-----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, EuRSxGJZmkArna7Vxb1agZ6nJL3pN9dGbd/zHtIWgshZymQ3m5bVs4y3azigo5OO 85trvW4Bmn3jrD0YFy0OZA== 0000950146-99-001479.txt : 19990831 0000950146-99-001479.hdr.sgml : 19990831 ACCESSION NUMBER: 0000950146-99-001479 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990830 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: SEC FILE NUMBER: 811-08030 FILM NUMBER: 99702247 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 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROYCE VALUE TRUST INC CENTRAL INDEX KEY: 0000804116 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 133356097 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 001-09313 FILM NUMBER: 99702248 BUSINESS ADDRESS: STREET 1: 1414 AVE OF THE AMERICAS 9TH FL CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2123557311 MAIL ADDRESS: STREET 1: 1414 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10019 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROYCE FOCUS TRUST INC CENTRAL INDEX KEY: 0000825202 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 592876580 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-05379 FILM NUMBER: 99702249 BUSINESS ADDRESS: STREET 1: 1414 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2125084578 MAIL ADDRESS: STREET 1: C/O QUEST ADVISORY CORP STREET 2: 1414 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10019 FORMER COMPANY: FORMER CONFORMED NAME: ROYCE GLOBAL TRUST INC DATE OF NAME CHANGE: 19961203 FORMER COMPANY: FORMER CONFORMED NAME: ALL SEASONS GLOBAL FUND INC DATE OF NAME CHANGE: 19950803 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAS ALL SEASON FUND INC DATE OF NAME CHANGE: 19920703 N-30D 1 THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 Semi-Annual Report - -------------------------------------------------------------------------------- THE ROYCE FUNDS Value Investing In Small Companies For More Than 25 Years ROYCE VALUE TRUST ROYCE MICRO-CAP TRUST ROYCE FOCUS TRUST - -------------------------------------------------------------------------------- www.roycefunds.com A FEW WORDS ON CLOSED-END FUNDS - -------------------------------------------------------------------------------- Royce & Associates, Inc. manages three closed-end funds: Royce Value Trust, the first small-cap value closed-end fund offering; Royce Micro-Cap Trust, the only micro-cap closed-end fund; and Royce Focus Trust, formerly named Royce Global Trust, a closed-end fund that typically invests in a limited number of domestic and foreign companies. 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 approved by the fund's Board of Directors. A closed-end fund raises cash for investment by issuing a fixed number of shares through initial and other public offerings which may include periodic rights offerings. Proceeds from the offerings are invested in an actively managed portfolio of securities. Investors wanting to buy or sell shares of a publicly traded closed-end fund after the offerings must do so on a stock exchange or the 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 o Since a closed-end fund does not issue redeemable securities or offer its securities on a continuous basis, it does not need to liquidate securities or hold uninvested assets to meet investor demands for cash redemptions, as an open-end fund must. o In a closed-end fund, not having to meet investor redemption requests or invest at inopportune times is ideal for value managers who attempt to buy stocks when prices are depressed and sell securities when prices are high. o 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. o The fixed capital structure allows permanent leverage to be employed as a means to enhance capital appreciation potential. o Unlike open-end funds, our closed-end funds are able to distribute capital gains on a quarterly basis. Royce Value Trust has adopted a quarterly distribution policy. We believe that the closed-end fund structure is very suitable for the long-term investor who understands the benefits of a stable pool of capital. - -------------------------------------------------------------------------------- WHY DIVIDEND REINVESTMENT IS IMPORTANT A very important component of an investor's total return comes from the reinvestment of distributions. By reinvesting distributions, our investors can maintain an undiluted investment in a Fund. To get a fair idea of the impact of reinvested distributions, please see the charts on pages 12, 14 and 16. For additional information on the Funds' Distribution Reinvestment and Cash Purchase Options and the benefits for stockholders, see page 19. THE ROYCE FUNDS - -------------------------------------------------------------------------------- [graphic: looking through magnifying glass at The Royce Funds listing in newspaper] SEMI-ANNUAL REPORT REFERENCE GUIDE - -------------------------------------------------------------------------------- For more than 25 years, our approach has focused on evaluating a company's current worth -- what we believe a business would sell for in a private transaction between rational and well-informed parties. This requires a thorough analysis of the financial and operating dynamics of a business, as though we were purchasing the entire company. The price we pay for a security must be substantially lower than our appraisal of its current worth. Letter to Our Stockholders: Reversal of Fortune ... Why Small Caps, Why Now 2 - ------------------------------------------------------------------------------ A Recounting of an Idea 10 - ------------------------------------------------------------------------------ Performance and Portfolio Review: Royce Value Trust, Royce Micro-Cap Trust, Royce Focus Trust 12 - ------------------------------------------------------------------------------ History Since Inception 18 - ------------------------------------------------------------------------------ Distribution Reinvestment and Cash Purchase Options 19 - ------------------------------------------------------------------------------ Updates and Notes: What's New on Our Website (www.roycefunds.com) and a Y2K Update 20 - ------------------------------------------------------------------------------ Schedules of Investments and Other Financial Statements 21 - ------------------------------------------------------------------------------ Postscript: Funny Business Inside Back Cover - ------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- NAV AVERAGE ANNUAL TOTAL RETURNS Through June 30, 1999 - -------------------------------------------------------------------------------- FUND 2ND QUARTER YEAR-TO-DATE FROM INCEPTION 1999* 1999* 1-YEAR 3-YEAR 5-YEAR INCEPTION DATE - -------------------------------------------------------------------------------------------------- Royce Value Trust 20.2% 4.9% -0.2% 14.4% 15.2% 12.8% 11/26/86 - -------------------------------------------------------------------------------------------------- Royce Micro-Cap Trust 16.5 2.4 -9.4 9.5 13.4 12.3 12/14/93 - -------------------------------------------------------------------------------------------------- Royce Focus Trust 29.4 10.1 -3.6 n/a n/a 10.1 11/01/96** - -------------------------------------------------------------------------------------------------- Russell 2000 15.6 9.3 1.5 11.2 15.4 - --------------------------------------------------------------------------------------------------
*Not annualized. **Date Royce & Associates, Inc. assumed investment management responsibility. [photo: Charles M. Royce] [caption] Charles M. Royce, President [sidebar] The second-quarter rally represents a remarkable comeback. It really began in late March, and I think it's an extension of what happened following the low on October 8, 1998. In fact, the Russell 2000 was up 48.9% from October 8 through June 30, while the S&P 500 was up 44.4% over the same period. I think many people aren't aware of this recent period of small-cap outperformance -- their attention is focused on year-to-date results. [end sidebar] LETTER TO OUR SHAREHOLDERS - -------------------------------------------------------------------------------- [cartoon graphic: Dual scene: Scene 1--Depressed people hiding under a table, first quarter fund chart showing downward trend. Scene 2--Ecstatic people dancing on the table with results of second quarter.] Hank Blaustein 1999 REVERSAL OF FORTUNE What an interesting six months! At the end of 1999's first quarter, the best thing investors could say about the small-cap sector was that it was analogous to one's brother-in-law -- a question mark backed by hope. But after a poor start in both an absolute and relative sense, small-cap securities reversed their fortunes [bar chart] - -------------------------------------------------------------------------------- AFTER WEAK 1ST QUARTER, SMALL-CAPS SOAR IN 2ND QUARTER, INTERNET STOCKS SINK, LARGE-CAPS SIMMER - --------------------------------------------------------------------------------
Russell S&P Nasdaq DJ Internet 2000 500 Composite Commerce ---- --- --------- -------- 1st Quarter -5.4% 5.0% 12.3% 55.9% 2nd Quarter 15.6% 7.1% 9.1% -2.1%
[end bar chart] 2 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 in the second quarter by outperforming their large-company counterparts for the first time since the third quarter of 1997. Perhaps the attitudes of those who thought portfolio diversification wasn't necessary were reversed as well. Although small-caps did not quite catch large-caps on a year-to-date performance basis through June 30, 1999, the second quarter was as impressive for small-caps as the first quarter was dismal. As exciting as small-cap performance was in 1999's second quarter, it was the rise and fall of Internet stocks during the first six months that grabbed headlines and held investor attention. With the Dow Jones Internet Commerce Index up 55.9% in the first quarter alone, a return most investors would be happy with over three years, there were plenty of Internet stock market gains despite few real profits. Internet mania knew no bounds, impacting both large- and small-cap indices -- most notably, the Nasdaq Composite and the small-cap Russell 2000. The 53 Internet stocks in the Russell 2000 were up 54% on average in the first quarter; without these companies, the index, which was down 5.4%, would have been about 3% lower (Source: Frank Russell Co.). Although the Internet sector was still up significantly year-to-date through June 30, 1999, it was only after the second-quarter downturn (DJ Internet Commerce index was off 22.7% from its high on 4/13/99 through 6/30/99) that the Monopoly-money mentality began to subside. Like high school hoops hopefuls bypassing college and going directly to the NBA, many Internet companies at the close of their first day of trading skipped small-cap status and went directly to large-cap standing. One has to wonder about the long-term prospects for many of these companies. [pull quote] After a poor start in both an absolute and relative sense, small-cap securities reversed their fortunes in the second quarter by outperforming their large-company counterparts for the first time since the third quarter of 1997. Perhaps the attitudes of those who thought portfolio diversification wasn't necessary were reversed as well. [end pull quote] [pull quote] Like high school hoops hopefuls bypassing college and going directly to the NBA, many Internet companies at the close of their first day of trading skipped small-cap status and went directly to large-cap standing. One has to wonder about the long-term prospects for many of these companies. [end pull quote] THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 3 [sidebar] It seems to be a commonly held belief that large-cap stocks in general are currently overvalued and that small-caps in general are relatively undervalued, but I think that many large-caps are so overpriced that small-caps can't help but look attractive. The real issue for us is finding stocks whose absolute values are attractive to us -- stocks that are trading at a discount to their own value as a business, not at a discount to another company in another business in a different asset class. [end sidebar] - -------------------------------------------------------------------------------- REPORTS OF VALUE'S DEATH Whoever said rules are made to be broken had the first quarter in mind as it pertained to the relative performance of growth and value approaches inside small-cap. The traditional beacon during difficult times -- value investing -- was no help at all during the first quarter (more to the point, our Funds also performed poorly). The Russell 2000 Value index lost 9.7% versus a loss of 1.7% for the Russell 2000 Growth index, its worst relative comparison since the fourth quarter of 1979. It was also only the fourth time in the index's 20-year history (4Q'79, 4Q'89 and 4Q'94) that the small-cap value index underperformed the small-cap growth index during a down quarter. Fortunately, reports of the demise of value investing were premature. In the second quarter, the Russell 2000 Value index rebounded sharply, up 16.6% versus 14.8% for the Russell 2000 Growth index. Although value still trails growth year-to-date through June 30, 1999, over a longer and perhaps more meaningful period, i.e., since the May 22, 1996 small-cap peak, value has significantly outperformed growth (+42.8% versus +18.7%). [pull quote] The traditional beacon during difficult times -- value investing -- was no help at all during the first quarter. It was only the fourth time in the Russell 2000's 20-year history that the small-cap value index underperformed the small-cap growth index during a down quarter. [end pull quote] [bottombar] When he stopped by our offices this summer (the only time it's easy to get a good table at a great restaurant in New York), the intrepid advisor asked us questions about our investment approach and the number of funds that we manage. Chuck Royce sat down with him to share his insights regarding these topics. Since Royce focuses on small-company value investing, why offer three closed-end Funds that appear to do the same thing? Let's not forget that small-cap is not only the largest -- with more than 8,000 names -- but also the most diverse sector of the domestic equity universe. Even with a very focused approach like ours, this diversity allows us to offer Funds whose portfolio selections and potential performance patterns may differ substantially. For example, we offer a Fund that invests in the lower end, Royce Micro-Cap Trust and one that invests in both small- and micro-cap companies, Royce Value Trust. We also offer a Fund that is not restricted in terms of market capitalization, Royce Focus Trust. It invests primarily in a limited number of small- and micro-cap companies, but can also make selections outside of the small-cap universe. While you may not expect differences in [end bottombar] 4 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 [pull quote] Who would have thought that our Funds would outperform in the dynamic second quarter and underperform during the difficult first quarter? We certainly didn't. [end pull quote] - -------------------------------------------------------------------------------- WHO WOULD HAVE THOUGHT? Our approach in the past regarding our performance discussion has been simple and direct, cartoons aside -- temper our enthusiasm when things go well and keep our chins up when they do not. In 1999, we have had opportunities to do both. Our performance through June 30, 1999 was influenced by our asset class, our investment style and our portfolio positions. Our first-quarter travails (each of the Funds were underwater and underperformed the Russell 2000) were matched by our second-quarter triumphs (each provided 16%+ NAV quarterly returns, and each outperformed the Russell 2000). Especially noteworthy second quarter performances were turned in by Royce Focus Trust, our concentrated portfolio, and Royce Value Trust, our oldest and largest closed-end fund. In addition, RVT enjoyed a 3-year NAV performance advantage over both of its benchmark indices. For a complete review and discussion of individual fund results and risk profiles, see pages 12 - 17. [bottombar] MICRO-CAP VS. SMALL-CAP PERFORMANCE COMPARISON 3-YEAR TRAILING PERFORMANCE DIFFERENTIAL [line chart] Date Return Spread ---- ------------- Dec-28 2.51% Mar-29 1.05% Jun-29 -1.16% Sep-29 -4.10% Dec-29 -1.99% Mar-30 1.87% Jun-30 -0.59% Sep-30 -3.03% Dec-30 -5.21% Mar-31 -2.69% Jun-31 -5.82% Sep-31 -5.14% Dec-31 -5.50% Mar-32 -4.20% Jun-32 -2.31% Sep-32 1.58% Dec-32 0.18% Mar-33 -1.59% Jun-33 9.45% Sep-33 11.15% Dec-33 13.50% Mar-34 14.77% Jun-34 14.38% Sep-34 15.00% Dec-34 19.92% Mar-35 13.25% Jun-35 13.90% Sep-35 8.33% Dec-35 19.53% Mar-36 28.36% Jun-36 2.82% Sep-36 7.19% Dec-36 14.21% Mar-37 10.66% Jun-37 8.91% Sep-37 8.73% Dec-37 6.43% Mar-38 5.27% Jun-38 9.43% Sep-38 5.95% Dec-38 0.21% Mar-39 -4.54% Jun-39 -4.80% Sep-39 -0.17% Dec-39 -6.74% Mar-40 -8.82% Jun-40 -7.66% Sep-40 -8.06% Dec-40 -8.08% Mar-41 -5.17% Jun-41 -6.83% Sep-41 -4.04% Dec-41 -4.45% Mar-42 -0.53% Jun-42 1.93% Sep-42 -2.74% Dec-42 2.25% Mar-43 11.28% Jun-43 17.58% Sep-43 17.40% Dec-43 15.85% Mar-44 18.01% Jun-44 21.74% Sep-44 17.72% Dec-44 26.95% Mar-45 20.17% Jun-45 24.84% Sep-45 21.63% Dec-45 25.34% Mar-46 11.37% Jun-46 9.75% Sep-46 7.38% Dec-46 9.07% Mar-47 7.34% Jun-47 3.43% Sep-47 4.71% Dec-47 3.43% Mar-48 4.64% Jun-48 3.36% Sep-48 2.10% Dec-48 -1.10% Mar-49 -0.85% Jun-49 -1.99% Sep-49 -1.08% Dec-49 -0.63% Mar-50 -0.37% Jun-50 0.69% Sep-50 0.92% Dec-50 1.78% Mar-51 -0.31% Jun-51 -1.29% Sep-51 -0.85% Dec-51 0.40% Mar-52 -1.51% Jun-52 -0.53% Sep-52 -0.19% Dec-52 -0.97% Mar-53 -1.13% Jun-53 -0.94% Sep-53 -1.99% Dec-53 -4.06% Mar-54 -2.46% Jun-54 -2.89% Sep-54 -1.46% Dec-54 -0.51% Mar-55 0.58% Jun-55 0.51% Sep-55 1.55% Dec-55 1.05% Mar-56 0.79% Jun-56 0.50% Sep-56 1.19% Dec-56 1.28% Mar-57 1.23% Jun-57 2.46% Sep-57 2.46% Dec-57 0.57% Mar-58 0.59% Jun-58 1.80% Sep-58 1.28% Dec-58 2.36% Mar-59 2.37% Jun-59 2.51% Sep-59 3.08% Dec-59 3.58% Mar-60 3.59% Jun-60 1.89% Sep-60 1.67% Dec-60 1.57% Mar-61 0.60% Jun-61 -0.45% Sep-61 -0.82% Dec-61 -0.40% Mar-62 0.58% Jun-62 1.18% Sep-62 0.92% Dec-62 -0.39% Mar-63 -0.94% Jun-63 -0.40% Sep-63 -1.36% Dec-63 -1.74% Mar-64 -1.00% Jun-64 -2.20% Sep-64 -0.97% Dec-64 -1.09% Mar-65 -1.88% Jun-65 -2.85% Sep-65 -4.34% Dec-65 -0.68% Mar-66 1.85% Jun-66 1.82% Sep-66 1.23% Dec-66 1.24% Mar-67 3.80% Jun-67 7.49% Sep-67 9.24% Dec-67 10.23% Mar-68 10.21% Jun-68 14.98% Sep-68 16.76% Dec-68 15.44% Mar-69 11.24% Jun-69 10.64% Sep-69 8.65% Dec-69 8.85% Mar-70 6.35% Jun-70 2.20% Sep-70 0.17% Dec-70 -2.66% Mar-71 -1.56% Jun-71 -5.13% Sep-71 -5.84% Dec-71 -7.22% Mar-72 -5.51% Jun-72 -5.71% Sep-72 -4.97% Dec-72 -5.61% Mar-73 -5.90% Jun-73 -5.97% Sep-73 -6.50% Dec-73 -5.57% Mar-74 -5.66% Jun-74 -3.80% Sep-74 -3.49% Dec-74 -5.06% Mar-75 -4.37% Jun-75 -4.54% Sep-75 -3.17% Dec-75 -2.76% Mar-76 -0.19% Jun-76 -0.71% Sep-76 -0.56% Dec-76 1.37% Mar-77 -0.19% Jun-77 -1.22% Sep-77 -0.23% Dec-77 5.14% Mar-78 3.18% Jun-78 4.62% Sep-78 6.12% Dec-78 4.92% Mar-79 1.73% Jun-79 3.74% Sep-79 3.71% Dec-79 3.47% Mar-80 2.77% Jun-80 2.60% Sep-80 3.90% Dec-80 2.83% Mar-81 1.53% Jun-81 2.19% Sep-81 0.30% Dec-81 2.62% Mar-82 2.78% Jun-82 2.26% Sep-82 1.46% Dec-82 2.22% Mar-83 3.15% Jun-83 5.83% Sep-83 3.55% Dec-83 3.23% Mar-84 1.77% Jun-84 -1.38% Sep-84 -1.98% Dec-84 -3.79% Mar-85 -4.32% Jun-85 -5.32% Sep-85 -3.24% Dec-85 -4.93% Mar-86 -5.80% Jun-86 -7.21% Sep-86 -7.36% Dec-86 -7.98% Mar-87 -9.05% Jun-87 -7.35% Sep-87 -6.76% Dec-87 -6.02% Mar-88 -6.15% Jun-88 -5.93% Sep-88 -5.94% Dec-88 -5.43% Mar-89 -5.45% Jun-89 -6.13% Sep-89 -6.80% Dec-89 -7.17% Mar-90 -6.70% Jun-90 -7.28% Sep-90 -6.13% Dec-90 -8.23% Mar-91 -7.24% Jun-91 -6.37% Sep-91 -7.19% Dec-91 -7.53% Mar-92 -3.51% Jun-92 -3.40% Sep-92 -2.98% Dec-92 -1.00% Mar-93 0.50% Jun-93 0.44% Sep-93 1.04% Dec-93 4.85% Mar-94 3.19% Jun-94 3.19% Sep-94 2.83% Dec-94 3.06% Mar-95 -0.12% Jun-95 1.57% Sep-95 3.28% Dec-95 0.94% Mar-96 0.30% Jun-96 1.89% Sep-96 1.20% Dec-96 0.66% Mar-97 0.61% Jun-97 -2.13% Sep-97 0.03% Dec-97 0.40% Mar-98 -1.04% Jun-98 -2.42% Sep-98 -4.19% Dec-98 -3.42% The above chart reflects the divergence of historical 3-year trailing returns of micro-cap (CRSP 9-10 Composite) vs. small-cap (CRSP 6-8 Composite) stocks. Each point on the line above zero indicates a period of micro-cap outperformance, and those below zero indicate small-cap outperformance, for that trailing 3-year period.) [end line chart] *The above chart reflects the divergence of historical 3-year trailing average annual total returns of micro-cap (CRSP 9-10 Composite) vs. small-cap (CRSP 6-8 Composite) stocks through 12/31/98. Each point on the line above zero indicates a period of micro-cap outperformance, and those below zero indicate small-cap outperformance for that trailing 3-year period. performance, history shows that significant variances have occurred between the small- and micro-cap sectors and among our Funds as well. Does it make sense to own more than one Royce Fund? We think it could for some investors, partly because the small-cap world is so diverse and partly because investors have different goals and levels of risk tolerance. [end bottombar] THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 5 [pull quote] The full decades in which the CRSP 6-10 outperformed the S&P 500 -- the '30s, '40s, '60s and '70s -- were average to low-return periods, while the decades in which it trailed -- the '50s, '80s and '90s -- were high-return periods. We think this is encouraging for small-cap investing today, as we believe that the market as a whole has entered a lower-return period. [end pull quote] - -------------------------------------------------------------------------------- SAME AS IT EVER WAS Performance snapshots can be misleading. As the name implies, a snapshot is a picture that depicts performance at a single moment in time. It says nothing about periods preceding or following the snapshot. The old adage, "Past performance is no guarantee of future results," can be seen in the following:
- ------------------------------------------- ----------------------------------------- PUT ALL MY MONEY IN SMALL-CAP? PUT ALL MY MONEY IN LARGE-CAP? Average Annual Total Returns Average Annual Total Returns - ------------------------------------------- ----------------------------------------- Periods Ended 9/30/95 Periods Ended 6/30/99 --------------------- --------------------- Russell 2000 S&P 500 Russell 2000 S&P 500 - ------------------------------------------- ----------------------------------------- 3-Year 19.0% 15.0% 3-Year 11.2% 29.1% - ------------------------------------------- ----------------------------------------- 5-Year 21.7% 17.2% 5-Year 15.4% 27.9% - ------------------------------------------- -----------------------------------------
While the period leading up to and including performance through 9/30/95 was a terrific time for small-cap investing, the period since has clearly favored large-caps. Despite seemingly strong evidence in 1995 and again today, investing based on a performance snapshot may be dangerous. With all due respect to John Maynard Keynes's famous dictum, "The long run is a misleading guide to current affairs because in the long run we are all dead," we believe that the long run offers useful insight, especially when examining shorter-term performance periods. We've recently completed an internal analysis that has revealed some interesting points regarding long-term small-cap performance. We examined small-cap returns (CRSP 6-10, Center for Research in Security Prices) and S&P 500 returns from the '30s through the '90s and discovered that the '90s are no different than any other decade. Small-cap has had both a period of outperformance and a period of underperformance during each 10-year time horizon. [bottombar] If each Fund is different, why do you include all of them in the same report? First, while each Fund focuses on a different aspect of small-cap investing, we use a common value approach to security selection. Second, many stockholders own more than one Royce Fund, and we want to make sure that everyone is aware of the range of funds that we offer. How did you develop your investment approach? Our approach grew out of a fear of losing our shareholders' money, as well as our own. When I became associated with Royce & Associates -- first as a consultant and then in June 1973 as owner and chief investment officer -- I focused, like a lot of investors, more on style than substance when selecting securities. After a very difficult 1973 and 1974, I asked myself, "How can I [end bottombar] 6 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 What we also found was that small-caps outperformed large-caps for at least a six-year period inside each decade, including the '90s. Many investors forget that the early '90s were a very successful period for small-caps. The full decades in which the CRSP 6-10 outperformed the S&P 500 -- the '30s, '40s, '60s and '70s -- were average to low-return periods, while the decades in which it trailed -- the '50s, '80s and '90s -- were high-return periods. We think this is encouraging for small-cap investing today, because we believe that the market as a whole has entered a lower-return period.
