTAL FOREIGN CURRENCY
|
959,257
|
974,666
|
0.4
|
|||||||||
TOTAL INVESTMENTS IN JAPANESE EQUITY
SECURITIES AND FOREIGN CURRENCY
|
$
|
291,465,719
|
$
|
250,624,489
|
99.9
|
|||||||
OTHER ASSETS LESS LIABILITIES, NET
|
262,901
|
0.1
|
||||||||||
NET ASSETS
|
$
|
250,887,390
|
100.0
|
ASSETS:
|
||||
Investments in Japanese equity securities, at fair value (cost—$290,506,462)
|
|
$249,649,823
|
||
Foreign currency, at fair value (cost—$959,257)
|
974,666
|
|||
Receivable for investments sold
|
69,266
|
|||
Receivable for dividends
|
505,776
|
|||
Prepaid expenses
|
38,706
|
|||
Cash
|
52,127
|
|||
Total Assets
|
251,290,364
|
LIABILITIES:
|
||||
Payable for investments purchased
|
68,076
|
|||
Accrued management fee
|
200,596
|
|||
Accrued audit and tax fees
|
69,411
|
|||
Accrued legal fees
|
20,149
|
|||
Accrued directors’ fees and expenses
|
8,023
|
|||
Other accrued expenses
|
36,719
|
|||
Total Liabilities
|
402,974
|
NET ASSETS:
|
||||
Capital stock (28,333,893 shares of capital stock outstanding, 100,000,000 shares authorized, par value $0.10 each)
|
2,833,389
|
|||
Paid-in capital
|
286,055,217
|
|||
Total distributable loss
|
(38,001,216
|
)
|
||
Net Assets
|
|
$250,887,390
|
||
Net asset value per share
|
|
$8.85
|
INCOME:
|
||||
Dividend income (net of $727,211 withholding taxes)
|
|
$6,544,883
|
||
Interest income
|
8,251
|
|||
Total Income
|
|
$6,553,134
|
EXPENSES:
|
||||
Management fee
|
2,586,111
|
|||
Custodian fee
|
232,533
|
|||
Directors’ fees and expenses
|
218,125
|
|||
Legal fees
|
204,002
|
|||
Other expenses
|
200,922
|
|||
Total Expenses
|
3,441,693
|
|||
INVESTMENT INCOME—NET
|
3,111,441
|
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
|
||||
Realized gain on investments and foreign currency transactions:
|
||||
Net realized gain on investment
|
10,898,938
|
|||
Net realized gain on foreign currency transactions
|
54,590
|
|||
Net realized gain on investments and foreign currency transactions
|
10,953,528
|
|||
Net change in unrealized depreciation on investments
|
(39,549,755
|
)
|
||
Net change in unrealized appreciation on foreign currency transactions and translation
|
9,304,342
|
|||
Net realized and unrealized loss on investments and foreign currency transactions and translation
|
(19,291,885 |
) |
||
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS
|
|
$(16,180,444
|
)
|
For the Year Ended
February 29, 2020
|
For the Year Ended
February 28, 2019
|
|||||||
FROM OPERATIONS:
|
||||||||
Net investment income
|
|
$3,111,441
|
|
$2,351,794
|
||||
Net realized gain on investments
|
10,898,938
|
31,611,746
|
||||||
Net realized gain (loss) on foreign currency transactions
|
54,590
|
(52,051
|
)
|
|||||
Net change in unrealized depreciation on investments
|
(39,549,755
|
)
|
(81,444,013
|
)
|
||||
Net change in unrealized appreciation (depreciation) on foreign currency transactions and translation
|
9,304,342
|
(13,006,353
|
)
|
|||||
Net decrease in net assets resulting from operations
|
(16,180,444
|
)
|
(60,538,877
|
)
|
FROM DISTRIBUTIONS TO SHAREHOLDERS:
|
||||||||
Distributions to shareholders
|
