1999 Semi-Annual Report
Value Investing in Small Companies
For More than 25 Years
ROYCE
CAPITAL
FUND
ROYCE MICRO-CAP PORTFOLIO
ROYCE PREMIER PORTFOLIO
ROYCE TOTAL RETURN PORTFOLIO
<PAGE>
SEMI-ANNUAL REPORT REFERENCE GUIDE
- -------------------------------------------------------------------------------
LETTER TO OUR SHAREHOLDERS 2
PERFORMANCE AND PORTFOLIO REVIEW 4
SCHEDULES OF INVESTMENTS AND OTHER FINANCIAL STATEMENTS 7
For more than 25 years, our value approach has focused on evaluating a
company's current worth - what we believe an enterprise 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 will pay for a
security must be significantly lower than our appraisal of its current worth.
<PAGE>
LETTER TO OUR SHAREHOLDERS
- -------------------------------------------------------------------------------
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 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.
[BAR CHART]
FIRST-QUARTER 1999 SECOND-QUARTER 1999
------------------ -------------------
RUSSELL 2000 -5.4% +15.6%
S&P 500 +5.0% +7.1%
NASDAQ COMPOSITE +12.3% +9.1%
DJ INTERNET COMMERCE +55.9% -2.1%
[END BAR CHART]
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. 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.
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. 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.
Our approach in the past regarding our performance discussion has been
simple and direct -- 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
(all Royce Capital Fund portfolios were underwater and all underperformed the
Russell 2000) were matched by our second-quarter triumphs (Royce Premier
Portfolio and Royce Micro-Cap Portfolio outperformed the Russell 2000). Who
would have thought that some of our portfolios
<PAGE>
would outperform in the dynamic second quarter and underperform during the
difficult first quarter? We certainly didn't.
An especially noteworthy second quarter and year-to-date performance was
turned in by Royce Micro-Cap Portfolio. In addition, Royce Premier Portfolio
and Royce Micro-Cap Portfolio enjoyed a performance advantage over their
benchmark for the one-year period ended June 30, 1999. For a complete review
and discussion of our individual fund results and risk profiles, see pages 4
- - 6.
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 are also encouraged by our ability to find attractively priced
companies, those trading at what we believe are discounts to their own value
as businesses, not at discounts to other companies in other businesses in
other asset classes. 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.
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,
/s/ Charles M. Royce /s/ W. Whitney George /s/ Jack E. Fockler, Jr.
Charles M. Royce W. Whitney George Jack E. Fockler, Jr.
President Vice President Vice President
[Photo: L-R Charles M. Royce, W. Whitney George and Jack E. Fockler, Jr.]
Notes to Performance and Risk Information
Historical market trends are not necessarily indicative of future movements.
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 redeemed.
Royce Capital Fund portfolios invest in small- and/or micro-cap companies
that may involve considerably more risk than investments in securities of
larger-cap companies (see "Investment Risks" in the prospectus). Please read
the prospectus carefully before investing or sending money.
The Dow Jones Internet Commerce Index, Russell 2000, Russell 2000 Value,
Russell 2000 Growth and S&P 500 are unmanaged indices of domestic common
stocks.
<PAGE>
ROYCE MICRO-CAP PORTFOLIO PERFORMANCE AND PORTFOLIO REVIEW
- -------------------------------------------------------------------------------
WHAT WE DO Royce Micro-Cap Portfolio 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.
Average Annual Total Returns Through 6/30/99
- -----------------------------------------------
Second Quarter* 29.2%
January - June, 1999* 10.7
1-Year 8.6
Since Inception (12/27/96) 14.3
* Not annualized.