- ---------------------------------------------------------------------------------------- 6-YEAR TOTAL RETURN INTRA-DECADE SMALL-CAP OUTPERFORMANCE PERIODS RESULTS FOR SMALL-CAP 6-YEAR CUMULATIVE OUTPERFORMANCE BY DECADE OUTPERFORMANCE PERIODS - ---------------------------------------------------------------------------------------- '90-'99 9/30/90 - 9/30/96 CRSP 6-10 S&P 500 - ---------------------------------------------------------------------------------------- '80-'89 3/1/80 - 3/31/86 223.9% 165.7% - ---------------------------------------------------------------------------------------- '70-'79 12/31/73 - 12/31/79 281.6 211.1 - ---------------------------------------------------------------------------------------- '60-'69 12/31/62 - 12/31/68 261.9 46.5 - ---------------------------------------------------------------------------------------- '50-'59 9/30/53 - 9/30/59 315.7 99.0 - ---------------------------------------------------------------------------------------- '40-'49 6/30/40 - 6/30/46 222.5 205.6 - ---------------------------------------------------------------------------------------- '30-'39 12/31/30 - 12/31/36 517.1 158.3 - ---------------------------------------------------------------------------------------- 243.1 59.7 - ---------------------------------------------------------------------------------------- YEAR BY YEAR
Bar points indicate beginning and ending periods of 6-year small-cap outperformance
- ---------------------------------------------------------------------------------- CUMULATIVE RESULTS BY DECADE - ---------------------------------------------------------------------------------- 1930's 1940's 1950's 1960's 1970's 1980's 1990's - ---------------------------------------------------------------------------------- CRSP 6-10 47.7% 328.9% 438.3% 218.8% 150.1% 304.7% 244.7% - ---------------------------------------------------------------------------------- S&P 500 2.3 138.7 483.3 112.3 76.5 401.5 394.7 - ----------------------------------------------------------------------------------
[bottombar] try to avoid losing money in the equity markets?" It was then that I developed the approach that in essence the firm still uses today, one which looks for attractive balance sheets, high internal rates of return and established records of generating "free cash flow." Obviously an investor can lose money, but we wanted to try to manage some of the risks of investing. Was risk management as important a factor then as it is today? Absolutely. Historically, small-company investors have had to deal with higher-than-average levels of volatility. Conventional wisdom held that if you wanted high returns from small-cap stocks, you had to take greater risks. We believed, however, that our disciplined value approach could effectively reduce risk without sacrificing long-term returns. This idea is as important today as it was then. [end bottombar] THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 7 [sidebar] Notwithstanding the current small-cap rally, we are finding what we believe are attractively priced companies. We did some internal research recently that examined small-cap valuations on an earnings yield basis. The results indicate to us that, adjusting for interest rates and allowing for the recent small-cap rally, small-caps are still very attractively valued. [end sidebar] [Graphic: Parade with people holding banner which reads SMALL-CAPS] WHY SMALL-CAPS, WHY NOW! The last several years of small-cap underperformance have led many financial commentators to suggest that the world has changed and that the small-cap sector may not offer the return potential that it has in the past. We not only disagree with this, but believe that recent performance is very typical of past performance patterns, i.e., it has been cyclical and well within historical norms. SMALL-CAP AND LARGE-CAP OUTPERFORMANCE BY QUINTILE ALL ROLLING 10-YEAR PERIODS FROM 1936 THROUGH 1998
- ---------------------------------------------------------------------------------------------------------- 10-Year Returns by Range of Average Total # of Periods Total # of Periods Percentage of 10-Year Returns by Range of Average when CRSP 6-10 when S&P 500 Periods CRSP 6-10 Quintile Annual Returns Outperformed Outperformed Outperformed - ---------------------------------------------------------------------------------------------------------- 1st Quintile over 16.3% 10 41 20% - ---------------------------------------------------------------------------------------------------------- 2nd Quintile 13.9 - 16.2 16 34 32 - ---------------------------------------------------------------------------------------------------------- 3rd Quintile 9.2 - 13.8 42 8 84 - ---------------------------------------------------------------------------------------------------------- 4th Quintile 6.4 - 9.1 45 6 88 - ---------------------------------------------------------------------------------------------------------- 5th Quintile (3.7) - 6.3 39 12 76 - ----------------------------------------------------------------------------------------------------------
[bottombar] What kind of changes have affected the small-cap market since you began managing money? When I began, small-caps were not recognized as a separate asset class. Regardless of investment approach, all small-cap portfolios -- of which there were few -- were categorized as "Aggressive Growth" by Lipper Analytical Services. So the most significant change by far is the way that small-cap has evolved into a professional asset class, with its own indices, analysts and institutional coverage. A direct result of this has been an increase in the in the number of small-cap funds and an extension of the effective market cap ceiling from $500 million at the beginning of the '90s to $1.5 billion today. How has the firm responded to these changes? We now view the small- and micro-cap sectors as distinct segments, a distinction we first identified in the early '90s. We have developed investment approaches that we believe are appropriate for each, namely concentration in the upper tier and broader diversification in the lower tier. [end bottombar] 8 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 [photo: Jack Fockler, Whitney George, Chuck Royce, Charlie Dreifus, Buzz Zaino] (l-r) Jack Fockler, Whitney George, Chuck Royce, Charlie Dreifus, Buzz Zaino The performance table on page eight confirms what our earlier studies had shown -- large-caps have historically tended to outperform in high-return periods, while small-caps have outperformed during average and low-return periods. As satisfying as the second quarter small-cap rally was, we are even more encouraged by the performance of small-cap since the bottom last October. Not only did the Russell 2000 outperform the S&P 500 from the October 8, 1998 bottom through June 30, 1999 (+48.9% versus +44.4%), it did so during a period of rising interest rates -- Treasury bond yields were up more than 26% during the period! We think that in the current cycle, small-cap can keep leading the parade. As we enter what we believe will be a relatively low-return period for the market -- possibly for an extended time -- our confidence in small-cap value investing remains as high as ever. We appreciate your continued support of our work. Sincerely, [Signature Charles M. Royce] [Signature W. Whitney George] [Signature Jack E. Fockler, Jr.] Charles M. Royce W. Whitney George Jack E. Fockler, Jr. President Vice President Vice President
August 6, 1999 PS We invite you to visit our Website at www.roycefunds.com for up-to-date information on our Funds and our company. Your questions and comments are always welcome. [bottombar] What's next? We're going to continue doing the same things we've done for the past 25 years - -- look to invest in good companies that are substantially undervalued in the market. [end bottombar] THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 9 [sidebar] The companies that we consider as investments for our Fund portfolios all have stories behind them, with plots that often resemble the twists and turns of a Victorian novel, featuring courageous heroes and virtuous heroines, unexpected appearances from mysterious strangers, terrible secrets revealed at the worst possible moment and (at least we always hope) a happy ending. [end sidebar] A RECOUNTING OF AN IDEA - -------------------------------------------------------------------------------- Prologue Although we try to provide a lot of information about our investment approach, many investors want to know more about how we make specific investment decisions. A good example of how our selection process is designed to work is E.W. Blanch Holdings (NYSE: EWB). Primarily a reinsurance intermediary, the company works with insurance companies to place unwanted risk with reinsurers who can absorb that risk. In many ways, the business functions analogously to a securities brokerage. Insurance and reinsurance are businesses that we believe we know well, since our experience with them dates back many years. Chapter One, In Which a Reinsurance Broker's IPO Attracts the Close Attention of Everyone at the Firm Known as Royce. E.W. Blanch enjoyed an excellent reputation as a reinsurance broker and was known to us even before the company's initial public offering in May, 1993. Many of its clients were companies whose stock we owned, which is how it initially came to our attention. At the time, E.W. Blanch had a strong balance sheet and solid prospects to grow as a business, two elements that must be present for us to take a second look at any company. Soon after the company went public with a successful IPO in 1993, we bought a small number of shares and began to watch more closely, something we occasionally do when we're interested, but not yet fully committed (think of it as dating). Chapter Two, In Which the Need for Grace Under Pressure is Clearly Demonstrated to All. Although the CEO was (and remains) an energetic and talented recruiter and marketer, we had concerns about how well the firm would make the transition from private business to public company - as we typically do when any primarily entrepreneurial business becomes publicly traded. Any business that goes through this process suddenly finds itself with a different set of very real partners. These new partners, the stockholders, are seldom shy about asking in-depth questions, offering suggestions or even complaining about the business on at least a quarterly basis, when a company posts its latest financial results. Not every business is prepared for this phenomenon. Even for a company that eventually handles these matters with grace, the passage usually begins less than smoothly as the company adjusts to this changing culture. And so it was at Blanch. Chapter Three, In Which Trouble Rears Its Loathsome Head, as Reinsurance Premiums Decline, Institutional Attention Wanes and the Stock Price Languishes. Although E.W. Blanch came on the market as a micro-cap security, there was some institutional interest in the stock (which is not always the case with micro-caps). In what was then a declining market for reinsurance premiums, the firm told investors that it could grow at 20% per year, a target that proved to be more optimistic than the company could consistently deliver on a quarterly basis. From shortly after the offering through 1995, the stock languished as the initial expectations were dashed, and institutional investors grew timid. * Past performance is no guarantee of future results. As of June 30, 1999, E.W. Blanch represented 0.4% of Royce Value Trust's net assets, 0.0% of Royce Micro-Cap Trust's net assets and 3.1% of Royce Focus Trust's net assets. There can be no assurance that this stock will be included in any Royce-managed fund in the future. 10 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 - -------------------------------------------------------------------------------- Chapter Four, In Which a Period of Bumpy Growth for the Company Creates the Seemingly Paradoxical Consequence of Additional Buying Opportunities for Royce. Drawing encouragement from our ongoing conversations with Blanch's management, its solid balance sheet and sterling business reputation, we continued to build our position in the stock from late 1993 through 1995 at prices ranging from $15 3/4 - $22 3/8, prices that we estimated to be approximately 10 times earnings. However, there were important issues that tested our confidence. The company's overly optimistic short-term growth expectations at the outset, inconsistent growth and some substantial insider selling were all matters that made us re-examine our commitment. Yet we looked at both past and potential growth with a long-term perspective and saw a company that had been providing a 15% annualized growth rate, albeit in an admittedly bumpy fashion. Although E.W. Blanch was still a distant third among reinsurance brokers, we became increasingly convinced of its potential to close the gap. Our confidence seemed to grow in direct proportion to the indifference of our peers. When we describe the tendency of micro-cap stocks to fly beneath Wall Street's radar, companies such as E.W. Blanch are what we have in mind. Chapter Five, In Which the Company's Innovations Move the Stock Price and the Business Forward, Causing All to Rejoice. An important but costly acquisition in 1995 kept the company's stock performance sluggish that year, but by 1996 its business profile began to turn around, especially in light of its participation in two highly significant innovations in their industry. It played an integral part in the formation of the California Earthquake Authority, with a $3.5 billion reinsurance placement in that state. It also developed a new plan to dramatically reduce an insurer's risk exposure to hurricane damage in Florida. We had established our position and remained patient, and by 1997, the stock price began to climb. Chapter Six, In Which a Boutique Firm Evolves Into a Global Business Presence, Potentially Ensuring a Happy Ending for All. Today, the company is considered a major innovator in the reinsurance business, often acting more as a consultant dealing with such issues as risk management, than a broker. As of this writing, the stock is trading just below $65 per share, and E.W. Blanch has delivered on its potential, evolving from a small, boutique-style firm into a global business presence. During the years in which stock performance was disappointing, we stayed in touch with both management and clients, asking tough questions and thinking strategically along with them to determine where the business was headed. Obviously, we liked what we heard, but we also kept a close eye on the company's financial condition and how well it was functioning as a business. Epilogue, In Which the Company of Royce is Most Pleased. Each time that we make a selection, our goal, not always attained, is to choose a stock of E.W. Blanch's caliber, a company whose stock price will eventually reflect its business strengths and potential. As pleased as we are with the progress that the company has made, the payoff would not have materialized if we hadn't shown patience and conviction. [pull quote] Our confidence seemed to grow in direct proportion to the indifference of our peers. When we describe the tendency of micro-cap stocks to fly beneath Wall Street's radar, companies such as E.W. Blanch are what we have in mind. [end pull quote] THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 11 [sidebar] WHAT WE DO Royce Value Trust (RVT) is a closed-end fund that seeks long-term growth of capital. The Fund uses a value approach to invest in a broadly diversified portfolio of small- and micro-cap companies that are trading significantly below our estimate of their "current worth." HOW WE DID Royce Value Trust's broadly diversified portfolio of small- and micro-cap stocks fully participated in small-cap's second-quarter rebound. RVT followed 1999's disappointing first quarter with a second-quarter NAV return of 20.2% and a market price return of 20.1%. For the second quarter, the Fund outperformed its small-cap benchmarks, the Russell 2000 (+15.6%) and S&P 600 (+15.4%), on both an NAV and a market price basis. Although trailing both of its benchmarks on an NAV and market price basis year-to-date through June 30, 1999, RVT was ahead of the S&P 600 on an NAV basis for the one-year period, while trailing the Russell 2000. The Fund outperformed both indices on an NAV and market price basis for the three-year and ten-year periods ended June 30, 1999. The Fund's five best-performing positions made significant contributions to its year-to-date performance. Our successes in many ways reflect the consistent application of our disciplined value approach, in which we seek to take advantage of opportunities when small-cap interest and respective stock prices are low. RVT remains the oldest and largest small-cap value closed-end fund available, with total net assets of $688 million as of June 30, 1999. The Fund's officers, employees and their families currently own more than $4 million of the Fund's outstanding Common Stock. [end sidebar] ROYCE VALUE TRUST - --------------------------------------------------------------------------------
NAV AVERAGE ANNUAL TOTAL RETURNS Through 6/30/99 - -------------------------------------------------------------------------------- Second Quarter 1999* 20.2% - -------------------------------------------------------------------------------- Jan-June 1999* 4.9 - -------------------------------------------------------------------------------- 1-Year -0.2 - -------------------------------------------------------------------------------- 3-Year 14.4 - -------------------------------------------------------------------------------- 5-Year 15.2 - -------------------------------------------------------------------------------- 10-Year 13.3 - -------------------------------------------------------------------------------- Since Inception (11/26/86) 12.8 - --------------------------------------------------------------------------------
*Not annualized.
RISK/RETURN COMPARISON 10-Year Period Ended 6/30/99 - -------------------------------------------------------------------------------- Average Annual Standard Total Return Deviation RUR - -------------------------------------------------------------------------------- RVT (NAV) 13.3% 12.6 1.06 - -------------------------------------------------------------------------------- S&P 600 12.4 17.4 0.71 - -------------------------------------------------------------------------------- Russell 2000 12.4 17.0 0.73 - --------------------------------------------------------------------------------
Return per Unit of Risk (RUR) is the average annual total return divided by the annualized standard deviation over a designated time period. Over the last 10 years, Royce Value Trust outperformed the S&P 600 and the Russell 2000 on BOTH an absolute and a risk-adjusted basis. ROYCE VALUE TRUST MARKET PRICE -- ACTUAL vs. ADJUSTED* - -------------------------------------------------------------------------------- [line chart] Adjusted Actual Market Market Date Price Price Nov-86 10.00 10.00 Dec-86 9.88 9.88 Jan-87 10.75 10.75 Feb-87 9.75 9.75 Mar-87 9.63 9.63 Apr-87 8.63 8.63 May-87 9.50 9.50 Jun-87 9.37 9.38 Jul-87 9.12 9.13 Aug-87 9.50 9.5. Sep-87 9.25 9.25 Oct-87 7.30 7.00 Nov-87 6.91 6.63 Dec-87 7.26 6.75 Jan-88 7.53 7.00 Feb-88 8.60 8.00 Mar-88 8.73 8.13 Apr-88 8.60 8.00 May-88 8.46 7.88 Jun-88 9.27 8.63 Jul-88 9.14 8.50 Aug-88 9.00 8.38 Sep-88 9.54 8.88 Oct-88 9.27 8.63 Nov-88 8.87 8.25 Dec-88 9.25 8.13 Jan-89 9.96 8.75 Feb-89 9.68 8.50 Mar-89 10.10 8.88 Apr-89 10.39 9.13 May-89 10.67 9.38 Jun-89 10.53 9.25 Jul-89 10.96 9.63 Aug-89 11.10 9.75 Sep-89 10.99 9.63 Oct-89 10.84 9.50 Nov-89 10.84 9.50 Dec-89 11.46 9.50 Jan-90 10.71 8.88 Feb-90 10.56 8.75 Mar-90 11.16 9.25 Apr-90 11.16 9.25 May-90 11.46 9.5 Jun-90 11.61 9.63 Jul-90 11.31 9.5 Aug-90 10.26 8.25 Sep-90 9.53 7.88 Oct-90 8.78 7.25 Nov-90 9.38 7.75 Dec-90 10.23 8.13 Jan-91 10.85 8.75 Feb-91 12.43 9.88 Mar-91 13.05 10.38 Apr-91 13.53 10.75 May-91 12.90 10.25 Jun-91 12.58 10.00 Jul-91 12.74 10.13 Aug-91 12.42 9.88 Sep-91 12.46 9.88 Oct-91 12.93 10.25 Nov-91 12.61 10.00 Dec-91 13.83 10.38 Jan-92 14.67 11.00 Feb-92 15.67 11.75 Mar-92 15.33 11.50 Apr-92 15.50 11.63 May-92 15.33 11.38 Jun-92 15.00 11.25 Jul-92 15.00 11.25 Aug-92 14.83 11.13 Sep-92 15.19 11.38 Oct-92 15.36 11.50 Nov-92 16.86 12.63 Dec-92 17.54 12.25 Jan-93 18.25 12.75 Feb-93 18.25 12.88 Mar-93 18.61 13.00 Apr-93 18.43 12.88 May-93 18.43 12.88 Jun-93 18.79 13.13 Jul-93 19.33 13.38 Aug-93 19.50 13.63 Sep-93 19.75 13.75 Oct-93 20.47 14.25 Nov-93 19.94 13.88 Dec-93 20.13 12.88 Jan-94 20.72 13.25 Feb-94 20.33 13.00 Mar-94 19.16 12.25 Apr-94 19.55 12.50 May-94 19.35 12.38 Jun-94 19.16 12.25 Jul-94 19.35 12.38 Aug-94 19.74 12.63 Sep-94 18.76 12.00 Oct-94 18.18 11.63 Nov-94 19.18 12.13 Dec-94 19.00 11.00 Jan-95 20.08 11.63 Feb-95 20.30 11.75 Mar-95 19.65 11.38 Apr-95 20.52 11.88 May-95 20.73 12.13 Jun-95 20.73 12.00 Jul-95 21.81 12.63 Aug-95 22.68 13.13 Sep-95 23.33 13.50 Oct-95 22.25 12.88 Nov-95 23.10 13.25 Dec-95 22.91 11.88 Jan-96 23.87 12.38 Feb-96 23.39 12.13 Mar-96 23.63 12.25 Apr-96 23.63 12.25 May-96 24.35 12.63 Jun-96 23.87 12.38 Jul-96 22.42 11.63 Aug-96 23.63 12.25 Sep-96 24.35 12.63 Oct-96 23.87 12.38 Nov-96 24.84 12.88 Dec-96 26.64 12.63 Jan-97 26.11 12.38 Feb-97 26.37 12.50 Mar-97 24.79 11.75 Apr-97 25.06 11.88 May-97 26.90 12.75 Jun-97 29.01 13.75 Jul-97 30.07 14.25 Aug-97 32.31 15.31 Sep-97 35.01 16.25 Oct-97 33.39 15.50 Nov-97 35.41 16.44 Dec-97 34.32 15.06 Jan-98 34.03 14.94 Feb-98 36.74 16.13 Mar-98 39.88 17.13 Apr-98 39.45 16.94 May-98 39.01 16.75 Jun-98 39.35 16.50 Jul-98 36.07 15.13 Aug-98 28.02 11.75 Sep-98 31.68 12.88 Oct-98 33.68 13.69 Nov-98 34.45 14.00 Dec-98 34.82 13.75 Jan-99 34.03 13.44 Feb-99 31.97 12.63 Mar-99 29.54 11.31 Apr-99 33.95 13.00 May-99 34.76 13.31 Jun-99 35.48 13.25 - --------------------------- Market Price Total Returns - --------------------------- Since Inception = 254.9% - --------------------------- 10 Years = 237.0 - --------------------------- 5 Years = 85.2 - --------------------------- 3 Years = 48.7 - --------------------------- 1 Year = -9.8 - --------------------------- - --------------------------------------- Annual distribution totals as indicated - --------------------------------------- Adjusted Market Price Actual Market Price [end line chart] The regular reinvestment of distributions makes a difference! *Reflects market price total return experience of a continuous stockholder who reinvested all distributions and fully participated in primary subscriptions of rights offerings. This graph illustrates the market price change from IPO of $10 per share on 11/26/86. 12 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 PERFORMANCE AND PORTFOLIO REVIEW - -------------------------------------------------------------------------------- [Bar Chart]
DOWN MARKET PERFORMANCE COMPARISON All Down Periods of 7.5% or Greater, in Percentages (%) - -------------------------------------------------------------------------------- RVT (NAV) Russell 2000 - -------------------------------------------------------------------------------- 8/25/87 - 10/28/87 -26.4 -38.9 - -------------------------------------------------------------------------------- 10/9/89 - 10/31/90 -22.1 -32.5 - -------------------------------------------------------------------------------- 2/12/92 - 7/8/92 -2.1 -12.0 - -------------------------------------------------------------------------------- 3/18/94 - 12/9/94 -5.3 -12.3 - -------------------------------------------------------------------------------- 5/22/96 - 7/24/96 -6.3 -15.4 - -------------------------------------------------------------------------------- 1/22/97 - 4/25/97 -3.1 -9.0 - -------------------------------------------------------------------------------- 10/13/97- 1/12/98 -8.1 -11.3 - -------------------------------------------------------------------------------- 4/21/98 - 10/8/98 -31.3 -36.5 - --------------------------------------------------------------------------------
[End Bar Chart] Royce Value Trust outperformed the Russell 2000 during all eight major downturns since its inception.
