ROYCE CAPITAL FUND
Report of Independent Accountants
To the Board of Trustees of Royce Capital Fund and Shareholders of
Royce Capital Fund (Micro-Cap and Premier Portfolios):
We have audited the accompanying statements of assets and liabilities
of Royce Capital Fund, including the schedules of investments as of
December 31, 1996, the related statements of operations and changes in net
assets, and the financial highlights for the period from December 27, 1996
(commencement of operations) to December 31, 1996. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedues included confirmation of
securities owned as of December 31, 1996, by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Royce Capital Fund (Micro-Cap and Premier portfolios) as of December 31,
1996, the results of their operations and changes in their net assets,
and the financial highlights for the period from December 27, 1996
(commencement of operations) to December 31, 1996, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 14, 1997
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ROYCE CAPITAL FUND
Statements of Assets and Liabilities at December 31, 1996
Micro-Cap Premier
Portfolio Portfolio
ASSETS:
Investments at value (identified cost $67,254 and
$62,776, respectively) $ 67,784 $ 65,263
Due from Investment Adviser 650 650
Cash 229,155 207,956
Prepaid organization expenses 9,973 9,973
TOTAL ASSETS 307,562 283,842
LIABILITIES:
Payable for investments purchased 46,409 20,732
Accrued expenses 10,691 10,691
TOTAL LIABILITIES 57,100 31,423
NET ASSETS $250,462 $252,419
ANALYSIS OF NET ASSETS:
Net unrealized appreciation on investments $530 $2,487
Capital shares 50 50
Additional paid-in capital 249,882 249,882
NET ASSETS $250,462 $252,419
SHARES OUTSTANDING:
(unlimited number of $.001 par value shares
authorized for each Fund) 50,000 50,000
NET ASSET VALUE:
(offering and redemption price per share) $5.01 $5.05
Statements of Changes in Net Assets
Micro-Cap Premier
Portfolio Portfolio
Period ended December 31,
1996 1996
Investment Operations:
Net investment (loss) ($68) ($68)
Net change in unrealized appreciation on investments 530 2,487
Net increase in net assets resulting from investment
operations 462 2,419
Capital Share Transactions:
Net increase in net assets from capital share
transactions 250,000 250,000
Net Increase in Net Assets 250,462 252,419
Net Assets:
Beginning of year 0 0
End of year $250,4622(1) $252,419(2)
Capital Share Transactions:
Shares Shares
Net increase in shares outstanding 50,000 50,000
(1) Includes undistributed net investment income of $0 in 1996.
The Fund commenced operations on December 27, 1996.
(2) Includes undistributed net investment income of $0 in 1996.
The Fund commenced operations on December 27, 1996.
The accompanying notes are an integral part of the financial statements.
<PAGE>
ROYCE CAPITAL FUND
Statements of Operations for the year ended December 31, 1996
Micro-Cap Premier
Portfolio Portfolio
INVESTMENT INCOME:
Income:
Total Income 0 0
Expenses:
Investment advisory fees 51 34
Transfer Agent fees 650 650
Organizational fees 27 27
Other expenses 41 41
Total Expenses 769 752
Fees waived by investment adviser (51) (34)
Expenses reimbursed by investment adviser (650) (650)
Total Expenses 68 68
Net Investment Income (Loss) (68) (68)
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net change in unrealized appreciation on investments 530 2,487
Net realized and unrealized gain on investments 530 2,487
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $462 $2,419
The accompanying notes are an integral part of the financial statements.
Financial Highlights
This table is presented to show selected data for a share outstanding
throughout each period, and to assist shareholders in in evaluating the
Fund's performance for the periods presented.
Net Net Net Distributions Distributions Net Total
Asset Investment realized from net from net Asset Return
Value Income and investment realized Value
Beginning (Loss) unrealized income gain on End of
of Year gain on investments Year
investments
Micro-Cap Portfolio(a)
1996 $5.00 0.00 0.01 0.00 0.00 $5.01 0.2%
Premier Portfolio(b)
1996 $5.00 0.00 0.05 0.00 0.00 $5.05 1.0%
Net Ratio of Ratio of Portfolio Average
Assets expenses to net investment Turnover Commission
End of average net income to Rate Rate Paid+
Year assets average net
assets
Micro-Cap Portfolio(a)
1996 $250,462 1.99% -1.99% 0% $0.0499
Premier Portfolio(b)
1996 $252,419 1.99% -1.99% 0% $0.0667
(a) Expense ratios and net investment income are shown after fee waivers
and expense reimbursements by the investment adviser.
For the period ended December 31, 1996, the expense ratio before the
waiver would have been 22.49%.
(b) Expense ratios and net investment income are shown after fee waivers
and expense reimbursements by the investment adviser.
For the period ended December 31, 1996, the expense ratio before the
waiver would have been 22.02%.
<PAGE>
SCHEDULES OF INVESTMENTS
December 31, 1996
ROYCE CAPITAL FUND- MICRO-CAP PORTFOLIO
COMMON STOCKS- 27.1%
Shares Value
CONSUMER PRODUCTS- 3.9%
Mackie Designs, Inc.* 1,500 $ 9,840
CONSUMER SERVICES- 3.5%
Jenny Craig, Inc.* 1,000 8,786
FINANCIAL INTERMEDIARIES- 5.0%
PXRE Corporation 500 12,375
INDUSTRIAL PRODUCTS- 1.1%
Delta Woodside Industries, Inc. 500 2,780
INDUSTRIAL SERVICES- 3.6%
Frozen Food Express Industries, Inc. 1,000 9,000
RETAIL - 10.0%
The Bombay Company, Inc.* 3,500 16,328
Chico's FAS, Inc.* 2,000 8,675
25,003
Total Common Stocks (Cost $67,254) 67,784
TOTAL INVESTMENTS - 27.1%
(Cost $67,254) 67,784
CASH AND OTHER ASSETS
LESS LIABILITIES - 72.9% 182,678
NET ASSETS - 100.0% 250,462
* Non-income producing.