(21,040,749
|
)
|
(48,439,623
|
)
|
||||
Decrease in net assets derived from distributions to shareholders
|
(21,040,749
|
)
|
(48,439,623
|
)
|
NET ASSETS:
|
||||||||
Beginning of year
|
288,108,583
|
397,087,083
|
||||||
End of year
|
|
$250,887,390
|
|
$288,108,583
|
For the Year Ended
|
||||||||||||||||||||
February 29, |
February 28, |
February 29, |
||||||||||||||||||
2020
|
2019
|
2018
|
2017
|
2016
|
||||||||||||||||
Net asset value, beginning of year:
|
|
$10.17
|
|
$14.01
|
|
$12.09
|
|
$10.50
|
|
$10.98
|
||||||||||
Investment Operations:
|
||||||||||||||||||||
Net investment income (1)
|
0.11
|
0.09
|
0.09
|
0.12
|
0.06
|
|||||||||||||||
Net realized and unrealized gain (loss) on investments and foreign currency
|
(0.69)
|
|
(2.22)
|
|
3.71
|
2.41
|
0.34
|
|||||||||||||
Total from investment operations
|
(0.58)
|
|
(2.13)
|
|
3.80
|
2.53
|
0.40
|
|||||||||||||
Less Distributions:
|
||||||||||||||||||||
Distributions from ordinary income
|
(0.27)
|
|
(0.09)
|
|
(0.55)
|
|
(0.35)
|
|
(0.17)
|
|
||||||||||
Distributions from capital gains
|
(0.47)
|
|
(1.62)
|
|
(1.33)
|
|
(0.59)
|
|
(0.71)
|
|
||||||||||
Total from distributions
|
(0.74)
|
|
(1.71)
|
|
(1.88)
|
|
(0.94)
|
|
(0.88)
|
|
||||||||||
Net asset value, end of year
|
|
$8.85
|
|
$10.17
|
|
$14.01
|
|
$12.09
|
|
$10.50
|
||||||||||
Market value, end of year
|
|
$8.03
|
|
$8.92
|
|
$12.48
|
|
$10.60
|
|
$8.98
|
||||||||||
Total investment return (2)
|
(2.6%)
|
|
(13.8%)
|
|
36.0%
|
|
24.9%
|
|
0.7%
|
|
||||||||||
Ratio/Supplemental Data:
|
||||||||||||||||||||
Net assets, end of year (000)
|
|
$250,887
|
|
$288,109
|
|
$397,087
|
|
$342,513
|
|
$297,550
|
||||||||||
Ratio of expenses to average net assets
|
1.21%
|
|
1.13%
|
|
1.05%
|
|
1.09%
|
|
1.11%
|
|
||||||||||
Ratio of net income to average net assets
|
1.09%
|
|
0.67%
|
|
0.66%
|
|
0.99%
|
|
0.50%
|
|
||||||||||
Portfolio turnover rate
|
30%
|
|
24%
|
|
50%
|
|
20%
|
|
24%
|
|
(1) |
Based on average shares outstanding.
|
(2) |
Based on market value per share, adjusted for reinvestment of income dividends, ordinary income distributions, long- term capital gain distributions, and capital share transactions. Total return does
not reflect sales commissions.
|
Shares
Voted For
|
% of Outstanding Shares
|
Shares Voted Withhold Authority
|
% of Outstanding Shares
|
Shares
Abstained
|
Broker
Non-Vote
|
|||||||||||||||||||
E. Han Kim
|
20,978,627
|
74.04%
|
|
1,890,123
|
6.67%
|
|
-
|
-
|
||||||||||||||||
Marcia L. MacHarg
|
20,971,598
|
74.02%
|
|
1,897,152
|
6.70%
|
|
-
|
-
|
Name, Age, Position(s) Held with the Fund, Length of Service, Other Directorships Held by Director, Number of Portfolios in Fund Complex/Outside Fund Complexes
Currently Overseen by Director
|
Principal Occupation(s) During Past 5 Years:
|
|
Rodney A. Buck (72)
Director and Chairman of the Board
Director since: 2006 Chairman of the Board since: 2010
Director of one fund in the Fund Complex
|
Owner, Buck Capital Management (private investment management firm) since 2005; Chairman of the Dartmouth-Hitchcock Health Care Investment Committee since 2011.
