-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QfcJBxZKLwd5TJyiNkx1iHyJK3WoFBXMkwOnIY4l7xmS6/ovFA2/uRz0O8I+L421 okasu1qtxvHXWH5uevXPvA== 0000950117-96-000495.txt : 19960518 0000950117-96-000495.hdr.sgml : 19960518 ACCESSION NUMBER: 0000950117-96-000495 CONFORMED SUBMISSION TYPE: N-30B-2 PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960516 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROYCE OTC MICRO CAP FUND INC CENTRAL INDEX KEY: 0000912147 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 133739778 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30B-2 SEC ACT: 1940 Act SEC FILE NUMBER: 811-08030 FILM NUMBER: 96568418 BUSINESS ADDRESS: STREET 1: C/O MITCHELL HUTCHINS ASSET MANAGEMENT STREET 2: 1414 AVE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2127138392 MAIL ADDRESS: STREET 1: ROYCE OTC MICRO -CAP FUND INC STREET 2: 1285 AVE OF THE AMERICAS 16TH FLR CITY: NEW YORK STATE: NY ZIP: 10019 N-30B-2 1 ROYCE MICRO-CAP TRUST N-30B-2 ROYCE MICRO-CAP TRUST 1st QUARTER REPORT MARCH 31, 1996 Dear Stockholder: It was a textbook case of supply and demand. Investors, euphoric over 1995's spectacular returns, continued to push mutual fund assets and stock market prices to unprecedented levels in 1996's first quarter. The demand side of the equation has been strong and the supply side has not kept pace. However, we are entering the prime selling season for IPOs (initial public offerings) and secondary offerings, and it will be interesting to see just how long investor demand can outstrip supply. The first quarter's surge in demand for equity mutual funds occurred despite a rise in long-term interest rates and a pickup in stock market volatility, two phenomena generally perceived as negatively impacting stock market returns. While the stock market was being driven to new highs in the first 90 days, bond indices were going in the opposite direction. With long-term interest rates up almost 100 basis points, total return for the long-term government bond was down almost 8% for the quarter, quite a contrast to the 1995 record return of 30.7%. Stock market volatility, which was virtually nonexistent in 1995, staged a comeback and was especially evident in the more liquid, large-cap zone. Often a change in volatility precedes a change in returns. One has to wonder if the increase in long-term interest rates combined with the increase in market volatility is presaging a shift in market direction. 1996's first quarter performance, like that of 1995, was led by the large-cap sector of the market. Performance was especially strong for the Dow Jones Industrial Average (+9.8%)* whose return was nearly double that of the broader based S&P 500 (+5.5%)*. This performance divergence within large-cap is reminiscent of the 'Nifty 50' in the early 1970s, when a handful of stocks dominated returns. Although small-cap stocks lagged when compared to their large company counterparts, returns for the sector were still attractive. The Russell 2000* index of small-cap issues finished the quarter up 5.1%. ROYCE MICRO-CAP TRUST, INC. ('OTCM') provided a return that was below market, but decent nevertheless, up 3.7% on an NAV basis. Since its inception (12/14/93), the Fund has provided a cumulative NAV total return of 35.0%, or 14.0% on an average annual total return basis. OTCM remains the only closed-end domestic micro-cap fund and as of March 31, its market price was trading at a double digit discount to its NAV. We view this as an attractive investment opportunity for existing and potential shareholders. As we look out into the remainder of the year, we are reminded of historical performance patterns where rising interest rates and higher market volatility usually translate into lower market returns. Traditionally, value investing has provided an edge during these periods. At OTCM, we are committed to an approach which emphasizes patience and value, one which is applied in a disciplined manner on a daily basis, regardless of market conditions or outlook. Comments or questions are always welcome and your continued confidence is appreciated. Yours faithfully, Charles M. Royce Jack E. Fockler, Jr. Charles M. Royce W. Whitney George President Vice Presidents April 4, 1996 * The Dow Jones Industrial Average, S&P 500 and Russell 2000 are unmanaged indices and include the reinvestment of dividends. FUND HIGHLIGHTS
March 31, 1996 -------------- Net Asset Value Per Share.......................... $9.22 Market Price Per Share............................. $7.75
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TOTAL RETURN PERFORMANCE NAV Market Value S&P Total Total S&P Russell SmallCap Nasdaq Period Ended March 31, 1996 Return Return 500 2000 600 Composite - ------------------------------------------------------------ ------ ------------ ---- ------- -------- --------- 3 Months.................................................... 3.7% (3.1)% 5.5 % 5.1% 5.7% 4.8% 1 Year...................................................... 21.7 18.1 32.1 29.1 31.2 34.8 Average Annual Total Return From Inception*................. 14.0 4.3 18.6 14.8 14.3 18.1
* Inception date -- 12/14/93 The above indices are unmanaged and include the reinvestment of dividends. Sources: Frank Russell Co. and Wilshire Associates Incorporated. - --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS Three Months Ended March 31, 1996 Year Ended (unaudited) December 31, 1995 ------------------ ----------------- INVESTMENT ACTIVITIES: Net investment income................................................. $ 107,481 $ 243,167 Net realized gain on investments...................................... 3,273,600 4,317,779 Net unrealized appreciation on investments............................ 301,446 14,101,960 ------------- ------------- Total from investment activities.................................... 3,682,527 18,662,906 ------------- ------------- DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income................................................. -- (217,726) Net realized gain..................................................... -- (3,701,343) ------------- ------------- Total from dividends and distributions.............................. -- (3,919,069) ------------- ------------- CAPITAL STOCK TRANSACTIONS: Dividend and distribution reinvestment................................ -- 2,787,701 ------------- ------------- NET INCREASE IN NET ASSETS.............................................. 3,682,527 17,531,538 ------------- ------------- NET ASSETS: Beginning of period................................................... 100,065,366 82,533,828 ------------- ------------- End of period......................................................... $103,747,893 $ 100,065,366 ------------- ------------- ------------- -------------
