-----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, LWj1ZC1lM89VBWwEw6aabaGWbBNh76XCFK0bb1wTbZLPzMBBEsLr8bWcpi+Nkv8Q S3huKRe7B4s94Yh2nFD+gQ== 0000950146-97-001339.txt : 19970826 0000950146-97-001339.hdr.sgml : 19970826 ACCESSION NUMBER: 0000950146-97-001339 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970825 SROS: NYSE 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-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-08030 FILM NUMBER: 97669439 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-30D 1 1997 SEMI-ANNUAL REPORT THE ROYCE FUNDS Value Investing in Small Companies For Over 20 Years ROYCE VALUE TRUST ROYCE MICRO-CAP TRUST ROYCE GLOBAL TRUST 1997 Semi-Annual Report A FEW WORDS ON CLOSED-END FUNDS - ------------------------------------------------------------------------------- Royce & Associates 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 Global Trust, a closed-end fund we began managing on November 1, 1996. A closed-end fund is an investment company whose shares are listed on a stock exchange or are traded in the over-the counter market. 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 determined by the fund's Board of Directors and approved by its stockholders. A closed-end fund raises cash for investment by issuing a fixed number of shares through initial public offerings and periodic rights offerings. Investors wanting to buy or sell shares of a publicly traded closed-end fund after the offerings must do so on a stock exchange or Nasdaq market, as with any publicly traded stock. This is in contrast to open-end mutual funds where 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 nor 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. * Not having to meet investor redemption requests or invest at inopportune times is ideal for value managers who tend 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 for enhancing capital appreciation potential. * Unlike open-end funds, our closed-end funds are able to distribute capital gains on a quarterly basis. We believe that the closed-end fund structure is very suitable for the long-term investor. It is especially appropriate for the sophisticated 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 the Fund. To get a fair idea of the impact of reinvested distributions on Royce Value Trust's (RVT) stockholder returns, please see the chart on page 8. For additional information on the Funds' Distribution Reinvestment and Cash Purchase Options and the benefits for stockholders, see page 15. - ------------------------------------------------------------------------------- SEMI-ANNUAL REPORT REFERENCE GUIDE ROYCE VALUE TRUST'S MARKET PRICE TOTAL RETURN WAS UP OVER 209% FOR THE LAST 10 YEARS. 8 ROYCE VALUE TRUST HAS OUTPERFORMED THE RUSSELL 2000 ON BOTH AN ABSOLUTE AND A RISK-ADJUSTED BASIS OVER THE LAST TEN YEARS. 8 ROYCE MICRO-CAP TRUST HAS PROVIDED A 16.2% NAV AVERAGE ANNUAL TOTAL RETURN SINCE ITS INCEPTION. 10 ROYCE MICRO-CAP TRUST HAS OUTPERFORMED THE RUSSELL 2000 ON BOTH AN ABSOLUTE AND A RISK-ADJUSTED BASIS SINCE ITS INCEPTION (12/14/93). 10 ROYCE GLOBAL TRUST IS UP 20.5% ON A NAV BASIS SINCE WE ASSUMED INVESTMENT MANAGEMENT ON NOVEMBER 1, 1996. 12 ROYCE GLOBAL TRUST'S OFFICERS PURCHASED 63,700 SHARES DURING THE SECOND QUARTER AND NOW OWN 600,300 SHARES OR 7.5% OF THE OUTSTANDING STOCK OF THE FUND. 12 POSTSCRIPT: ALL THAT JAZZ. INSIDE BACK COVER SCHEDULES OF INVESTMENTS AND FINANCIAL STATEMENTS. SEE ENCLOSURE NOTEWORTHY DEVELOPMENTS On August 7, 1997, ROYCE VALUE TRUST announced a quarterly distribution policy targeted at 9% per annum on the Fund's Common Stock. On July 2, 1997, ROYCE MICRO-CAP TRUST issued 1,600,000 shares of its 7.75% Preferred Stock at $25 per share through Smith Barney and PaineWebber. This was the second such offering for Royce closed-end funds, with Royce Value Trust having issued 2,400,000 shares of its 8% Preferred Stock at $25 per share in August 1996 through underwriters led by Morgan Stanley. On August 20, 1997, ROYCE GLOBAL TRUST'S Board authorized a similar offering of 800,000 shares of preferred stock at $25 per share through Smith Barney. The Fund expects to proceed with the offering early this fall. Royce will waive the portion of its investment advisery fee attributable to a Fund's issuance of preferred stock for any month when the Fund's average annual total return from the date of original issue fails to exceed the preferred stock annual dividend rate.
- -------------------------------------------------------------------------------- NAV PERFORMANCE RESULTS Year-To-Date Since Fund (Inception) Return 1-Year Inception - ---------------- ----------------------------------------- Royce Value Trust (11/26/86) 13.1% 22.3% 13.3% - -------------------------------------------------------------------------------- Royce Micro-Cap Trust (12/14/93) 11.9% 17.6% 16.2% - -------------------------------------------------------------------------------- Royce Global Trust (11/1/96)* 15.2% N/A 20.5%** - --------------------------------------------------------------------------------
*Date Royce & Assoc. assumed investment management ** Not annualized LETTER TO OUR STOCKHOLDERS [Photo of Charles M. Royce] Charles M. Royce, President [SIDEBAR] The small-cap world has evolved dramatically during the last ten to fifteen years, especially in terms of capitalization. When we began managing money in the early '70's, small-cap was a much less efficient sector; but today, all that has changed. The small-cap market now behaves more like the large-cap market. Small and micro-cap are distinct markets, which require distinct strategies. The idea of two distinct markets inside small-cap is one that we believe will be the party line in another half dozen years. [END SIDEBAR] [Drawing of father in conversation with child] Drawing by Weber; Copyright 1997 The New Yorker Magazine, Inc. BIGGER WAS BETTER . . . In light of 1997's results to date, investors in small-cap funds are probably asking similar questions to that posed in the cartoon. Performance in the first six months resembled that of the last half of 1996. Investors' preference for easy-to-trade securities enabled larger, more well-known stocks to perform better, even within the small-cap universe. After a sluggish start, small-cap securities came roaring back in the second quarter, posting their best results since 1991. They, however, still trailed their large company counterparts, which provided impressive second quarter results to go along with their solid early 1997 returns. For the first six months, the Russell 2000 Index of small company stocks was up 10.2% versus a gain of 20.6% for the large-cap oriented S&P 500 Index. The disparity between large and small-cap is even more dramatic for the one-year period ended June 30, 1997: 34.7% for the S&P 500 versus 16.3% for the Russell 2000. In fact, this is the widest margin of outperformance by the S&P 500 since the Russell 2000's inception in 1979. COINCIDENTALLY, THE PREVIOUS TWO PERIODS OF SUBSTANTIAL SMALL-CAP, ONE-YEAR UNDERPERFORMANCE (APRIL '87 AND MAY '90) OCCURRED JUST PRIOR TO THE LAST TWO GENERAL MARKET DECLINES. Although periods of large-cap dominance are not unusual, the magnitude of the current outperformance is almost unprecedented. Over the last three and one-half calendar years, the S&P 500 has provided a 23.1% average annual total return versus 14.8% for the Russell 2000. While not matching the S&P 500, recent small-cap returns, as measured by the Russell 2000, are excellent in both the absolute and the historical contexts. It is hard to imagine how anyone who invested in a sector that produced average annual total returns for the one, five, ten and fifteen-year periods of 16.3%, 17.9%, 11.1% and 15.1%, respectively, would be disappointed. It is only through the lens of relative performance that one can find fault. 2 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 ...AND SO WAS VALUE Over the last twelve months, small-cap investors experienced greater volatility than in recent years. Increased volatility tends to benefit value investing, as evidenced by year-to-date and one-year performance results. Despite strong returns in May for growth stocks within the Russell 2000, sparked by a decline in interest rates in mid-April, value stocks within the small-cap index retained the performance edge that began in the second half of 1996. Through the first six months of 1997, the Russell 2000 Value Index was up 14.8% versus a gain of 5.2% for the Russell 2000 Growth Index. This performance disparity is even more evident when reviewing the last twelve months. We believe that the higher level of volatility will continue within the small-cap sector. This favors our value approach, which takes advantage of price fluctuations. WE ARE PLEASED TO REPORT SOLID ABSOLUTE AND RELATIVE SIX AND TWELVE-MONTH RESULTS. FOR A COMPLETE DISCUSSION OF HOW WE DID, INCLUDING BOTH PERFORMANCE AND PORTFOLIO DIAGNOSTICS, PLEASE SEE PAGES 8-13. SMALL-CAP AIN'T WHAT IT USED TO BE It has been documented by Ibbotson and Associates that small-cap companies have outperformed their larger counterparts by approximately 2% annually, on average, since 1926. This performance premium is known as the "small-cap effect." While this is not an every year occurrence and 2% per annum may not seem like much, the results are eye-popping when one compounds this differential over the last 70 years! Even though this performance rule of thumb is generally accepted, we believe that it can be misleading. The index utilized to calculate the small-cap effect includes only the "smallest" of small-cap companies, those in the 9th and 10th deciles of market capitalization. Today, this roughly equates to companies under $300 million in market capitalization. In contrast, the world has generally redefined small-cap to include companies under $1 billion. WHAT HAS BEEN LABELED A SMALL-CAP EFFECT SHOULD IN FACT NOW BE VIEWED AS A MICRO-CAP PHENOMENON. This has important implications for all investors. The case for two distinct markets--small and micro-cap--is apparent in other ways as well. The annual rebalancing of the Russell 2000 in June produced an estimated 30% increase in the index's weighted average market cap ($609 million versus $468 million at 6/30/96), and for the second year in a row, no companies with market caps below $100 million were included in the reconstituted index. Also, according to Morningstar, there are now over 500 small-cap mutual funds, totaling approximately $100 billion in assets. AS THE WORLD GETS SMALLER, SMALL-CAP STOCKS ARE GETTING BIGGER, AND MICRO-CAP STOCKS ARE GETTING MORE INTERESTING. NO SMOKE, NO MIRRORS Just recently, one of our children asked a question that parents often hear, "WHAT EXACTLY DO YOU DO?" This question is posed to us frequently by shareholders and investment advisers as well, and it often leads to more questions. We thought it would be useful to employ a "Q and A" format to communicate our core beliefs, which have been developed over the last 25 years, principally by Chuck Royce. [drawing of a man speaking to boy] Copyright 1997 John M. Melton THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 | 3 [SIDEBAR] Within the small-cap market ($300 million to $1 billion), we utilize a concentrated approach. We focus our efforts on identifying those forty to fifty companies that we believe will give us the absolute best performance in this slightly more efficient area. The micro-cap area (below $300 million) is really what the small-cap area was twenty years ago, in that these stocks represent the last frontier of domestic equity opportunity. We use a diversified approach because of liquidity constraints and the higher-than-usual volatility in this sector. [END SIDEBAR] [BEGIN PULL QUOTE] . . . an organized and intensive process that includes interviewing a company's customers, competitors and suppliers. This "detective work" universally is not done on Wall Street. [END PULL QUOTE] In the exchange that follows, Whitney George and Jack Fockler discuss some of these tenets. Whitney joined our firm six years ago as a "maitre d'" serving on the front line of our investment activity. Whitney's talent and steady contributions have enabled him to move to chef status as a portfolio manager in our "restaurant." Jack joined us eight years ago primarily working with clients. Jack's and Whitney's responsibilities have expanded into a central role; both are now managing directors. We hope this helps you become more familiar with our investment philosophy. WHAT DO YOU LOOK FOR IN A COMPANY? Essentially, we are interested in three things--strong balance sheets, strong evidence of success and strong prospects. Small and micro-cap entities can be very fragile; and, as a result, we look for companies that can survive during times that are difficult for their products or their particular industry as a whole. We maintain primary focus on internal returns: namely, return on assets and return on invested capital. Both measures provide a deeper insight into a company's health. In essence, we seek growing businesses that produce free cash flow. IS A COMPANY'S ANNUAL REPORT WORTH READING? One of the most important and under appreciated sources of information is the annual report. We are enthusiastic and diligent readers of annual reports and not just for the numbers. We look for the obvious and the not-so-obvious signals that a CEO or Chairman is sending in the various discussions. We look at what is being said and not said, and compare what we find to previous years' reports. Dog-eared annual reports are our standard. DO YOU CONSIDER THE QUANTITATIVE OR QUALITATIVE ASPECTS OF YOUR RESEARCH TO BE THE MOST IMPORTANT? While quantitative research remains the cornerstone of our process, it is the qualitative aspects that take on an increasingly important role. Information is readily available to everyone, so being the fastest reader or collector of documents no longer affords the advantage it once did. The non-quantitative effort is where we add value, and it is also the most fun. WHAT DO YOU WANT TO ACCOMPLISH WHEN YOU MEET WITH COMPANY MANAGEMENT TEAMS? We listen carefully to their plans, aspirations and dreams for the business. The research process begins as we assess their credibility and that of their plans. As careful investors, we must be able to trust management. HOW DO YOU CONFIRM THEIR ASPIRATIONS AND DREAMS? Management meetings are just a starting point. It's very important to be able to validate what we have been told. We [BEGIN PULL QUOTE] One of the most important and under appreciated sources of information is the annual report. [END PULL QUOTE] 4 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 do this through an organized and intensive process that includes interviewing a company's customers, competitors and suppliers. This "detective work" universally is not done on Wall Street. ARE THERE CERTAIN STANDARDS THAT YOU LOOK FOR WHEN YOU TALK TO MANAGEMENT? Honesty is paramount, both in actions and thought processes. We try to understand motivations and make certain management's intentions are consistent with ours. We look for confirmation of integrity in all corporate actions. We spend considerable time reviewing proxies for conflicts and governance issues that others often gloss over. HOW DO YOU FIND NEW IDEAS FOR THE PORTFOLIOS? We are open-minded and non-discriminating about how new ideas find their way into the firm. We think of ourselves as "shop-a-holics" when it comes to finding a new name, and we are prepared to talk to anyone or look anywhere to learn about an idea. This means shopping at Wall Street "supermarkets," regional firms and research boutiques. We even go to "garage sales" where there is no analytical coverage. But, at the end of the day, we are exceptionally discriminating about our purchases. DO YOU INVEST IN INITIAL PUBLIC OFFERINGS (IPOS)? We do significant analyses of IPOs, although this does not necessarily mean that we are significant investors. While IPOs represent a wonderful source of new ideas, our interest in them tends to be six to eighteen months following the initial offering, when the prices are more to our liking. DO YOU INVEST IN TECHNOLOGY STOCKS? While we believe the technology sector is a vibrant and important part of our economy, we view the investment opportunity somewhat differently. Most of the attention in this sector is on cutting-edge companies. While this is an exciting and potentially rewarding area, it is also very difficult. These companies tend to be consumers, not producers, of cash, and it's hard for us to feel comfortable that the financial characteristics we are looking for will be in place five years from now. Our preferred type of technology investment, while not on the front line, is able to deliver comparable growth without the inherent risk. Electronics distributors are a good example of a low-risk way to participate in what has historically been a high-risk sector. HOW DIFFICULT IS IT TO KEEP TRACK OF NAMES IN THE PORTFOLIOS? It is not as big a project as one might think. The business world does not change as rapidly as the stock market. While a company's stock price may change daily, earnings are only reported quarterly, and the balance sheet evolves even more slowly. We combine a running evaluation of these slower developments with a very disciplined and rigorous tracking process that continually focuses on the relationship of "private worth" to market price. [BEGIN PULL QUOTE] We spend considerable time reviewing proxies for conflicts and governance issues that others often gloss over. {END PULL QUOTE] [BEGIN PULL QUOTE] While IPOs represent a wonderful source of new ideas, our interest in them tends to be six to eighteen months following the initial offering, when the prices are more to our liking. [END PULL QUOTE] THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 | 5 [SIDEBAR] Value works because markets are cyclical. We think of ourselves as risk managers. It is not a fruitful idea to focus only on risk. We're committed to the idea of finding stocks that we believe can double in value over approximately a four-year time frame while keeping risk levels relatively low. [END SIDEBAR] HOW DO ROYCE ANALYSTS INTERACT WITH THE PORTFOLIO MANAGERS? We sit together in an open environment that encourages constant dialogue; there are no offices in which to hide. Our analysts generally work together in teams; multiple eyes reduce nearsightedness. They are not industry specialists, but generalists. This is in contrast to most firms, which organize their research effort around specific industries and designate analysts to cover narrow niches. The problem with industry analysts is that they tend to fall in love with their sectors. We want our analysts to be able to recognize good companies, regardless of sector. We require written records of our