|
|
E. Han Kim (73)
Director Director since: 2010 Director of one fund in the Fund Complex |
Everett E. Berg Professor of Business Administration at Ross Business School, University of Michigan since 1980; Director of Mitsui Financial Research Center
from 1990‑2020; Advisor to CEO of Taubman Asia from 2009-2016.
|
|
David B. Chemidlin (63)
Director and Chairman of the Audit Committee Director since: 2006
Director of one fund in the Fund Complex
|
Owner and President of AbidesWorks LLC (accounting and business support services) since 2016; Corporate Controller, Advance Magazine Publishers, Inc. (d/b/a
Conde Nast) from 1995-2016.
|
|
Marcia L. MacHarg (71)
Director Director since: 2013
Director of one fund in the Fund Complex
|
Partner, Debevoise & Plimpton LLP from 1987-2012; Of Counsel, Debevoise & Plimpton LLP since 2013; Trustee, Board of Trustees of Smith College since
2014 and Chair of the Audit Committee of the Board of Trustees since 2016; Member of the Executive Committee of the Friends of Smith College Libraries from 2013-2015; Trustee and Chair of the Audit committee of the American University
in Bulgaria from May 2019 to April 2020.
|
Name, Age, Position(s) Held with the Fund, Length of Service, Other Directorships Held by Director, Number of Portfolios in Fund Complex/Outside Fund Complexes
Currently Overseen by Director
|
Principal Occupation(s) During Past 5 Years:
|
|
Yuichi Nomoto (47)*
President and Director
Since: April 1, 2019
Director of one fund in the Fund complex |
President and Chief Executive Officer of NAM-U.S.A and President of Nomura Global Alpha LLC (“NGA”) since April 1, 2019; Managing Director of NAM-U.S.A since
April 2018; Head of Client Services and Marketing of NAM-U.S.A since 2016; Executive Director of NAM-U.S.A from 2016 to 2018; Senior Manager and Head of the Marketing Planning Team, NISA Project Team in Retail Client Strategy, and Head
of Investment Trust Marketing of NAM from 2010 to 2016.
|
|
Yutaka Itabashi (54)*
President and Director From 2013 to March 31, 2019 Director of one fund in the Fund Complex |
Senior Managing Director of NAM since 2015; President and Chief Executive Officer of NAM-U.S.A and President of NGA from 2013 to March 31, 2019; Managing
Director of NAM from 2012-2013; Senior Managing Director of Nomura Funds Research and Technologies Co., Ltd. (“NFRT”) from 2009‑2012.
|
* |
Mr. Nomoto and Mr. Itabashi are “interested persons” of the Fund based on their positions with NAM-U.S.A. and NAM and as defined in the Investment Company Act.
|
Name, Address*, Age, Position(s) Held with the Fund, Term of Office ** and Length of Service
|
Principal Occupation(s) During Past 5 Years:
|
|
Yuichi Nomoto (47)
President and Director
Since: April 1, 2019
Director of one fund in the Fund complex |
President and Chief Executive Officer of NAM-U.S.A and President of NGA since April 1, 2019; Managing Director of NAM‑U.S.A since April 2018; Head of Client
Services and Marketing of NAM-U.S.A since 2016; Executive Director of NAM-U.S.A from 2016 to 2018; Senior Manager and Head of the Marketing Planning Team, NISA Project Team in Retail Client Strategy, and Head of Investment Trust
Marketing of NAM from 2010 to 2016.
|
|
Yutaka Itabashi (54)
President and Director From 2013 to March 31, 2019 Director of one fund in the Fund Complex |
Senior Managing Director of NAM since 2015; President and Chief Executive Officer of NAM-U.S.A and President of NGA from 2013 to March 31, 2019; Managing
Director of NAM from 2012-2013; Senior Managing Director of NFRT from 2009-2012.
|
|
Zheng Liu (41)
Vice President Vice President since: 2018 |
Chief Administrative Officer of NAM-U.S.A since 2018; Senior Manager of the Corporate Planning Department of NAM from 2012‑2018; Quantitative Analyst for
Quantitative Research and Development Department of NAM from 2007-2012.