Portfolio Diagnostics
- -----------------------------------------------
Median Market Capitalization $152 million
Weighted Average P/E Ratio 14.9x
Weighted Average P/B Ratio 1.5x
Weighted Average Yield 0.7%
Net Assets $3.2 million
[LINE GRAPH]
ROYCE MICRO-CAP PORTFOLIO VS. RUSSELL 2000
GROWTH OF A $10,000 INITIAL INVESTMENT,
FROM INCEPTION (12/27/96) THROUGH 6/30/99
Royce
Micro-Cap Russell
Portfolio 2000
--------- -------
Dec-1996 10000.00 10000.00
Mar-1997 9820.00 9662.00
Jun-1997 10420.00 11229.00
Sep-1997 11460.00 12900.00
Dec-1997 12147.00 12468.00
Mar-1998 13277.00 13721.00
Jun-1998 12879.00 13081.00
Sep-1998 10282.00 10442.00
Dec-1998 12641.00 12041.00
Mar-1999 10832.07 11388.38
Jun-1999 13992.87 13159.27
[END LINE GRAPH]
Portfolio Composition
- -----------------------------------------------
Top Five Positions % of Net Assets
Marshall Industries 6.4%
Circle International Group 4.2
Kronos 3.8
Pioneer-Standard Electronics 3.4
Lazare Kaplan International 3.2
Top Five Sectors % of Net Assets
Technology 33.3%
Industrial Services 17.2
Industrial Products 13.9
Consumer Products 11.4
Health 6.9
HOW WE DID Royce Micro-Cap Portfolio came roaring back in 1999's second
quarter. This strong showing was part of an overall rebound for micro-cap
stocks. Royce Micro-Cap Portfolio's second-quarter performance helped it
stay ahead of its benchmark, the small-cap oriented Russell 2000, both in the
second quarter (+29.2% versus +15.6%), and on a year-to-date basis through
June 30, 1999 (+10.7% versus +9.3%). The Portfolio also outperformed its
benchmark for the one-year (+8.6% versus +1.5%) and since inception (+14.3%
versus +11.6%) periods.
The top-five best-performing positions, including Marshall Industries, Eagle
USA Airfreight and Kronos, accounted for much of the Portfolio's net realized
and unrealized gains year-to-date through June 30, 1999. These companies
were drawn from a variety of sectors, including industrial services and
technology. During 1998's third-quarter small-cap correction, we increased
our exposure to technology companies, taking advantage of what we believed
were excellent purchase opportunities.
<PAGE>
ROYCE PREMIER-CAP PORTFOLIO PERFORMANCE AND PORTFOLIO REVIEW
- -------------------------------------------------------------------------------
WHAT WE DO Royce Premier Portfolio, a concentrated portfolio, seeks long-term
growth of capital. The Fund uses a value approach to invest primarily in a
limited number of small-cap companies with market capitalizations between
$300 million and $1.5 billion. Royce generally looks to invest in companies
that it considers "premier" - those that have excellent business strengths
and/or prospects for growth, high internal rates of return and low leverage,
and that are trading significantly below our estimate of their "current
worth."
Average Annual Total Returns Through 6/30/99
- -----------------------------------------------
Second Quarter* 17.3%
January - June, 1999* 5.3
1-Year 3.0
Since Inception (12/27/96) 12.9
* Not annualized.
Portfolio Diagnostics
- -----------------------------------------------
Median Market Capitalization $519 million
Weighted Average P/E Ratio 14.9x
Weighted Average P/B Ratio 1.8x
Weighted Average Yield 1.4%
Net Assets $0.5 million
[LINE GRAPH]
ROYCE PREMIER PORTFOLIO VS. RUSSELL 2000
GROWTH OF A $10,000 INITIAL INVESTMENT,
FROM INCEPTION (12/27/96) THROUGH 6/30/99
Royce
Premier Russell
Portfolio 2000
--------- -------
Dec-1996 10000.00 10000.00
Mar-1997 10300.00 9662.00
Jun-1997 11180.00 11229.00
Sep-1997 12140.00 12900.00
Dec-1997 11826.00 12468.00
Mar-1998 13280.00 13721.00
Jun-1998 13170.00 13081.00
Sep-1998 11430.00 10442.00
Dec-1998 12881.00 12041.00
Mar-1999 11562.00 11388.00
Jun-1999 13564.00 13159.00
[END LINE GRAPH]
Portfolio Composition
- -----------------------------------------------
Top Five Positions % of Net Assets
Wesco Financial 6.3%
Enesco Group 4.7
Florida Rock Industries 4.6
Lincoln Electric Holdings 4.2
Curtiss-Wright 4.0
Top Five Sectors % of Net Assets
Industrial Products 18.6%
Financial Intermediaries 17.8
Technology 12.4
Industrial Services 11.6
Consumer Products 8.1
HOW WE DID Royce Premier Portfolio's concentrated approach helped it to
emerge from the first-quarter doldrums to enjoy the rewards of small-cap's
second quarter comeback, up 17.3% versus 15.6% for its benchmark, the small-
cap oriented Russell 2000. Strong performance for small-cap in general and
our own disciplined approach in particular contributed to the Portfolio's
impressive second quarter. While trailing its benchmark on a year-to-date
basis (+5.3% versus +9.3%), Royce Premier Portfolio outperformed the Russell
2000 for the one-year (+3.0% versus +1.5%) and since inception (+12.9%
versus +11.6%) periods ended June 30, 1999.