thought processes; this minimizes the human tendency to reinvent a story as circumstances change. HOW IMPORTANT IS TRADING EXECUTION? Execution is critical to successful small-cap investing because costs are higher than in the large-cap market. Indeed, spreads of 5% or more between a stock's bid and ask price are not uncommon. Daily trading volume is often low, demanding significant patience on the part of the trader/buyer. Many a good large-cap manager who ventures into the small and micro-cap universes becomes immediately frustrated by the trading nuances of the sector. We work hard at this part of our business and believe that our 20+ years of experience give us an edge. HOW DO YOU WEIGH YOUR OWN EVALUATIONS VERSUS THOSE OF OUTSIDE ANALYSTS? It's only through doing your own work that you're able to develop confidence and conviction. Much of Wall Street's research is directed toward those companies that provide opportunities for making money through trading or investment banking. While we use outside research, it is for general context purposes only. WHAT HAPPENS WHEN A STOCK THAT YOU LIKE GOES DOWN IN PRICE? This gives us a reason to go back and review the work to gain an understanding as to why the stock has declined. If we find we have missed something, then we re-evaluate how bad the situation is and how much is already reflected in the price. Hopefully, the outcome is higher conviction coinciding with a more attractive purchase price. We are not afraid to average down (buy more shares at lower prices) when our conviction level is in place. HOW DOES ONE AVOID UNDERPERFORMANCE? It's not clear that one can avoid underperformance in the short-run because the greatest opportunities come when conditions are at their worst. We try to address this by being realistic in terms of our holding period, which is generally four years on average, and by [BEGIN PULL QUOTE] Our analysts generally work together in teams; multiple eyes reduce nearsightedness. [END PULL QUOTE] [BEGIN PULL QUOTE] It's only through doing your own work that you're able to develop confidence and conviction. [END PULL QUOTE] 6 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 recognizing that this year's poor performer may be the stock that everyone wants to own several years later. Stock selection and performance are not related in the short-term. WHAT SHOULD BE EXPECTED FROM AN INVESTMENT MANAGER? Investors should look for a return that is reasonable and an approach that stresses absolute, not relative, performance goals. Although relative performance comparisons are useful, they should not drive the evaluation process; you cannot eat from the table of relative performance. We also think managers should communicate openly, sharing their successes, failures and expectations with their investors. [Drawing of The Road Ahead] Copyright 1997 John M. Melton [Photo of Fockler, George, Royce] Jack Fockler, Whitney George, Chuck Royce THE ROAD AHEAD While the last two and one-half calendar years have produced only one down quarter for small-cap stocks, there is plenty of evidence to suggest the road ahead will be different. Since May '96 volatility has been higher in the small and micro-cap sectors, usually a prelude to lower returns. We believe that active management and a value orientation are especially appropriate in this more volatile environment. Although large-cap stocks have been market leaders for over three years, we do not believe that this is a permanent condition. The market's preference for large and liquid securities will run its course as it has before. Although absolute returns for the market are likely to diminish following this extraordinary return period, we remain excited about near and long-term prospects for our risk-averse style of investing. Your continued confidence is appreciated. Sincerely, /s/ Charles M. Royce /s/ W. Whitney George /s/ Jack E. Fockler, Jr. Charles M. Royce W. Whitney George Jack E. Fockler, Jr. President Vice President Vice President July 25, 1997 - ------------------------------------------------------------------------------- We want to pay tribute to our friend and colleague, Tom Ebright, who passed away on July 14, 1997. For over sixteen years, Tom was a substantial contributor and valued partner of our firm. He is survived by his wife, Joyce, his two daughters, Jennifer and Ellen, and many shareholders and friends who knew and loved Tom. - ------------------------------------------------------------------------------- THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 | 7 ROYCE VALUE TRUST - -------------------------------------------------------------------------------- [SIDEBAR] WHAT WE DO ROYCE VALUE TRUST ("RVT") is a closed-end fund that invests primarily in small and micro-cap companies using a disciplined value approach. HOW WE DID ROYCE VALUE TRUST combined a solid first quarter start with a strong second quarter showing to conclude the first six months of 1997 up 13.1% on a NAV basis. This compares to returns of 10.2% and 11.6% for the small-cap oriented Russell 2000 and S&P 600, respectively. RVT also enjoyed a NAV performance edge over both indices in the one-year period (22.3% vs. 16.3% and 21.7%) as well. The Fund, with $497 million in assets, is the largest and oldest small-cap value closed-end fund. Average annual NAV total return for the 10+ years that we have managed the Fund was 13.3%, ahead of both the Russell 2000 (12.4%) and the S&P 600 (11.3%), respectively. Since the small-cap sector has always been more volatile, we believe that paying attention to risk is critical to delivering above average, long-term returns. Risk is typically evaluated in terms of uncertainty, which measures fund volatility through standard deviation and beta, and also in terms of possibility of loss, which measures actual down market performance. RVT's risk-averse orientation has resulted in low risk rankings and superior NAV down market performance versus small-cap indices. [END SIDEBAR]
NAV TOTAL RETURNS THROUGH 6/30/97 ==================================== 1997 (through 6/30) 13.1% - ------------------------------------ 1-Year 22.3% - ------------------------------------ 3-Year Average Annual 18.3% - ------------------------------------ 5-Year Average Annual 16.8% - ------------------------------------ 10-Year Average Annual 13.0% - ------------------------------------ Since Inception* 13.3% Average Annual - ------------------------------------
*Inception date was 11/26/86. DOWN MARKET PERFORMANCE COMPARISON (ALL DOWN PERIODS OF 7.5% OR GREATER) IN PERCENTAGES (%) [BAR GRAPH]
================================================ RVT (NAV) Russell 2000 8/25/87 - 10/28/87 -26.6 -39.2 - ------------------------------------------------ 10/9/89 - 10/30/90 -22.0 -34.3 - ------------------------------------------------ 2/12/92 - 7/8/92 -2.1 -12.6 - ------------------------------------------------ 3/18/94 - 12/9/94 -5.3 -13.3 - ------------------------------------------------ 5/22/96 - 7/24/96 -6.6 -15.6 - ------------------------------------------------ 1/22/97 - 4/25/97 -3.1 -9.2 - ------------------------------------------------
Royce Value Trust's risk-averse investment orientation has resulted in strong relative returns in down markets. [ ] RVT (NAV) [ ] Russell 2000 RISK/RETURN COMPARISON TEN-YEAR PERIOD ENDED 6/30/97
Average Annual Standard Total Return Deviation RUR ======================================================== RVT (NAV) 13.0% 12.2 1.07 - -------------------------------------------------------- S&P 600 10.7% 18.1 0.59 - -------------------------------------------------------- Russell 2000 11.1% 18.1 0.62 - --------------------------------------------------------
Over the last ten years, ROYCE VALUE TRUST HAS OUTPERFORMED THE S&P 600 AND RUSSELL 2000 on BOTH an absolute and a risk-adjusted basis. RVT Market Price - Actual vs. Adjusted* Mkt Price Total Returns From Incept. = 190.1% 10 Years = 209.5% 5 Years = 93.4% 3 Years = 51.4% [LINE CHART]
Actual Adjusted Actual Adjusted Actual Adjusted Market Market Market Market Market Market Price Price Price Price Price Price ======================================================================================================= 11/26/86 10.00 10.00 6/30/90 9.63 11.61 3/31/94 12.25 19.16 12/31/86 9.88 9.88 9/30/90 7.88 9.53 6/30/94 12.25 19.16 3/31/87 9.63 9.63 12/31/90 8.13 10.23 9/30/94 12.00 18.76 6/30/87 9.38 9.37 3/31/91 10.38 13.05 12/31/94 11.00 19.00 9/30/87 9.25 9.25 6/30/91 10.00 12.58 3/31/95 11.38 19.65 12/31/87 6.75 7.26 9/30/91 9.88 12.46 6/30/95 12.00 20.73 3/31/88 8.13 8.73 12/31/91 10.38 13.83 9/30/95 13.50 23.33 6/30/88 8.63 9.27 3/31/92 11.50 15.33 12/31/95 11.88 22.91 9/30/88 8.88 9.54 6/30/92 11.25 15.00 3/31/96 12.25 23.63 12/31/88 8.13 9.25 9/30/92 11.38 15.19 6/30/96 12.38 23.87 3/31/89 8.88 10.10 12/31/92 12.25 17.54 9/30/96 12.63 24.35 6/30/89 9.25 10.53 3/31/93 13.00 18.61 12/31/96 12.63 26.64 9/30/89 9.63 10.99 6/30/93 13.13 18.79 3/31/97 11.75 24.79 12/31/89 9.50 11.46 9/30/93 13.75 19.75 6/30/97 $13.75 $29.01 3/31/90 $9.25 $11.16 12/31/93 $12.88 $20.13 - ---------------------------------
[RULE] Actual Market Price [RULE] Adjusted Market Price *Reflects market price total return experience of a continuous shareholder who reinvested all distribution and fully participated in primary rights offerings. This graph illustrates the market price change from IPO of $10 per share on 11/26/86. THE REGULAR REINVESTMENT OF DISTRIBUTIONS HAS HAD A SIGNIFICANT IMPACT ON STOCKHOLDER RETURNS. 8 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 PERFORMANCE & PORTFOLIO REVIEW - --------------------------------------------------------------------------------
PORTFOLIO DIAGNOSTICS ============================================ Median Market Cap $298 million - -------------------------------------------- Weighted Average P/E Ratio 15.5x - -------------------------------------------- Weighted Average P/B Ratio 1.6x - -------------------------------------------- Weighted Average Yield 1.2% - -------------------------------------------- Net Assets $497 million - -------------------------------------------- Turnover Rate 12% - -------------------------------------------- Net Leverage 10% - -------------------------------------------- Symbol RVT - --------------------------------------------
The Fund's P/E and P/B ratios remained low.
TOP TEN POSITIONS % OF NET ASSETS ============================================ 1. Stanhome 1.2 - -------------------------------------------- 2. Wesco Financial 1.2 - -------------------------------------------- 3. PXRE Corporation 1.1 - -------------------------------------------- 4. Marshall Industries 1.0 - -------------------------------------------- 5. MacDermid 1.0 - -------------------------------------------- 6. Florida Rock Industries 1.0 - -------------------------------------------- 7. Trenwick Group 1.0 - -------------------------------------------- 8. Ash Grove Cement Company Cl. B 0.9 - -------------------------------------------- 9. Woodward Governor Company 0.9 - -------------------------------------------- 10. Alleghany Corporation 0.9 - --------------------------------------------
PORTFOLIO INDUSTRY BREAKDOWN % OF NET ASSETS* ============================================ Industrial Products 23 - -------------------------------------------- Financial Intermediaries 17 - -------------------------------------------- Consumer Products 16 - -------------------------------------------- Industrial Services 13 - -------------------------------------------- Technology 8 - -------------------------------------------- Financial Services 7 - -------------------------------------------- Retail 5 - -------------------------------------------- Natural Resources 4 - -------------------------------------------- Consumer Services 4 - -------------------------------------------- Health 3 - --------------------------------------------
*Excludes cash and cash equivalents.
GOOD IDEAS THAT WORKED ============================================ REALIZED AND SECURITY UNREALIZED GAIN - -------------------------------------------- Wesco Financial $2,746,152 - -------------------------------------------- MacDermid 2,115,514 - -------------------------------------------- Merrill Corporation 1,334,825 - -------------------------------------------- Electroglas 1,168,757 - -------------------------------------------- Rykoff-Sexton 1,105,509 - --------------------------------------------
During 1997's first half, the above companies made the largest positive contributions, in dollar terms, to our overall performance. Among these winners, there were no examples of hot new issues, high-priced takeovers or momentum miracles. Rather, our top five performers emerged from a series of long-term investment decisions. We built our positions when business conditions were difficult and other investors had voted negatively on future prospects.
GOOD IDEAS AT THE TIME ============================================ REALIZED AND SECURITY UNREALIZED LOSS - -------------------------------------------- Midwest Grain Products $708,363 - -------------------------------------------- The Rival Company 654,194 - -------------------------------------------- Farmer Bros. 552,097 - -------------------------------------------- Lifetime Hoan Corporation 410,844 - -------------------------------------------- Catherines Stores Corporation 371,700 - --------------------------------------------
Even the best small-cap companies can have periods of declining performance. We believe if their balance sheets are strong and they have a history of high internal returns, these companies will recover. We are generally well-rewarded for our persistence, although market price rebounds can take longer than we anticipated. Occasionally, we elect to redeploy the assets into other opportunities. The above companies had the largest negative impact on the Fund's performance in the first half of 1997. THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 | 9 ROYCE MICRO-CAP TRUST - -------------------------------------------------------------------------------- [SIDEBAR] WHAT WE DO ROYCE MICRO-CAP TRUST ("OTCM") is a closed-end fund that uses a disciplined value approach to invest primarily in companies with market capitalizations below $300 million. The buying opportunities in this sector have more potential for higher returns than any other in the domestic equity market due to limited institutional attention and research coverage. HOW WE DID After more than holding its own in the difficult first quarter, ROYCE MICRO-CAP TRUST enjoyed a strong second quarter and finished the first half up 11.9% on a NAV basis. This compares to a 10.2% total return for the Russell 2000 index of small-cap companies for the same time period. OTCM also enjoyed a NAV performance edge over this small-cap index in the one-year (17.6% vs. 16.3%) and since inception (16.2% vs. 15.7%) periods as well. The Fund, with $128 million in net assets at June 30, remains the only closed-end micro-cap fund. We strongly believe that managing risk is a key component to delivering above average returns in this volatile sector of the small cap market. Risk is typically evaluated in terms of uncertainty, which measures fund volatility through standard deviation and beta, and also in terms of possibility of loss, which measures actual down market performance. Royce Micro-Cap Trust's risk-averse orientation has resulted in low risk rankings and solid down market performance versus the Russell 2000. On July 2, 1997, the Fund issued 1,600,000 shares of 7.75% Cumulative Preferred Stock, at $25 per share. The shares are listed on the American Stock Exchange and began trading on July 10th. A prospectus is available by calling the Fund's office at (800) 221-4268. [END SIDEBAR]
NAV TOTAL RETURNS THROUGH 6/30/97 ============================================ 1997 (through 6/30) 11.9% - -------------------------------------------- 1-Year 17.6% - -------------------------------------------- 3-Year Average Annual 18.9% - -------------------------------------------- Since Inception (12/14/93) 16.2% Average Annual - --------------------------------------------
DOWN MARKET PERFORMANCE COMPARISON (ALL DOWN PERIODS OF 7.5% OR GREATER) IN PERCENTAGES (%) [BAR GRAPH]
========================================== Royce Micro-Cap Russell 2000 2/12/92 - 7/8/92 -1.5 -12.6 - ------------------------------------------ 3/18/94 - 12/9/94 -4.4 -13.3 - ------------------------------------------ 5/22/96 - 7/24/96 -8.7 -15.6 - ------------------------------------------ 1/22/97 - 4/25/97 -5.1 -9.2 - ------------------------------------------
Royce Micro-Cap's risk-averse investment orientation has resulted in strong relative returns in down markets. [ ] Royce Micro-Cap [ ] Russell 2000 RISK/RETURN COMPARISON FROM INCEPTION (12/14/93) THROUGH 6/30/97
Average Annual Standard Total Return Deviation RUR ======================================================= OTCM (NAV) 16.2% 8.6 1.89 - ------------------------------------------------------- Russell 2000 15.7% 13.1 1.20 - -------------------------------------------------------
Since its inception, ROYCE MICRO-CAP TRUST HAS OUTPERFORMED THE RUSSELL 2000 on BOTH an absolute and a risk-adjusted basis. OTCM Market Price - Actual vs. Adjusted* Mkt Price Total Returns From Incept. = 41.2% 3 Years = 56.8% 1 Year = 15.3% [LINE CHART]
Actual Adjusted Market Market Price Price ================================== 12/14/93 7.50 7.50 6.50 6.50 6/30/94 6.75 6.75 7.00 7.00 12/31/94 7.00 7.11 6.88 6.98 6/30/95 7.38 7.49 8.38 8.51 12/31/95 8.00 8.52 7.75 8.25 6/30/96 8.63 9.18 8.00 8.52 12/31/96 8.25 9.71 7.63 8.97 6/30/97 9.00 10.59 - ----------------------------------
[RULE] Actual Market Price [RULE] Adjusted Market Price *Reflects market price total return experience of a continuous shareholder who reinvested all distribution and fully participated in the 1994 rights offering. This graph illustrates the market price change from IPO of $7.50 per share on 12/14/93. THE REGULAR REINVESTMENT OF DISTRIBUTIONS HAS HAD A SIGNIFICANT IMPACT ON STOCKHOLDER RETURNS. 10 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 PERFORMANCE & PORTFOLIO REVIEW - -------------------------------------------------------------------------------
PORTFOLIO DIAGNOSTICS ============================================ Median Market Cap $146 million - -------------------------------------------- Weighted Average P/E Ratio 14.3x - -------------------------------------------- Weighted Average P/B Ratio 1.6x - -------------------------------------------- Weighted Average Yield 1.1% - -------------------------------------------- Net Assets $128 million - -------------------------------------------- Turnover Rate 18% - -------------------------------------------- Symbol OTCM - --------------------------------------------
The Fund's P/E and P/B ratios remained low.