|
|
Maria R. Premole (57)
Vice President Vice President since: 2013
|
Vice President of NAM-U.S.A since 2013; Associate of NAM-U.S.A from 2008-2013.
|
|
Neil A. Daniele (59)
Secretary and Chief Compliance Officer
Secretary since: 2002
Chief Compliance Officer since: 2005
|
Chief Compliance Officer of NAM-U.S.A since 2005 and Managing Director of NAM‑U.S.A since 2007; Chief Compliance Officer of NGA since 2008; Chief Compliance
Officer of Nomura Corporate Research and Asset Management Inc. and Nomura Funds Research and Technologies America, Inc. since 2009; Corporate Secretary of NAM-U.S.A and NGA since 2013.
|
|
Amy J. Robles (42)
Treasurer Treasurer since: 2013 Assistant Treasurer from 2011 to 2013 |
Executive Director of NAM-U.S.A since 2015; Controller and Treasurer of NAM‑U.S.A and Treasurer of NGA since 2013; Vice President of NAM-U.S.A from 2009-2015.
|
|
Kelly S. Lee (37)
Assistant Treasurer Assistant Treasurer since: 2015 |
Vice President of NAM-U.S.A since 2015; Fund Controller at JP Morgan Chase & Co. from 2014-2015; Financial Services Senior at Ernst & Young LLP from
2010-2014.
|
BOARD OF DIRECTORS
Rodney A. Buck David B. Chemidlin Yuichi Nomoto since April 1, 2019
Yutaka Itabashi from 2013 to March 31, 2019
E. Han Kim
Marcia L. MacHarg
|
|
OFFICERS
Yuichi Nomoto, President since April 1, 2019 Yutaka Itabashi, President from 2013 to March 31, 2019
Zheng Liu, Vice President Maria R. Premole, Vice President Neil A. Daniele, Secretary and Chief Compliance Officer Amy J. Robles, Treasurer Kelly S. Lee, Assistant Treasurer |
JAPAN
Smaller Capitalization Fund, Inc. ANNUAL REPORT
FEBRUARY 29, 2020
Beginning with reports for the period ending August 31, 2021, as permitted by regulations adopted by the Securities and Exchange
Commission, paper copies of the shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Fund’s website http://funds.nomura-asset.com/japan-smaller-capitalization,
and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take
any action. You may elect to receive shareholder reports and other communications from the Fund electronically anytime by contacting your financial intermediary or if you are a direct investor, by calling 1‑800‑426-5523.
You may elect to receive all future reports in paper free of charge. If you invest through a financial intermediary, you can contact
your financial intermediary to require that you continue to receive paper copies of your shareholder reports. If you invest directly with the Fund, you can call 1‑800‑426-5523 to let the Fund know you wish to continue receiving
paper copies of your shareholder reports.
|
MANAGER
Nomura Asset Management U.S.A. Inc.
Worldwide Plaza
309 West 49th Street
New York, New York 10019-7316
Internet Address
http://funds.nomura-asset.com/japan-smaller-capitalization
|
|
INVESTMENT ADVISER
Nomura Asset Management Co., Ltd.
1-12-1, Nihonbashi, Chuo-ku,
Tokyo 103-8260, Japan
|
|
DIVIDEND PAYING AGENT, TRANSFER AGENT AND REGISTRAR
Computershare Trust Company, N.A.
P. O. Box 505000
Louisville, KY 40233
|
|
CUSTODIAN
Brown Brothers Harriman & Co.
50 Post Office Square
Boston, Massachusetts 02110-1548
|
|
COUNSEL
Sidley Austin LLP
787 Seventh Avenue
New York, New York 10019
|
|
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
5 Times Square
New York, New York 10036
JAPAN SMALLER CAPITALIZATION FUND, INC.
