N-CSR 1 d29229.htm N-CSR




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: 811-05379


Name of Registrant: Royce Focus Trust, Inc.


Address of Registrant: 745 Fifth Avenue
New York, NY 10151


Name and address of agent for service:

John E. Denneen, Esquire
745 Fifth Avenue
New York, NY 10151



Registrant's telephone number, including area code: (212) 508-4500
Date of fiscal year end: December 31
Date of reporting period: January 1, 2011 – December 31, 2011



Item 1. Reports to Shareholders.





             
             
             
             
       
             
             
  Royce Value Trust

Royce Micro-Cap Trust

Royce Focus Trust		    

ANNUAL

    
     

REVIEW AND REPORT

     

TO STOCKHOLDERS

    
             
             
           
             
             
             
             
             
             
             
             
             
             
             
             
             
             
             
             
             
             
             
             
             
             
     
             
             
             
 
 
    
             
             
             
             



A Few Words on Closed-End Funds

     
 
Royce & Associates, LLC manages three closed-end funds: Royce Value Trust, the first small-cap value closed-end fund offering; Royce Micro-Cap Trust, the only micro-cap closed-end fund; and Royce Focus Trust, a closed-end fund that invests in a limited number of primarily small-cap companies.
     
 
A closed-end fund is an investment company whose shares are listed and traded on a stock exchange. Like all investment companies, including open-end mutual funds, the assets of a closed-end fund are professionally managed in accordance with the investment objectives and policies approved by the Fund’s Board of Directors. A closed-end fund raises cash for investment by issuing a fixed number of shares through initial and other public offerings that may include shelf offerings and periodic rights offerings. Proceeds from the offerings are invested in an actively managed portfolio of securities. Investors wanting to buy or sell shares of a publicly traded closed-end fund after the offerings must do so on a stock exchange, as with any publicly traded stock. This is in contrast to open-end mutual funds, in which the fund sells and redeems its shares on a continuous basis.
     

A Closed-End Fund Offers Several Distinct Advantages Not Available from an Open-End Fund Structure

•
Since a closed-end fund does not issue redeemable securities or offer its securities on a continuous basis, it does not need to liquidate securities or hold uninvested assets to meet investor demands for cash redemptions, as an open-end fund must.
•
In a closed-end fund, not having to meet investor redemption requests or invest at inopportune times is ideal for value managers who attempt to buy stocks when prices are depressed and sell securities when prices are high.
•
A closed-end fund may invest more freely in less liquid portfolio securities because it is not subject to potential stockholder redemption demands. This is particularly beneficial for Royce-managed closed-end funds, which invest in small- and micro-cap securities.
•
The fixed capital structure allows permanent leverage to be employed as a means to enhance capital appreciation potential.
•
Unlike Royce’s open-end funds, our closed-end funds are able to distribute capital gains on a quarterly basis. The Funds resumed the quarterly distribution policies for their common stock, at a 5% annual rate, in March 2011. Please see page 18-20 for more details.
   
We believe that the closed-end fund structure is very suitable for the long-term investor who understands the benefits of a stable pool of capital.


     
  Why Dividend Reinvestment Is Important  
     
 
A very important component of an investor’s total return comes from the reinvestment of distributions. By reinvesting distributions, our investors can maintain an undiluted investment in a Fund. To get a fair idea of the impact of reinvested distributions, please see the charts on pages 13, 15 and 17. For additional information on the Funds’ Distribution Reinvestment and Cash Purchase Options and the benefits for stockholders, please see page 20 or visit our website at www.roycefunds.com.
  
     

This page is not part of the 2011 Annual Report to Stockholders



 

 

Table of Contents

 
 

 

 

Annual Review

 
   

 

 

Performance Table

2

 

 

Letter to Our Stockholders

3

 

 

Postscript: Why Volatility Is the Friend of Discipline

9

 

 

Small-Cap Market Cycle Performance

10

 

 

2011: In Quotes

64

 

 
   

 

 

Annual Report to Stockholders

11

 

 
   

For more than 35 years, we have used a value approach to invest in small-cap securities. We focus primarily on the quality of a company’s balance sheet, its ability to generate free cash flow and other measures of profitability or sound financial condition. We then use these factors to assess the company’s current worth, basing the assessment on either what we believe a knowledgeable buyer might pay to acquire the entire company, or what we think the value of the company should be in the stock market.





(MESSAGE)

This page is not part of the 2011 Annual Report to Stockholders | 1



Performance Table  

NAV Average Annual Total Returns   Through December 31, 2011

    Royce   Royce   Royce   Russell
    Value Trust   Micro-Cap Trust   Focus Trust   2000 Index

One-Year

     -10.06  %     -7.69  %     -10.51  %     -4.18  %

Three-Year

    19.21       20.22       18.83       15.63  

Five-Year

    -0.65       -0.94       1.53       0.15  

10-Year

    6.10       7.09       9.51       5.62  

15-Year

    8.86       9.18       9.74       6.25  

20-Year

    10.24       n.a.       n.a.       8.52  

25-Year

    10.17       n.a.       n.a.       8.68  

Since Inception

     10.13       10.05       9.95       n.a.  

Inception Date

  11/26/86   12/14/93   11/1/96 1     n.a.  
1   Date Royce & Associates, LLC assumed investment management responsibility for the Fund.

Important Performance and Risk Information
All performance information in this Review and Report reflects past performance, is presented on a total return basis and reflects the reinvestment of distributions. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate, so that shares may be worth more or less than their original cost when sold. Current performance may be higher or lower than performance quoted. Current month-end performance may be obtained at www.roycefunds.com. Investments in securities of micro-cap, small-cap and/or mid-cap companies may involve considerably more risk than investments in securities of larger-cap companies.

2  |  This page is not part of the 2011 Annual Report to Stockholders


Letter to Our Stockholders
 
 
Capitulation
A few years ago, we wrote that markets resemble Tolstoy’s families: All the happy ones are alike, and all the unhappy ones are unhappy in their own way. The past calendar year’s stock market results, which place it mostly, but not entirely, in the “unhappy” category, offer a striking example. One only has to compare it to recent years of poor performance to see its singularity. In 2008, stock markets across the globe cratered as part of a global financial crisis that saw once-mighty titans of Wall Street collapse. The crisis also had the effect of worsening both a correction in housing prices and a worldwide recession. (Of course, much of the globe’s current difficulties in capital markets and economies can be traced back to this event.) The crisis saw a widespread exit from stocks, with major indexes in the U.S. and elsewhere posting sizable double-digit losses for the year. Earlier in the decade, 2002 saw mostly negative results as the exploding Internet Bubble and the lingering effects of the events of 9/11 led many investors to sell equities. Results were mostly negative, but within a much larger range, depending on one’s exposure to Technology and related areas.
      We suspect that, unlike those of 2002 and 2008, the stock market of 2011 will be remembered not for cataclysmic events or the severity of its losses, which weren’t nearly as bad as one might think, but for its daily drama of extreme volatility. The days between late April and the end of the year saw increasing numbers of investors opting to get out of equities, and stay out, which resulted in a large-scale capitulation that rivaled anything we have









































 
We suspect that, unlike those of 2002 and 2008, the stock market of 2011 will be remembered not for cataclysmic events or the severity of its losses, which weren’t nearly as bad as one might think, but for its daily drama of extreme volatility.

 
This page is not part of the 2011 Annual Report to Stockholders  |  3


   
 
Charles M. Royce, President
 
When used in a financial context, the
technical definition of ‘correlation’
is “a statistical measure of how two
securities move in relation to one
another.” Recently, this typically
obscure data point has moved into
the lexicon of mainstream investors
as it aptly describes the sort of
stock market returns that we have
experienced over the last few years.
That is, returns have been highly
“correlated” as the majority of stocks,
irrespective of sector, industry, market
cap, nation of origin or ostensible
investment profile (i.e., value or
growth), have either done well, as in
2009 and 2010, or poorly, as they did
in 2008 and 2011.

Why is correlation important?
Correlated markets present definite
challenges for disciplined contrarian
investors like ourselves. There is
simply not much incremental reward
for the contrary stance when share
prices are rising or falling more or
less indiscriminately throughout the
world’s stock markets. Our practice is
to go against the grain by investing
in companies or industries that
most investors are neglecting while
we ignore trendy or fast-growing
segments of the market that others
are championing. Our fundamental
analysis seeks to identify discounts
 
 
Continued on page 6...



     
Letter to Our Stockholders
 
seen during other recent bearish periods, when results were far, far worse. This last point made the past year as fascinating as it was frustrating. Investors fled or avoided stocks for many reasons—because they lacked confidence in political leaders both here at home and abroad to deal effectively with the challenges of stimulating the economy and responsibly coping with enormous debt; because they couldn’t bear the barrage of headlines with their seemingly endless parade of bad news; and because they simply ran out of patience with the daily jumps and dives of a market struggling to make sense of it all.
     Absent from this list is the state of the companies themselves. We would humbly suggest that the most relevant reasons why one would choose to invest in a business—its merits as a company, its prospects and the relationship these have to its stock price—were largely, if not wholly neglected through the market’s most tumultuous months. Again, this was unlike 2002, which for many Internet companies was an “Emperor’s New Clothes” moment, and 2008, when the threat was systemic and fundamentals were, at least at the most tense moments, irrelevant. The disconnect between stock prices and fundamentals for many companies, including many small-caps, remains wide as we enter 2012. While this created no end of short-term disappointments for us—2011 being one of the most challenging years for The Royce Funds in our history—it has also provided ample seeding for what we hope will be a bountiful harvest in the years to come. Following a recap of 2011 performance, we will offer a more detailed explanation of our optimism below.

Correlation
Perhaps the most notable thing about 2011 was how little returns shifted in the U.S. markets. High volatility was the order of the day through much of the year across most of the globe and was very much in evidence between August and the end of December. However, by the time the year ended, the major U.S. indexes posted returns that felt less like a bang than a whimper. After a solidly positive first half, the small-cap Russell 2000 Index came through the wild second half with a loss of 9.8%. For the same period, its large-cap counterparts, the Russell 1000 and S&P 500 Indexes, lost less, down 4.6% and 3.7%, respectively, while the more tech-laden Nasdaq Composite declined 6.1%.
      These single-digit declines belie the tortuous road of the year’s last six months. During the third quarter, each of the aforementioned indexes suffered significant double-digit losses, with the Russell 2000 down 21.9%, the Russell 1000 falling 14.7%, the S&P 500 off 13.9% and the Nasdaq losing 12.9%. Fears of European defaults and the possibility of a double-dip recession in the U.S. were factors, though U.S. and European investors may well have been more motivated to sell based on their utter lack of confidence in the abilities of the developed world’s political leaders to meet the challenges of economic stagnation and staggering government debt. When some progress seemed to be made on these fronts, share prices rebounded through much of the fourth quarter. The bull

 
4  |  This page is not part of the 2011 Annual Report to Stockholders



 

 

 
 

 

 


run was dominated by an October rally just as the third-quarter downturn was primarily driven by a disastrous August and September. Each major index finished the fourth quarter with double-digit gains. Small-caps led the way in this dynamic period, gaining 15.5%, compared to a gain of 11.8% for both the Russell 1000 and S&P 500 Indexes, and 7.9% for the Nasdaq. Yet after all the Sturm und Drang in 2011—in its second half in particular—here is where the four domestic indexes wound up for the calendar year: The Russell 2000 fell 4.2%, the Russell 1000 gained 1.5%, the S&P 500 climbed 2.1%, and the Nasdaq lost 1.8%. After a year of prices leaping and crashing, the U.S. stock markets did not move much at all. Were the bullish October and the less wildly volatile months of November and December positive signs that investors were beginning to pay less attention to headlines and more to company fundamentals? We would like to think so, but this remains an open question.

 










The disconnect between stock prices and fundamentals for many companies, including many small-caps, remains wide as we enter 2012.

     The ongoing possibility of government defaults in Portugal, Italy, Ireland, Greece, and Spain, as well as the resulting economic slowdown that gripped much of Europe, continued to weigh heavily on the minds of investors in the second half. This anxiety was reflected in the larger calendar-year losses for global, international and European indexes. The Russell Global ex-U.S. Small Cap Index finished the year down 18.7%, behind its large-cap sibling, the Russell Global ex-U.S. Large Cap Index, which declined 13.8%. Each enjoyed a modestly positive first half, up 0.8% and 4.1%, respectively, before succumbing to the same woes that afflicted the U.S. markets in the third quarter. The Russell Global ex-U.S. Small Cap was down 19.4% and its large-cap equivalent lost 20.1% in the third quarter. So far, so close to their U.S. compeers. Yet the non-U.S. markets lagged behind considerably in the fourth quarter, with the Russell Global ex-U.S. Small Cap gaining a paltry 0.1% and its large-cap sibling climbing 3.6%. It remains to be seen whether this was a temporary phenomenon, a sign that the global economy outside the U.S. remains weak, or was evidence that the U.S. economy, for all its struggles, remains fundamentally strong on both an absolute and relative basis.

 

     U.S. mid-cap stocks acquitted themselves well enough, though they did not lead the market in the second half as they did in the first, when the Russell Midcap Index gained 8.1%. The mid-cap index slid 18.9% in the third quarter before rebounding 12.3% in the fourth. For the year as a whole, the Russell Midcap was down 1.6%. As measured by the Russell Microcap Index, domestic micro-cap stocks continued to struggle, which was unsurprising in a market that saw investors growing less and less comfortable with risk through the end of September. After finishing the first half with a 3.1% gain, the microcap index declined 22.7% in the third quarter. So while its fourth-quarter gain of 13.8% was strong, it was not enough to shore up earlier losses. The Russell Microcap Index closed out 2011 with a 9.3% loss.

 

 

 

This page is not part of the 2011 Annual Report to Stockholders | 5
   
 
 
when intrinsic value becomes
meaningfully detached from stock
prices. In general, we look for well-
managed businesses with pristine
financial profiles and histories of high
returns on invested capital that are
attractively priced on an absolute
basis. To find these attributes in
common often means that a company
has disappointed a set of shareholders
for any number of reasons such as poor
management execution, challenging
business conditions, increased
competition or earnings misses.
 
While still in an environment that
offers plenty of opportunity to locate
these kinds of companies, often in
industries that are falling out of favor
and/or are nearing the bottom of
a business cycle, our efforts are not
being rewarded as distinctly. Markets
where correlation is more historically
normal often see us enjoying the fruits
of earlier contrarian investments
that fit the profile we described. This
combination of reaping the benefits
of previous efforts while repositioning
for the future has historically led to
long-term performance differentiation
versus both small-cap indexes and
peers. Yet a correlated market can
constrict both kinds of opportunity.
 
There are two other, related
challenges: Highly correlated up
markets tend to reward passively
managed index funds and ETFs
(Exchange Traded Funds) because of
their inherently lower fee structure
and fully invested status. Correlated
downturns can also foster greater
demand for these same vehicles
as investors become frustrated
 
 
Continued on page 8...



     
Letter to Our Stockholders
 
Consternation
Loss unfortunately looms rather large over this year’s Review and Report. We were disappointed that our closed-end portfolios did not do better, especially in a year that saw mostly poor results for smaller companies. For decades, we have made risk management a central part of what we do here at Royce, and in 2011 we did not meet that challenge successfully. So while we are encouraged by the large number of opportunities that we sought to take advantage of throughout the year, the sting of a poor showing will remain sharp until performance improves.
          Net losses were most significant in three sectors: Materials companies, particularly those in the metals & mining industry, were hurt by volatile gold and silver prices. The Financials sector’s net losses came mostly from holdings in the capital markets group, including several asset management stocks, while many Information Technology companies failed to rebound in accordance with our expectations. Finally, results for Royce Value Trust and Royce Focus Trust, portfolios with greater exposure to non-U.S. stocks, suffered as both European and Asian markets posted more substantial losses than those in the U.S.
 
   2011 NAV TOTAL RETURNS FOR THE ROYCE FUNDS VS. RUSSELL 2000 as of 12/31/11
 
          Even as we grapple with the year’s disappointments, we were struck by the inconsistent, decidedly nonlinear direction of average annual total returns for the Funds and for the major equity indexes over longer-term periods. The one- and five-year returns were low to negative, while the three-year numbers were terrific. The difference between the three- and five-year results is attributable to the former period spanning all of the recovery that ran from March 9, 2009 through April 29, 2011, along with just the tail end of the 2008 crisis and the volatile market of the last seven months of 2011. The five-year period encompassed all of these events as well as the low returns of 2007 and the deep declines of 2008. Most interesting to us is the 10-year period ended December 31, 2011, which includes the full peak-to-peak cycle that ran from July 13, 2007 through April 29, 2011,

 
6  |  This page is not part of the 2011 Annual Report to Stockholders


 
as well as the bulk of the previous cycle, which began on March 9, 2000 and lasted until July 13, 2007. This cycle includes, then, a large part of one major market dislocation—the bursting Internet bubble—and the bear market that was intensified by the global financial crisis in the fall of 2008. Even with these difficulties, small-cap results were solid for the Russell 2000 and strong to solid for our closed-end portfolios. Each of our closed-end funds outpaced the small-cap index on an NAV (net asset value) basis for the 10-year period ended December 31, 2011.

Contention
As we take the measure of the micro-cap, small-cap and mid-cap universe, we like much of what we see. We remain disciplined, bottom-up stock-pickers with a time horizon measured in years, so our sights are trained squarely on the long run. From that vantage point, we see a strong case to be made for investing in equities. What has gotten lost in all of the fiscal worry and political melodrama of the last couple of years is the fact that many companies across the globe, and certainly here in the U.S., successfully navigated the recession and have been effectively managing their way through the current slow-growth economy. The overall condition of corporate balance sheets and cash flows—two key metrics in our security analysis process—is excellent. So we expect that as the economy continues to grow and political leaders finally begin to implement workable policies, more investors will begin to notice that fundamentals are strong throughout the equity world, which should help to usher in a solid decade for stocks, one that we suspect will feature frequent leadership rotation between asset classes and between higher quality and more speculative stocks.
          In our estimation, small-caps look very well-positioned to bounce back strong as part of a general upward move for equities. More specifically, some recent research has shown that high-quality small-caps, as measured by returns on invested capital (ROIC), are not only cheap on an absolute basis, but relative to their large-cap counterparts as well. There has been a lot of recent analysis devoted to showing that small-caps are statistically more expensive than large-caps, yet many of the companies that have been drawing our interest are not. It comes as no surprise, then, that we think this is a very opportune time for active small-cap management. Historically, when returns are both highly correlated and underwhelming, inefficiencies develop that we seek to use to our long-term advantage. We are confident that active small-cap managers can generate satisfactory absolute results when returns begin to differentiate again. As we detailed in a research paper on the importance of active small-cap management, consistency, discipline and a long-term investment horizon are critical to realizing the goal of strong absolute long-term results that, as a byproduct of that effort, have also beaten small-cap benchmarks. The last several years have certainly underscored the poor track record of predictions for markets and economies, but as equity returns become less closely correlated, we see the potential for active and disciplined small-cap management to succeed.











 

What has gotten lost in all of the fiscal worry and political melodrama of the last couple of years is the fact that many companies across the globe, and certainly here in the U.S., successfully navigated the recession and have been effectively managing their way through the current slow-growth economy. The overall condition of corporate balance sheets and cash flows—two key metrics in our security analysis process—is excellent.

This page is not part of the 2011 Annual Report to Stockholders  |  7


   
 
 
with mounting losses. In addition,
investors, losing sight of the long
view, also tend to lose their appetite
for actively managed products
when short-term performance
differentiation is diminished.
 
Unsurprisingly, then, a correlated
market usually indicates a low
tolerance for risk. While this
can help over the long run—the
rampant selling during the last
seven months of 2011 created as
large a set of purchase opportunities
as we’ve seen in nearly three years—
it also equates to ample levels of
emotional and undifferentiated
selling, which hinders more
established positions from rising to
price levels that our analysis indicates
they are capable of attaining.
 
Throughout much of 2011, we
found ourselves building existing
positions and revisiting old favorites
at least as frequently as investing
in new companies. In all cases, our
purchases comprised high-conviction
ideas as we sought to ultimately tap
the inevitable differentiation that
occurs between corporate performance
and correlated investor sentiment.
While not necessarily rewarding in
the short run, taking advantage of
such mispricings remains the best
way we know of building strong,
long-term performance.
 
 


     
Letter to Our Stockholders
 
 
Conclusion
This is the environment for which we have been preparing. We invested in 2011 in much the same way that we have since 1972—with a disciplined, long-term approach that searches far and wide for what we deem are attractive prices for great companies. Historically, we have sought to use volatility as part of our arsenal of tactics. Highly volatile markets tend to create even greater opportunities because they drive share prices lower, and they do so with little or no regard for a business’s fundamentals. While this helped to create a host of short-term disappointments last year, at the same time it presented us with a number of what we believe are very promising long-term opportunities. It is also important to point out that, though daily volatility was very high, monthly returns in 2011 were not as wildly out of sync with other years as the day-to-day drama might lead one to believe. We think that we are in a new era of high daily volatility that investors will better adjust to in 2012 and beyond. More important is our belief that fundamentals are much better than the headlines; that quality will continue to be an important driver of long-term outperformance; and that non-U.S. small-caps will enjoy improved performance in the years to come.

Sincerely,
 
   
Charles M. Royce
President		   W. Whitney George
Vice President		   Jack E. Fockler, Jr.
Vice President
 


January 31, 2012

 
8  |  This page is not part of the 2011 Annual Report to Stockholders


Why Volatility Is the Friend of Discipline  

 

 

 

Throughout much of Royce’s history, we have talked about our attempts to use stock market volatility to our advantage without offering a great deal of detail about precisely how that works. We have always made an implicit assumption that the bulk of our readers nod in agreement with statements, which tend to proliferate in our materials during bear markets, that describe market tumult as the value investor’s friend. With close to four years of particularly tumultuous markets in the books (and who- knows-what still to come), we reexamined this and concluded that volatility was a subject worth discussing at greater length, both for its own sake and

 

     First, we have an unshakeable conviction that entry price is a key constituent of attractive long-term results. We also believe strongly in the idea that success in equity investing is best and most consistently achieved with a disciplined approach that values deep knowledge about companies, much of which focuses on establishing the worth of a business. Our analysis of the intrinsic value of a business is among the primary factors used in determining what we think we should pay for a stock in order to potentially maximize our return while also seeking to minimize risk. 
     This is where volatility becomes key. In highly volatile markets, increasingly


 

 

 

 

 

for the sake of offering more details about how and why volatile stock prices play such a crucial role in our quest for strong absolute returns achieved over the long term.
      The term ‘volatile’ originally derives from Chemistry, defined in that discipline by the American Heritage Dictionary as “evaporating readily at normal temperatures and pressures” or “capable of being readily vaporized,” which unfortunately may describe some investors’ experiences with equity returns over the last few years. In a more general sense, it means (among other related things), “tending to vary often, as in price: the ups and downs of volatile stocks.” In one sense, then, the globe’s equity markets are volatile every day as each day’s trading brings changing prices. However, there is a range of price movement that is widely viewed as “normal” or “typical,“ though that range is admittedly flexible depending on current

 

image

 

emotional and/or short-sighted sellers tend to keep on selling, allowing us to buy opportunistically. As bottom- up, quality-centric investors, we like to see stock prices with a pronounced downside disconnect between a company’s fundamentals (such as a strong balance sheet, long-term earnings history and positive cash flow) and its share price. The greater the difference, the more promising the opportunity.
      The bulk of our purchases throughout 2011 (and large swaths of the last four years) have followed this pattern. Of course, few of the purchases made in 2011 have borne fruit to date. Since we typically hold stocks for two to five years, this is not troubling. If anything, the turbulence of the last few years has only solidified the importance of our long-term outlook. As we wade through a still unsettled global economy, governments throughout the developed


 

 

 

and past market conditions. (The most popular measure of stock market volatility is the Chicago Board Options Exchange Market Volatility Index, commonly referred to as ‘the VIX,’ which measures the implied volatility of S&P 500 index options.)
     Over the last few years, certainly since the fall of 2008, market volatility has seen frequent and often dramatic spikes, with the just-ended 2011 adding several more heart-stopping sessions, especially between August and November. It is not our task here to determine whether or not the market’s extreme behavior during this period was good, bad or otherwise. Instead, we want to offer our take on the market’s recent activity as an illustration of how we seek to use dramatic swings in share prices to help us build wealth for our shareholders over the long run.

 

world overburdened with debt and a thus-far fragile (and mostly jobless) economic recovery underway here in the U.S., we find an investment horizon measured in years is even more of a necessity than it usually is.
      So while last year was highly challenging and at times very frustrating, we have been pleased with the values that we have found in micro-cap, small-cap and mid-cap companies across the globe. Along with the slowly improving U.S. economy, these opportunities, which high volatility has been instrumental in creating, give us a quiet optimism about the years ahead, a sense of confidence made possible by the market’s wild swings.

 

This page is not part of the 2011 Annual Report to Stockholders  |  9


Small-Cap Market Cycle Performance

We believe strongly in the idea that a long-term investment perspective is crucial for determining the success of a particular investment approach. While flourishing in an up market is wonderful, surviving a bear market by losing less (or not at all) is at least as good. However, the true test of a portfolio’s mettle is performance over full market cycle periods, which include both an up and down market period.

Since the Russell 2000’s inception on 12/31/78, there have been 10 full market cycles, with the most recent peaking on 4/29/11. Market cycles are defined as those that have retreated at least 15% from a previous market peak and have rebounded to establish a new peak above the previous one. Each market cycle contains a peak-to-trough and a trough-to-peak period. Interestingly, over the small-cap index’s 30+ year history, each style index— the Russell 2000 Value Index and the Russell 2000 Growth Index—outperformed in five of the 10 full market cycles. In fact, leadership has alternated between growth and value over the last six cycles. If history were to adhere to this pattern, value would lead in the current cycle that began on 4/29/11.
  
 
Peak-to-Peak (7/13/07-4/29/11)
The most recently completed cycle lasted approximately three and a half years and saw a modest gain for the small-cap index. Small-cap value was actually underwater for the full cycle, while small-cap growth was marginally positive. Only Royce Focus Trust outperformed the small-cap index for the just completed cycle.
 
Peak-to-Trough (7/13/07-3/9/09)
Performance during the peak-to-trough phase of the most recent cycle was especially difficult, encompassing the financial crisis of late 2008 and early ’09. Surprisingly, growth narrowly outperformed value during this phase. Once again, Royce Focus Trust outpaced the Russell 2000 Index during this down phase.
 
Trough-to-Peak (3/9/09-4/29/11)
The dynamic market recovery lasted 25 months and saw the small-cap index appreciate 159.3% (50%+ per annum). Both value and growth saw substantial gains during this period, although growth once again provided the advantage. Each of our closed-end funds outperformed the small-cap index.

SMALL-CAP MARKET CYCLE: RUSSELL 2000 INDEXES TOTAL RETURNS
 
 
  ROYCE FUNDS NAV TOTAL RETURNS VS. RUSSELL 2000 INDEX:
  MARKET CYCLE RESULTS
    Peak-to-   Peak-to-   Trough-to-   Peak-to-
    Peak   Trough   Peak   Current
    7/13/07-   7/13/07-   3/9/09-   4/29/11-
    4/29/11   3/9/09   4/29/11   12/31/11
                                 
Russell 2000     6.6 %     -58.9 %     159.3 %     -13.5 %
Russell 2000 Value     -1.4       -61.1       153.7       -12.8  
Russell 2000 Growth     14.3       -56.8       164.4       -14.2  
Royce Value Trust     6.2       -65.6       208.3       -19.3  
Royce Micro-Cap Trust     -0.5       -66.3       195.5       -14.1  
Royce Focus Trust     10.2       -58.3       164.0       -19.2  
 
 

All performance information above reflects past performance, is presented on a total return basis, reflects the reinvestment of distributions and does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate, so that shares may be worth more or less than their original cost when redeemed. Current performance may be higher or lower than performance quoted. See page 2 for important performance information for all of the above funds.

10  |  This page is not part of the 2011 Annual Report to Stockholders


Table of Contents    
     

Annual Report to Stockholders

    

Managers’ Discussions of Fund Performance

    
     
Royce Value Trust   12
     
Royce Micro-Cap Trust   14
     
Royce Focus Trust   16

History Since Inception

   18
     

Distribution Reinvestment and Cash Purchase Options

   20
     

Schedules of Investments and Other Financial Statements

    
     

Royce Value Trust

   21
     

Royce Micro-Cap Trust

   37
     

Royce Focus Trust

   51
     

Directors and Officers

   61
     

Notes to Performance and Other Important Information

   62
     
     

The Royce Funds 2011 Annual Report to Stockholders  |  11


 
 
 
AVERAGE ANNUAL NAV TOTAL RETURNS
Through 12/31/11
July-December 20111   -14.66 %
One-Year   -10.06  
Three-Year   19.21  
Five-Year   -0.65  
10-Year   6.10  
15-Year   8.86  
20-Year   10.24  
25-Year   10.17  
Since Inception (11/26/86)   10.13  
1Not annualized
                     
CALENDAR YEAR NAV TOTAL RETURNS
                     
Year   RVT     Year       RVT  
2011   -10.1 %   2003       40.8 %
2010   30.3     2002       -15.6  
2009   44.6     2001       15.2  
2008   -45.6     2000       16.6  
2007   5.0     1999       11.7  
2006   19.5     1998       3.3  
2005   8.4     1997       27.5  
2004   21.4     1996       15.5  
                     
TOP 10 POSITIONS
% of Net Assets Applicable
to Common Stockholders
Coherent   1.3 %
HEICO Corporation   1.2  
Oil States International   1.2  
Alleghany Corporation   1.1  
Advisory Board (The)   1.0  
Woodward   1.0  
Carter’s   1.0  
Mohawk Industries   0.9  
Sapient Corporation   0.9  
Simpson Manufacturing   0.9  
                     
PORTFOLIO SECTOR BREAKDOWN
% of Net Assets Applicable
to Common Stockholders
Industrials   27.9 %
Information Technology   22.3  
Financials   20.6  
Consumer Discretionary   12.2  
Materials   9.9  
Health Care   7.3  
Energy   6.0  
Consumer Staples   2.3  
Telecommunication Services   0.6  
Diversified Investment Companies   0.5  
Miscellaneous   4.9  
Bond and Preferred Stock   0.1  
Cash and Cash Equivalents   8.2  
                     
 

       
 
Royce Value Trust
 
Manager’s Discussion
Results for Royce Value Trust (RVT) were disappointing on both an absolute and relative basis in 2011. For the calendar year, RVT fell 10.1% on an NAV (net asset value) basis and 10.5% on a market price basis, in both instances trailing its unleveraged benchmarks, the Russell 2000 Index, which fell 4.2%, and the S&P SmallCap 600 Index, which gained 1.0%, for the same period. In a year that was marked both by high volatility and close correlation, we were not pleased with performance, especially during periods which saw generally poor results, periods in which the Fund has often held its value more effectively.
     During the first half of the year, RVT was behind its benchmarks, climbing 5.4% on an NAV basis and 5.3% based on market price compared to gains of 6.2% for the Russell 2000 and 7.5% for the S&P SmallCap 600. Small-cap stocks reached a peak on April 29, 2011, though the worst of the year’s losses came later, during August and September. A combination of anxieties drove investors away from equities, including potential European defaults, the possibility of an economic slowdown in China, and the debt ceiling fiasco here in the U.S., which had the ripple effects of undermining confidence in our political leadership and stoking fears of a double-dip recession. These developments led to an extremely bearish third quarter, during which RVT suffered along with the rest of the market—there were mostly double-digit losses for indexes across the globe. The Fund fell 25.2%
on an NAV basis and 24.4% on a market price basis compared to respective declines of 21.9% and 19.8% for the Russell 2000 and S&P SmallCap 600.
     When economic news improved in the U.S., it sparked a dynamic domestic rally following the small-cap low on October 3. The rest of October, while still volatile, was pleasantly bullish before the pace of the bull run slowed to a trot in November and December. In the year’s final quarter, RVT again trailed its benchmarks, gaining 14.2% based on NAV and 12.6% on a market price basis, while the Russell 2000 climbed 15.5% and the S&P SmallCap 600 rose 17.2%.
     We were more satisfied with the Fund’s longer-term results. On an NAV basis, RVT outpaced both its benchmarks for the three-, 15-, 25-year and since inception (11/26/86) periods ended December 31, 2011. The Fund also provided an edge over the Russell 2000 for the 10-year and 20-year periods. RVT’s NAV average annual total return for the since inception period ended December 31, 2011 was 10.1%.
          
     GOOD IDEAS THAT WORKED
     Top Contributors to 2011 Performance1
 
  Advisory Board (The)   0.33 %
 
  HEICO Corporation   0.31  
 
  Sturm, Ruger & Co.   0.30  
 
  Carter’s   0.27  
 
  RLI   0.22  
 
  1Includes dividends
         
         
         
         
         
     Only the Industrials sector finished the year in the black, and with a modest net contribution at that. The Fund’s top two contributors for the calendar year came from that sector and were also top-ten positions at the end of 2011. The Advisory Board offers various programs, services, and software that focus on best practices research services which include identifying both effective management practices and widely followed but ineffective practices, along with analyzing emerging trends in
           
Important Performance and Risk Information
All performance information reflects past performance, is presented on a total return basis and reflects the reinvestment of distributions. Past performance is no guarantee of future results. Current performance may be higher or lower than performance quoted. Returns as of the most recent month-end may be obtained at www.roycefunds.com. The market price of the Fund’s shares will fluctuate, so that shares may be worth more or less than their original cost when sold. The Fund invests primarily in securities of small- and micro-cap companies, which may involve considerably more risk than investing in a more diversified portfolio of larger-cap companies. Regarding the two “Good Ideas” tables shown above, the sum of all contributors to, and all detractors from, performance for all securities in the portfolio would approximate the Fund’s performance for 2011.

 
12  |  The Royce Funds 2011 Annual Report to Stockholders


               
           
           
           
Performance and Portfolio Review
           
healthcare and education. Growing revenues, earnings and cash flow helped the stock to enjoy a particularly robust second half, as some investors were looking past macro-driven headlines at what we see as a well-managed, efficiently run business. It was the Fund’s fifth-largest position at the end of the year. HEICO Corporation, the Fund’s second-largest holding at the end of December, manufactures electronic products primarily for the aerospace & defense industries. Growing global air traffic has helped to create robust demand for aftermarket airplane parts. Airlines have thus been increasing capacity, and their own improved financial condition made them more willing to spend on parts re-stocking as the economy slowly recovers. We still like its core business, steady earnings and strong balance sheet.
     The Financials, Materials and Information Technology sectors were the year’s net loss leaders. The first of these three sectors saw the bulk of its declines come from holdings in the capital markets industry, which almost doubled that of RVT’s next-worst-performing industry, the metals & mining group. The Financials sector was home to three of the Fund’s loss leaders, with two coming from the capital markets group. MF Global made headlines and caused embarrassment both for its well-known CEO and investors like ourselves, who had believed in the integrity, transparency, and capabilities of the company. For many years, we have had a high opinion of the business of asset manager AllianceBernstein Holding. Its business has endured difficulties in the current low-interest rate environment, while also experiencing steady outflows and earnings disappointments. We added shares between May and August.
           
     Poor investment results hurt the performance of E-L Financial, a Toronto-based investment and insurance holding company. Believing in the business’s long-term prospects, we added to our position in August and September. We also built our stake in MoneyGram International, which provides money transfer and bill payment services. It was a comparably small holding that had an outsized negative effect on 2011 performance. Its stock price slid precipitously in July and again in November. The first slide was mostly the result of a hefty quarterly loss brought on by the firm’s attempts at restructuring and recapitalization. The second was an unhappy reaction to a reverse stock split—often seen as a company-driven attempt to invigorate a sluggish stock price—and a secondary offering, which investors usually regard as dilutive.
   GOOD IDEAS AT THE TIME  
   Top Detractors from 2011 Performance1  
 
MF Global Holdings   -0.63 %  
 
E-L Financial   -0.34    
 
AllianceBernstein Holding L.P.   -0.30    
 
MoneyGram International   -0.29    
 
Rofin-Sinar Technologies   -0.29    
 
1Net of dividends  
           

MARKET PRICE PERFORMANCE HISTORY SINCE INCEPTION (11/26/86) through 12/31/11
1
Reflects the cumulative total return of an investment made by a stockholder who purchased one share at inception ($10.00 IPO), reinvested all annual distributions and fully participated in primary subscriptions of the Fund’s rights offerings.
2
Reflects the actual market price of one share as it traded on the NYSE.

 
       
  FUND INFORMATION AND
  PORTFOLIO DIAGNOSTICS
 
  Average Market Capitalization1 $1,310 million  
 
  Weighted Average P/E Ratio2 14.2x  
 
  Weighted Average P/B Ratio 1.6x  
 
  U.S. Investments (% of Net Assets applicable to Common Stockholders) 86.9%  
 
  Non-U.S. Investments (% of Net Assets applicable to Common Stockholders) 27.7%  
 
  Fund Total Net Assets $1,187 million  
 
  Net Leverage3 15%  
 
  Turnover Rate 26%  
 
  Number of Holdings 550  
 
  Symbol        
 

Market Price

   RVT  
 

NAV

   XRVTX  
 
  1 Geometrically calculated
 
2 The Fund’s P/E ratio calculation excludes companies with zero or negative earnings (7% of portfolio holdings as of 12/31/11).
 
