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Portfolio securities and foreign currency holdings were translated at the following exchange rate as of May 31, 2017

Japanese Yen JPY 110.72 = USD $1.00

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Notes to Schedule of Investments (Unaudited)

Costs for Federal Income Tax Purposes

As of May 31, 2017, for federal income tax purposes, subject to change, the aggregate cost of securities was $301,423,516 and net unrealized appreciation was $57,262,604, comprised of gross unrealized appreciation of $60,179,550 and gross unrealized depreciation of $2,916,946. The aggregate cost of investments for tax purposes will depend upon Japan Smaller Capitalization Fund, Inc.’s (the “Fund”) investment experience during the entirety of its fiscal year and may be subject to changes based on tax regulations. Certain tax related calculations are completed and reviewed annually by the Fund.

 

Fair Value Measurements

In accordance with United States generally accepted accounting principles (“U.S. 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. U.S. GAAP also establishes a framework for measuring fair value,  and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s own assumptions about the assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation.

The three-tier hierarchy of inputs is summarized below.

Level 1 - quoted prices in active markets for identical investments

Level 2 - other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)

Level 3 - significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The following table summarizes the valuation of the Fund’s investments by the above fair value hierarchy levels as of May 31, 2017.

Level		Investments in
		Securities
Level 1
Equity Securities		$	358,686,120
Level 2			-
Level 3			-
Total		$	358,686,120

During the quarter ended May 31, 2017, there were no transfers between Level 1, Level 2, or Level 3 securities.

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