TOP TEN POSITIONS % OF NET ASSETS ============================================ 1. Matthews International Cl. A 1.5 - -------------------------------------------- 2. PXRE Corporation 1.5 - -------------------------------------------- 3. Florida Rock Industries 1.5 - -------------------------------------------- 4. Chemfab Corporation 1.3 - -------------------------------------------- 5. Duff & Phelps Credit Rating 1.3 - -------------------------------------------- 6. New England Business Service 1.2 - -------------------------------------------- 7. Sevenson Environmental Services 1.2 - -------------------------------------------- 8. Velcro Industries 1.2 - -------------------------------------------- 9. Simpson Manufacturing Co. 1.2 - -------------------------------------------- 10. Bassett Furniture Industries 1.2 - --------------------------------------------
PORTFOLIO INDUSTRY BREAKDOWN % OF NET ASSETS* ============================================ Industrial Products 24 - -------------------------------------------- Consumer Products 21 - -------------------------------------------- Industrial Services 14 - -------------------------------------------- Technology 12 - -------------------------------------------- Financial Intermediaries 12 - -------------------------------------------- Financial Services 6 - -------------------------------------------- Retail 6 - -------------------------------------------- Natural Resources 3 - -------------------------------------------- Consumer Services 2 - -------------------------------------------- Health 1 - --------------------------------------------
*Excludes cash and cash equivalents.
GOOD IDEAS THAT WORKED ============================================ REALIZED AND SECURITY UNREALIZED GAIN - -------------------------------------------- Willbros Group $592,076 - -------------------------------------------- Chemfab Corporation 564,900 - -------------------------------------------- Weyco Group 533,250 - -------------------------------------------- Matthews International Cl. A 437,250 - -------------------------------------------- Oshkosh B'Gosh Cl. A 432,267 - --------------------------------------------
During 1997's first half, the above companies made the largest positive contributions, in dollar terms, to our overall performance. Among these winners, there were no examples of hot new issues, high-priced takeovers or momentum miracles. Rather, our top five performers emerged from a series of long-term investment decisions. We built our positions when business conditions were difficult and other investors had voted negatively on future prospects.
GOOD IDEAS AT THE TIME ============================================ REALIZED AND SECURITY UNREALIZED LOSS - -------------------------------------------- Rush Enterprises $383,875 - -------------------------------------------- Catherines Stores Corporation 257,950 - -------------------------------------------- Guy F. Atkinson Company 237,725 - -------------------------------------------- Lifetime Hoan Corporation 231,923 - -------------------------------------------- The Rival Company 224,634 - --------------------------------------------
Even the best small-cap companies can have periods of declining performance. We believe if their balance sheets are strong and they have a history of high internal returns, these companies will recover. We are generally well-rewarded for our persistence, although market price rebounds can take longer than we anticipated. Occasionally, we elect to redeploy the assets into other opportunities. The above companies had the largest negative impact on the Fund's performance in the first half of 1997. THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 | 11 ROYCE GLOBAL TRUST - ------------------------------------------------------------------------------- [SIDEBAR] WHAT WE DO ROYCE GLOBAL TRUST ("RGT") is a closed-end fund that invests primarily in a limited number of domestic and foreign companies, selected using a value approach. While it is not restricted as to stock market capitalization, Royce focuses the Fund's investments primarily in small-cap companies with significant business activities in the United States. Normally, at least 65% of the assets will be invested in the securities of companies of at least three countries, including the United States. HOW WE DID ROYCE GLOBAL TRUST continued its winning ways into 1997. The Fund, which was up 4.5% on a NAV total return basis in our first two months of management, concluded the first six months of 1997 with a 15.2% NAV gain. This compares favorably to the Russell 2000 index of small-cap, companies which was up 10.2%. The Morgan Stanley World Index was up 15.4% for the same period. RGT's NAV is up 20.5% since November 1, 1996, the day we assumed investment management responsibility. The Fund's small-cap focus is an area of the market we know well and one where we believe investment opportunities are more plentiful. We waived our management fee until RGT's market price (adjusted for distributions) closed at or above $5.28 (the NAV on 10/31/96) for 20 consecutive trading days. This condition was satisfied on August 20, 1997. We are enthused about the early results and remain committed to the Fund's long term success. [END SIDEBAR] NAV TOTAL RETURNS THROUGH 6/30/97 ============================================ 1997 (through 6/30) 15.2% - -------------------------------------------- 1-Year 21.8% - -------------------------------------------- 10/31/96-6/30/97* 20.5% - --------------------------------------------
*Royce & Associates assumed investment management responsibility for the Fund on 11/1/96. Royce Global Trust (Line Graph) Market Price - 6/21/96 - 6/30/97**
Total Return for Period = 23.1% $5.00 ============================================ 6/20/96 4.16 - -------------------------------------------- 7/31/96 4.19 - -------------------------------------------- 9/30/96 4.13 - -------------------------------------------- 11/30/96 4.66 - -------------------------------------------- 1/31/97 4.75 - -------------------------------------------- 3/31/97 4.88 - -------------------------------------------- 6/30/97 5.00 - --------------------------------------------
**On 6/21/96, Royce & Associates formally announced its intention to assume investment management for the Fund. RGT'S OFFICERS INCREASED OWNERSHIP COMMITMENT An additional 63,700 RGT shares were purchased by the Fund's officers during the second quarter. Total officer ownership: 600,300 shares or 7.5% of the outstanding stock of the Fund. We believe it is important to have our capital invested side by side with yours. 12 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 PERFORMANCE & PORTFOLIO REVIEW ------------------------------------------------------------------------------- PORTFOLIO DIAGNOSTICS ============================================ Median Market Cap $518 million - -------------------------------------------- Weighted Average P/E Ratio 11.5x - -------------------------------------------- Weighted Average P/B Ratio 1.9x - -------------------------------------------- Weighted Average Yield 0.7% - -------------------------------------------- Turnover Rate 34% - -------------------------------------------- Top 3 Countries: US (71%), Canada (8%), U.K. (6%) - -------------------------------------------- Net Assets $51 million - -------------------------------------------- Symbol FUND - --------------------------------------------
The Fund's P/E and P/B ratios remained low. TOP TEN POSITIONS % OF NET ASSETS ============================================ 1. Velcro Industries 2.6 - -------------------------------------------- 2. Stanhome 2.6 - -------------------------------------------- 3. Marshall Industries 2.5 - -------------------------------------------- 4. Stone & Webster 2.5 - -------------------------------------------- 5. Leucadia National Corporation 2.4 - -------------------------------------------- 6. PXRE Corporation 2.2 - -------------------------------------------- 7. The Pioneer Group 2.2 - -------------------------------------------- 8. Willis Corroon Group ADR 2.1 - -------------------------------------------- 9. Trenwick Group 2.1 - -------------------------------------------- 10. Willbros Group 2.1 - --------------------------------------------
PORTFOLIO INDUSTRY BREAKDOWN % OF NET ASSETS* ============================================ Industrial Services 19 - -------------------------------------------- Industrial Products 17 - -------------------------------------------- Consumer Products 14 - -------------------------------------------- Financial Services 13 - -------------------------------------------- Financial Intermediaries 10 - -------------------------------------------- Retail 9 - -------------------------------------------- Technology 6 - -------------------------------------------- Consumer Services 5 - -------------------------------------------- Health 4 - -------------------------------------------- Natural Resources 3 - --------------------------------------------
*Excludes cash and cash equivalents. GOOD IDEAS THAT WORKED
============================================ REALIZED AND SECURITY UNREALIZED GAIN - -------------------------------------------- Willbros Group $422,749 - -------------------------------------------- MacKenzie Financial 330,611 - -------------------------------------------- Velcro Industries 315,900 - -------------------------------------------- Oakley 312,322 - -------------------------------------------- Stone & Webster 295,475 - --------------------------------------------
During 1997's first half, the above companies made the largest positive contributions, in dollar terms, to our overall performance. Among these winners, there were no examples of hot new issues, high-priced takeovers or momentum miracles. Rather, our top five performers emerged from a series of decisions consistent with our long-term investment orientation. Positions were built when market prices were low, reflecting differing opinions on future prospects. GOOD IDEAS AT THE TIME
============================================ REALIZED AND SECURITY UNREALIZED LOSS - -------------------------------------------- Semi-Tech Corporation Cl. A $266,250 - -------------------------------------------- Groupe AB ADR 259,710 - -------------------------------------------- InterTAN 109,298 - -------------------------------------------- Wellington Underwriting 108,663 - -------------------------------------------- Standard Commercial 77,467 - --------------------------------------------
Even the best small-cap companies can have periods of declining performance. We believe if their balance sheets are strong and they have a history of high internal returns, these companies will recover. We are generally well-rewarded for our persistence, although market price rebounds can take longer than we anticipated. Occasionally, we elect to redeploy the assets into other opportunities. The above companies had the largest negative impact on the Fund's performance in the first half of 1997. THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 | 13 HISTORY SINCE INCEPTION - ------------------------------------------------------------------------------- The following table details the share accumulations by an initial investor in the Funds who reinvested all distributions (including fractional shares) and participated fully in primary subscriptions for each of the rights offerings. Full participation in distribution reinvestments and rights offerings maximizes the returns available to an investor. This table should be read in conjunction with the Performance Reviews of the Funds.
AMOUNT PURCHASE NAV MKT HISTORY INVESTED PRICE SHARES VALUE* VALUE* ------- -------- -------- ------ ------ ------ ROYCE VALUE TRUST 11/28/86 Initial Purchase $10,000 $10.000 1,000 $ 9,280 $10,000 10/15/87 Distribution $.30 7.000 42 12/31/87 Distribution $.22 7.125 32 8,578 7,250 12/27/88 Distribution $.51 8.625 63 10,529 9,238 9/22/89 Rights Offering 405 9.000 45 12/29/89 Distribution $.52 9.125 67 12,942 11,866 9/24/90 Rights Offering 457 7.375 62 12/31/90 Distribution $.32 8.000 52 11,713 11,074 9/23/91 Rights Offering 638 9.375 68 12/31/91 Distribution $.61 10.625 82 17,919 15,697 9/25/92 Rights Offering 825 11.000 75 12/31/92 Distribution $.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 - ----------------------------------------------------------------------------------------------------- 6/30/97 $16,322 2,878 $46,595 $39,573 - ----------------------------------------------------------------------------------------------------- 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 $.05 6.750 9 9,163 8,462 12/7/95 Distribution $.36 7.500 58 11,264 10,136 12/6/96 Distribution $.80 7.625 133 13,132 11,550 - ----------------------------------------------------------------------------------------------------- 6/30/97 $ 8,900 1,400 $14,700 $12,600 - ----------------------------------------------------------------------------------------------------- ROYCE GLOBAL TRUST 10/31/96 Initial Purchase $ 4,375 $ 4.375 1,000 $ 5,280 $ 4,375 12/31/96 5,520 4,594 - ----------------------------------------------------------------------------------------------------- 6/30/97 $ 4,375 1,000 $ 6,360 $ 5,000 - -----------------------------------------------------------------------------------------------------
* Other than for initial purchase and 6/30/97, values are stated as of December 31 of the year indicated, after reinvestment of distributions. THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 | 14 DISTRIBUTION REINVESTMENT AND CASH PURCHASE OPTIONS FOR COMMON STOCKHOLDERS - --------------------------------------------------------------------------- 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 because his interest is diluted through the issuance of new shares. HOW DOES THE REINVESTMENT OF DISTRIBUTIONS FROM THE ROYCE CLOSED-END FUNDS WORK? Simply put, it works by the Funds automatically issuing shares in payment of distributions unless you indicate to the contrary. 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 State Street in writing. A registered stockholder also has the option to receive the distribution in the form of a stock certificate or in cash if State Street is properly notified. WHAT IF MY SHARES ARE HELD BY A BROKERAGE FIRM OR A BANK? If your shares are held in the name of 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 State Street on a monthly basis, and to deposit certificates representing your Fund shares with the State Street for safekeeping. The Funds' investment adviser is absorbing all commissions on optional cash purchases under the Plans through December 31, 1998. HOW DO THE PLANS WORK FOR REGISTERED STOCKHOLDERS? State Street 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 State Street in non-certificated form in the name of the participant, and each participant will be able to vote those shares at a shareholder meeting or by proxy. A participant may also send other stock certificates held by them to State Street 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, State Street 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 Investor Services representatives at (800) 221-4268 or you can request a copy of the Plan for your Fund from State Street. All correspondence (including notifications) should be directed to: [Name of Fund] Distribution Reinvestment and Cash Purchase Plan, c/o State Street Bank and Trust Company, PO Box 8200, Boston, MA 02266-8200, telephone (800) 426-5523. 15 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 UPDATES & NOTES TO PERFORMANCE AND RISK INFORMATION - ------------------------------------------------------------------------------- [graphic of a computer monitor displaying words THE ROYCE FUNDS] THE ROYCE FUNDS UNVEILS AN UPDATED WEB SITE We want to draw your attention to our newly enhanced internet web site (www.roycefunds.com) where you can find out more about our small and micro-cap open-end and closed-end fund offerings, obtain the most recent quarterly performance, and review recent articles and Fund write-ups as well as up-to-the minute topics. ROYCE & ASSOCIATES, INC. NAME CHANGE (FORMERLY QUEST ADVISORY CORP.) We recently announced a name change of the Funds' Investment Adviser, from Quest Advisory Corp. to Royce & Associates, Inc. The new name change more closely identifies the name of the Adviser with that of the Funds that it manages and recognizes the important contributions of the Adviser's associates. NOTES TO PERFORMANCE AND RISK INFORMATION All performance information is presented on a total return basis and reflects the reinvestment of distributions. Past performance is no guarantee of future results. Share prices will fluctuate, so that shares may be worth more or less than their original cost when sold. Beta and standard deviation are measures of a fund's relative risk and are calculated for the trailing 36-month period. Beta is a measure of sensitivity to market movements compared to the unmanaged S&P 500 index, with the beta of the S&P 500 equal to 1.00. A low beta means that a fund's market related volatility has been low. Standard deviation is a statistical measure within which a fund's total returns have varied over time. The greater the standard deviation, the greater a fund's volatility. The indices referred to in this report are unmanaged indices of common stocks. 