3 Net leverage is the percentage, in excess of 100%, of the total value of equity type investments, divided by net assets applicable to Common Stockholders.
                             
       
  CAPITAL STRUCTURE
  Publicly Traded Securities Outstanding
at 12/31/11 at NAV or Liquidation Value
 
 

68.0 million shares
of Common Stock

   $967 million  
 
 

5.90% Cumulative
Preferred Stock

   $220 million  
 
                             
  DOWN MARKET PERFORMANCE COMPARISON
  All Down Periods of 7.5% or Greater
Over the Last 7 Years, in Percentages(%)
 
 
   
 


 
The Royce Funds 2011 Annual Report to Stockholders  |  13


 
 
 
AVERAGE ANNUAL NAV TOTAL RETURNS
Through 12/31/11
July-December 20111   -10.48 %
One-Year   -7.69  
Three-Year   20.22  
Five-Year   -0.94  
10-Year   7.09  
15-Year   9.18  
Since Inception (12/14/93)   10.05  
1Not annualized
                     
CALENDAR YEAR NAV TOTAL RETURNS
                     
Year   RMT     Year       RMT  
2011   -7.7 %   2003       55.5 %
2010   28.5     2002       -13.8  
2009   46.5     2001       23.4  
2008   -45.5     2000       10.9  
2007   0.6     1999       12.7  
2006   22.5     1998       -4.1  
2005   6.8     1997       27.1  
2004   18.7     1996       16.6  
                     
TOP 10 POSITIONS
% of Net Assets Applicable
to Common Stockholders
Kennedy-Wilson Holdings   1.8 %
Sapient Corporation   1.6  
Epoch Holding Corporation   1.6  
Charming Shoppes   1.3  
America’s Car-Mart   1.3  
Raven Industries   1.3  
Tennant Company   1.3  
Drew Industries   1.2  
Seneca Foods   1.1  
Richardson Electronics   1.1  
                     
PORTFOLIO SECTOR BREAKDOWN
% of Net Assets Applicable
to Common Stockholders
Industrials   25.9 %
Financials   19.6  
Information Technology   19.2  
Consumer Discretionary   13.2  
Materials   8.2  
Health Care   6.1  
Energy   4.0  
Consumer Staples   3.7  
Utilities   0.0  
Miscellaneous   4.9  
Preferred Stock   0.3  
Cash and Cash Equivalents   16.4  
                     
 

   
 
     
Royce Micro-Cap Trust
 
Manager’s Discussion
Following two years of outsized gains for micro-cap stocks in 2009 and 2010, our mean reversion tendencies anticipated at least some moderation in the torrid pace micro-caps had established prior to 2011. What we did not expect was a substantial mid-year decline eerily reminiscent of the most difficult periods in the midst of the financial crisis. Precipitated by Congress’s inability to pass a usually routine increase in the debt ceiling, Standard & Poor’s took the historic step of downgrading the U.S. sovereign credit rating. While most bond investors dismissed the action, seeing nothing incremental to fear in the creditworthiness of the U.S. government, equity investors reacted far more negatively. In this challenging year for equities, Royce Micro-Cap Trust (RMT) declined 7.7% on an NAV (net asset value) basis, and 5.0% based on the market price of its shares, underperforming its unleveraged small-cap benchmark, the Russell 2000, which lost 4.2%, while outperforming the Russell Microcap index, which fell 9.3%.
     During the year’s first half, RMT gained 3.1% on an NAV basis, and 3.3% based on the market price of its shares. The Fund underperformed the small-cap index, which advanced 6.2%, and was in line with the micro-cap index, which rose 3.1%, for the same period. Volatility began to creep into the markets during the second quarter, but that period looks quite placid compared to the wildly volatile third quarter, a period that saw most stock indexes post steep double-digit declines. RMT fell in step with stocks as a whole, losing 20.8% (NAV) and 21.2% (market) compared to declines of 21.9% for the Russell 2000 and 22.7% for the Russell Microcap. The fourth quarter recouped largely half of the third quarter’s decline, as better-than-expected corporate earnings and resilience in the U.S. economy somewhat rejuvenated investors’ interest in stocks. The Fund was again closely correlated with the performance of its benchmark and the micro-cap index, with gains of 13.0% (NAV) and 16.7% (market) versus 15.5% for its benchmark and 13.8% for the Russell Microcap.
          
     GOOD IDEAS THAT WORKED
     Top Contributors to 2011 Performance1
 
  Epoch Holding Corporation   0.60 %
 
  Charming Shoppes   0.57  
 
  Virtus Investment Partners   0.42  
 
  America’s Car-Mart   0.38  
 
  Advisory Board (The)   0.37  
 
  1Includes dividends
         
     Even with an relatively undistinguished year in 2011, the Fund maintained its impressive lead from the small-cap low on March 9, 2009 through December 31, 2011. RMT advanced 153.8% on an NAV basis and 176.2% on a market price basis compared to the Russell 2000, which was up 124.3%, and the Russell Microcap, which rose 117.4%. We also were very pleased with the Fund’s longer-term NAV results. RMT outpaced the micro-cap index (for which data only goes back to 2000) on an NAV basis for the three-, five- and 10-year periods ended December 31, 2011. On an NAV basis, the Fund also outperformed the Russell 2000 for the three-, 10-, 15-year and since inception (12/14/93) periods ended December 31, 2011. RMT’s NAV average annual total return since inception was 10.1%.
     Not surprising in this negatively correlated period for stocks, all of the Fund’s equity sectors were detractors from performance in 2011, with Information Technology having the largest
         
Important Performance and Risk Information
All performance information reflects past performance, is presented on a total return basis and reflects the reinvestment of distributions. Past performance is no guarantee of future results. Current performance may be higher or lower than performance quoted. Returns as of the most recent month-end may be obtained at www.roycefunds.com. The market price of the Fund’s shares will fluctuate, so that shares may be worth more or less than their original cost when sold. The Fund normally invests in micro-cap companies, which may involve considerably more risk than investing in a more diversified portfolio of larger-cap companies. Regarding the two “Good Ideas” tables shown above, the sum of all contributors to, and all detractors from, performance for all securities in the portfolio would approximate the Fund’s performance for 2011.

 
14  |  The Royce Funds 2011 Annual Report to Stockholders


               
           
           
           
Performance and Portfolio Review
           
negative impact, followed by Energy, Materials and Consumer Discretionary. These sectors were among the most economically sensitive areas of the market and were hard hit in large part because investors sought to protect themselves from the possibility of another recession. At the industry level, results were more balanced, with three of the top four positive contributors coming from the Industrials sector—professional services, commercial services & supplies, and industrial conglomerates were joined by specialty retail from the Consumer Discretionary space to make up the top four. Energy equipment & services, semiconductors & semiconductor equipment, and metals & mining were the most significant detractors at the industry level.
     Epoch Holding, a publicly traded investment management company overseeing over $19 billion in assets, was the Fund’s top individual performer in 2011. A long-term holding of the Fund, this value-based equity asset manager continued to improve on its strong long-term performance record and saw a steady increase in its asset base. Charming Shoppes was another notable performer. This specialty retailer of women’s plus size apparel made substantial progress in a long-anticipated restructuring. Following three years of losses, the company engaged new leadership, continued to close underperforming stores, divested a non-core brand, and retained Barclays Capital as its financial adviser to explore strategic alternatives, all of which helped lead to substantial appreciation in the shares.
           
     Origin Agritech, the Fund’s leading detractor, is a U.S.-listed company headquartered in China that manufactures hybrid and genetically modified crop seeds. The company reported earnings that fell short of expectations mostly as a result of a drop in revenues due to farmers’ changing planting schedules and higher-than-expected R&D expenses. Another notable loser was Willbros Group, an engineering and construction company serving primarily the oil and gas industry. Shares were weighed down by substantial legal fees related to an ongoing dispute over the disposition of the company’s Nigerian assets from 2007, along with a drop in the company’s backlog due to delays in large pipeline construction projects. We continue to hold shares because we like the company’s improving balance sheet, the diminishing financial impact of legacy legal issues, and its potential to benefit from improving trends in the energy infrastructure market.
   GOOD IDEAS AT THE TIME  
   Top Detractors from 2011 Performance1  
 
Origin Agritech   -0.31 %  
 
Support.com   -0.29    
 
Willbros Group   -0.28    
 
Colony Financial   -0.27    
 
Cogo Group   -0.27    
 
1Net of dividends  
           
MARKET PRICE PERFORMANCE HISTORY SINCE INCEPTION (12/14/93) through 12/31/11
1
Reflects the cumulative total return of an investment made by a stockholder who purchased one share at inception ($7.50 IPO), reinvested distributions and fully participated in the primary subscription of the 1994 rights offering.
2
Reflects the actual market price of one share as it traded on the NYSE and, prior to 12/1/03, on Nasdaq.

 
       
  FUND INFORMATION AND
  PORTFOLIO DIAGNOSTICS
 
  Average Market
Capitalization1		 $304 million  
 
  Weighted Average
P/E Ratio2		 15.6x  
 
  Weighted Average
P/B Ratio		 1.3x  
 
  U.S. Investments (% of
Net Assets applicable to
Common Stockholders)		 91.1%  
 
  Non-U.S. Investments
(% of Net Assets
applicable to Common
Stockholders)		 14.0%  
 
  Fund Total Net Assets $339 million  
 
  Net Leverage3 5%  
 
  Turnover Rate 30%  
 
  Number of Holdings 328  
 
  Symbol        
 

Market Price

   RMT  
 

NAV

   XOTCX  
 
  1 Geometrically calculated
 
2 The Fund’s P/E ratio calculation excludes companies with zero or negative earnings (21% of portfolio holdings as of 12/31/11).
 
3 Net leverage is the percentage, in excess of 100%, of the total value of equity type investments, divided by net assets applicable to Common Stockholders.
                             
  CAPITAL STRUCTURE
  Publicly Traded Securities Outstanding
at 12/31/11 at NAV or Liquidation Value
 
  28 million shares
of Common Stock

   $279 million  
 
  6.00% Cumulative
Preferred Stock

   $60 million  
 
                             
  DOWN MARKET PERFORMANCE COMPARISON
  All Down Periods of 7.5% or Greater
Over the Last 7 Years, in Percentages(%)
 
 
   
 


 
The Royce Funds 2011 Annual Report to Stockholders  |  15


 
 
 
AVERAGE ANNUAL NAV TOTAL RETURNS
Through 12/31/11
July-December 20111   -13.71 %
One-Year   -10.51  
Three-Year   18.83  
Five-Year   1.53  
10-Year   9.51  
15-Year   9.74  
Since Inception (11/1/96)2   9.95  
1 Not annualized

2 Royce & Associates assumed investment management responsibility for the Fund on 11/1/96.
                     
CALENDAR YEAR NAV TOTAL RETURNS
                     
Year   FUND     Year       FUND  
2011   -10.5 %   2003       54.3 %
2010   21.8     2002       -12.5  
2009   54.0     2001       10.0  
2008   -42.7     2000       20.9  
2007   12.2     1999       8.7  
2006   15.8     1998       -6.8  
2005   13.3     1997       20.5  
2004   29.3                
                     
TOP 10 POSITIONS
% of Net Assets Applicable
to Common Stockholders
Berkshire Hathaway Cl. B   3.8 %
Microsoft Corporation   3.4  
Analog Devices   3.4  
Buckle (The)   3.3  
Allied Nevada Gold   3.2  
Franklin Resources   3.2  
Exxon Mobil   3.1  
Western Digital   3.1  
Newmont Mining   3.0  
Mosaic Company (The)   2.8  
                     
PORTFOLIO SECTOR BREAKDOWN
% of Net Assets Applicable
to Common Stockholders
Materials   29.1 %
Financials   19.8  
Information Technology   16.8  
Energy   13.4  
Industrials   8.0  
Consumer Discretionary   7.4  
Consumer Staples   6.8  
Health Care   1.3  
Cash and Cash Equivalents   14.0  
                     
 

       
 
Royce Focus Trust
 
Manager’s Discussion
Although equity results were highly correlated in 2011, some performances were worse than others, an observation that unfortunately includes the calendar-year results for Royce Focus Trust (FUND). In 2011, the Fund fell 10.5% on an NAV (net asset value) basis and 11.7% on a market price basis, in each case trailing its unleveraged small-cap benchmark, the Russell 2000 Index, which lost 4.2% for the same period. It was a disappointing year for FUND on both an absolute and relative basis.
     The Fund trailed its benchmark during the first half of the year on both an NAV and market price basis, finishing June with a 3.7% NAV gain and a 5.5% market price return versus an advance of 6.2% for the small-cap index. Volatility, which first gathered force in the second quarter, picked up momentum as temperatures heated up. Numerous fears drove investors away from stocks—anxiety over European sovereign defaults, a slowdown in China, the U.S. Congress’s failure to pass a routine increase in the debt ceiling limit (and the subsequent downgrade to our nation’s credit rating), and the possibility of a double-dip recession all played a role in the dramatic summer sell-off. During this third-quarter downdraft, the Fund offered a slight edge, as it fell 20.5% on an NAV basis and 21.2% on a market price basis, while the Russell 2000 declined 21.9%.
     Unfortunately, FUND was not able to hold or build on this relative advantage during the bullish fourth quarter, when U.S. stocks staged a welcome rally. Between the beginning of October and the end of December, the Fund gained 8.5% on an NAV basis and 6.2% on a market price basis, while its small-cap benchmark rallied 15.5%. These results in the year’s final quarter were particularly frustrating because FUND’s struggles in the rally played a large role in both its underperformance and lackluster absolute result in 2011.
     We felt much better about the Fund’s longer-term returns, especially its NAV results, which remained strong on a relative basis while also showing key pockets of strength in the three-, 10-, 15-year and since inception of Royce’s management (11/1/96) periods ended December 31, 2011. During the most recent full market cycle period—from the previous small-cap peak on July 13, 2007 through the small-cap peak on April 29, 2011—the Fund gained 10.2% on an NAV basis versus 6.6% for the Russell 2000. (Please see page 10 for more market cycle results.)      On a market price basis, FUND beat its
          
     GOOD IDEAS THAT WORKED
     Top Contributors to 2011 Performance1
 
  Varian Semiconductor
Equipment Associates		   1.56 %
 
  Timberland Company (The) Cl. A   0.71  
 
  Nu Skin Enterprises Cl. A   0.60  
 
  Sanderson Farms   0.50  
 
  Buckle (The)   0.45  
 
  1Includes dividends
         
benchmark for the 10-year, 15-year and since inception of our management periods ended December 31, 2011. On an NAV basis, the Fund outpaced the Russell 2000 for the three-, five-, 10-, 15-year and since inception of our management periods ended December 31, 2011. FUND’s NAV average annual total return since inception was 9.9%.
     Six of the Fund’s nine equity sectors finished the year with net losses. Of those three with net gains for the year—Consumer Discretionary, Consumer Staples and Health Care—the first two made solid contributions, while the third exited 2011 with very modest net gains. The Materials sector had the most substantial negative impact on annual results, with losses more than double
         
Important Performance and Risk Information
All performance information reflects past performance, is presented on a total return basis and reflects the reinvestment of distributions. Past performance is no guarantee of future results. Current performance may be higher or lower than performance quoted. Returns as of the most recent month-end may be obtained at www.roycefunds.com. The market price of the Fund’s shares will fluctuate, so that shares may be worth more or less than their original cost when sold. The Fund normally invests primarily in small-cap companies, which may involve considerably more risk than investing in a more diversified portfolio of larger-cap companies. Regarding the two “Good Ideas” tables shown above, the sum of all contributors to, and all detractors from, performance for all securities in the portfolio would approximate the Fund’s performance for 2011.

 
16  |  The Royce Funds 2011 Annual Report to Stockholders


               
           
           
           
Performance and Portfolio Review
           
that of Financials, the Fund’s next largest detractor on a sector basis. One industry within the Materials sector, metals & mining, registered larger net losses than any of the portfolio’s remaining sectors. After coping with various operational issues during the first half of the year, many gold and silver miners faced the added headwind of increasingly volatile precious metals commodity prices during the tumultuous third quarter. During that period, when increased mining expenses and operational issues were still impacting the industry, especially its smaller businesses, share prices began to decline even more sharply. Most of these companies also failed to participate in any meaningful way in the fourth-quarter rally for stocks.
     The frustrations of 2011 aside, we continue to see great potential for many of these companies. The conditions for improved gold and silver prices remain in place. Historically, interest rates being below long-term inflation rates has provided a tailwind for gold, and this inspires confidence going forward. We increased our position in exploration company Seabridge Gold in March and added shares of Pan American Silver during April. The latter faced delays in an Argentinian mine of its own and had a few small production disappointments. In the first half of the year, it also had to tackle concerns, since resolved, about how newly elected leaders in Bolivia and Peru would treat mining operations in those nations. These issues were more than enough to keep investors selling. Seabridge Gold struggled in a market that was challenging for most gold and silver miners, but was even tougher on companies involved only in exploration.
           
     We also held a good-sized stake in scrap metal manufacturer and recycler Schnitzer Steel Industries. A decline in scrap metal prices hurt its share price, as did fears of a global industrial slowdown that was particularly unkind to commodity-based cyclicals. After bottoming out in October, its stock rallied a bit through the end of the year. We still like the core business of two companies involved in high brightness light emitting diodes (HB LEDs) equipment. Although we chose to hold shares of Veeco Instruments, we parted ways with German firm Aixtron in October. On the other side of the ledger, Varian Semiconductor Equipment Associates and The Timberland Company were, like many small-cap businesses of late, subject to M&A (mergers & acquisitions) activity. We sold our shares in both as their share prices rose on news of each respective acquisition.
   GOOD IDEAS AT THE TIME  
   Top Detractors from 2011 Performance1  
 
Seabridge Gold   -1.50 %  
 
Pan American Silver   -1.28    
 
Schnitzer Steel Industries Cl. A   -0.97    
 
Veeco Instruments   -0.95    
 
Aixtron ADR   -0.91    
 
1 Net of dividends  
           

MARKET PRICE PERFORMANCE HISTORY SINCE INCEPTION (11/1/96)3 through 12/31/11
1
Reflects the cumulative total return experience of a continuous common stockholder who reinvested all distributions and fully participated in the primary subscription of the 2005 rights offering.
2
Reflects the actual market price of one share as it traded on Nasdaq.
3
Royce & Associates assumed investment management responsibility for the Fund on 11/1/96.

 
       
  FUND INFORMATION AND
  PORTFOLIO DIAGNOSTICS
 
  Average Market
Capitalization1		 $4,754 million  
 
  Weighted Average P/E Ratio2 12.2x  
 
  Weighted Average P/B Ratio 1.8x  
 
  U.S. Investments (% of Net Assets applicable to Common Stockholders) 77.8%  
 
  Non-U.S. Investments (% of Net Assets applicable to Common Stockholders) 24.8%  
 
  Fund Total Net Assets $176 million  
 
  Net Leverage3 3%  
 
  Turnover Rate 33%  
 
  Number of Holdings 55  
 
  Symbol        
 

Market Price

   FUND  
 

NAV

   XFUNX  
 
  1 Geometrically calculated
 
2 The Fund’s P/E ratio calculation excludes companies with zero or negative earnings (6% of portfolio holdings as of 12/31/11).
 
3 Net leverage is the percentage, in excess of 100%, of the total value of equity type investments, divided by net assets applicable to Common Stockholders.
                             
  CAPITAL STRUCTURE
  Publicly Traded Securities Outstanding
at 12/31/11 at NAV or Liquidation Value
 
  20 million shares of
Common Stock

   $151 million  
 
  6.00% Cumulative
Preferred Stock

   $25 million  
 
                             
  DOWN MARKET PERFORMANCE COMPARISON
  All Down Periods of 7.5% or Greater
Over the Last 7 Years, in Percentages(%)
 
 
   
 


 
The Royce Funds 2011 Annual Report to Stockholders  |  17


 
History Since Inception
 

The following table details the share accumulations by an initial investor in the Funds who reinvested all distributions and participated fully in primary subscriptions for each of the rights offerings. Full participation in distribution reinvestments and rights offerings can maximize the returns available to a long-term investor. This table should be read in conjunction with the Performance and Portfolio Reviews of the Funds.


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

History

 

Amount
Invested

 

Purchase
Price1

 

Shares

 

NAV
Value2

 

Market
Value2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Royce Value Trust

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11/26/86

 

 

Initial Purchase

 

$

10,000

 

$

10.000

 

 

1,000

 

$

9,280

 

$

10,000

 

10/15/87

 

 

Distribution $0.30

 

 

 

 

 

7.000

 

 

42

 

 

 

 

 

 

 

12/31/87

 

 

Distribution $0.22

 

 

 

 

 

7.125

 

 

32

 

 

8,578

 

 

7,250

 

12/27/88

 

 

Distribution $0.51

 

 

 

 

 

8.625

 

 

63

 

 

10,529

 

 

9,238

 

9/22/89

 

 

Rights Offering

 

 

405

 

 

9.000

 

 

45

 

 

 

 

 

 

 

12/29/89

 

 

Distribution $0.52

 

 

 

 

 

9.125

 

 

67

 

 

12,942

 

 

11,866

 

9/24/90

 

 

Rights Offering

 

 

457

 

 

7.375

 

 

62

 

 

 

 

 

 

 

12/31/90

 

 

Distribution $0.32

 

 

 

 

 

8.000

 

 

52

 

 

11,713

 

 

11,074

 

9/23/91

 

 

Rights Offering

 

 

638

 

 

9.375

 

 

68

 

 

 

 

 

 

 

12/31/91

 

 

Distribution $0.61

 

 

 

 

 

10.625

 

 

82

 

 

17,919

 

 

15,697

 

9/25/92

 

 

Rights Offering

 

 

825

 

 

11.000

 

 

75

 

 

 

 

 

 

 

12/31/92

 

 

Distribution $0.90

 

 

 

 

 

12.500

 

 

114

 

 

21,999

 

 

20,874

 

9/27/93

 

 

Rights Offering

 

 

1,469

 

 

13.000

 

 

113

 

 

 

 

 

 

 

12/31/93

 

 

Distribution $1.15

 

 

 

 

 

13.000

 

 

160

 

 

26,603

 

 

25,428

 

10/28/94

 

 

Rights Offering

 

 

1,103

 

 

11.250

 

 

98

 

 

 

 

 

 

 

12/19/94

 

 

Distribution $1.05

 

 

 

 

 

11.375

 

 

191

 

 

27,939

 

 

24,905

 

11/3/95

 

 

Rights Offering

 

 

1,425

 

 

12.500

 

 

114

 

 

 

 

 

 

 

12/7/95

 

 

Distribution $1.29

 

 

 

 

 

12.125

 

 

253

 

 

35,676

 

 

31,243

 

12/6/96

 

 

Distribution $1.15

 

 

 

 

 

12.250

 

 

247

 

 

41,213

 

 

36,335

 

1997

 

 

Annual distribution total $1.21

 

 

 

 

 

15.374

 

 

230

 

 

52,556

 

 

46,814

 

1998

 

 

Annual distribution total $1.54

 

 

 

 

 

14.311

 

 

347

 

 

54,313

 

 

47,506

 

1999

 

 

Annual distribution total $1.37

 

 

 

 

 

12.616

 

 

391

 

 

60,653

 

 

50,239

 

2000

 

 

Annual distribution total $1.48

 

 

 

 

 

13.972

 

 

424

 

 

70,711

 

 

61,648

 

2001

 

 

Annual distribution total $1.49

 

 

 

 

 

15.072

 

 

437

 

 

81,478

 

 

73,994

 

2002

 

 

Annual distribution total $1.51

 

 

 

 

 

14.903

 

 

494

 

 

68,770

 

 

68,927

 

1/28/03

 

 

Rights Offering

 

 

5,600

 

 

10.770

 

 

520

 

 

 

 

 

 

 

2003

 

 

Annual distribution total $1.30

 

 

 

 

 

14.582

 

 

516

 

 

106,216

 

 

107,339

 

2004

 

 

Annual distribution total $1.55

 

 

 

 

 

17.604

 

 

568

 

 

128,955

 

 

139,094

 

2005

 

 

Annual distribution total $1.61

 

 

 

 

 

18.739

 

 

604

 

 

139,808

 

 

148,773

 

2006

 

 

Annual distribution total $1.78

 

 

 

 

 

19.696

 

 

693

 

 

167,063

 

 

179,945

 

2007

 

 

Annual distribution total $1.85

 

 

 

 

 

19.687

 

 

787

 

 

175,469

 

 

165,158

 

2008

 

 

Annual distribution total $1.723

 

 

 

 

 

12.307

 

 

1,294

 

 

95,415

 

 

85,435

 

3/11/09

 

 

Distribution $0.323

 

 

 

 

 

6.071

 

 

537

 

 

137,966

 

 

115,669

 

12/2/10

 

 

Distribution $0.03

 

 

 

 

 

13.850

 

 

23

 

 

179,730

 

 

156,203

 

2011

 

 

Annual distribution total $0.783

 

 

 

 

 

13.043

 

 

656

 

 

 

 

 

 

 
                                       

12/31/11

 

 

 

 

$

21,922

 

 

 

 

 

11,399

 

$

161,638

 

$

139,866

 
                                       

1 The purchase price used for annual distribution totals is a weighted average of the distribution reinvestment prices for the year.
2 Other than for initial purchase, values are stated as of December 31 of the year indicated, after reinvestment of distributions.
3 Includes a return of capital.

18 | The Royce Funds 2011 Annual Report to Stockholders


 
 

 

The following table details the share accumulations by an initial investor in the Funds who reinvested all distributions and participated fully in primary subscriptions for each of the rights offerings. Full participation in distribution reinvestments and rights offerings can maximize the returns available to a long-term investor. This table should be read in conjunction with the Performance and Portfolio Reviews of the Funds.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

History

 

 

Amount
Invested

 

 

Purchase
Price1

 

 

Shares

 

 

NAV
Value2

 

 

Market
Value2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Royce Micro-Cap Trust

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12/14/93

 

 

Initial Purchase

 

$

7,500

 

$

7.500

 

 

1,000

 

$

7,250

 

$

7,500

 

10/28/94

 

 

Rights Offering

 

 

1,400

 

 

7.000

 

 

200

 

 

 

 

 

 

 

12/19/94

 

 

Distribution $0.05

 

 

 

 

 

6.750

 

 

9

 

 

9,163

 

 

8,462

 

12/7/95

 

 

Distribution $0.36

 

 

 

 

 

7.500

 

 

58

 

 

11,264

 

 

10,136

 

12/6/96

 

 

Distribution $0.80

 

 

 

 

 

7.625

 

 

133

 

 

13,132

 

 

11,550

 

12/5/97

 

 

Distribution $1.00

 

 

 

 

 

10.000

 

 

140

 

 

16,694

 

 

15,593

 

12/7/98

 

 

Distribution $0.29

 

 

 

 

 

8.625

 

 

52

 

 

16,016

 

 

14,129

 

12/6/99

 

 

Distribution $0.27

 

 

 

 

 

8.781

 

 

49

 

 

18,051

 

 

14,769

 

12/6/00

 

 

Distribution $1.72

 

 

 

 

 

8.469

 

 

333

 

 

20,016

 

 

17,026

 

12/6/01

 

 

Distribution $0.57

 

 

 

 

 

9.880

 

 

114

 

 

24,701

 

 

21,924

 

2002

 

 

Annual distribution total $0.80

 

 

 

 

 

9.518

 

 

180

 

 

21,297

 

 

19,142

 

2003

 

 

Annual distribution total $0.92

 

 

 

 

 

10.004

 

 

217

 

 

33,125

 

 

31,311

 

2004

 

 

Annual distribution total $1.33

 

 

 

 

 

13.350

 

 

257

 

 

39,320

 

 

41,788

 

2005

 

 

Annual distribution total $1.85

 

 

 

 

 

13.848

 

 

383

 

 

41,969

 

 

45,500

 

2006

 

 

Annual distribution total $1.55

 

 

 

 

 

14.246

 

 

354

 

 

51,385

 

 

57,647

 

2007

 

 

Annual distribution total $1.35

 

 

 

 

 

13.584

 

 

357

 

 

51,709

 

 

45,802

 

2008

 

 

Annual distribution total $1.193

 

 

 

 

 

8.237

 

 

578

 

 

28,205

 

 

24,807

 

3/11/09

 

 

Distribution $0.223

 

 

 

 

 

4.260

 

 

228

 

 

41,314

 

 

34,212

 

12/2/10

 

 

Distribution $0.08

 

 

 

 

 

9.400

 

 

40

 

 

53,094

 

 

45,884

 

2011

 

 

Annual distribution total $0.533

 

 

 

 

 

8.773

 

 

289

 

 

 

 

 

 

 
                                       

12/31/11

 

 

 

 

$

8,900

 

 

 

 

 

4,971

 

$

49,014

 

$

43,596

 
                                       

Royce Focus Trust

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10/31/96

 

 

Initial Purchase

 

$

4,375

 

$

4.375

 

 

1,000

 

$

5,280

 

$

4,375

 

12/31/96

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,520

 

 

4,594

 

12/5/97

 

 

Distribution $0.53

 

 

 

 

 

5.250

 

 

101

 

 

6,650

 

 

5,574

 

12/31/98

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,199

 

 

5,367

 

12/6/99

 

 

Distribution $0.145

 

 

 

 

 

4.750

 

 

34

 

 

6,742

 

 

5,356

 

12/6/00

 

 

Distribution $0.34

 

 

 

 

 

5.563

 

 

69

 

 

8,151

 

 

6,848

 

12/6/01

 

 

Distribution $0.14

 

 

 

 

 

6.010

 

 

28

 

 

8,969

 

 

8,193

 

12/6/02

 

 

Distribution $0.09

 

 

 

 

 

5.640

 

 

19

 

 

7,844

 

 

6,956

 

12/8/03

 

 

Distribution $0.62

 

 

 

 

 

8.250

 

 

94

 

 

12,105

 

 

11,406

 

2004

 

 

Annual distribution total $1.74

 

 

 

 

 

9.325

 

 

259

 

 

15,639

 

 

16,794

 

5/6/05

 

 

Rights offering

 

 

2,669

 

 

8.340

 

 

320

 

 

 

 

 

 

 

2005

 

 

Annual distribution total $1.21

 

 

 

 

 

9.470

 

 

249

 

 

21,208

 

 

20,709

 

2006

 

 

Annual distribution total $1.57

 

 

 

 

 

9.860

 

 

357

 

 

24,668

 

 

27,020

 

2007

 

 

Annual distribution total $2.01

 

 

 

 

 

9.159

 

 

573

 

 

27,679

 

 

27,834

 

2008

 

 

Annual distribution total $0.473

 

 

 

 

 

6.535

 

 

228

 

 

15,856

 

 

15,323

 

3/11/09

 

 

Distribution $0.093

 

 

 

 

 

3.830

 

 

78

 

 

24,408

 

 

21,579

 

12/31/10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

29,726

 

 

25,806

 

2011

 

 

Annual distribution total $0.413

 

 

 

 

 

6.894

 

 

207

 

 

 

 

 

 

 
                                       

12/31/11

 

 

 

 

$

7,044

 

 

 

 

 

3,616

 

$

26,614

 

$

22,784

 
                                       

1 The purchase price used for annual distribution totals is a weighted average of the distribution reinvestment prices for the year.
2 Other than for initial purchase, values are stated as of December 31 of the year indicated, after reinvestment of distributions.
3 Includes a return of capital.

The Royce Funds 2011 Annual Report to Stockholders | 19


 

Distribution Reinvestment and Cash Purchase Options
 

Have the Funds resumed their managed distribution policies for common stockholders?
The Funds resumed their quarterly distribution policy for Common Stockholders in March 2011, at the annual rate of 5%.

Why should I reinvest my distributions?
By reinvesting distributions, a stockholder can maintain an undiluted investment in the Fund. The regular reinvestment of distributions has a significant impact on stockholder returns. In contrast, the stockholder who takes distributions in cash is penalized when shares are issued below net asset value to other stockholders.

How does the reinvestment of distributions from the Royce closed-end funds work?
The Funds automatically issue shares in payment of distributions unless you indicate otherwise. The shares are generally issued at the lower of the market price or net asset value on the valuation date.

How does this apply to registered stockholders?
If your shares are registered directly with a Fund, your distributions are automatically reinvested unless you have otherwise instructed the Funds’ transfer agent, Computershare, in writing. A registered stockholder also has the option to receive the distribution in the form of a stock certificate or in cash if Computershare is properly notified.

What if my shares are held by a brokerage firm or a bank?
If your shares are held by a brokerage firm, bank, or other intermediary as the stockholder of record, you should contact your brokerage firm or bank to be certain that it is automatically reinvesting distributions on your behalf. If they are unable to reinvest distributions on your behalf, you should have your shares registered in your name in order to participate.

What other features are available for registered stockholders?
The Distribution Reinvestment and Cash Purchase Plans also allow registered stockholders to make optional cash purchases of shares of a Fund’s common stock directly through Computershare on a monthly basis, and to deposit certificates representing your Fund shares with Computershare for safekeeping. The Funds’ investment adviser is absorbing all commissions on optional cash purchases under the Plans through December 31, 2011.

How do the Plans work for registered stockholders?
Computershare maintains the accounts for registered stockholders in the Plans and sends written confirmation of all transactions in the account. Shares in the account of each participant will be held by Computershare in non-certificated form in the name of the participant, and each participant will be able to vote those shares at a stockholder meeting or by proxy. A participant may also send other stock certificates held by them to Computershare to be held in non-certificated form. There is no service fee charged to participants for reinvesting distributions. If a participant elects to sell shares from a Plan account, Computershare will deduct a $2.50 fee plus brokerage commissions from the sale transaction. If a nominee is the registered owner of your shares, the nominee will maintain the accounts on your behalf.

How can I get more information on the Plans?
You can call an Investor Services Representative at (800) 221-4268 or you can request a copy of the Plan for your Fund from Computershare. All correspondence (including notifications) should be directed to: [Name of Fund] Distribution Reinvestment and Cash Purchase Plan, c/o Computershare, PO Box 43010, Providence, RI 02940-3010, telephone (800) 426-5523.