PORTFOLIO DIAGNOSTICS TOP 10 POSITIONS % of Net Assets - ------------------------------------------------------ -------------------------------------------------- Median Market Cap $375 million Charming Shoppes 1.3% - ------------------------------------------------------ -------------------------------------------------- Weighted Average P/E Ratio 15.4x Unitrode 1.1 - ------------------------------------------------------ -------------------------------------------------- Weighted Average P/B Ratio 1.7x Barrett Resources 1.0 - ------------------------------------------------------ -------------------------------------------------- Weighted Average Yield 1.6% National Computer Systems 1.0 - ------------------------------------------------------ -------------------------------------------------- Net Assets $688 million Florida Rock Industries 1.0 - ------------------------------------------------------ -------------------------------------------------- Turnover Rate 21% Velcro Industries 0.9 - ------------------------------------------------------ -------------------------------------------------- Net Leverage+ 13% Simpson Manufacturing 0.9 - ------------------------------------------------------ -------------------------------------------------- Symbol-- Market Price RVT Marshall Industries 0.9 -- NAV XRVTX -------------------------------------------------- - ------------------------------------------------------ Circle International Group 0.8 -------------------------------------------------- Crawford & Co. 0.8 --------------------------------------------------
+Net leverage is the percentage, in excess of 100%, of the total value of equity type investments divided by net assets, excluding preferred stock.
PORTFOLIO SECTOR BREAKDOWN With Examples % of Net Assets - ------------------------------------------------------------------------------------------------------------- Technology Components and Systems, Software/Services, Semiconductors and Equipment 16.4% - ------------------------------------------------------------------------------------------------------------- Industrial Products Building Systems and Components, Construction Materials, Specialty Chemicals and Materials 15.0 - ------------------------------------------------------------------------------------------------------------- Industrial Services Transportation and Logistics, Printing, Engineering and Construction 12.8 - ------------------------------------------------------------------------------------------------------------- Consumer Products Home Furnishing/Appliances, Apparel and Shoes, Publishing 9.6 - ------------------------------------------------------------------------------------------------------------- Financial Intermediaries Insurance, Banking, Closed-End Funds, Securities Brokers 7.8 - ------------------------------------------------------------------------------------------------------------- Financial Services Insurance Brokers, Investment Management, Information and Processing 7.2 - ------------------------------------------------------------------------------------------------------------- Natural Resources Oil and Gas, Energy Services, Real Estate 5.0 - ------------------------------------------------------------------------------------------------------------- Consumer Services Retail Stores, Restaurants/Lodgings, Leisure/Entertainment 3.2 - ------------------------------------------------------------------------------------------------------------- Health Surgical Products and Devices, Drugs and Biotech, Health Services 2.6 - ------------------------------------------------------------------------------------------------------------- Utilities 0.1 - ------------------------------------------------------------------------------------------------------------- Miscellaneous 4.9 - ------------------------------------------------------------------------------------------------------------- Bonds & Preferred Stocks 2.3 - ------------------------------------------------------------------------------------------------------------- Treasuries, Net Cash & Cash Equivalents 13.1 - -------------------------------------------------------------------------------------------------------------
GOOD IDEAS THAT WORKED Realized and Unrealized Gain Year-to-Date Through 6/30/99 - ----------------------------------------------------------- K-Swiss Cl. A $ 5,488,444 - ----------------------------------------------------------- Unitrode 3,315,917 - ----------------------------------------------------------- Sunglass Hut International* 2,661,685 - ----------------------------------------------------------- Barrett Resources 2,604,773 - ----------------------------------------------------------- Florida Rock Industries 2,173,515 - ----------------------------------------------------------- Combined Gain $16,244,334 - -----------------------------------------------------------
GOOD IDEAS AT THE TIME Realized and Unrealized Loss Year-to-Date Through 6/30/99 - ----------------------------------------------------------- VideoServer $1,474,137 - ----------------------------------------------------------- RockShox 1,432,997 - ----------------------------------------------------------- Velcro Industries 1,352,022 - ----------------------------------------------------------- PXRE 1,239,800 - ----------------------------------------------------------- Axiohm Transaction Solutions 1,100,187 - ----------------------------------------------------------- Combined Loss $6,599,143 - -----------------------------------------------------------
K-Swiss -- Sometimes it's better to be lucky than good. That was certainly the case with K-Swiss, a manufacturer of tennis and sailing sneakers for people 40 and over, which we purchased because it was trading just above net working capital. Soon after a prominent appearance on an episode of Buffy the Vampire Slayer, the stock price quadrupled, and we're still shaking our heads. Unitrode -- We began to build a position in this analog semiconductor manufacturer during 1998's third-quarter downdraft, when its stock became cheap. The business cycle for semiconductors turned around, and investors soon followed, moving the stock price higher. VideoServer -- Although a leader in the high-growth video-conferencing area, profits have been thus far disappointing, with an expected effect on the stock price. The company's prospects for future growth remain a question mark. RockShox -- We were initially attracted by the solid balance sheet and prospects for this bicycle shock absorber manufacturer. Once thinking that we had bought a good company too soon, we are left wondering if we should have bought at all, as performance disappointment continues to grow. *Common Stock Only. THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 13 [sidebar] WHAT WE DO Royce Micro-Cap Trust (OTCM) is a closed-end fund that seeks long-term growth of capital. The Fund uses a value approach to invest in a broadly diversified portfolio of micro-cap stocks, companies with market caps less than $300 million. We believe that the more volatile micro-cap sector, while often higher in risk, offers greater potential for higher returns than any other sector of the domestic equity marketplace. HOW WE DID Royce Micro-Cap Trust's broadly diversified portfolio came back strong in 1999's second quarter rally, up 16.5% on an NAV basis and 13.5% on a market price basis. This compares to a gain of 15.6% for the Fund's small-cap benchmark, the Russell 2000. The solid second-quarter rebound for micro-cap stocks was as impressive as the first quarter was dismal. The difficult first-quarter start left the Fund behind its benchmark year-to-date through June 30, 1999 on both an NAV and a market price basis. In the first half of 1999, the Fund benefited from solid performance from companies in the natural resources and technology sectors, where we increased our exposure during 1998's third-quarter downturn. Portfolio companies in the consumer services and industrial services also contributed to the Fund's gains through June 30, 1999. While micro-cap stocks have endured some short-term performance disappointments, our confidence in the long-term performance potential of this volatile, but opportunity-laden, sector of the small-cap universe is undiminished. OTCM now has more than five years of performance history and is the only closed-end micro-cap fund available. The Fund's officers, employees and their families currently own more than $8.5 million, or 7.5%, of the Fund's outstanding Common Stock. [end sidebar] ROYCE MICRO-CAP TRUST - --------------------------------------------------------------------------------
NAV AVERAGE ANNUAL TOTAL RETURNS Through 6/30/99 - -------------------------------------------------------------------------------- Second Quarter 1999* 16.5% - -------------------------------------------------------------------------------- Jan-June 1999* 2.4 - -------------------------------------------------------------------------------- 1-Year -9.4 - -------------------------------------------------------------------------------- 3-Year 9.5 - -------------------------------------------------------------------------------- 5-Year 13.4 - -------------------------------------------------------------------------------- Since Inception (12/14/93) 12.3 - --------------------------------------------------------------------------------
*Not annualized.
RISK/RETURN COMPARISON From Inception (12/14/93) Through 6/30/99 - -------------------------------------------------------------------------------- Average Annual Standard Total Return Deviation RUR - -------------------------------------------------------------------------------- OTCM (NAV) 12.3% 12.7 0.97 - -------------------------------------------------------------------------------- Russell 2000 13.1 16.8 0.78 - --------------------------------------------------------------------------------
Return per Unit of Risk (RUR) is the average annual total return divided by the annualized standard deviation over a designated time period. Since its inception, Royce Micro-Cap Trust outperformed the Russell 2000 on a risk-adjusted basis. ROYCE MICRO-CAP TRUST MARKET PRICE -- ACTUAL vs. ADJUSTED* Adjusted Market Price Actual Market Price [line chart] Adjusted Actual Market Market Date Price Price Dec-93 7.50 7.50 Jan-94 7.75 7.75 Feb-94 7.50 7.50 Mar-94 6.50 6.50 Apr-94 6.63 6.63 May-94 7.13 7.13 Jun-94 6.75 6.75 Jul-94 7.00 7.00 Aug-94 7.13 7.13 Sep-94 7.00 7.00 Oct-94 7.38 7.38 Nov-94 7.19 7.13 Dec-94 7.11 7.00 Jan-95 6.86 6.75 Feb-95 7.24 7.13 Mar-95 6.98 6.88 Apr-95 6.98 6.88 May-95 7.11 7.00 Jun-95 7.49 7.38 Jul-95 7.87 7.75 Aug-95 8.13 8.00 Sep-95 8.51 8.38 Oct-95 7.87 7.75 Nov-95 7.75 7.63 Dec-95 8.52 8.00 Jan-96 8.25 7.75 Feb-96 8.25 7.75 Mar-96 8.25 7.75 Apr-96 8.92 8.38 May-96 8.92 8.38 Jun-96 9.18 8.63 Jul-96 8.25 7.75 Aug-96 8.45 7.94 Sep-96 8.52 8.00 Oct-96 8.52 8.00 Nov-96 9.05 8.50 Dec-96 9.71 8.25 Jan-97 9.30 7.88 Feb-97 9.41 8.00 Mar-97 8.97 7.63 Apr-97 9.56 8.13 May-97 10.15 8.63 Jun-97 10.57 8.98 Jul-97 10.66 9.06 Aug-97 11.32 9.63 Sep-97 13.16 11.19 Oct-97 12.79 10.88 Nov-97 12.72 10.81 Dec-97 13.10 10.13 Jan-98 12.62 9.75 Feb-98 13.43 10.38 Mar-98 13.64 11.31 Apr-98 14.40 11.13 May-98 13.91 10.75 Jun-98 13.35 10.31 Jul-98 12.62 9.75 Aug-98 10.11 7.81 Sep-98 10.43 8.06 Oct-98 10.67 8.25 Nov-98 11.56 8.94 Dec-98 11.87 8.88 Jan-99 11.03 8.25 Feb-99 10.70 8.00 Mar-99 9.95 7.44 Apr-99 11.12 8.31 May-99 11.29 8.44 Jun-99 11.29 8.44 - ------------------------------ Market Price Total Returns - ------------------------------ Since Inception = 50.5% - ------------------------------ 5 Years = 67.2 - ------------------------------ 3 Years = 22.9 - ------------------------------ 1 Year = -15.4 - ------------------------------ - --------------------------------------- Annual distribution totals as indicated - --------------------------------------- [end line chart] The regular reinvestment of distributions makes a difference! *Reflects market price total return experience of a continuous stockholder who reinvested all distributions 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. 14 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 PERFORMANCE AND PORTFOLIO REVIEW - -------------------------------------------------------------------------------- [Bar Chart]
DOWN MARKET PERFORMANCE COMPARISON All Down Periods of 7.5% or Greater, in Percentages (%) - -------------------------------------------------------------------------------- OTCM (NAV) Russell 2000 - -------------------------------------------------------------------------------- 3/18/94 - 12/9/94 -0.4 -12.3 - -------------------------------------------------------------------------------- 5/22/96 - 7/24/96 -6.8 -15.4 - -------------------------------------------------------------------------------- 1/22/97 - 4/25/97 -3.4 -9.0 - -------------------------------------------------------------------------------- 10/13/97 - 1/12/98 -7.4 -11.3 - -------------------------------------------------------------------------------- 4/21/98 - 10/8/98 -29.9 -36.5 - --------------------------------------------------------------------------------
[End Bar Chart] Royce Micro-Cap Trust outperformed the Russell 2000 during all five major downturns since its inception.
PORTFOLIO DIAGNOSTICS TOP 10 POSITIONS % of Net Assets - ------------------------------------------------------ ----------------------------------------------- Median Market Cap. $171 million Florida Rock Industries 1.4% - ------------------------------------------------------ ----------------------------------------------- Weighted Average P/E Ratio 14.0x Matthews International Cl. A 1.3 - ------------------------------------------------------ ----------------------------------------------- Weighted Average P/B Ratio 1.5x Duff & Phelps Credit Rating 1.3 - ------------------------------------------------------ ----------------------------------------------- Weighted Average Yield 1.3% Kronos 1.3 - ------------------------------------------------------ ----------------------------------------------- Net Assets $179 million Simpson Manufacturing 1.2 - ------------------------------------------------------ ----------------------------------------------- Turnover Rate 19% Midwest Grain Products 1.2 - ------------------------------------------------------ ----------------------------------------------- Net Leverage+ 2% Ash Grove Cement Company 1.1 - ------------------------------------------------------ ----------------------------------------------- Symbol-- Market Price OTCM Carlisle Holdings 1.0 -- NAV XOTCX ----------------------------------------------- - ------------------------------------------------------ Topps Company (The) 1.0 ----------------------------------------------- AirNet Systems 1.0 -----------------------------------------------
+Net leverage is the percentage, in excess of 100%, of the total value of equity type investments divided by net assets, excluding preferred stock.
PORTFOLIO SECTOR BREAKDOWN With Examples % of Net Assets - --------------------------------------------------------------------------------------------------------------- Industrial Products Building Systems and Components, Construction Materials, Specialty Chemicals and Materials 17.0% - --------------------------------------------------------------------------------------------------------------- Technology Components and Systems, Software/Services, Semiconductors and Equipment 15.0 - --------------------------------------------------------------------------------------------------------------- Consumer Products Home Furnishing/Appliances, Apparel and Shoes, Publishing 12.0 - --------------------------------------------------------------------------------------------------------------- Industrial Services Transportation and Logistics, Printing, Engineering and Construction 10.8 - --------------------------------------------------------------------------------------------------------------- Natural Resources Oil and Gas, Energy Services, Real Estate 5.5 - --------------------------------------------------------------------------------------------------------------- Financial Intermediaries Insurance, Banking, Closed-End Funds, Securities Brokers 4.4 - --------------------------------------------------------------------------------------------------------------- Health Surgical Products and Devices, Drugs and Biotech, Health Services 4.0 - --------------------------------------------------------------------------------------------------------------- Financial Services Insurance Brokers, Investment Management, Information and Processing 2.7 - --------------------------------------------------------------------------------------------------------------- Consumer Services Retail Stores, Restaurants/Lodging, Leisure/Entertainment 2.0 - --------------------------------------------------------------------------------------------------------------- Miscellaneous 5.0 - --------------------------------------------------------------------------------------------------------------- Preferred Stock 0.4 - --------------------------------------------------------------------------------------------------------------- Treasuries, Cash & Cash Equivalents 21.2 - ---------------------------------------------------------------------------------------------------------------
GOOD IDEAS THAT WORKED Realized and Unrealized Gain Year-to-Date Through 6/30/99 - ------------------------------------------------- Kronos $ 803,705 - ------------------------------------------------- Florida Rock Industries 797,500 - ------------------------------------------------- K-Swiss Cl. A 734,293 - ------------------------------------------------- Carbo Ceramics 692,711 - ------------------------------------------------- Trex Company 674,420 - ------------------------------------------------- Combined Gain $3,702,629 - -------------------------------------------------
GOOD IDEAS AT THE TIME Realized and Unrealized Loss Year-to-Date Through 6/30/99 - ------------------------------------------------- 800 JR Cigar $ 832,505 - ------------------------------------------------- BHA Group Holdings 539,803 - ------------------------------------------------- International Isotopes 522,450 - ------------------------------------------------- Midwest Grain Products 482,305 - ------------------------------------------------- Hauser 473,350 - ------------------------------------------------- Combined Loss $2,850,413 - -------------------------------------------------
Kronos -- The company began as a timecard machine manufacturer and has developed into a leading provider of work-planning, payroll and timecard software. We began to buy the stock when the price was low due to an earnings growth slowdown and product transitions. It's a good example of a growth stock that we purchased when its stock price became low enough to fit our value criteria. Florida Rock Industries -- A dominant producer of building aggregates in the Southeast, the company has experienced healthy earnings growth due to a strong economy. We believe that its future prospects are bright due to the recent passage of legislation providing additional government spending on the country's infrastructure. 800 JR Cigar -- A leading retail marketer selling premium cigars at a discount, the company, one of our top gainers in 1998, has been caught in a glut that has reduced cigar and stock prices alike. We are confident that its clever management -- who own the majority of the stock -- can get the company smoking again. BHA Group Holdings -- This manufacturer of air-pollution filtration systems for smokestacks was plagued by a slowdown in global manufacturing, particularly in southeast Asia, at a time when they were expanding into the apparel business. Although somewhat skeptical about the new venture, we believe that the core business is strong enough to help the stock price recover. THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 15 [sidebar] WHAT WE DO Royce Focus Trust (FUND), formerly named Royce Global Trust, seeks long-term growth of capital. Not restricted as to market capitalization, the Fund typically uses a value approach to invest in a limited number of domestic and foreign small-cap companies. Royce generally looks to invest in companies that have excellent business strengths, high internal rates of return and low leverage, and that are trading significantly below our estimate of their "current worth." HOW WE DID Royce Focus Trust's concentrated portfolio emerged from the first-quarter doldrums to reap the benefits of small-cap's second quarter comeback. FUND was up 29.4% on an NAV basis and up 23.4% on a market price basis versus 15.6% for its small-cap benchmark, the Russell 2000. Year-to-date through June 30, 1999, the Fund's NAV was ahead of the Russell 2000 (+10.1% versus +9.3%), while its market price performance trailed (+1.3%). Through June 30, 1999, the Fund benefited from its more concentrated approach, with its top-five performers accounting for nearly all of the Fund's net realized and unrealized gain year-to-date. Solid performance came from companies in a variety of sectors, including technology, industrial services and natural resources, giving the Fund broad participation in the small-cap rebound. At their Annual Meeting on May 7, 1999, stockholders of the Fund approved an amendment to the Fund's Articles of Incorporation permitting a name change from Royce Global Trust. There was no change to the Fund's ticker symbol or Cusip number. The name change better reflects the Fund's evolved strategy of investing in a limited number of domestic and foreign companies. The Fund's officers, employees and their families currently own more than $4.5 million, or more than 10%, of the Fund's outstanding Common Stock. [end sidebar] ROYCE FOCUS TRUST - --------------------------------------------------------------------------------
NAV AVERAGE ANNUAL TOTAL RETURNS Through 6/30/99 - ------------------------------------------------------ Second Quarter 1999* 29.4% - ------------------------------------------------------ Jan-June 1999* 10.1 - ------------------------------------------------------ 1-Year -3.6 - ------------------------------------------------------ Since Inception (11/1/96)(1) 10.1 - ------------------------------------------------------
*Not annualized. (1) Date Royce & Associates assumed investment management responsibility for the Fund. ROYCE FOCUS TRUST MARKET PRICE -- ACTUAL vs. ADJUSTED(2) - -------------------------------------------------------------------------------- [line chart] Adjusted Actual Market Market Date Price Price Nov-96 4.38 4.38 Nov-96 4.66 4.66 Dec-96 4.59 4.59 Jan-97 4.75 4.75 Feb-97 4.56 4.56 Mar-97 4.88 4.88 Apr-97 4.72 4.72 May-97 4.81 4.81 Jun-97 5.00 5.00 Jul-97 5.28 5.28 Aug-97 5.44 5.44 Sep-97 6.06 6.06 Oct-97 5.69 5.69 Nov-97 5.69 5.69 Dec-97 5.57 5.06 Jan-98 5.64 5.13 Feb-98 5.78 5.25 Mar-98 6.23 5.66 Apr-98 6.54 5.94 May-98 6.23 5.66 Jun-98 6.05 5.50 Jul-98 6.12 5.56 Aug-98 4.82 4.38 Sep-98 5.30 4.81 Oct-98 5.09 4.63 Nov-98 5.30 4.81 Dec-98 5.37 4.88 Jan-99 4.82 4.38 Feb-99 4.54 4.13 Mar-99 4.41 4.00 Apr-99 4.54 4.13 May-99 5.37 4.88 Jun-99 5.44 4.94 - -------------------------- Market Price Total Returns - -------------------------- Since 11/1/96 (2) = 24.3 - -------------------------- 1 Year = -10.2 - -------------------------- Adjusted Market Price Actual Market Price - --------------------------------------- Annual distribution totals as indicated - --------------------------------------- [end line chart] (2) Reflects market price total return experience of a continuous stockholder who reinvested all distributions. This graph illustrates the market price change from $4.3875 on 11/1/96, the date Royce & Associates assumed investment management responsibility for the Fund. MARKET CAPITALIZATION BREAKDOWN* As of 6/30/99 - -------------------------------------------------------------------------------- [bar chart] > $1,000 15.0% - --------------------------------------- $500-$1,000 40.6% - --------------------------------------- $300-$500 30.1% - --------------------------------------- < $300 14.3% - --------------------------------------- % of Portfolio
[end bar chart] *in millions 16 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 PERFORMANCE AND PORTFOLIO REVIEW - --------------------------------------------------------------------------------
PORTFOLIO DIAGNOSTICS - -------------------------------------------------------- Median Market Cap. $585 million - -------------------------------------------------------- Weighted Average P/E Ratio 16.3x - -------------------------------------------------------- Weighted Average P/B Ratio 1.7x - -------------------------------------------------------- Weighted Average Yield 1.6% - -------------------------------------------------------- Net Assets $72 million - -------------------------------------------------------- Turnover Rate 25% - -------------------------------------------------------- Net Leverage+ 12% - -------------------------------------------------------- Symbol -- Market Price FUND -- NAV XFUNX - --------------------------------------------------------
+ Net leverage is the percentage, in excess of 100%, of the total value of equity type investments divided by net assets, excluding preferred stock.