16 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 [SIDEBAR] So while the "bulls" of both basketball and the market may reach dazzling new heights this year, we will continue to hone our approach and emphasize building returns over the long term. [END SIDEBAR] POSTSCRIPT - ------------------------------------------------------------------------------- [graphic of basketball between a pair of hands] ALL THAT JAZZ This year's National Basketball Association Championship Finals pitted the high-flying exploits of Michael Jordan and the Chicago Bulls against the Utah Jazz. The appearance this year of the Jazz represented the culmination of over a decade's work for two of the game's premier players, John Stockton and league MVP Karl Malone. To achieve a consistent level of success, these two players have relied on a style of play that is the complete antithesis of Jordan & Co.'s acrobatic airborne style. The Jazz are patient; they rely on the fundamentals of intelligent ballhandling and passing, smart shot selection and tough defense. Their two stalwarts, Stockton & Malone, specialize in one of basketball's oldest and most reliable plays, the pick and roll. Stockton dribbles the ball toward the 6'10" Malone, who sets the "pick," standing in the way of the player defending the smaller, quicker Stockton, in effect taking that opponent out of the play. Malone then "rolls" toward the basket to receive a pass from Stockton and make an easy score. This formula has been confounding the team's opponents for years, in spite of the fact that every team the Jazz plays knows what is coming. The key to the duo's success lies in their execution, in their ability to master a fundamentally sound approach. You might describe the fundamental approach we bring to small-cap value investing as our version of the pick and roll. Whether in basketball or stock selection, each approach hinges on two elements working closely in sync with one another to achieve success. We employ the "pick" on small-cap stocks with the "roll" toward a disciplined value approach. Consistent application over the years may have made what we do predictable, but we have been no less successful for being so. For over twenty years, we have emphasized the fundamentals of investing when looking for small company stocks. As value investing continues to "score points" with solid returns in 1997, we are witnessing what looks like a return to a period of higher volatility. This environment gives us the "home-court advantage," as a more volatile market demands active management and closer attention to risk factors. The importance we place on a company's financial characteristics at the time of purchase is the essential element to our risk-averse value approach. Why Value Investors Rely on THE ROYCE FUNDS ^ ONE OF THE MOST WELL-RESPECTED AND OLDEST SMALL-CAP INVESTMENT MANAGERS WITH A VALUE ORIENTATION -- We are an independent small-cap manager with over 20 years of investment management experience. Based in New York, ROYCE has more than $2 billion in total assets under management -- all focused on small and micro-cap value investing. We offer a full range of small-cap, open-end mutual funds and closed-end funds, providing investors and advisors with a wide variety of small-cap alternatives. ^ DEDICATED PROFESSIONALS WITH A SINGULAR FOCUS -- Over the last 20 years, we have built substantial trading and research relationships in an attempt to provide stockholders with the best possible small-cap portfolios available. Our time-tested investment approach is supported by 12 professionals. Charles M. Royce, Chief Investment Officer, remains the primary portfolio manager. ^ REALISTIC EXPECTATIONS AND CONSISTENT RESULTS -- ROYCE VALUE TRUST and ROYCE MICRO-CAP TRUST are consistently ranked among the "lowest risk" domestic equity closed-end funds available. We offer a systematic and disciplined investment approach that avoids style and capitalization drift. All the funds seek to provide above average full market cycle total returns with below average risk. ^ CO-OWNERSHIP OF FUNDS -- We believe it is important for our employees' financial interests to be congruent with our stockholders' financial interests. The Firm's officers and employees currently have more than $30 million invested in the Funds. VALUE INVESTING IN SMALL COMPANIES FOR OVER 20 YEARS ----------------- For General Information, Adviser Services Additional Report Copies For Fund Material, Performance Updates, (800) 221-4268 (800) 59-ROYCE (597-6923) Stockholder Services (800) 426-5523 State Street Bank and Trust Company E-mail: funds@roycenet.com Custodian, Transfer Agent and Registrar Web address: www.roycefunds.com 1-800-426-5523 The Royce Funds 1414 Avenue of the Americas New York, NY 10019 Royce Value Trust Financial Statements June 30, 1997 [THIS PAGE INTENTIONALLY LEFT BLANK] ROYCE VALUE TRUST, INC. - ------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS JUNE 30, 1997 (UNAUDITED) - ------------------------------------------------------------------------------- COMMON STOCKS -- 94.9% SHARES VALUE ------ ----- CONSUMER PRODUCTS -- 14.6% [dbldag]Allen Organ Company Cl. B 67,769 $ 2,702,289 Bassett Furniture Industries 120,087 3,399,963 Burnham Corporation Cl. A 32,600 1,173,600 Burnham Corporation Cl. B 18,000 648,000 Conso Products Co.* 117,375 1,437,844 A.T. Cross Company Cl. A 23,700 302,175 Ethan Allen Interiors 46,500 2,650,500 Farmer Bros. 24,100 3,060,700 First Years 68,072 1,446,530 Flexsteel Industries 91,400 1,073,950 Fossil* 10,000 177,500 Garan Incorporated 140,300 2,823,538 Gibson Greetings* 92,600 2,083,500 Hershey Creamery Company 643 1,086,670 J & J Snack Foods Corp.* 52,200 802,575 Johnson Worldwide Associates Cl. A* 193,300 2,488,737 Juno Lighting 132,200 2,148,250 K-Swiss Cl. A 177,900 2,801,925 La-Z-Boy 9,400 338,400 Lazare Kaplan International* 117,600 1,969,800 Lifetime Hoan Corporation* 212,669 1,860,854 Marisa Christina* 189,000 1,771,875 Matthews International Cl. A 54,700 1,996,550 Midwest Grain Products* 222,650 2,950,113 National Presto Industries 17,600 709,500 Oshkosh B'Gosh Cl. A 82,300 1,790,025 The Rival Company 118,500 1,747,875 Seaboard Corporation 4,050 1,069,200 Seattle FilmWorks* 126,787 1,521,444 Skyline Corporation 133,400 3,284,975 The L. S. Starrett Company Cl. A 73,700 2,349,187 Steck-Vaughn Publishing* 55,919 754,907 Sturm, Ruger & Company 130,500 2,561,062 Thomaston Mills Cl. A 160,400 1,503,750 Thor Industries 133,300 3,315,838 The Topps Company* 518,100 2,169,544 Velcro Industries 52,600 4,313,200 WLR Foods 20,105 163,353 Weyco Group 30,200 1,963,000 ------------ 72,412,698 ------------ CONSUMER SERVICES -- 3.0% Bowl America Cl. A 55,100 392,588 Buffets* 224,550 1,894,641 Comair Holdings 81,000 2,242,687 Jenny Craig* 161,600 1,121,100 Grey Advertising 13,417 4,427,610 International Dairy Queen Cl. A* 101,200 2,428,800 Shoney's* 182,300 1,082,406 True North Communications 58,000 1,435,500 ------------ 15,025,332 ------------ FINANCIAL INTERMEDIARIES -- 16.4% Alleghany Corporation* 20,505 4,459,838 ALLIED Group 94,125 3,576,750 SHARES VALUE ------ ----- ALLIED Life Financial 94,000 $ 1,856,500 BHI Corporation 53,700 1,181,400 Baker, Fentress & Company 66,102 1,305,514 Baldwin & Lyons Cl. B 126,000 2,850,750 Capitol Transamerica 120,075 3,272,044 The Commerce Group 130,018 3,201,693 The First National Bank of Anchorage 1,050 1,884,750 Fremont General Corporation 54,750 2,203,688 Fund American Enterprises Holdings 7,500 787,500 Gryphon Holdings* 143,800 2,228,900 Highlands Insurance Group* 128,000 2,576,000 Independence Holding Company 56,664 570,181 Intercargo Corporation 143,100 1,681,425 Keystone Heritage Group 13,615 428,022 Lawyers Title 117,500 2,217,813 Legg Mason 10,000 538,125 Leucadia National Corporation 109,300 3,381,469 Markel Corporation* 4,200 537,600 The Mechanics Bank 200 1,520,000 Medical Assurance* 47,696 1,937,650 NYMAGIC 57,100 1,177,687 National Bancorp of Alaska 34,270 2,895,815 Nobel Insurance 119,500 1,777,563 Oriental Financial Group 54,720 1,545,840 Orion Capital Corporation 44,687 3,295,666 PXRE Corporation 178,710 5,495,332 Pennsylvania Manufacturers Cl. A 197,400 3,059,700 Piper Jaffray Companies 93,800 1,922,900 RLI Corp. 19,250 701,422 Raymond James Financial 5,000 136,875 Titan Holdings 40,516 962,255 Trenwick Group 125,850 4,719,375 Wesco Financial 17,800 5,789,450 Zenith National Insurance 139,200 3,758,400 ------------ 81,435,892 ------------ FINANCIAL SERVICES -- 6.4% E.W. Blanch Holdings 105,900 2,826,206 Crawford & Company Cl. A 155,250 2,386,969 Crawford & Company Cl. B 75,300 1,223,625 Eaton Vance Corp. 111,800 3,109,438 Erie Indemnity Company Cl. A 6,500 255,125 Arthur J. Gallagher & Co. 96,900 3,657,975 Hilb, Rogal & Hamilton 202,475 3,442,075 Investors Financial Services 39,059 1,855,302 The John Nuveen Company Cl. A 21,400 668,750 New England Investment Companies, L.P. 59,500 1,539,563 Old Guard Group 169,000 2,545,563 Phoenix Duff & Phelps 157,900 1,164,513 The Pioneer Group 127,800 2,939,400 SEI Investments Company 21,200 511,450 U.S. Global Investors Cl. A* 249,205 521,773 Willis Corroon Group ADR+ 265,200 2,966,925 ------------ 31,614,652 ------------ THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 | 3 ROYCE VALUE TRUST, INC. - ------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS JUNE 30, 1997 (UNAUDITED) - ------------------------------------------------------------------------------- SHARES VALUE ------ ----- HEALTH -- 2.0% Diagnostic Products 25,200 $ 795,375 Haemonetics Corporation* 211,000 4,035,375 Life Technologies 65,450 1,816,237 Marquette Medical Systems* 37,500 825,000 Nitinol Medical Technologies* 114,600 1,733,325 Spacelabs Medical* 32,200 821,100 ------------- 10,026,412 ------------- INDUSTRIAL PRODUCTS -- 21.3% American Filtrona 65,000 2,665,000 Ameron International 18,000 1,019,250 Ash Grove Cement Company Cl. B 77,518 4,651,080 BHA Group 51,909 960,317 Baldor Electric Company 16,500 487,781 Blessings Corporation 160,900 1,669,337 W. H. Brady Cl. A 83,100 2,409,900 Carbo Ceramics 45,100 1,228,975 Cascade Corp. 47,000 907,688 Central Steel & Wire Company 3,699 2,330,370 Chemfab Corporation* 132,219 2,776,599 CLARCOR 19,700 487,575 ConBraCo Industries 7,630 3,738,700 Curtiss-Wright Corporation 56,300 3,279,475 Decker Manufacturing 6,022 252,924 Delta Woodside Industries* 125,400 846,450 Fab Industries 98,000 3,068,625 Falcon Products 86,300 1,159,656 Federal Signal Corporation 9,000 226,125 [dbldag]General Builders* 73,645 46,028 P. H. Glatfelter Company 93,700 1,874,000 Hawkins Chemical 133,117 1,098,215 International Aluminum 68,600 1,817,900 Kaydon Corporation 85,700 4,252,862 Kimball International Cl. B 85,900 3,457,475 Knape & Vogt Manufacturing 79,750 1,276,000 LeaRonal 59,650 1,700,025 Lilly Industries Cl. A 183,483 3,692,595 The Lincoln Electric Company 11,990 419,650 The Lincoln Electric Company Cl. A 70,300 2,688,975 Liqui-Box Corporation 72,378 2,442,758 MacDermid 108,777 4,990,145 Mine Safety Appliances 21,700 1,312,850 Paul Mueller Company 53,200 2,028,250 Nordson Corporation 23,000 1,477,750 Oil-Dri Corporation of America 37,600 603,950 Oregon Steel Mills 83,800 1,670,762 Oshkosh Truck Corporation Cl. B 121,600 1,732,800 [dbldag]Peerless Mfg. Co. 79,300 852,475 Penn Engineering and Manufacturing 132,600 2,602,275 Penn Engineering and Manufacturing Cl. A 34,800 665,550 Preformed Line Products 41,300 1,796,550 Puerto Rican Cement Company 94,900 3,090,181 Quaker Chemical 92,450 1,606,319 SHARES VALUE ------ ----- Robroy Industries Cl. A 51,270 $ 794,685 Shorewood Packaging* 82,600 1,879,150 Simpson Manufacturing Co.* 126,700 3,357,550 The Standard Register Company 126,200 3,864,875 Tecumseh Products Company Cl. A 33,300 1,993,837 Thermal Industries* 42,586 638,790 Unifi 47,800 1,786,525 Versa Technologies 78,200 1,231,650 Wellman 25,000 434,375 Woodward Governor Company 126,800 4,564,800 Zero Corporation 70,800 1,858,500 ------------- 105,766,904 ------------- INDUSTRIAL SERVICES -- 11.9% Aceto Corporation 33,340 487,598 Air Express International 64,712 2,572,302 AirNet Systems* 92,100 1,508,137 Arnold Industries 233,648 3,972,016 Guy F. Atkinson Company* 102,200 713,803 Bowne & Co. 43,600 1,520,550 Circle International Group 125,825 3,318,634 Dames & Moore 32,800 405,900 Devon Group* 5,000 178,750 DIMON Incorporated 103,200 2,734,800 Ennis Business Forms 191,900 1,847,038 FCA International * 194,500 316,901 Fisher Companies 7,648 971,296 Frozen Food Express Industries 265,135 2,286,789 Insituform Technologies Cl. A* 182,100 1,115,362 Kenan Transport 40,500 825,188 Lufkin Industries 88,700 2,328,375 Merrill Corporation 99,800 3,630,225 Nabors Industries* 10,000 250,000 New England Business Service 95,000 2,499,688 Nichols Research Corporation* 15,950 334,950 Perini Corporation* 88,300 651,212 Pittston Burlington Group 57,100 1,605,938 Plenum Publishing Corporation 77,600 2,987,600 Rykoff-Sexton 148,900 3,471,231 Sevenson Environmental Services 132,200 2,577,900 Standard Commercial* 145,472 2,527,576 Stone & Webster 76,300 3,257,056 TBC Corporation* 148,000 1,239,500 Treadco 97,100 958,862 The Turner Corporation* 59,800 934,375 Vallen Corporation* 199,329 3,637,754 Willbros Group* 101,000 1,603,375 ------------- 59,270,681 ------------- NATURAL RESOURCES -- 3.7% Alico 72,700 1,426,738 Belden & Blake* 30,000 810,000 Tom Brown* 47,000 998,750 CalMat 194,900 4,190,350 Consolidated-Tomoka Land Co. 7,800 126,750 Devon Energy 10,000 367,500 FRP Properties* 119,900 3,237,300 4 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 ROYCE VALUE TRUST, INC. - ------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS JUNE 30, 1997 (UNAUDITED) - ------------------------------------------------------------------------------- SHARES VALUE ------ ----- NATURAL RESOURCES -- (continued) Florida Rock Industries 121,300 $ 4,927,812 MK Gold Company* 188,200 294,062 Toreador Royalty Corporation* 97,100 309,506 Vornado Realty Trust 21,450 1,547,081 -------------- 18,235,849 -------------- RETAIL -- 4.7% The Buckle* 44,600 1,025,800 Catherines Stores Corporation* 212,400 796,500 Cato Corporation Cl. A 133,700 726,994 Charming Shoppes* 387,400 2,021,744 Claire's Stores 30,900 540,750 Deb Shops 133,900 535,600 The Dress Barn* 110,700 2,158,650 Family Dollar Stores 54,800 1,493,300 Frederick's of Hollywood Cl. B 38,896 230,945 Little Switzerland* 80,000 480,000 Mikasa 97,600 1,390,800 Pier 1 Imports 47,405 1,256,232 Sotheby's Holdings Cl. A 155,100 2,617,313 Stanhome 184,000 6,049,000 Suzy Shier 10,000 65,173 The Talbots 52,400 1,781,600 -------------- 23,170,401 -------------- TECHNOLOGY -- 6.2% Communications Systems 32,000 456,000 DH Technology* 63,900 1,038,375 Dionex Corporation* 42,400 2,173,000 Electroglas* 78,600 1,979,737 Exar Corporation* 106,650 2,292,975 Giga-tronics* 57,100 399,700 Hach Company 32,150 634,962 IFR Systems* 16,089 301,669 ILC Technology* 79,200 851,400 Integral Systems* 26,300 861,325 Landauer 117,900 2,733,806 MacNeal-Schwendler 43,200 469,800 Marshall Industries* 136,000 5,066,000 Mosaix* 10,000 136,250 National Computer Systems 126,200 3,360,075 National Instruments Corp.