20 | The Royce Funds 2011 Annual Report to Stockholders


 

 

Royce Value Trust

December 31, 2011
   

 

   Schedule of Investments

 

 

 

 

 

 

 

 

 

 

SHARES

 

VALUE

 

COMMON STOCKS – 114.5%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Discretionary – 12.2%

 

 

 

 

 

 

 

Auto Components - 0.4%

 

 

 

 

 

 

 

China XD Plastics 1

 

 

79,200

 

$

422,928

 

Gentex Corporation

 

 

50,000

 

 

1,479,500

 

Minth Group

 

 

1,693,200

 

 

1,587,116

 

Norstar Founders Group 1,2

 

 

524,000

 

 

24,626

 

Williams Controls

 

 

37,499

 

 

414,739

 

 

 

 

 

 

    

 

 

 

 

 

 

 

3,928,909

 

 

 

 

 

 

    

 

Automobiles - 0.3%

 

 

 

 

 

 

 

Thor Industries

 

 

50,000

 

 

1,371,500

 

Winnebago Industries 1

 

 

222,500

 

 

1,642,050

 

 

 

 

 

 

    

 

 

 

 

 

 

 

3,013,550

 

 

 

 

 

 

    

 

Distributors - 1.0%

 

 

 

 

 

 

 

LKQ Corporation 1,3

 

 

230,000

 

 

6,918,400

 

Weyco Group

 

 

97,992

 

 

2,405,704

 

 

 

 

 

 

    

 

 

 

 

 

 

 

9,324,104

 

 

 

 

 

 

    

 

Diversified Consumer Services - 1.5%

 

 

 

 

 

 

 

Anhanguera Educacional Participacoes

 

 

80,000

 

 

862,083

 

ChinaCast Education 1

 

 

135,642

 

 

830,129

 

Corinthian Colleges 1,3

 

 

59,500

 

 

129,115

 

MegaStudy

 

 

13,700

 

 

1,308,160

 

Regis Corporation

 

 

233,800

 

 

3,869,390

 

Sotheby's

 

 

175,700

 

 

5,012,721

 

Steiner Leisure 1

 

 

15,042

 

 

682,756

 

Universal Technical Institute 1

 

 

153,021

 

 

1,955,608

 

 

 

 

 

 

    

 

 

 

 

 

 

 

14,649,962

 

 

 

 

 

 

    

 

Hotels, Restaurants & Leisure - 0.2%

 

 

 

 

 

 

 

Benihana 1

 

 

3,300

 

 

33,759

 

CEC Entertainment

 

 

64,100

 

 

2,208,245

 

 

 

 

 

 

    

 

 

 

 

 

 

 

2,242,004

 

 

 

 

 

 

    

 

Household Durables - 2.4%

 

 

 

 

 

 

 

Desarrolladora Homex ADR 1,3

 

 

14,100

 

 

237,867

 

Ekornes

 

 

55,000

 

 

901,210

 

Ethan Allen Interiors

 

 

345,800

 

 

8,198,918

 

Hanssem

 

 

39,100

 

 

690,699

 

Harman International Industries

 

 

51,000

 

 

1,940,040

 

Mohawk Industries 1

 

 

150,200

 

 

8,989,470

 

NVR 1

 

 

500

 

 

343,000

 

Universal Electronics 1

 

 

10,000

 

 

168,700

 

Woongjin Coway

 

 

50,000

 

 

1,588,541

 

 

 

 

 

 

    

 

 

 

 

 

 

 

23,058,445

 

 

 

 

 

 

    

 

Internet & Catalog Retail - 0.3%

 

 

 

 

 

 

 

Manutan International

 

 

40,573

 

 

1,774,893

 

Takkt

 

 

106,000

 

 

1,168,863

 

 

 

 

 

 

    

 

 

 

 

 

 

 

2,943,756

 

 

 

 

 

 

    

 

Leisure Equipment & Products - 0.3%

 

 

 

 

 

 

 

Beneteau

 

 

65,000

 

 

680,750

 

† Shimano

 

 

53,000

 

 

2,575,289

 

 

 

 

 

 

    

 

 

 

 

 

 

 

3,256,039

 

 

 

 

 

 

    

 

Media - 1.1%

 

 

 

 

 

 

 

Global Sources 1

 

 

49,171

 

 

238,480

 

Lamar Advertising Cl. A 1

 

 

51,000

 

 

1,402,500

 

Morningstar

 

 

109,800

 

 

6,527,610

 

 

 

 

 

 

 

 

 

Consumer Discretionary (continued)

 

SHARES

 

VALUE

 

Media (continued)

 

 

 

 

 

 

 

Pico Far East Holdings

 

 

13,679,000

 

$

2,448,151

 

 

 

 

 

 

    

 

 

 

 

 

 

 

10,616,741

 

 

 

 

 

 

    

 

Multiline Retail - 0.1%

 

 

 

 

 

 

 

New World Department Store China

 

 

1,754,700

 

 

998,606

 

 

 

 

 

 

    

 

Specialty Retail - 1.6%

 

 

 

 

 

 

 

Ascena Retail Group 1

 

 

68,280

 

 

2,029,282

 

Dickson Concepts (International)

 

 

434,300

 

 

225,912

 

Dover Saddlery 1,3

 

 

17,821

 

 

70,927

 

GameStop Corporation Cl. A 1,3

 

 

24,400

 

 

588,772

 

Hengdeli Holdings

 

 

1,660,250

 

 

540,833

 

Jos. A. Bank Clothiers 1

 

 

17,000

 

 

828,920

 

Lewis Group

 

 

200,000

 

 

1,985,742

 

Luk Fook Holdings (International)

 

 

202,000

 

 

704,839

 

Men's Wearhouse (The)

 

 

31,000

 

 

1,004,710

 

Sa Sa International Holdings

 

 

1,200,000

 

 

662,838

 

Stein Mart 1

 

 

167,800

 

 

1,142,718

 

Systemax 1

 

 

224,000

 

 

3,675,840

 

West Marine 1

 

 

131,100

 

 

1,524,693

 

 

 

 

 

 

    

 

 

 

 

 

 

 

14,986,026

 

 

 

 

 

 

    

 

Textiles, Apparel & Luxury Goods - 3.0%

 

 

 

 

 

 

 

Anta Sports Products

 

 

653,200

 

 

780,483

 

Carter's 1

 

 

236,000

 

 

9,395,160

 

† China Xiniya Fashion ADR 1,3

 

 

45,700

 

 

91,400

 

Columbia Sportswear

 

 

47,197

 

 

2,197,020

 

Daphne International Holdings

 

 

1,400,800

 

 

1,560,132

 

Grendene

 

 

300,000

 

 

1,236,831

 

J.G. Boswell Company 4

 

 

2,292

 

 

1,570,020

 

K-Swiss Cl. A 1,3

 

 

163,600

 

 

477,712

 

Lazare Kaplan International 1,4

 

 

95,437

 

 

238,592

 

Pacific Textiles Holdings

 

 

3,470,000

 

 

1,965,854

 

Stella International Holdings

 

 

788,700

 

 

1,714,168

 

Texwinca Holdings

 

 

301,000

 

 

334,074

 

Unifi 1

 

 

40,333

 

 

306,531

 

Van de Velde

 

 

10,000

 

 

457,259

 

Warnaco Group (The) 1

 

 

55,700

 

 

2,787,228

 

Wolverine World Wide

 

 

100,000

 

 

3,564,000

 

 

 

 

 

 

    

 

 

 

 

 

 

 

28,676,464

 

 

 

 

 

 

    

 

Total (Cost $99,807,989)

 

 

 

 

 

117,694,606

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

Consumer Staples – 2.3%

 

 

 

 

 

 

 

Beverages - 0.1%

 

 

 

 

 

 

 

† Heckmann Corporation 1,3

 

 

50,000

 

 

332,500

 

MGP Ingredients

 

 

127,400

 

 

642,096

 

 

 

 

 

 

    

 

 

 

 

 

 

 

974,596

 

 

 

 

 

 

    

 

Food & Staples Retailing - 0.4%

 

 

 

 

 

 

 

FamilyMart

 

 

90,000

 

 

3,636,482

 

 

 

 

 

 

    

 

Food Products - 1.8%

 

 

 

 

 

 

 

Alico

 

 

27,000

 

 

522,990

 

Asian Citrus Holdings

 

 

387,800

 

 

202,224

 

Binggrae

 

 

23,296

 

 

1,205,244

 

BW Plantation

 

 

875,100

 

 

108,091

 

Cal-Maine Foods

 

 

41,400

 

 

1,513,998

 

First Resources

 

 

1,204,800

 

 

1,402,604

 


 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

2011 Annual Report to Stockholders | 21

 

 

 

Royce Value Trust

   

 

   Schedule of Investments

 

 

 

 

 

 

 

 

 

 

SHARES

 

VALUE

 

Consumer Staples (continued)

 

 

 

 

 

 

 

Food Products (continued)

 

 

 

 

 

 

 

Hershey Creamery 4

 

 

709

 

$

1,205,300

 

Origin Agritech 1,3

 

 

76,800

 

 

181,248

 

Seneca Foods Cl. A 1,3

 

 

110,000

 

 

2,840,200

 

Seneca Foods Cl. B 1

 

 

13,251

 

 

345,056

 

Super Group

 

 

890,000

 

 

902,317

 

Tootsie Roll Industries

 

 

278,566

 

 

6,593,657

 

† Waterloo Investment Holdings 1,2

 

 

598,676

 

 

83,695

 

Westway Group

 

 

31,500

 

 

176,400

 

 

 

 

 

 

    

 

 

 

 

 

 

 

17,283,024

 

 

 

 

 

 

    

 

Total (Cost $20,158,826)

 

 

 

 

 

21,894,102

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

Diversified Investment Companies – 0.5%

 

 

 

 

 

 

 

Closed-End Funds - 0.5%

 

 

 

 

 

 

 

Central Fund of Canada Cl. A

 

 

226,000

 

 

4,429,600

 

 

 

 

 

 

    

 

Total (Cost $2,031,251)

 

 

 

 

 

4,429,600

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

Energy – 6.0%

 

 

 

 

 

 

 

Energy Equipment & Services - 5.3%

 

 

 

 

 

 

 

Atwood Oceanics 1,3

 

 

15,300

 

 

608,787

 

Cal Dive International 1,3

 

 

456,250

 

 

1,026,563

 

CARBO Ceramics

 

 

29,700

 

 

3,662,901

 

Ensco ADR

 

 

57,600

 

 

2,702,592

 

Ensign Energy Services

 

 

225,100

 

 

3,590,552

 

Helmerich & Payne

 

 

98,000

 

 

5,719,280

 

ION Geophysical 1

 

 

361,500

 

 

2,215,995

 

Oceaneering International

 

 

9,900

 

 

456,687

 

Oil States International 1

 

 

152,723

 

 

11,663,456

 

Pason Systems

 

 

97,000

 

 

1,142,577

 

SEACOR Holdings 1

 

 

73,866

 

 

6,571,119

 

ShawCor Cl. A

 

 

82,500

 

 

2,338,748

 

TETRA Technologies 1,3

 

 

68,000

 

 

635,120

 

TGS-NOPEC Geophysical

 

 

96,000

 

 

2,126,788

 

Tidewater

 

 

36,000

 

 

1,774,800

 

Trican Well Service

 

 

169,900

 

 

2,926,866

 

Unit Corporation 1

 

 

34,000

 

 

1,577,600

 

Willbros Group 1

 

 

103,800

 

 

380,946

 

 

 

 

 

 

    

 

 

 

 

 

 

 

51,121,377

 

 

 

 

 

 

    

 

Oil, Gas & Consumable Fuels - 0.7%

 

 

 

 

 

 

 

Bill Barrett 1

 

 

50,000

 

 

1,703,500

 

Cimarex Energy

 

 

61,300

 

 

3,794,470

 

Resolute Energy 1,3

 

 

141,134

 

 

1,524,247

 

 

 

 

 

 

    

 

 

 

 

 

 

 

7,022,217

 

 

 

 

 

 

    

 

Total (Cost $37,440,084)

 

 

 

 

 

58,143,594

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

Financials – 20.6%

 

 

 

 

 

 

 

Capital Markets - 9.7%

 

 

 

 

 

 

 

A.F.P. Provida ADR

 

 

22,100

 

 

1,445,782

 

ABG Sundal Collier Holding

 

 

115,000

 

 

70,951

 

Affiliated Managers Group 1

 

 

47,600

 

 

4,567,220

 

AllianceBernstein Holding L.P.

 

 

514,600

 

 

6,730,968

 

AP Alternative Assets L.P.

 

 

233,200

 

 

1,970,540

 

Artio Global Investors Cl. A

 

 

235,000

 

 

1,146,800

 

ASA Gold and Precious Metals

 

 

40,000

 

 

1,047,600

 

 

 

 

 

 

 

 

 

 

 

SHARES

 

VALUE

 

Financials (continued)

 

 

 

 

 

 

 

Capital Markets (continued)

 

 

 

 

 

 

 

Ashmore Group

 

 

868,000

 

$

4,502,333

 

Azimut Holding

 

 

72,183

 

 

578,755

 

Banca Generali

 

 

86,000

 

 

801,400

 

Bank Sarasin & Co. Cl. B

 

 

33,120

 

 

967,895

 

Banque Privee Edmond de Rothschild

 

 

23

 

 

587,672

 

BKF Capital Group 1,4

 

 

130,000

 

 

144,300

 

BT Investment Management

 

 

207,000

 

 

382,154

 

Close Brothers Group

 

 

43,000

 

 

413,696

 

Coronation Fund Managers

 

 

526,000

 

 

1,479,111

 

Cowen Group Cl. A 1

 

 

1,154,458

 

 

2,990,046

 

Daewoo Securities

 

 

5,000

 

 

45,139

 

Eaton Vance

 

 

85,300

 

 

2,016,492

 

Egyptian Financial Group-Hermes

 

 

 

 

 

 

 

Holding 1

 

 

783,125

 

 

1,298,553

 

Epoch Holding Corporation

 

 

25,000

 

 

555,750

 

Equity Trustees

 

 

38,314

 

 

521,587

 

F&C Asset Management

 

 

60,000

 

 

60,986

 

FBR & Co. 1

 

 

576,200

 

 

1,181,210

 

Federated Investors Cl. B

 

 

224,700

 

 

3,404,205

 

Fiducian Portfolio Services

 

 

227,000

 

 

239,141

 

GAMCO Investors Cl. A

 

 

90,575

 

 

3,939,107

 

GFI Group

 

 

166,247

 

 

684,938

 

GIMV

 

 

22,500

 

 

1,073,969

 

Gleacher & Company 1,3

 

 

200,000

 

 

336,000

 

GP Investments BDR 1

 

 

15,604

 

 

33,212

 

Investec

 

 

118,000

 

 

621,231

 

IOOF Holdings

 

 

123,592

 

 

647,219

 

† Jupiter Fund Management

 

 

75,000

 

 

252,867

 

KKR & Co. L.P.

 

 

415,000

 

 

5,324,450

 

Lazard Cl. A

 

 

317,700

 

 

8,295,147

 

MVC Capital

 

 

234,200

 

 

2,714,378

 

Oppenheimer Holdings Cl. A

 

 

75,000

 

 

1,207,500

 

Paris Orleans et Cie

 

 

188,359

 

 

3,559,242

 

Partners Group Holding

 

 

12,200

 

 

2,128,798

 

Perpetual

 

 

14,085

 

 

294,317

 

Phatra Capital

 

 

375,000

 

 

341,720

 

Platinum Asset Management

 

 

149,000

 

 

536,438

 

Rathbone Brothers

 

 

35,400

 

 

582,748

 

Reinet Investments 1

 

 

164,948

 

 

2,932,203

 

Schroders

 

 

41,100

 

 

838,704

 

SEI Investments

 

 

321,700

 

 

5,581,495

 

SHUAA Capital 1

 

 

485,000

 

 

72,622

 

SPARX Group 1

 

 

1,320

 

 

91,922

 

Sprott

 

 

269,600

 

 

1,532,254

 

Teton Advisors Cl. A 4

 

 

723

 

 

9,761

 

Treasury Group

 

 

51,500

 

 

191,207

 

Trust Company (The)

 

 

100,584

 

 

516,444

 

UOB-Kay Hian Holdings

 

 

190,000

 

 

224,856

 

Value Partners Group

 

 

8,016,800

 

 

4,097,893

 

Vontobel Holding

 

 

20,400

 

 

456,084

 

VZ Holding

 

 

8,500

 

 

873,257

 

Waddell & Reed Financial Cl. A

 

 

139,300

 

 

3,450,461

 

Westwood Holdings Group

 

 

23,460

 

 

857,463

 


 

 

22 | 2011 Annual Report to Stockholders

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.


 

 

December 31, 2011
   

 

 

 

 

 

 

 

 

 

 

 

 

 

SHARES

 

 

VALUE

 

Financials (continued)

 

 

 

 

 

 

 

Capital Markets (continued)

 

 

 

 

 

 

 

Woori Investment & Securities

 

 

14,911

 

$

137,202

 

 

 

 

 

 

    

 

 

 

 

 

 

 

93,587,395

 

 

 

 

 

 

    

 

Commercial Banks - 1.4%

 

 

 

 

 

 

 

Ameriana Bancorp

 

 

40,000

 

 

160,800

 

Bank of N.T. Butterfield & Son 1

 

 

882,304

 

 

1,014,650

 

BCB Holdings 1

 

 

598,676

 

 

251,031

 

Center Bancorp

 

 

44,868

 

 

438,360

 

Commercial National Financial

 

 

37,996

 

 

897,465

 

Farmers & Merchants Bank of Long

 

 

 

 

 

 

 

Beach

 

 

1,200

 

 

4,860,000

 

Fauquier Bankshares

 

 

160,800

 

 

1,744,680

 

Hawthorn Bancshares

 

 

27,458

 

 

168,318

 

M&T Bank

 

 

16,927

 

 

1,292,207

 

Mauritius Commercial Bank

 

 

40,000

 

 

227,598

 

Mechanics Bank

 

 

200

 

 

2,280,000

 

Old Point Financial

 

 

25,000

 

 

251,250

 

Peapack-Gladstone Financial

 

 

10,500

 

 

112,770

 

 

 

 

 

 

    

 

 

 

 

 

 

 

13,699,129

 

 

 

 

 

 

    

 

Consumer Finance - 0.3%

 

 

 

 

 

 

 

World Acceptance 1,3

 

 

42,000

 

 

3,087,000

 

 

 

 

 

 

    

 

Diversified Financial Services - 0.5%

 

 

 

 

 

 

 

Banca Finnat Euramerica

 

 

1,060,000

 

 

394,972

 

Interactive Brokers Group Cl. A

 

 

100,000

 

 

1,494,000

 

PICO Holdings 1

 

 

106,100

 

 

2,183,538

 

RHJ International 1

 

 

102,500

 

 

465,639

 

State Bank of Mauritius

 

 

46,000

 

 

131,652

 

 

 

 

 

 

    

 

 

 

 

 

 

 

4,669,801

 

 

 

 

 

 

    

 

Insurance - 5.6%

 

 

 

 

 

 

 

Alleghany Corporation 1

 

 

35,619

 

 

10,161,744

 

Argo Group International Holdings

 

 

64,751

 

 

1,875,189

 

Brown & Brown

 

 

291,800

 

 

6,603,434

 

Crawford & Company Cl. B

 

 

1,160

 

 

7,146

 

Discovery Holdings

 

 

120,000

 

 

646,636

 

eHealth 1,3

 

 

32,000

 

 

470,400

 

E-L Financial

 

 

19,900

 

 

6,641,472

 

Enstar Group 1

 

 

11,000

 

 

1,080,200

 

Erie Indemnity Cl. A

 

 

50,000

 

 

3,908,000

 

Hilltop Holdings 1

 

 

290,400

 

 

2,453,880

 

Independence Holding

 

 

317,658

 

 

2,582,560

 

Platinum Underwriters Holdings

 

 

139,000

 

 

4,741,290

 

† Primerica

 

 

170,000

 

 

3,950,800

 

ProAssurance Corporation

 

 

22,000

 

 

1,756,040

 

RLI

 

 

80,724

 

 

5,881,551

 

Validus Holdings

 

 

16,300

 

 

513,450

 

White Mountains Insurance Group

 

 

1,050

 

 

476,133

 

 

 

 

 

 

    

 

 

 

 

 

 

 

53,749,925

 

 

 

 

 

 

    

 

Real Estate Investment Trusts (REITs) - 0.6%

 

 

 

 

 

 

 

† Colony Financial

 

 

405,178

 

 

6,365,346

 

 

 

 

 

 

    

 

Real Estate Management & Development - 1.9%

 

 

 

 

 

 

 

Altisource Portfolio Solutions 1

 

 

41,199

 

 

2,067,366

 

Consolidated-Tomoka Land

 

 

63,564

 

 

1,720,677

 

E-House China Holdings ADR

 

 

406,100

 

 

1,734,047

 

Forestar Group 1

 

 

180,000

 

 

2,723,400

 

Kennedy-Wilson Holdings

 

 

150,000

 

 

1,587,000

 

 

 

 

 

 

 

 

 

 

 

SHARES

 

VALUE

 

Financials (continued)

 

 

 

 

 

 

 

Real Estate Management & Development (continued)

 

 

 

 

 

 

 

Midland Holdings

 

 

1,927,800

 

$

1,002,796

 

St. Joe Company (The) 1,3

 

 

127,000

 

 

1,861,820

 

Tejon Ranch 1,3

 

 

222,000

 

 

5,434,560

 

 

 

 

 

 

    

 

 

 

 

 

 

 

18,131,666

 

 

 

 

 

 

    

 

Thrifts & Mortgage Finance - 0.6%

 

 

 

 

 

 

 

CFS Bancorp

 

 

150,000

 

 

649,500

 

HopFed Bancorp

 

 

108,721

 

 

706,686

 

Kearny Financial

 

 

70,862

 

 

673,189

 

MyState

 

 

152,000

 

 

522,365

 

Ocwen Financial 1

 

 

123,600

 

 

1,789,728

 

Timberland Bancorp 1,5

 

 

444,200

 

 

1,710,170

 

 

 

 

 

 

    

 

 

 

 

 

 

 

6,051,638

 

 

 

 

 

 

    

 

Total (Cost $229,860,099)

 

 

 

 

 

199,341,900

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

Health Care – 7.3%

 

 

 

 

 

 

 

Biotechnology - 0.2%

 

 

 

 

 

 

 

Pharmacyclics 1,3

 

 

98,746

 

 

1,463,416

 

3SBio ADR 1

 

 

21,600

 

 

220,752

 

 

 

 

 

 

    

 

 

 

 

 

 

 

1,684,168

 

 

 

 

 

 

    

 

Health Care Equipment & Supplies - 2.3%

 

 

 

 

 

 

 

Allied Healthcare Products 1

 

 

180,512

 

 

613,741

 

Analogic Corporation

 

 

40,135

 

 

2,300,538

 

Atrion Corporation

 

 

15,750

 

 

3,783,622

 

bioMerieux

 

 

13,800

 

 

986,623

 

Carl Zeiss Meditec

 

 

163,700

 

 

3,457,699

 

CONMED Corporation 1

 

 

81,500

 

 

2,092,105

 

DiaSorin

 

 

30,000

 

 

756,748

 

DynaVox Cl. A 1,3

 

 

55,000

 

 

200,200

 

IDEXX Laboratories 1

 

 

40,201

 

 

3,093,869

 

Kossan Rubber Industries

 

 

700,600

 

 

718,281

 

Nihon Kohden

 

 

25,100

 

 

619,266

 

Straumann Holding

 

 

4,000

 

 

690,301

 

Top Glove

 

 

700,000

 

 

1,104,101

 

Urologix 1

 

 

315,500

 

 

340,740

 

Young Innovations

 

 

62,550

 

 

1,853,356

 

Zoll Medical 1

 

 

400

 

 

25,272

 

 

 

 

 

 

    

 

 

 

 

 

 

 

22,636,462

 

 

 

 

 

 

    

 

Health Care Providers & Services - 0.7%

 

 

 

 

 

 

 

Cross Country Healthcare 1

 

 

30,000

 

 

166,500

 

Landauer

 

 

75,500

 

 

3,888,250

 

† Metropolitan Health Networks 1,3

 

 

28,100

 

 

209,907

 

MWI Veterinary Supply 1

 

 

10,000

 

 

664,400

 

VCA Antech 1

 

 

72,900

 

 

1,439,775

 

 

 

 

 

 

    

 

 

 

 

 

 

 

6,368,832

 

 

 

 

 

 

    

 

Life Sciences Tools & Services - 2.9%

 

 

 

 

 

 

 

Affymetrix 1

 

 

10,000

 

 

40,900

 

Albany Molecular Research 1

 

 

85,000

 

 

249,050

 

† Bio-Rad Laboratories Cl. A 1

 

 

21,888

 

 

2,102,124

 

EPS

 

 

512

 

 

985,818

 

Furiex Pharmaceuticals 1

 

 

8,333

 

 

139,244

 

ICON ADR 1,3

 

 

266,650

 

 

4,562,381

 

Luminex Corporation 1,3

 

 

20,000

 

 

424,600

 

Mettler-Toledo International 1

 

 

33,500

 

 

4,948,285

 


 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

2011 Annual Report to Stockholders | 23


 

 

Royce Value Trust

   

 

   Schedule of Investments

 

 

 

 

 

 

 

 

 

 

SHARES

 

VALUE

 

Health Care (continued)

 

 

 

 

 

 

 

Life Sciences Tools & Services (continued)

 

 

 

 

 

 

 

PAREXEL International 1,3

 

 

312,400

 

$

6,479,176

 

PerkinElmer

 

 

185,800

 

 

3,716,000

 

Techne Corporation

 

 

71,000

 

 

4,846,460

 

 

 

 

 

 

    

 

 

 

 

 

 

 

28,494,038

 

 

 

 

 

 

    

 

Pharmaceuticals - 1.2%

 

 

 

 

 

 

 

Adcock Ingram Holdings

 

 

230,000

 

 

1,759,357

 

Almirall

 

 

140,000

 

 

962,146

 

Boiron

 

 

60,000

 

 

1,554,654

 

Daewoong Pharmaceutical

 

 

17,582

 

 

442,602

 

Hikma Pharmaceuticals

 

 

60,000

 

 

577,716

 

Kalbe Farma

 

 

800,000

 

 

299,972

 

Recordati

 

 

215,000

 

 

1,554,104

 

Santen Pharmaceutical

 

 

72,000

 

 

2,965,311

 

Virbac

 

 

9,000

 

 

1,396,626

 

 

 

 

 

 

    

 

 

 

 

 

 

 

11,512,488

 

 

 

 

 

 

    

 

Total (Cost $51,570,332)

 

 

 

 

 

70,695,988

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

Industrials – 27.9%

 

 

 

 

 

 

 

Aerospace & Defense - 2.0%

 

 

 

 

 

 

 

Cubic Corporation

 

 

8,600

 

 

374,874

 

Ducommun

 

 

117,200

 

 

1,494,300

 

HEICO Corporation

 

 

168,281

 

 

9,841,073

 

HEICO Corporation Cl. A

 

 

51,718

 

 

2,035,103

 

Hexcel Corporation 1

 

 

47,500

 

 

1,149,975

 

Moog Cl. A 1

 

 

25,000

 

 

1,098,250

 

National Presto Industries

 

 

3,000

 

 

280,800

 

Teledyne Technologies 1,3

 

 

62,430

 

 

3,424,286

 

 

 

 

 

 

    

 

 

 

 

 

 

 

19,698,661

 

 

 

 

 

 

    

 

Air Freight & Logistics - 1.8%

 

 

 

 

 

 

 

C. H. Robinson Worldwide

 

 

50,000

 

 

3,489,000

 

Forward Air

 

 

209,750

 

 

6,722,488

 

Hub Group Cl. A 1,3

 

 

149,400

 

 

4,845,042

 

UTi Worldwide

 

 

175,000

 

 

2,325,750

 

 

 

 

 

 

    

 

 

 

 

 

 

 

17,382,280

 

 

 

 

 

 

    

 

Airlines - 0.0%

 

 

 

 

 

 

 

† Spirit Airlines 1,3

 

 

11,200

 

 

174,720

 

 

 

 

 

 

    

 

Building Products - 1.1%

 

 

 

 

 

 

 

American Woodmark

 

 

123,335

 

 

1,684,756

 

Burnham Holdings Cl. B 4

 

 

36,000

 

 

484,200

 

Simpson Manufacturing

 

 

258,400

 

 

8,697,744

 

Sung Kwang Bend

 

 

15,700

 

 

258,941

 

 

 

 

 

 

    

 

 

 

 

 

 

 

11,125,641

 

 

 

 

 

 

    

 

Commercial Services & Supplies - 2.5%

 

 

 

 

 

 

 

Brink's Company (The)

 

 

206,320

 

 

5,545,882

 

Cintas Corporation

 

 

25,000

 

 

870,250

 

CompX International Cl. A

 

 

185,300

 

 

2,729,469

 

Copart 1

 

 

74,890

 

 

3,586,482

 

Kimball International Cl. B

 

 

286,180

 

 

1,450,932

 

Moshi Moshi Hotline

 

 

220,000

 

 

2,072,236

 

Ritchie Bros. Auctioneers

 

 

337,700

 

 

7,456,416

 

 

 

 

 

 

    

 

 

 

 

 

 

 

23,711,667

 

 

 

 

 

 

    

 

Construction & Engineering - 1.6%

 

 

 

 

 

 

 

EMCOR Group

 

 

199,400

 

 

5,345,914

 

 

 

 

 

 

 

 

 

 

 

SHARES

 

VALUE

 

Industrials (continued)

 

 

 

 

 

 

 

Construction & Engineering (continued)

 

 

 

 

 

 

 

Integrated Electrical Services 1

 

 

266,349

 

$

511,390

 

Jacobs Engineering Group 1

 

 

81,400

 

 

3,303,212

 

KBR

 

 

175,000

 

 

4,877,250

 

Raubex Group

 

 

650,000

 

 

1,074,939

 

 

 

 

 

 

    

 

 

 

 

 

 

 

15,112,705

 

 

 

 

 

 

    

 

Electrical Equipment - 3.1%

 

 

 

 

 

 

 

AZZ

 

 

43,000

 

 

1,953,920

 

Belden

 

 

57,800

 

 

1,923,584

 

Franklin Electric

 

 

104,600

 

 

4,556,376

 

Fushi Copperweld 1

 

 

132,931

 

 

999,641

 

GrafTech International 1

 

 

395,090

 

 

5,392,978

 

Jinpan International

 

 

138,384

 

 

1,127,138

 

Powell Industries 1

 

 

92,400

 

 

2,890,272

 

Preformed Line Products

 

 

91,600

 

 

5,464,856

 

Regal-Beloit

 

 

116,500

 

 

5,938,005

 

 

 

 

 

 

    

 

 

 

 

 

 

 

30,246,770

 

 

 

 

 

 

    

 

Industrial Conglomerates - 0.6%

 

 

 

 

 

 

 

Raven Industries

 

 

96,200

 

 

5,954,780

 

 

 

 

 

 

    

 

Machinery - 10.1%

 

 

 

 

 

 

 

Armstrong Industrial

 

 

2,776,100

 

 

481,572

 

Burckhardt Compression Holding

 

 

18,400

 

 

4,603,428

 

China Automation Group

 

 

594,800

 

 

172,315

 

CLARCOR

 

 

92,500

 

 

4,624,075

 

Columbus McKinnon 1

 

 

133,100

 

 

1,689,039

 

Donaldson Company

 

 

92,800

 

 

6,317,824

 

FAG Bearings India

 

 

28,000

 

 

553,594

 

Flowserve Corporation

 

 

9,200

 

 

913,744

 

Gardner Denver

 

 

25,900

 

 

1,995,854

 

Graco

 

 

116,376

 

 

4,758,615

 

Hardinge

 

 

26,193

 

 

210,854

 

IDEX Corporation

 

 

67,400

 

 

2,501,214

 

Industrea

 

 

1,064,700

 

 

1,067,196

 

Kennametal

 

 

155,000

 

 

5,660,600

 

Lincoln Electric Holdings

 

 

216,760

 

 

8,479,651

 

Lindsay Corporation

 

 

6,400

 

 

351,296

 

Mueller Water Products Cl. A

 

 

72,500

 

 

176,900

 

NN 1

 

 

197,100

 

 

1,182,600

 

Nordson Corporation

 

 

204,200

 

 

8,408,956

 

Pfeiffer Vacuum Technology

 

 

31,000

 

 

2,713,034

 

PMFG 1,3

 

 

255,352

 

 

4,981,917

 

Rational

 

 

8,000

 

 

1,741,543

 

RBC Bearings 1

 

 

47,000

 

 

1,959,900

 

Rotork

 

 

12,500

 

 

374,661

 

Semperit AG Holding

 

 

72,500

 

 

2,791,536

 

Spirax-Sarco Engineering

 

 

82,000

 

 

2,385,190

 

Valmont Industries

 

 

53,800

 

 

4,884,502

 

WABCO Holdings 1

 

 

103,800

 

 

4,504,920

 

Wabtec Corporation

 

 

103,325

 

 

7,227,584

 

Woodward

 

 

231,600

 

 

9,479,388

 

 

 

 

 

 

    

 

 

 

 

 

 

 

97,193,502

 

 

 

 

 

 

    

 

Marine - 0.5%

 

 

 

 

 

 

 

Kirby Corporation 1

 

 

80,000

 

 

5,267,200

 

 

 

 

 

 

    

 

Professional Services - 2.3%

 

 

 

 

 

 

 

Advisory Board (The) 1

 

 

128,500

 

 

9,535,985

 


 

 

24 | 2011 Annual Report to Stockholders

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

 

December 31, 2011
 

 

 

 

 

 

 

 

 

 

 

 

 

SHARES

 

VALUE

 

Industrials (continued)

 

 

 

 

 

 

 

Professional Services (continued)

 

 

 

 

 

 

 

CRA International 1

 

 

64,187

 

$

1,273,470

 

FTI Consulting 1

 

 

7,850

 

 

332,997

 

JobStreet Corporation

 

 

50,000

 

 

35,174

 

ManpowerGroup

 

 

78,600

 

 

2,809,950

 

Michael Page International

 

 

200,000

 

 

1,083,373

 

On Assignment 1

 

 

375,400

 

 

4,196,972

 

Robert Half International

 

 

98,900

 

 

2,814,694

 

 

 

 

 

 

    

 

 

 

 

 

 

 

22,082,615

 

 

 

 

 

 

    

 

Road & Rail - 1.4%

 

 

 

 

 

 

 

Arkansas Best

 

 

100,500

 

 

1,936,635

 

Frozen Food Express Industries 1

 

 

286,635

 

 

369,759

 

Landstar System

 

 

99,400

 

 

4,763,248

 

Patriot Transportation Holding 1

 

 

212,958

 

 

4,621,189

 

Universal Truckload Services

 

 

114,976

 

 

2,086,814

 

 

 

 

 

 

    

 

 

 

 

 

 

 

13,777,645

 

 

 

 

 

 

    

 

Trading Companies & Distributors - 0.9%

 

 

 

 

 

 

 

AerCap Holdings 1

 

 

45,000

 

 

508,050

 

† Air Lease Cl. A 1,3

 

 

40,700

 

 

964,997

 

Lawson Products

 

 

161,431

 

 

2,490,880

 

MSC Industrial Direct Cl. A

 

 

60,948

 

 

4,360,830

 

 

 

 

 

 

    

 

 

 

 

 

 

 

8,324,757

 

 

 

 

 

 

    

 

Total (Cost $164,936,029)

 

 

 

 

 

270,052,943

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

Information Technology – 22.3%

 

 

 

 

 

 

 

Communications Equipment - 2.4%

 

 

 

 

 

 

 

AAC Technologies Holdings

 

 

556,700

 

 

1,254,378

 

ADTRAN

 

 

121,700

 

 

3,670,472

 

Arris Group 1

 

 

140,350

 

 

1,518,587

 

Bel Fuse Cl. A

 

 

36,672

 

 

770,845

 

Black Box

 

 

43,798

 

 

1,228,096

 

Cogo Group 1

 

 

107,515

 

 

193,527

 

Comba Telecom Systems Holdings

 

 

812,128

 

 

655,633

 

Comtech Telecommunications

 

 

30,000

 

 

858,600

 

Emulex Corporation 1,3

 

 

579,000

 

 

3,971,940

 

EVS Broadcast Equipment

 

 

37,298

 

 

1,906,299

 

Globecomm Systems 1

 

 

183,700

 

 

2,513,016

 

Sonus Networks 1

 

 

1,124,000

 

 

2,697,600

 

VTech Holdings

 

 

105,550

 

 

1,058,680

 

Zhone Technologies 1

 

 

422,103

 

 

363,009

 

 

 

 

 

 

    

 

 

 

 

 

 

 

22,660,682

 

 

 

 

 

 

    

 

Computers & Peripherals - 1.0%

 

 

 

 

 

 

 

China Digital TV Holding Co. ADR

 

 

5,000

 

 

15,850

 

Diebold

 

 

151,600

 

 

4,558,612

 

Electronics for Imaging 1,3

 

 

8,517

 

 

121,367

 

Intermec 1

 

 

23,000

 

 

157,780

 

Intevac 1

 

 

57,450

 

 

425,130

 

SanDisk Corporation 1

 

 

9,600

 

 

472,416

 

SMART Technologies Cl. A 1

 

 

75,000

 

 

276,750

 

Steel Excel 1,4

 

 

156,880

 

 

3,765,120

 

 

 

 

 

 

    

 

 

 

 

 

 

 

9,793,025

 

 

 

 

 

 

    

 

Electronic Equipment, Instruments & Components - 9.9%

 

 

 

 

 

 

 

Agilysys 1

 

 

165,125

 

 

1,312,744

 

Anixter International 1

 

 

61,795

 

 

3,685,454

 

 

 

 

 

 

 

 

 

 

 

SHARES

 

VALUE

 

Information Technology (continued)

 

 

 

 

 

 

 

Electronic Equipment, Instruments & Components (continued)

 

 

 

 

 

 

 

Benchmark Electronics 1

 

 

165,200

 

$

2,225,244

 

China 3C Group 1

 

 

6,600

 

 

396

 

China High Precision Automation Group 2

 

 

2,720,300

 

 

478,773

 

Chroma Ate

 

 

519,982

 

 

1,020,078

 

Cognex Corporation

 

 

236,200

 

 

8,453,598

 

Coherent 1

 

 

235,900

 

 

12,330,493

 

Dolby Laboratories Cl. A 1,3

 

 

169,700

 

 

5,177,547

 

† FEI Company 1

 

 

127,500

 

 

5,199,450

 

FLIR Systems

 

 

105,000

 

 

2,632,350

 

Hana Microelectronics

 

 

1,391,300

 

 

833,457

 

Hollysys Automation Technologies 1

 

 

65,727

 

 

546,849

 

Image Sensing Systems 1

 

 

8,310

 

 

54,140

 

IPG Photonics 1

 

 

73,600

 

 

2,492,832

 

Kingboard Chemical Holdings

 

 

311,900

 

 

921,652

 

Mercury Computer Systems 1

 

 

40,500

 

 

538,245

 

Molex

 

 

72,600

 

 

1,732,236

 

National Instruments

 

 

251,850

 

 

6,535,507

 

Newport Corporation 1

 

 

523,500

 

 

7,124,835

 

Nice

 

 

8,368

 

 

25,884

 

Perceptron 1

 

 

357,700

 

 

1,702,652

 

Plexus Corporation 1,3

 

 

195,700

 

 

5,358,266

 

Pulse Electronics

 

 

286,200

 

 

801,360

 

Richardson Electronics

 

 

395,712

 

 

4,863,300

 

Rofin-Sinar Technologies 1,3

 

 

320,600

 

 

7,325,710

 

Tech Data 1

 

 

136,500

 

 

6,744,465

 

TTM Technologies 1

 

 

211,400

 

 

2,316,944

 

Vaisala Cl. A

 

 

166,000

 

 

3,523,467

 