WORLDWIDE PLAZA
309 WEST 49TH STREET
NEW YORK, NEW YORK 10019-7316
|
|
|
|
ITEM 2. |
CODE OF ETHICS
|
(a) and (b) |
As of February 29, 2020, the Registrant had adopted a code of ethics that applies to the Registrant’s Principal Executive Officer and Principal Financial Officer; the
Registrant’s Principal Financial Officer also serves as the Principal Accounting Officer.
|
(c) |
There were no amendments during the fiscal year ended February 29, 2020 to the code of ethics.
|
(d) |
Not applicable.
|
(e) |
Not applicable.
|
(f) |
A copy of the code of ethics will be provided upon request at no charge by contacting the Registrant’s Chief Compliance Officer at (800) 426-5523 or via post request addressed
to: Nomura Asset Management U.S.A. Inc., Worldwide Plaza, 309 West 49th Street, Attn: Chief Compliance Officer, New York, NY 10019.
|
ITEM 3. |
AUDIT COMMITTEE FINANCIAL EXPERT
|
ITEM 4. |
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
(a)
|
AUDIT FEES
|
(b)
|
AUDIT-RELATED FEES
|
(c)
|
TAX FEES
|
(d)
|
ALL OTHER FEES
|
(e)(1)
|
The Charter for the Audit Committee of the Registrant requires the Audit Committee (a) to pre-approve all auditing services to be provided to the Registrant by the
Registrant’s independent accountants; (b) to pre-approve all non-audit services, including tax services, to be provided to the Registrant by the Registrant’s independent accountants in accordance with the Securities Exchange Act of
1934, as amended (the “1934 Act”); provided, however, that the pre-approval requirement with respect to the provision of non-audit services to the Registrant by the Registrant’s independent accountants may be waived by the Audit
Committee under the circumstances described in the 1934 Act; and (c) to pre-approve non-audit services to be provided to the Registrant’s investment adviser (and any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the Registrant) if the engagement relates directly to the operations and financial reporting of the Registrant.
|
(e)(2)
|
Not applicable.
|
(f)
|
Not applicable.
|
(g)
|
Non-audit fees billed by E&Y for services rendered to the Registrant and Registrant’s Manager and any entity controlling, controlled by, or under common control with the
Registrant’s Manager that provides ongoing services to the Registrant ("Service Affiliates") were $3.5 million for the fiscal year ended March 31, 2020 and $4.6 million for the fiscal year ended March 31, 2019. These amounts
represent aggregate fees paid for audit related services, tax compliance, tax advice and tax planning services and other advisory services concerning risk management and regulatory matters rendered by E&Y to Service Affiliates.
|
(h)
|
The Registrant's Audit Committee has considered whether the provision of non-audit services that were rendered by E&Y to Service Affiliates during the Registrant's most recent
fiscal year which were not pre-approved (not requiring pre-approval) is compatible with maintaining the principal accountant's independence. All services provided by the principal accountant to the Registrant or to service affiliates
by E&Y which were required to be pre-approved were pre-approved as required.
|
ITEM 5. |
AUDIT COMMITTEE OF LISTED REGISTRANTS
|
(a)
|
The Registrant’s Board of Directors has a standing Audit Committee, which consists of the Directors who are not “interested persons” of the Registrant within the meaning of the
Investment Company Act of 1940, as amended (the “1940 Act”). Rodney A. Buck, E. Han Kim, David B. Chemidlin and Marcia L. MacHarg are members of the Audit Committee.
|
(b)
|
Not applicable.
|
ITEM 6. |
INVESTMENTS
|
(a) |
The Registrant’s investments in securities of unaffiliated issuers as of February 29, 2020 are included in the report to shareholders filed under Item 1 of this
Form.
|
(b) |
Not applicable.
|
ITEM 7. |
DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES
|
1.
|
Policy for Proxy Voting
|
2.
|
Proxy Voting Guidelines
|
(1)
|
The company continuously reports sluggish business performance and its management’s business improvement efforts are considered inadequate. Sluggish business performance indicators that are considered
when judging the exercise of proxy voting rights, include performance that leads to a significant decline in the investment returns of the company, such as recording a deficit for three consecutive years. Business performance is
based on consolidated accounts. However, if consolidated accounts are not reported, business performance is based on non-consolidated accounts. (The same shall apply hereafter.)
|
(2)
|
The company accumulates a large amount of excess funds that are deemed not to be used effectively and/or are not distributed to shareholders adequately.