Income Tax Information- The cost of total investments for federal income
tax purposes was $ 67,254.
At December 31, 1996, net unrealized appreciation for all securities amounted
to $530, consisting of aggregate gross unrealized appreciation of $530.
ROYCE CAPITAL FUND- PREMIER PORTFOLIO
COMMON STOCKS- 25.9%
Shares Value
CONSUMER SERVICES- 5.4%
Buffets, Inc.* 1,500 $13,688
FINANCIAL INTERMEDIARIES- 3.7%
Trenwick Group Inc. 200 9,250
FINANCIAL SERVICES- 6.5%
The Pioneer Group, Inc. 300 7,125
Willis Corroon Group plc+ 800 9,200
16,325
RETAIL - 10.3%
Claire's Stores 2,000 26,000
Total Common Stocks (Cost $62,776) 65,263
TOTAL INVESTMENTS - 25.9%
(Cost $62,776) 65,263
CASH AND OTHER ASSETS
LESS LIABILITIES - 74.1% 187,156
NET ASSETS - 100.0% 252,419
* Non-income producing.
+American Depository Receipt.
Income Tax Information- The cost of total investments for federal income
tax purposes was $ 62,776.
At December 31, 1996, net unrealized appreciation for all securities amounted
to $2,487, consisting of aggregate gross unrealized appreciation of $2,989
and aggregate gross unrealized depreciation of $502.
The accompanying notes are an integral part of the financial statements.
<PAGE>
Notes to Financial Statements
1. Summary of Significant Accounting Policies:
The Micro-Cap Portfolio and Premier Portfolio (the "Fund" or
"Funds") are two series of Royce Capital Fund (the "Trust"), a
diversified open-end management investment company. The Trust
was established as a business trust under the laws of Delaware
effective January 11, 1996. The Funds commenced operations on
December 27, 1996.
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.
a. Valuation of investments:
Securities listed on an exchange or on the Nasdaq National
Market System are valued on the basis of the last reported sale
prior to the time the valuation is made or, if no sale is
reported for such day, at their bid price for exchange-listed
securities and at the average of their bid and asked prices for
Nasdaq securities. Quotations are taken from the market where
the security is primarily traded. Other over-the-counter
securities for which market quotations are readily available are
valued at their bid price. Securities for which market
quotations are not readily available are valued at their fair
value under procedures established and supervised by the Board of
Trustees. 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.
b. Investment transactions and related investment income:
Investment transactions are accounted for on the trade date
and dividend income is recorded on the ex-dividend date.
Interest income is recorded on the accrual basis. Realized gains
and losses from investment transactions and unrealized
appreciation and depreciation are determined on the basis of
identified cost for book and tax purposes.
c. Expenses:
Expenses directly attributable to each fund are charged to
that Fund's operations while expenses applicable to all Fund's
are allocated in an equitable manner
d. Taxes:
The Funds intend to qualify as regulated investment
companies under Subchapter M of the Internal Revenue Code. The
Funds are not subject to income taxes to the extent that each
Fund 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".
<PAGE>
Notes to Financial Statements (continued)
e. Distributions:
Dividend and capital gain distributions are recorded on the
ex-dividend date and paid annually in December. These
distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. Permanent book and tax basis differences relating to
shareholder distributions will result in reclassification to paid-
in capital and may affect net investment income per share.
Undistributed net investment income may include temporary book
and tax basis differences which will reverse in a subsequent
period. Any taxable income or gain remaining at fiscal year end
is distributed in the following year.
f. Repurchase agreements:
The Funds enter into repurchase agreements with respect to
portfolio securities solely with State Street Bank and Trust
Company ("SSB&T"), the custodian of their assets. Each Fund
restricts repurchase agreements to maturities of no more than
seven days. Securities pledged as collateral for repurchase
agreements are held by SSB&T until maturity of the repurchase
agreements. Repurchase agreements could involve certain risks in
the event of default or insolvency of SSB&T, including possible
delays or
restrictions upon the ability of each Fund to dispose of its
underlying securities.
g. Organizational expenses:
Costs incurred by the Funds in connection with its
organization and initial registration of shares of $10,000 per
portfolio have been deferred and are being amortized on a
straight line basis over a five-year period from the date of
commencement of operations.
2. Investment Adviser:
Under the Trust's investment advisory agreement with Quest
Advisory Corp. ("Quest"), Quest is paid a monthly fee at an
annual rate of 1.5% and 1.0% of the average net assets of Micro-
Cap Portfolio, and Premier Portfolio, respectively. For the year
ended December 31, 1996, Quest voluntarily waived total advisory
fees of $51 for Micro-Cap Portfolio and $34 for Premier
Portfolio.
3. Purchases and Sales of Investment Securities:
For the year ended December 31, 1996, the cost of purchases
and the proceeds from sales of investment securities, other than
short-term securities, were as follows:
Micro-Cap Portfolio Premier Portfolio
Purchases $ 67,254 $ 62,776
Sales $ 0 $ 0