 

 

 

 

 

    

 

 

 

 

 

 

 

95,957,928

 

 

 

 

 

 

    

 

Internet Software & Services - 0.9%

 

 

 

 

 

 

 

† Active Network 1,3

 

 

21,500

 

 

292,400

 

Perficient 1

 

 

10,000

 

 

100,100

 

RealNetworks

 

 

61,350

 

 

460,125

 

ValueClick 1

 

 

145,000

 

 

2,362,050

 

† VistaPrint 1,3

 

 

175,000

 

 

5,355,000

 

 

 

 

 

 

    

 

 

 

 

 

 

 

8,569,675

 

 

 

 

 

 

    

 

IT Services - 3.6%

 

 

 

 

 

 

 

Convergys Corporation 1

 

 

121,000

 

 

1,545,170

 

CoreLogic 1

 

 

94,000

 

 

1,215,420

 

Forrester Research 1

 

 

40,300

 

 

1,367,782

 

Gartner 1

 

 

101,000

 

 

3,511,770

 

Hackett Group 1

 

 

655,000

 

 

2,449,700

 

ManTech International Cl. A

 

 

35,400

 

 

1,105,896

 

MAXIMUS

 

 

188,400

 

 

7,790,340

 

MoneyGram International 1,3

 

 

164,962

 

 

2,928,075

 

NeuStar Cl. A 1

 

 

84,287

 

 

2,880,087

 

Sapient Corporation

 

 

706,602

 

 

8,903,185

 

Total System Services

 

 

47,200

 

 

923,232

 

Western Union

 

 

7,000

 

 

127,820

 

Yucheng Technologies 1

 

 

83,946

 

 

188,879

 

 

 

 

 

 

    

 

 

 

 

 

 

 

34,937,356

 

 

 

 

 

 

    

 

Office Electronics - 0.1%

 

 

 

 

 

 

 

Zebra Technologies Cl. A 1

 

 

28,100

 

 

1,005,418

 

 

 

 

 

 

    

 

Semiconductors & Semiconductor Equipment - 2.4%

 

 

 

 

 

 

 

Aixtron ADR

 

 

72,000

 

 

914,400

 


 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

2011 Annual Report to Stockholders | 25

 

Royce Value Trust
 

 

   Schedule of Investments


 

 

 

 

 

 

 

 

 

 

 

SHARES

 

 

VALUE

 

Information Technology (continued)

 

 

 

 

 

 

 

Semiconductors & Semiconductor Equipment (continued)

 

 

 

 

 

 

 

Analog Devices

 

 

16,004

 

$

572,623

 

ASM Pacific Technology

 

 

110,000

 

 

1,234,324

 

BE Semiconductor Industries 4

 

 

58,000

 

 

376,420

 

Cymer 1

 

 

105,700

 

 

5,259,632

 

Diodes 1,3

 

 

262,850

 

 

5,598,705

 

Exar Corporation 1

 

 

157,576

 

 

1,024,244

 

International Rectifier 1

 

 

120,000

 

 

2,330,400

 

Power Integrations

 

 

49,000

 

 

1,624,840

 

† Teradyne 1

 

 

240,200

 

 

3,273,926

 

Veeco Instruments 1,3

 

 

66,000

 

 

1,372,800

 

 

 

 

 

 

    

 

 

 

 

 

 

 

23,582,314

 

 

 

 

 

 

    

 

Software - 2.0%

 

 

 

 

 

 

 

ACI Worldwide 1

 

 

131,150

 

 

3,756,136

 

Advent Software 1

 

 

68,500

 

 

1,668,660

 

ANSYS 1

 

 

105,600

 

 

6,048,768

 

Aspen Technology 1

 

 

42,100

 

 

730,435

 

Blackbaud

 

 

41,890

 

 

1,160,353

 

JDA Software Group 1

 

 

49,900

 

 

1,616,261

 

Majesco Entertainment 1,3

 

 

36,255

 

 

88,462

 

Net 1 UEPS Technologies 1,3

 

 

50,000

 

 

383,500

 

NetScout Systems 1

 

 

66,000

 

 

1,161,600

 

SimCorp

 

 

17,350

 

 

2,649,340

 

THQ 1,3

 

 

20,000

 

 

15,200

 

 

 

 

 

 

    

 

 

 

 

 

 

 

19,278,715

 

 

 

 

 

 

    

 

Total (Cost $191,860,117)

 

 

 

 

 

215,785,113

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

Materials – 9.9%

 

 

 

 

 

 

 

Chemicals - 1.4%

 

 

 

 

 

 

 

Cabot Corporation

 

 

58,000

 

 

1,864,120

 

CF Industries Holdings

 

 

4,500

 

 

652,410

 

Fufeng Group

 

 

3,029,100

 

 

1,388,458

 

Hanfeng Evergreen 1

 

 

7,700

 

 

20,785

 

Hawkins

 

 

110,978

 

 

4,090,649

 

Huchems Fine Chemical

 

 

40,056

 

 

693,678

 

Intrepid Potash 1

 

 

94,727

 

 

2,143,672

 

OM Group 1

 

 

90,000

 

 

2,015,100

 

Victrex

 

 

70,000

 

 

1,191,462

 

 

 

 

 

 

    

 

 

 

 

 

 

 

14,060,334

 

 

 

 

 

 

    

 

Construction Materials - 0.8%

 

 

 

 

 

 

 

Ash Grove Cement Cl. B 4

 

 

50,518

 

 

6,567,340

 

Mardin Cimento Sanayii

 

 

325,000

 

 

1,026,270

 

 

 

 

 

 

    

 

 

 

 

 

 

 

7,593,610

 

 

 

 

 

 

    

 

Containers & Packaging - 1.3%

 

 

 

 

 

 

 

Broadway Industrial Group

 

 

1,677,200

 

 

381,461

 

Greif Cl. A

 

 

119,444

 

 

5,440,674

 

Mayr-Melnhof Karton

 

 

75,000

 

 

6,358,976

 

 

 

 

 

 

    

 

 

 

 

 

 

 

12,181,111

 

 

 

 

 

 

    

 

Metals & Mining - 6.2%

 

 

 

 

 

 

 

Allegheny Technologies

 

 

3,500

 

 

167,300

 

Aquarius Platinum

 

 

350,000

 

 

851,743

 

AuRico Gold 1

 

 

218,300

 

 

1,748,583

 

Centamin 1

 

 

1,200,000

 

 

1,548,000

 

Central Steel & Wire 4

 

 

6,062

 

 

3,970,610

 

 

 

 

 

 

 

 

 

 

 

SHARES

 

VALUE

 

Materials (continued)

 

 

 

 

 

 

 

Metals & Mining (continued)

 

 

 

 

 

 

 

Cliffs Natural Resources

 

 

37,200

 

$

2,319,420

 

Commercial Metals

 

 

36,600

 

 

506,178

 

Endeavour Mining 1,3

 

 

300,000

 

 

715,583

 

Endeavour Mining (Warrants) 1

 

 

75,000

 

 

51,534

 

Fresnillo

 

 

40,000

 

 

948,572

 

Hecla Mining

 

 

300,000

 

 

1,569,000

 

Hidili Industry International

 

 

 

 

 

 

 

Development

 

 

60,000

 

 

17,768

 

Hochschild Mining

 

 

375,500

 

 

2,249,799

 

IAMGOLD Corporation

 

 

95,620

 

 

1,515,577

 

Kimber Resources 1,3

 

 

560,000

 

 

481,600

 

Maharashtra Seamless

 

 

265,000

 

 

1,590,349

 

Major Drilling Group International

 

 

345,100

 

 

5,264,151

 

Medusa Mining

 

 

525,000

 

 

2,389,517

 

New Gold 1

 

 

135,000

 

 

1,360,800

 

Northam Platinum

 

 

460,000

 

 

1,709,497

 

Nucor Corporation

 

 

166,050

 

 

6,570,598

 

Orbit Garant Drilling 1

 

 

36,100

 

 

183,911

 

Reliance Steel & Aluminum

 

 

152,920

 

 

7,445,675

 

Royal Gold

 

 

34,400

 

 

2,319,592

 

Schnitzer Steel Industries Cl. A

 

 

100,000

 

 

4,228,000

 

Silvercorp Metals

 

 

116,500

 

 

745,600

 

Sims Metal Management ADR

 

 

232,383

 

 

2,986,122

 

Synalloy Corporation

 

 

178,800

 

 

1,836,276

 

Worthington Industries

 

 

185,000

 

 

3,030,300

 

 

 

 

 

 

    

 

 

 

 

 

 

 

60,321,655

 

 

 

 

 

 

    

 

Paper & Forest Products - 0.2%

 

 

 

 

 

 

 

China Forestry Holdings 1,2

 

 

3,563,800

 

 

676,822

 

Duratex

 

 

120,000

 

 

573,864

 

† Qunxing Paper Holdings 2

 

 

3,296,000

 

 

437,113

 

 

 

 

 

 

    

 

 

 

 

 

 

 

1,687,799

 

 

 

 

 

 

    

 

Total (Cost $82,708,352)

 

 

 

 

 

95,844,509

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

Telecommunication Services – 0.6%

 

 

 

 

 

 

 

Wireless Telecommunication Services - 0.6%

 

 

 

 

 

 

 

† Telephone & Data Systems

 

 

210,000

 

 

5,436,900

 

 

 

 

 

 

    

 

Total (Cost $5,760,616)

 

 

 

 

 

5,436,900

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

Miscellaneous 6 – 4.9%

 

 

 

 

 

 

 

Total (Cost $50,772,540)

 

 

 

 

 

47,162,474

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

TOTAL COMMON STOCKS

 

 

 

 

 

 

 

(Cost $936,906,235)

 

 

 

 

 

1,106,481,729

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

PREFERRED STOCK – 0.1%

 

 

 

 

 

 

 

Seneca Foods Conv. 1,2

 

 

 

 

 

 

 

(Cost $796,469)

 

 

55,000

 

 

1,278,090

 

 

 

 

 

 

    

 


 

 

26 | 2011 Annual Report to Stockholders

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

 

December 31, 2011
 

 

 

 

 

 

 

 

 

 

 

 

 

PRINCIPAL

 

 

 

 

 

 

AMOUNT

 

VALUE

 

CORPORATE BOND – 0.0%

 

 

 

 

 

 

 

GAMCO Investors (Debentures) 0.00%

 

 

 

 

 

 

 

due 12/31/15

 

 

 

 

 

 

 

(Cost $289,840)

 

$

289,800

 

$

190,063

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

REPURCHASE AGREEMENT – 8.7%

 

 

 

 

 

 

 

Fixed Income Clearing Corporation,

 

 

 

 

 

 

 

0.01% dated 12/30/11, due 1/3/12,

 

 

 

 

 

 

 

maturity value $84,083,093 (collateralized

 

 

 

 

 

 

 

by obligations of various U.S. Government

 

 

 

 

 

 

 

Agencies, 4.25% due 9/30/12, valued at

 

 

 

 

 

 

 

$86,188,947)

 

 

 

 

 

 

 

(Cost $84,083,000)

 

 

 

 

 

84,083,000

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

VALUE

 

COLLATERAL RECEIVED FOR SECURITIES
LOANED – 2.0%

 

 

 

 

Money Market Funds

 

 

 

 

Federated Government Obligations Fund

 

 

 

 

(7 day yield-0.0098%)

 

 

 

 

(Cost $18,943,423)

 

$

18,943,423

 

 

 

    

 

 

 

 

 

 

TOTAL INVESTMENTS – 125.3%

 

 

 

 

(Cost $1,041,018,967)

 

 

1,210,976,305

 

 

 

 

 

 

LIABILITIES LESS CASH
AND OTHER ASSETS – (2.5)%

 

 

(24,336,432

)

 

 

 

 

 

PREFERRED STOCK – (22.8)%

 

 

(220,000,000

)

 

 

    

 

 

 

 

 

 

NET ASSETS APPLICABLE TO COMMON
STOCKHOLDERS – 100.0%

 

$

966,639,873

 

 

 

    

 


 

 
   

†

New additions in 2011.

1

Non-income producing.

2

Securities for which market quotations are not readily available represent 0.3% of net assets. These securities have been valued at their fair value under procedures approved by the Fund's Board of Directors. These securities are defined as Level 3 securities due to the use of significant unobservable inputs in the determination of fair value. See Notes to Financial Statements.

3

All or a portion of these securities were on loan at December 31, 2011. Total market value of loaned securities at December 31, 2011, was $18,351,690.

4

These securities are defined as Level 2 securities due to fair value being based on quoted prices for similar securities. See Notes to Financial Statements.

5

At December 31, 2011, the Fund owned 5% or more of the Company's outstanding voting securities thereby making the Company an Affiliated Company as that term is defined in the Investment Company Act of 1940. See Notes to Financial Statements.

6

Includes securities first acquired in 2011 and less than 1% of net assets applicable to Common Stockholders.

 
 

Bold indicates the Fund's 20 largest equity holdings in terms of December 31, 2011, market value.
 

 
 

 

TAX INFORMATION: The cost of total investments for Federal income tax purposes was $1,036,798,390. At December 31, 2011, net unrealized appreciation for all securities was $174,177,915, consisting of aggregate gross unrealized appreciation of $315,126,090 and aggregate gross unrealized depreciation of $140,948,175. The primary difference between book and tax basis cost is the timing of the recognition of losses on securities sold.
   

 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

2011 Annual Report to Stockholders | 27


 

 

Royce Value Trust

December 31, 2011
 

 

 

   Statement of Assets and Liabilities

 

 

 

 

 

 

ASSETS:

 

 

 

 

Investments at value (including collateral on loaned securities)

 

 

 

 

Non-Affiliated Companies (cost $951,503,401)

 

$

1,125,183,135

 

Affiliated Companies (cost $5,432,566)

 

 

1,710,170

 
         

Total investments at value

 

 

1,126,893,305

 

Repurchase agreements (at cost and value)

 

 

84,083,000

 

Cash and foreign currency

 

 

157,955

 

Receivable for investments sold

 

 

422,538

 

Receivable for dividends and interest

 

 

1,223,901

 

Prepaid expenses and other assets

 

 

438,826

 
         

Total Assets

 

 

1,213,219,525

 
         

LIABILITIES:

 

 

 

 

Payable for collateral on loaned securities

 

 

18,943,423

 

Payable for investments purchased

 

 

6,565,490

 

Payable for investment advisory fee

 

 

495,287

 

Preferred dividends accrued but not yet declared

 

 

288,451

 

Accrued expenses

 

 

287,001

 
         

Total Liabilities

 

 

26,579,652

 
         

PREFERRED STOCK:

 

 

 

 

5.90% Cumulative Preferred Stock - $0.001 par value, $25 liquidation value per share; 8,800,000 shares outstanding

 

 

220,000,000

 
         

Total Preferred Stock

 

 

220,000,000

 
         

NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS

 

$

966,639,873

 
         

ANALYSIS OF NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:

 

 

 

 

Common Stock paid-in capital - $0.001 par value per share; 68,171,494 shares outstanding (150,000,000 shares authorized)

 

$

792,918,593

 

Undistributed net investment income (loss)

 

 

2,529,467

 

Accumulated net realized gain (loss) on investments and foreign currency

 

 

1,534,891

 

Net unrealized appreciation (depreciation) on investments and foreign currency

 

 

169,945,371

 

Preferred dividends accrued but not yet declared

 

 

(288,449

)
         

Net Assets applicable to Common Stockholders (net asset value per share - $14.18)

 

$

966,639,873

 
         

Investments at identified cost (including $18,943,423 of collateral on loaned securities)

 

$

956,935,967

 

Market value of loaned securities

 

 

18,351,690

 

 

 

 

28 | 2011 Annual Report to Stockholders

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

 

 

Royce Value Trust

Year Ended December 31, 2011
 

 

 

   Statement of Operations

 

 

 

 

 

 

INVESTMENT INCOME:

 

 

 

 

Income:

 

 

 

 

Dividends1

 

$

16,894,268

 

Interest

 

 

70,069

 

Securities lending

 

 

291,553

 
         

Total income

 

 

17,255,890

 
         

Expenses:

 

 

 

 

Investment advisory fees

 

 

9,250,388

 

Stockholder reports

 

 

390,291

 

Custody and transfer agent fees

 

 

353,506

 

Administrative and office facilities

 

 

130,674

 

Directors' fees

 

 

123,009

 

Professional fees

 

 

93,940

 

Other expenses

 

 

174,244

 
         

Total expenses

 

 

10,516,052

 
         

Net investment income (loss)

 

 

6,739,838

 
         

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:

 

 

 

 

Net realized gain (loss):

 

 

 

 

Investments in Non-Affiliated Companies

 

 

36,155,485

 

Investments in Affiliated Companies

 

 

(205,752

)

Foreign currency transactions

 

 

(235,955

)

Net change in unrealized appreciation (depreciation):

 

 

 

 

Investments and foreign currency translations

 

 

(143,666,818

)

Other assets and liabilities denominated in foreign currency

 

 

(3,447

)
         

Net realized and unrealized gain (loss) on investments and foreign currency

 

 

(107,956,487

)
         

NET INCREASE (DECREASE) IN NET ASSETS FROM INVESTMENT OPERATIONS

 

 

(101,216,649

)
         

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS

 

 

(12,980,000

)
         

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS
FROM INVESTMENT OPERATIONS

 

$

(114,196,649

)

1 Net of foreign withholding tax of $586,096.

 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

2011 Annual Report to Stockholders | 29

 

Royce Value Trust
 

 

   Statement of Changes in Net Assets Applicable to Common Stockholders

 

 

 

 

 

 

 

 

 

 

Year ended

 

Year ended

 

 

 

12/31/11

 

12/31/10

 

INVESTMENT OPERATIONS:

 

 

 

 

 

 

 

Net investment income (loss)

 

$

6,739,838

 

$

15,554,527

 

Net realized gain (loss) on investments and foreign currency

 

 

35,713,778

 

 

111,092,900

 

Net change in unrealized appreciation (depreciation) on investments and foreign currency

 

 

(143,670,265

)

 

143,429,334

 
               

Net increase (decrease) in net assets from investment operations

 

 

(101,216,649

)

 

270,076,761

 
               

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:

 

 

 

 

 

 

 

Net investment income

 

 

(2,024,508

)

 

(12,980,000

)

Net realized gain on investments and foreign currency

 

 

(10,955,492

)

 

—

 
               

Total distributions to Preferred Stockholders

 

 

(12,980,000

)

 

(12,980,000

)
               

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS
FROM INVESTMENT OPERATIONS

 

 

(114,196,649

)

 

257,096,761

 
               

DISTRIBUTIONS TO COMMON STOCKHOLDERS:

 

 

 

 

 

 

 

Net investment income

 

 

(5,275,650

)

 

(1,980,699

)

Net realized gain on investments and foreign currency

 

 

(28,548,829

)

 

—

 

Return of capital

 

 

(18,288,444

)

 

—

 
               

Total distributions to Common Stockholders

 

 

(52,112,923

)

 

(1,980,699

)
               

CAPITAL STOCK TRANSACTIONS:

 

 

 

 

 

 

 

Reinvestment of distributions to Common Stockholders

 

 

27,070,308

 

 

986,327

 
               

Total capital stock transactions

 

 

27,070,308

 

 

986,327

 
               

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS

 

 

(139,239,264

)

 

256,102,389

 
               

NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:

 

 

 

 

 

 

 

Beginning of year

 

 

1,105,879,137

 

 

849,776,748

 
               

End of year (including undistributed net investment income (loss) of $2,529,467 at 12/31/11 and
$2,347,906 at 12/31/10)

 

$

966,639,873

 

$

1,105,879,137

 

 

 

 

30 | 2011 Annual Report to Stockholders

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

 

Royce Value Trust
 

 

   Financial Highlights

This table is presented to show selected data for a share of Common Stock outstanding throughout each period, and to assist stockholders in evaluating the Fund's performance for the periods presented.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years ended December 31,

 

 

 

  

 

 

 

2011

 

2010

 

2009

 

2008

 

2007

 
                                 

NET ASSET VALUE, BEGINNING OF PERIOD

 

$

16.73

 

$

12.87

 

$

9.37

 

$

19.74

 

$

20.62

 
                                 

INVESTMENT OPERATIONS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss)

 

 

0.10

 

 

0.24

 

 

0.17

 

 

0.14

 

 

0.09

 

Net realized and unrealized gain (loss) on investments and
foreign currency

 

 

(1.62

)

 

3.85

 

 

3.87

 

 

(8.50

)

 

1.13

 
                                 

Total investment operations

 

 

(1.52

)

 

4.09

 

 

4.04

 

 

(8.36

)

 

1.22

 
                                 

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income

 

 

(0.03

)

 

(0.20

)

 

(0.18

)

 

(0.01

)

 

(0.01

)

Net realized gain on investments and foreign currency

 

 

(0.16

)

 

–    

 

 

–    

 

 

(0.20

)

 

(0.21

)

Return of capital

 

 

–    

 

 

–    

 

 

(0.02

)

 

–    

 

 

–    

 
                                 

Total distributions to Preferred Stockholders

 

 

(0.19

)

 

(0.20

)

 

(0.20

)

 

(0.21

)

 

(0.22

)
                                 

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS FROM INVESTMENT OPERATIONS

 

 

(1.71

)

 

3.89

 

 

3.84

 

 

(8.57

)

 

1.00

 
                                 

DISTRIBUTIONS TO COMMON STOCKHOLDERS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income

 

 

(0.08

)

 

(0.03

)

 

–    

 

 

(0.06

)

 

(0.09

)

Net realized gain on investments and foreign currency

 

 

(0.43

)

 

–    

 

 

–    

 

 

(1.18

)

 

(1.76

)

Return of capital

 

 

(0.27

)

 

–    

 

 

(0.32

)

 

(0.48

)

 

–    

 
                                 

Total distributions to Common Stockholders

 

 

(0.78

)

 

(0.03

)

 

(0.32

)

 

(1.72

)

 

(1.85

)
                                 

CAPITAL STOCK TRANSACTIONS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of reinvestment of distributions by Common Stockholders

 

 

(0.06

)

 

(0.00

)

 

(0.02

)

 

(0.08

)

 

(0.03

)
                                 

Total capital stock transactions

 

 

(0.06

)

 

(0.00

)

 

(0.02

)

 

(0.08

)

 

(0.03

)
                                 

NET ASSET VALUE, END OF PERIOD

 

$

14.18

 

$

16.73

 

$

12.87

 

$

9.37

 

$

19.74

 
                                 

MARKET VALUE, END OF PERIOD

 

$

12.27

 

$

14.54

 

$

10.79

 

$

8.39

 

$

18.58

 
                                 

TOTAL RETURN:1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Market Value

 

 

(10.46

)%

 

35.05

%

 

35.39

%

 

(48.27

)%

 

(8.21

)%

Net Asset Value

 

 

(10.06

)%

 

30.27

%

 

44.59

%

 

(45.62

)%

 

5.04

%

RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO
COMMON STOCKHOLDERS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment advisory fee expense2

 

 

0.86

%

 

0.11

%

 

0.00

%

 

1.27

%

 

1.29

%

Other operating expenses

 

 

0.12

%

 

0.12

%

 

0.16

%

 

0.12

%

 

0.09

%

Total expenses (net)3

 

 

0.98

%

 

0.23

%

 

0.16

%

 

1.39

%

 

1.38

%

Expenses prior to fee waivers and balance credits

 

 

0.98

%

 

0.23

%

 

0.16

%

 

1.39

%

 

1.38

%

Expenses prior to fee waivers

 

 

0.98

%

 

0.23

%

 

0.16

%

 

1.39

%

 

1.38

%

Net investment income (loss)

 

 

0.63

%

 

1.69

%

 

1.66

%

 

0.94

%

 

0.43

%

SUPPLEMENTAL DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Assets Applicable to Common Stockholders,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

End of Period (in thousands)

 

$

966,640

 

$

1,105,879

 

$

849,777

 

$

603,234

 

$

1,184,669

 

Liquidation Value of Preferred Stock,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

End of Period (in thousands)

 

$

220,000

 

$

220,000

 

$

220,000

 

$

220,000

 

$

220,000

 

Portfolio Turnover Rate

 

 

26

%

 

30

%

 

31

%

 

25

%

 

26

%

PREFERRED STOCK:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total shares outstanding

 

 

8,800,000

 

 

8,800,000

 

 

8,800,000

 

 

8,800,000

 

 

8,800,000

 

Asset coverage per share

 

$

134.88

 

$

150.67

 

$

121.57

 

$

93.55

 

$

159.62

 

Liquidation preference per share

 

$

25.00

 

$

25.00

 

$

25.00

 

$

25.00

 

$

25.00

 

Average month-end market value per share

 

$

25.37

 

$

25.06

 

$

23.18

 

$

22.51

 

$

23.68

 
                                 

   

1

The Market Value Total Return is calculated assuming a purchase of Common Stock on the opening of the first business day and a sale on the closing of the last business day of each period. Dividends and distributions are assumed for the purposes of this calculation to be reinvested at prices obtained under the Fund's Distribution Reinvestment and Cash Purchase Plan. Net Asset Value Total Return is calculated on the same basis, except that the Fund's net asset value is used on the purchase and sale dates instead of market value.

2

The investment advisory fee is calculated based on average net assets over a rolling 60-month basis, while the above ratios of investment advisory fee expenses are based on the average net assets applicable to Common Stockholders over a 12-month basis.

3

Expense ratios based on total average net assets including liquidation value of Preferred Stock were 0.82%, 0.18%, 0.12%, 1.13% and 1.17% for the years ended December 31, 2011, 2010, 2009, 2008 and 2007, respectively.


 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

2011 Annual Report to Stockholders | 31

 

Royce Value Trust
 

 

   Notes to Financial Statements

Summary of Significant Accounting Policies:
     Royce Value Trust, Inc. (the “Fund”), was incorporated under the laws of the State of Maryland on July 1, 1986, as a diversified closed-end investment company. The Fund commenced operations on November 26, 1986.
     The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
     Under the Fund’s organizational documents, the officers and directors are indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses.

Valuation of Investments:
     Securities are valued as of the close of trading on the New York Stock Exchange (NYSE) (generally 4:00 p.m. Eastern time) on the valuation date. Securities that trade on an exchange, and securities traded on Nasdaq's Electronic Bulletin Board, are valued at their last reported sales price or Nasdaq official closing price taken from the primary market in which each security trades or, if no sale is reported for such day, at their bid price. Other over-the-counter securities for which market quotations are readily available are valued at their highest bid price, except in the case of some bonds and other fixed income securities which may be valued by reference to other securities with comparable ratings, interest rates and maturities, using established independent pricing services. The Fund values its non-U.S. dollar denominated securities in U.S. dollars daily at the prevailing foreign currency exchange rates as quoted by a major bank. Securities for which market quotations are not readily available are valued at their fair value under procedures approved by the Fund’s Board of Directors. In addition, if, between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and may make the closing price unreliable, the Fund may fair value the security. The Fund uses an independent pricing service to provide fair value estimates for relevant non-U.S. equity securities on days when the U.S. market volatility exceeds a certain threshold. This pricing service uses proprietary correlations it has developed between the movement of prices of non-U.S. equity securities and indices of U.S.-traded securities, futures contracts and other indications to estimate the fair value of relevant non-U.S. securities. When fair value pricing is employed, the prices of securities used by the Fund may differ from quoted or published prices for the same security. Investments in money market funds are valued at net asset value per share.

 

Various inputs are used in determining the value of the Fund’s investments, as noted above. These inputs are summarized in the three broad levels below:

 

Level 1 – 

quoted prices in active markets for identical securities.

 

Level 2 – 

other significant observable inputs (including quoted prices for similar securities, foreign securities that may be fair valued and repurchase agreements). The table below includes all Level 2 securities. Level 2 securities with values based on quoted prices for similar securities are noted in the Schedule of Investments.

 

Level 3 – 

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

    The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
    The following is a summary of the inputs used to value the Fund’s investments as of December 31, 2011. For a detailed breakout of common stocks by sector classification, please refer to the Schedule of Investments.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 
                           

Common Stocks

 

$

886,429,719

 

$

218,350,981

 

$

1,701,029

 

$

1,106,481,729

 

Preferred Stocks

 

 

–

 

 

–

 

 

1,278,090

 

 

1,278,090

 

Corporate Bonds

 

 

–

 

 

190,063

 

 

–

 

 

190,063

 

Cash Equivalents

 

 

18,943,423

 

 

84,083,000

 

 

–

 

 

103,026,423

 
                           
Level 3 Reconciliation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of
12/31/10

 

Purchases

 

Transfers In

 

Transfers Out

 

Sales

 

Realized and Unrealized
Gain (Loss)1

 

Balance as of
12/31/11

 
                               

Common Stocks

 

$

1,925,934

 

$

3,208,800

 

$

2,254,555

 

$

2,429,807

 

$

259,787

 

$

(2,998,666

)

$

1,701,029

 

Preferred Stocks

 

 

1,372,514

 

 

–

 

 

–

 

 

–

 

 

48,157

 

 

(46,267

)

 

1,278,090

 

Corporate Bonds

 

 

197,064

 

 

–

 

 

–

 

 

197,064

 

 

–

 

 

–

 

 

–

 
                                             

 

 

1

The net change in unrealized appreciation (depreciation) is included in the accompanying Statement of Operations. Change in unrealized appreciation (depreciation) includes net unrealized appreciation (depreciation) resulting from changes in investment values during the reporting period and the reversal of previously recorded unrealized appreciation (depreciation) when gains or losses are realized. Net realized gain (loss) from investments and foreign currency transactions is included in the accompanying Statement of Operations.

 

32 | 2011 Annual Report to Stockholders

 

Royce Value Trust
 

 

   Notes to Financial Statements (continued)

Repurchase Agreements:
     The Fund may enter into repurchase agreements with institutions that the Fund’s investment adviser has determined are creditworthy. The Fund restricts repurchase agreements to maturities of no more than seven days. Securities pledged as collateral for repurchase agreements, which are held until maturity of the repurchase agreements, are marked-to-market daily and maintained at a value at least equal to the principal amount of the repurchase agreement (including accrued interest). Repurchase agreements could involve certain risks in the event of default or insolvency of the counter-party, including possible delays or restrictions upon the ability of the Fund to dispose of its underlying securities.

Foreign Currency:
     Net realized foreign exchange gains or losses arise from sales and maturities of short-term securities, sales of foreign currencies, expiration of currency forward contracts, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities, including investments in securities at the end of the reporting period, as a result of changes in foreign currency exchange rates.

Securities Lending:
     The Fund loans securities through a lending agent to qualified institutional investors for the purpose of realizing additional income. Collateral for the Fund on all securities loaned is accepted in cash and cash equivalents and invested temporarily by the custodian. The collateral maintained is at least 100% of the current market value of the loaned securities. The market value of the loaned securities is determined at the close of business of the Fund and any additional required collateral is delivered to the Fund on the next business day. The Fund retains the risk of any loss on the securities on loan as well as incurring the potential loss on investments purchased with cash collateral received for securities lending. The Fund’s securities lending income consists of the income earned on investing cash collateral, plus any premium payments received for lending certain securities, less any rebates paid to borrowers and lending agent fees associated with the loan. The lending agent is not affiliated with Royce.

Taxes:
     As a qualified regulated investment company under Subchapter M of the Internal Revenue Code, the Fund is not subject to income taxes to the extent that it distributes substantially all of its taxable income for its fiscal year. The Schedule of Investments includes information regarding income taxes under the caption “Tax Information”.

Distributions:
     Commencing March 2011, the Fund pays quarterly distributions on the Fund’s Common Stock at the annual rate of 5% of the rolling average of the prior four calendar quarter-end NAVs of the Fund’s Common Stock, with the fourth quarter distribution being the greater of 1.25% of the rolling average or the distribution required by IRS regulations. Distributions to Preferred Stockholders are accrued daily and paid quarterly and distributions to Common Stockholders are recorded on ex-dividend date. Distributable capital gains and/or net investment income are first allocated to Preferred Stockholder distributions, with any excess allocable to Common Stockholders. If capital gains and/or net investment income are allocated to both Preferred and Common Stockholders, the tax character of such allocations is proportional. To the extent that distributions are not paid from long-term capital gains, net investment income or net short-term capital gains, they will represent a return of capital. Distributions are determined in accordance with income tax regulations that may differ from accounting principles generally accepted in the United States of America. Permanent book and tax differences relating to stockholder distributions will result in reclassifications within the capital accounts. Undistributed net investment income may include temporary book and tax basis differences, which will reverse in a subsequent period. Any taxable income or gain remaining undistributed at fiscal year end is distributed in the following year.

Investment Transactions and Related Investment Income:
     Investment transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date. Non-cash dividend income is recorded at the fair market value of the securities received. Interest income is recorded on an accrual basis. Premium and discounts on debt securities are amortized using the effective yield-to-maturity method. Realized gains and losses from investment transactions are determined on the basis of identified cost for book and tax purposes.

Expenses:
     The Fund incurs direct and indirect expenses. Expenses directly attributable to the Fund are charged to the Fund’s operations, while expenses applicable to more than one of the Royce Funds are allocated equitably. Certain personnel, occupancy costs and other administrative expenses related to The Royce Funds are allocated by Royce & Associates, LLC (“Royce”) under an administration agreement and are included in administrative and office facilities and professional fees. The Fund has adopted a deferred fee agreement that allows the Directors to defer the receipt of all or a portion of directors’ fees otherwise payable. The deferred fees are invested in certain Royce Funds until distributed in accordance with the agreement.

2011 Annual Report to Stockholders | 33


 

Royce Value Trust
 

 

   Notes to Financial Statements (continued)

Compensating Balance Credits:
     The Fund has an arrangement with its custodian bank, whereby a portion of the custodian's fee is paid indirectly by credits earned on the Fund's cash on deposit with the bank. This deposit arrangement is an alternative to purchasing overnight investments. Conversely, the Fund pays interest to the custodian on any cash overdrafts, to the extent they are not offset by credits earned on positive cash balances.

Recent Accounting Pronouncements:
     In May 2011, the Financial Accounting Standards Board issued Accounting Standard Update No. 2011-04, Fair Value Measurement (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU No. 2011-04”). ASU No. 2011-04 establishes common requirements for measuring fair value and for disclosing information about fair value measurements. ASU No. 2011-04 is effective during interim and annual periods beginning after December 15, 2011. Management is currently evaluating the impact the adoption of ASU No. 2011-04 will have on the Fund’s financial statements and related disclosures.

Capital Stock:
     The Fund issued 2,076,969 and 71,215 shares of Common Stock as reinvestment of distributions by Common Stockholders for the years ended December 31, 2011 and 2010, respectively.
     At December 31, 2011, 8,800,000 shares of 5.90% Cumulative Preferred Stock were outstanding. The Fund, at its option, may redeem the Cumulative Preferred Stock, in whole or in part, at the redemption price. The Cumulative Preferred Stock is classified outside of permanent equity (net assets applicable to Common Stockholders) in the accompanying financial statements in accordance with accounting for redeemable equity instruments, that requires preferred securities that are redeemable for cash or other assets to be classified outside of permanent equity to the extent that the redemption is at a fixed or determinable price and at the option of the holder or upon the occurrence of an event that is not solely within the control of the issuer.
     The Fund is required to meet certain asset coverage tests with respect to the Cumulative Preferred Stock as required by the 1940 Act. In addition, pursuant to the Rating Agency Guidelines established by Moody’s, the Fund is required to maintain a certain discounted asset coverage. If the Fund fails to meet these requirements and does not correct such failure, the Fund may be required to redeem, in part or in full, the Cumulative Preferred Stock at a redemption price of $25.00 per share, plus an amount equal to the accumulated and unpaid dividends, whether or not declared on such shares, in order to meet these requirements. Additionally, failure to meet the foregoing asset coverage requirements could restrict the Fund's ability to pay dividends to Common Stockholders and could lead to sales of portfolio securities at inopportune times. The Fund has met these requirements since issuing the Cumulative Preferred Stock.

Investment Advisory Agreement:
     As compensation for its services under the Investment Advisory Agreement, Royce receives a fee comprised of a Basic Fee (“Basic Fee”) and an adjustment to the Basic Fee based on the investment performance of the Fund in relation to the investment record of the S&P SmallCap 600 Index (“S&P 600”).
     The Basic Fee is a monthly fee equal to 1/12 of 1% (1% on an annualized basis) of the average of the Fund’s month-end net assets applicable to Common Stockholders, plus the liquidation value of Preferred Stock, for the rolling 60-month period ending with such month (the “performance period”). The Basic Fee for each month is increased or decreased at the rate of 1/12 of .05% for each percentage point that the investment performance of the Fund exceeds, or is exceeded by, the percentage change in the investment record of the S&P 600 for the performance period by more than two percentage points. The performance period for each such month is a rolling 60-month period ending with such month. The maximum increase or decrease in the Basic Fee for any month may not exceed 1/12 of .5%. Accordingly, for each month, the maximum monthly fee rate as adjusted for performance is 1/12 of 1.5% and is payable if the investment performance of the Fund exceeds the percentage change in the investment record of the S&P 600 by 12 or more percentage points for the performance period, and the minimum monthly fee rate as adjusted for performance is 1/12 of .5% and is payable if the percentage change in the investment record of the S&P 600 exceeds the investment performance of the Fund by 12 or more percentage points for the performance period.
     Notwithstanding the foregoing, Royce is not entitled to receive any fee for any month when the investment performance of the Fund for the rolling 36-month period ending with such month is negative. In the event that the Fund’s investment performance for such a performance period is less than zero, Royce will not be required to refund to the Fund any fee earned in respect of any prior performance period.
     Royce has voluntarily committed to waive the portion of its investment advisory fee attributable to an issue of the Fund’s Preferred Stock for any month in which the Fund’s average annual NAV total return since issuance of the Preferred Stock fails to exceed the applicable Preferred Stock's dividend rate.
     For the twelve rolling 60-month periods in 2011, the Fund’s investment performance ranged from 1% above to 15% below the investment performance of the S&P 600. Accordingly, the net investment advisory fee consisted of a Basic Fee of $10,992,211 and a net downward adjustment of $1,741,823 for the performance of the Fund relative to that of the S&P 600. The Fund paid no investment advisory fee for the month of September 2011, because its investment performance for the trailing 36-month period was negative. For the year ended December 31, 2011, the Fund accrued and paid Royce investment advisory fees totaling $9,250,388.