TOP 10 POSITIONS % of Net Assets - -------------------------------------------------------- Charming Shoppes 6.9% - -------------------------------------------------------- Marshall Industries 6.3 - -------------------------------------------------------- Morrison Knudsen 5.1 - -------------------------------------------------------- Florida Rock Industries 4.7 - -------------------------------------------------------- Enesco Group 4.5 - -------------------------------------------------------- Gallagher (Arthur J.) & Co. 3.6 - -------------------------------------------------------- New England Business Service 3.2 - -------------------------------------------------------- Blanch (E.W.) Holdings 3.1 - -------------------------------------------------------- Oakley 3.0 - -------------------------------------------------------- Lincoln Electric Holdings 2.9 - --------------------------------------------------------
PORTFOLIO SECTOR BREAKDOWN With Examples % of Net Assets - ------------------------------------------------------------------------------------------------------------ Industrial Services Transportation and Logistics, Printing, Engineering and Construction 15.0% - ------------------------------------------------------------------------------------------------------------ Industrial Products Building Systems and Components, Construction Materials, Specialty Chemicals and Materials 13.0 - ------------------------------------------------------------------------------------------------------------ Technology Components and Systems, Software/Services, Semiconductors and Equipment 12.8 - ------------------------------------------------------------------------------------------------------------ Natural Resources Oil and Gas, Energy Services, Real Estate 9.6 - ------------------------------------------------------------------------------------------------------------ Financial Services Insurance Brokers, Investment Management, Information and Processing 9.5 - ------------------------------------------------------------------------------------------------------------ Consumer Products Home Furnishing/Appliances, Apparel and Shoes, Publishing 9.3 - ------------------------------------------------------------------------------------------------------------ Consumer Services Retail Stores, Restaurants/Lodgings, Leisure/Entertainment 6.9 - ------------------------------------------------------------------------------------------------------------ Financial Intermediaries Insurance, Banking, Closed-End Funds, Securities Brokers 3.6 - ------------------------------------------------------------------------------------------------------------ Health Surgical Products and Devices, Drugs and Biotech, Health Services 1.4 - ------------------------------------------------------------------------------------------------------------ Treasuries, Net Cash &Cash Equivalents 18.9 - ------------------------------------------------------------------------------------------------------------
GOOD IDEAS THAT WORKED Realized and Unrealized Gain Year-to-Date Through 6/30/99 - -------------------------------------------------------- Marshall Industries $2,464,235 - -------------------------------------------------------- Charming Shoppes 1,467,351 - -------------------------------------------------------- Florida Rock Industries 1,173,437 - -------------------------------------------------------- Blanch (E.W.) Holdings 808,034 - -------------------------------------------------------- Tom Brown 594,652 - -------------------------------------------------------- Combined Gain $6,507,709 - --------------------------------------------------------
GOOD IDEAS AT THE TIME Realized and Unrealized Loss Year-to-Date Through 6/30/99 - -------------------------------------------------------- Gibson Greetings $1,171,953 - -------------------------------------------------------- Oakley 590,887 - -------------------------------------------------------- Trenwick Group 406,628 - -------------------------------------------------------- Kaydon Corporation 384,027 - -------------------------------------------------------- Medical Assurance 305,519 - -------------------------------------------------------- Combined Loss $2,859,014 - --------------------------------------------------------
Marshall Industries -- A long time holding, this electronics distribution firm was battling against outdated industry practices that hindered its development and was coming off a disappointing earnings cycle when a larger company, Avnet, bought them out. Our years of patience with the company and our belief in its innovative CEO paid off as Marshall was recognized for its superb value by an industry leader. Charming Shoppes -- Sometimes we feel like shouting "Finally!" Our patience has finally paid off for this women's clothing retailer, a company whose CEO and balance sheet we have liked for some time. Customers have been coming back in droves, with investors not far behind. Gibson Greetings -- Warren Buffet once remarked that when a great manager meets a tough business, the business wins every time. So far, this investment has proven him right, and we've reduced our position firm-wide. Oakley -- A modest decline in stock price appeared to be the result of skepticism about this eyewear expert's ability to manufacture and market footwear. With or without a shoe business, we think that the company is worth far more than its current valuations and wouldn't be surprised to see it on a future "winner's" list. THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 17 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 a long-term investor. This table should be read in conjunction with the Performance and Portfolio Reviews of the Funds.
AMOUNT PURCHASE NAV MARKET 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 $0.30 7.000 42 12/31/87 Distribution $0.22 7.125 32 8,578 7,250 12/27/88 Distribution $0.51 8.625 63 10,529 9,238 9/22/89 Rights Offering 405 9.000 45 12/29/89 Distribution $0.52 9.125 67 12,942 11,866 9/24/90 Rights Offering 457 7.375 62 12/31/90 Distribution $0.32 8.000 52 11,713 11,074 9/23/91 Rights Offering 638 9.375 68 12/31/91 Distribution $0.61 10.625 82 17,919 15,697 9/25/92 Rights Offering 825 11.000 75 12/31/92 Distribution $0.90 12.500 114 21,999 20,874 9/27/93 Rights Offering 1,469 13.000 113 12/31/93 Distribution $1.15 13.000 160 26,603 25,428 10/28/94 Rights Offering 1,103 11.250 98 12/19/94 Distribution $1.05 11.375 191 27,939 24,905 11/3/95 Rights Offering 1,425 12.500 114 12/7/95 Distribution $1.29 12.125 253 35,676 31,243 12/6/96 Distribution $1.15 12.250 247 41,213 36,335 9/8/97 Distribution $0.33 15.625 61 12/5/97 Distribution $0.88 15.313 169 52,556 46,814 3/6/98 Distribution $0.37 16.688 69 6/5/98 Distribution $0.39 16.250 76 9/8/98 Distribution $0.40 12.563 104 12/7/98 Distribution $0.38 13.000 98 54,313 47,506 3/8/99 Distribution $0.37 11.875 108 6/7/99 Distribution $0.34 13.313 91 ======================================================================================================================= 6/30/99 $16,322 3,654 $56,966 $48,416 ======================================================================================================================= Royce Micro-CapTrust 12/14/93 Initial Purchase $ 7,500 $ 7.500 1,000 $ 7,250 $ 7,500 10/28/94 Rights Offering 1,400 7.000 200 12/19/94 Distribution $0.05 6.750 9 9,163 8,462 12/7/95 Distribution $0.36 7.500 58 11,264 10,136 12/6/96 Distribution $0.80 7.625 133 13,132 11,550 12/5/97 Distribution $1.00 10.000 140 16,694 15,593 12/7/98 Distribution $0.29 8.625 52 16,016 14,129 ======================================================================================================================= 6/30/99 $ 8,900 1,592 $16,398 $13,433 ======================================================================================================================= Royce Focus Trust 10/31/96 Initial Purchase $ 4,375 $ 4.375 1,000 $ 5,280 $ 4,375 12/31/96 5,520 4,594 12/5/97 Distribution $0.53 5.250 101 6,650 5,574 12/31/98 6,199 5,367 ======================================================================================================================= 6/30/99 $ 4,375 1,101 $ 6,826 $ 5,436 =======================================================================================================================
* Other than for initial purchase and June 30, 1999, values are stated as of December 31 of the year indicated, after reinvestment of distributions. 18 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 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 when shares are issued below net asset value to other stockholders. HOW DOES THE REINVESTMENT OF DISTRIBUTIONS FROM THE ROYCE CLOSED-END FUNDS WORK? The Funds automatically issue shares in payment of distributions unless you indicate otherwise. The shares are issued at the lower of the market price or net asset value on the valuation date. HOW DOES THIS APPLY TO REGISTERED STOCKHOLDERS? If your shares are registered directly with a Fund, your distributions are automatically reinvested unless you have otherwise instructed the Funds' custodian, State Street Bank and Trust Company, 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 by a brokerage firm, bank, or other intermediary as the stockholder of record, you should contact your brokerage firm or bank to be certain that it is automatically reinvesting distributions on your behalf. If they are unable to reinvest distributions on your behalf, you should have your shares registered in your name in order to participate. WHAT OTHER FEATURES ARE AVAILABLE FOR REGISTERED STOCKHOLDERS? The Distribution Reinvestment and Cash Purchase Plans also allow registered stockholders to make optional cash purchases of shares of a Fund's common stock directly through State Street on a monthly basis, and to deposit certificates representing your Fund shares with State Street for safekeeping. The Funds' investment adviser is absorbing all commissions on optional cash purchases under the Plans through December 31, 1999. 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 stockholder 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 an Investor Services Representative 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 02110, telephone (800) 426-5523. THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 19 UPDATES AND NOTES TO PERFORMANCE AND RISK INFORMATION - -------------------------------------------------------------------------------- [Graphic: Computer Monitor, "The Royce Funds" On Screen] NEW @ www.roycefunds.com We will soon be rolling out a new look for our website, designed for better navigation and to make it easier than ever to stay connected to The Royce Funds. What's New, our weekly feature, continues to be one of the site's most popular spots. It gives you the latest from Royce, including market commentary from Chuck Royce, performance highlights and updates on all of The Royce Funds. Our inaugural plain-English Prospectus and Shareholder Guide for our open-end Funds debuted in print and on our website in May. If you would like a copy, please call Investors Services at (800) 221-4268. Y2K UPDATE On June 3, 1999, Royce & Associates filed its latest report on Year 2000 (Y2K) readiness -- Form ADV-Y2K (Part I, Part II, and Continuation Sheet for Part I, Item 11) -- as required by the U.S. Securities and Exchange Commission (SEC). Form ADV-Y2K asks for specific Y2K information, such as the existence and progress of Y2K compliance plans and contingency plans, systems that may be affected by Y2K and readiness of third parties. Royce and the Funds are working to ensure that our systems and those of our service providers are Y2K compliant, and currently we do not anticipate that any Y2K-related problems will have a material impact on Royce's ability to provide services to the Funds at current levels. 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. Investment return and principal value will fluctuate, so that shares may be worth more or less than their original cost when sold. The Royce Funds invest primarily in securities of small-cap and/or micro-cap companies that may involve considerably more risk than investments in securities of larger-cap companies. Historical market trends are not necessarily indicative of future market movements. There can be no assurance that securities mentioned in this report will be included in any Royce-managed portfolio in the future. 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 Russell 2000, Russell 2000 Value, Russell 2000 Growth, Nasdaq Composite, Nasdaq 100, Dow Jones Internet Commerce Index and S&P 500 are unmanaged indices of domestic common stocks. The (Center for Research in Security Prices) CRSP 9-10 is an unmanaged composite representing the bottom two deciles of stocks listed on the New York Stock Exchange, the American Stock Exchange and the Nasdaq National Market. The CRSP6-8 composite represents the next largest three deciles of stocks listed on these exchanges. The Boards of Directors have given Royce Value Trust's, Royce Micro-Cap Trust's and Royce Focus Trust's management the discretionary authority to cause each Fund to repurchase up to 300,000 shares of its common stock in the open market and other transactions through December 31, 1999. Such repurchases would be effected at a price per share that is less than the then current net asset value, but not in excess of the then prevailing market price. The Boards of Directors of Royce Value Trust, Royce Micro-Cap Trust and Royce Focus Trust are authorized to offer stockholders an opportunity to subscribe for additional shares of common stock of the Funds through rights offerings at a price per share that may be less than the then current net asset value of the Fund's common stock. The timing and terms of any such offering are left to the Boards' discretion. 20 | THE ROYCE FUNDS ANNUAL REPORT 1999 SCHEDULE OF INVESTMENTS - -------------------------------------------------------------------------------- ROYCE VALUE TRUST, INC. JUNE 30, 1999 (unaudited) - -------------------------------------------------------------------------------- COMMON STOCKS -- 84.6%
SHARES VALUE ------ ----- Consumer Products -- 9.6% Apparel and Shoes - 2.1% Garan 96,900 $ 3,112,913 K-Swiss Cl. A 82,700 3,845,550 Marisa Christina* 62,600 44,994 Oshkosh B'Gosh Cl. A 171,500 3,622,938 Weyco Group 159,400 3,666,200 ------------ 14,292,595 ------------ Collectibles - 0.9% Department 56* 60,700 1,631,312 Enesco Group 183,900 4,252,688 ------------ 5,884,000 ------------ Food/Beverage/Tobacco - 0.6% Celestial Seasonings* 40,000 860,000 800 JR Cigar* 126,400 1,564,200 Fleetwood Enterprises 20,000 528,750 Hershey Creamery 583 1,326,325 J & J Snack Foods* 5,000 120,000 ------------ 4,399,275 ------------ Home Furnishing/Appliances - 1.4% Bassett Furniture Industries 151,187 3,458,403 Burnham Corporation Cl. A 42,514 1,604,903 Burnham Corporation Cl. B 18,000 679,500 Conso International* 174,175 1,001,506 La-Z-Boy 30,600 703,800 Lifetime Hoan 238,992 2,180,802 Semi-Tech Corporation Cl. A* 260,600 19,467 ------------ 9,648,381 ------------ Publishing - 1.1% Gibson Greetings* 323,400 2,051,569 Reader's Digest Association (The) Cl. A 5,000 198,750 Scholastic* 1,200 60,750 Topps Company (The)* 751,400 5,471,131 ------------ 7,782,200 ------------ Sports and Recreation - 1.3% Johnson Worldwide Associates Cl. A* 251,800 2,297,675 Oakley* 275,300 1,961,513 ++RockShox* 1,060,400 1,325,500 Sturm, Ruger & Co. 298,800 3,193,425 ------------ 8,778,113 ------------ Other Consumer Products - 2.2% Lazare Kaplan International* 190,100 1,924,762 Marvel Enterprises* 274,100 2,021,488 Matthews International Cl. A 116,900 3,463,162 Starrett (L. S.) Company Cl. A 73,700 1,980,687 Velcro Industries 497,500 6,032,188 ------------ 15,422,287 ------------ 66,206,851 ============ SHARES VALUE ------ ----- Consumer Services -- 3.2% Direct Marketing - 0.1% Amway Japan ADR+ 154,500 $ 772,500 ------------ Leisure/Entertainment - 0.2% Anchor Gaming* 1,000 48,063 Linea Aerea Nacional Chile ADR+ 10,000 71,875 Seattle FilmWorks* 402,387 1,232,310 ------------ 1,352,248 ------------ Restaurants/Lodgings - 0.3% Buffets* 193,850 2,229,275 Papa John's International* 5,000 223,438 ------------ 2,452,713 ------------ Retail Stores - 2.5% Abercrombie & Fitch Cl. A* 2,000 96,000 Catherines Stores* 131,800 1,631,025 Charming Shoppes* 893,400 5,444,156 Claire's Stores 2,400 61,500 Consolidated Stores* 5,000 135,000 Family Dollar Stores 4,700 112,800 Jo-Ann Stores Cl. B* 10,000 130,000 Little Switzerland* 60,000 41,250 Mikasa 168,900 1,910,681 Pier 1 Imports 17,500 196,875 Sunglass Hut International* 226,800 3,898,125 Suzy Shier 248,000 1,667,368 Urban Outfitters* 83,700 2,102,962 Wet Seal (The) Cl. A* 1,100 31,488 ------------ 17,459,230 ------------ Other Consumer Services - 0.1% Groupe AB ADR+* 51,500 167,375 ------------ 22,204,066 ============ Financial Intermediaries -- 7.8% Banking - 1.3% BOK Financial* 40,300 1,017,575 Boston Private Financial Holdings* 10,000 75,000 First National Bank of Anchorage 2,100 2,156,700 Fulton Financial 17,146 354,708 Mechanics Bank 200 2,330,000 National Bancorp of Alaska 73,880 1,957,820 Oriental Financial Group 68,000 1,640,500 ------------ 9,532,303 ------------ Closed End Funds - 0.1% Baker, Fentress & Co. 45,000 855,000 ------------
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 21 SCHEDULE OF INVESTMENTS - -------------------------------------------------------------------------------- ROYCE VALUE TRUST, INC. JUNE 30, 1999 (unaudited) - --------------------------------------------------------------------------------
SHARES VALUE ------ ----- Financial Intermediaries (continued) Insurance - 6.3% Baldwin & Lyons Cl. B 126,000 $ 2,984,625 CNA Surety 20,000 306,250 Capitol Transamerica 125,415 1,661,749 Chartwell Re 5,600 104,300 Chicago Title 55,215 1,970,485 Commerce Group 54,318 1,324,001 Erie Indemnity Company Cl. A 17,000 484,500 Fremont General 76,700 1,447,712 Highlands Insurance Group* 102,500 1,076,250 Independence Holding 58,164 683,427 LandAmerica Financial Group 10,000 287,500 Leucadia National* 4,500 114,188 Markel* 2,200 411,400 Medical Assurance* 188,068 5,312,921 NYMAGIC 59,400 928,125 Nobel Insurance* 121,500 91,125 Orion Capital 32,274 1,157,830 PMA Capital Cl. A 205,600 4,227,650 PXRE 178,710 3,239,119 Philadelphia Consolidated Holding* 22,200 543,900 RLI 41,162 1,595,027 Trenwick Group 111,850 2,757,802 Wesco Financial 11,490 3,561,900 White Mountains Insurance Group 17,400 2,453,400 Zenith National Insurance 185,300 4,563,013 ------------ 43,288,199 ------------ Securities Brokers - 0.1% Raymond James Financial 7,500 179,531 ------------ 53,855,033 ============ Financial Services -- 7.2% Information and Processing - 1.1% BARRA* 58,800 1,484,700 Duff & Phelps Credit Rating 59,600 3,985,750 Fair, Isaac and Co. 71,600 2,510,475 ------------ 7,980,925 ------------ Insurance Brokers - 2.7% Blanch (E.W.) Holdings 42,600 2,904,787 Clark/Bardes Holdings* 80,900 1,537,100 Crawford & Co. Cl. A 327,350 4,419,225 Crawford & Co. Cl. B 75,300 1,223,625 Gallagher (Arthur J.) & Co. 101,900 5,044,050 Hilb, Rogal & Hamilton 146,075 3,268,428 ------------ 18,397,215 ------------ SHARES VALUE ------ ----- Investment Management - 3.4% Affiliated Managers Group* 77,100 $ 2,327,456 Alliance Capital Management L.P. 107,200 3,463,900 Eaton Vance 145,600 5,014,100 Federated Investors Cl. B 10,000 179,375 John Nuveen Company Cl. A 41,400 1,767,263 Lexington Global Asset Managers* 21,100 75,169 Nvest LP 198,300 4,883,137 PIMCO Advisors Holdings LP 52,740 1,569,015 Phoenix Investment Partners 202,700 1,748,288 Pioneer Group (The)* 103,600 1,787,100 SEI Investments 2,000 176,500 U.S. Global Investors Cl. A* 249,205 319,294 ------------ 23,310,597 ------------ 49,688,737 ============ Health -- 2.6% Commercial Services - 0.6% IDEXX Laboratories* 55,000 1,282,187 PAREXEL International* 181,400 2,414,888 Schein (Henry)* 15,000 475,312 ------------ 4,172,387 ------------ Drugs and Biotech - 1.1% Biogen* 4,000 257,250 BioReliance* 61,000 396,500 Centocor* 45,000 2,098,125 Cerus Corporation* 26,800 589,600 Genzyme Corporation--General Division* 40,000 1,940,000 Genzyme Corporation--Molecular Oncology* 4,322 11,886 Genzyme Corporation--Surgical Products 7,160 31,549 Genzyme Corporation--Tissue Repair* 15,300 31,078 Guilford Pharmaceuticals* 20,000 255,000 IDEC Pharmaceuticals* 20,000 1,541,250 Incyte Pharmaceuticals* 3,000 79,312 Millennium Pharmaceuticals* 5,000 180,000 Roberts Pharmaceutical* 20,000 485,000 U.S. Bioscience* 10,000 97,500 ------------ 7,994,050 ------------ Health Services - 0.1% Invacare 17,000 454,750 ------------ Personal Care - 0.1% Chattem* 5,000 159,063 Rexall Sundown* 10,000 121,875 ------------ 280,938 ------------
22 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 SCHEDULE OF INVESTMENTS - -------------------------------------------------------------------------------- ROYCE VALUE TRUST, INC. JUNE 30, 1999 (unaudited) - --------------------------------------------------------------------------------