* 5,000 176,250 Newport Corporation 50,900 572,625 Phoenix Technologies* 61,200 795,600 Pioneer-Standard Electronics 56,025 756,338 Richardson Electronics 173,500 1,442,219 [dbldag]Sage Laboratories 104,000 1,326,000 TECHNOLOGY -- (continued) SHARES VALUE ------ ----- Scitex Corporation 222,700 $ 1,962,544 Technical Communications* 58,800 525,525 Woodhead Industries 39,300 741,787 -------------- 31,053,962 -------------- MISCELLANEOUS -- 4.7% 23,566,688 -------------- TOTAL COMMON STOCKS (Cost $330,847,814) 471,579,471 -------------- PREFERRED STOCK -- 0.1% Bird Corp. $1.85 Conv. (Cost $371,659) 23,750 $ 415,625 -------------- PRINCIPAL AMOUNT ---------- CORPORATE BONDS -- 1.7% Dixie Group 7.00% Conv. Sub. Deb. due 5/15/12 $ 824,000 702,460 International Semi-Tech 0% Sr. Disc. Note due 8/15/03 6,158,000 3,679,405 Richardson Electronics 8.25% Conv. Sub. Deb. due 6/15/06 2,049,000 1,762,140 Richardson Electronics 7.25% Conv. Sub. Deb. due 12/15/06 419,000 318,440 Shoney's 0% Sub. Conv. Deb. due 4/11/04 4,146,000 1,746,503 Thorn Apple Valley 9.00% Conv. Sub. Deb. due 1/04/07 100,000 104,000 -------------- TOTAL CORPORATE BONDS (Cost $7,797,477) 8,312,948 -------------- REPURCHASE AGREEMENT -- 11.5% State Street Bank & Trust Company, 5.15% dated 6/30/97, due 07/01/97, maturity value $57,008,154 (collateralized by U.S. Treasury Notes, 6% due 5/31/98, valued at $58,141,235) (Cost $57,000,000) 57,000,000 -------------- TOTAL INVESTMENTS -- 108.2% (Cost $396,016,950) 537,308,044 LIABILITIES LESS CASH AND OTHER ASSETS -- (8.2)% (40,594,361) -------------- NET ASSETS -- 100.0% $ 496,713,683 ============== - ------------------------------------------------------------------------------- * Non-income producing. + American Depository Receipt. [DBLDAG] At June 30, 1997, the Fund owned 5% or more of the Company's outstanding shares thereby making the Company an affiliated person as that term is defined in the Investment Company Act of 1940. INCOME TAX INFORMATION: The cost of total investments for federal income tax purposes was $396,016,950. At June 30, 1997, net unrealized appreciation for all securities was $141,291,094, consisting of aggregate gross unrealized appreciation of $152,291,896 and aggregate gross unrealized depreciation of $11,000,802. The accompanying notes are an integral part of the financial statements. THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 | 5 ROYCE VALUE TRUST, INC. - ------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1997 (UNAUDITED) - ------------------------------------------------------------------------------- ASSETS: Investments at value (identified cost $339,016,950) $ 480,308,044 Repurchase agreement (at cost and value) 57,000,000 Cash 878,244 Receivable for investments sold 690,488 Receivable for dividends and interest 573,390 Prepaid expenses and other assets 65,742 - --------------------------------------------------------------- -------------- Total Assets 539,515,908 - --------------------------------------------------------------- -------------- LIABILITIES: Notes payable 38,849,994 Preferred dividend accrued but not yet declared 2,400,000 Payable for investments purchased 1,286,976 Payable for investment advisory fee 139,889 Accrued expenses 125,366 - --------------------------------------------------------------- -------------- Total Liabilities 42,802,225 - --------------------------------------------------------------- -------------- Net Assets $ 496,713,683 =============================================================== ============== Net Assets applicable to Preferred Stock at a liquidation value of $25 per share $ 60,000,000 =============================================================== ============== Net assets applicable to Common Stock at a net asset value per share which assumes conversion of Notes -- $16.19 $ 436,713,683 =============================================================== ============== SUMMARY OF STOCKHOLDERS' EQUITY: 8% Cumulative Preferred Stock -- par value $0.001 per share; 2,400,000 shares outstanding 2,400 Common Stock -- par value $0.001 per share; 26,348,378 shares outstanding 26,348 Additional paid-in capital 330,836,574 Undistributed net investment income 4,131,036 Accumulated net realized gain on investments 22,826,231 Preferred dividend accrued but not yet declared (2,400,000) Net unrealized appreciation on investments 141,291,094 - --------------------------------------------------------------- -------------- Net Assets $ 496,713,683 =============================================================== ============== The accompanying notes are an integral part of the financial statements. - ------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1997 DECEMBER 31, INVESTMENT OPERATIONS: (UNAUDITED) 1996 ----------------------------------- Net investment income $ 2,838,629 $ 4,559,614 Net realized gain on investments 12,512,931 33,673,949 Net change in unrealized appreciation on investments 41,925,451 18,650,893 - --------------------------------------------------------------------------------- ------------ ------------- Net increase in net assets from investment operations 57,277,011 56,884,456 - --------------------------------------------------------------------------------- ------------ ------------- DISTRIBUTIONS TO PREFERRED STOCKHOLDERS: Net investment income -- (218,400) Net realized gain on investments -- (1,504,800) Preferred dividend accrued but not yet declared (2,400,000) -- - --------------------------------------------------------------------------------- ------------ ------------- Total distributions to Preferred Stockholders (2,400,000) (1,723,200) - --------------------------------------------------------------------------------- ------------ ------------- DISTRIBUTIONS TO COMMON STOCKHOLDERS: Net investment income -- (3,626,059) Net realized gain on investments -- (24,935,360) - --------------------------------------------------------------------------------- ------------ ------------- Total distributions to Common Stockholders -- (28,561,419) - --------------------------------------------------------------------------------- ------------ ------------- CAPITAL STOCK TRANSACTIONS: Proceeds from shares issued for distributions reinvested by Common Stockholders -- 18,526,484 Net proceeds from issuance of Preferred stock -- 57,740,000 - --------------------------------------------------------------------------------- ------------ ------------- Total capital stock transactions -- 76,266,484 - --------------------------------------------------------------------------------- ------------ ------------- NET INCREASE IN NET ASSETS 54,877,011 102,866,321 NET ASSETS: Beginning of period 441,836,672 338,970,351 - --------------------------------------------------------------------------------- ------------ ------------- End of period (including undistributed net investment income of $4,131,036 and $1,292,408, respectively) $496,713,683 $ 441,836,672 ================================================================================= ============ =============
The accompanying notes are an integral part of the financial statements. 6 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 ROYCE VALUE TRUST, INC. - ------------------------------------------------------------------------------- STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) - ------------------------------------------------------------------------------- INVESTMENT INCOME: INCOME: Dividends $3,646,951 Interest 1,748,668 - -------------------------------------------------------------------------- Total Income 5,395,619 - -------------------------------------------------------------------------- EXPENSES: Interest expense 1,150,000 Investment advisory fees 843,455 Administrative and office facilities expenses 151,759 Amortization of underwriting discount and offering costs 81,812 Custodian and transfer agent fees 79,203 Professional fees 28,589 Directors' fees 26,468 Other expenses 236,610 - -------------------------------------------------------------------------- Total Expenses 2,597,896 Fees Waived by Investment Adviser (40,906) - -------------------------------------------------------------------------- Net Expenses 2,556,990 - -------------------------------------------------------------------------- Net Investment Income 2,838,629 - -------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on investments 12,512,931 Net change in unrealized appreciation on investments 41,925,451 - -------------------------------------------------------------------------- Net realized and unrealized gain on investments 54,438,382 - -------------------------------------------------------------------------- NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS $57,277,011 ========================================================================== STATEMENT OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) - ------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Investment income received $ 5,580,423 Interest paid on Notes (1,150,000) Payment of operating expenses (1,317,282) Purchases of investments (130,207,784) Proceeds from sales and maturities of investments 127,972,887 - -------------------------------------------------------------------------- Cash provided from operating activities 878,244 Cash at beginning of period -- - -------------------------------------------------------------------------- Cash at end of period $ 878,244 ========================================================================== RECONCILIATION OF NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS TO CASH PROVIDED FROM OPERATING ACTIVITIES: Net increase in net assets from investment operations 57,277,011 Net increase in investments (16,043,602) Net increase in unrealized appreciation on investments (41,925,451) Decrease in dividends and interest receivable 184,805 Decrease in receivable for investments sold 386,720 Accretion of offering costs on Notes 81,812 Increase in payable for investments purchased 909,053 Increase in accrued expenses and other assets 7,896 - -------------------------------------------------------------------------- Cash provided from operating activities $ 878,244 ========================================================================== The accompanying notes are an integral part of the financial statements. THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 | 7 ROYCE VALUE TRUST, INC. - ------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) -------------- NET ASSET VALUE, BEGINNING OF PERIOD $14.32 - ------------------------------------------------------------------------------- INVESTMENT OPERATIONS (A): Net investment income 0.10 Net realized and unrealized gain on investments 1.86 - ------------------------------------------------------------------------------- Total from investment operations 1.96 - ------------------------------------------------------------------------------- DIVIDENDS AND DISTRIBUTIONS TO PREFERRED STOCKHOLDERS: Net investment income -- Net realized gain on investments -- Preferred dividend accrued but not yet declared (0.09) - ------------------------------------------------------------------------------- Total dividends and distributions to Preferred Stockholders (0.09) - ------------------------------------------------------------------------------- DIVIDENDS AND DISTRIBUTIONS TO COMMON STOCKHOLDERS: Net investment income -- Net realized gain on investments -- - ------------------------------------------------------------------------------- Total dividends and distributions to Common Stockholders -- - ------------------------------------------------------------------------------- CAPITAL STOCK TRANSACTIONS: Effect of rights offering -- Effect of reinvestment of distributions by Common Stockholders -- - ------------------------------------------------------------------------------- Total capital stock transactions -- - ------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD (A) $16.19 =============================================================================== MARKET VALUE, END OF PERIOD $13.750 =============================================================================== TOTAL RETURN (B): Net Asset Value (A) 13.1% Market Value 8.9% RATIOS BASED ON AVERAGE NET ASSETS: Total expenses (C) 1.14** Management fee expense 0.36** Interest expense 0.51** Other operating expenses 0.27** Net investment income 1.26** SUPPLEMENTAL DATA: Net Assets, End of Period (in thousands) $496,714 Portfolio Turnover Rate 12% Average Commission Rate Paid+ $0.0633 NOTES: Total amount outstanding (in thousands) $40,000 Asset coverage per note 1,339% Average market value per note (D) $100.61 PREFERRED STOCK: Total shares outstanding 2,400,000 Asset coverage per share 536% Liquidation preference per share $25.00 Average market value per share (D) $25.08 YEARS ENDED DECEMBER 31, ------------------------------------------------------------ 1996 1995 1994 1993 1992 --------- -------- -------- -------- --------- NET ASSET VALUE, BEGINNING OF PERIOD $13.56 $12.34 $13.47 $12.50 $11.23 - -------------------------------------------------------------- --------- -------- -------- -------- --------- INVESTMENT OPERATIONS (A): Net investment income 0.26 0.04 0.04 0.09 0.15 Net realized and unrealized gain on investments 2.48 2.70 0.09 2.12 2.12 - -------------------------------------------------------------- --------- -------- -------- -------- --------- Total from investment operations 2.74 2.74 0.13 2.21 2.27 - -------------------------------------------------------------- --------- -------- -------- -------- --------- DIVIDENDS AND DISTRIBUTIONS TO PREFERRED STOCKHOLDERS: Net investment income (0.09) -- -- -- -- Net realized gain on investments (0.63) -- -- -- -- Preferred dividend accrued but not yet declared -- -- -- -- -- - -------------------------------------------------------------- --------- -------- -------- -------- --------- Total dividends and distributions to Preferred Stockholders (0.72) -- -- -- -- - -------------------------------------------------------------- --------- -------- -------- -------- --------- DIVIDENDS AND DISTRIBUTIONS TO COMMON STOCKHOLDERS: Net investment income (0.15) (0.03) (0.01) (0.09) (0.15) Net realized gain on investments (1.00) (1.26) (1.04) (1.06) (0.75) - -------------------------------------------------------------- --------- -------- -------- -------- --------- Total dividends and distributions to Common Stockholders (1.15) (1.29) (1.05) (1.15) (0.90) - -------------------------------------------------------------- --------- -------- -------- -------- --------- CAPITAL STOCK TRANSACTIONS: Effect of rights offering -- (0.12) (0.14) (0.08) (0.06) Effect of reinvestment of distributions by Common Stockholders (0.11) (0.11) (0.07)* (0.01) (0.04) - -------------------------------------------------------------- --------- -------- -------- -------- --------- Total capital stock transactions (0.11) (0.23) (0.21) (0.09) (0.10) - -------------------------------------------------------------- --------- -------- -------- -------- --------- NET ASSET VALUE, END OF PERIOD (A) $14.32 $13.56 $12.34 $13.47 $12.50 ============================================================== ========== ======== ======== ========= ========= MARKET VALUE, END OF PERIOD $12.625 $11.875 $11.000 $12.875 $12.250 ============================================================== ========== ======== ======== ========= ========= TOTAL RETURN (B): Net Asset Value (A) 15.5% 22.6% 1.1% 17.9% 19.9% Market Value 16.3% 20.5% (5.6)% 14.8% 26.8% RATIOS BASED ON AVERAGE NET ASSETS: Total expenses (C) 1.20% 2.01% 2.01% 1.33% 0.81% Management fee expense 0.36% 0.97% 1.21% 1.09% 0.53% Interest expense 0.60% 0.75% 0.46% -- -- Other operating expenses 0.24% 0.29% 0.34% 0.24% 0.28% Net investment income 1.19% 0.34% 0.31% 0.74% 1.31% SUPPLEMENTAL DATA: Net Assets, End of Period (in thousands) $441,837 $338,970 $269,032 $246,558 $202,483 Portfolio Turnover Rate 34% 32% 35% 33% 40% Average Commission Rate Paid+ $0.0574 -- -- -- -- NOTES: Total amount outstanding (in thousands) $40,000 $40,000 $40,000 -- -- Asset coverage per note 1,202% 944% 769% -- -- Average market value per note (D) $100.68 $96.92 $95.62 -- -- PREFERRED STOCK: Total shares outstanding 2,400,000 -- -- -- -- Asset coverage per share 481% -- -- -- -- Liquidation preference per share $25.00 -- -- -- -- Average market value per share (D) $25.20 -- -- -- --
- -------------------------------------------------------------------------- (a) Commencing June 21, 1995, net asset value per share, net asset value total return and income from investment operations are calculated assuming the notes are fully converted except when the effect of doing so results in a higher net asset value per share than would be calculated without such assumption. If it were assumed the notes had not been converted, the net asset value per share would have been increased by $0.38 at June 30, 1997, and $0.17 and $0.09 at December 31, 1996 and 1995, respectively. (b) The net asset value and market value total return assume a continuous common stockholder who reinvested all net investment income dividends and capital gain distributions and fully participated in primary rights offerings. (c) Expense ratios before waiver of fees by the investment adviser would have been 1.16% for the six months ended June 30, 1997, and 1.22%, 2.04% and 2.02% for the years ended December 31, 1996, 1995 and 1994, respectively. (d) The average of all month-end market values during the period. * Includes distributions paid January 31, 1994 and distributions paid December 30, 1994. + For fiscal years beginning on or after October 1, 1995, the fund is required to disclose its average commission rate paid per share for purchases and sales of investments. ** Annualized. 8 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 ROYCE VALUE TRUST, INC. - ------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - ------------------------------------------------------------------------------- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Royce Value Trust, Inc. ("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 generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. VALUATION OF INVESTMENTS: Securities listed on an exchange or on the Nasdaq National Market System are valued on the basis of the last reported sale prior to the time the valuation is made or, if no sale is reported for such day, at their bid price for exchange-listed securities and at the average of their bid and asked prices for Nasdaq securities. Quotations are taken from the market where the security is primarily traded. Other over-the-counter securities for which market quotations are readily available are valued at their bid price. Securities for which market quotations are not readily available are valued at their fair value under procedures established and supervised by the Fund's Board of Directors. Bonds and other fixed income securities may be valued by reference to other securities with comparable ratings, interest rates and maturities, using established independent pricing services. INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME: Investment transactions are accounted for on the trade date and dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis. Realized gains and losses from investment transactions and unrealized appreciation and depreciation of investments are determined on the basis of identified cost for book and tax purposes. 