34 | 2011 Annual Report to Stockholders



 

Royce Value Trust
 

 

   Notes to Financial Statements (continued)

Purchases and Sales of Investment Securities:
     For the year ended December 31, 2011, the costs of purchases and proceeds from sales of investment securities, other than short-term securities and collateral received for securities loaned, amounted to $333,711,985 and $309,828,445, respectively.

Distributions to Stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The tax character of distributions paid to common stockholders during 2011 and 2010 was as follows:

 

The tax character of distributions paid to preferred stockholders during 2011 and 2010 was as follows:
             

 

              

Distributions paid from:

 

 

2011

 

 

2010

 

Distributions paid from:

 

 

2011

 

 

2010

Ordinary income

 

$

6,285,946

 

$

1,980,699

 

Ordinary income

 

$

2,412,205

 

$

12,980,000

Long-term capital gain

 

 

27,538,533

 

 

–

 

Long-term capital gain

 

 

10,567,795

 

 

–

Return of capital

 

 

18,288,444

 

 

–

 

 

 

$

12,980,000

  

$

12,980,000

 

 

$

52,112,923

 

$

1,980,699

 

              
             

 

 

 

 

 

 

 

 

As of December 31, 2011, the tax basis components of distributable earnings included in stockholders’ equity were as follows:

 

 

 

 

 
         

Net unrealized appreciation (depreciation)

 

$

174,165,944

 

Post October loss*

 

 

(156,215

)

Accrued preferred distributions

 

 

(288,449

)

 

 

    

 

 

 

$

173,721,280

 
         

 

 

 

 

*

Under the current tax law, capital losses, foreign currency losses and losses realized on Passive Foreign Investment Companies after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. As of December 31, 2011, the Fund had $156,215 of post October currency losses.


     The difference between book and tax basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral on wash sales, partnership investments and the unrealized gains on Passive Foreign Investment Companies.
     For financial reporting purposes, capital accounts and distributions to stockholders are adjusted to reflect the tax character of permanent book/tax differences. These differences are primarily due to differing treatments of income and gains on various investment securities and foreign currency transactions held by the Fund, timing differences and different characterization of distributions made by the Fund. For the year ended December 31, 2011, the Fund recorded the following permanent reclassifications. Results of operations and net assets were not affected by these reclassifications.

 

 

 

 

 
         

Undistributed Net

 

Accumulated Net

 

Paid-in

Investment Income

 

Realized Gain (Loss)

 

Capital

$741,879

 

$224,557

 

$(966,436)
         
     Management has analyzed the Fund’s tax positions taken on federal income tax returns for all open tax years (2008-2011) and has concluded that as of December 31, 2011, no provision for income tax is required in the Fund’s financial statements.

Transactions in Affiliated Companies:
     An “Affiliated Company” as defined in the Investment Company Act of 1940, is a company in which a fund owns 5% or more of the company’s outstanding voting securities at any time during the period. The Fund effected the following transactions in shares of such companies for the year ended December 31, 2011:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliated Company

 

 

Shares 12/31/10

 

 

Market Value 12/31/10

 

 

Cost of Purchases

 

 

Cost of Sales

 

 

Realized Gain (Loss)

 

 

Dividend Income

 

 

Shares 12/31/11

 

 

Market Value 12/31/11

 

Timberland Bancorp

 

 

469,200

 

$

1,731,348

 

 

—

 

$

305,750

 

$

(205,752

)

 

—

 

 

444,200

 

$

1,710,170

 

 

 

 

 

 

$

1,731,348

 

 

 

 

 

 

 

$

(205,752

)

 

 

 

 

 

 

$

1,710,170

 

2011 Annual Report to Stockholders | 35


 

Royce Value Trust
 

 

   Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
Royce Value Trust, Inc.
New York, New York

We have audited the accompanying statement of assets and liabilities of Royce Value Trust, Inc., (“Fund”) including the schedule of investments, as of December 31, 2011, 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 then 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. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. 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, 2011, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 Royce Value Trust, Inc. at December 31, 2011, 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 each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.


 

 

 

TAIT, WELLER, & BAKER LLP

Philadelphia, Pennsylvania
February 21, 2012

36 | 2011 Annual Report to Stockholders



 

Royce Micro-Cap Trust

December 31, 2011
 

 

   Schedule of Investments

 

 

 

 

 

 

 

 

 

 

SHARES

 

VALUE

 

COMMON STOCKS – 104.8%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Discretionary – 13.2%

 

 

 

 

 

 

 

Auto Components - 1.6%

 

 

 

 

 

 

 

China XD Plastics 1

 

 

74,700

 

$

398,898

 

Drew Industries 1

 

 

134,700

 

 

3,304,191

 

Norstar Founders Group 1,2

 

 

771,500

 

 

36,258

 

Williams Controls

 

 

50,388

 

 

557,291

 

 

 

 

 

 

    

 

 

 

 

 

 

 

4,296,638

 

Distributors - 0.4%

 

 

 

 

    

 

 

 

 

 

 

 

 

 

Weyco Group

 

 

48,000

 

 

1,178,400

 

Diversified Consumer Services - 0.4%

 

 

 

 

    

 

ChinaCast Education 1

 

 

121,700

 

 

744,804

 

Lincoln Educational Services

 

 

28,400

 

 

224,360

 

Spectrum Group International 1,3

 

 

6,925

 

 

16,412

 

 

 

 

 

 

    

 

 

 

 

 

 

 

985,576

 

 

 

 

 

 

    

 

Hotels, Restaurants & Leisure - 0.2%

 

 

 

 

 

 

 

Benihana 1

 

 

64,100

 

 

655,743

 

 

 

 

 

 

    

 

Household Durables - 2.6%

 

 

 

 

 

 

 

Cavco Industries 1

 

 

3,091

 

 

123,825

 

CSS Industries

 

 

20,243

 

 

403,241

 

Ethan Allen Interiors

 

 

81,600

 

 

1,934,736

 

Flexsteel Industries

 

 

172,500

 

 

2,387,400

 

Koss Corporation

 

 

73,400

 

 

370,670

 

Natuzzi ADR 1

 

 

409,800

 

 

926,148

 

† Skullcandy 1,4

 

 

28,500

 

 

356,820

 

Universal Electronics 1

 

 

39,200

 

 

661,304

 

 

 

 

 

 

    

 

 

 

 

 

 

 

7,164,144

 

 

 

 

 

 

    

 

Internet & Catalog Retail - 0.9%

 

 

 

 

 

 

 

Geeknet 1

 

 

93,500

 

 

1,594,175

 

NutriSystem

 

 

21,800

 

 

281,874

 

US Auto Parts Network 1

 

 

140,900

 

 

615,733

 

 

 

 

 

 

    

 

 

 

 

 

 

 

2,491,782

 

 

 

 

 

 

    

 

Leisure Equipment & Products - 0.4%

 

 

 

 

 

 

 

Leapfrog Enterprises Cl. A 1

 

 

121,400

 

 

678,626

 

Sturm, Ruger & Co.

 

 

12,800

 

 

428,288

 

 

 

 

 

 

    

 

 

 

 

 

 

 

1,106,914

 

 

 

 

 

 

    

 

Media - 0.3%

 

 

 

 

 

 

 

Global Sources 1

 

 

45,119

 

 

218,827

 

Rentrak Corporation 1

 

 

45,000

 

 

642,600

 

 

 

 

 

 

    

 

 

 

 

 

 

 

861,427

 

 

 

 

 

 

    

 

Specialty Retail - 4.6%

 

 

 

 

 

 

 

America’s Car-Mart 1

 

 

92,800

 

 

3,635,904

 

Charming Shoppes 1

 

 

747,800

 

 

3,664,220

 

Dickson Concepts (International)

 

 

382,000

 

 

198,707

 

Le Chateau Cl. A

 

 

73,100

 

 

118,395

 

Lewis Group

 

 

57,000

 

 

565,937

 

Shoe Carnival 1

 

 

17,652

 

 

453,656

 

Stein Mart 1

 

 

178,900

 

 

1,218,309

 

Systemax 1

 

 

112,000

 

 

1,837,920

 

West Marine 1

 

 

86,000

 

 

1,000,180

 

Wet Seal (The) Cl. A 1

 

 

66,479

 

 

216,722

 

 

 

 

 

 

    

 

 

 

 

 

 

 

12,909,950

 

 

 

 

 

 

    

 

Textiles, Apparel & Luxury Goods - 1.8%

 

 

 

 

 

 

 

† China Xiniya Fashion ADR 1,4

 

 

40,000

 

 

80,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SHARES

 

VALUE

 

Consumer Discretionary (continued)

 

 

 

 

 

 

 

Textiles, Apparel & Luxury Goods (continued)

 

 

 

 

 

 

 

G-III Apparel Group 1

 

 

52,300

 

$

1,302,793

 

J.G. Boswell Company 3

 

 

2,490

 

 

1,705,650

 

K-Swiss Cl. A 1,4

 

 

72,400

 

 

211,408

 

Movado Group

 

 

77,633

 

 

1,410,591

 

True Religion Apparel 1

 

 

12,200

 

 

421,876

 

 

 

 

 

 

    

 

 

 

 

 

 

 

5,132,318

 

 

 

 

 

 

    

 

Total (Cost $28,509,406)

 

 

 

 

 

36,782,892

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

Consumer Staples – 3.7%

 

 

 

 

 

 

 

Beverages - 0.5%

 

 

 

 

 

 

 

Heckmann Corporation 1,4

 

 

200,000

 

 

1,330,000

 

 

 

 

 

 

    

 

Food & Staples Retailing - 0.5%

 

 

 

 

 

 

 

† Arden Group Cl. A

 

 

16,000

 

 

1,440,160

 

 

 

 

 

 

    

 

Food Products - 2.5%

 

 

 

 

 

 

 

Asian Citrus Holdings

 

 

1,060,000

 

 

552,751

 

Binggrae

 

 

9,700

 

 

501,840

 

BW Plantation

 

 

744,900

 

 

92,009

 

Farmer Bros.

 

 

41,400

 

 

316,296

 

Griffin Land & Nurseries

 

 

56,273

 

 

1,488,983

 

Origin Agritech 1,4

 

 

121,488

 

 

286,712

 

Seneca Foods Cl. A 1

 

 

51,400

 

 

1,327,148

 

Seneca Foods Cl. B 1

 

 

42,500

 

 

1,106,700

 

† Waterloo Investment Holdings 1,2

 

 

806,207

 

 

112,708

 

Westway Group

 

 

220,000

 

 

1,232,000

 

 

 

 

 

 

    

 

 

 

 

 

 

 

7,017,147

 

 

 

 

 

 

    

 

Personal Products - 0.2%

 

 

 

 

 

 

 

Inter Parfums

 

 

26,400

 

 

410,784

 

Schiff Nutrition International Cl. A 1

 

 

15,915

 

 

170,291

 

 

 

 

 

 

    

 

 

 

 

 

 

 

581,075

 

 

 

 

 

 

    

 

Total (Cost $9,059,968)

 

 

 

 

 

10,368,382

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

Energy – 4.0%

 

 

 

 

 

 

 

Energy Equipment & Services - 3.1%

 

 

 

 

 

 

 

CE Franklin 1

 

 

45,450

 

 

372,690

 

Dawson Geophysical 1

 

 

53,213

 

 

2,103,510

 

Global Geophysical Services 1

 

 

35,000

 

 

235,200

 

Gulf Island Fabrication

 

 

29,116

 

 

850,478

 

Lamprell

 

 

202,400

 

 

844,597

 

North American Energy Partners 1

 

 

50,000

 

 

322,000

 

OYO Geospace 1

 

 

7,130

 

 

551,363

 

Pason Systems

 

 

139,200

 

 

1,639,657

 

Pioneer Drilling 1

 

 

57,500

 

 

556,600

 

Tesco Corporation 1

 

 

50,000

 

 

632,000

 

Willbros Group 1

 

 

131,100

 

 

481,137

 

 

 

 

 

 

    

 

 

 

 

 

 

 

8,589,232

 

 

 

 

 

 

    

 

Oil, Gas & Consumable Fuels - 0.9%

 

 

 

 

 

 

 

Approach Resources 1,4

 

 

12,000

 

 

352,920

 

Credo Petroleum 1

 

 

98,000

 

 

1,009,400

 

Sprott Resource 1

 

 

125,200

 

 

487,896

 

† Uranerz Energy 1,4

 

 

29,000

 

 

52,780

 



 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

2011 Annual Report to Stockholders | 37


 

Royce Micro-Cap Trust
 

 

   Schedule of Investments

 

 

 

 

 

 

 

 

 

 

 

SHARES

 

VALUE

 

Energy (continued)

 

 

 

 

 

 

 

Oil, Gas & Consumable Fuels (continued)

 

 

 

 

 

 

 

VAALCO Energy 1

 

 

109,100

 

$

658,964

 

 

 

 

 

 

    

 

 

 

 

 

 

 

2,561,960

 

 

 

 

 

 

    

 

Total (Cost $7,861,662)

 

 

 

 

 

11,151,192

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

Financials – 19.6%

 

 

 

 

 

 

 

Capital Markets - 7.8%

 

 

 

 

 

 

 

ASA Gold and Precious Metals

 

 

30,000

 

 

785,700

 

BKF Capital Group 1,3

 

 

130,200

 

 

144,522

 

Cohen & Steers

 

 

27,900

 

 

806,310

 

Diamond Hill Investment Group

 

 

34,479

 

 

2,550,756

 

Duff & Phelps Cl. A

 

 

50,000

 

 

725,000

 

Edelman Financial Group (The)

 

 

209,000

 

 

1,373,130

 

Epoch Holding Corporation

 

 

196,500

 

 

4,368,195

 

FBR & Co. 1

 

 

215,000

 

 

440,750

 

Fiera Sceptre

 

 

78,000

 

 

481,590

 

INTL FCStone 1

 

 

24,910

 

 

587,129

 

JZ Capital Partners

 

 

363,999

 

 

1,921,988

 

MVC Capital

 

 

151,200

 

 

1,752,408

 

NGP Capital Resources

 

 

161,828

 

 

1,163,543

 

Queen City Investments 3

 

 

948

 

 

934,728

 

U.S. Global Investors Cl. A

 

 

91,500

 

 

551,745

 

Urbana Corporation 1

 

 

237,600

 

 

207,572

 

Virtus Investment Partners 1

 

 

35,000

 

 

2,660,350

 

Westwood Holdings Group

 

 

8,800

 

 

321,640

 

 

 

 

 

 

    

 

 

 

 

 

 

 

21,777,056

 

 

 

 

 

 

    

 

Commercial Banks - 2.1%

 

 

 

 

 

 

 

BCB Holdings 1

 

 

806,207

 

 

338,051

 

Chemung Financial

 

 

40,000

 

 

908,000

 

Fauquier Bankshares

 

 

135,800

 

 

1,473,430

 

Financial Institutions

 

 

36,000

 

 

581,040

 

First Bancorp

 

 

40,200

 

 

617,874

 

LCNB Corporation

 

 

28,638

 

 

357,975

 

Orrstown Financial Services

 

 

18,500

 

 

152,625

 

Peapack-Gladstone Financial

 

 

124,000

 

 

1,331,760

 

 

 

 

 

 

    

 

 

 

 

 

 

 

5,760,755

 

 

 

 

 

 

    

 

Diversified Financial Services - 0.7%

 

 

 

 

 

 

 

Banca Finnat Euramerica

 

 

1,310,000

 

 

488,125

 

Bolsa Mexicana de Valores

 

 

300,000

 

 

475,539

 

† GAIN Capital Holdings

 

 

25,000

 

 

167,500

 

PICO Holdings 1

 

 

45,700

 

 

940,506

 

 

 

 

 

 

    

 

 

 

 

 

 

 

2,071,670

 

 

 

 

 

 

    

 

Insurance - 3.0%

 

 

 

 

 

 

 

Hilltop Holdings 1

 

 

101,400

 

 

856,830

 

Independence Holding

 

 

95,800

 

 

778,854

 

Presidential Life

 

 

241,100

 

 

2,408,589

 

SeaBright Holdings

 

 

191,000

 

 

1,461,150

 

† State Auto Financial

 

 

99,394

 

 

1,350,764

 

† United Fire & Casualty

 

 

83,603

 

 

1,687,109

 

 

 

 

 

 

    

 

 

 

 

 

 

 

8,543,296

 

 

 

 

 

 

    

 

Real Estate Investment Trusts (REITs) - 1.0%

 

 

 

 

 

 

 

† BRT Realty Trust 1

 

 

232,328

 

 

1,472,959

 

 

 

 

 

 

 

 

 

 

 

SHARES

 

VALUE

 

Financials (continued)

 

 

 

 

 

 

 

Real Estate Investment Trusts (REITs) (continued)

 

 

 

 

 

 

 

PennyMac Mortgage Investment Trust

 

 

80,000

 

$

1,329,600

 

 

 

 

 

 

    

 

 

 

 

 

 

 

2,802,559

 

 

 

 

 

 

    

 

Real Estate Management & Development - 4.2%

 

 

 

 

 

 

 

Consolidated-Tomoka Land

 

 

62,750

 

 

1,698,642

 

† Forestar Group 1

 

 

151,000

 

 

2,284,630

 

Kennedy-Wilson Holdings

 

 

465,358

 

 

4,923,488

 

Tejon Ranch 1

 

 

110,162

 

 

2,696,766

 

ZipRealty 1

 

 

25,000

 

 

28,250

 

 

 

 

 

 

    

 

 

 

 

 

 

 

11,631,776

 

 

 

 

 

 

    

 

Thrifts & Mortgage Finance - 0.8%

 

 

 

 

 

 

 

Alliance Bancorp, Inc. of Pennsylvania

 

 

41,344

 

 

444,861

 

BofI Holding 1,4

 

 

91,262

 

 

1,483,008

 

HopFed Bancorp

 

 

57,222

 

 

371,943

 

 

 

 

 

 

    

 

 

 

 

 

 

 

2,299,812

 

 

 

 

 

 

    

 

Total (Cost $49,898,103)

 

 

 

 

 

54,886,924

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

Health Care – 6.1%

 

 

 

 

 

 

 

Biotechnology - 0.5%

 

 

 

 

 

 

 

Acadia Pharmaceuticals 1,4

 

 

498,000

 

 

537,840

 

3SBio ADR 1

 

 

34,980

 

 

357,496

 

Vical 1,4

 

 

120,000

 

 

529,200

 

 

 

 

 

 

    

 

 

 

 

 

 

 

1,424,536

 

 

 

 

 

 

    

 

Health Care Equipment & Supplies - 4.1%

 

 

 

 

 

 

 

Allied Healthcare Products 1

 

 

226,798

 

 

771,113

 

Atrion Corporation

 

 

7,557

 

 

1,815,418

 

CryoLife 1

 

 

50,573

 

 

242,750

 

DynaVox Cl. A 1

 

 

20,000

 

 

72,800

 

Exactech 1

 

 

132,100

 

 

2,175,687

 

Hansen Medical 1,4

 

 

87,000

 

 

224,460

 

Kensey Nash 1

 

 

39,378

 

 

755,664

 

Medical Action Industries 1

 

 

125,250

 

 

655,058

 

STRATEC Biomedical

 

 

14,000

 

 

575,294

 

Syneron Medical 1

 

 

69,200

 

 

766,044

 

Theragenics Corporation 1

 

 

336,900

 

 

565,992

 

Utah Medical Products

 

 

42,300

 

 

1,142,100

 

Young Innovations

 

 

61,450

 

 

1,820,764

 

 

 

 

 

 

    

 

 

 

 

 

 

 

11,583,144

 

 

 

 

 

 

    

 

Health Care Providers & Services - 0.6%

 

 

 

 

 

 

 

Gentiva Health Services 1

 

 

23,000

 

 

155,250

 

PDI 1,4

 

 

65,383

 

 

421,720

 

PharMerica Corporation 1

 

 

40,000

 

 

607,200

 

Psychemedics Corporation

 

 

37,500

 

 

341,250

 

U.S. Physical Therapy

 

 

10,000

 

 

196,800

 

 

 

 

 

 

    

 

 

 

 

 

 

 

1,722,220

 

 

 

 

 

 

    

 

Health Care Technology - 0.2%

 

 

 

 

 

 

 

Transcend Services 1

 

 

22,900

 

 

543,417

 

 

 

 

 

 

    

 

Life Sciences Tools & Services - 0.4%

 

 

 

 

 

 

 

Furiex Pharmaceuticals 1

 

 

23,758

 

 

396,996

 

PAREXEL International 1

 

 

28,800

 

 

597,312

 

 

 

 

 

 

    

 

 

 

 

 

 

 

994,308

 

 

 

 

 

 

    

 

Pharmaceuticals - 0.3%

 

 

 

 

 

 

 

Daewoong Pharmaceutical

 

 

12,261

 

 

308,654

 

 

 

 

 

 

 

 

 


 

 

38 | 2011 Annual Report to Stockholders

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

 

December 31, 2011
 

 

 

 

 

 

 

 

 

 

 

 

 

SHARES

 

VALUE

 

Health Care (continued)

 

 

 

 

 

 

 

Pharmaceuticals (continued)

 

 

 

 

 

 

 

XenoPort 1,4

 

 

102,000

 

$

388,620

 

 

 

 

 

 

    

 

 

 

 

 

 

 

697,274

 

 

 

 

 

 

    

 

Total (Cost $15,185,926)

 

 

 

 

 

16,964,899

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

Industrials – 25.9%

 

 

 

 

 

 

 

Aerospace & Defense - 2.2%

 

 

 

 

 

 

 

Astronics Corporation 1

 

 

7,717

 

 

276,346

 

Astronics Corporation Cl. B 1

 

 

911

 

 

33,023

 

CPI Aerostructures 1

 

 

41,900

 

 

492,325

 

Ducommun

 

 

72,100

 

 

919,275

 

HEICO Corporation

 

 

52,500

 

 

3,070,200

 

Innovative Solutions and Support 1

 

 

100,000

 

 

344,000

 

SIFCO Industries

 

 

45,800

 

 

913,252

 

 

 

 

 

 

    

 

 

 

 

 

 

 

6,048,421

 

 

 

 

 

 

    

 

Air Freight & Logistics - 0.6%

 

 

 

 

 

 

 

Forward Air

 

 

50,700

 

 

1,624,935

 

Pacer International 1,4

 

 

35,000

 

 

187,250

 

 

 

 

 

 

    

 

 

 

 

 

 

 

1,812,185

 

 

 

 

 

 

    

 

Building Products - 3.5%

 

 

 

 

 

 

 

AAON

 

 

109,500

 

 

2,243,655

 

American Woodmark

 

 

72,000

 

 

983,520

 

Apogee Enterprises

 

 

57,900

 

 

709,854

 

Burnham Holdings Cl. A 3

 

 

121,000

 

 

1,627,450

 

Griffon Corporation

 

 

89,500

 

 

817,135

 

Sung Kwang Bend

 

 

28,000

 

 

461,806

 

Trex Company 1

 

 

90,000

 

 

2,061,900

 

WaterFurnace Renewable Energy

 

 

53,400

 

 

815,611

 

 

 

 

 

 

    

 

 

 

 

 

 

 

9,720,931

 

 

 

 

 

 

    

 

Commercial Services & Supplies - 2.8%

 

 

 

 

 

 

 

CompX International Cl. A

 

 

107,500

 

 

1,583,475

 

Heritage-Crystal Clean 1

 

 

113,301

 

 

1,876,265

 

Interface Cl. A

 

 

27,000

 

 

311,580

 

Team 1

 

 

80,440

 

 

2,393,090

 

US Ecology

 

 

82,000

 

 

1,539,960

 

 

 

 

 

 

    

 

 

 

 

 

 

 

7,704,370

 

 

 

 

 

 

    

 

Construction & Engineering - 1.3%

 

 

 

 

 

 

 

Comfort Systems USA

 

 

27,096

 

 

290,469

 

Integrated Electrical Services 1,5

 

 

1,122,500

 

 

2,155,200

 

MYR Group 1

 

 

28,500

 

 

545,490

 

Pike Electric 1

 

 

109,400

 

 

786,586

 

 

 

 

 

 

    

 

 

 

 

 

 

 

3,777,745

 

 

 

 

 

 

    

 

Electrical Equipment - 2.2%

 

 

 

 

 

 

 

AZZ

 

 

16,147

 

 

733,720

 

Deswell Industries

 

 

544,371

 

 

1,154,066

 

Encore Wire

 

 

15,000

 

 

388,500

 

Fushi Copperweld 1

 

 

62,463

 

 

469,722

 

Jinpan International

 

 

113,291

 

 

922,755

 

LSI Industries

 

 

79,812

 

 

478,872

 

Powell Industries 1

 

 

36,000

 

 

1,126,080

 

Preformed Line Products

 

 

16,000

 

 

954,560

 

 

 

 

 

 

    

 

 

 

 

 

 

 

6,228,275

 

 

 

 

 

 

    

 

Industrial Conglomerates - 1.3%

 

 

 

 

 

 

 

Raven Industries

 

 

58,400

 

 

3,614,960

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

 

 

SHARES

 

VALUE

 

Industrials (continued)

 

 

 

 

 

 

 

Machinery - 5.9%

 

 

 

 

 

 

 

Armstrong Industrial

 

 

2,518,600

 

$

436,903

 

Cascade Corporation

 

 

8,600

 

 

405,662

 

CIRCOR International

 

 

14,000

 

 

494,340

 

Columbus McKinnon 1

 

 

26,950

 

 

341,996

 

Eastern Company (The)

 

 

39,750

 

 

798,975

 

FAG Bearings India

 

 

23,700

 

 

468,578

 

Foster (L.B.) Company Cl. A

 

 

66,200

 

 

1,872,798

 

FreightCar America 1,4

 

 

50,200

 

 

1,051,690

 

Graham Corporation

 

 

50,300

 

 

1,128,732

 

Hurco Companies 1

 

 

53,866

 

 

1,131,186

 

NN 1

 

 

114,300

 

 

685,800

 

PMFG 1

 

 

78,800

 

 

1,537,388

 

Semperit AG Holding

 

 

12,500

 

 

481,299

 

Sun Hydraulics

 

 

88,387

 

 

2,070,907

 

Tennant Company

 

 

92,300

 

 

3,587,701

 

 

 

 

 

 

    

 

 

 

 

 

 

 

16,493,955

 

 

 

 

 

 

    

 

Professional Services - 3.0%

 

 

 

 

 

 

 

Advisory Board (The) 1

 

 

41,400

 

 

3,072,294

 

CBIZ 1

 

 

47,000

 

 

287,170

 

Exponent 1

 

 

58,400

 

 

2,684,648

 

GP Strategies 1

 

 

41,385

 

 

557,870

 

Heidrick & Struggles International

 

 

20,000

 

 

430,800

 

JobStreet Corporation

 

 

50,000

 

 

35,173

 

Kforce 1

 

 

60,000

 

 

739,800

 

On Assignment 1

 

 

41,100

 

 

459,498

 

 

 

 

 

 

    

 

 

 

 

 

 

 

8,267,253

 

 

 

 

 

 

    

 

Road & Rail - 1.8%

 

 

 

 

 

 

 

Frozen Food Express Industries 1

 

 

157,000

 

 

202,530

 

Patriot Transportation Holding 1

 

 

111,681

 

 

2,423,478

 

Universal Truckload Services

 

 

134,200

 

 

2,435,730

 

 

 

 

 

 

    

 

 

 

 

 

 

 

5,061,738

 

 

 

 

 

 

    

 

Trading Companies & Distributors - 0.8%

 

 

 

 

 

 

 

Aceto Corporation

 

 

72,219

 

 

498,311

 

Houston Wire & Cable

 

 

67,375

 

 

931,122

 

Lawson Products

 

 

50,269

 

 

775,651

 

 

 

 

 

 

    

 

 

 

 

 

 

 

2,205,084

 

 

 

 

 

 

    

 

Transportation Infrastructure - 0.5%

 

 

 

 

 

 

 

† Touax

 

 

47,000

 

 

1,326,089

 

 

 

 

 

 

    

 

Total (Cost $50,471,882)

 

 

 

 

 

72,261,006

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

Information Technology – 19.2%

 

 

 

 

 

 

 

Communications Equipment - 0.8%

 

 

 

 

 

 

 

Bel Fuse Cl. A

 

 

67,705

 

 

1,423,159

 

† ClearOne Communications 1,4

 

 

25,000

 

 

108,000

 

Cogo Group 1

 

 

93,735

 

 

168,723

 

Oplink Communications 1

 

 

23,100

 

 

380,457

 

PC-Tel

 

 

44,100

 

 

301,644

 

 

 

 

 

 

    

 

 

 

 

 

 

 

2,381,983

 

Computers & Peripherals - 1.0%

 

 

 

 

    

 

Imation Corporation 1

 

 

112,312

 

 

643,548

 

Rimage Corporation

 

 

79,200

 

 

891,000

 

Super Micro Computer 1,4

 

 

42,754

 

 

670,382

 


 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

2011 Annual Report to Stockholders | 39

 

Royce Micro-Cap Trust
 

 

   Schedule of Investments

 

 

 

 

 

 

 

 

 

 

SHARES

 

VALUE

 

Information Technology (continued)

 

 

 

 

 

 

 

Computers & Peripherals (continued)

 

 

 

 

 

 

 

TransAct Technologies 1

 

 

78,600

 

$

570,636

 

 

 

 

 

 

    

 

 

 

 

 

 

 

2,775,566

 

 

 

 

 

 

    

 

Electronic Equipment, Instruments & Components - 6.1%

 

 

 

 

 

 

 

Agilysys 1

 

 

90,000

 

 

715,500

 

Diploma

 

 

50,000

 

 

263,777

 

Domino Printing Sciences

 

 

80,000

 

 

636,109

 

Frequency Electronics 1

 

 

34,600

 

 

265,036

 

Hana Microelectronics

 

 

763,700

 

 

457,494

 

Hollysys Automation Technologies 1

 

 

248,400

 

 

2,066,688

 

Inficon Holding

 

 

5,200

 

 

852,550

 

Mercury Computer Systems 1

 

 

32,100

 

 

426,609

 

Mesa Laboratories

 

 

48,267

 

 

2,000,184

 

Multi-Fineline Electronix 1,4

 

 

45,000

 

 

924,750

 

Newport Corporation 1

 

 

80,900

 

 

1,101,049

 

Park Electrochemical

 

 

14,200

 

 

363,804

 

Pulse Electronics

 

 

150,000

 

 

420,000

 

Research Frontiers 1,4

 

 

30,150

 

 

101,907

 

Richardson Electronics

 

 

250,900

 

 

3,083,561

 

Rogers Corporation 1

 

 

58,400

 

 

2,152,624

 

TTM Technologies 1

 

 

114,400

 

 

1,253,824

 

 

 

 

 

 

    

 

 

 

 

 

 

 

17,085,466

 

 

 

 

 

 

    

 

Internet Software & Services - 1.1%

 

 

 

 

 

 

 

† Bitauto Holdings ADR 1

 

 

50,000

 

 

200,000

 

Marchex Cl. B

 

 

95,000

 

 

593,750

 

RealNetworks

 

 

103,375

 

 

775,313

 

Support.com 1

 

 

417,500

 

 

939,375

 

WebMediaBrands 1

 

 

525,000

 

 

238,875

 

World Energy Solutions 1,4

 

 

72,920

 

 

220,218

 

 

 

 

 

 

    

 

 

 

 

 

 

 

2,967,531

 

 

 

 

 

 

    

 

IT Services - 4.2%

 

 

 

 

 

 

 

Cass Information Systems

 

 

16,500

 

 

600,435

 

Computer Task Group 1

 

 

131,100

 

 

1,845,888

 

Forrester Research 1

 

 

54,900

 

 

1,863,306

 

Innodata Isogen 1

 

 

383,832

 

 

1,512,298

 

Sapient Corporation

 

 

350,000

 

 

4,410,000

 

Tier Technologies 1,4

 

 

340,000

 

 

1,482,400

 

Yucheng Technologies 1

 

 

66,444

 

 

149,499

 

 

 

 

 

 

    

 

 

 

 

 

 

 

11,863,826

 

 

 

 

 

 

    

 

Semiconductors & Semiconductor Equipment - 4.1%

 

 

 

 

 

 

 

Advanced Energy Industries 1

 

 

57,500

 

 

616,975

 

† Alpha & Omega Semiconductor 1

 

 

202,400

 

 

1,479,544

 

† Amtech Systems 1,4

 

 

22,700

 

 

193,177

 

† Axcelis Technologies 1

 

 

900,000

 

 

1,197,000

 

Exar Corporation 1

 

 

371,708

 

 

2,416,102

 

GSI Technology 1

 

 

90,600

 

 

424,008

 

Integrated Silicon Solution 1

 

 

98,800

 

 

903,032

 

MoSys 1,4

 

 

400,000

 

 

1,680,000

 

Photronics 1

 

 

173,800

 

 

1,056,704

 

PLX Technology 1

 

 

317,500

 

 

911,225

 

Rudolph Technologies 1

 

 

58,900

 

 

545,414

 

 

 

 

 

 

    

 

 

 

 

 

 

 

11,423,181

 

 

 

 

 

 

    

 

Software - 1.9%

 

 

 

 

 

 

 

ACI Worldwide 1

 

 

69,600

 

 

1,993,344

 

Actuate Corporation 1

 

 

139,500

 

 

817,470

 

 

 

 

 

 

 

 

 

 

 

SHARES

 

VALUE

 

Information Technology (continued)

 

 

 

 

 

 

 

Software (continued)

 

 

 

 

 

 

 

American Software Cl. A

 

 

66,500

 

$

628,425

 

Convio 1

 

 

30,300

 

 

335,118

 

Pegasystems

 

 

49,000

 

 

1,440,600

 

 

 

 

 

 

    

 

 

 

 

 

 

 

5,214,957

 

 

 

 

 

 

    

 

Total (Cost $42,261,764)

 

 

 

 

 

53,712,510

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Materials – 8.2%

 

 

 

 

 

 

 

Chemicals - 3.0%

 

 

 

 

 

 

 

Balchem Corporation

 

 

63,375

 

 

2,569,223

 

Hawkins

 

 

29,697

 

 

1,094,631

 

Landec Corporation 1

 

 

60,300

 

 

332,856

 

Quaker Chemical

 

 

66,200

 

 

2,574,518

 

Zoltek Companies 1

 

 

210,000

 

 

1,600,200

 

 

 

 

 

 

    

 

 

 

 

 

 

 

8,171,428

 

 

 

 

 

 

    

 

Construction Materials - 0.8%

 

 

 

 

 

 

 

Ash Grove Cement 3

 

 

8,000

 

 

1,040,000

 

Monarch Cement

 

 

52,303

 

 

1,176,817

 

 

 

 

 

 

    

 

 

 

 

 

 

 

2,216,817

 

 

 

 

 

 

    

 

Metals & Mining - 3.7%

 

 

 

 

 

 

 

AuRico Gold 1

 

 

91,250

 

 

730,912

 

Aurizon Mines 1

 

 

47,000

 

 

231,710

 

Central Steel & Wire 3

 

 

1,088

 

 

712,640

 

Endeavour Mining 1,4

 

 

652,500

 

 

1,556,393

 

Endeavour Mining (Warrants) 1

 

 

50,000

 

 

34,356

 

Exeter Resource 1

 

 

140,000

 

 

365,400

 

Extorre Gold Mines 1

 

 

140,000

 

 

1,033,200

 

Haynes International

 

 

10,100

 

 

551,460

 

Horsehead Holding Corporation 1

 

 

51,688

 

 

465,709

 

MAG Silver 1

 

 

74,750

 

 

497,835

 

Midway Gold 1,4

 

 

345,000

 

 

727,950

 

Minefinders Corporation 1,4

 

 

36,000

 

 

381,600

 

RTI International Metals 1

 

 

25,000

 

 

580,250

 

Seabridge Gold 1

 

 

16,700

 

 

269,037

 

Synalloy Corporation

 

 

58,200

 

 

597,714

 

Universal Stainless & Alloy Products 1,4

 

 

39,899

 

 

1,490,627

 

Vista Gold 1,4

 

 

50,000

 

 

153,500

 

 

 

 

 

 

    

 

 

 

 

 

 

 

10,380,293

 

 

 

 

 

 

    

 

Paper & Forest Products - 0.7%

 

 

 

 

 

 

 

Pope Resources L.P.