|
(3)
|
The company’s disclosure is considered inadequate and harmful to shareholder value.
|
(4)
|
The auditor’s opinion on the issuer is qualified.
|
(5)
|
The composition and/or size of the company’s board of directors, or the composition and/or size of its board of statutory auditors, audit committee or any other committee is deemed to be inadequate
and may harm shareholder value.
|
(6)
|
Extraordinary resolutions that are deemed highly likely to harm shareholder value.
|
3.
|
Positions on Specific Issues
|
(1)
|
Election of Directors
|
(2)
|
Election of Auditors
|
(3)
|
Election of Accounting Auditors
|
·
|
The accounting auditor has an interest in the company and lacks independence.
|
·
|
Excessive non-audit remuneration has been paid to the accounting auditor by the company.
|
·
|
The accounting auditor has expressed inaccurate opinions on the company’s financial conditions.
|
(4)
|
Executive Remuneration
|
(5)
|
Retirement Bonus for Directors and Auditors
|
(6)
|
Allocation of Dividends and Profits
|
(7)
|
Acquisition of the Company’s Own Stock
|
(8)
|
Change in Number of Authorized Shares
|
(9)
|
Issuance of Preferred and Other Classes of Shares
|
(10)
|
Corporate Restructuring and Capital Policy (Mergers, Acquisitions, Sale/Transfer of Business, Corporate Separation, Capital Increase, etc.)
|
(11)
|
Anti-Takeover Measures
|
(12)
|
Amendment of Articles
|
(13)
|
Shareholder Resolution
|
(14)
|
Other
|
4.
|
Conflict-of-Interest Management Policy
|
5.
|
Other
|
(1)
|
Securities Lending
|
(2)
|
Share Blocking
|
(3)
|
Re-registration
|
(4)
|
Other
|
1.
|
Election of Directors
|
i)
|
Provision of advice on business policies and business improvement based on their knowledge and experience with the aim to promote sustainable corporate growth and increase
corporate value over the mid- to long-term;
|
ii)
|
Monitoring of management through important decision-making at the board of directors meetings including the appointment and dismissal of senior management;
|
iii)
|
Monitoring of conflicts of interest between the company and management or the controlling shareholders; and
|
iv)
|
Appropriately representing the views of minority shareholders and other stakeholders at the board of directors meetings from a perspective independent of management and the
controlling shareholders.
|
2.
|
Election of Statutory Auditors
|
3.
|
Election of Accounting Auditors
|
•
|
The accounting firm has an interest in the company and lacks independence.
|
•
|
Excessive non-audit remuneration has been paid to the accounting firm by the company.
|
•
|
The accounting firm has expressed inaccurate opinions on the company ’ s financial conditions.
|
4.
|
Executive Remuneration
|
① |
Offering company stocks will result in a 5% or more dilution of the issued shares.
|
② |
Offering company stocks has restrictions on transfer as remuneration, if the period of restriction on transfer is less than 3 years.
|
③ |
The persons eligible for receiving company stocks include outside directors, directors who are audit committee members or directors who are audit and supervisory committee
members, or any external parties who are found to be inappropriate to receive the stock incentive.
|
5.
|
Retirement Bonus for Directors and Auditors
|
6.
|
Allocation of Dividends and Profits
|
① |
Shareholders' equity ratio > 50%
|
② |
Net financial assets / Sales > 30%
|
③ |
Net financial assets / Total assets > 30%
|
7.
|
Acquisition of the Company's Own Stock
|
8.
|
Change in Number of Authorized Shares
|
9.
|
Issuance of Preferred and Other Classes of Shares
|
10.
|
Corporate Restructuring and Capital Policy (Mergers, Acquisitions, Sale/Transfer of Business, Corporate Separation, Capital Increase, etc.)
|
11.
|
Anti-Takeover Measures
|
12.