SHARES VALUE ------ ----- Health (continued) Surgical Products and Devices - 0.7% Biomet 5,000 $ 198,750 Haemonetics* 202,200 4,056,638 NMT Medical* 265,600 780,200 VI Technologies* 20,000 100,000 ------------ 5,135,588 ------------ 18,037,713 ============ Industrial Products -- 15.0% Building Systems and Components - 4.0% Decker Manufacturing 6,022 316,155 Falcon Products 214,800 2,188,275 International Aluminum 58,700 1,617,919 Juno Lighting 131,300 3,220,953 Juno Lighting-WI 4,646 88,274 Kimball International Cl. B 168,580 2,844,787 Mueller (Paul) 53,200 1,655,850 Preformed Line Products Company 82,600 1,538,425 Simpson Manufacturing* 126,700 6,018,250 Skyline 131,600 3,857,525 Thor Industries 154,950 4,396,706 ------------ 27,743,119 ------------ Construction Materials - 2.2% Ameron International 13,000 573,625 Ash Grove Cement Company Cl. B 50,518 4,862,358 Florida Rock Industries 146,000 6,643,000 Puerto Rican Cement 98,300 3,262,331 ------------ 15,341,314 ------------ Industrial Components - 0.1% Woodhead Industries 45,400 556,150 ------------ Industrial OEM - 0.1% Ionics* 5,000 182,500 ------------ Machinery - 2.0% Atchison Casting* 58,600 604,312 Federal Signal 9,000 190,688 Lincoln Electric Holdings 227,980 4,673,590 Lund International Holdings* 136,100 850,625 Nordson 41,100 2,517,375 Oshkosh Truck 92,400 4,648,875 Tecumseh Products Company Cl. A 3,300 199,856 ------------ 13,685,321 ------------ Paper and Packaging - 1.2% CLARCOR 4,550 87,303 Liqui-Box 59,978 3,223,818 Mercer International 13,000 78,000 PalEx* 250,800 1,520,475 Peak International* 140,300 951,409 Shorewood Packaging* 134,850 2,486,297 ------------ 8,347,302 ------------ SHARES VALUE ------ ----- Pumps, Valves and Bearings - 1.2% ConBraCo Industries 7,630 $ 4,120,200 Denison International ADR+* 10,000 153,750 Kaydon Corporation 104,800 3,523,900 Robroy Industries Cl. A 14,249 169,207 Sun Hydraulics 25,000 223,438 ------------ 8,190,495 ------------ Specialty Chemicals and Materials - 2.3% Aceto 50,010 575,115 Brady (W.H.) Cl. A 121,100 3,935,750 Chemfab* 133,219 2,422,921 Hawkins Chemical 301,278 2,447,884 Lilly Industries Cl. A 152,983 2,839,747 MacDermid 72,331 3,363,391 ------------ 15,584,808 ------------ Textiles - 1.1% Delta Woodside Industries 125,400 752,400 Fab Industries 132,800 2,025,200 ++Thomaston Mills Cl. A 327,800 686,331 Unifi* 188,800 4,012,000 Wellman 15,000 239,063 ------------ 7,714,994 ------------ Other Industrial Products - 0.8% BHA Group Holdings 143,209 1,181,474 Baldor Electric 22,000 437,250 Landauer 112,900 3,330,550 Myers Industries 31,693 633,860 ------------ 5,583,134 ------------ 102,929,137 ============ Industrial Services -- 12.8% Advertising/Publishing - 0.6% Grey Advertising 6,817 2,270,061 True North Communications 63,000 1,890,000 ------------ 4,160,061 ------------ Commercial Services - 1.9% Analysts International 20,000 287,500 CDI* 63,000 2,145,938 Carlisle Holdings* 251,100 3,640,950 Catalina Marketing* 5,000 460,000 Cornell Corrections* 80,400 1,321,575 Fisher Companies 16,096 997,952 Olsten 301,600 1,903,850 ++Open Plan Systems* 278,600 626,850 Shared Medical Systems 21,900 1,428,975 ------------ 12,813,590 ------------
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 23 SCHEDULE OF INVESTMENTS - -------------------------------------------------------------------------------- ROYCE VALUE TRUST, INC. JUNE 30, 1999 (unaudited) - --------------------------------------------------------------------------------
SHARES VALUE ------ ----- Industrial Services (continued) Engineering and Construction - 2.7% Insituform Technologies Cl. A* 2,400 $ 51,900 McDermott International 1,000 28,250 Morrison Knudsen* 391,900 4,041,469 Sevenson Environmental Services 265,720 3,088,995 Stone & Webster 185,500 4,938,937 Todd Shipyards* 39,200 269,500 Turner Corporation (The)* 110,700 1,951,088 Willbros Group* 465,200 3,954,200 ------------ 18,324,339 ------------ Food/Tobacco Processors - 1.4% DIMON 217,900 1,130,356 Farmer Bros. 26,000 5,265,000 Midwest Grain Products* 52,200 580,725 Seaboard 3,750 1,275,000 Standard Commercial 282,501 1,659,693 ------------ 9,910,774 ------------ Industrial Distribution - 1.0% Central Steel & Wire 3,699 2,589,300 Ritchie Bros. Auctioneers* 26,100 995,062 TBC* 21,300 150,431 Vallen* 202,929 3,246,864 ------------ 6,981,657 ------------ Printing - 1.8% Bowne & Co. 97,200 1,263,600 Ennis Business Forms 302,100 2,586,731 Merrill Corporation 200,000 2,900,000 New England Business Service 86,000 2,655,250 Standard Register (The) 92,700 2,850,525 ------------ 12,256,106 ------------ Transportation and Logistics - 3.4% Air Express International 158,468 4,021,126 AirNet Systems* 262,200 3,539,700 Arnold Industries 233,648 3,606,941 Circle International Group 266,725 5,834,609 Hub Group Cl. A* 30,000 673,125 Kenan Transport 63,300 1,946,475 Pittston Company BAX Group 285,300 2,710,350 Ryanair Holdings ADR+* 22,000 1,166,000 ------------ 23,498,326 ------------ 87,944,853 ============ Natural Resources -- 5.0% Energy Services - 1.5% Carbo Ceramics 145,100 4,416,481 Global Industries* 98,100 1,256,906 Helmerich & Payne 130,300 3,102,769 Lufkin Industries 22,000 440,000 Nabors Industries* 10,000 244,375 ++Peerless Mfg. 79,300 849,997 ------------ 10,310,528 ------------ SHARES VALUE ------ ----- Metals and Mining - 0.1% MK Gold* 517,900 $ 253,771 ------------ Oil and Gas - 2.9% Barrett Resources* 185,700 7,126,238 Denbury Resources* 954,000 4,173,750 Devon Energy 104,800 3,746,600 PetroCorp* 121,900 746,637 Renaissance Energy* 46,000 618,540 Tidewater 28,000 854,000 Titan Exploration* 437,500 2,187,500 Toreador Royalty* 97,100 291,300 Valley National Gases* 30,100 129,806 ------------ 19,874,371 ------------ Real Estate - 0.5% Alico 52,000 806,000 Consolidated-Tomoka Land 7,800 113,588 FRP Properties* 119,900 3,087,425 ------------ 4,007,013 ------------ 34,445,683 ============ Technology -- 16.4% Aerospace/Defense - 1.4% Curtiss-Wright 121,900 4,738,862 Special Metals* 255,700 1,486,256 Woodward Governor 138,600 3,603,600 ------------ 9,828,718 ------------ Components and Systems - 3.4% ++Axiohm Transaction Solutions* 445,575 1,782,300 CTS 900 63,000 Coherent* 80,900 1,506,763 Credence Systems* 15,300 568,012 Dionex* 102,100 4,135,050 EG&G 1,000 35,625 Giga-tronics Incorporated* 57,100 107,062 Hach 22,650 410,531 Hach Cl. A 25,550 450,319 IFR Systems* 9,133 43,382 Itron* 5,000 42,813 Logitech International ADR+* 1,000 14,750 National Instruments* 48,400 1,954,150 Newport 83,900 1,300,450 PCD* 17,000 187,000 PE Corporation- PE Biosystems Group 1,000 114,750 PE Corporation- Celera Genomics Group 500 8,094 Penn Engineering & Manufacturing 153,600 3,456,000 Penn Engineering & Manufacturing Cl. A 39,800 810,925 Perceptron* 242,100 1,104,581 SAES Getters ADR+ 5,000 26,250 Scitex* 287,100 2,871,000
24 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 SCHEDULE OF INVESTMENTS - -------------------------------------------------------------------------------- ROYCE VALUE TRUST, INC. JUNE 30, 1999 (unaudited) - --------------------------------------------------------------------------------
SHARES VALUE ------ ----- Technology (continued) Components and Systems (continued) Symbol Technologies 1,500 $ 55,313 Vicor* 5,000 105,937 VideoServer* 166,100 1,577,950 Visual Networks* 1,000 32,000 Zebra Technologies Cl. A* 25,000 960,938 ------------ 23,724,945 ------------ Distribution - 1.7% American Power Conversion* 10,000 201,250 Avnet 36,700 1,706,550 Daisytek International* 69,200 1,128,825 Marshall Industries* 165,600 5,951,250 Pioneer-Standard Electronics 118,525 1,422,300 Richardson Electronics 195,600 1,332,525 ------------ 11,742,700 ------------ Semiconductors and Equipment - 4.7% Analog Devices* 54,300 2,725,181 Brooks Automation* 5,000 135,312 Cymer* 33,500 837,500 Dallas Semiconductor 66,100 3,338,050 DuPont Photomasks* 55,000 2,633,125 8x8* 11,600 48,213 Electroglas* 212,200 4,244,000 Etec Systems* 10,000 332,500 Exar* 220,800 5,464,800 Helix Technology 60,700 1,453,006 Intevac* 86,600 476,300 Kulicke & Soffa Industries* 35,400 949,162 Lam Research* 13,000 606,938 Micrel* 15,000 1,110,000 Novellus Systems* 4,000 273,000 Ultratech Stepper* 5,000 75,312 Unitrode* 254,200 7,292,363 Veeco Instruments* 5,400 183,600 ------------ 32,178,362 ------------ Software/Services - 4.7% ANSYS* 85,200 846,675 Aspect Development* 6,000 111,000 Aspen Technology* 81,200 954,100 Autodesk 51,000 1,507,687 Avant!* 46,000 580,750 Benchmark Electronics* 21,000 754,688 Business Objects ADR+* 20,000 730,000 Check Point Software Technologies* 33,800 1,812,525 Cognex* 93,700 2,957,406 Documentum* 5,000 65,313 FileNet* 10,000 114,375 SHARES VALUE ------ ----- Harbinger* 33,700 $ 421,250 IMRglobal Corporation* 3,000 57,750 Industri-Matematik International* 4,000 9,750 Inprise Corporation* 70,000 341,250 Integral Systems* 157,800 3,589,950 Integrated Systems* 5,000 58,750 International Network Services* 7,500 302,813 i2 Technologies* 10,000 430,000 JDA Software Group* 194,500 1,811,281 Kronos* 19,600 891,800 MSC.Software* 128,800 748,650 Macromedia* 3,000 105,750 Manugistics Group* 35,000 507,500 MetaCreations* 5,000 28,750 National Computer Systems 209,000 7,053,750 Nichols Research* 15,950 348,906 Pegasystems* 55,000 563,750 Phoenix Technologies* 1,000 17,875 QRS Corporation* 5,000 390,000 Radiant Systems* 15,000 213,750 Remedy* 10,600 284,875 Siebel Systems* 2,000 132,750 Structural Dynamics Research* 35,000 649,688 Sybase* 132,100 1,453,100 ++Technical Communications* 106,700 266,750 Visio* 26,000 989,625 Wind River Systems* 7,500 120,469 ------------ 32,225,051 ------------ Telecommunication - 0.5% Excel Switching* 78,000 2,335,125 Level 3 Communications* 2,200 132,137 Plantronics* 15,000 976,875 ------------ 3,444,137 ------------ 113,143,913 ============ Utilities -- 0.1% Southern Union* 32,440 705,570 ============ Miscellaneous -- 4.9% 33,341,409 ============ TOTAL COMMON STOCKS (Cost $435,039,568) 582,502,965 ============ PREFERRED STOCKS -- 0.6% Pioneer-Standard Electronics (Conv.) 80,000 3,840,000 SVB Capital 20,000 441,250 ------------ TOTAL PREFERRED STOCKS (Cost $4,315,000) 4,281,250 ============
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 25 SCHEDULE OF INVESTMENTS - -------------------------------------------------------------------------------- ROYCE VALUE TRUST, INC. JUNE 30, 1999 (unaudited) - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE ------ ----- CORPORATE BONDS -- 1.7% Charming Shoppes 7.50% Conv. Sub. Note due 7/15/06 $ 3,694,000 $ 3,583,180 Dixie Group 7.00% Conv. Sub. Deb. due 5/15/12 728,000 586,950 FirstWorld Communications 0% (Step) Sr. Note due 4/15/08 6,950,000 3,961,500 International Semi-Tech 0% (Step) Sr. Disc. Note due 8/15/03 105,000 15,750 Richardson Electronics 8.25% Conv. Sub. Deb. due 6/15/06 2,049,000 1,598,220 Richardson Electronics 7.25% Conv. Sub. Deb. due 12/15/06 1,319,000 949,680 Sunglass Hut International 5.25% Conv. Sub. Note due 6/15/03 500,000 427,500 Thorn Apple Valley 9.00% Conv. Sub. Deb. due 4/01/07 100,000 10,000 Tops Appliance City 6.50% Conv. Sub. Deb. due 11/30/03 1,000,000 585,000 ------------ TOTAL CORPORATE BONDS (Cost $10,767,826) 11,717,780 ============ PRINCIPAL AMOUNT VALUE ------ ----- U.S. TREASURY OBLIGATIONS -- 12.6% U. S. Treasury Notes 4.875%, due 3/31/01 $55,000,000 $ 54,441,200 6.25%, due 8/31/02 10,000,000 10,167,200 4.75%, due 2/15/04 23,000,000 22,123,010 ------------ TOTAL U.S. TREASURY OBLIGATIONS (Cost $87,601,717) 86,731,410 ============ REPURCHASE AGREEMENT -- 0.6% State Street Bank and Trust Company, 4.25% dated 6/30/99, due 7/01/99, maturity value $4,000,472 (collateralized by U.S. Treasury Bonds, 6.00% due 2/15/26, valued at $4,082,958) (Cost $4,000,000) 4,000,000 ============ TOTAL INVESTMENTS -- 100.1% (Cost $541,724,111) 689,233,405 LIABILITIES LESS CASH AND OTHER ASSETS -- (0.1%) (990,053) ------------ NET ASSETS -- 100.0% $688,243,352 ============
- -------------------------------------------------------------------------------- * Non-income producing. + American Depository Receipt. ++ At June 30, 1999, the Fund owned 5% or more of the Company's outstanding voting securities thereby making the Company an Affiliated Company as that term is defined in the Investment Company Act of 1940. INCOME TAX INFORMATION: The cost of total investments for Federal income tax purposes was $541,724,111. At June 30, 1999, net unrealized appreciation for all securities was $147,509,294, consisting of aggregate gross unrealized appreciation of $188,037,017 and aggregate gross unrealized depreciation of $40,527,723. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 26 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 STATEMENT OF ASSETS AND LIABILITIES - -------------------------------------------------------------------------------- ROYCE VALUE TRUST, INC. JUNE 30, 1999 (unaudited) - -------------------------------------------------------------------------------- ASSETS: Investments at value (identified cost $537,724,111) $ 685,233,405 Repurchase agreement (at cost and value) 4,000,000 Cash 534,258 Receivable for investments sold 3,779,959 Receivable for dividends and interest 2,130,657 Prepaid expenses 77,511 - ----------------------------------------------------------------------------------------------------- Total Assets 695,755,790 - ----------------------------------------------------------------------------------------------------- LIABILITIES: Payable for investments purchased 6,535,137 Payable for investment advisory fee 500,364 Preferred dividends accrued but not yet declared 266,222 Accrued expenses 210,715 - ----------------------------------------------------------------------------------------------------- Total Liabilities 7,512,438 - ----------------------------------------------------------------------------------------------------- Net Assets $ 688,243,352 - ----------------------------------------------------------------------------------------------------- Net Assets applicable to Preferred Stock at a liquidation value of $25 per share $ 160,000,000 - ----------------------------------------------------------------------------------------------------- Net Assets applicable to Common Stock (net asset value per share - $15.59) $ 528,243,352 - ----------------------------------------------------------------------------------------------------- SUMMARY OF STOCKHOLDERS' EQUITY: 7.80% Cumulative Preferred Stock - par value $0.001 per share; 2,400,000 shares $ 2,400 outstanding 7.30% Tax-Advantaged Cumulative Preferred Stock - par value $0.001 per share; 4,000,000 4,000 shares outstanding Common Stock - par value $0.001 per share; 33,890,558 shares outstanding (150,000,000 33,891 shares authorized) Additional paid-in capital 533,310,765 Undistributed net investment income 5,235,630 Accumulated net realized gain on investments 31,962,814 Quarterly and accrued distributions (29,815,442) Net unrealized appreciation on investments 147,509,294 - ----------------------------------------------------------------------------------------------------- Net Assets $ 688,243,352 =====================================================================================================
STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Six months ended Year ended June 30, 1999 December 31, (unaudited) 1998 ---------------- ------------ INVESTMENT OPERATIONS: Net investment income $ 3,389,617 $ 5,725,999 Net realized gain on investments 25,467,507 53,554,124 Net change in unrealized appreciation on investments (571,055) (31,906,113) - ---------------------------------------------------------------------------------------------------------------------- Net increase in net assets from investment operations 28,286,069 27,374,010 - ---------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO PREFERRED STOCKHOLDERS: Net investment income -- (944,176) Net realized gain on investments -- (8,134,436) Quarterly and accrued distributions* (5,990,000) (159,555) - ---------------------------------------------------------------------------------------------------------------------- Total distributions to Preferred Stockholders (5,990,000) (9,238,167) - ---------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO COMMON STOCKHOLDERS: Net investment income -- (5,045,674) Net realized gain on investments -- (43,475,552) Quarterly distributions* (23,559,220) -- - ---------------------------------------------------------------------------------------------------------------------- Total distributions to Common Stockholders (23,559,220) (48,521,226) - ---------------------------------------------------------------------------------------------------------------------- CAPITAL STOCK TRANSACTIONS: Conversion of Notes to Common Stock -- 26,814,113 Reinvestment of distributions to Common Stockholders 12,543,408 29,819,441 Net proceeds from issuance of Preferred Stock -- 96,484,000 - ---------------------------------------------------------------------------------------------------------------------- Total capital stock transactions 12,543,408 153,117,554 - ---------------------------------------------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS 11,280,257 122,732,171 NET ASSETS: Beginning of period 676,963,095 554,230,924 - ---------------------------------------------------------------------------------------------------------------------- End of period (including undistributed net investment income of $5,235,630 and $1,846,013, respectively) $688,243,352 $676,963,095 - -=====================================================================================================================
* To be allocated to net investment income and capital gains at year-end. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 27 STATEMENT OF OPERATIONS - -------------------------------------------------------------------------------- ROYCE VALUE TRUST, INC. SIX MONTHS ENDED JUNE 30, 1999 (unaudited) - --------------------------------------------------------------------------------
INVESTMENT INCOME: Income: Dividends $ 3,863,741 Interest 2,876,158 - -------------------------------------------------------------------------------- Total Income 6,739,899 - -------------------------------------------------------------------------------- Expenses: Investment advisory fees 3,021,841 Administrative and office facilities expenses 162,767 Shareholder reports 122,780 Custodian and transfer agent fees 96,212 Directors' fees 33,951 Professional fees 33,000 Other expenses 66,102 - -------------------------------------------------------------------------------- Total Expenses 3,536,653 Fees Waived by Investment Adviser (186,371) - -------------------------------------------------------------------------------- Net Expenses 3,350,282 - -------------------------------------------------------------------------------- Net Investment Income 3,389,617 - -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain on investments 25,467,507 Net change in unrealized appreciation on investments (571,055) - -------------------------------------------------------------------------------- Net realized and unrealized gain on investments 24,896,452 - -------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS $28,286,069 ================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 28 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- ROYCE VALUE TRUST, INC. - -------------------------------------------------------------------------------- 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, 1999 (unaudited) - ------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $15.72 - ------------------------------------------------------------------------------------- INVESTMENT OPERATIONS(a): Net investment income 0.10 Net realized and unrealized gain on investments 0.71 - ------------------------------------------------------------------------------------- Total investment operations 0.81 - ------------------------------------------------------------------------------------- DISTRIBUTIONS TO PREFERRED STOCKHOLDERS: Net investment income -- Net realized gain on investments -- Quarterly and accrued distributions* (0.18) - ------------------------------------------------------------------------------------- Total distributions to Preferred Stockholders (0.18) - ------------------------------------------------------------------------------------- DISTRIBUTIONS TO COMMON STOCKHOLDERS: Net investment income -- Net realized gain on investments -- Quarterly distributions* (0.71) - ------------------------------------------------------------------------------------- Total distributions to Common Stockholders (0.71) - ------------------------------------------------------------------------------------- CAPITAL STOCK TRANSACTIONS: Effect of Preferred Stock offerings or rights offerings -- Effect of reinvestment of distributions by Common Stockholders (0.05) - ------------------------------------------------------------------------------------- Total capital stock transactions (0.05) - ------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD(a) $15.59 - ------------------------------------------------------------------------------------- MARKET VALUE, END OF PERIOD $13.250 - ------------------------------------------------------------------------------------- TOTAL RETURN(b): Net Asset Value(a) 4.9% Market Value 1.9% RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS: Total expenses (c,d) 1.39%*** Management fee expense 1.18%*** Interest expense -- Other operating expenses 0.21%*** Net investment income 1.41%*** SUPPLEMENTAL DATA: Net Assets, End of Period (in thousands) $688,243 Portfolio Turnover Rate 21% PREFERRED STOCK: Total shares outstanding 6,400,000 Asset coverage per share 430% Liquidation preference per share $25.00 Average market value per share: 7.80% Cumulative (e) $25.82 7.30% Tax-Advantaged Cumulative (e) $25.46 NOTES: Total amount outstanding (in thousands) -- Asset coverage per note -- Average market value per note (e) -- ===================================================================================== Years ended December 31, -------------------------------------------------------------------------- 1998 1997 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $16.91 $14.32 $13.56 $12.34 $13.47 - ---------------------------------------------------------------------------------------------------------------------------- INVESTMENT OPERATIONS(a): Net investment income 0.17 0.21 0.26 0.04 0.04 Net realized and unrealized gain on investments 0.67 3.85 1.92 2.70 0.09 - ---------------------------------------------------------------------------------------------------------------------------- Total investment operations 0.84 4.06 2.18 2.74 0.13 - ---------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO PREFERRED STOCKHOLDERS: Net investment income (0.03) (0.03) (0.01) -- -- Net realized gain on investments (0.26) (0.15) (0.06) -- -- Quarterly and accrued distributions* -- -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------------- Total distributions to Preferred Stockholders (0.29) (0.18) (0.07) -- -- - ---------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO COMMON STOCKHOLDERS: Net investment income (0.16) (0.19) (0.15) (0.03) (0.01) Net realized gain on investments (1.38) (1.02) (1.00) (1.26) (1.04) Quarterly distributions* -- -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------------- Total distributions to Common Stockholders (1.54) (1.21) (1.15) (1.29) (1.05) - ---------------------------------------------------------------------------------------------------------------------------- CAPITAL STOCK TRANSACTIONS: Effect of Preferred Stock offerings or rights offerings (0.11) -- (0.09) (0.12) (0.14) Effect of reinvestment of distributions by Common Stockholders (0.09) (0.08) (0.11) (0.11) (0.07)** - ---------------------------------------------------------------------------------------------------------------------------- Total capital stock transactions (0.20) (0.08) (0.20) (0.23) (0.21) - ---------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD(a) $15.72 $16.91 $14.32 $13.56 $12.34 - ---------------------------------------------------------------------------------------------------------------------------- MARKET VALUE, END OF PERIOD $13.750 $15.063 $12.625 $11.875 $11.000 - ---------------------------------------------------------------------------------------------------------------------------- TOTAL RETURN(b): Net Asset Value(a) 3.3% 27.5% 15.5% 22.6% 1.1% Market Value 1.5% 28.8% 16.3% 20.5% (5.6)% RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS: Total expenses (c,d) 1.31% 1.12% 1.28% 2.01% 2.01% Management fee expense 1.10% 0.39% 0.39% 0.97% 1.21% Interest expense -- 0.45% 0.64% 0.75% 0.46% Other operating expenses 0.21% 0.28% 0.25% 0.29% 0.34% Net investment income 1.11% 1.53% 1.27% 0.34% 0.31% SUPPLEMENTAL DATA: Net Assets, End of Period (in thousands) $676,963 $554,231 $441,837 $338,970 $269,032 Portfolio Turnover Rate 43% 29% 34% 32% 35% PREFERRED STOCK: Total shares outstanding 6,400,000 2,400,000 2,400,000 -- -- Asset coverage per share 423% 662% 481% -- -- Liquidation preference per share $25.00 $25.00 $25.00 -- -- Average market value per share: 7.80% Cumulative (e) $25.91 $25.70 $25.20 -- -- 7.30% Tax-Advantaged Cumulative (e) $25.43 -- -- -- -- NOTES: Total amount outstanding (in thousands) -- $27,801 $40,000 $40,000 $40,000 Asset coverage per note -- 2091% 1202% 944% 769% Average market value per note (e) -- $107.69 $100.68 $96.92 $95.62 ============================================================================================================================