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COMPOSITION OF NET ASSETS % of Net March 31, 1996 Assets -------------- -------- Common Stocks........................................................... $ 96,960,861 93.5% Preferred Stocks........................................................ 635,375 0.6 Cash and Other Assets Less Liabilities.................................. 6,151,657 5.9 ------------- ------ TOTAL NET ASSETS...................................................... $103,747,893 100.0% ------------- ------ ------------- ------
- -------------------------------------------------------------------------------- The results presented in this report represent past performance and should not be considered representative of the 'total return' from an investment in the Fund today. They are provided only to give an historical perspective of the Fund. The investment return and net asset and market values of Fund shares will fluctuate, so that the shares may be worth more or less than their original cost when sold. PORTFOLIO SUMMARY The following information is provided as a 'bird's eye' view of the OTCM portfolio at March 31, 1996. - ---------------------------------------------------------- WEIGHTED AVERAGES Market Capitalization (Total Portfolio) $158 Million Median Market Capitalization (Total Portfolio) $119 Million P/E Ratio (100 Largest Positions) 13.7x P/B Ratio (100 Largest Positions) 1.6x Portfolio Yield (100 Largest Positions) 1.3%
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Market Value 1. The Dress Barn, Inc. ..................... $1,596,825 Matthews International Corporation Cl. 2. A......................................... 1,417,750 3. Tide West Oil Company..................... 1,411,595 4. Frozen Food Express Industries. Inc. ..... 1,372,338 5. Duff & Phelps Credit Rating Co. .......... 1,225,600 6. Ash Grove Cement Company.................. 1,220,000 7. Richardson Electronics, Ltd. ............. 1,196,650 8. Tom Brown, Inc. .......................... 1,175,200 9. Catherines Stores Corporation............. 1,128,000 10. Gulfmark International Inc. .............. 1,089,000 11. Vallen Corporation........................ 1,087,500 12. Florida Rock Industries, Inc. ............ 1,081,600 13. Dreco Energy Services Ltd. ............... 1,080,000 14. Cato Corporation Cl. A.................... 1,029,713 15. Pennsylvania Manufacturers Corporation.... 1,022,200 16. Nobel Insurance Limited................... 1,019,513 17. Juno Lighting, Inc. ...................... 1,017,500 18. Stein Mart, Inc. ......................... 991,250 19. Oshkosh Truck Corporation Cl. B........... 980,100 20. Highlands Insurance Group................. 979,600
ROYCE MICRO-CAP TRUST PHILOSOPHY Royce Micro-Cap Trust, Inc. ('OTCM') seeks long-term capital appreciation by investing primarily in micro-capitalization companies. OTCM focuses on micro-cap companies (those with market caps of $300 million or less) that meet our valuation and pricing standards. Due to the sector's size (over 6,000 companies) and liquidity considerations, very few institutions make the universe a primary area of focus. Limited research and limited institutional competition mean that micro-cap stocks are less well known and, therefore, less likely to be understood and properly priced by investors. We believe that micro-cap stocks today are what small-cap stocks were 10-15 years ago in terms of return opportunity. OTCM uses a strict fundamental approach and attempts to understand the private worth of a business. We believe that we are buying part of a business, not just a stock. The Fund has a preference for companies which provide high internal rates of return, generate excess cash flow and have very little debt, if any. OTCM attempts to purchase only the securities of those firms where price is significantly under our appraisal of worth. OTCM attempts to reduce the risks associated with micro-cap company ownership. Company risk is lowered by investing in low leverage firms which generate excess cash flow. Valuation risk is lowered by using strict pricing standards and portfolio risk by investing in a wide range of companies and industries. We believe that OTCM's emphasis on micro-cap companies, selected using a disciplined value approach, results in a unique combination capable of providing above average long-term results. NOTE: The Board of Directors has given the Fund's management the discretionary authority to cause the Fund to repurchase up to 300,000 shares of its common stock in transactions through December 31, 1996. Such repurchases would be effected at a price per share which is less than the then current net asset value, but not in excess of the then prevailing market price. The Board of Directors of the Fund is authorized to offer stockholders an opportunity to subscribe for additional shares of common stock of the Fund through rights offerings at a price per share that may be less than the then current net asset value of the Fund's common stock. The timing and terms of any such offerings are left to the Board's discretion. Royce Micro-Cap Trust, Inc. 1414 Avenue of the Americas New York, N.Y. 10019 800-221-4268 -----END PRIVACY-ENHANCED MESSAGE-----