|
Amendment of Articles
|
① |
To set a substantial limit on the number of outside directors or highly- independent outside directors
|
② |
To proceed with the “separation between the chair of the board of directors and the chief executive officer (CEO)”
|
③ |
To proceed with the abolition of advisory positions such as “Sodanyaku” or “Komon” or any other similar position to be assumed by a person who is not a director
|
④ |
To determine that the director’s term of office is one year in a company with a board of auditors
|
⑤ |
To establish a voluntary nominating/remuneration committee in a company with a board of auditors or a company with an audit and supervisory committee.
|
13.
|
Shareholder Resolution
|
① |
The resolution is not made from the perspective of shareholder value, and the purpose of the resolution is to make a social or political statement.
|
② |
A resolution on amendments to the articles of incorporation, when the amendments include any content related to individual and specific business execution.
|
③ |
The contents of the resolution are ambiguous and lacking concrete information, and the resolution does not satisfy the requirements for a resolution.
|
① |
to disclose important information concerning a resolution for the election of directors and auditors;
|
② |
to seek two or more independent outside directors;
|
③ |
to seek an external director to serve as the chair of the board of directors;
|
④ |
to prohibit or remove the chief executive officer from serving as the chair of the board of directors;
|
⑤ |
to abolish the position of “Sodanyaku” or “Komon” to be assumed by a person who is not a director;
|
⑥ |
to disclose remuneration for an individual director or auditor;
|
⑦ |
to abolish the provisions of the articles of incorporation which prohibit the payment of dividends by resolution of the shareholders' meeting (if the company's appropriation
of surpluses for the most recent fiscal year is inappropriate or the company does not have 2 or more outside directors), or to abolish the provisions of the articles of incorporation which authorize the board of directors to make
a decision on the payment of dividends;
|
⑧ |
to sell stocks held by the company that are deemed to be problematic in light of the improvement of corporate value and sustainable growth;
|
⑨ |
to formulate or disclose the basic policy on the exercise of voting rights related to strategically held stocks, and to disclose the results of the exercise of voting rights;
|
⑩ |
to determine that the director’s term of office is one year in a company with a board of auditors; or
|
⑪ |
to establish a voluntary nominating/remuneration committee in a company with a board of auditors or a company with an audit and supervisory committee.
|
① |
The candidate has experience in corporate management or any experience equivalent thereto, and is found to be sufficiently capable of corporate management.
|
② |
The candidate does not have a potential conflict of interest with general shareholders.
|
③ |
The candidate is expected to contribute to the improvement of shareholder value.
|
14.
|
Other
|
15.
|
Waiver of Rights
|
ITEM 8. |
PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
|
(a)(1)
|
As of February 29, 2020, Mr. Hiromitsu Daimon acts as the Registrant’s lead portfolio manager. Mr. Daimon leads the Japan Small Cap Team of Nomura Asset Management Co., Ltd.,
the Registrant’s Investment Adviser. He has been a member of the Japan Small/Mid Cap Team and has been managing Japan Small Cap Funds for Japanese retail clients since 2003 and has served as the portfolio manager of the Registrant
since 2013. The portfolio manager is primarily responsible for the day-to-day portfolio management for the Registrant. He oversees investment decisions and activities and reviews research analysis.
|
(2)
|
As of February 29, 2020, the portfolio manager was primarily responsible for the day-to-day portfolio management for the Registrant and for two other pooled investment
vehicles that are not registered investment companies under the 1940 Act (with total assets of $113 million as of February 29, 2020). None of the investment advisory fees with respect to these accounts is based on the
performance of the account. Real, potential or apparent conflicts of interest may arise where a portfolio manager has day-to-day responsibilities with respect to more than one account. These conflicts include the following: (i)
the process for allocation of investments among multiple accounts for which a particular investment may be appropriate, (ii) allocation of a portfolio manager’s time and attention among relevant accounts and (iii) circumstances
where the Registrant’s investment adviser has an incentive fee arrangement or other interest with respect to one account that does not exist with respect to other accounts.