(a) From June 21, 1995 through December 31, 1997, Net Asset Value per share, Net Asset Value Total Returns and Income from Investment Operations were calculated assuming that the then outstanding convertible notes had been fully converted, except when the effect of doing so resulted in a higher Net Asset Value per share than would have been calculated without such assumption. If it were not assumed the Notes had been converted, the Net Asset Value per share would have been increased by $0.31, $0.17, and $0.09 at December 31, 1997, 1996 and 1995, respectively. (b) The Net Asset Value and Market Value Total Returns assume a continuous Common Stockholder who reinvested all net investment income dividends and capital gain distributions and fully participated in primary subscriptions for rights offerings. (c) Expense ratios based on total average net assets were 1.05%, 1.06%, 0.99%, 1.20%, 2.01% and 2.01% for the periods ended June 30, 1999 and December 31, 1998, 1997, 1996, 1995 and 1994, respectively. (d) Expense ratios based on average net assets applicable to Common Stockholders before waiver of fees by the investment adviser would have been 1.47%, 1.34%, 1.14%, 1.31%, 2.04% and 2.02% for the periods ended June 30, 1999 and December 31, 1998, 1997, 1996, 1995 and 1994, respectively. (e) The average of month-end market values during the period. * To be allocated to net investment income and capital gains at year-end. ** Includes distributions paid January 31, 1994 and distributions paid December 30, 1994. *** Annualized. THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 29 NOTES TO FINANCIAL STATEMENTS (unaudited) - -------------------------------------------------------------------------------- ROYCE VALUE TRUST, INC. - -------------------------------------------------------------------------------- Summary of Significant Accounting Policies: Royce Value Trust, Inc. ("the Fund") was incorporated under the laws of the State of Maryland on July 1, 1986 as a diversified closed-end investment company. The Fund commenced operations on November 26, 1986. The preparation of financial statements in conformity with 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 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. Dividend income is recorded on the ex-dividend date and any non-cash dividend income is recorded at the fair market value of the securities received. Interest income is recorded on the accrual basis. Realized gains and losses from investment transactions are determined on the basis of identified cost for book and tax purposes. Expenses: The Fund incurs direct and indirect expenses. Expenses directly attributable to the Fund are charged to the Fund's operations, while expenses applicable to more than one of the Royce Funds are allocated in an equitable manner. Allocated personnel and occupancy costs related to The Royce Funds are included in administrative and office facilities expenses. 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: The Fund currently has a policy of paying quarterly distributions on the Fund's Common Stock. Distributions are currently being made at the annual rate of 9% of the rolling average of the prior four calendar quarter-end NAVs of the Fund's Common Stock, with the fourth quarter distribution being the greater of 2.25% of the rolling average or the distribution required by IRS regulations. Distributions to Preferred Stockholders are recorded on an accrual basis and paid quarterly. Distributions are determined in accordance with income tax regulations that may differ from generally accepted accounting principles. Permanent book and tax basis differences relating to stockholder distributions will result in reclassifications within the capital accounts. Undistributed net investment income may include temporary book and tax basis differences, which will reverse in a subsequent period. Any taxable income or gain remaining undistributed at fiscal year end is distributed in the following year. 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, which are held by SSB&T until maturity of the repurchase agreements, are marked-to-market daily and maintained at a value at least equal to the principal amount of the repurchase agreement (including accrued interest). Repurchase agreements could involve certain risks in the event of default or insolvency of SSB&T, including possible delays or restrictions upon the ability of the Fund to dispose of the underlying securities. Investment Company Convertible Notes: On February 5, 1998, the Fund redeemed $256,000 of Investment Company Convertible Notes ("Notes"), constituting all of the then outstanding Notes, at a price equal to 100% of the principal amount of each Note plus accrued unpaid interest to that date. Prior to February 5, 1998, the remainder of the Notes had been converted to Common Stock of the Fund. The Fund issued 2,091,425 shares of Common Stock upon conversion of Notes for the period ended December 31, 1998. 30 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 NOTES TO FINANCIAL STATEMENTS (unaudited) (continued) - -------------------------------------------------------------------------------- ROYCE VALUE TRUST, INC. - -------------------------------------------------------------------------------- Capital Stock: The Fund currently has two issues of Preferred Stock outstanding: 7.80% Cumulative Preferred Stock and 7.30% Tax-Advantaged Cumulative Preferred Stock. Both issues of Preferred Stock have a liquidation preference of $25.00 per share. Under the Investment Company Act of 1940, the Fund is required to maintain an asset coverage of at least 200% for the Preferred Stock. In addition, pursuant to the Rating Agency Guidelines established by Moody's, the Fund is required to maintain a certain discounted asset coverage. The Fund has met these requirements since issuing Preferred Stock. The Fund is required to allocate long-term capital gain distributions and other types of income proportionately to distributions made to holders of shares of Common Stock and Preferred Stock. To the extent that dividends are not paid from long-term capital gains, net investment income or net short-term capital gains, they will represent a return of capital. The Fund issued 1,010,297 and 2,080,238 shares of Common Stock as reinvestment of distributions by Common Stockholders for the periods ended June 30, 1999 and December 31, 1998, respectively. Investment Advisory Agreement: As compensation for its services under the Investment Advisory Agreement, Royce & Associates, Inc. ("Royce") receives a fee comprised of a Basic Fee ("Basic Fee") and an adjustment to the Basic Fee based on the investment performance of the Fund in relation to the investment record of the S&P 600 SmallCap Index ("S&P 600"). The Basic Fee is a monthly fee equal to 1/12 of 1% (1% on an annualized basis) of the average of the month-end net assets of the Fund for the applicable performance period. The performance period for each 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 month will be increased or decreased at the rate of 1/12 of .05% for each percentage point that the investment performance of the Fund exceeds, or is exceeded by, the percentage change in the investment record of the S&P 600 by more than two percentage points 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 is payable if the investment performance of the Fund exceeds the percentage change in the investment record of the S&P 600 by 12 or more percentage points for the performance period, and the minimum monthly fee rate as adjusted for performance is 1/12 of .5% and is payable if the percentage change in the investment record of the S&P 600 exceeds the investment performance of the Fund by 12 or more percentage points for the performance period. Notwithstanding the foregoing, Royce is not entitled to receive any fee for any month when the investment performance of the Fund for the rolling 36-month period ending with such month is negative. In the event that the Fund's investment performance for such a performance period is less than zero, Royce will not be required to refund to the Fund any fee earned in respect of any prior performance period. Royce has voluntarily committed to waive the portion of its investment advisory fee attributable to an issue of the Fund's Preferred Stock for any month in which the Fund's average annual NAV total return since issuance of the Preferred Stock fails to exceed the applicable Preferred Stock dividend rate. For the period ended June 30, 1999, the Fund accrued and paid Royce advisory fees totaling $2,835,470, which is net of $186,371 voluntarily waived by Royce. Purchases and Sales of Investment Securities: For the period ended June 30, 1999, the cost of purchases and proceeds from sales of investment securities, other than short-term securities, amounted to $179,485,390 and $125,294,850, respectively. Transactions in Shares of Affiliated Companies: An "Affiliated Company", as defined in the Investment Company Act of 1940, is a company in which a 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 period ended June 30, 1999.
=========================================================================================================================== Purchases Sales -------------------- ------------------ Affiliated Company Shares Cost Shares Cost Realized Gain/Loss Dividend Income ------------------ ------ ---- ------ ---- ------------------ --------------- Axiohm Transaction Solutions 5,000 $ 18,750 -- -- -- -- Open Plan Systems 133,600 $344,500 -- -- -- -- Peerless Mfg. -- -- -- -- -- $19,825 RockShox -- -- 40,600 $215,500 $(152,684) -- Technical Communications -- -- -- -- -- -- Thomaston Mills Cl. A -- -- -- -- -- -- ===========================================================================================================================
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999| 31 SCHEDULE OF INVESTMENTS - -------------------------------------------------------------------------------- ROYCE MICRO-CAP TRUST, INC. JUNE 30, 1999 (unaudited) - -------------------------------------------------------------------------------- COMMON STOCKS -- 78.4%
SHARES VALUE ------ ----- Consumer Products -- 12.0% Apparel and Shoes - 2.8% Garan 46,700 $ 1,500,238 **Kleinert's* 14,200 142,000 North Face (The)* 84,400 833,450 Oshkosh B'Gosh Cl. A 41,600 878,800 Weyco Group 68,400 1,573,200 ------------ 4,927,688 ------------ Collectibles - 0.4% Enesco Group 33,000 763,125 ------------ Food/Beverage/Tobacco - 1.3% 800 JR Cigar* 83,300 1,030,837 Piercing Pagoda* 3,000 37,875 Sirena Apparel Group* 5,000 10,000 ++Smithfield Companies (The) 148,400 1,159,375 ------------ 2,238,087 ------------ Home Furnishing/Appliances - 2.1% Bassett Furniture Industries 52,800 1,207,800 Conso International* 197,800 1,137,350 Lifetime Hoan 105,054 958,618 Mity-Lite* 14,200 269,800 Neutral Posture Ergonomics* 107,000 227,375 ------------ 3,800,943 ------------ Publishing - 1.3% Gibson Greetings* 81,600 517,650 Topps Company (The)* 249,300 1,815,216 ------------ 2,332,866 ------------ Sports and Recreation - 1.0% Aldila* 348,500 642,547 Baldwin Piano & Organ* 42,300 348,975 Johnson Worldwide Associates Cl. A* 87,100 794,787 ------------ 1,786,309 ------------ Other Consumer Products - 3.1% Koala Corporation 40,000 1,070,000 Lazare Kaplan International* 110,100 1,114,762 Matthews International Cl. A 81,000 2,399,625 Velcro Industries 81,500 988,188 ------------ 5,572,575 ------------ 21,421,593 ============ Consumer Services -- 2.0% Leisure/Entertainment - 0.1% Seattle FilmWorks* 20,000 61,250 ------------ Restaurants/Lodgings - 0.3% Pizza Inn 145,700 487,184 ------------ SHARES VALUE ------ ----- Retail Stores - 1.6% Bombay Company (The)* 46,600 $ 358,238 Brookstone* 13,000 201,500 Cato Cl. A 47,500 552,187 Lechters* 93,400 233,500 Suzy Shier 156,800 1,054,207 Urban Outfitters* 24,600 618,075 ------------ 3,017,707 ------------ 3,566,141 ============ Financial Intermediaries -- 4.4% Banking - 0.3% Iron & Glass Bancorp 8,580 193,050 Queen City Investments* 948 394,368 ------------ 587,418 ------------ Insurance - 4.1% Capitol Transamerica 55,965 741,536 Chartwell Re 28,500 530,813 Highlands Insurance Group* 77,000 808,500 Independence Holding 33,300 391,275 NYMAGIC 40,400 631,250 Navigators Group* 41,000 615,000 Nobel Insurance* 183,000 137,250 PICO Holdings* 16,900 427,781 PMA Capital Cl. A 56,609 1,164,023 PXRE 40,664 737,035 Wellington Underwriting 444,712 1,156,613 ------------ 7,341,076 ------------ 7,928,494 ============ Financial Services -- 2.7% Information and Processing - 2.2% BARRA* 58,250 1,470,812 Duff & Phelps Credit Rating 35,600 2,380,750 ------------ 3,851,562 ------------ Insurance Brokers - 0.5% CorVel* 10,000 215,000 Hilb, Rogal & Hamilton 30,300 677,963 ------------ 892,963 ------------ 4,744,525 ============ Health -- 4.0% Commercial Services - 1.0% ChiRex* 16,800 539,700 Healthworld Corporation* 40,000 450,000 ICON ADR+* 1,000 19,625 Young Innovations* 59,400 868,725 ------------ 1,878,050 ------------
32 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 SCHEDULE OF INVESTMENTS - -------------------------------------------------------------------------------- ROYCE MICRO-CAP TRUST, INC. JUNE 30, 1999 (unaudited) - --------------------------------------------------------------------------------
SHARES VALUE ------ ----- Health (continued) Drugs and Biotech - 2.3% Aurora Biosciences* 100,000 $ 725,000 BioReliance* 145,800 947,700 Cephalon* 50,000 868,750 International Isotopes* 77,400 715,950 Scotia Holdings* 120,000 209,956 ViroPharma* 55,900 429,731 Visible Genetics* 10,000 161,250 ------------ 4,058,337 ------------ Surgical Products and Devices - 0.7% Cardiac Pathways* 30,000 28,125 Empi* 38,900 948,188 NMT Medical* 35,300 103,694 Orthofix International* 12,000 178,500 Urologix* 40,000 98,750 ------------ 1,357,257 ------------ 7,293,644 ============ Industrial Products -- 17.0% Building Systems and Components - 4.5% Falcon Products 115,600 1,177,675 KIT Manufacturing* 38,800 237,650 LSI Industries 25,900 624,837 Mueller (Paul) 16,650 518,231 Preformed Line Products Company 45,000 838,125 Simpson Manufacturing* 46,100 2,189,750 Skyline 32,100 940,931 Thor Industries 55,200 1,566,300 ------------ 8,093,499 ------------ Construction Materials - 4.2% Ash Grove Cement Company 20,000 1,925,000 Florida Rock Industries 55,000 2,502,500 Monarch Cement 50,410 970,393 Puerto Rican Cement 38,200 1,267,762 Trex Company 30,800 781,550 ------------ 7,447,205 ------------ Industrial Components - 0.1% Woodhead Industries 10,000 122,500 ------------ Machinery - 1.4% Alamo Group 10,800 94,500 ++Art's-Way Manufacturing* 124,000 558,000 DeVlieg-Bullard* 601,900 210,665 Lund International Holdings* 109,700 685,625 Oshkosh Truck 19,800 996,187 ------------ 2,544,977 ------------ SHARES VALUE ------ ----- Paper and Packaging - 0.9% Liqui-Box 13,100 $ 704,125 PalEx* 140,100 849,356 ------------ 1,553,481 ------------ Pumps, Valves and Bearings - 1.0% Denison International ADR+* 55,500 853,313 NN Ball & Roller 57,700 331,775 Sun Hydraulics 78,400 700,700 ------------ 1,885,788 ------------ Specialty Chemicals and Materials - 2.7% Aceto 43,875 504,562 CFC International* 116,500 1,252,375 Chemfab* 80,700 1,467,731 Hauser* 42,525 233,888 Hawkins Chemical 122,667 996,669 Tuscarora 22,000 298,375 ------------ 4,753,600 ------------ Textiles - 0.4% Fab Industries 45,100 687,775 ------------ Other Industrial Products - 1.8% BHA Group Holdings 95,965 791,711 Landauer 32,300 952,850 Myers Industries 47,690 953,800 Pioneer Metals* 1,570 518,100 ------------ 3,216,461 ------------ 30,305,286 ============ Industrial Services -- 10.8% Commercial Services - 1.8% Carlisle Holdings* 128,400 1,861,800 Cornell Corrections* 52,200 858,038 Exponent* 58,200 407,400 ------------ 3,127,238 ------------ Engineering and Construction - 1.5% Sevenson Environmental Services 125,120 1,454,520 Willbros Group* 139,400 1,184,900 ------------ 2,639,420 ------------ Food/Tobacco Processors - 1.6% Farmer Bros. 4,000 810,000 Midwest Grain Products* 192,922 2,146,257 ------------ 2,956,257 ------------ Industrial Distribution - 0.7% Vallen* 76,800 1,228,800 ------------ Printing - 2.0% Ennis Business Forms 132,700 1,136,244 Merrill Corporation 50,800 736,600 New England Business Service 45,300 1,398,637 Schawk 26,300 235,056 ------------ 3,506,537 ------------
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 33 SCHEDULE OF INVESTMENTS - -------------------------------------------------------------------------------- ROYCE MICRO-CAP TRUST, INC. JUNE 30, 1999 (unaudited) - --------------------------------------------------------------------------------
SHARES VALUE ------ ----- Industrial Services (continued) Transportation and Logistics - 3.2% AirNet Systems* 133,100 $ 1,796,850 Circle International Group 79,700 1,743,438 Frozen Food Express Industries 143,500 1,094,188 Kenan Transport 34,800 1,070,100 Knight Transportation* 2,500 53,438 ------------ 5,758,014 ------------ 19,216,266 ============ Natural Resources -- 5.5% Energy Services - 1.9% Carbo Ceramics 52,600 1,601,012 Dril-Quip* 30,600 701,888 GulfMark Offshore* 44,600 847,400 Peerless Mfg. 21,600 231,525 ------------ 3,381,825 ------------ Metals and Mining - 0.2% MK Gold* 603,700 295,813 ------------ Oil and Gas - 2.7% Bonavista Petroleum* 105,000 1,112,394 Denbury Resources* 327,600 1,433,250 Evergreen Resources* 20,000 503,750 MarkWest Hydrocarbon* 32,600 285,250 PetroCorp* 50,100 306,863 Titan Exploration* 256,600 1,283,000 ------------ 4,924,507 ------------ Real Estate - 0.7% FRP Properties* 33,700 867,775 Liberte Investors 103,300 355,094 ------------ 1,222,869 ------------ 9,825,014 ============ Technology -- 15.0% Aerospace/Defense - 1.1% Curtiss-Wright 35,000 1,360,625 Special Metals* 113,000 656,812 ------------ 2,017,437 ------------ Components and Systems - 5.6% Advanced Energy Industries* 19,600 795,025 Aladdin Knowledge Systems* 28,300 231,706 CEM* 75,700 567,750 Coherent* 45,000 838,125 Elamex* 86,600 292,275 Innovex 42,400 593,600 MOCON 50,200 294,925 Newport 75,300 1,167,150 PCD* 60,000 660,000 SHARES VALUE ------ ----- Penn Engineering & Manufacturing 39,700 $ 893,250 Penn Engineering & Manufacturing Cl. A 15,400 313,775 Perceptron* 152,100 693,956 Performance Technologies* 37,500 754,688 Printronix* 10,000 140,000 Rainbow Technologies* 68,700 811,519 Spectra-Physics Lasers* 2,500 20,625 TSI 30,000 348,750 TransAct Technologies* 101,700 673,763 ------------ 10,090,882 ------------ Distribution - 0.9% Kent Electronics* 30,100 596,356 Richardson Electronics 153,500 1,045,719 ------------ 1,642,075 ------------ Semiconductors and Equipment - 2.5% Aetrium* 10,000 91,250 Align-Rite International* 40,000 555,000 Electroglas* 75,000 1,500,000 Exar* 69,900 1,730,025 Helix Technology 20,800 497,900 ------------ 4,374,175 ------------ Software/Services - 3.9% CSP* 48,581 321,849 Integral Systems* 42,600 969,150 JDA Software Group* 93,600 871,650 Kronos* 51,000 2,320,500 MSC.Software* 174,600 1,014,863 Nichols Research* 30,000 656,250 Tyler Technologies* 122,300 840,812 ------------ 6,995,074 ------------ Telecommunication - 1.0% REMEC* 72,400 1,167,450 Vertex Communications* 30,000 410,625 Wireless Telecom Group* 90,000 208,125 ------------ 1,786,200 ------------ 26,905,843 ============ Miscellaneous -- 5.0% 8,931,649 ============ TOTAL COMMON STOCKS (Cost $115,205,362) 140,138,455 ============ PREFERRED STOCK -- 0.4% Seneca Foods* (Cost $623,500) 51,250 691,875 ============