 

 

42,205

 

 

1,814,393

 

† Qunxing Paper Holdings 2

 

 

1,500,000

 

 

198,929

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,013,322

 

 

 

 

 

 

    

 

Total (Cost $17,352,605)

 

 

 

 

 

22,781,860

 

 

 

 

 

 

    

 

Utilities – 0.0%

 

 

 

 

 

 

 

Independent Power Producers & Energy Traders - 0.0%

 

 

 

 

 

 

 

China Hydroelectric ADS 1,4

 

 

73,100

 

 

83,334

 

 

 

 

 

 

    

 

Total (Cost $554,098)

 

 

 

 

 

83,334

 

 

 

 

 

 

    

 

Miscellaneous 6 – 4.9%

 

 

 

 

    

 

Total (Cost $16,396,614)

 

 

 

 

 

13,746,653

 

 

 

 

 

 

    

 


 

 

40 | 2011 Annual Report to Stockholders

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

 

December 31, 2011
 

 

 

 

 

 

 

 

 

 

 

 

 

SHARES

 

VALUE

 

TOTAL COMMON STOCKS

 

 

 

 

 

 

 

(Cost $237,552,028)

 

 

 

 

$

292,739,652

 

 

 

 

 

 

 

 

 

PREFERRED STOCK – 0.3%

 

 

 

 

 

 

 

Seneca Foods Conv.1,3

 

 

 

 

 

 

 

(Cost $578,719)

 

 

45,409

 

 

726,544

 

 

 

 

 

 

    

 

REPURCHASE AGREEMENT – 17.2%

 

 

 

 

 

 

 

Fixed Income Clearing Corporation,
0.01% dated 12/30/11, due 1/3/12,
maturity value $48,006,053 (collateralized
by obligations of various U.S. Government
Agencies, 0.255% due 7/20/12, valued at
$49,206,431)
(Cost $48,006,000)

 

 

 

 

 

48,006,000

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

VALUE

 

COLLATERAL RECEIVED FOR SECURITIES
LOANED – 1.6%

 

 

 

 

Money Market Funds

 

 

 

 

Federated Government Obligations Fund
(7 day yield-0.0098%)
(Cost $4,501,603)

 

$

4,501,603

 

 

 

    

 

TOTAL INVESTMENTS – 123.9%

 

 

 

 

(Cost $290,638,350)

 

 

345,973,799

 

 

 

 

 

 

LIABILITIES LESS CASH
AND OTHER ASSETS – (2.4)%

 

 

(6,681,580

)

 

 

 

 

 

PREFERRED STOCK – (21.5)%

 

 

(60,000,000

)

 

 

    

 
 

NET ASSETS APPLICABLE TO COMMON
STOCKHOLDERS – 100.0%

 

$

279,292,219

 

 

 

    

 


 

 
   

†

New additions in 2011.

1

Non-income producing.

2

Securities for which market quotations are not readily available represent 0.1% of net assets. These securities have been valued at their fair value under procedures approved by the Fund’s Board of Directors. These securities are defined as Level 3 securities due to the use of significant unobservable inputs in the determination of fair value. See Notes to Financial Statements.

3

These securities are defined as Level 2 securities due to fair value being based on quoted prices for similar securities. See Notes to Financial Statements.

4

All or a portion of these securities were on loan at December 31, 2011. Total market value of loaned securities at December 31, 2011, was $4,277,889.

5

At December 31, 2011, the Fund owned 5% or more of the Company’s outstanding voting securities thereby making the Company an Affiliated Company as that term is defined in the Investment Company Act of 1940. See Notes to Financial Statements.

6

Includes securities first acquired in 2011 and less than 1% of net assets applicable to Common Stockholders.

 

 

Bold indicates the Fund’s 20 largest equity holdings in terms of December 31, 2011, market value.

 

TAX INFORMATION: The cost of total investments for Federal income tax purposes was $293,852,685. At December 31, 2011, net unrealized appreciation for all securities was $52,121,114, consisting of aggregate gross unrealized appreciation of $81,915,515 and aggregate gross unrealized depreciation of $29,794,401. The primary difference between book and tax basis cost is the timing of the recognition of losses on securities sold.
   

 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

2011 Annual Report to Stockholders | 41

 

 

Royce Micro-Cap Trust

December 31, 2011
 

 

 

   Statement of Assets and Liabilities

 

 

 

 

 

 

ASSETS:

 

 

 

 

Investments at value (including collateral on loaned securities)

 

 

 

 

Non-Affiliated Companies (cost $240,510,125)

 

$

295,812,599

 

Affiliated Companies (cost $2,122,225)

 

 

2,155,200

 
   

 

  

 

Total investments at value

 

 

297,967,799

 

Repurchase agreements (at cost and value)

 

 

48,006,000

 

Cash and foreign currency

 

 

28,796

 

Receivable for dividends and interest

 

 

449,459

 

Prepaid expenses and other assets

 

 

34,752

 
       

 

Total Assets

 

 

346,486,806

 
       

 

LIABILITIES:

 

 

 

 

Payable for collateral on loaned securities

 

 

4,501,603

 

Payable for investments purchased

 

 

2,131,256

 

Payable for investment advisory fee

 

 

367,163

 

Preferred dividends accrued but not yet declared

 

 

80,000

 

Accrued expenses

 

 

114,565

 
       

 

Total Liabilities

 

 

7,194,587

 
       

 

PREFERRED STOCK:

 

 

 

 

6.00% Cumulative Preferred Stock - $0.001 par value, $25 liquidation value per share; 2,400,000 shares outstanding

 

 

60,000,000

 
       

 

Total Preferred Stock

 

 

60,000,000

 
       

 

NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS

 

$

279,292,219

 
       

 

ANALYSIS OF NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:

 

 

Common Stock paid-in capital - $0.001 par value per share; 28,333,207 shares outstanding (150,000,000 shares authorized)

 

$

227,260,177

 

Undistributed net investment income (loss)

 

 

(1,994,992

)

Accumulated net realized gain (loss) on investments and foreign currency

 

 

(1,226,946

)

Net unrealized appreciation (depreciation) on investments and foreign currency

 

 

55,333,980

 

Preferred dividends accrued but not yet declared

 

 

(80,000

)
       

 

Net Assets applicable to Common Stockholders (net asset value per share - $9.86)

 

$

279,292,219

 
       

 

Investments at identified cost (including $4,501,603 of collateral on loaned securities)

 

$

242,632,350

 

Market value of loaned securities

 

 

4,277,889

 

 

 

42 | 2011 Annual Report to Stockholders

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

 

 

Royce Micro-Cap Trust

Year Ended December 31, 2011
 

 

 

   Statement of Operations

 

 

 

 

 

 

INVESTMENT INCOME:

 

 

 

 

Income:

 

 

 

 

Dividends1

 

$

4,397,965

 

Interest

 

 

11,070

 

Securities lending

 

 

119,548

 
       

 

Total income

 

 

4,528,583

 
       

 

Expenses:

 

 

 

 

Investment advisory fees

 

 

3,003,071

 

Stockholder reports

 

 

117,998

 

Custody and transfer agent fees

 

 

110,034

 

Directors’ fees

 

 

60,829

 

Professional fees

 

 

57,799

 

Administrative and office facilities

 

 

36,302

 

Other expenses

 

 

65,857

 
       

 

Total expenses

 

 

3,451,890

 
       

 

Fees waived by investment adviser

 

 

(105,001

)
       

 

Net expenses

 

 

3,346,889

 
       

 

Net investment income (loss)

 

 

1,181,694

 
       

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:

 

 

 

 

Net realized gain (loss):

 

 

 

 

Investments in Non-Affiliated Companies

 

 

8,530,198

 

Investments in Affiliated Companies

 

 

(2,621,497

)

Foreign currency transactions

 

 

(9,584

)

Net change in unrealized appreciation (depreciation):

 

 

 

 

Investments and foreign currency translations

 

 

(28,537,374

)

Other assets and liabilities denominated in foreign currency

 

 

45,929

 
       

 

Net realized and unrealized gain (loss) on investments and foreign currency

 

 

(22,592,328

)
       

 

NET INCREASE (DECREASE) IN NET ASSETS FROM INVESTMENT OPERATIONS

 

 

(21,410,634

)
       

 

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS

 

 

(3,600,000

)
       

 

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS
FROM INVESTMENT OPERATIONS

 

$

(25,010,634

)

1 Net of foreign withholding tax of $47,790.


 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

2011 Annual Report to Stockholders | 43


 

 

Royce Micro-Cap Trust

 
 

 

 

   Statement of Changes in Net Assets Applicable to Common Stockholders

 

 

 

 

 

 

 

 

 

 

 

Year ended
12/31/11

 

 

Year ended
12/31/10

 

INVESTMENT OPERATIONS:

 

 

 

 

 

 

 

Net investment income (loss)

 

$

1,181,694

 

$

2,194,992

 

Net realized gain (loss) on investments and foreign currency

 

 

5,899,117

 

 

43,946,229

 

Net change in unrealized appreciation (depreciation) on investments and foreign currency

 

 

(28,491,445

)

 

26,663,923

 
             

 

Net increase (decrease) in net assets from investment operations

 

 

(21,410,634

)

 

72,805,144

 
             

 

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:

 

 

 

 

 

 

 

Net investment income

 

 

(660,851

)

 

(2,832,980

)

Net realized gain on investments and foreign currency

 

 

(2,939,149

)

 

(767,020

)
             

 

Total distributions to Preferred Stockholders

 

 

(3,600,000

)

 

(3,600,000

)
             

 

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS
FROM INVESTMENT OPERATIONS

 

 

(25,010,634

)

 

69,205,144

 
             

 

DISTRIBUTIONS TO COMMON STOCKHOLDERS:

 

 

 

 

 

 

 

Net investment income

 

 

(1,505,199

)

 

(1,720,810

)

Net realized gain on investments and foreign currency

 

 

(6,694,405

)

 

(465,903

)

Return of capital

 

 

(6,511,252

)

 

—

 
   

 

        

 

Total distributions to Common Stockholders

 

 

(14,710,856

)

 

(2,186,713

)
             

 

CAPITAL STOCK TRANSACTIONS:

 

 

 

 

 

 

 

Reinvestment of distributions to Common Stockholders

 

 

7,734,894

 

 

1,104,264

 
             

 

Total capital stock transactions

 

 

7,734,894

 

 

1,104,264

 
             

 

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS

 

 

(31,986,596

)

 

68,122,695

 
             

 

NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:

 

 

 

 

 

 

 

Beginning of year

 

 

311,278,815

 

 

243,156,120

 
             

 

End of year (including undistributed net investment income (loss) of $(1,994,992) at 12/31/11 and
$(1,685,821) at 12/31/10)

 

$

279,292,219

 

$

311,278,815

 

 

 

44 | 2011 Annual Report to Stockholders

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

 

Royce Micro-Cap Trust
 

 

   Financial Highlights

This table is presented to show selected data for a share of Common Stock outstanding throughout each period, and to assist stockholders in evaluating the Fund’s performance for the periods presented.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years ended December 31,

 

 

 

                            

 

 

 

2011

 

2010

 

2009

 

2008

 

2007

 
                               

 

NET ASSET VALUE, BEGINNING OF PERIOD

 

$

11.34

 

$

8.90

 

$

6.39

 

$

13.48

 

$

14.77

 
                               

 

INVESTMENT OPERATIONS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss)

 

 

0.04

 

 

0.08

 

 

0.00

 

 

0.02

 

 

(0.00

)

Net realized and unrealized gain (loss) on investments and
foreign currency

 

 

(0.82

)

 

2.58

 

 

2.88

 

 

(5.70

)

 

0.24

 
                               

 

Total investment operations

 

 

(0.78

)

 

2.66

 

 

2.88

 

 

(5.68

)

 

0.24

 
                               

 

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income

 

 

(0.02

)

 

(0.10

)

 

(0.04

)

 

(0.01

)

 

(0.01

)

Net realized gain on investments and foreign currency

 

 

(0.11

)

 

(0.03

)

 

–    

 

 

(0.13

)

 

(0.14

)

Return of capital

 

 

–    

 

 

–    

 

 

(0.09

)

 

–    

 

 

–    

 
                               

 

Total distributions to Preferred Stockholders

 

 

(0.13

)

 

(0.13

)

 

(0.13

)

 

(0.14

)

 

(0.15

)
                               

 

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO
COMMON STOCKHOLDERS FROM INVESTMENT OPERATIONS

 

 

(0.91

)

 

2.53

 

 

2.75

 

 

(5.82

)

 

0.09

 
                               

 

DISTRIBUTIONS TO COMMON STOCKHOLDERS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income

 

 

(0.05

)

 

(0.06

)

 

–    

 

 

(0.09

)

 

(0.08

)

Net realized gain on investments and foreign currency

 

 

(0.24

)

 

(0.02

)

 

–    

 

 

(0.83

)

 

(1.27

)

Return of capital

 

 

(0.24

)

 

–    

 

 

(0.22

)

 

(0.27

)

 

–    

 
                               

 

Total distributions to Common Stockholders

 

 

(0.53

)

 

(0.08

)

 

(0.22

)

 

(1.19

)

 

(1.35

)
                               

 

CAPITAL STOCK TRANSACTIONS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of reinvestment of distributions by Common Stockholders

 

 

(0.04

)

 

(0.01

)

 

(0.02

)

 

(0.08

)

 

(0.03

)
                               

 

Total capital stock transactions

 

 

(0.04

)

 

(0.01

)

 

(0.02

)

 

(0.08

)

 

(0.03

)
                               

 

NET ASSET VALUE, END OF PERIOD

 

$

9.86

 

$

11.34

 

$

8.90

 

$

6.39

 

$

13.48

 
                               

 

MARKET VALUE, END OF PERIOD

 

$

8.77

 

$

9.80

 

$

7.37

 

$

5.62

 

$

11.94

 
                               

 

TOTAL RETURN:1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Market Value

 

 

(4.99

)%

 

34.10

%

 

37.91

%

 

(45.84

)%

 

(20.54

)%

Net Asset Value

 

 

(7.69

)%

 

28.50

%

 

46.47

%

 

(45.45

)%

 

0.64

%

RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment advisory fee expense 2

 

 

0.97

%

 

0.97

%

 

1.38

%

 

1.39

%

 

1.44

%

Other operating expenses

 

 

0.15

%

 

0.15

%

 

0.21

%

 

0.16

%

 

0.12

%

Total expenses (net)3

 

 

1.12

%

 

1.12

%

 

1.59

%

 

1.55

%

 

1.56

%

Expenses prior to fee waivers and balance credits

 

 

1.15

%

 

1.17

%

 

1.74

%

 

1.58

%

 

1.56

%

Expenses prior to fee waivers

 

 

1.15

%

 

1.17

%

 

1.74

%

 

1.58

%

 

1.56

%

Net investment income (loss)

 

 

0.40

%

 

0.84

%

 

0.02

%

 

0.15

%

 

(0.07

)%

SUPPLEMENTAL DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Assets Applicable to Common Stockholders,
End of Period (in thousands)

 

$

279,292

 

$

311,279

 

$

243,156

 

$

169,854

 

$

331,476

 

Liquidation Value of Preferred Stock,
End of Period (in thousands)

 

$

60,000

 

$

60,000

 

$

60,000

 

$

60,000

 

$

60,000

 

Portfolio Turnover Rate

 

 

30

%

 

27

%

 

30

%

 

42

%

 

41

%

PREFERRED STOCK:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total shares outstanding

 

 

2,400,000

 

 

2,400,000

 

 

2,400,000

 

 

2,400,000

 

 

2,400,000

 

Asset coverage per share

 

$

141.37

 

$

154.70

 

$

126.32

 

$

95.77

 

$

163.11

 

Liquidation preference per share

 

$

25.00

 

$

25.00

 

$

25.00

 

$

25.00

 

$

25.00

 

Average month-end market value per share

 

$

25.41

 

$

25.11

 

$

23.47

 

$

23.08

 

$

24.06

 
                               

 

 

 

1

The Market Value Total Return is calculated assuming a purchase of Common Stock on the opening of the first business day and a sale on the closing of the last business day of each period. Dividends and distributions are assumed for the purposes of this calculation to be reinvested at prices obtained under the Fund’s Distribution Reinvestment and Cash Purchase Plan. Net Asset Value Total Return is calculated on the same basis, except that the Fund’s net asset value is used on the purchase and sale dates instead of market value.

2

The investment advisory fee is calculated based on average net assets over a rolling 36-month basis, while the above ratios of investment advisory fee expenses are based on the average net assets applicable to Common Stockholders over a 12-month basis.

3

Expense ratios based on total average net assets including liquidation value of Preferred Stock were 0.93%, 0.91%, 1.21%, 1.26% and 1.33% for the years ended December 31, 2011, 2010, 2009, 2008 and 2007, respectively.

 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

2011 Annual Report to Stockholders | 45


 

Royce Micro-Cap Trust
 

 

   Notes to Financial Statements

Summary of Significant Accounting Policies:
     Royce Micro-Cap Trust, Inc. (the “Fund”), was incorporated under the laws of the State of Maryland on September 9, 1993, as a diversified closed-end investment company. The Fund commenced operations on December 14, 1993.
     The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
     Under the Fund’s organizational documents, the officers and directors are indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses.

Valuation of Investments:
     Securities are valued as of the close of trading on the New York Stock Exchange (NYSE) (generally 4:00 p.m. Eastern time) on the valuation date. Securities that trade on an exchange, and securities traded on Nasdaq’s Electronic Bulletin Board, are valued at their last reported sales price or Nasdaq official closing price taken from the primary market in which each security trades or, if no sale is reported for such day, at their bid price. Other over-the-counter securities for which market quotations are readily available are valued at their highest bid price, except in the case of some bonds and other fixed income securities which may be valued by reference to other securities with comparable ratings, interest rates and maturities, using established independent pricing services. The Fund values its non-U.S. dollar denominated securities in U.S. dollars daily at the prevailing foreign currency exchange rates as quoted by a major bank. Securities for which market quotations are not readily available are valued at their fair value under procedures approved by the Fund’s Board of Directors. In addition, if, between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and may make the closing price unreliable, the Fund may fair value the security. The Fund uses an independent pricing service to provide fair value estimates for relevant non-U.S. equity securities on days when the U.S. market volatility exceeds a certain threshold. This pricing service uses proprietary correlations it has developed between the movement of prices of non-U.S. equity securities and indices of U.S.-traded securities, futures contracts and other indications to estimate the fair value of relevant non-U.S. securities. When fair value pricing is employed, the prices of securities used by the Fund may differ from quoted or published prices for the same security. Investments in money market funds are valued at net asset value per share.
     Various inputs are used in determining the value of the Fund’s investments, as noted above. These inputs are summarized in the three broad levels below:

 

 

 

 

Level

1 – quoted prices in active markets for identical securities.

 

Level

2 – other significant observable inputs (including quoted prices for similar securities, foreign securities that may be fair valued and repurchase agreements). The table below includes all Level 2 securities. Level 2 securities with values based on quoted prices for similar securities are noted in the Schedule of Investments.

 

Level

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

     The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
     The following is a summary of the inputs used to value the Fund’s investments as of December 31, 2011. For a detailed breakout of common stocks by sector classification, please refer to the Schedule of Investments.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 
 

Common Stocks

 

$

261,670,632

 

$

30,721,125

 

$

347,895

 

$

292,739,652

 

Preferred Stocks

 

 

–

 

 

726,544

 

 

–

 

 

726,544

 

Cash Equivalents

 

 

4,501,603

 

 

48,006,000

 

 

–

 

 

52,507,603

 
 

Level 3 Reconciliation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized and
Unrealized
Gain (Loss)1

 

 

 

 

 

 

Balance as of
12/31/10

 

Purchases

 

Transfers Out

 

 

 

 

 

Balance as of
12/31/11

 

 

 

 

 

 

Sales

 

 

 
 

Common Stocks

 

$

36,229

 

$

559,456

 

$

–

 

$

–

 

$

(247,790

)

$

347,895

 
 

 

 

1

The net change in unrealized appreciation (depreciation) is included in the accompanying Statement of Operations. Change in unrealized appreciation (depreciation) includes net unrealized appreciation (depreciation) resulting from changes in investment values during the reporting period and the reversal of previously recorded unrealized appreciation (depreciation) when gains or losses are realized. Net realized gain (loss) from investments and foreign currency transactions is included in the accompanying Statement of Operations.

46 | 2011 Annual Report to Stockholders

 

Royce Micro-Cap Trust
 

 

   Notes to Financial Statements (continued)

Repurchase Agreements:
     The Fund may enter into repurchase agreements with institutions that the Fund’s investment adviser has determined are creditworthy. The Fund restricts repurchase agreements to maturities of no more than seven days. Securities pledged as collateral for repurchase agreements, which are held until maturity of the repurchase agreements, are marked-to-market daily and maintained at a value at least equal to the principal amount of the repurchase agreement (including accrued interest). Repurchase agreements could involve certain risks in the event of default or insolvency of the counter-party, including possible delays or restrictions upon the ability of the Fund to dispose of its underlying securities.

Foreign Currency:
     Net realized foreign exchange gains or losses arise from sales and maturities of short-term securities, sales of foreign currencies, expiration of currency forward contracts, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities, including investments in securities at the end of the reporting period, as a result of changes in foreign currency exchange rates.

Securities Lending:
     The Fund loans securities through a lending agent to qualified institutional investors for the purpose of realizing additional income. Collateral for the Fund on all securities loaned is accepted in cash and cash equivalents and invested temporarily by the custodian. The collateral maintained is at least 100% of the current market value of the loaned securities. The market value of the loaned securities is determined at the close of business of the Fund and any additional required collateral is delivered to the Fund on the next business day. The Fund retains the risk of any loss on the securities on loan as well as incurring the potential loss on investments purchased with cash collateral received for securities lending. The Fund’s securities lending income consists of the income earned on investing cash collateral, plus any premium payments received for lending certain securities, less any rebates paid to borrowers and lending agent fees associated with the loan. The lending agent is not affiliated with Royce.

Taxes:
     As a qualified regulated investment company under Subchapter M of the Internal Revenue Code, the Fund is not subject to income taxes to the extent that it distributes substantially all of its taxable income for its fiscal year. The Schedule of Investments includes information regarding income taxes under the caption “Tax Information”.

Distributions:
     Commencing March 2011, the Fund pays quarterly distributions on the Fund’s Common Stock at the annual rate of 5% of the rolling average of the prior four calendar quarter-end NAVs of the Fund’s Common Stock, with the fourth quarter distribution being the greater of 1.25% of the rolling average or the distribution required by IRS regulations. Distributions to Preferred Stockholders are accrued daily and paid quarterly and distributions to Common Stockholders are recorded on ex-dividend date. Distributable capital gains and/or net investment income are first allocated to Preferred Stockholder distributions, with any excess allocable to Common Stockholders. If capital gains and/or net investment income are allocated to both Preferred and Common Stockholders, the tax character of such allocations is proportional. To the extent that distributions are not paid from long-term capital gains, net investment income or net short-term capital gains, they will represent a return of capital. Distributions are determined in accordance with income tax regulations that may differ from accounting principles generally accepted in the United States of America. Permanent book and tax differences relating to stockholder distributions will result in reclassifications within the capital accounts. Undistributed net investment income may include temporary book and tax basis differences, which will reverse in a subsequent period. Any taxable income or gain remaining undistributed at fiscal year end is distributed in the following year.

Investment Transactions and Related Investment Income:
     Investment transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date. Non-cash dividend income is recorded at the fair market value of the securities received. Interest income is recorded on an accrual basis. Premium and discounts on debt securities are amortized using the effective yield-to-maturity method. Realized gains and losses from investment transactions are determined on the basis of identified cost for book and tax purposes.

Expenses:
     The Fund incurs direct and indirect expenses. Expenses directly attributable to the Fund are charged to the Fund’s operations, while expenses applicable to more than one of the Royce Funds are allocated equitably. Certain personnel, occupancy costs and other administrative expenses related to The Royce Funds are allocated by Royce & Associates, LLC (“Royce”) under an administration agreement and are included in administrative and office facilities and professional fees. The Fund has adopted a deferred fee agreement that allows the Directors to defer the receipt of all or a portion of directors’ fees otherwise payable. The deferred fees are invested in certain Royce Funds until distributed in accordance with the agreement.

2011 Annual Report to Stockholders | 47

 

Royce Micro-Cap Trust
 

 

   Notes to Financial Statements (continued)

Compensating Balance Credits:
     The Fund has an arrangement with its custodian bank, whereby a portion of the custodian’s fee is paid indirectly by credits earned on the Fund’s cash on deposit with the bank. This deposit arrangement is an alternative to purchasing overnight investments. Conversely, the Fund pays interest to the custodian on any cash overdrafts, to the extent they are not offset by credits earned on positive cash balances.

Recent Accounting Pronouncements:
     In May 2011, the Financial Accounting Standards Board issued Accounting Standard Update No. 2011-04, Fair Value Measurement (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU No. 2011-04”). ASU No. 2011-04 establishes common requirements for measuring fair value and for disclosing information about fair value measurements. ASU No. 2011-04 is effective during interim and annual periods beginning after December 15, 2011. Management is currently evaluating the impact the adoption of ASU No. 2011-04 will have on the Fund’s financial statements and related disclosures.

Capital Stock:
     The Fund issued 881,817 and 117,475 shares of Common Stock as reinvestment of distributions by Common Stockholders for the years ended December 31, 2011 and 2010, respectively.
     At December 31, 2011, 2,400,000 shares of 6.00% Cumulative Preferred Stock were outstanding. The Fund, at its option, may redeem the Cumulative Preferred Stock, in whole or in part, at the redemption price. The Cumulative Preferred Stock is classified outside of permanent equity (net assets applicable to Common Stockholders) in the accompanying financial statements in accordance with accounting for redeemable equity instruments, that requires preferred securities that are redeemable for cash or other assets to be classified outside of permanent equity to the extent that the redemption is at a fixed or determinable price and at the option of the holder or upon the occurrence of an event that is not solely within the control of the issuer.
     The Fund is required to meet certain asset coverage tests with respect to the Cumulative Preferred Stock as required by the 1940 Act. In addition, pursuant to the Rating Agency Guidelines established by Moody’s, the Fund is required to maintain a certain discounted asset coverage. If the Fund fails to meet these requirements and does not correct such failure, the Fund may be required to redeem, in part or in full, the Cumulative Preferred Stock at a redemption price of $25.00 per share, plus an amount equal to the accumulated and unpaid dividends, whether or not declared on such shares, in order to meet these requirements. Additionally, failure to meet the foregoing asset coverage requirements could restrict the Fund’s ability to pay dividends to Common Stockholders and could lead to sales of portfolio securities at inopportune times. The Fund has met these requirements since issuing the Cumulative Preferred Stock.

Investment Advisory Agreement:
     As compensation for its services under the Investment Advisory Agreement, Royce receives a fee comprised of a Basic Fee (“Basic Fee”) and an adjustment to the Basic Fee based on the investment performance of the Fund in relation to the investment record of the Russell 2000.
     The Basic Fee is a monthly fee equal to 1/12 of 1% (1% on an annualized basis) of the average of the Fund’s month-end net assets applicable to Common Stockholders, plus the liquidation value of Preferred Stock, for the rolling 36-month period ending with such month (the “performance period”). The Basic Fee for each month is increased or decreased at the rate of 1/12 of .05% for each percentage point that the investment performance of the Fund exceeds, or is exceeded by, the percentage change in the investment record of the Russell 2000 for the performance period by more than two percentage points. The performance period for each such month is a rolling 36-month period ending with such month. The maximum increase or decrease in the Basic Fee for any month may not exceed 1/12 of .5%. Accordingly, for each month, the maximum monthly fee rate as adjusted for performance is 1/12 of 1.5% and is payable if the investment performance of the Fund exceeds the percentage change in the investment record of the Russell 2000 by 12 or more percentage points for the performance period, and the minimum monthly fee rate as adjusted for performance is 1/12 of .5% and is payable if the percentage change in the investment record of the Russell 2000 exceeds the investment performance of the Fund by 12 or more percentage points for the performance period.
     Royce has voluntarily committed to waive the portion of its investment advisory fee attributable to an issue of the Fund’s Preferred Stock for any month in which the Fund’s average annual NAV total return since issuance of the Preferred Stock fails to exceed the applicable Preferred Stock’s dividend rate.
     For the twelve rolling 36-month periods in 2011, the Fund’s investment performance ranged from 19% above to 10% below the investment performance of the Russell 2000. Accordingly, the net investment advisory fee consisted of a Basic Fee of $3,058,000 and a net downward adjustment of $54,929 for the performance of the Fund relative to that of the Russell 2000. Additionally, Royce voluntarily waived a portion of its investment advisory fee ($105,001) attributable to issues of the Fund’s Preferred Stock for those months in which the Fund’s average annual NAV total return failed to exceed the applicable Preferred Stock’s dividend rate. For the year ended December 31, 2011, the Fund accrued and paid Royce investment advisory fees totaling $2,898,070.

48 | 2011 Annual Report to Stockholders


 

Royce Micro-Cap Trust
 

 

   Notes to Financial Statements (continued)

Purchases and Sales of Investment Securities:
     For the year ended December 31, 2011, the costs of purchases and proceeds from sales of investment securities, other than short-term securities and collateral received for securities loaned, amounted to $92,774,361 and $92,061,192, respectively.

Distributions to Stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The tax character of distributions paid to common stockholders during 2011 and 2010 was as follows:

 

The tax character of distributions paid to preferred stockholders during 2011 and 2010 was as follows:

 
                                 

Distributions paid from:

 

 

2011

 

 

2010

 

Distributions paid from:

 

 

2011

 

 

2010

 

Ordinary income

 

$

1,505,199

 

$

1,720,810

 

Ordinary income

 

$

660,851

 

$

2,832,980

 

Long-term capital gain

 

 

6,694,405

 

 

465,903

 

Long-term capital gain

 

 

2,939,149

 

 

767,020

 

 

 

 

 

 

 

 

 

 

 

 

            

Return of capital

 

 

6,511,252

 

 

–

 

 

 

 

$

3,600,000

 

$

3,600,000

 

 

 

          

 

                  

 

 

$

14,710,856

 

$

2,186,713

 

 

 

 

 

 

 

 

 

 
             

 

 

 

 

 

 

 

 

 

 

As of December 31, 2011, tax basis components of distributable earnings included in stockholders’ equity were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
                 

 

 

 

 

 

 

 

 

Net unrealized appreciation (depreciation)

 

 

 

 

$

52,119,436

 

 

 

 

 

 

 

 

 

 

Post October loss*

 

 

 

 

 

(7,394)

 

 

 

 

 

 

 

 

 

 

Accrued preferred distributions

 

 

 

 

 

(80,000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

52,032,042

 

 

 

 

 

 

 

 

 

 
               

 

 

 

 

 

 

 

 

 

 

 

* 

Under the current tax law, capital losses, foreign currency losses and losses realized on Passive Foreign Investment Companies after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. As of December 31, 2011, the Fund had $7,394 of post October currency losses.


     The difference between book and tax basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral on wash sales, partnership investments and the unrealized gains on Passive Foreign Investment Companies.
     For financial reporting purposes, capital accounts and distributions to stockholders are adjusted to reflect the tax character of permanent book/tax differences. These differences are primarily due to differing treatments of income and gains on various investment securities and foreign currency transactions held by the Fund, timing differences and different characterization of distributions made by the Fund. For the year ended December 31, 2011, the Fund recorded the following permanent reclassifications. Results of operations and net assets were not affected by these reclassifications.

 

 

 
     

Undistributed Net

Accumulated Net

Paid-in

Investment Income

Realized Gain (Loss)

Capital
$675,185 $(362,442) $(312,743)
     

     Management has analyzed the Fund’s tax positions taken on federal income tax returns for all open tax years (2008-2011) and has concluded that as of December 31, 2011, no provision for income tax is required in the Fund’s financial statements.

Transactions in Affiliated Companies:
     An “Affiliated Company” as defined in the Investment Company Act of 1940, is a company in which a fund owns 5% or more of the company’s outstanding voting securities at any time during the period. The Fund effected the following transactions in shares of such companies for the year ended December 31, 2011:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

Market Value

 

Cost of

 

Cost of

 

Realized

 

Dividend

 

Shares

 

Market Value

 

Affiliated Company

 

12/31/10

 

12/31/10

 

Purchases

 

Sales

 

Gain (Loss)

 

Income

 

12/31/11

 

12/31/11

 

Integrated Electrical Services

 

277,300

 

$

967,777

 

$

2,650,870

 

$

3,672,127

 

$

(2,621,497

)

 

–

 

1,122,500

 

$

2,155,200

 

 

 

 

 

 

$

967,777

 

 

 

 

 

 

 

$

(2,621,497

)

 

 

 

 

 

 

$

2,155,200

 

2011 Annual Report to Stockholders | 49


 

Royce Micro-Cap Trust
 

 

   Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
Royce Micro-Cap Trust, Inc.
New York, New York

We have audited the accompanying statement of assets and liabilities of Royce Micro-Cap Trust, Inc., (“Fund”) including the schedule of investments, as of December 31, 2011, 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 then 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. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. 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, 2011, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 Royce Micro-Cap Trust, Inc. at December 31, 2011, 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 each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.