|
(3)
|
As of February 29, 2020, the portfolio manager receives a combination of base compensation and discretionary compensation consisting of a cash bonus. The methodology used to determine the portfolio manager’s
compensation is applied across all accounts managed by the portfolio manager. Generally, the portfolio manager receives fixed salary compensation based on his duties and performance. The amount of base salary is reviewed
annually after completion of the formal performance appraisal process. In order to appraise the portfolio manager’s performance, certain measures are used, such as a review of his specialties and expertise, a review of
his capabilities to achieve assigned duties and a review of his management and communication skills. In addition to base compensation, the portfolio manager may receive discretionary compensation in the form of a cash
bonus. The bonus, which is paid annually, is based on both quantitative and qualitative scores. The quantitative score is determined prior to payment based on the performance of the portfolio manager’s accounts, measured
on a pre-tax basis for rolling three-year periods against the Russell / Nomura Small Cap Tm Index. The quantitative scoring for purposes of the bonus comprises 60 percent of the performance appraisal measurement. The
qualitative score is determined by analyzing the quality of the portfolio manager’s contribution to the Registrant’s investment adviser. While the bonus can range up to 100 percent or more of base salary, the
Registrant’s investment adviser has indicated that cash bonuses typically represent approximately 20 to 40 percent of its portfolio managers’ aggregate cash compensation.
|
(4)
|
As of February 29, 2020, the portfolio manager did not own beneficially any securities issued by the Registrant.
|
(b) |
Not applicable.
|
ITEM 9. |
PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS
|
(a) |
Not applicable.
|
(b) |
Not applicable.
|
ITEM 10. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
ITEM 11. |
CONTROLS AND PROCEDURES
|
(a) |
The Registrant’s Principal Executive Officer and Principal Financial Officer have concluded that the Registrant’s disclosure controls and procedures (as defined in Rule
30a-3(c) under the Act (17 CFR 270.30a-3(c))), are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this report.
|
(b) |
There was no change in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-3(d))) that occurred during the
second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting.
|
ITEM 12. | DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES |
(a) |
Not applicable.
|
(b) |
Not applicable.
|
ITEM 13. | EXHIBITS |
(a) (1)
|
See Item (2)
|
(a) (2)
|
Certifications required by Rule 30a-2(a) under the 1940 Act (17 CFR 270.30a-2(a)). See EX‑99.CERT attached hereto.
|
(a) (3)
|
Not applicable.
|
(a) (4)
|
See EX-99.IND PUB ACCT attached hereto.
|
(b)
|
Certifications required by Rule 30a-2 (b) under the 1940 Act (17 CFR 270.30a-2(b)), Rule 13a‑14(b) or Rule15d-14(b) under the Exchange Act (17 CFR 240.13a-14(b) or 240.15d-14(b)), and Section 1350 of Chapter
63 of Title 18 of the United States Code (18 U.S.C. 1350). See EX‑99.906 CERT attached hereto.
|
1.
|
I have reviewed this report on Form N-CSR of Japan Smaller Capitalization Fund, Inc. (the “Registrant”);
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of
operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the Registrant as of, and for, the periods presented in this report;
|
4.
|
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company
Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the Registrant and have:
|
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c.
|
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
|
|
d.
|
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is
reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
|
5.
|
The Registrant’s other certifying officer and I have disclosed to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the
equivalent functions):
|
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s
ability to record, process, summarize, and report financial information; and
|
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
|
|
/s/ Yuichi Nomoto |
|
Yuichi Nomoto
Principal Executive Officer
|
1.
|
I have reviewed this report on Form N-CSR of Japan Smaller Capitalization Fund, Inc. (the “Registrant”);
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of
operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the Registrant as of, and for, the periods presented in this report;
|
4.
|
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company
Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the Registrant and have:
|
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c.
|
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
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d.
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Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is
reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
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5.
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The Registrant’s other certifying officer and I have disclosed to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the
equivalent functions):
|
|
a.
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s
ability to record, process, summarize, and report financial information; and
|
|
b.
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
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/s/ Amy J. Robles |
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Amy J. Robles
Principal Financial Officer
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1.
|
The Form N-CSR of the Registrant for the period ended February 29, 2020 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
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2.
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
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Date: 5/7/2020
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/s/ Yuichi Nomoto
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Yuichi Nomoto
Principal Executive Officer
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Date: 5/7/2020
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/s/ Amy J. Robles
|
Amy J. Robles
Principal Financial Officer |