34 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 SCHEDULE OF INVESTMENTS - -------------------------------------------------------------------------------- ROYCE MICRO-CAP TRUST, INC. JUNE 30, 1999 (unaudited) - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE ------ ----- U.S. TREASURY OBLIGATIONS -- 17.2% U.S. Treasury Notes 6.25%, due 8/31/00 $ 5,000,000 $ 5,049,200 4.875%, due 3/31/01 14,000,000 13,857,760 6.25%, due 8/31/02 5,000,000 5,083,600 4.75%, due 2/15/04 7,000,000 6,733,090 ------------ TOTAL U.S. TREASURY OBLIGATIONS (Cost $30,900,391) 30,723,650 ============
VALUE ----- REPURCHASE AGREEMENT -- 3.4% State Street Bank & Trust Company, 4.25% dated 6/30/99, due 7/01/99 maturity value $6,000,708 (collateralized by U.S. Treasury Bonds, 12.75% due 11/15/10, valued at $6,126,720) (Cost $6,000,000) $ 6,000,000 ============ TOTAL INVESTMENTS -- 99.4% (Cost $152,729,253) 177,553,980 CASH AND OTHER ASSETS LESS LIABILITIES -- 0.6% 1,147,177 ------------ NET ASSETS--100.0% $178,701,157 ============
- -------------------------------------------------------------------------------- * Non-income producing. ** A security for which market quotations are no longer readily available represents 0.08% of net assets. This security has been valued in good faith by the Board of Directors. + American Depository Receipt. ++ At June 30, 1999, the Fund owned 5% or more of the Company's outstanding voting securities thereby making the Company an Affiliated Company as the term is defined in the Investment Company Act of 1940. INCOME TAX INFORMATION: The cost of total investments for Federal income tax purposes was $152,729,253. At June 30, 1999, net unrealized appreciation for all securities was $24,824,727, consisting of aggregate gross unrealized appreciation of $39,041,457 and aggregate gross unrealized depreciation of $14,216,730. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 35 STATEMENT OF ASSETS AND LIABILITIES - -------------------------------------------------------------------------------- ROYCE MICRO-CAP TRUST, INC. JUNE 30, 1999 (unaudited) - --------------------------------------------------------------------------------
ASSETS: Investments at value (identified cost $146,729,253) $171,553,980 Repurchase agreement (at cost and value) 6,000,000 Cash 66,486 Receivable for investments sold 797,370 Receivable for dividends and interest 619,833 Prepaid expenses 29,113 - ------------------------------------------------------------------------------------------------------------ Total Assets 179,066,782 - ------------------------------------------------------------------------------------------------------------ LIABILITIES: Payable for investments purchased 122,760 Payable for investment advisory fee 92,333 Preferred dividends accrued but not yet declared 68,889 Payable for administration fee 9,492 Accrued expenses 72,151 - ------------------------------------------------------------------------------------------------------------ Total Liabilities 365,625 - ------------------------------------------------------------------------------------------------------------ Net Assets $178,701,157 - ------------------------------------------------------------------------------------------------------------ Net assets applicable to Preferred Stock at a liquidation value of $25 per share $ 40,000,000 - ------------------------------------------------------------------------------------------------------------ Net assets applicable to Common Stock (net asset value per share--$10.30) $138,701,157 - ------------------------------------------------------------------------------------------------------------ SUMMARY OF STOCKHOLDERS' EQUITY: 7.75% Cumulative Preferred Stock--par value $0.001 per share; 1,600,000 shares outstanding $ 1,600 Common Stock--par value $0.001 per share; 13,464,559 shares outstanding (150,000,000 shares authorized) 13,465 Additional paid-in capital 139,209,608 Undistributed net investment income 957,375 Accumulated net realized gain on investments and foreign currency 15,313,699 Quarterly and accrued distributions (1,618,889) Net unrealized appreciation on investments and foreign currency 24,824,299 - ------------------------------------------------------------------------------------------------------------ Net Assets $178,701,157 ============================================================================================================
STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Six months ended Year ended June 30, 1999 December 31, (unaudited) 1998 ---------------- ------------- INVESTMENT OPERATIONS: Net investment income $ 747,520 $ 1,720,215 Net realized gain on investments and foreign currency 11,359,208 5,532,509 Net change in unrealized appreciation on investments and foreign currency (7,350,772) (10,118,947) - ------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets from investment operations 4,755,956 (2,866,223) - ------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO PREFERRED STOCKHOLDERS: Net investment income -- (758,880) Net realized gain on investments and foreign currency -- (2,341,120) Quarterly distributions* (1,550,000) -- - ------------------------------------------------------------------------------------------------------------------------------ Total distributions to Preferred Stockholders (1,550,000) (3,100,000) - ------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO COMMON STOCKHOLDERS: Net investment income -- (932,213) Net realized gain on investments and foreign currency -- (2,875,417) - ------------------------------------------------------------------------------------------------------------------------------ Total distributions to Common Stockholders -- (3,807,630) - ------------------------------------------------------------------------------------------------------------------------------ CAPITAL STOCK TRANSACTIONS: Reinvestment of distributions to Common Stockholders -- 2,907,409 - ------------------------------------------------------------------------------------------------------------------------------ NET INCREASE (DECREASE) IN NET ASSETS 3,205,956 (6,866,444) NET ASSETS: Beginning of period 175,495,201 182,361,645 - ------------------------------------------------------------------------------------------------------------------------------ End of period (including undistributed net investment income of $957,375 and $209,855, respectively) $178,701,157 $175,495,201 ==============================================================================================================================
* To be allocated to net investment income and capital gains at year-end. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 36 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 STATEMENT OF OPERATIONS - -------------------------------------------------------------------------------- ROYCE MICRO-CAP TRUST, INC. SIX MONTHS ENDED JUNE 30, 1999 (unaudited) - --------------------------------------------------------------------------------
INVESTMENT INCOME: Income: Interest $ 926,253 Dividends 628,951 - ------------------------------------------------------------------------------------------ Total Income 1,555,204 - ------------------------------------------------------------------------------------------ Expenses: Investment advisory fees 660,861 Administration fees 56,404 Custodian and transfer agent fees 47,883 Administrative and office facilities expenses 43,365 Shareholder reports 38,332 Professional fees 17,982 Directors' fees 16,461 Other expenses 29,267 - ------------------------------------------------------------------------------------------ Total Expenses 910,555 Fees Waived by Investment Adviser (102,871) - ------------------------------------------------------------------------------------------ Net Expenses 807,684 - ------------------------------------------------------------------------------------------ Net Investment Income 747,520 - ------------------------------------------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY: Net realized gain on investments and foreign currency 11,359,208 Net change in unrealized appreciation on investments and foreign currency (7,350,772) - ------------------------------------------------------------------------------------------ Net realized and unrealized gain on investments and foreign currency 4,008,436 - ------------------------------------------------------------------------------------------ NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS $ 4,755,956 ==========================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 37 FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- ROYCE MICRO-CAP TRUST, INC. - -------------------------------------------------------------------------------- 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, 1999 (unaudited) - ------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD $10.06 - ------------------------------------------------------------------------------------ INVESTMENT OPERATIONS: Net investment income 0.06 Net realized and unrealized gain (loss) on investments and foreign currency 0.30 - ------------------------------------------------------------------------------------ Total investment operations 0.36 - ------------------------------------------------------------------------------------ DISTRIBUTIONS TO PREFERRED STOCKHOLDERS: Net investment income -- Net realized gain on investments and foreign currency -- Quarterly and accrued distributions* (0.12) - ------------------------------------------------------------------------------------ Total distributions to Preferred Stockholders (0.12) - ------------------------------------------------------------------------------------ DISTRIBUTIONS TO COMMON STOCKHOLDERS: Net investment income -- Net realized gain on investments and foreign currency -- - ------------------------------------------------------------------------------------ Total distributions to Common Stockholders -- - ------------------------------------------------------------------------------------ CAPITAL STOCK TRANSACTIONS: Effect of Preferred Stock offering or rights offering -- Effect of reinvestment of distributions by Common Stockholders -- - ------------------------------------------------------------------------------------ Total capital stock transactions -- - ------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD $10.30 - ------------------------------------------------------------------------------------ MARKET VALUE, END OF PERIOD $8.4375 - ------------------------------------------------------------------------------------ TOTAL RETURN (a): Net Asset Value 2.4% Market Value (4.9)% RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS: Total expenses (b,c) 1.27%** Management fee expense 0.88%** Other operating expenses 0.39%** Net investment income 1.17%** SUPPLEMENTAL DATA: Net Assets, End of Period (in thousands) $178,701 Portfolio Turnover Rate 19% PREFERRED STOCK: Total shares outstanding 1,600,000 Asset coverage per share 447% Liquidation preference per share $25.00 Average market value per share (d) $25.24 ==================================================================================== Years ended December 31, ----------------------------------------------------------------- 1998 1997 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $10.84 $9.38 $8.89 $7.58 $7.27 - ---------------------------------------------------------------------------------------------------------------------------------- INVESTMENT OPERATIONS: Net investment income 0.13 0.17 0.09 0.02 0.01 Net realized and unrealized gain (loss) on investments and foreign currency (0.36) 2.61 1.32 1.69 0.41 - ---------------------------------------------------------------------------------------------------------------------------------- Total investment operations (0.23) 2.78 1.41 1.71 0.42 - ---------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO PREFERRED STOCKHOLDERS: Net investment income (0.06) (0.02) -- -- -- Net realized gain on investments and foreign currency (0.18) (0.12) -- -- -- Quarterly and accrued distributions* -- -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions to Preferred Stockholders (0.24) (0.14) -- -- -- - ---------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO COMMON STOCKHOLDERS: Net investment income (0.07) (0.16) (0.10) (0.02) (0.02) Net realized gain on investments and foreign currency (0.22) (0.84) (0.70) (0.34) (0.03) - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions to Common Stockholders (0.29) (1.00) (0.80) (0.36) (0.05) - ---------------------------------------------------------------------------------------------------------------------------------- CAPITAL STOCK TRANSACTIONS: Effect of Preferred Stock offering or rights offering -- (0.12) -- -- (0.06) Effect of reinvestment of distributions by Common Stockholders (0.02) (0.06) (0.12) (0.04) -- - ---------------------------------------------------------------------------------------------------------------------------------- Total capital stock transactions (0.02) (0.18) (0.12) (0.04) (0.06) - ---------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $10.06 $10.84 $9.38 $8.89 $7.58 - ---------------------------------------------------------------------------------------------------------------------------------- MARKET VALUE, END OF PERIOD $8.875 $10.125 $8.25 $8.00 $7.00 - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL RETURN (a): Net Asset Value (4.1)% 27.1% 16.6% 22.9% 6.0% Market Value (9.4)% 35.0% 13.9% 19.8% (5.1)% RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS: Total expenses (b,c) 1.18% 0.83% 0.85% 1.36% 1.88% Management fee expense 0.80% 0.40% 0.47% 0.77% 1.20% Other operating expenses 0.38% 0.43% 0.38% 0.59% 0.68% Net investment income 1.21% 1.77% 0.88% 0.26% 0.21% SUPPLEMENTAL DATA: Net Assets, End of Period (in thousands) $175,495 $182,362 $113,953 $100,065 $82,534 Portfolio Turnover Rate 44% 34% 51% 51% 23% PREFERRED STOCK: Total shares outstanding 1,600,000 1,600,000 -- -- -- Asset coverage per share 439% 456% -- -- -- Liquidation preference per share $25.00 $25.00 -- -- -- Average market value per share (d) $25.40 $25.56 -- -- -- ==================================================================================================================================
(a) The Net Asset Value and Market Value Total Returns assume a continuous Common Stockholder who reinvested all net investment income dividends and capital gain distributions and fully participated in the primary subscription for the 1994 rights offering. (b) Expense ratios based on total average net assets were 0.97%, 0.92%, 0.72%, 0.85%, 1.36% and 1.88% for the periods ended June 30, 1999 and December 31, 1998, 1997, 1996, 1995 and 1994, respectively. (c) Expense ratios based on average net assets applicable to Common Stockholders before waiver of fees by the investment adviser would have been 1.43% and 1.24% for the periods ended June 30, 1999 and December 31, 1998, respectively. (d) The average of month-end market values during the period. * To be allocated to net investment income and capital gains at year-end. ** Annualized. 38 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 NOTES TO FINANCIAL STATEMENTS (unaudited) - -------------------------------------------------------------------------------- ROYCE MICRO-CAP TRUST, INC. - -------------------------------------------------------------------------------- Summary of Significant Accounting Policies: Royce Micro-Cap Trust, Inc. (the "Fund") was incorporated under the laws of the State of Maryland on September 9, 1993 as a diversified closed-end investment company. The Fund commenced operations on December 14, 1993. The preparation of financial statements in conformity with 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 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 currency gains or losses realized between the trade and settlement dates on securities transactions and from 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, as a result of changes in the exchange rates. Investment Transactions and Related Investment Income: Investment transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date and any non-cash dividend income is recorded at the fair market value of the securities received. Interest income is recorded on the accrual basis. Realized gains and losses from investment transactions are determined on the basis of identified cost for book and tax purposes. Expenses: The Fund incurs direct and indirect expenses. Expenses directly attributable to the Fund are charged to the Fund's operations, while expenses applicable to more than one of the Royce Funds are allocated in an equitable manner. Allocated personnel and occupancy costs related to The Royce Funds are included in administrative and office facilities expenses. 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: Distributions to Common Stockholders are recorded on the ex-dividend date and paid annually in December. Distributions to Preferred Stockholders are recorded on an accrual basis and paid quarterly. Distributions are determined in accordance with income tax regulations that may differ from generally accepted accounting principles. Permanent book and tax basis differences relating to stockholder distributions will result in reclassifications within the capital accounts. Undistributed net investment income may include temporary book and tax basis differences, which will reverse in a subsequent period. Any taxable income or gain remaining undistributed at fiscal year end is distributed in the following year. 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, which are held by SSB&T until maturity of the repurchase agreements, are marked-to-market daily and maintained at a value at least equal to the principal amount of the repurchase agreement (including accrued interest). Repurchase agreements could involve certain risks in the event of default or insolvency of SSB&T, including possible delays or restrictions upon the ability of the Fund to dispose of the underlying securities. THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 39 NOTES TO FINANCIAL STATEMENTS (unaudited) (continued) - -------------------------------------------------------------------------------- ROYCE MICRO-CAP TRUST, INC. - -------------------------------------------------------------------------------- Capital Stock: The Fund currently has 1,600,000 shares of 7.75% Cumulative Preferred Stock outstanding. The stock has a liquidation preference of $25.00 per share. Under the Investment Company Act of 1940, the Fund is required to maintain an asset coverage of at least 200% for the Preferred Stock. In addition, pursuant to the Rating Agency Guidelines established by Moody's, the Fund is required to maintain a certain discounted asset coverage. The Fund has met these requirements since issuing Preferred Stock. The Fund is required to allocate long-term capital gain distributions and other types of income proportionately to distributions made to holders of shares of Common Stock and Preferred Stock. To the extent that dividends on the shares of Preferred Stock are not paid from long-term capital gains, net investment income or net short-term capital gains, they will represent a return of capital. The Fund issued 334,780 shares of Common Stock as reinvestment of distributions by Common Stockholders for the year ended December 31, 1998. Investment Advisory Agreement: As compensation for its services under the Investment Advisory Agreement, Royce & Associates, Inc. ("Royce") receives a fee comprised of a basic fee ("Basic Fee") and an adjustment to the Basic Fee based on the investment performance of the Fund in relation to the investment record of the Russell 2000 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 month-end net assets of the Fund for the rolling 36-month period ending with such month. The Basic Fee for each month will be increased or decreased at the rate of 1/12 of .05% for each percentage point that the investment performance of the Fund exceeds, or is exceeded by, the percentage change in the investment record of the Russell 2000 by more than two percentage points for the performance period. 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 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 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 exceeded the investment performance of the Fund by 12 or more percentage points for the performance period. Royce has voluntarily committed to waive the portion of its investment advisory fee attributable to the Fund's Preferred Stock for any month in which the Fund's average annual NAV total return from the date of the Preferred Stock original issue fails to exceed the Preferred Stock's dividend rate. For the period ended June 30, 1999, the Fund accrued and paid Royce advisory fees totaling $557,990, which is net of $102,871 voluntarily waived by Royce. Administration Agreement: Under the Administration Agreement with the Fund, Mitchell Hutchins Asset Management Inc. (the "Administrator") serves as the Administrator, and 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 .05% on the first $125 million of the Fund's average daily net assets, and .03% of average daily net assets exceeding $125 million. Purchases and Sales of Investment Securities: For the period ended June 30, 1999, the cost of purchases and the proceeds from sales of investment securities, other than short-term securities, amounted to $44,466,632 and $29,323,637, respectively. Transactions in Shares of Affiliated Companies: An "Affiliated Company", as defined in the Investment Company Act of 1940, is a company in which a 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, 1999.