TAIT, WELLER, & BAKER LLP

Philadelphia, Pennsylvania
February 21, 2012

50 | 2011 Annual Report to Stockholders


 

 

Royce Focus Trust

December 31, 2011
 

 

 

   Schedule of Investments

 

 

 

 

 

 

 

 

 

 

 

 

SHARES

 

 

VALUE

 

COMMON STOCKS – 102.6%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Discretionary – 7.4%

 

 

 

 

 

 

 

Automobiles - 1.6%

 

 

 

 

 

 

 

Thor Industries

 

 

85,000

 

$

2,331,550

 

 

 

 

 

 

    

 

Specialty Retail - 5.8%

 

 

 

 

 

 

 

Buckle (The)

 

 

120,000

 

 

4,904,400

 

GameStop Corporation Cl. A 1,2

 

 

160,000

 

 

3,860,800

 

 

 

 

 

 

      

 

 

 

 

 

 

8,765,200

 

 

 

 

 

 

      

Total (Cost $10,016,646)

 

 

 

 

 

11,096,750

 

 

 

 

 

 

      

 

 

 

 

 

 

 

 

Consumer Staples – 6.8%

 

 

 

 

 

 

 

Food Products - 4.8%

 

 

 

 

 

 

 

Cal-Maine Foods

 

 

70,000

 

 

2,559,900

 

Industrias Bachoco ADR

 

 

90,000

 

 

1,716,300

 

Sanderson Farms

 

 

60,000

 

 

3,007,800

 

 

 

 

 

 

      

 

 

 

 

 

 

7,284,000

 

 

 

 

 

 

      

Personal Products - 2.0%

 

 

 

 

 

 

 

Nu Skin Enterprises Cl. A

 

 

60,000

 

 

2,914,200

 

 

 

 

 

 

      

Total (Cost $7,238,888)

 

 

 

 

 

10,198,200

 
               

 

 

 

 

 

 

 

 

Energy – 13.4%

 

 

 

 

 

 

 

Energy Equipment & Services - 10.3%

 

 

 

 

 

 

 

Ensco ADR

 

 

75,000

 

 

3,519,000

 

Helmerich & Payne

 

 

50,000

 

 

2,918,000

 

Pason Systems

 

 

150,000

 

 

1,766,871

 

Tesco Corporation 2

 

 

100,000

 

 

1,264,000

 

Trican Well Service

 

 

220,000

 

 

3,789,939

 

Unit Corporation 2

 

 

50,000

 

 

2,320,000

 

 

 

 

 

 

      

 

 

 

 

 

 

15,577,810

 

 

 

 

 

 

      

Oil, Gas & Consumable Fuels - 3.1%

 

 

 

 

 

 

 

Exxon Mobil

 

 

55,000

 

 

4,661,800

 

 

 

 

 

 

      

Total (Cost $15,452,863)

 

 

 

 

 

20,239,610

 

 

 

 

 

 

      

 

 

 

 

 

 

 

 

Financials – 19.8%

 

 

 

 

 

 

 

Capital Markets - 13.9%

 

 

 

 

 

 

 

† Affiliated Managers Group 2

 

 

33,600

 

 

3,223,920

 

Ashmore Group

 

 

600,000

 

 

3,112,212

 

Franklin Resources

 

 

50,000

 

 

4,803,000

 

INTL FCStone 2

 

 

65,000

 

 

1,532,050

 

Knight Capital Group Cl. A 2

 

 

150,000

 

 

1,773,000

 

Partners Group Holding

 

 

10,000

 

 

1,744,916

 

Sprott

 

 

400,000

 

 

2,273,374

 

Value Partners Group

 

 

4,900,000

 

 

2,504,700

 

 

 

 

 

 

      

 

 

 

 

 

 

20,967,172

 

 

 

 

 

 

      

Insurance - 3.8%

 

 

 

 

 

 

 

Berkshire Hathaway Cl. B 2

 

 

75,000

 

 

5,722,500

 

 

 

 

 

 

      

Real Estate Management & Development - 2.1%

 

 

 

 

 

 

 

Kennedy-Wilson Holdings

 

 

300,000

 

 

3,174,000

 

 

 

 

 

 

      

Total (Cost $28,013,687)

 

 

 

 

 

29,863,672

 

 

 

 

 

 

      

 

 

 

 

 

 

 

 

 

 

 

SHARES

 

 

VALUE

 

Health Care – 1.3%

 

 

 

 

 

 

 

Biotechnology - 1.3%

 

 

 

 

 

 

 

Myriad Genetics 2

 

 

95,000

 

$

1,989,300

 

 

 

 

 

 

      

Total (Cost $2,231,094)

 

 

 

 

 

1,989,300

 

 

 

 

 

 

      

 

 

 

 

 

 

 

 

Industrials – 8.0%

 

 

 

 

 

 

 

Building Products - 1.1%

 

 

 

 

 

 

 

Simpson Manufacturing

 

 

50,000

 

 

1,683,000

 

 

 

 

 

 

      

Construction & Engineering - 1.3%

 

 

 

 

 

 

 

Jacobs Engineering Group 2

 

 

50,000

 

 

2,029,000

 

 

 

 

 

 

      

Electrical Equipment - 0.9%

 

 

 

 

 

 

 

GrafTech International 2

 

 

100,000

 

 

1,365,000

 

 

 

 

 

 

      

Machinery - 3.4%

 

 

 

 

 

 

 

Lincoln Electric Holdings

 

 

60,000

 

 

2,347,200

 

Pfeiffer Vacuum Technology

 

 

5,000

 

 

437,586

 

Semperit AG Holding

 

 

60,000

 

 

2,310,237

 

 

 

 

 

 

      

 

 

 

 

 

 

5,095,023

 

 

 

 

 

 

      

Road & Rail - 1.3%

 

 

 

 

 

 

 

Patriot Transportation Holding 2

 

 

90,000

 

 

1,953,000

 

 

 

 

 

 

      

Total (Cost $9,211,271)

 

 

 

 

 

12,125,023

 

 

 

 

 

 

      

 

 

 

 

 

 

 

 

Information Technology – 16.8%

 

 

 

 

 

 

 

Computers & Peripherals - 6.7%

 

 

 

 

 

 

 

† Apple 2

 

 

6,000

 

 

2,430,000

 

† SanDisk Corporation 2

 

 

60,000

 

 

2,952,600

 

Western Digital 2

 

 

150,000

 

 

4,642,500

 

 

 

 

 

 

      

 

 

 

 

 

 

10,025,100

 

 

 

 

 

 

      

Semiconductors & Semiconductor Equipment - 6.7%

 

 

 

 

 

 

 

Analog Devices

 

 

142,000

 

 

5,080,760

 

MKS Instruments

 

 

130,000

 

 

3,616,600

 

† Veeco Instruments 1,2

 

 

70,000

 

 

1,456,000

 

 

 

 

 

 

      

 

 

 

 

 

 

10,153,360

 

 

 

 

 

 

      

Software - 3.4%

 

 

 

 

 

 

 

Microsoft Corporation

 

 

200,000

 

 

5,192,000

 

 

 

 

 

 

      

Total (Cost $24,302,828)

 

 

 

 

 

25,370,460

 

 

 

 

 

 

      

 

 

 

 

 

 

 

 

Materials – 29.1%

 

 

 

 

 

 

 

Chemicals - 6.3%

 

 

 

 

 

 

 

† LSB Industries 2

 

 

100,000

 

 

2,803,000

 

Mosaic Company (The)

 

 

85,000

 

 

4,286,550

 

† Westlake Chemical

 

 

60,000

 

 

2,414,400

 

 

 

 

 

 

      

 

 

 

 

 

 

9,503,950

 

 

 

 

 

 

      

Metals & Mining - 22.8%

 

 

 

 

 

 

 

Alamos Gold

 

 

120,000

 

 

2,067,239

 

Allied Nevada Gold 2

 

 

160,000

 

 

4,844,800

 

Centamin 2

 

 

1,200,000

 

 

1,548,000

 

Endeavour Mining 2

 

 

450,000

 

 

1,073,374

 

Fresnillo

 

 

70,000

 

 

1,660,002

 

† Globe Specialty Metals

 

 

150,000

 

 

2,008,500

 

Major Drilling Group International

 

 

180,000

 

 

2,745,718

 

†Newmont Mining

 

 

75,000

 

 

4,500,750

 

Nucor Corporation

 

 

50,000

 

 

1,978,500

 

Pan American Silver

 

 

118,500

 

 

2,584,485

 

Reliance Steel & Aluminum

 

 

75,000

 

 

3,651,750

 

Schnitzer Steel Industries Cl. A

 

 

75,000

 

 

3,171,000

 


 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

2011 Annual Report to Stockholders | 51

 

 

Royce Focus Trust

December 31, 2011
 

 

 

   Schedule of Investments

 

 

 

 

 

 

 

 

 

 

 

 

SHARES

 

 

VALUE

 

Materials (continued)

 

 

 

 

 

 

 

Metals & Mining (continued)

 

 

 

 

 

 

 

Seabridge Gold 2

 

 

160,000

 

$

2,577,600

 

 

 

 

 

 

      

 

 

 

 

 

 

34,411,718

 

 

 

 

 

 

      

Total (Cost $39,631,147)

 

 

 

 

 

43,915,668

 

 

 

 

 

 

      

 

 

 

 

 

 

 

 

TOTAL COMMON STOCKS

 

 

 

 

 

 

 

(Cost $136,098,424)

 

 

 

 

 

154,798,683

 

 

 

 

 

 

      

 

 

 

 

 

 

 

 

REPURCHASE AGREEMENT – 14.0%

 

 

 

 

 

 

 

Fixed Income Clearing Corporation,

 

 

 

 

 

 

 

0.01% dated 12/30/11, due 1/3/12,

 

 

 

 

 

 

 

maturity value $21,045,023 (collateralized

 

 

 

 

 

 

 

by obligations of various U.S. Government

 

 

 

 

 

 

 

Agencies, 4.25% due 9/30/12, valued at

 

 

 

 

 

 

 

$21,575,866)

 

 

 

 

 

 

 

(Cost $21,045,000)

 

 

 

 

 

21,045,000

 

 

 

 

 

 

      

 

 

 

 

 

 

 

 

VALUE

 

COLLATERAL RECEIVED FOR SECURITIES

 

 

 

 

LOANED – 1.0%

 

 

 

 

Money Market Funds

 

 

 

 

Federated Government Obligations Fund

 

 

 

 

(7 day yield-0.0098%)

 

 

 

 

(Cost $1,496,950)

 

$

1,496,950

 

 

 

      

 

 

 

 

 

TOTAL INVESTMENTS – 117.6%

 

 

 

 

(Cost $158,640,374)

 

 

177,340,633

 

 

 

 

 

 

LIABILITIES LESS CASH

 

 

 

 

AND OTHER ASSETS – (1.0)%

 

 

(1,484,714

)

 

 

 

 

 

PREFERRED STOCK – (16.6)%

 

 

(25,000,000

)

 

 

      

 

 

 

 

 

NET ASSETS APPLICABLE TO COMMON

 

 

 

 

STOCKHOLDERS – 100.0%

 

 

 

 

 

 

$

150,855,919

 

 

 

      

 

 

 
 

†

 

New additions in 2011.

1

 

All or a portion of these securities were on loan at December 31, 2011. Total market value of loaned securities at December 31, 2011, was $1,448,196.

2

 

Non-income producing.

 

 

 

 

 

Bold indicates the Fund’s 20 largest equity holdings in terms of December 31, 2011, market value.

 

 

 

 

 

TAX INFORMATION: The cost of total investments for Federal income tax purposes was $157,980,495. At December 31, 2011, net unrealized appreciation for all securities was $19,360,138, consisting of aggregate gross unrealized appreciation of $30,289,524 and aggregate gross unrealized depreciation of $10,929,386. The primary difference between book and tax basis cost is the recognition of investments in publicly traded partnerships.
 

 

 

52 | 2011 Annual Report to Stockholders

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

 

 

Royce Focus Trust

December 31, 2011
 

 

 

   Statement of Assets and Liabilities

 

 

 

 

 

 

ASSETS:

 

 

 

 

Total investments at value (including collateral on loaned securities)

 

$

156,295,633

 

Repurchase agreements (at cost and value)

 

 

21,045,000

 

Cash and foreign currency

 

 

129,233

 

Receivable for dividends and interest

 

 

121,805

 

Prepaid expenses and other assets

 

 

22,276

 
         

Total Assets

 

 

177,613,947

 
         

LIABILITIES:

 

 

 

 

Payable for collateral on loaned securities

 

 

1,496,950

 

Payable for investment advisory fee

 

 

150,817

 

Preferred dividends accrued but not yet declared

 

 

33,323

 

Accrued expenses

 

 

76,938

 
         

Total Liabilities

 

 

1,758,028

 
         

PREFERRED STOCK:

 

 

 

 

6.00% Cumulative Preferred Stock - $0.001 par value, $25 liquidation value per share; 1,000,000 shares outstanding

 

 

25,000,000

 
         

Total Preferred Stock

 

 

25,000,000

 
         

NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS

 

$

150,855,919

 
         

ANALYSIS OF NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:

 

 

 

 

Common Stock paid-in capital - $0.001 par value per share; 20,494,452 shares outstanding (150,000,000 shares authorized)

 

$

131,533,173

 

Undistributed net investment income (loss)

 

 

(156,651

)

Accumulated net realized gain (loss) on investments and foreign currency

 

 

814,498

 

Net unrealized appreciation (depreciation) on investments and foreign currency

 

 

18,698,232

 

Preferred dividends accrued but not yet declared

 

 

(33,333

)
         

Net Assets applicable to Common Stockholders (net asset value per share - $7.36)

 

$

150,855,919

 
         

Investments at identified cost (including $1,496,950 of collateral on loaned securities)

 

$

137,595,374

 

Market value of loaned securities

 

 

1,448,196

 

 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

2011 Annual Report to Stockholders | 53

 

 

Royce Focus Trust

Year Ended December 31, 2011
 

 

 

   Statement of Operations

 

 

 

 

 

 

INVESTMENT INCOME:

 

 

 

 

Income:

 

 

 

 

Dividends1

 

$

2,587,495

 

Interest

 

 

4,786

 

Securities lending

 

 

98,504

 
         

Total income

 

 

2,690,785

 
         

Expenses:

 

 

 

 

Investment advisory fees

 

 

1,937,808

 

Stockholder reports

 

 

74,011

 

Custody and transfer agent fees

 

 

62,105

 

Professional fees

 

 

43,182

 

Directors’ fees

 

 

36,450

 

Administrative and office facilities

 

 

19,514

 

Other expenses

 

 

67,764

 
         

Total expenses

 

 

2,240,834

 
         

Net investment income (loss)

 

 

449,951

 
         

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:

 

 

 

 

Net realized gain (loss):

 

 

 

 

Investments

 

 

7,976,035

 

Foreign currency transactions

 

 

(14,428

)

Net change in unrealized appreciation (depreciation):

 

 

 

 

Investments and foreign currency translations

 

 

(25,246,983

)

Other assets and liabilities denominated in foreign currency

 

 

(4,680

)
         

Net realized and unrealized gain (loss) on investments and foreign currency

 

 

(17,290,056

)
         

NET INCREASE (DECREASE) IN NET ASSETS FROM INVESTMENT OPERATIONS

 

 

(16,840,105

)
         

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS

 

 

(1,500,000

)
         

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS

 

 

 

 

FROM INVESTMENT OPERATIONS

 

$

(18,340,105

)

 

 

1 Net of foreign withholding tax of $119,271.

 

 

 

54 | 2011 Annual Report to Stockholders

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

 

Royce Focus Trust
 

 

   Statement of Changes in Net Assets Applicable to Common Stockholders

 

 

 

 

 

 

 

 

 

 

 

Year ended

 

 

Year ended

 

 

 

 

12/31/11

 

 

12/31/10

 

INVESTMENT OPERATIONS:

 

 

 

 

 

 

 

Net investment income (loss)

 

$

449,951

 

$

(214,447

)

Net realized gain (loss) on investments and foreign currency

 

 

7,961,607

 

 

13,893,721

 

Net change in unrealized appreciation (depreciation) on investments and foreign currency

 

 

(25,251,663

)

 

18,614,471

 
               

Net increase (decrease) in net assets from investment operations

 

 

(16,840,105

)

 

32,293,745

 
               

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:

 

 

 

 

 

 

 

Net investment income

 

 

–

 

 

(941,621

)

Net realized gain on investments and foreign currency

 

 

(1,500,000

)

 

(558,379

)
               

Total distributions to Preferred Stockholders

 

 

(1,500,000

)

 

(1,500,000

)
               

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS

 

 

 

 

 

 

 

FROM INVESTMENT OPERATIONS

 

 

(18,340,105

)

 

30,793,745

 
               

DISTRIBUTIONS TO COMMON STOCKHOLDERS:

 

 

 

 

 

 

 

Net realized gain on investments and foreign currency

 

 

(5,749,656

)

 

–

 

Return of capital

 

 

(2,456,896

)

 

–

 
               

Total distributions to Common Stockholders

 

 

(8,206,552

)

 

–

 
               

CAPITAL STOCK TRANSACTIONS:

 

 

 

 

 

 

 

Reinvestment of distributions to Common Stockholders

 

 

5,111,803

 

 

–

 
               

Total capital stock transactions

 

 

5,111,803

 

 

–

 
               

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS

 

 

(21,434,854

)

 

30,793,745

 
               

NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:

 

 

 

 

 

 

 

Beginning of year

 

 

172,290,773

 

 

141,497,028

 
               

End of year (including undistributed net investment income (loss) of $(156,651) at 12/31/11 and
$(1,318,551) at 12/31/10)

 

$

150,855,919

 

$

172,290,773

 

 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

2011 Annual Report to Stockholders | 55

 

Royce Focus Trust
 

 

   Financial Highlights

This table is presented to show selected data for a share of Common Stock outstanding throughout each period, and to assist stockholders in evaluating the Fund’s performance for the periods presented.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years ended December 31,

 

 

 

 

  

 

 

 

 

2011

 

 

2010

 

 

2009

 

 

2008

 

 

2007

 
                                 

NET ASSET VALUE, BEGINNING OF PERIOD

 

$

8.72

 

$

7.16

 

$

4.76

 

$

8.92

 

$

9.75

 
                                 

INVESTMENT OPERATIONS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss)

 

 

0.02

 

 

(0.01

)

 

0.03

 

 

0.07

 

 

0.15

 

Net realized and unrealized gain (loss) on investments and
foreign currency

 

 

(0.86

)

 

1.65

 

 

2.54

 

 

(3.67

)

 

1.12

 
                                 

Total investment operations

 

 

(0.84

)

 

1.64

 

 

2.57

 

 

(3.60

)

 

1.27

 
                                 

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income

 

 

–    

 

 

(0.05

)

 

(0.08

)

 

(0.01

)

 

(0.02

)

Net realized gain on investments and foreign currency

 

 

(0.07

)

 

(0.03

)

 

–    

 

 

(0.07

)

 

(0.07

)
                                 

Total distributions to Preferred Stockholders

 

 

(0.07

)

 

(0.08

)

 

(0.08

)

 

(0.08

)

 

(0.09

)
                                 

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS FROM INVESTMENT OPERATIONS

 

 

(0.91

)

 

1.56

 

 

2.49

 

 

(3.68

)

 

1.18

 
                                 

DISTRIBUTIONS TO COMMON STOCKHOLDERS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income

 

 

–    

 

 

–    

 

 

(0.00

)

 

(0.07

)

 

(0.44

)

Net realized gain on investments and foreign currency

 

 

(0.29

)

 

–    

 

 

–    

 

 

(0.37

)

 

(1.57

)

Return of capital

 

 

(0.12

)

 

–    

 

 

(0.09

)

 

(0.03

)

 

–    

 
                                 

Total distributions to Common Stockholders

 

 

(0.41

)

 

–    

 

 

(0.09

)

 

(0.47

)

 

(2.01

)
                                 

CAPITAL STOCK TRANSACTIONS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of reinvestment of distributions by Common Stockholders

 

 

(0.04

)

 

–    

 

 

(0.00

)

 

(0.01

)

 

(0.00

)
                                 

Total capital stock transactions

 

 

(0.04

)

 

–    

 

 

(0.00

)

 

(0.01

)

 

(0.00

)
                                 

NET ASSET VALUE, END OF PERIOD

 

$

7.36

 

$

8.72

 

$

7.16

 

$

4.76

 

$

8.92

 
                                 

MARKET VALUE, END OF PERIOD

 

$

6.30

 

$

7.57

 

$

6.33

 

$

4.60

 

$

8.97

 
                                 

TOTAL RETURN:1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Market Value

 

 

(11.75

)%

19.59

%

 

40.84

%

 

(44.94

)%

 

3.02

%

Net Asset Value

 

 

(10.51

)%

 

21.79

%

 

53.95

%

 

(42.71

)%

 

12.22

%

RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE
TO COMMON STOCKHOLDERS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment advisory fee expense

 

 

1.15

%

 

1.17

%

 

1.16

%

 

1.13

%

 

1.14

%

Other operating expenses

 

 

0.18

%

 

0.20

%

 

0.26

%

 

0.21

%

 

0.18

%

Total expenses (net)2

 

 

1.33

%

 

1.37

%

 

1.42

%

 

1.34

%

 

1.32

%

Expenses prior to fee waivers and balance credits

 

 

1.33

%

 

1.37

%

 

1.48

%

 

1.39

%

 

1.31

%

Expenses prior to fee waivers

 

 

1.33

%

 

1.37

%

 

1.48

%

 

1.39

%

 

1.31

%

Net investment income (loss)

 

 

0.27

%

 

(0.15

)%

 

0.49

%

 

0.72

%

 

1.13

%

SUPPLEMENTAL DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Assets Applicable to Common Stockholders,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

End of Period (in thousands)

 

$

150,856

 

$

172,291

 

$

141,497

 

$

92,550

 

$

165,807

 

Liquidation Value of Preferred Stock,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

End of Period (in thousands)

 

$

25,000

 

$

25,000

 

$

25,000

 

$

25,000

 

$

25,000

 

Portfolio Turnover Rate

 

 

33

%

 

36

%

 

46

%

 

51

%

 

62

%

PREFERRED STOCK:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total shares outstanding

 

 

1,000,000

 

 

1,000,000

 

 

1,000,000

 

 

1,000,000

 

 

1,000,000

 

Asset coverage per share

 

$

175.86

 

$

197.29

 

$

166.48

 

$

117.55

 

$

190.81

 

Liquidation preference per share

 

$

25.00

 

$

25.00

 

$

25.00

 

$

25.00

 

$

25.00

 

Average month-end market value per share

 

$

25.65

 

$

25.38

 

$

23.56

 

$

22.89

 

$

24.37

 
                                 

 

 

 

1

 

The Market Value Total Return is calculated assuming a purchase of Common Stock on the opening of the first business day and a sale on the closing of the last business day of each period. Dividends and distributions are assumed for the purposes of this calculation to be reinvested at prices obtained under the Fund’s Distribution Reinvestment and Cash Purchase Plan. Net Asset Value Total Return is calculated on the same basis, except that the Fund’s net asset value is used on the purchase and sale dates instead of market value.

2

 

Expense ratios based on total average net assets including liquidation value of Preferred Stock were 1.16%, 1.17%, 1.16%, 1.14% and 1.15% for the years ended December 31, 2011, 2010, 2009, 2008 and 2007, respectively.

 

 

56 | 2011 Annual Report to Stockholders

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

 

Royce Focus Trust

 

   Notes to Financial Statements

Summary of Significant Accounting Policies:
     Royce Focus Trust, Inc. (the “Fund”), is a diversified closed-end investment company incorporated under the laws of the State of Maryland. The Fund commenced operations on March 2, 1988, and Royce & Associates, LLC (“Royce”) assumed investment management responsibility for the Fund on November 1, 1996.
     The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
     Under the Fund’s organizational documents, the officers and directors are indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses.
     At December 31, 2011, officers, employees of Royce, Fund directors, the Royce retirement plans and other affiliates owned 25% of the Fund.

Valuation of Investments:
     Securities are valued as of the close of trading on the New York Stock Exchange (NYSE) (generally 4:00 p.m. Eastern time) on the valuation date. Securities that trade on an exchange, and securities traded on Nasdaq’s Electronic Bulletin Board, are valued at their last reported sales price or Nasdaq official closing price taken from the primary market in which each security trades or, if no sale is reported for such day, at their bid price. Other over-the-counter securities for which market quotations are readily available are valued at their highest bid price, except in the case of some bonds and other fixed income securities which may be valued by reference to other securities with comparable ratings, interest rates and maturities, using established independent pricing services. The Fund values its non-U.S. dollar denominated securities in U.S. dollars daily at the prevailing foreign currency exchange rates as quoted by a major bank. Securities for which market quotations are not readily available are valued at their fair value under procedures approved by the Fund’s Board of Directors. In addition, if, between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and may make the closing price unreliable, the Fund may fair value the security. The Fund uses an independent pricing service to provide fair value estimates for relevant non-U.S. equity securities on days when the U.S. market volatility exceeds a certain threshold. This pricing service uses proprietary correlations it has developed between the movement of prices of non-U.S. equity securities and indices of U.S.-traded securities, futures contracts and other indications to estimate the fair value of relevant non-U.S. securities. When fair value pricing is employed, the prices of securities used by the Fund may differ from quoted or published prices for the same security. Investments in money market funds are valued at net asset value per share.
     Various inputs are used in determining the value of the Fund’s investments, as noted above. These inputs are summarized in the three broad levels below:

 

 

 

 

Level 1 – 

quoted prices in active markets for identical securities.

 

Level 2 – 

other significant observable inputs (including quoted prices for similar securities, foreign securities that may be fair valued and repurchase agreements). The table below includes all Level 2 securities. Any Level 2 securities with values based on quoted prices for similar securities would be noted in the Schedule of Investments.

 

Level 3 – 

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

     The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
     The following is a summary of the inputs used to value the Fund’s investments as of December 31, 2011. For a detailed breakout of common stocks by sector classification, please refer to the Schedule of Investments.

 

 

 

 

 

 

Level 1

Level 2

Level 3

Total

   Common Stocks

$127,764,515

$27,034,168

–

$154,798,683

   Cash Equivalents

     1,496,950

  21,045,000

–

    22,541,950

Repurchase Agreements:
     The Fund may enter into repurchase agreements with institutions that the Fund’s investment adviser has determined are creditworthy. The Fund restricts repurchase agreements to maturities of no more than seven days. Securities pledged as collateral for repurchase agreements, which are held until maturity of the repurchase agreements, are marked-to-market daily and maintained at a value at least equal to the principal amount of the repurchase agreement (including accrued interest). Repurchase agreements could involve certain risks in the event of default or insolvency of the counter-party, including possible delays or restrictions upon the ability of the Fund to dispose of its underlying securities.

Foreign Currency:
     Net realized foreign exchange gains or losses arise from sales and maturities of short-term securities, sales of foreign currencies, expiration of currency forward contracts, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities, including investments in securities at the end of the reporting period, as a result of changes in foreign currency exchange rates.

2011 Annual Report to Stockholders | 57


 

Royce Focus Trust

 

   Notes to Financial Statements (continued)

Securities Lending:
      The Fund loans securities through a lending agent to qualified institutional investors for the purpose of realizing additional income. Collateral for the Fund on all securities loaned is accepted in cash and cash equivalents and invested temporarily by the custodian. The collateral maintained is at least 100% of the current market value of the loaned securities. The market value of the loaned securities is determined at the close of business of the Fund and any additional required collateral is delivered to the Fund on the next business day. The Fund retains the risk of any loss on the securities on loan as well as incurring the potential loss on investments purchased with cash collateral received for securities lending. The Fund’s securities lending income consists of the income earned on investing cash collateral, plus any premium payments received for lending certain securities, less any rebates paid to borrowers and lending agent fees associated with the loan. The lending agent is not affiliated with Royce.

Taxes:
     As a qualified regulated investment company under Subchapter M of the Internal Revenue Code, the Fund is not subject to income taxes to the extent that it distributes substantially all of its taxable income for its fiscal year. The Schedule of Investments includes information regarding income taxes under the caption “Tax Information”.

Distributions:
     Commencing March 2011, the Fund pays quarterly distributions on the Fund’s Common Stock at the annual rate of 5% of the rolling average of the prior four calendar quarter-end NAVs of the Fund’s Common Stock, with the fourth quarter distribution being the greater of 1.25% of the rolling average or the distribution required by IRS regulations. Distributions to Preferred Stockholders are accrued daily and paid quarterly and distributions to Common Stockholders are recorded on ex-dividend date. Distributable capital gains and/or net investment income are first allocated to Preferred Stockholder distributions, with any excess allocable to Common Stockholders. If capital gains and/or net investment income are allocated to both Preferred and Common Stockholders, the tax character of such allocations is proportional. To the extent that distributions are not paid from long-term capital gains, net investment income or net short-term capital gains, they will represent a return of capital. Distributions are determined in accordance with income tax regulations that may differ from accounting principles generally accepted in the United States of America. Permanent book and tax differences relating to stockholder distributions will result in reclassifications within the capital accounts. Undistributed net investment income may include temporary book and tax basis differences, which will reverse in a subsequent period. Any taxable income or gain remaining undistributed at fiscal year end is distributed in the following year.

Investment Transactions and Related Investment Income:
     Investment transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date. Non-cash dividend income is recorded at the fair market value of the securities received. Interest income is recorded on an accrual basis. Premium and discounts on debt securities are amortized using the effective yield-to-maturity method. Realized gains and losses from investment transactions are determined on the basis of identified cost for book and tax purposes.

Expenses:
     The Fund incurs direct and indirect expenses. Expenses directly attributable to the Fund are charged to the Fund’s operations, while expenses applicable to more than one of the Royce Funds are allocated equitably. Certain personnel, occupancy costs and other administrative expenses related to The Royce Funds are allocated by Royce under an administration agreement and are included in administrative and office facilities and professional fees. The Fund has adopted a deferred fee agreement that allows the Directors to defer the receipt of all or a portion of directors’ fees otherwise payable. The deferred fees are invested in certain Royce Funds until distributed in accordance with the agreement.

Compensating Balance Credits:
     The Fund has an arrangement with its custodian bank, whereby a portion of the custodian’s fee is paid indirectly by credits earned on the Fund’s cash on deposit with the bank. This deposit arrangement is an alternative to purchasing overnight investments. Conversely, the Fund pays interest to the custodian on any cash overdrafts, to the extent they are not offset by credits earned on positive cash balances.

Recent Accounting Pronouncements:
     In May 2011, the Financial Accounting Standards Board issued Accounting Standard Update No. 2011-04, Fair Value Measurement (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU No. 2011-04”). ASU No. 2011-04 establishes common requirements for measuring fair value and for disclosing information about fair value measurements. ASU No. 2011-04 is effective during interim and annual periods beginning after December 15, 2011. Management is currently evaluating the impact the adoption of ASU No. 2011-04 will have on the Fund’s financial statements and related disclosures.

Capital Stock:
     The Fund issued 735,388 shares of Common Stock as reinvestment of distributions by Common Stockholders for the year ended December 31, 2011.
     At December 31, 2011, 1,000,000 shares of 6.00% Cumulative Preferred Stock were outstanding. The Fund, at its option, may redeem the Cumulative Preferred Stock, in whole or in part, at the redemption price. The Cumulative Preferred Stock is classified outside of permanent equity

58 | 2011 Annual Report to Stockholders


 

Royce Focus Trust

 

   Notes to Financial Statements (continued)

Capital Stock (continued):
(net assets applicable to Common Stockholders) in the accompanying financial statements in accordance with accounting for redeemable equity instruments, that requires preferred securities that are redeemable for cash or other assets to be classified outside of permanent equity to the extent that the redemption is at a fixed or determinable price and at the option of the holder or upon the occurrence of an event that is not solely within the control of the issuer.
     The Fund is required to meet certain asset coverage tests with respect to the Cumulative Preferred Stock as required by the 1940 Act. In addition, pursuant to the Rating Agency Guidelines established by Moody’s, the Fund is required to maintain a certain discounted asset coverage. If the Fund fails to meet these requirements and does not correct such failure, the Fund may be required to redeem, in part or in full, the Cumulative Preferred Stock at a redemption price of $25.00 per share, plus an amount equal to the accumulated and unpaid dividends, whether or not declared on such shares, in order to meet these requirements. Additionally, failure to meet the foregoing asset coverage requirements could restrict the Fund’s ability to pay dividends to Common Stockholders and could lead to sales of portfolio securities at inopportune times. The Fund has met these requirements since issuing the Cumulative Preferred Stock.

Investment Advisory Agreement:
     The Investment Advisory Agreement between Royce and the Fund provides for fees to be paid at an annual rate of 1.0% of the Fund’s average daily net assets applicable to Common Stockholders plus the liquidation value of Preferred Stock. Royce has voluntarily committed to waive the portion of its investment advisory fee attributable to an issue of the Fund’s Preferred Stock for any month in which the Fund’s average annual NAV total return since issuance of the Preferred Stock fails to exceed the applicable Preferred Stock’s dividend rate. For the year ended December 31, 2011, the Fund accrued and paid Royce investment advisory fees totaling $1,937,808.

Purchases and Sales of Investment Securities:
     For the year ended December 31, 2011, the costs of purchases and proceeds from sales of investment securities, other than short-term securities and collateral received for securities loaned, amounted to $57,431,167 and $60,960,878, respectively.

Distributions to Stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The tax character of distributions paid to common stockholders
during 2011 and 2010 was as follows:

 

  

The tax character of distributions paid to preferred stockholders
during 2011 and 2010 was as follows:

 
 

 

    

 

Distributions paid from:

 

 

2011

 

 

2010

 

 

Distributions paid from:

 

 

2011

 

 

2010

 

Ordinary income

 

$

561,089

 

$

         –

 

 

Ordinary income

 

$

146,380

 

$

941,621

 

Long-term capital gain

 

 

5,188,567

 

 

–

 

 

Long-term capital gain

 

 

1,353,620

 

 

558,379

 

 

 

          

 

                  

Return of capital

 

 

2,456,896

 

 

–

 

 

 

 

$

1,500,000

 

$

1,500,000

 

 

 

          

 

                  

 

 

$

8,206,552

 

$

–

 

 

 

 

 

 

 

 

 

 
             

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2011, the tax basis components of distributable earnings included in stockholders’ equity were as follows:
             

 

 

 

 

 

 

 

 

 

 

Net unrealized appreciation (depreciation)

 

$

19,358,112

 

 

 

 

 

 

 

 

 

 

 

 

 

Post October loss*

 

 

(2,033

)

 

 

 

 

 

 

 

 

 

 

 

 

Accrued preferred distributions

 

 

(33,333

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

          

 

 

 

 

 

 

 

 

 

 

 

 

$

19,322,746

 

 

 

 

 

 

 

 

 

 

 

 

 
             

 

 

 

 

 

 

 

 

 

 

 

 

     * 

Under the current tax law, capital losses, foreign currency losses and losses realized on Passive Foreign Investment Companies after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. As of December 31, 2011, the Fund had $2,033 of post October currency losses.

 

     The difference between book and tax basis unrealized appreciation (depreciation) is attributable primarily to partnership investments and the unrealized gains on Passive Foreign Investment Companies.

 

     For financial reporting purposes, capital accounts and distributions to stockholders are adjusted to reflect the tax character of permanent book/tax differences. These differences are primarily due to differing treatments of income and gains on various investment securities and foreign currency transactions held by the Fund, timing differences and different characterization of distributions made by the Fund. For the year ended December 31, 2011, the Fund recorded the following permanent reclassifications. Results of operations and net assets were not affected by these reclassifications.


 

    

 

Undistributed Net

Accumulated Net

 

Investment Income

Realized Gain (Loss)

 

$711,949

$(711,949)

 

    

     Management has analyzed the Fund’s tax positions taken on federal income tax returns for all open tax years (2008-2011) and has concluded that as of December 31, 2011, no provision for income tax is required in the Fund’s financial statements.


2011 Annual Report to Stockholders | 59


 

Royce Focus Trust
 

 

   Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
Royce Focus Trust, Inc.
New York, New York

We have audited the accompanying statement of assets and liabilities of Royce Focus Trust, Inc., (“Fund”) including the schedule of investments, as of December 31, 2011, 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 then 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. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. 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, 2011, 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 Royce Focus Trust, Inc. at December 31, 2011, 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 each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.

TAIT, WELLER, & BAKER LLP

Philadelphia, Pennsylvania
February 21, 2012

60 | 2011 Annual Report to Stockholders


 

Directors and Officers

All Directors and Officers may be reached c/o The Royce Funds,745 Fifth Avenue, New York, NY 10151

Charles M. Royce, Trustee1, President
Age: 72 | Number of Funds Overseen: 35 | Tenure: Since 1982
Non-Royce Directorships: Director of TICC Capital Corp.

Principal Occupation(s) During Past Five Years: President, Co-Chief Investment Officer and Member of Board of Managers of Royce & Associates, LLC (“Royce”), the Trust’s investment adviser.

Mark R. Fetting, Trustee1
Age: 57 | Number of Funds Overseen: 51 | Tenure: Since 2001
Non-Royce Directorships: Director of Legg Mason, Inc. and Director/Trustee of registered investment companies constituting the 16 Legg Mason Funds.

Principal Occupation(s) During Past 5 Years: President, CEO, Chairman and Director of Legg Mason, Inc. and Chairman of Legg Mason Funds. Mr. Fetting’s prior business experience includes having served as a member of the Board of Managers of Royce; President of all Legg Mason Funds; Senior Executive Vice President of Legg Mason, Inc.; Director and/or officer of various Legg Mason, Inc. affiliates; Division President and Senior Officer of Prudential Financial Group, Inc. and related companies.

Patricia W. Chadwick, Trustee
Age: 63 | Number of Funds Overseen: 35 | Tenure: Since 2009
Non-Royce Directorships: Trustee of ING Mutual Funds and Director of Wisconsin Energy Corp.

Principal Occupation(s) During Past 5 Years: Consultant and President of Ravengate Partners LLC (since 2000).

Richard M. Galkin, Trustee
Age: 73 | Number of Funds Overseen: 35 | Tenure: Since 1982
Non-Royce Directorships: None

Principal Occupation(s) During Past Five Years: Private investor. Mr. Galkin’s prior business experience includes having served as President of Richard M. Galkin Associates, Inc., telecommunications consultants, President of Manhattan Cable Television (a subsidiary of Time, Inc.), President of Haverhills Inc. (another Time, Inc. subsidiary), President of Rhode Island Cable Television and Senior Vice President of Satellite Television Corp. (a subsidiary of Comsat).

Stephen L. Isaacs, Trustee
Age: 72 | Number of Funds Overseen: 35 | Tenure: Since 1989
Non-Royce Directorships: None

Principal Occupation(s) During Past Five Years: President of The Center for Health and Social Policy (since September 1996); Attorney and President of Health Policy Associates, Inc., consultants. Mr. Isaacs’s prior business experience includes having served as Director of Columbia University Development Law and Policy Program and Professor at Columbia University (until August 1996).

Arthur S. Mehlman, Trustee
Age: 69 | Number of Funds Overseen: 51 | Tenure: Since 2004
Non-Royce Directorships: Director/Trustee of registered investment companies constituting the 16 Legg Mason Funds.

Principal Occupation(s) During Past Five Years: Director of The League for People with Disabilities, Inc.; Director of University of Maryland Foundation (non-profits). Formerly: Director of Municipal Mortgage & Equity, LLC (from October 2004 to April 1, 2011); Director of University of Maryland College Park Foundation (non-profit) (from 1998 to 2005); Partner, KPMG LLP (international accounting firm) (from 1972 to 2002); Director of Maryland Business Roundtable for Education (from July 1984 to June 2002).

David L. Meister, Trustee
Age: 72 | Number of Funds Overseen: 35 | Tenure: Since 1982
Non-Royce Directorships: None

Principal Occupation(s) During Past Five Years: Consultant. Chairman and Chief Executive Officer of The Tennis Channel (from June 2000 to March 2005). Mr. Meister’s prior business experience includes having served as Chief Executive Officer of Seniorlife.com, a consultant to the communications industry, President of Financial News Network, Senior Vice President of HBO, President of Time-Life Films and Head of Broadcasting for Major League Baseball.

G. Peter O’Brien, Trustee
Age: 66 | Number of Funds Overseen: 51 | Tenure: Since 2001
Non-Royce Directorships: Director/Trustee of registered investment companies constituting the 16 Legg Mason Funds; Director of TICC Capital Corp.

Principal Occupation(s) During Past Five Years: Trustee Emeritus of Colgate University (since 2005); Board Member of Hill House, Inc. (since 1999); Formerly: Trustee of Colgate University (from 1996 to 2005), President of Hill House, Inc. (from 2001 to 2005) and Managing Director/Equity Capital Markets Group of Merrill Lynch & Co. (from 1971 to 1999).