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 "Income Tax Information". DISTRIBUTIONS: Dividend and capital gain distributions paid to Preferred Stockholders are recorded on an accrual basis and distributions paid to Common Stockholders are recorded on the ex-dividend date. These distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Permanent book and tax basis differences relating to stockholder distributions will result in reclassification to paid-in capital and may affect net investment income per share. 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 at fiscal year end is distributed in the following year. REPURCHASE AGREEMENTS: The Fund enters into repurchase agreements with respect to its portfolio securities solely with State Street Bank and Trust Company ("SSB&T"), the custodian of its assets. The Fund restricts repurchase agreements to maturities of no more than seven days. Securities pledged as collateral for repurchase agreements are held by SSB&T until maturity of the repurchase agreements. Repurchase agreements could involve certain risks in the event of default or insolvency of SSB&T, including possible delays or restrictions upon the ability of the Fund to dispose of the underlying securities. INVESTMENT COMPANY CONVERTIBLE NOTES: The Fund issued $40,000,000 aggregate principal amount of Investment Company Convertible Notes ("Notes") on June 22, 1994. The Fund received proceeds of $38,350,000 after the deduction of the underwriting discount and offering costs incurred by the Fund in connection with the issuance of the Notes. The underwriting discount and the offering costs of $1,200,000 and $450,000, respectively, are being accreted on a straight line basis over the term of the Notes. The Notes, which are unsecured obligations of the Fund, mature on June 30, 2004 and bear interest payable on June 30 and December 31 of each year at the rate of 5-3/4% per annum. The Notes have an Aaa rating from Moody's Investors Service, Inc. ("Moody's"). The Notes are convertible into shares of Common Stock of the Fund at the option of the holder, at any time prior to maturity, except during the period from the second trading day prior to the ex-dividend date through the record date unless an earlier date is selected by the Fund, and unless previously redeemed at the option of the Fund. The conversion price at June 30, 1997 is $13.19 per share. This conversion price is subject to an annual net adjustment involving an escalation of 6.75% and a reduction for the impact on net asset value per share of distributions to Common Stockholders. Under the Investment Company Act of 1940, the Fund is required to maintain an asset coverage of at least 300% for the Notes. In addition, the Indenture governing the Notes requires the Fund to maintain a certain discounted asset coverage for its portfolio THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 | 9 ROYCE VALUE TRUST, INC. - ------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) - ------------------------------------------------------------------------------- that equals or exceeds the Basic Maintenance Amount under the guidelines established by Moody's. The Fund has met these requirements since the issuance of the Notes. Commencing July 1, 1997, and any time thereafter prior to maturity, the Fund may, at its option, redeem the Notes in whole or in part for cash at a price equal to 100% of their principal amount, together with accrued interest thereon. Prior to July 1, 1997, the Fund had the option to redeem the Notes for cash at a price equal to 100% of their principal amount, together with accrued interest, only if a redemption was necessary for the Fund to maintain the required asset coverage for the Notes and/or continue to qualify as a regulated investment company. On July 1, 1999, if the average market price per $1,000 principal amount of Notes for the 45 trading days ending May 31, 1999 is less than $950, the Fund will either call all of the Notes for redemption or reset one or more of the terms of the Notes so that the market value of the Notes is at or as close as possible to par. CAPITAL STOCK: On August 23, 1996, the Fund issued and sold 2,400,000 shares of its 8% Cumulative Preferred Stock. The stock has a liquidation preference of $25.00 per share plus an amount equal to accumulated and unpaid dividends to the date of distributions. Dividends on the Cumulative Preferred Stock are payable when, as and if declared by the Board of Directors of the Fund, out of funds legally available annually on December 23 in each year to the holders of record on the preceding December 6. The Fund is required to allocate long-term capital gain distributions and other types of income proportionately among holders of shares of Common Stock, Preferred Stock and Noteholders (to the extent they receive constructive distributions). To the extent that dividends on the shares of Preferred Stock are not paid from long-term capital gains, they will be paid from ordinary income or net short-term capital gains or will represent a return of capital. The Fund issued shares of Common Stock as reinvestment of dividends and distributions by common stockholders totaling 1,512,360 for the year ended December 31, 1996. INVESTMENT ADVISORY AGREEMENT: As compensation for its services under the Investment Advisory Agreement, Royce & Associates, Inc. ("Royce") (formerly Quest Advisory Corp.) 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 600. Prior to July 1, 1996, the Fund's investment performance was measured against the record of the Standard & Poor's 500 Composite Stock Price Index over a rolling period of 36 months. The present Investment Advisory Agreement provides that, for the 18 month period from July 1, 1996 to December 31, 1997, the monthly fee payable to Royce will be the lower of the fee calculated under it or the fee that would have been payable to Royce for the month involved under the prior investment advisory agreement. Beginning with the month of July 1997 and for each succeeding month under the present Agreement, the Basic Fee will be a monthly fee equal to 1/12 of 1% (1% on an annualized basis) of the average of the net assets of the Fund at the end of each month included in the applicable performance period. The performance period for each such month will be from July 1, 1996 to the most recent month-end, until the Investment Advisory Agreement has been in effect for 60 full calendar months, when it will become a rolling 60 month period ending with the most recent calendar month. The Basic Fee for each such month will be increased or decreased at the rate of 1/12 of .05% per percentage point, depending on the extent, if any, by which the investment performance of the Fund exceeds by more than two percentage points, or is exceeded by more than two percentage points by, the percentage change in the investment record of the S&P 600 for the performance period. The maximum increase or decrease in the Basic Fee for any month may not exceed 1/12 of .5%. Accordingly, for each month, commencing with the month of July 1997, the maximum monthly fee rate as adjusted for performance will be 1/12 of 1.5% and will be 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 will be 1/12 of .5% and will be 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. For the period from July 1, 1996 through June 30, 1997 under the present Agreement, the Basic Fee is calculated as a monthly fee equal to 1/12 of 1% of the net assets of the Fund at the end of each month in such period. The performance period relating to such period is from July 1, 1996 through June 30, 1997. The Basic Fee for such period was also subject to increase or decrease as set forth in the preceding paragraph, with the rate of such increase or decrease being applied on an annualized basis. The maximum increase or decrease in the Basic Fee for such period did not exceed .5%. 10 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 ROYCE VALUE TRUST, INC. - ------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) - ------------------------------------------------------------------------------- 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 on an absolute basis. 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. For the six months ended June 30, 1997, the Fund accrued and paid Royce advisory fees totaling $802,549, which is net of $40,906 voluntarily waived by Royce. TRANSACTIONS IN SHARES OF AFFILIATED COMPANIES: An "Affiliated Company", as defined in the Investment Company Act of 1940, is a company in which the Fund owns at least 5% of the company's outstanding voting securities. The Fund effected the following transactions in shares of such companies during the six months ended June 30, 1997.
- ----------------------------------------------------------------------------------------------------- Purchases Sales --------------------- --------------------- Realized Dividend Affiliated Company Shares Cost Shares Cost Gain/Loss Income - --------------------------- -------- ---------- -------- ---------- ----------- --------- Allen Organ Company Cl. B -- -- 11,400 $460,975 $(13,540) $45,126 General Builders -- -- -- -- -- -- Peerless Mfg. Co. 21,500 $215,000 -- -- -- $28,900 Sage Laboratories -- -- -- -- -- $10,400 - -----------------------------------------------------------------------------------------------------
PURCHASES AND SALES OF INVESTMENT SECURITIES: For the six months ended June 30, 1997, the cost of purchases and proceeds from sales of investment securities, other than short-term securities, amounted to $74,118,131 and $52,886,167, respectively. THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 | 11 ROYCE MICRO-CAP TRUST, INC. - ------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS JUNE 30, 1997 (UNAUDITED) - ------------------------------------------------------------------------------- COMMON STOCKS -- 95.2%
SHARES VALUE ------ ----- CONSUMER PRODUCTS -- 19.2% Aldila* 205,300 $ 1,141,981 Bassett Furniture Industries 52,800 1,494,900 Conso Products Co.* 53,300 652,925 Eskimo Pie Corporation 5,000 60,625 Farmer Bros. 5,000 635,000 Garan Incorporated 53,200 1,070,650 Gibson Greetings* 37,000 832,500 Golden Enterprises 80,600 574,275 Haggar Corp. 22,000 280,500 Johnson Worldwide Associates Cl. A* 67,100 863,912 Juno Lighting 57,500 934,375 Justin Industries 15,500 197,625 K-Swiss Cl. A 27,800 437,850 Kit Manufacturing Co.* 32,000 304,000 Kleinert's* 14,200 243,175 Lifetime Hoan Corporation* 120,054 1,050,473 Marisa Christina* 58,100 544,687 Matthews International Cl. A 53,000 1,934,500 Midwest Grain Products* 67,600 895,700 Mity-Lite* 23,400 324,675 Nobility Homes* 7,500 90,000 Oshkosh B'Gosh Cl. A 65,900 1,433,325 The Rival Company 39,000 575,250 Skyline Corporation 32,100 790,462 The Smithfield Companies 40,400 444,400 Steck-Vaughn Publishing* 42,881 578,893 Thor Industries 36,800 915,400 The Topps Company* 226,800 949,725 Toy Biz* 89,700 740,025 Velcro Industries 18,300 1,500,600 WLR Foods 21,110 171,519 Wellco Enterprises 25,500 315,563 Weyco Group 22,800 1,482,000 ------------ 24,461,490 ------------ CONSUMER SERVICES -- 1.5% Cornell Corrections 61,200 1,009,800 Jenny Craig* 84,700 587,606 IHOP Corp.* 10,000 310,000 ------------ 1,907,406 ------------ FINANCIAL INTERMEDIARIES -- 11.3% ALLIED Life Financial 43,600 861,100 BHI Corporation 29,400 646,800 Baldwin & Lyons Cl. B 28,024 634,043 Capitol Transamerica 32,265 879,221 Desert Community Bank 26,300 496,412 Gryphon Holdings* 38,200 592,100 Hanmi Bank* 5,209 83,995 Independence Holding Company 35,800 360,238 Intercargo Corporation 38,600 453,550 Iron and Glass Bancorp 17,000 697,000 Lawyers Title 32,900 620,987 Medical Assurance* 18,349 745,428 NYMAGIC 20,000 412,500 Nobel Insurance 87,700 1,304,538 Oriental Financial Group 27,000 762,750 PXRE Corporation 62,364 1,917,693 SHARES VALUE ------ ----- Pennsylvania Manufacturers Cl. A 56,609 $ 877,440 Piper Jaffray Companies 14,400 295,200 Resurgence Properties 98,000 698,250 Titan Holdings 17,676 419,805 Trenwick Group 16,650 624,375 ------------ 14,383,425 ------------ FINANCIAL SERVICES -- 5.8% E.W. Blanch Holdings 48,200 1,286,337 Duff & Phelps Credit Rating 54,900 1,667,588 Eaton Vance Corp. 37,200 1,034,625 Hilb, Rogal & Hamilton 50,300 855,100 Investors Financial Services 8,045 382,138 Old Guard Group 66,300 998,644 Phoenix Duff & Phelps 156,000 1,150,500 ------------ 7,374,932 ------------ HEALTH -- 0.8% Hauser* 26,800 144,050 Nitinol Medical Technologies* 63,600 961,950 ------------ 1,106,000 ------------ INDUSTRIAL PRODUCTS -- 21.2% AFC Cable Systems* 15,800 426,600 American Buildings Company* 35,700 963,900 American Filtrona 24,600 1,008,600 [dbldag] Art's-Way Manufacturing* 69,000 534,750 Ash Grove Cement Company 20,000 1,200,000 Atchison Casting* 40,000 665,000 BHA Group 54,021 999,388 Blessings Corporation 48,800 506,300 CFC International* 78,200 762,450 Carbo Ceramics 36,700 1,000,075 Chemfab Corporation* 80,700 1,694,700 Curtiss-Wright Corporation 17,500 1,019,375 DeVlieg-Bullard* 62,500 214,844 Fab Industries 42,500 1,330,781 Falcon Products 55,000 739,062 Hawkins Chemical 102,067 842,053 C. H. Heist* 42,000 280,875 International Aluminum 19,300 511,450 LSI Industries 25,900 349,650 Liqui-Box Corporation 15,000 506,250 MacDermid 13,577 622,845 Paul Mueller Company 16,650 634,781 Myers Industries 47,900 808,312 NN Ball and Roller 65,600 820,000 Oshkosh Truck Corporation Cl. B 47,100 671,175 Peerless Mfg. Co. 31,600 339,700 Penn Engineering and Manufacturing 54,700 1,073,488 Penn Engineering and Manufacturing Cl. A 11,900 227,587 Pioneer Metals* 1,570 392,500 Puerto Rican Cement Company 26,500 862,906 Simpson Manufacturing Co.* 56,500 1,497,250 Special Metals Corporation 33,000 643,500 Synalloy Corporation 56,800 1,001,100 Thermal Industries* 58,700 880,500 Todd Shipyards Corporation* 38,200 157,575
12 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 ROYCE MICRO-CAP TRUST, INC. - ------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS JUNE 30, 1997 (UNAUDITED) - -------------------------------------------------------------------------------
SHARES VALUE ------ ----- INDUSTRIAL PRODUCTS -- (continued) Versa Technologies 37,900 $ 596,925 Vertex Communications* 10,000 267,500 ------------- 27,053,747 ------------- INDUSTRIAL SERVICES -- 12.9% Aceto Corporation 34,250 500,906 AirNet Systems* 71,200 1,165,900 Guy F. Atkinson Company* 85,200 595,069 Circle International Group 18,500 487,938 Dailey Petroleum Services 48,400 326,700 Devcon International* 80,100 370,463 Devon Group* 7,500 268,125 Ennis Business Forms 58,100 559,212 Frozen Food Express Industries 136,500 1,177,313 Insituform Technologies Cl. A* 87,400 535,325 Jaco Electronics* 21,600 155,250 Kenan Transport 24,800 505,300 Lufkin Industries 28,300 742,875 Merrill Corporation 20,400 742,050 New England Business Service 60,300 1,586,644 Plenum Publishing Corporation 22,100 850,850 Queen City Investments* 948 322,320 Rush Enterprises* 73,200 457,500 Sevenson Environmental Services 78,200 1,524,900 Standard Commercial* 62,022 1,077,632 Vallen Corporation* 55,500 1,012,875 Willbros Group* 92,900 1,474,788 ------------- 16,439,935 ------------- NATURAL RESOURCES -- 2.9% Alamco* 16,400 252,150 Alico 5,200 102,050 FRP Properties* 27,700 747,900 Florida Rock Industries 45,800 1,860,625 MK Gold Company* 101,600 158,750 PetroCorp Incorporated* 70,500 616,875 ------------- 3,738,350 ------------- RETAIL -- 4.7% Brookstone* 33,000 280,500 The Buckle* 10,700 246,100 Catherines Stores Corporation* 147,400 552,750 Cato Corporation Cl. A 103,700 563,869 Chico's FAS* 59,400 315,562 The Dress Barn* 41,900 817,050 Lillian Vernon 24,900 420,187 Ruby Tuesday* 31,000 695,563 Sterling Electronics* 22,800 290,700 Suzy Shier 156,800 1,021,905 SHARES VALUE ------ ----- RETAIL -- (continued) Urban Outfitters* 60,000 $ 840,000 ------------- 6,044,186 ------------- TECHNOLOGY -- 9.8% BGS Systems, Inc. 43,000 1,182,500 CEM Corporation* 75,700 652,912 CSP* 78,400 583,100 Cerprobe Corporation* 28,500 370,500 Control Devices 50,000 637,500 DH Technology* 88,000 1,430,000 Figgie International Cl. B* 21,300 268,913 Giga-tronics* 40,482 283,374 ILC Technology* 98,800 1,062,100 Integral Systems* 15,400 504,350 Kronos* 15,000 412,500 Landauer 44,400 1,029,525 Modern Controls 24,600 332,100 Newport Corporation 60,300 678,375 PCD* 40,000 700,000 Praegitzer Industries* 35,000 389,375 Richardson Electronics 123,500 1,026,594 Sage Laboratories 14,500 184,875 Woodhead Industries 40,000 755,000 ------------- 12,483,593 ------------- UTILITIES -- 0.2% Southwest Water Company 18,104 221,774 ------------- MISCELLANEOUS -- 4.9% 6,286,237 ------------- TOTAL COMMON STOCKS (Cost $92,892,348) 121,501,075 ------------- REPURCHASE AGREEMENT -- 3.9% State Street Bank & Trust Company, 5.15% dated 6/30/97, due 07/01/97, maturity value $5,000,715 (collateralized by U.S. Treasury Notes, 6.0% due 5/31/98, valued at $5,100,197) (Cost $5,000,000) 5,000,000 ------------- TOTAL INVESTMENTS -- 99.1% (Cost $97,892,348) 126,501,075 CASH AND OTHER ASSETS LESS LIABILITIES -- 0.9% 1,139,392 ------------- NET ASSETS -- 100.0% $127,640,467 =============