Purchases Sales ----------------- ----------------- Affiliated Company Shares Cost Shares Cost Realized Gain/Loss Dividend Income - ---------------------------- -------- ------ -------- ------ -------------------- ---------------- Art's-Way Manufacturing -- -- -- -- -- -- Smithfield Companies (The) -- -- -- -- -- $17,808
40 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 SCHEDULE OF INVESTMENTS - -------------------------------------------------------------------------------- ROYCE FOCUS TRUST, INC. JUNE 30, 1999 (unaudited) - -------------------------------------------------------------------------------- COMMON STOCKS -- 81.1%
SHARES VALUE ------ ----- Consumer Products -- 9.3% Collectibles - 4.5% Enesco Group 141,100 $ 3,262,938 ----------- Publishing - 1.8% Gibson Greetings* 206,300 1,308,716 ----------- Sports and Recreation - 3.0% Oakley* 307,800 2,193,075 ----------- 6,764,729 =========== Consumer Services -- 6.9% Retail Stores - 6.9% Charming Shoppes* 815,000 4,966,406 =========== Financial Intermediaries - 3.6% Insurance - 3.6% Medical Assurance* 50,351 1,422,416 Zenith National Insurance 49,800 1,226,325 ----------- 2,648,741 =========== Financial Services -- 9.5% Information and Processing - 2.8% Duff & Phelps Credit Rating 30,500 2,039,687 ----------- Insurance Brokers - 6.7% Blanch (E.W.) Holdings 32,400 2,209,275 Gallagher (Arthur J.) & Co. 52,800 2,613,600 ----------- 4,822,875 ----------- 6,862,562 =========== Health -- 1.4% Health Services - 1.4% Arrow International 38,300 991,012 =========== Industrial Products -- 13.0% Building Systems and Components - 2.8% Simpson Manufacturing* 41,600 1,976,000 ----------- Construction Materials - 4.7% Florida Rock Industries 75,000 3,412,500 ----------- Machinery - 2.9% Lincoln Electric Holdings 103,400 2,119,700 ----------- Pumps, Valves and Bearings - 2.6% Kaydon Corporation 55,100 1,852,738 ----------- 9,360,938 =========== Industrial Services -- 15.0% Commercial Services - 2.6% Carlisle Holdings* 128,400 1,861,800 ----------- Engineering and Construction - 5.1% Morrison Knudsen* 357,100 3,682,594 ----------- SHARES VALUE ------ ----- Industrial Distribution - 1.8% Ritchie Bros. Auctioneers* 35,000 $ 1,260,000 ----------- Printing - 3.2% New England Business Service 75,000 2,315,625 ----------- Transportation and Logistics - 2.3% Circle International Group 65,000 1,421,875 Ryanair Holdings ADR+* 5,000 265,000 ----------- 1,686,875 ----------- 10,806,894 =========== Natural Resources -- 9.6% Energy Services - 3.8% Input/Output* 120,000 907,500 Nabors Industries* 75,000 1,832,813 ----------- 2,740,313 ----------- Gold - 2.2% Anglogold ADR+ 74,100 1,593,150 ----------- Oil and Gas - 3.6% Tom Brown* 92,000 1,431,750 Renaissance Energy* 87,500 1,176,570 ----------- 2,608,320 ----------- 6,941,783 =========== Technology -- 12.8% Aerospace/Defense - 1.5% Curtiss-Wright 27,300 1,061,287 ----------- Distribution - 7.7% Marshall Industries* 127,500 4,582,031 Richardson Electronics 143,000 974,187 ----------- 5,556,218 ----------- Software/Services - 3.6% Comdisco 50,000 1,281,250 National Computer Systems 40,000 1,350,000 ----------- 2,631,250 ----------- 9,248,755 =========== TOTAL COMMON STOCKS (Cost $48,605,645) 58,591,820 =========== PRINCIPAL AMOUNT ------ U.S. TREASURY OBLIGATIONS -- 13.7% U.S. Treasury Notes 7.125%, due 9/30/99 $2,000,000 2,010,940 5.75%, due 10/31/02 5,000,000 5,014,050 4.25%, due 11/15/03 3,000,000 2,832,660 ----------- TOTAL U.S. TREASURY OBLIGATIONS (Cost $10,029,531) 9,857,650 ===========
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 41 SCHEDULE OF INVESTMENTS - -------------------------------------------------------------------------------- ROYCE FOCUS TRUST, INC. JUNE 30, 1999 (unaudited) - --------------------------------------------------------------------------------
VALUE ----- REPURCHASE AGREEMENT -- 5.5% State Street Bank & Trust Company, 4.25% dated 6/30/99, due 7/01/99, maturity value $4,000,472 (collateralized by U.S. Treasury Notes, 3.375% due 1/15/07, valued at $4,084,888) (Cost $4,000,000) $ 4,000,000 =========== VALUE ----- TOTAL INVESTMENTS -- 100.3% (Cost $62,635,176) $72,449,470 LIABILITIES LESS CASH AND OTHER ASSETS -- (0.3)% (241,508) ----------- NET ASSETS -- 100.0% $72,207,962 ===========
- -------------------------------------------------------------------------------- * Non income producing. + American Depository Receipt. INCOME TAX INFORMATION: The cost of total investments for Federal income tax purposes was $62,635,176. At June 30, 1999, net unrealized appreciation for all securities was $9,814,294, consisting of aggregate gross unrealized appreciation of $13,359,239 and aggregate gross unrealized depreciation of $3,544,945. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 42 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 STATEMENT OF ASSETS AND LIABILITIES - -------------------------------------------------------------------------------- ROYCE FOCUS TRUST, INC. JUNE 30, 1999 (unaudited) - --------------------------------------------------------------------------------
ASSETS: Investments at value (identified cost $58,635,176) $68,449,470 Repurchase agreement (at cost and value) 4,000,000 Cash 584,833 Receivable for investments sold 1,875,251 Receivable for dividends and interest 185,527 Prepaid expenses 16,531 - --------------------------------------------------------------------------------------------------------- Total Assets 75,111,612 - --------------------------------------------------------------------------------------------------------- LIABILITIES: Payable for investments purchased 2,797,589 Payable for investment advisory fee 39,020 Preferred dividends accrued but not yet declared 33,112 Accrued expenses 33,929 - --------------------------------------------------------------------------------------------------------- Total Liabilities 2,903,650 - --------------------------------------------------------------------------------------------------------- Net Assets $72,207,962 ========================================================================================================= Net Assets applicable to Preferred Stock at a liquidation value of $25 per share $20,000,000 ========================================================================================================= Net Assets applicable to Common Stock (net asset value per share - $6.20) $52,207,962 ========================================================================================================= SUMMARY OF STOCKHOLDERS' EQUITY: 7.45% Cumulative Preferred Stock - par value $0.001 per share; 800,000 shares outstanding $ 800 Common Stock - par value $0.001 per share; 8,423,423 shares outstanding (100,000,000 8,423 shares authorized) Additional paid-in capital 61,385,724 Undistributed net investment income 496,106 Accumulated net realized gain on investments 1,280,727 Quarterly and accrued distributions (778,112) Net unrealized appreciation on investments 9,814,294 - --------------------------------------------------------------------------------------------------------- Net Assets $72,207,962 =========================================================================================================
STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Six months ended Year ended June 30, 1999 December 31, (unaudited) 1998 ---------------- ------------ INVESTMENT OPERATIONS: Net investment income $ 359,526 $ 991,047 Net realized gain (loss) on investments (1,286,710) 1,937,257 Net change in unrealized appreciation on investments 6,422,775 (4,873,694) - --------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from investment operations 5,495,591 (1,945,390) - --------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO PREFERRED STOCKHOLDERS: Net investment income -- (1,343,086) Net realized gain on investments -- (146,914) Quarterly distributions* (745,000) -- - --------------------------------------------------------------------------------------------------------- Total distributions to Preferred Stockholders (745,000) (1,490,000) - --------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO COMMON STOCKHOLDERS: Net investment income -- -- Net realized gain on investments -- -- - --------------------------------------------------------------------------------------------------------- Total distributions to Common Stockholders -- -- - --------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS 4,750,591 (3,435,390) NET ASSETS: Beginning of period 67,457,371 70,892,761 - --------------------------------------------------------------------------------------------------------- End of period (including undistributed net investment income of $496,106 and $136,580, respectively) $72,207,962 $67,457,371 =========================================================================================================
* To be allocated to net investment income and capital gains at year-end. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 43 STATEMENT OF OPERATIONS - -------------------------------------------------------------------------------- ROYCE FOCUS TRUST, INC. SIX MONTHS ENDED JUNE 30, 1999 (unaudited) - -------------------------------------------------------------------------------- INVESTMENT INCOME: Income: Interest $ 372,985 Dividends 316,638 - ------------------------------------------------------------------------------- Total Income 689,623 - ------------------------------------------------------------------------------- Expenses: Investment advisory fees 317,829 Custodian and transfer agent fees 31,697 Shareholder reports 16,853 Administrative and office facilities expenses 16,468 Professional fees 15,219 Directors' fees 10,220 Other expenses 20,990 - ------------------------------------------------------------------------------- Total Expenses 429,276 Fees Waived by Investment Adviser (99,179) - ------------------------------------------------------------------------------- Net Expenses 330,097 - ------------------------------------------------------------------------------- Net Investment Income 359,526 - ------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized loss on investments (1,286,710) Net change in unrealized appreciation on investments 6,422,775 - ------------------------------------------------------------------------------- Net realized and unrealized gain on investments 5,136,065 - ------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS $ 5,495,591 ===============================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 44 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- ROYCE FOCUS TRUST, INC. - -------------------------------------------------------------------------------- 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, 1999 (unaudited) - ----------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $5.63 - ----------------------------------------------------------------------------------- INVESTMENT OPERATIONS: Net investment income 0.04 Net realized and unrealized gain (loss) on investments and foreign currency 0.62 - ----------------------------------------------------------------------------------- Total investment operations 0.66 - ----------------------------------------------------------------------------------- DISTRIBUTIONS TO PREFERRED STOCKHOLDERS: Net investment income -- Net realized gain on investments and foreign currency -- Quarterly and accrued distributions* (0.09) - ----------------------------------------------------------------------------------- Total distributions to Preferred Stockholders (0.09) - ----------------------------------------------------------------------------------- DISTRIBUTIONS TO COMMON STOCKHOLDERS: Net investment income -- Net realized gain on investments and foreign currency -- - ----------------------------------------------------------------------------------- Total distributions to Common Stockholders -- - ----------------------------------------------------------------------------------- CAPITAL STOCK TRANSACTIONS: Effect of Preferred Stock offering -- Effect of reinvestment of distributions by Common Stockholders -- Other Sources -- - ----------------------------------------------------------------------------------- Total capital stock transactions -- - ----------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $6.20 - ----------------------------------------------------------------------------------- MARKET VALUE, END OF PERIOD $4.94 - ----------------------------------------------------------------------------------- TOTAL RETURN(a): Net Asset Value (b) 10.1% Market Value 1.3% RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS: Total expenses (c,d) 1.51%** Management fee expense 1.00%** Other operating expenses 0.51%** Net investment income 1.64%** SUPPLEMENTAL DATA: Net Assets, End of Period (in thousands) $72,208 Portfolio Turnover Rate 25% PREFERRED STOCK: Total shares outstanding 800,000 Asset coverage per share 361% Liquidation preference per share $25.00 Average market value per share (e) $24.81 =================================================================================== Years ended December 31, ------------------------------------------------------------ 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD $6.04 $5.52 $5.09 $4.70 $5.24 - ------------------------------------------------------------------------------------------------------------------------------ INVESTMENT OPERATIONS: Net investment income 0.12 0.08 0.06 0.13 0.19 Net realized and unrealized gain (loss) on investments and foreign currency (0.35) 1.12 0.35 0.36 (0.62) - ------------------------------------------------------------------------------------------------------------------------------ Total investment operations (0.23) 1.20 0.41 0.49 (0.43) - ------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO PREFERRED STOCKHOLDERS: Net investment income (0.16) -- -- -- -- Net realized gain on investments and foreign currency (0.02) (0.01) -- -- -- Quarterly and accrued distributions* -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------ Total distributions to Preferred Stockholders (0.18) (0.01) -- -- -- - ------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO COMMON STOCKHOLDERS: Net investment income -- (0.12) -- (0.16) (0.11) Net realized gain on investments and foreign currency -- (0.41) -- (0.01) -- - ------------------------------------------------------------------------------------------------------------------------------ Total distributions to Common Stockholders -- (0.53) -- (0.17) (0.11) - ------------------------------------------------------------------------------------------------------------------------------ CAPITAL STOCK TRANSACTIONS: Effect of Preferred Stock offering -- (0.10) -- -- -- Effect of reinvestment of distributions by Common Stockholders -- (0.04) -- -- -- Other Sources -- -- 0.02 0.07 -- - ------------------------------------------------------------------------------------------------------------------------------ Total capital stock transactions -- (0.14) 0.02 0.07 -- - ------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD $5.63 $6.04 $5.52 $5.09 $4.70 - ------------------------------------------------------------------------------------------------------------------------------ MARKET VALUE, END OF PERIOD $4.88 $5.06 $4.59 $4.19 $3.56 - ------------------------------------------------------------------------------------------------------------------------------ TOTAL RETURN(a): Net Asset Value (b) (6.8)% 20.5% -- -- -- Market Value (3.7)% 21.3% 9.6% 22.3% (17.4)% RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS: Total expenses (c,d) 1.62% 0.94% 1.91% 2.14% 2.27% Management fee expense 1.14% 0.39% 0.83% 1.00% 1.00% Other operating expenses 0.48% 0.55% 1.08% 1.14% 1.27% Net investment income 1.95% 1.35% 1.80% 2.80% 3.81% SUPPLEMENTAL DATA: Net Assets, End of Period (in thousands) $67,457 $70,893 $44,154 $41,385 $41,106 Portfolio Turnover Rate 90% 74% 159% 76% 483% PREFERRED STOCK: Total shares outstanding 800,000 800,000 -- -- -- Asset coverage per share 337% 354% -- -- -- Liquidation preference per share $25.00 $25.00 -- -- -- Average market value per share (e) $25.16 $25.25 -- -- -- ==============================================================================================================================
(a) The Net Asset Value and Market Value Total Returns assume a continuous Common Stockholder who reinvested all net investment income dividends and capital gain distributions. (b) The Net Asset Value Total Return is not available for years prior to 1997. (c) Expense ratios based on total average net assets were 1.04%, 1.16%, 0.90% , 1.91%, 2.14% and 2.27% for the periods ended June 30, 1999 and December 31, 1998, 1997, 1996, 1995 and 1994, respectively. (d) Expense ratios based on average net assets applicable to Common Stockholders before waiver of fees by the investment adviser would have been 1.96%, 1.88%, 1.60% and 2.08% for the periods ended June 30, 1999 and December 31, 1998, 1997 and 1996, respectively. (e) The average of month-end market values during the period. * To be allocated to net investment income and capital gains at year-end. ** Annualized. THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 45 NOTES TO FINANCIAL STATEMENTS (unaudited) - -------------------------------------------------------------------------------- ROYCE FOCUS TRUST, INC. - -------------------------------------------------------------------------------- Summary of Significant Accounting Policies: Royce Focus Trust, Inc. (the "Fund") is a diversified closed-end investment company. Effective May 7, 1999, Royce Global Trust, Inc., formerly named All Seasons Global Fund, Inc., changed its name to Royce Focus Trust, Inc. 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 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. Dividend income is recorded on the ex-dividend date and any non-cash dividend income is recorded at the fair market value of the securities received. Interest income is recorded on the accrual basis. Realized gains and losses from investment transactions are determined on the basis of identified cost for book and tax purposes. Expenses: The Fund incurs direct and indirect expenses. Expenses directly attributable to the Fund are charged to the Fund's operations, while expenses applicable to more than one of the Royce Funds are allocated in an equitable manner. Allocated personnel and occupancy costs related to The Royce Funds are included in administrative and office facilities expenses. 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: Distributions to Common Stockholders are recorded on the ex-dividend date and paid annually in December. Distributions to Preferred Stockholders are recorded on an accrual basis and paid quarterly. Distributions are determined in accordance with income tax regulations that may differ from generally accepted accounting principles. Permanent book and tax basis differences relating to stockholder distributions will result in reclassifications within the capital accounts. Undistributed net investment income may include temporary book and tax basis differences, which will reverse in a subsequent period. Any taxable income or gain remaining undistributed at fiscal year end is distributed in the following year. 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, which are held by SSB&T until maturity of the repurchase agreements, are marked-to-market daily and maintained at a value at least equal to the principal amount of the repurchase agreement (including accrued interest). Repurchase agreements could involve certain risks in the event of default or insolvency of SSB&T, including possible delays or restrictions upon the ability of the Fund to dispose of the underlying securities. Capital Stock: The Fund currently has 800,000 shares of 7.45% Cumulative Preferred Stock outstanding. The stock has a liquidation preference of $25.00 per share. Under the Investment Company Act of 1940, the Fund is required to maintain an asset coverage of at least 200% for the Preferred Stock. In addition, pursuant to the Rating Agency Guidelines established by Moody's, the Fund is required to maintain a certain discounted asset coverage. The Fund has met these requirements since issuing Preferred Stock. 46 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 NOTES TO FINANCIAL STATEMENTS (unaudited) (continued) - -------------------------------------------------------------------------------- ROYCE FOCUS TRUST, INC. - -------------------------------------------------------------------------------- The Fund is required to allocate long-term capital gain distributions and other types of income proportionately to distributions made to holders of shares of Common Stock and Preferred Stock. To the extent that dividends on the shares of Preferred Stock are not paid from long-term capital gains, net investment income or net short-term capital gains, they will represent a return of capital. Investment Advisory Agreement: Royce & Associates, Inc. ("Royce") assumed investment management responsibility for the Fund on November 1, 1996. The Investment Advisory Agreement between Royce and the Fund provides for fees to be paid at an annual rate of 1.0% of the average daily net assets of the Fund. Royce has voluntarily committed to waive the portion of its investment advisory fee attributable to the Fund's Preferred Stock for any month in which the Fund's average annual NAV total return since issuance of the Preferred Stock fails to exceed the Preferred Stock dividend rate. For the period ended June 30, 1999, the Fund accrued and paid Royce advisory fees totaling $218,650, which is net of $99,179 voluntarily waived by Royce. Purchases and Sales of Investment Securities: For the period ended June 30, 1999, the cost of purchases and proceeds from sales of investment securities, other than short-term securities, amounted to $15,949,948 and $15,064,953, respectively. THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 47 STOCKHOLDER MEETING RESULTS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ROYCE VALUE TRUST, INC. - -------------------------------------------------------------------------------- At the 1999 Annual Meeting of Stockholders held on April 28, 1999, the Fund's stockholders: (i) elected the board of directors, consisting of (a) Charles M. Royce, (b) John D. Diederich, (c) Donald R. Dwight, (d) Richard M. Galkin, (e) Stephen L. Isaacs and (f) David L. Meister and (ii)ratified the selection of Tait, Weller & Baker as independent 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) 34,067,797 N/A 331,472 N/A N/A N/A (b) N/A N/A N/A 5,544,897 N/A 49,010 (c) 33,992,459 N/A 406,810 N/A N/A N/A (d) 33,995,940 N/A 403,329 N/A N/A N/A (e) 33,970,329 N/A 428,940 N/A N/A N/A (f) N/A N/A N/A 5,538,931 N/A 54,976 (ii) 34,039,367 135,360 224,540 N/A N/A N/A
- -------------------------------------------------------------------------------- ROYCE MICRO-CAP TRUST, INC. - -------------------------------------------------------------------------------- At the 1999 Annual Meeting of Stockholders held on April 28, 1999, the Fund's stockholders: (i) elected the board of directors, consisting of (a) Charles M. Royce, (b) John D. Diederich, (c) Donald R. Dwight, (d) Richard M. Galkin, (e) Stephen L. Isaacs and (f) David L. Meister and (ii) ratified the selection of Tait, Weller & Baker as independent accountants.
(i) (a) 12,968,018 N/A 127,259 N/A N/A N/A (b) N/A N/A N/A 1,501,073 N/A 560 (c) 12,949,261 N/A 146,015 N/A N/A N/A (d) 12,946,648 N/A 148,629 N/A N/A N/A (e) 12,936,498 N/A 164,778 N/A N/A N/A (f) N/A N/A N/A 1,501,073 N/A 560 (ii) 12,965,166 82,167 47,942 N/A N/A N/A
- -------------------------------------------------------------------------------- ROYCE FOCUS TRUST, INC. - -------------------------------------------------------------------------------- At the 1999 Annual Meeting of Stockholders held on April 28, 1999, the Fund's stockholders: (i) approved an amendment to the Fund's Articles of Incorporation changing its name to Royce Focus Trust, Inc., (ii) elected the board of directors, consisting of(a) Charles M. Royce, (b) Donald R. Dwight, (c) Richard M. Galkin, (d) Steven L. Isaacs, (e) William M. Koke and (f) David L. Meister and (iii) ratified the selection of Tait, Weller & Baker as independent accountants. (i) 7,678,100 237,937 61,759 N/A N/A N/A (ii) (a) 7,896,246 N/A 81,550 N/A N/A N/A (b) 7,876,911 N/A 100,885 N/A N/A N/A (c) 7,877,415 N/A 100,381 N/A N/A N/A (d) N/A N/A N/A 769,122 N/A 6,760 (e) 7,878,815 N/A 98,981 N/A N/A N/A (f) N/A N/A N/A 768,922 N/A 6,960 (iii) 7,897,484 34,048 46,265 N/A N/A N/A
48 | THE ROYCE FUNDS ANNUAL REPORT 1999 POSTSCRIPT - -------------------------------------------------------------------------------- FUNNY BUSINESS A senior member of our investment staff related the following story to us. Early this past March, my old college buddy Jerry had asked me to meet him at a trendy downtown restaurant. I was looking forward to a pleasant night out with an old friend to take some of the sting out of one of the worst periods for small-cap stocks in recent memory. I arrived just in time to see Jerry's cab roll up to the restaurant's door. He sprung out smiling from the back seat as he chomped on a cigar about the size of a baseball bat. After getting our table and informing me that dinner was on him, he looked at me shaking his head with a pitying look in his eye. "And I always thought you were the smart one," he said, "but man I've been making such a killing lately that I may just have to come by your office and show you guys how it's done." I was confused. Jerry couldn't be talking about investing. He thought hedge funds invested in plant life. He wouldn't know Warren Buffet from Warren Beatty. Jerry in the market? It just didn't seem possible. "Oh, it's possible," he said with a laugh. "I opened up one of those accounts where you pick your own stocks on your computer. I've been doing it for a while now, and don't think I haven't learned anything from you -- I'm in it all for the long haul, just like your company. I'll give you a good example. I held my last Internet stock for almost three months before I sold it." "Three months? Jerry, that's a lunchtime in this business" I said. "Long-term usually means a minimum of three years to us." He started shaking his head again, "You guys need to stop looking at all that balance sheet and numbers stuff and watch a little TV or get on the net. It's a whole new world out there. The money's practically falling out of the sky, and you guys are sitting around looking at your reports and buying these teeny little companies that make things." He laughed. "I mean, news flash, buddy, the earth isn't flat!" With that he leaned back and handed the busboy $5 for refilling his water glass. I left that night feeling worse than ever. Not only were small-cap stocks struggling, but one of my oldest friends was getting rich in the stock market almost because he didn't know what he was doing. Ignorance was turning into Jerry's very profitable advantage. I knew investing could be a funny business, but it wasn't supposed to be this funny. Around mid-June, there was a lot of volatility in the market as a whole, but small-caps were rebounding, and I was in a much better mood. Even when everything couldn't have looked worse, our patience, consistency and long-term outlook kept us from losing our composure. Over the years, depending on what was hot in the stock market at the time, we've heard it all -- small-caps are out, value investing is passe, the old ways of looking for financially solid, well-run companies are obsolete. But through it all, we've just kept doing what we do. I started wondering how Jerry was doing, since I hadn't heard from him in a while. I dialed his number and after several rings he picked up. "Hello?" He sounded kind of hoarse. "Hey, how are you?" I asked. "How are your adventures in investing?" "Um, well, not bad, I guess...but not great. I just bought this hot new internet company, Sell-at-Any-Price.com, that gives free online investment advice for a very reasonable monthly fee to people who make their own picks like me. I didn't get in on the ground floor, but it still looked like they couldn't lose. They had almost 30,000 customers and the market cap when I bought was only $1 billion...I mean, it was like stealing, really. But now suddenly it's off 75% from the high, and the high's where I bought in." "Well at least you didn't put all your money into this company, did you? What's it called again," I asked, "sucker's_bet.com? Jerry...Jerry...Jerry, are you there?" It's never fun to hear an old friend cry, but maybe Jerry will become a small-cap value investor. [background photos: hare chasing tortoise] [sidebar] Even when everything couldn't have looked worse, our patience, consistency and long-term outlook kept us from losing our composure. Over the years, depending on what was hot in the stock market at the time, we've heard it all - small-caps are out, value investing is passe, the old ways of looking for financially solid, well-run companies are obsolete. But through it all, we've just kept doing what we do. [end sidebar] [back cover] THE ROYCE FUNDS ONE OF THE INDUSTRY'S MOST EXPERIENCED AND HIGHLY RESPECTED SMALL-COMPANY VALUE MANAGERS Charles M. Royce, who has been our primary portfolio manager since 1973, enjoys one of the longest tenures of any active mutual fund manager. Today, with $2.9 billion in total assets under management, Royce & Associates remains an independent firm committed to the same principles that have served us well for more than 25 years. MULTIPLE FUNDS, COMMON FOCUS Over the years, we have chosen to concentrate on small-company value investing. Chuck Royce and his team provide market at the time, we've heard it all -- small-caps are out, value investing is passe, the old ways of looking to offer both individual and institutional investors the best available small-cap value portfolios by participating in the small-cap market's total returns with below-average volatility. CONSISTENT DISCIPLINE We cultivated our approach by paying close attention to risk and by always maintaining the same discipline, regardless of market movements and trends. The price we pay for a security must be significantly below our appraisal of its worth. This requires a thorough analysis of the financial and operating dynamics of a business, as though we were purchasing the entire company. CO-OWNERSHIP OF FUNDS As part of this commitment, it is important that our employees and shareholders share a common financial goal; our officers, employees and their families currently have approximately $40 million invested in The Royce Funds. THE ROYCE FUNDS 1414 AVENUE OF THE AMERICAS, NEW YORK NY10019 GENERAL INFORMATION BROKER/DEALER SERVICES Additional Report Copies For Fund Materials and Performance Updates (800) 221-4268 (800) 59-ROYCE (597-6923) STATE STREET BANK AND TRUST COMPANY Custodian, Transfer Agent and Registrar (800) 426-5523 www.roycefunds.com funds@roycenet.com -----END PRIVACY-ENHANCED MESSAGE-----