John D. Diederich, Vice President and Treasurer
Age:60 | Tenure: Since 2001

Principal Occupation(s) During Past Five Years: Chief Operating Officer, Managing Director and member of the Board of Managers of Royce; Chief Financial Officer of Royce; Director of Administration of the Trust; and President of RFS, having been employed by Royce since April 1993.

Jack E. Fockler, Jr., Vice President
Age: 53 | Tenure: Since 1995

Principal Occupation(s) During Past Five Years: Managing Director and Vice President of Royce, and Vice President of RFS, having been employed by Royce since October 1989.

W. Whitney George, Vice President
Age: 53 | Tenure: Since 1995

Principal Occupation(s) During Past Five Years: Co-Chief Investment Officer, Managing Director and Vice President of Royce, having been employed by Royce since October 1991.

Daniel A. O’Byrne, Vice President and Assistant Secretary
Age: 49 | Tenure: Since 1994

Principal Occupation(s) During Past Five Years: Principal and Vice President of Royce, having been employed by Royce since October 1986.

John E. Denneen, Secretary and Chief Legal Officer
Age: 44 | Tenure: 1996-2001 and Since April 2002

Principal Occupation(s) During Past Five Years: General Counsel, Principal, Chief Legal and Compliance Officer and Secretary of Royce; Secretary and Chief Legal Officer of The Royce Funds.

Lisa Curcio, Chief Compliance Officer
Age: 52 | Tenure: Since 2004

Principal Occupation(s) During Past Five Years: Chief Compliance Officer of The Royce Funds (since October 2004) and Compliance Officer of Royce (since June 2004).

1 Interested Trustee.

Trustees will hold office until their successors have been duly elected and qualified or until their earlier resignation or removal. The Statement of Additional Information, which contains additional information about the Trust’s trustees and officers, is available and can be obtained without charge at www.roycefunds.com or by calling (800) 221-4268.



 

The Royce Funds 2011 Annual Report to Stockholders | 61

 

Notes to Performance and Other Important Information

The thoughts expressed in this Review and Report concerning recent market movements and future prospects for small company stocks are solely the opinion of Royce at December 31, 2011, and, of course, historical market trends are not necessarily indicative of future market movements. Statements regarding the future prospects for particular securities held in the Funds’ portfolios and Royce’s investment intentions with respect to those securities reflect Royce’s opinions as of December 31, 2011 and are subject to change at any time without notice. There can be no assurance that securities mentioned in this Review and Report will be included in any Royce-managed portfolio in the future. Investments in securities of micro-cap, small-cap and/or mid-cap companies may involve considerably more risk than investments in securities of larger-cap companies. All publicly released material information is always disclosed by the Funds on the website at www.roycefunds.com.
     Sector weightings are determined using the Global Industry Classification Standard (“GICS”). GICS was developed by, and is the exclusive property of, Standard & Poor’s Financial Services LLC (“S&P”) and MSCI Inc. (“MSCI”). GICS is the trademark of S&P and MSCI. “Global Industry Classification Standard (GICS)” and “GICS Direct” are service marks of S&P and MSCI.
     All indexes referred to are unmanaged and capitalization weighted. Each index’s returns include net reinvested dividends and/or interest income. Russell Investment Group is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Russell Investment Group. The Russell 2000 Index is an index of domestic small-cap stocks. It measures the performance of the 2,000 smallest publicly traded U.S. companies in the Russell 3000 Index. The Russell 2000 Value and Growth Indexes consist of the respective value and growth stocks within the Russell 2000 as determined by Russell Investments. The Russell Microcap Index includes 1,000 of the smallest securities in the Russell 2000 Index. The Russell Midcap Index measures the performance of the mid-cap segment of the U.S. equity universe. It includes approximately 800 of the smallest securities in the Russell 1000 Index. The Russell Global ex-U.S. Large Cap Index is an index of global large-cap stocks, excluding the United States. The Russell Global ex-U.S. Small Cap Index is an index of global small-cap stocks, excluding the United States. The S&P 500 and SmallCap 600 are indexes of U.S. large- and small-cap stocks, respectively, selected by Standard & Poor’s based on market size, liquidity and industry grouping, among other factors. The Nasdaq Composite is an index of the more than 3,000 common equities listed on the Nasdaq stock exchange. Returns for the market indexes used in this report were based on information supplied to Royce by Russell Investments. Royce has not independently verified the above described information.

Forward-Looking Statements
This material contains forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve risks and uncertainties, including, among others, statements as to:

 

 

•

the Funds’ future operating results

•

the prospects of the Funds’ portfolio companies

•

the impact of investments that the Funds have made or may make

•

the dependence of the Funds’ future success on the general economy and its impact on the companies and industries in which the Funds invest, and

•

the ability of the Funds’ portfolio companies to achieve their objectives.

This Review and Report uses words such as “anticipates,” “believes,” “expects,” “future,” “intends,” and similar expressions to identify forward-looking statements. Actual results may differ materially from those projected in the forward-looking statements for any reason.
     The Royce Funds have based the forward-looking statements included in this Review and Report on information available to us on the date of the report, and we assume no obligation to update any such forward-looking statements. Although The Royce Funds undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make through future stockholder communications or reports.

Authorized Share Transactions
Royce Value Trust, Royce Micro-Cap Trust and Royce Focus Trust may each repurchase up to 5% of the issued and outstanding shares of its respective common stock and up to 10% of the issued and outstanding shares of its respective preferred stock during the year ending December 31, 2011. Any such repurchases would take place at then prevailing prices in the open market or in other transactions. Common stock repurchases would be effected at a price per share that is less than the share’s then current net asset value, and preferred stock repurchases would be effected at a price per share that is less than the share’s liquidation value.
     Royce Value Trust, Royce Micro-Cap Trust and Royce Focus Trust are also authorized to offer their common stockholders an opportunity to subscribe for additional shares of their common stock through rights offerings at a price per share that may be less than the share's then current net asset value. The timing and terms of any such offerings are within each Board's discretion.

Annual Certifications
As required, the Funds have submitted to the New York Stock Exchange (“NYSE”) for Royce Value Trust and Royce Micro-Cap Trust and to Nasdaq for Royce Focus Trust, respectively, the annual certification of the Funds’ Chief Executive Officer that he is not aware of any violation of the NYSE’s or Nasdaq’s Corporate Governance listing standards. The Funds also have included the certification of the Funds’ Chief Executive Officer and Chief Financial Officer required by section 302 of the Sarbanes-Oxley Act of 2002 as exhibits to the Funds’ form N-CSR for the period ended December 31, 2010, filed with the Securities and Exchange Commission.



Proxy Voting
A copy of the policies and procedures that The Royce Funds use to determine how to vote proxies relating to portfolio securities and information regarding how each of The Royce Funds voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available, without charge, on The Royce Funds’ website at www.roycefunds.com, by calling (800) 221-4268 (toll-free) and on the website of the Securities and Exchange Commission (“SEC”), at www.sec.gov.

Form N-Q Filing
The Funds file their complete schedules of investments with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Funds’ Forms N-Q are available on the SEC’s website at www.sec.gov. The Royce Funds’ holdings are also on the Funds’ website approximately 15 to 20 days after each calendar quarter end and remain available until the next quarter’s holdings are posted. The Funds’ Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. To find out more about this public service, call the SEC at (800) 732-0330. The Funds’ complete schedules of investments are updated quarterly, and are available at www.roycefunds.com.

 

62 | The Royce Funds 2011 Annual Report to Stockholders

 

Notes to Performance and Other Important Information

Royce Value Trust, Inc.
At the 2011 Annual Meeting of Stockholders held on September 22, 2011, the Fund’s stockholders elected four Directors, consisting of:

 

 

 

 

 

 
           

 

VOTES FOR

 

 

VOTES WITHHELD

 
           

Richard M. Galkin*

65,521,550

 

 

4,133,445

 
           

Stephen L. Isaacs*

65,555,428

 

 

4,099,567

 
           

Patricia W. Chadwick**

8,192,681

 

 

89,368

 
           

David L. Meister**

8,178,302

 

 

103,747

 
           

 

 

*

Common Stock and Preferred Stock voting together as a single class

**

Preferred Stock voting as a separate class

Transaction Approved by Royce Value Trust Board of Directors
The Board of Directors of Royce Value Trust, Inc. (“RVT”) has approved, subject to stockholder and other regulatory approvals, the contribution of approximately $100 million of RVT’s assets to a newly formed non-diversified, closed-end investment company, Royce Global Value Trust, Inc. (“RGT”). All of RGT’s common stock would then be distributed to the common stockholders of RVT. There is no assurance that necessary stockholder and regulatory approvals will be obtained.

Royce Micro-Cap Trust, Inc.
At the 2011 Annual Meeting of Stockholders held on September 22, 2011, the Fund’s stockholders elected four Directors, consisting of:

 

 

 

 

 

 
           

 

VOTES FOR

 

 

VOTES WITHHELD

 
           

Patricia W. Chadwick*

2,235,610

 

 

43,570

 
           

Richard M. Galkin*

25,195,221

 

 

1,692,547

 
           

Stephen L. Isaacs**

25,205,257

 

 

1,682,511

 
           

David L. Meister**

2,231,011

 

 

48,169

 
           

 

 

*

Common Stock and Preferred Stock voting together as a single class

**

Preferred Stock voting as a separate class

Royce Focus Trust, Inc.
At the 2011 Annual Meeting of Stockholders held on September 22, 2011, the Fund’s stockholders elected four Directors, consisting of:

 

 

 

 

 

 
           

 

VOTES FOR

 

 

VOTES WITHHELD

 
           

Patricia W. Chadwick*

16,525,914

 

 

454,879

 
           

Richard M. Galkin*

16,544,888

 

 

435,905

 
           

Stephen L. Isaacs**

916,834

 

 

11,594

 
           

David L. Meister**

916,600

 

 

11,828

 
           

 

 

*

Common Stock and Preferred Stock voting together as a single class

**

Preferred Stock voting as a separate class

 

The Royce Funds 2011 Annual Report to Stockholders | 63

 

2011: In Quotes

 

 

Stocks are an imperfect asset, superior only to every other investment over long periods.

– Knight Kiplinger, Kiplinger’s Personal Finance, December 2011

 

 

 

 

 

 

Points To Ponder
Across Europe just now men who thought their title was “minister of finance” have woken up to the idea that their job is actually government bond salesman.

– Michael Lewis, Vanity Fair, March 2011

Many European companies are in better shape than the nations in which they’re based.

– James H. Glassman, Kiplinger’s Magazine, December 2011

In Absolute Agreement
Stocks have climbed a wall of worry for 42 years. The bigger the worry, the better the returns.

– Bob Olstein, Morningstar Advisor,
February/March 2011

As long as inflation doesn’t ramp up to the double-digit levels of the 1970s and early 1980s—a scenario I consider extremely unlikely—stocks will act as an excellent hedge. The reason is simple: Stocks are claims on real assets, such as land and plant and equipment, which appreciate in value as overall prices increase.

– Jeremy J. Siegel, Kiplinger’s Personal Finance, June 2011

To the extent that some managers are trying to replace active security selection with active allocation across sectors, that is another name for market timing. History suggests that is rarely a durable strategy.

– Edward Bernard, T. Rowe Price Vice Chairman, Bloomberg, June 9, 2011

 

Unquestionably, some people have become very rich through the use of borrowed money. However, that’s also been a way to get very poor. When leverage works, it magnifies your gains. Your spouse thinks you’re clever, and your neighbors get envious. But leverage is addictive. Once having profited from its wonders, very few people retreat to more conservative practices. And as we all learned in third grade—and some relearned in 2008—any series of positive numbers, however impressive the numbers may be, evaporates when multiplied by a single zero. History tells us that leverage all too often produces zeroes, even when it is employed by very smart people.

– Warren Buffett, 2010 Berkshire Hathaway
Letter to Shareholders

From now on, price pressure and shortages of resources will be a permanent feature of our lives… The world is using up its natural resources at an alarming rate, and this has caused a permanent shift in their value. We all need to adjust our behavior to this new environment. It would help if we did it quickly.

– Jeremy Grantham, The New York Times,
August 11, 2011

If investing was just all history, the historians would be billionaires. Same with quant and algorithms. High quality stocks in the US and the emerging markets are the place to be, and this panic is a wonderful opportunity to buy them.
– Barton Biggs, Macroeconomic Thoughts,
August 16, 2011

 

When markets are highly correlated is exactly when you have really good opportunities to make great long-term investments.

– David Chung, Barron’s, September 5, 2011

Our discipline is very much bottom-up stock-picking, with a strong value-investing bias. I am very cheap in terms of what we want to pay for things. It is not like we don’t like growth. We like growth as much as the next guy. But we just don’t want to pay pie-in-the-sky prices for future bets.

– Michael Katz, Barron’s, November 26, 2011

Cocktail Conversation
The pace at which we can reach our destination of economic bliss will be governed by four things—our power to control population, our determination to avoid wars and civil dissensions, our willingness to entrust to science the direction of those matters which are properly the concern of science, and the rate of accumulation as fixed by the margin between our production and our consumption; of which the last will easily look after itself, given the first three.

– John Maynard Keynes, Economic Possibilities for our Grandchildren, 1930

Some people say they want to wait for a clearer view of the future. But when the future is again clear, the present bargains will have vanished. In fact, does anyone think that today’s prices will prevail once full confidence has been restored?

– Dean Witter, May 1932


 
   

The thoughts expressed above represent solely the opinions of the persons quoted and, of course, there can be no assurance of future market trends or performance.

 

64 | This page is not part of the 2011 Annual Report to Stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

image

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

About The Royce Funds

 

 

 

 

 

 

 

 

 

 

 

Wealth Of Experience

 

Consistent Discipline

 

 

 

With approximately $34 billion in open- and closed-end fund assets under management, Royce & Associates is committed to the same small-company investing principles that have served us well for more than 35 years. Charles M. Royce, our President and Co-Chief Investment Officer, enjoys one of the longest tenures of any active mutual fund manager. Royce’s investment staff also includes Co-Chief Investment Officer W. Whitney George, 18 Portfolio Managers, five assistant portfolio managers and analysts, and nine traders.

Multiple Funds, Common Focus
Our goal is to offer both individual and institutional investors the best available smaller-cap portfolios. Unlike a lot of mutual fund groups with broad product offerings, we have chosen to concentrate on smaller-company investing by providing investors with a range of funds that take full advantage of this large and diverse sector.

 

Our approach emphasizes paying close attention to risk and maintaining the same discipline, regardless of market movements and trends. The price we pay for a security must be significantly below our appraisal of its current worth. This requires a thorough analysis of the financial and business dynamics of an enterprise, as though we were purchasing the entire company.

Co-Ownership Of Funds
It is important that our employees and shareholders share a common financial goal; our officers, employees and their families currently have approximately $144 million invested in The Royce Funds.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
           

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contact Us

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General Information

RIA Services

 

Broker/Dealer Services

Computershare

 

 

 

Additional Report Copies
and Prospectus Inquiries
(800) 221-4268

Fund Materials and
Performance Updates
(800) 33-ROYCE (337-6923)

 

Fund Materials and
Performance Updates
(800) 59-ROYCE (597-6923)

Transfer Agent
and Registrar
(800) 426-5523

CE-REP-1211

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Item 2. Code(s) of Ethics.  As of the end of the period covered by this report, the Registrant had adopted a code of ethics, as defined in Item 2 of Form N-CSR, applicable to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of this code of ethics is filed as an exhibit to this Form N-CSR. No substantive amendments were approved or waivers were granted to this code of ethics during the period covered by this report.


Item 3. Audit Committee Financial Expert.


(a)(1)

The Board of Directors of the Registrant has determined that it has an audit committee financial expert.


(a)(2)

Arthur S. Mehlman and Patricia W. Chadwick were designated by the Board of Directors as the Registrant’s Audit Committee Financial Experts, effective April 15, 2004 and April 8, 2010, respectively. Mr. Mehlman and Ms. Chadwick are “independent” as defined under Item 3 of Form N-CSR.


Item 4. Principal Accountant Fees and Services.


(a)

Audit Fees:
Year ended December 31, 2011 - $27,500
Year ended December 31, 2010 - $27,000


(b)

Audit-Related Fees:
Year ended December 31, 2011 - $1,500 – Preparation of reports to rating agency for Preferred Stock
Year ended December 31, 2010 - $1,500 – Preparation of reports to rating agency for Preferred Stock


(c)

Tax Fees:
Year ended December 31, 2011 - $6,900 - Preparation of tax returns
Year ended December 31, 2010 - $6,800 - Preparation of tax returns  


(d)

All Other Fees:
Year ended December 31, 2011 - $0
Year ended December 31, 2010 - $0


(e)(1)

Annual Pre-Approval: On an annual basis, the Registrant’s independent auditor submits to the Audit Committee a schedule of proposed audit, audit-related, tax and other non-audit services to be rendered to the Registrant and/or investment adviser(s) for the following year that require pre-approval by the Audit Committee. This schedule provides a description of each type of service that is expected to require pre-approval and the maximum fees that can be paid for each such service without further Audit Committee approval. The Audit Committee then reviews and determines whether to approve the types of scheduled services and the projected fees for them. Any subsequent revision to already pre-approved services or fees (including fee increases) are presented for consideration at the next regularly scheduled Audit Committee meeting, as needed.


If subsequent to the annual pre-approval of services and fees by the Audit Committee, the Registrant or one of its affiliates determines that it would like to engage the Registrant’s independent auditor to perform a service not already pre-approved, the request is to be submitted to the Registrant’s Chief Financial Officer, and if he or she determines that the service fits within the independence guidelines (e.g., it is not a prohibited service), he or she will then arrange for a discussion of the proposed service and fee to be included on the agenda for the next regularly scheduled Audit Committee meeting so that pre-approval can be considered.


Interim Pre-Approval: If, in the judgment of the Registrant's Chief Financial Officer, a proposed engagement needs to commence before the next regularly scheduled Audit Committee meeting, he or she shall submit a written summary of the proposed engagement to all members of the Audit Committee, outlining the services, the estimated maximum cost, the category of the services (e.g., audit, audit-related, tax or other) and the rationale for engaging the Registrant’s independent auditor to perform the services. To the extent the proposed engagement involves audit, audit-related or tax services, any individual member of the Audit Committee who is an independent Board member is authorized to pre-approve the engagement. To the extent the proposed engagement involves non-audit services other than audit-related or tax, the Chairman of the Audit Committee is authorized to pre-approve the engagement. The Registrant’s Chief Financial Officer will arrange for this interim review and




coordinate with the appropriate member(s) of the Committee. The independent auditor may not commence the engagement under consideration until the Registrant’s Chief Financial Officer has informed the auditor in writing that pre-approval has been obtained from the Audit Committee or an individual member who is an independent Board member. The member of the Audit Committee who pre-approves any engagements in between regularly scheduled Audit Committee meetings is to report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next regularly scheduled meeting.


(e)(2)

Not Applicable


(f)

Not Applicable


(g)

Year ended December 31, 2011 - $8,400
Year ended December 31, 2010 - $8,300


(h)

No such services were rendered during 2011 or 2010.


Item 5. Audit Committee of Listed Registrants. The Registrant has a separately designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. Patricia W. Chadwick, Richard M. Galkin, Stephen L. Isaacs, William L. Koke, Arthur S. Mehlman, David L. Meister and G. Peter O’Brien are members of the Registrant’s audit committee.


Item 6.  Investments.

(a) See Item 1.


(b) Not applicable.



Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

June 5, 2003, as amended
through October 22, 2009


Royce & Associates Proxy Voting Guidelines and Procedures


These procedures apply to Royce & Associates, LLC (“Royce”) and all funds and other client accounts for which it is responsible for voting proxies, including all open and closed-end registered investment companies (“The Royce Funds”), limited partnerships, limited liability companies, separate accounts, other accounts for which it acts as investment adviser and any accounts for which it acts as sub-adviser that have delegated proxy voting authority to Royce. Such authority is determined at the inception of each client account and generally: (i) is specifically authorized in the applicable investment management agreement or other written instrument or (ii) where not specifically authorized, is granted to Royce where general investment discretion is given to it in the applicable investment management agreement. The Boards of Trustees/Directors of The Royce Funds (the “Boards”) have delegated all proxy voting decisions to Royce subject to these policies and procedures. Notwithstanding the above, from time to time the Boards may reserve voting authority for specific securities.


Receipt of Proxy Material. Under the continuous oversight of the Head of Administration, an Administrative Assistant designated by him is responsible for monitoring receipt of all proxies and ensuring that proxies are received for all securities for which Royce has proxy voting responsibility. All proxy materials are logged in upon receipt by Royce’s Librarian.


Voting of Proxies. Once proxy material has been logged in by Royce’s Librarian, it is then promptly reviewed by the designated Administrative Assistant to evaluate the issues presented. Regularly recurring matters are usually voted as recommended by the issuer’s board of directors or “management.” The Head of Administration or his designee, in consultation with the Chief Investment Officer, develops and updates a list of matters Royce treats as “regularly recurring” and is responsible for ensuring that the designated Administrative Assistant has an up-to-date list of these matters at all times, including instructions from Royce’s Chief Investment Officer on how to vote on those matters on behalf of Royce clients. Examples of “regularly recurring” matters include non-contested elections of directors and non-contested approval of independent auditors. Non-“regularly recurring” matters are brought to




the attention of the portfolio manager(s) for the account(s) involved by the designated Administrative Assistant, and, after giving some consideration to advisories from Glass Lewis & Co., an independent third party research firm, the portfolio manager directs that such matters be voted in a way that he or she believes should better protect or enhance the value of the investment. If the portfolio manager determines that information concerning any proxy requires analysis, is missing or incomplete, he or she then gives the proxy to an analyst or another portfolio manager for review and analysis.


a.

From time to time, it is possible that one Royce portfolio manager will decide (i) to vote shares held in client accounts he or she manages differently from the vote of another Royce portfolio manager whose client accounts hold the same security or (ii) to abstain from voting on behalf of client accounts he or she manages when another Royce portfolio manager is casting votes on behalf of other Royce client accounts.


The designated Administrative Assistant reviews all proxy votes collected from Royce’s portfolio managers prior to such votes being cast. If any difference exists among the voting instructions given by Royce’s portfolio managers, as described above, the designated Administrative Assistant then presents these proposed votes to the Head of Administration, or his designee, and the Chief Investment Officer. The Chief Investment Officer, after consulting with the relevant portfolio managers, either reconciles the votes or authorizes the casting of differing votes by different portfolio managers. The Head of Administration, or his designee, maintains a log of all votes for which different portfolio managers have cast differing votes, that describes the rationale for allowing such differing votes and contains the initials of both the Chief Investment Officer and Head of Administration, or his designee, allowing such differing votes. The Head of Administration, or his designee, performs a weekly review of all votes cast by Royce to confirm that any conflicting votes were properly handled in accordance with the above-described procedures.


b.

There are many circumstances that might cause Royce to vote against an issuer’s board of directors or “management” proposal. These would include, among others, excessive compensation, unusual management stock options, preferential voting and poison pills. The portfolio managers decide these issues on a case-by-case basis as described above.


c.

A portfolio manager may, on occasion, determine to abstain from voting a proxy or a specific proxy item when he or she concludes that the potential benefit of voting is outweighed by the cost, when it is not in the client account’s best interest to vote.


d.

When a client has authorized Royce to vote proxies on its behalf, Royce will generally not accept instructions from the clients regarding how to vote proxies.


e.

If a security is on loan under The Royce Funds’ Securities Lending Program with State Street Bank and Trust Company (“Loaned Securities”), the Head of Administration, or his designee, will recall the Loaned Securities and request that they be delivered within the customary settlement period after the notice, to permit the exercise of their voting rights if the number of shares of the security on loan would have a material effect on The Royce Funds' voting power at the up-coming stockholder meeting. A material effect is defined as any case where the Loaned Securities are 1% or more of a class of a company’s outstanding equity securities. Monthly, the Head of Administration or his designee will review the summary of this activity by State Street. A quarterly report detailing any exceptions that occur in recalling Loaned Securities will be given to the Boards.


Custodian banks are authorized to release all proxy ballots held for Royce client account portfolios to Glass Lewis & Co. for voting, utilizing the Viewpoint proxy voting platform. Substantially all portfolio companies utilize Broadridge to collect their proxy votes.


Under the continuous oversight of the Head of Administration, or his designee, the designated Administrative Assistant is responsible for voting all proxies in a timely manner. Votes are returned to Broadridge using Viewpoint as ballots are received, generally two weeks before the scheduled meeting date. The issuer can thus see that the shares were voted, but the actual vote cast is not released to the company until 4:00 pm on the day before the meeting. If proxies must be mailed, they go out at least ten business days before the meeting date.




Conflicts of Interest. The designated Administrative Assistant reviews reports generated by Royce’s portfolio management system (“Quest PMS”) that set forth by record date, any security held in a Royce client account which is issued by a (i) public company that is, or a known affiliate of which is, a separate account client of Royce (including sub-advisory relationships), (ii) public company, or a known affiliate of a public company, that has invested in a privately-offered pooled vehicle managed by Royce or (iii) public company, or a known affiliate of a public company, by which the spouse of a Royce employee or an immediate family member of a Royce employee living in the household of such employee is employed, for the purpose of identifying any potential proxy votes that could present a conflict of interest for Royce. The Head of Administration, or his designee, develops and updates the list of such public companies or their known affiliates which is used by Quest PMS to generate these daily reports. This list also contains information regarding the source of any potential conflict relating to such companies. Potential conflicts identified on the “conflicts reports” are brought to the attention of the Head of Administration or his designee by the designated Administrative Assistant. An R&A Compliance Officer then reviews them to determine if business or personal relationships exist between Royce, its officers, managers or employees and the company that could present a material conflict of interest. Any such identified material conflicts are voted by Royce in accordance with the recommendation given by an independent third party research firm (Glass Lewis & Co.). The Head of Administration or his designee maintains a log of all such conflicts identified, the analysis of the conflict and the vote ultimately cast. Each entry in this log is signed by the Chief Investment Officer before the relevant votes are cast.


Recordkeeping. A record of the issues and how they are voted is stored in the Viewpoint system. Copies of all physically executed proxy cards, all proxy statements (with it being permissible to rely on proxy statements filed and available on Edgar) and any other documents created or reviewed that are material to making a decision on how to vote proxies are retained in the Company File maintained by Royce’s Librarian in an easily accessible place for a period of not less than six years from the end of the fiscal year during which the last entry was made on such record, the first two years at Royce’s office. In addition, copies of each written client request for information on how Royce voted proxies on behalf of that client, and a copy of any written response by Royce to any (written or oral) client request for information on how Royce voted proxies on behalf of that client will be maintained by Royce’s Head of Administration and/or Royce’s Director of Alternative Investments, or their designee (depending on who received such request) for a period of not less than six years from the end of the fiscal year during which the last entry was made on such record, the first two years at Royce’s office. Royce’s Compliance Department shall maintain a copy of any proxy voting policies and procedures in effect at any time within the last five years.


Disclosure. Royce’s proxy voting procedures will be disclosed to clients upon commencement of a client account. Thereafter, proxy voting records and procedures are generally disclosed to those clients for which Royce has authority to vote proxies as set forth below:

-

The Royce Funds – proxy voting records are disclosed annually on Form N-PX (with such voting records also available at www.roycefunds.com). Proxy voting procedures are available in the Statement of Additional Information for the open-end funds, in the annual report on Form N-CSR for the closed-end funds and at www.roycefunds.com.

-

Limited Liability Company and Limited Partnership Accounts – proxy voting records are disclosed to members/partners upon request and proxy voting procedures (along with a summary thereof) are provided to members/partners annually (and are available at www.roycefunds.com).

-

Separate Accounts – proxy voting records and procedures are disclosed to separate account clients annually.


Item 8.  Portfolio Managers of Closed-End Management Investment Companies.

(a)(1) Portfolio Managers of Closed-End Management Investment Companies (information as of December 31, 2011)


Name


Title


Length of Service


Principal Occupation(s) During Past 5 Years

W. Whitney
George

Vice President and Portfolio Manager of the Registrant

Since July 2002

Co-Chief Investment Officer, Managing Director and Vice President of Royce & Associates, LLC (“Royce”), investment adviser to the Registrant; Vice President of the Registrant, Royce Value Trust, Inc., Royce Micro-Cap Trust, Inc., Royce Focus Trust, Inc., The Royce Fund and Royce Capital Fund (collectively, “The Royce Funds”).




(a)(2) Other Accounts Managed by Portfolio Manager and Potential Conflicts of Interest (information as of December 31, 2011)

 

Other Accounts





Type of Account




Number of
Accounts Managed




Total
Assets Managed


Number of Accounts
 Managed for which
 Advisory Fee is
 Performance-Based


Value of Managed
 Accounts for which
 Advisory Fee is
 Performance Based

Registered investment companies

12

$16,235,339,323

1

$22,504,484

Private pooled
 investment vehicles

5

$1,059,235,000

1

$116,766,000

Other accounts*

1

$30,934,057

-

-

*Other accounts include all other accounts managed by the Portfolio Manager in either a professional or personal capacity except for personal accounts subject to pre-approval and reporting requirements under the Registrant’s Rule 17j-1 Code of Ethics.


Conflicts of Interest

The fact that the Portfolio Manager has day-to-day management responsibility for more than one client account may create actual, potential or only apparent conflicts of interest. For example, the Portfolio Manager may have an opportunity to purchase securities of limited availability. In this circumstance, the Portfolio Manager is expected to review each account's investment guidelines, restrictions, tax considerations, cash balances, liquidity needs and other factors to determine the suitability of the investment for each account and to ensure that his managed accounts are treated equitably. The Portfolio Manager may also decide to purchase or sell the same security for multiple managed accounts at approximately the same time. To address any conflicts that this situation may create, the Portfolio Manager will generally combine managed account orders (i.e., enter a "bunched" order) in an effort to obtain best execution or a more favorable commission rate. In addition, if orders to buy or sell a security for multiple accounts managed by common Portfolio Managers on the same day are executed at different prices or commission rates, the transactions will generally be allocated by Royce & Associates, LLC (“Royce”) to each of such managed accounts at the weighted average execution price and commission. In circumstances where a pre-allocated bunched order is not completely filled, each account will normally receive a pro-rated portion of the securities based upon the account's level of participation in the order. Royce may under certain circumstances allocate securities in a manner other than pro-rata if it determines that the allocation is fair and equitable under the circumstances and does not discriminate against any account.


As described below, there is a revenue-based component of the Portfolio Manager's Performance-Related Variable Compensation and the Portfolio Manager also receives Firm-Related Variable Compensation based on revenues (adjusted for certain imputed expenses) generated by Royce. In addition, the Portfolio Manager receives variable compensation based on Royce's retained pre-tax profits from operations. As a result, the Portfolio Manager may receive a greater relative benefit from activities that increase the value to Royce of The Royce Funds and/or other Royce client accounts, including, but not limited to, increases in sales of the Registrant’s shares and assets under management.


Also, as described above, the Portfolio Manager generally manages more than one client account, including, among others, registered investment company accounts, separate accounts and private pooled accounts managed on behalf of institutions (e.g., pension funds, endowments and foundations) and for high-net-worth individuals. The appearance of a conflict of interest may arise where Royce has an incentive, such as a performance-based management fee (or any other variation in the level of fees payable by The Royce Funds or other Royce client accounts to Royce), which relates to the management of one or more of The Royce Funds or accounts with respect to which the Portfolio Manager has day-to-day management responsibilities. One registered investment company account, Royce Global Select Fund, for which the Portfolio Manager serves as Assistant Portfolio Manager, pays Royce a performance-based fee.


Finally, conflicts of interest may arise when the Portfolio Manager personally buys, holds or sells securities held or to be purchased or sold for the Registrant or other Royce client account or personally buys, holds or sells the shares of one or more of The Royce Funds. To address this, Royce has adopted a written Code of Ethics designed to prevent and detect personal trading activities that may interfere or conflict with client interests (including Registrant’s stockholders' interests). Royce generally does not permit its Portfolio Managers to purchase small- or micro-cap securities in their personal investment portfolios.




        

Royce and The Royce Funds have adopted certain compliance procedures which are designed to address the above-described types of conflicts. However, there is no guarantee that such procedures will detect each and every situation in which a conflict arises.


(a)(3) Description of Portfolio Manager Compensation Structure (information as of December 31, 2011)


Royce seeks to maintain a compensation program that is competitively positioned to attract and retain high-caliber investment professionals. The Portfolio Manager, receives from Royce a base salary, Performance-Related Variable Compensation, Firm-Related Variable Compensation based primarily on registered investment company and other client account revenues generated by Royce and a benefits package. Portfolio Manager compensation is reviewed and may be modified from time to time as appropriate to reflect changes in the market, as well as to adjust the factors used to determine variable compensation. Except as described below, the Portfolio Manager's compensation consists of the following elements:


-

BASE SALARY. The Portfolio Manager is paid a base salary. In setting the base salary, Royce seeks to be competitive in light of the Portfolio Manager's experience and responsibilities.


-

PERFORMANCE-RELATED VARIABLE COMPENSATION. The Portfolio Manager receives quarterly Performance-Related Variable Compensation that is either asset-based, or revenue-based and therefore in part based on the value of the net assets of the account for which he is being compensated, determined with reference to each of the registered investment company and other client accounts he is managing. The Performance-Related Variable Compensation applicable to the registered investment company accounts managed by the Portfolio Manager is subject to downward adjustment or elimination based on a combination of 3-year, 5-year and 10-year risk-adjusted pre-tax returns of such accounts relative to all small-cap objective funds with three years of history tracked by Morningstar (as of December 31, 2011 there were 371 such Funds tracked by Morningstar), 5-year absolute returns of such accounts relative to 5-year U.S. Treasury Notes and absolute returns over the prior full market cycle and current cycle to date vs. the accounts’ benchmark. The Performance-Related Variable Compensation applicable to non-registered investment company accounts managed by the Portfolio Manager, and to Royce Select Funds, is not subject to performance-related adjustment.


Payment of the Performance-Related Variable Compensation may be deferred, and any amounts deferred are forfeitable, if the Portfolio Manager is terminated by Royce with or without cause or resigns. The amount of the deferred Performance-Related Variable Compensation will appreciate or depreciate during the deferral period, based on the total return performance of one or more Royce-managed registered investment company accounts selected by the Portfolio Manager at the beginning of the deferral period. The amount deferred will depend on the Portfolio Manager's total direct, indirect beneficial and deferred unvested investments in the Royce registered investment company account for which he or she is receiving portfolio management compensation.


-

FIRM-RELATED VARIABLE COMPENSATION. The Portfolio Manager receives quarterly variable compensation based on Royce's net revenues.

-


BENEFIT PACKAGE. The Portfolio Manager also receives benefits standard for all Royce employees, including health care and other insurance benefits, and participation in Royce's 401(k) Plan and Money Purchase Pension Plan. From time to time, on a purely discretionary basis, the Portfolio Manager may also receive options to acquire stock in Royce's parent company, Legg Mason, Inc. Those options typically represent a relatively small portion of the Portfolio Managers' overall compensation.


The Portfolio Manager, in addition to the above-described compensation, also receives variable compensation based on Royce's retained pre-tax operating profit. This variable compensation, along with the Performance-Related Variable Compensation and Firm-Related Variable Compensation, generally represents the most significant element of the Portfolio Manager’s compensation.


(a)(4) Dollar Range of Equity Securities in Registrant Beneficially Owned by Portfolio Manager (information as of December 31, 2011)




The following table shows the dollar range of the Registrant’s shares owned beneficially and of record by the Portfolio Manager, including investments by his immediately family members sharing the same household and amounts invested through retirement and deferred compensation plans.


Dollar Range of Registrant’s Shares Beneficially Owned
Over $1,000,000


(b) Not Applicable.


Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not Applicable.


Item 10. Submission of Matters to a Vote of Security Holders. Not Applicable.


Item 11. Controls and Procedures.


(a) Disclosure Controls and Procedures. The Principal Executive and Financial Officers concluded that the Registrant's Disclosure Controls and Procedures are effective based on their evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report.


(b) Internal Control over Financial Reporting. There were no significant changes in Registrant's internal control over financial reporting or in other factors that could significantly affect this control subsequent to the date of the evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses during the second fiscal quarter of the period covered by this report.


Item 12.  Exhibits.  Attached hereto.

 (a)(1) The Registrant’s code of ethics pursuant to Item 2 of Form N-CSR.


(a)(2) Separate certifications by the Registrant’s Principal Executive Officer and Principal Financial Officer as required by Rule 30a-2(a) under the Investment Company Act of 1940.


(a)(3) Not Applicable


(b) Separate certifications by the Registrant’s Principal Executive Officer and Principal Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(b) under the Investment Company Act of 1940.


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.


ROYCE FOCUS TRUST, INC.


BY: /s/Charles M. Royce

Charles M. Royce
President


Date: February 27, 2012


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 on the dates indicated.


ROYCE FOCUS TRUST, INC.

ROYCE FOCUS TRUST, INC.


BY:/s/Charles M. Royce

BY: /s/John D. Diederich

Charles M. Royce

John D. Diederich

President

Chief Financial Officer

Date: February 27, 2012

Date: February 27, 2012