- -------------------------------------------------------------------------------- * Non-income producing. [dbldag] At June 30, 1997, the Fund owned 5% or more of the Company's outstanding shares thereby making the Company an affiliated person as that term is defined in the Investment Company Act of 1940. INCOME TAX INFORMATION: The cost of total investments for federal income tax purposes was $97,892,348. At June 30, 1997, net unrealized appreciation for all securities amounted to $28,608,727, consisting of aggregate gross unrealized appreciation of $31,166,056 and aggregate gross unrealized depreciation of $2,557,329. The accompanying notes are an integral part of the financial statements. THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 | 13 ROYCE MICRO-CAP TRUST, INC. - ------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1997 (UNAUDITED) - -------------------------------------------------------------------------------
ASSETS: Investments at value (identified cost $92,892,348) $121,501,075 Repurchase agreement (at cost and value) 5,000,000 Cash 883,375 Receivable for investments sold 506,550 Receivable for dividends and interest 97,182 Prepaid expenses and other assets 60,247 - --------------------------------------------------------------------------- Total Assets 128,048,429 - --------------------------------------------------------------------------- LIABILITIES: Payable for investments purchased 291,450 Payable for investment advisory fees 41,452 Payable for administration fees 9,286 Accrued expenses 65,774 - --------------------------------------------------------------------------- Total Liabilities 407,962 - --------------------------------------------------------------------------- Net Assets $127,640,467 =========================================================================== ANALYSIS OF NET ASSETS: Undistributed net investment income $ 447,013 Accumulated net realized gain on investments 10,461,552 Net unrealized appreciation on investments 28,608,727 Capital stock 12,154 Additional paid-in capital 88,111,021 - --------------------------------------------------------------------------- Net Assets $127,640,467 =========================================================================== PRICING OF SHARES: Net asset value per share $10.50 ($127,640,467 [divided by] 12,153,511 shares outstanding) ===========================================================================
STATEMENTS OF CHANGES IN NET ASSETS - ---------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1997 DECEMBER 31, (UNAUDITED) 1996 INVESTMENT OPERATIONS: --------------- -------------- Net investment income $ 599,621 $ 947,752 Net realized gain on investments 5,751,659 12,128,883 Net change in unrealized appreciation on investments 7,336,165 2,989,227 - ---------------------------------------------------------------- -------------- ------------ Net increase in net assets from investment operations 13,687,445 16,065,862 - ---------------------------------------------------------------- -------------- ------------ DIVIDENDS AND DISTRIBUTIONS: Net investment income -- (1,125,801) Net realized gain on investments -- (7,880,607) - ---------------------------------------------------------------- -------------- ------------ Total dividends and distributions -- (9,006,408) - ---------------------------------------------------------------- -------------- ------------ CAPITAL STOCK TRANSACTIONS: Dividend and distribution reinvestment -- 6,828,202 - ---------------------------------------------------------------- -------------- ------------ NET INCREASE IN NET ASSETS 13,687,445 13,887,656 NET ASSETS: Beginning of period 113,953,022 100,065,366 - ---------------------------------------------------------------- -------------- ------------ End of period (Including undistributed net investment income of $447,013 at June 30, 1997 and distributions in excess of net investment income of $152,608 at December 31, 1996) $127,640,467 $113,953,022 ================================================================ ============== ============
The accompanying notes are an integral part of the financial statements. 14 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 ROYCE MICRO-CAP TRUST, INC. - ------------------------------------------------------------------------------- STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) - -------------------------------------------------------------------------------
INVESTMENT INCOME: INCOME: Dividends $ 920,087 Interest 177,704 - ----------------------------------------------------- ------------ Total Income 1,097,791 - ------------------------------------------------------ ------------ EXPENSES: Investment advisory fees 240,253 Administration fees 54,044 Custodian and transfer agent fees 40,560 Administrative and office facilities expenses 38,842 Professional fees 15,725 Directors' fees 9,541 Other expenses 99,205 - ------------------------------------------------------ ------------ Total Expenses 498,170 - ------------------------------------------------------ ------------ Net Investment Income 599,621 - ------------------------------------------------------ ------------ REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on investments 5,751,659 Net change in unrealized appreciation on investments 7,336,165 - ------------------------------------------------------ ------------ Net realized and unrealized gain on investments 13,087,824 - ------------------------------------------------------ ------------ NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS $13,687,445 ====================================================== ============
The accompanying notes are an integral part of the financial statements. THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 | 15 ROYCE MICRO-CAP TRUST, INC. - ------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - ------------------------------------------------------------------------------- This table is presented to show selected data for a share outstanding throughout each period, and to assist stockholders in evaluating the Fund's performance for the periods presented. - -------------------------------------------------------------------------------
SIX MONTHS ENDED FOR THE PERIOD JUNE 30, 1997 YEAR ENDED DECEMBER 31, DECEMBER 14, 1993* --------------- ------------------------------------- THROUGH (UNAUDITED) 1996 1995 1994 DECEMBER 31, 1993 --------------- ------------ ------------ ----------- ------------------ NET ASSET VALUE, BEGINNING OF PERIOD $9.38 $8.89 $7.58 $7.27 $7.25 - ----------------------------------------------- -------- -------- -------- ------- ------- INVESTMENT OPERATIONS: Net investment income 0.05 0.09 0.02 0.01 -- Net realized and unrealized gain on investments 1.07 1.32 1.69 0.41 0.02 - ----------------------------------------------- -------- -------- -------- ------- ------- Total from investment operations 1.12 1.41 1.71 0.42 0.02 - ----------------------------------------------- -------- -------- -------- ------- ------- DIVIDENDS AND DISTRIBUTIONS: Net investment income -- (0.10) (0.02) (0.02) -- Net realized gain on investments -- (0.70) (0.34) (0.03) -- - ----------------------------------------------- -------- -------- -------- ------- ------- Total dividends and distributions -- (0.80) (0.36) (0.05) -- - ----------------------------------------------- -------- -------- -------- ------- ------- CAPITAL STOCK TRANSACTIONS: Effect of rights offering -- -- -- (0.06) -- Effect of reinvestment of distributions -- (0.12) (0.04) -- -- - ----------------------------------------------- -------- -------- -------- ------- ------- Total capital stock transactions -- (0.12) (0.04) (0.06) -- - ----------------------------------------------- -------- -------- -------- ------- ------- NET ASSET VALUE, END OF PERIOD $10.50 $9.38 $8.89 $7.58 $7.27 =============================================== ======== ======== ======== ======= ======= MARKET VALUE, END OF PERIOD $8.984 $8.25 $8.00 $7.00 $7.50 =============================================== ======== ======== ======== ======= ======= TOTAL RETURN (A): Net Asset Value 11.9% 16.6% 22.9% 6.0% 0.3% Market Value 8.9% 13.9% 19.8% (5.1)% 0.0% RATIOS BASED ON AVERAGE NET ASSETS: Total expenses 0.86%** 0.85% 1.36% 1.88% 1.92%(b)** Management fee expense 0.41%** 0.47% 0.77% 1.20% 0.00% Other operating expenses 0.45%** 0.38% 0.59% 0.68% 1.92%(b)** Net investment income (loss) 1.03%** 0.88% 0.26% 0.21% (0.06)%** SUPPLEMENTAL DATA: Net Assets, End of Period (in thousands) $127,640 $113,953 $100,065 $82,534 $71,126 Portfolio Turnover Rate 18% 51% 51% 23% 0% Average Commission Rate Paid+ $0.0597 $0.0485 -- -- --
- -------------------------------------------------------------------------- * Commencement of operations. ** Annualized. (a) The Net Asset Value and Market Value total returns assume a continuous stockholder who reinvested all net investment income dividends and capital gain distributions and fully participated in primary rights offerings. (b) Presented after waiver by the Investment Adviser and Administrator. For the period ended December 31, 1993, the ratio of expenses to average net assets would have been 2.12%, absent such waivers. + For fiscal years beginning on or after October 1, 1995, the Fund is required to disclose its average commission rate paid per share for purchases and sales of investments. 16 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 ROYCE MICRO-CAP TRUST, INC. - -------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Royce Micro-Cap Trust, Inc. ("Fund"), is a closed-end, diversified management investment company registered under the Investment Company Act of 1940 and was incorporated under the laws of the State of Maryland on September 9, 1993. The Fund commenced operations on December 14, 1993. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. VALUATION OF INVESTMENTS: Securities listed on an exchange or on the Nasdaq National Market System are valued on the basis of the last reported sale prior to the time the valuation is made or, if no sale is reported for such day, at their bid price for exchange-listed securities and at the average of their bid and asked prices for Nasdaq securities. Quotations are taken from the market where the security is primarily traded. Other over-the-counter securities for which market quotations are readily available are valued at their bid price. Securities for which market quotations are not readily available are valued at their fair value under procedures established and supervised by the Fund's Board of Directors. Bonds and other fixed income securities may be valued by reference to other securities with comparable ratings, interest rates and maturities, using established independent pricing services. INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME: Investment transactions are accounted for on the trade date and dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis. Realized gains and losses from investment transactions and unrealized appreciation and depreciation are determined on the basis of identified cost for book and tax purposes. 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 "Income Tax Information". DISTRIBUTIONS: Any dividend and capital gain distributions are recorded on the ex-dividend date and paid annually in December. These distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Permanent book and tax basis differences relating to shareholder distributions will result in reclassification to paid-in capital and may affect net investment income per share. 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 at fiscal year end is distributed in the following year. REPURCHASE AGREEMENTS: The Fund enters into repurchase agreements with respect to its portfolio securities solely with State Street Bank and Trust Company ("SSB&T"), the custodian of its assets. The Fund restricts repurchase agreements to maturities of no more than seven days. Securities pledged as collateral for repurchase agreements are held by SSB&T until maturity of the repurchase agreement. Repurchase agreements could involve certain risks in the event of default or insolvency of SSB&T, including possible delays or restrictions upon the ability of the Fund to dispose of the underlying securities. ORGANIZATIONAL EXPENSES: Costs of $70,000 incurred by the Fund in connection with its organization have been deferred and are being amortized on a straight line basis over a five year period from the date the Fund commenced operations. INVESTMENT ADVISORY AGREEMENT: As compensation for its services under the Investment Advisory Agreement, Royce & Associates, Inc. ("Royce") (formerly Quest Advisory Corp.) 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 Index for certain prescribed performance periods, as described below. The Basic Fee is a monthly fee equal to 1/12 of 1% (1% on an annualized basis) of the average of the net assets of the Fund at the end of each month included in a period consisting of the rolling 36 months ending with such month. The performance period for each such month is from January 1, 1997 to the most recent month-end, until the Investment Advisory Agreement has been in effect for 36 full calendar months, when the performance period will become a rolling 36 month period ending with such month. THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 | 17 ROYCE MICRO-CAP TRUST, INC. - -------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) - -------------------------------------------------------------------------- The Basic Fee for each such month may be increased or decreased at the rate of 1/12 of .5% per percentage point, depending on the extent, if any, by which the investment performance of the Fund exceeds by more than two percentage points, or is exceeded by more than two percentage points by, the percentage change in the investment record of the Russell 2000 Index for the performance period. 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 would be payable if the investment performance of the Fund exceeded the percentage change in the investment record of the Russell 2000 Index 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 would be payable if the percentage change in the investment record of the Russell 2000 Index exceeded the investment performance of the Fund by 12 or more percentage points for the performance period. In order to avoid the impact of short-term differences between the investment performance of the Fund and the record of the Russell 2000 Index, Royce will not collect any accrued portion of the Basic Fee, as adjusted for performance, in excess of .5% until January 1998. The present Investment Advisory Agreement replaced a similar investment advisory agreement between the Fund and Royce, under which the Fund's investment performance was measured against the record of the Nasdaq Composite over a rolling period of up to 36 months. The present Investment Advisory Agreement provides that, for the 18 month period from January 1, 1997 to June 30, 1998, the monthly fee payble to Royce will be the lower of the fee calculated under such Agreement or the fee that would have been payable to Royce for the month involved under the prior agreement. For the six months ended June 30, 1997, the Fund paid Royce advisory fees totaling $240,253. ADMINISTRATION AGREEMENT: Under the Administration Agreement with the Fund, Mitchell Hutchins Asset Management Inc. (the "Administrator") serves as the Administrator. In accordance with the Administration Agreement, the Administrator performs or assists in certain aspects of the Fund's operations. As compensation for its services, the Administrator is paid an annual fee, payable monthly, of $50,000 plus 0.05% on the first $125 million of the Fund's average daily net assets, and 0.03% of average daily net assets exceeding $125 million. CAPITAL STOCK: At June 30, 1997, there were 150,000,000 shares of common stock, $0.001 par value, authorized. There were no capital stock transactions for the six months ended June 30, 1997. Capital stock transactions were as follows:
Six months ended June 30, 1997 Year ended (unaudited) December 31, 1996 ------------------- ----------------------- Shares Amount Shares Amount -------- -------- --------- ----------- Dividend and distribution reinvestment -- -- 895,501 $6,828,202
On July 2, 1997, the Fund issued 1,600,000 shares of 7.75% Cumulative Preferred Stock at $25 per share. The Shares are listed on the American Stock Exchange and began trading on July 10, 1997. TRANSACTIONS IN SHARES OF AFFILIATED COMPANIES: An "Affiliated Company", as defined in the Investment Company Act of 1940 is a company in which the Fund owns at least 5% of the company's outstanding voting securities. The Fund effected the following transactions in shares of such companies during the six months ended June 30, 1997.
Purchases Sales --------------------- ----------------- Realized Affiliated Company Shares Cost Shares Cost Gain/Loss Dividend Income - ------------------------- -------- ---------- -------- ------ ---------- ---------------- Art's-Way Manufacturing 45,000 $264,375 -- -- -- --
PURCHASES AND SALES OF INVESTMENT SECURITIES: For the six months ended June 30, 1997, the cost of purchases and the proceeds from the sales of investment securities, other than short-term securities, amounted to $24,896,746 and $19,735,636, respectively. 18 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 ROYCE GLOBAL TRUST, INC. - ------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS JUNE 30, 1997 (UNAUDITED) - ------------------------------------------------------------------------------- COMMON STOCKS -- 83.0% SHARES VALUE ------ ----- CONSUMER PRODUCTS -- 10.7% Coca-Cola FEMSA ADR 6,000 $ 309,750 Johnson Worldwide Associates Cl. A* 43,700 562,638 Lazare Kaplan International* 52,800 884,400 Oakley* 45,000 632,812 Semi-Tech Corporation Cl. A 177,500 388,281 The Topps Company* 163,400 684,238 Universal Corporation 20,000 635,000 Velcro Industries 16,200 1,328,400 ------------ 5,425,519 ------------ CONSUMER SERVICES -- 4.6% Groupe AB ADR 64,000 544,000 Grupo Televisa GDR* 10,000 303,750 International Dairy Queen Cl. A* 35,000 840,000 Ryanair Holdings ADR 20,000 542,500 True North Communications 5,000 123,750 ------------ 2,354,000 ------------ FINANCIAL INTERMEDIARIES -- 8.7% BHI 32,400 712,800 Barclays ADR 2,000 158,500 Leucadia National Corporation 39,200 1,212,750 Oriental Financial Group 5,000 141,250 PXRE Corporation 36,000 1,107,000 Trenwick Group 28,650 1,074,375 ------------ 4,406,675 ------------ FINANCIAL SERVICES -- 10.6% Amvescap ADR 5,000 291,250 E.W. Blanch Holdings 12,000 320,250 Duff & Phelps Credit Rating 10,000 303,750 Arthur J. Gallagher & Co. 5,000 188,750 Lexington Global Asset Managers* 11,300 77,687 MacKenzie Financial 45,700 936,136 Phoenix Duff & Phelps 20,000 147,500 The Pioneer Group 48,000 1,104,000 Wellington Underwriting 515,770 936,214 Willis Corroon Group ADR 96,400 1,078,475 ------------ 5,384,012 ------------ HEALTH -- 3.3% Haemonetics Corporation* 43,800 837,675 Marquette Medical Systems* 37,500 825,000 ------------ 1,662,675 ------------ INDUSTRIAL PRODUCTS -- 14.1% BHA Group 4,730 87,505 Carbo Ceramics 32,000 872,000 Kaydon Corporation 14,500 719,563 The Lincoln Electric Company Cl. A 10,000 382,500 Mercer International 50,500 479,750 Nordson Corporation 8,700 558,975 SHARES VALUE ------ ----- Penn Engineering and Manufacturing Cl. A 32,800 $ 627,300 Puerto Rican Cement Company 20,000 651,250 Schweitzer-Mauduit International 1,500 56,250 Shorewood Packaging* 20,000 455,000 Simpson Manufacturing Co.* 16,600 439,900 Tecumseh Products Company Cl. B 10,400 586,300 Unifi 18,500 691,437 Woodward Governor Company 16,000 576,000 ------------ 7,183,730 ------------ INDUSTRIAL SERVICES -- 15.8% APT Satellite Holdings ADR 10,000 126,250 Air Express International 7,000 278,250 Circle International Group 10,600 279,575 Cordiant ADR 22,800 141,075 DIMON Incorporated 30,500 808,250 Elamex* 5,000 48,750 Insituform Technologies Cl. A* 27,000 165,375 Morrison Knudsen* 67,400 918,325 The Olsten Corporation 35,000 680,313 Peak International 62,500 750,000 Pittston Burlington Group 29,000 815,625 Standard Commercial* 43,531 756,351 Stone & Webster 29,200 1,246,475 Willbros Group* 65,800 1,044,575 ------------ 8,059,189 ------------ NATURAL RESOURCES -- 2.4% Denbury Resources* 40,200 673,350 Dreco Energy Services Cl. A* 5,000 262,500 MK Gold Company* 203,500 317,969 ------------ 1,253,819 ------------ RETAIL -- 8.0% Amway Asia Pacific 2,000 87,250 Amway Japan ADR 17,100 296,044 Sotheby's Holdings Cl. A 44,300 747,563 Stanhome 40,200 1,321,575 Suzy Shier 127,800 832,905 The Talbots 22,500 765,000 ------------ 4,050,337 ------------ TECHNOLOGY -- 4.8% CEM Corporation* 46,400 400,200 Industri-Matematik International 7,000 113,750 Marshall Industries* 34,300 1,277,675 National Computer Systems 24,600 654,975 ------------ 2,446,600 ------------ TOTAL COMMON STOCKS (Cost $36,566,170) 42,226,556 ------------ THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 | 19 ROYCE GLOBAL TRUST, INC. - ------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS JUNE 30, 1997 (UNAUDITED) - ------------------------------------------------------------------------------- VALUE ------ CORPORATE BOND -- 1.6% International Semi-Tech, principal amount $1,325,000, 11.50% Sr. Disc. Note due 8/15/03 (Cost $814,375) $ 791,687 ------------ U.S. TREASURY OBLIGATION -- 7.9% U.S. Treasury Notes, principal amount $4,000,000, 6.00% due 11/30/97 (Cost $3,985,646) 4,006,880 ------------ VALUE ------ TOTAL INVESTMENTS -- 92.5% (Cost $41,366,191) $47,025,123 CASH AND OTHER ASSETS LESS LIABILITIES -- 7.5% 3,814,170 ------------ NET ASSETS -- 100.0% $50,839,293 ============ - ------------------------------------------------------------------------- * Non-income producing. The abbreviations ADR and GDR refer to American Depository Receipt and Global Depository Receipt, respectively. INCOME TAX INFORMATION: The cost of total investments for federal income tax purposes was $41,366,191. At June 30, 1997, net unrealized appreciation for all securities amounted to $5,658,932, consisting of aggregate gross unrealized appreciation of $6,715,211 and aggregate gross unrealized depreciation of $1,056,279. The accompanying notes are an integral part of the financial statements. 20 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 ROYCE GLOBAL TRUST, INC. - ------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1997 (UNAUDITED) - -------------------------------------------------------------------------------
ASSETS: Investments at value (identified cost $41,366,191) $47,025,123 Cash 311,151 Receivable for investments sold 4,151,898 Receivable for dividends and interest 81,621 Prepaid expenses and other assets 6,966 - ---------------------------------------------------------------------------------- ------------ Total Assets 51,576,759 - ---------------------------------------------------------------------------------- ------------ LIABILITIES: Payable for investments purchased 687,910 Accrued expenses 49,556 - ---------------------------------------------------------------------------------- ------------ Total Liabilities 737,466 - ---------------------------------------------------------------------------------- ------------ Net Assets $50,839,293 ================================================================================== ============ ANALYSIS OF NET ASSETS: Undistributed net investment income $ 1,191,440 Accumulated net realized gain on investments and foreign currency 3,995,308 Net unrealized appreciation on investments and foreign currency 5,658,983 Capital Stock 79,984 Additional paid-in capital 39,913,578 - ---------------------------------------------------------------------------------- ------------ Net Assets $50,839,293 ================================================================================== ============ PRICING OF SHARES: Net asset value per share ($50,839,293 [divided by] 7,998,419 shares outstanding) $6.36 ================================================================================== ============
STATEMENTS OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------
=================================== SIX MONTHS ENDED YEAR ENDED JUNE 30, 1997 DECEMBER 31, (UNAUDITED) 1996 INVESTMENT OPERATIONS: ------------------ ---------------- Net investment income $ 357,665 $ 760,943 Net realized gain on investments and foreign currency 1,932,778 3,733,788 Net change in unrealized appreciation on investments and foreign currency 4,394,552 (1,218,086) - ----------------------------------------------------------------------------------------- ------------ ------------- Net increase in net assets from investment operations 6,684,995 3,276,645 - ----------------------------------------------------------------------------------------- ------------ ------------- CAPITAL STOCK TRANSACTIONS: Common Stock repurchased -- (507,185) - ----------------------------------------------------------------------------------------- ------------ ------------- NET INCREASE IN NET ASSETS 6,684,995 2,769,460 NET ASSETS: Beginning of period 44,154,298 41,384,838 - ----------------------------------------------------------------------------------------- ------------ ------------- End of period (including undistributed net investment income of $1,191,440 and $833,775, respectively) $50,839,293 $44,154,298 ========================================================================================= =========== =============
The accompanying notes are an integral part of the financial statements. THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 | 21 ROYCE GLOBAL TRUST, INC. - ------------------------------------------------------------------------------- STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) - ------------------------------------------------------------------------------- INVESTMENT INCOME: INCOME: Dividends $284,634 Interest 218,034 - ----------------------------------------------------------- ---------- Total Income 502,668 - ----------------------------------------------------------- ---------- EXPENSES: Investment advisory fees 226,989 Professional fees 48,694 Custodian and transfer agent fees 25,049 Administrative and office facilities expenses 15,126 Directors' fees 13,012 Other expenses 43,122 - ----------------------------------------------------------- ---------- Total Expenses 371,992 Fees Waived by Investment Adviser (226,989) - ----------------------------------------------------------- ---------- Net Expenses 145,003 - ----------------------------------------------------------- ---------- Net Investment Income 357,665 - ----------------------------------------------------------- ---------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCY: Net realized gain on investments and foreign currency 1,932,778 Net change in unrealized appreciation on investments and foreign currency 4,394,552 - ----------------------------------------------------------- ---------- Net realized and unrealized gain on investments and foreign currency 6,327,330 - ----------------------------------------------------------- ---------- NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS $6,684,995 =========================================================== ========== The accompanying notes are an integral part of the financial statements. 22 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 ROYCE GLOBAL TRUST, INC. - ------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - ------------------------------------------------------------------------------- This table is presented to show selected data for a share outstanding throughout each period, and to assist stockholders in evaluating the Fund's performance for the periods presented. - -------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1997 -------------- (UNAUDITED) -------------- NET ASSET VALUE, BEGINNING OF PERIOD $5.52 - ------------------------------------------------------------- --------- INVESTMENT OPERATIONS: Net investment income 0.04 Net realized and unrealized gain on investments and foreign currency 0.80 - ------------------------------------------------------------ --------- Total from investment operations 0.84 - ------------------------------------------------------------- --------- DIVIDENDS AND DISTRIBUTIONS: Net investment income -- Net realized gain on investments and foreign currency -- Other sources -- - ------------------------------------------------------------- --------- Total dividends and distributions -- - ------------------------------------------------------------- --------- CAPITAL STOCK TRANSACTIONS: -- - ------------------------------------------------------------- --------- NET ASSET VALUE, END OF PERIOD $6.36 ============================================================= ========= MARKET VALUE, END OF PERIOD $5.00 ============================================================= ========= TOTAL RETURN (a): Net Asset Value 15.2% Market Value 8.8% RATIOS BASED ON AVERAGE NET ASSETS: Total expenses (b) 0.64%* Management fee expense 0.00%* Other operating expenses 0.64%* Net investment income 1.58%* SUPPLEMENTAL DATA: Net Assets, End of Period (in thousands) $50,839 Portfolio Turnover Rate 34% Average Commission Rate Paid+ $0.0623 YEARS ENDED DECEMBER 31, ----------------------------------------------------------- 1996 1995 1994 1993 1992 ----------- ----------- ----------- ----------- ----------- NET ASSET VALUE, BEGINNING OF PERIOD $5.09 $4.70 $5.24 $4.99 $6.01 - ------------------------------------------------------------- ------- ------- --------- ------- ------- INVESTMENT OPERATIONS: Net investment income 0.06 0.13 0.19 0.04 0.04 Net realized and unrealized gain on investments and foreign currency 0.35 0.36 (0.62) 0.46 (0.64) - ------------------------------------------------------------ ------- ------- --------- ------- ------- Total from investment operations 0.41 0.49 (0.43) 0.50 (0.60) - ------------------------------------------------------------- ------- ------- --------- ------- ------- DIVIDENDS AND DISTRIBUTIONS: Net investment income -- (0.16) (0.11) (0.03) (0.02) Net realized gain on investments and foreign currency -- (0.01) -- (0.22) (0.05) Other sources -- -- -- -- (0.35) - ------------------------------------------------------------- ------- ------- --------- ------- ------- Total dividends and distributions -- (0.17) (0.11) (0.25) (0.42) - ------------------------------------------------------------- ------- ------- --------- ------- ------- CAPITAL STOCK TRANSACTIONS: 0.02 0.07 -- -- -- - ------------------------------------------------------------- ------- ------- --------- ------- ------- NET ASSET VALUE, END OF PERIOD $5.52 $5.09 $4.70 $5.24 $4.99 ============================================================= ======= ======= ========= ======= ======= MARKET VALUE, END OF PERIOD $4.59 $4.19 $3.56 $4.31 $4.06 ============================================================= ======= ======= ========= ======= ======= TOTAL RETURN (a): Net Asset Value -- -- -- -- -- Market Value 9.6% 22.3% (17.4)% 9.3% (3.3)% RATIOS BASED ON AVERAGE NET ASSETS: Total expenses (b) 1.91% 2.14% 2.27% 2.43% 2.21% Management fee expense 0.83% 1.00% 1.00% 1.00% 1.00% Other operating expenses 1.08% 1.14% 1.27% 1.43% 1.21% Net investment income 1.80% 2.80% 3.81% 0.74% 0.67% SUPPLEMENTAL DATA: Net Assets, End of Period (in thousands) $44,154 $41,385 $ 41,106 $45,839 $43,615 Portfolio Turnover Rate 159% 76% 483% 445% 267% Average Commission Rate Paid+ $0.0396 -- -- -- --
- ------------------------------------------------------------------------------- (a) The Net Asset Value and Market Value Total Returns assume a continuous stockholder who reinvested all net investment income dividends and capital gain distributions and fully participated in primary rights offerings. (b) Expense ratios are shown after fee waivers by the investment adviser. for the periods ended June 30, 1997 and December 31, 1996, the expense ratios before the waivers would have been 1.64% and 2.08%, respectively. + For fiscal years beginning on or after October 1, 1995, the Fund is required to disclose its average commission rate paid per share for purchases and sales of investments. * Annualized. THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 | 23 ROYCE GLOBAL TRUST, INC. - ------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - ------------------------------------------------------------------------------- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Royce Global Trust, Inc. ("Fund"), formerly named All Seasons Global Fund, Inc., is a closed-end, diversified management investment company registered under the Investment Company Act of 1940. The Fund commenced operations on March 2, 1988. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. VALUATION OF INVESTMENTS: Securities listed on an exchange or on the Nasdaq National Market System are valued on the basis of the last reported sale prior to the time the valuation is made or, if no sale is reported for such day, at their bid price for exchange-listed securities and at the average of their bid and asked prices for Nasdaq securities. Quotations are taken from the market where the security is primarily traded. Other over-the-counter securities for which market quotations are readily available are valued at their bid price. Securities for which market quotations are not readily available are valued at their fair value under procedures established and supervised by the Fund's Board of Directors. Bonds and other fixed income securities may be valued by reference to other securities with comparable ratings, interest rates and maturities, using established independent pricing services. FOREIGN CURRENCY: The Fund does not isolate that portion of the results of operations which result from changes in foreign exchange rates on investments from the portion arising from changes in market prices of securities held. Such fluctuations are included with net realized and unrealized gains and losses on investments. 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, 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 fiscal year end, as a result of changes in the exchange rates. INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME: Investment transactions are accounted for on the trade date and dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis. Realized gains and losses from investment transactions and unrealized appreciation and depreciation are determined on the basis of identified cost for book and tax purposes. 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 "Income Tax Information". DISTRIBUTIONS: Any dividend and capital gain distributions are recorded on the ex-dividend date and paid annually in December. These distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Permanent book and tax basis differences relating to shareholder distributions will result in reclassification to paid-in capital and may affect net investment income per share. 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 at fiscal year end is distributed in the following year. REPURCHASE AGREEMENTS: The Fund enters into repurchase agreements with respect to its portfolio securities solely with State Street Bank and Trust Company ("SSB&T"), the custodian of its assets. The Fund restricts repurchase agreements to maturities of no more than seven days. Securities pledged as collateral for repurchase agreements are held by SSB&T until maturity of the repurchase agreement. Repurchase agreements could involve certain risks in the event of default or insolvency of SSB&T, including possible delays or restrictions upon the ability of the Fund to dispose of the underlying securities. 24 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 ROYCE GLOBAL TRUST, INC. - ------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) - ------------------------------------------------------------------------------- INVESTMENT ADVISORY AGREEMENT: The Investment Advisory Agreement between Royce & Associates, Inc. ("Royce") (formerly Quest Advisory Corp.) and the Fund, provides for fees at an annual rate of 1.0% of the average daily net assets of the Fund. For the six months ended June 30, 1997, Royce waived the total advisory fee of $226,989. Royce has voluntarily committed to waive its fee until the Fund's market price has closed on the Nasdaq National Market at or above $5.28, the Net Asset Value per share of the Fund on October 31, 1996. CAPITAL STOCK: For the year ended December 31, 1996, the Fund repurchased 125,038 of common stock at an average market price per share of $4.02 and a weighted average discount from net asset value of 22.5% per share. The cost of the repurchased shares was $507,185. PURCHASES AND SALES OF INVESTMENT SECURITIES: For the six months ended June 30, 1997, the cost of purchases and proceeds from sales of investment securities, other than short-term securities, amounted to $18,484,787 and $14,473,579, respectively. THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 | 25 STOCKHOLDER MEETING RESULTS - -------------------------------------------------------------------------- - -------------------------------------------------------------------------- ROYCE VALUE TRUST, INC. At the 1997 Annual Meeting of Stockholders held on April 29, 1997, the Fund's stockholders approved: (i) the election of the board of directors, consisting of (a) Charles M. Royce, (b) Thomas R. Ebright, (c) Richard M. Galkin, (d) Stephen L. Isaacs, and (e) David L. Meister; (ii) two changes in the Fund's fundamental investment policies; and (iii) the selection of accountants.
Common Stock Common Stock Common Stock and Preferred and Preferred and Preferred Stock Voting Stock Voting Stock Voting Preferred Stock Preferred Stock Preferred Stock Together As A Together As A Together As A Voting As A Voting As A Voting As A Single Class - Single Class - Single Class - Separate Class - Separate Class - Separate Class - Votes For Votes Against Votes Abstained Votes for Votes Against Votes Abstained ---------------- ---------------- ----------------- ------------------ ------------------ ----------------- (i) (a) 17,007,810 N/A 363,762 N/A N/A N/A (b) N/A N/A N/A 1,443,040 N/A 24,891 (c) 16,862,027 N/A 509,545 N/A N/A N/A (d) 16,856,202 N/A 515,371 N/A N/A N/A (e) N/A N/A N/A 1,440,040 N/A 27,891 (ii) 12,873,207 3,314,233 520,986 1,290,662 37,905 30,676 (iii) 16,969,108 85,093 317,371 N/A N/A N/A
ROYCE MICRO-CAP TRUST, INC. At the 1997 Annual Meeting of Stockholders held on April 29, 1997, the Fund's stockholders approved: (i) the election of the board of directors, consisting of (a) Charles M. Royce, (b) Thomas R. Ebright, (c) Richard M. Galkin, (d) Stephen L. Isaacs, and (e) David L. Meister; (ii) a change in the Fund's fundamental investment policies; and (iii) the selection of accountants.
Votes Cast For Votes Cast Against Votes Abstained ---------------- -------------------- ---------------- (i) (a) 7,307,536 N/A 176,377 (b) 7,267,131 N/A 216,782 (c) 7,268,524 N/A 215,390 (d) 7,265,182 N/A 218,732 (e) 7,266,434 N/A 217,480 (ii) 5,311,945 377,522 188,611 (iii) 7,318,682 46,819 118,413
ROYCE GLOBAL TRUST, INC. At the 1997 Annual Meeting of Stockholders held on May 13, 1997, the Fund's stockholders approved: (i) the election of the board of directors, consisting of (a) Charles M. Royce, (b) Richard M. Galkin, (c) Stephen L. Isaacs, and (d) David L. Meister; and (ii) the selection of accountants.
Votes Cast For Votes Cast Against Votes Abstained ---------------- -------------------- ---------------- (i) (a) 5,712,170 N/A 1,133,724 (b) 5,707,810 N/A 1,138,084 (c) 5,703,480 N/A 1,142,414 (d) 5,705,541 N/A 1,140,353 (ii) 6,756,112 60,658 29,124
26 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1997 -----END PRIVACY-ENHANCED MESSAGE-----