Through June 30, 1999, the Portfolio benefited from solid performance from
companies in several sectors, giving it broad participation in the small-cap
rebound. Its top-five performers, including Florida Rock Industries,
Marshall Industries and Charming Shoppes, accounted for nearly all of the
portfolio's net realized and unrealized gains year-to-date through June 30,
1999. Many of Premier Portfolio's recent selection successes were the result
of our discipline - namely, investing in a limited number of what we believe
are high-quality small-cap companies when both small-cap interest and
respective stock prices were low.
<PAGE>
ROYCE TOTAL RETURN PORTFOLIO PERFORMANCE AND PORTFOLIO REVIEW
- -------------------------------------------------------------------------------
WHAT WE DO Royce Total Return Portfolio seeks both long-term growth of
capital and current income. The Fund uses a value approach to primarily
invest in a diversified portfolio of dividend-paying small- and micro-cap
companies.
Average Annual Total Returns Through 6/30/99
- -----------------------------------------------
Second Quarter* 6.2%
January - June, 1999* -1.8
1-Year 0.8
Since Inception (5/15/98) 0.5
* Not annualized.
Portfolio Diagnostics
- -----------------------------------------------
Median Market Capitalization $389 million
Weighted Average P/E Ratio 11.2x
Weighted Average P/B Ratio 1.6x
Weighted Average Yield 3.5%
Net Assets $0.3 million
[LINE GRAPH]
ROYCE TOTAL RETURN PORTFOLIO VS. RUSSELL 2000
GROWTH OF A $10,000 INITIAL INVESTMENT,
FROM INCEPTION (5/18/98) THROUGH 6/30/99
Royce Total Russell
Return Portfolio 2000
---------------- --------
MAY 15, 1998 10000.00 10000.00
MAY-1998 10000.00 9667.00
JUN-1998 9980.00 9687.00
JUL-1998 9900.00 8902.00
AUG-1998 9280.00 7171.00
SEP-1998 9780.00 7732.00
OCT-1998 10000.00 8047.00
NOV-1998 10180.00 8468.00
DEC-1998 10242.00 8997.00
JAN-1999 9980.00 9117.00
FEB-1999 9536.00 8378.00
MAR-1999 9475.00 8509.00
APR-1999 9878.00 9271.00
MAY-1999 10060.00 9407.00
JUN-1999 10060.00 9833.00
[END LINE GRAPH]
Portfolio Composition
- -----------------------------------------------
Top Five Positions % of Net Assets
Kimball International Cl. B 3.9%
Puerto Rican Cement 3.8
Zenith National Insurance 3.7
Enesco Group 3.5
Bassett Furniture Industries 3.5
Top Five Sectors % of Net Assets
Industrial Products 19.3%
Financial Intermediaries 16.3
Industrial Services 13.5
Consumer Products 9.6
Natural Resources 9.1
HOW WE DID Royce Total Return Portfolio underperformed its benchmark index,
the small-cap oriented Russell 2000, for the second quarter (+6.2% versus
+15.6%) and the year-to-date period ended June 30, 1999 (-1.8% versus +9.3%).
However, the Portfolio fared very well during the small-cap down market
through October 8, 1998, as shown in the graph above. The Fund's solid
performance during this period allowed it to stay ahead of the Russell 2000
since its inception, rising 0.5% versus a decline of 1.5% for its benchmark.
Although the performance history for this Portfolio has been short, we are
excited about the prospects for investing in dividend-paying small-cap stocks
and believe that this strategy may provide a substantial long-term
performance edge.
<PAGE>
SCHEDULES OF INVESTMENTS
- -------------------------------------------------------------------------------
ROYCE CAPITAL FUND - MICRO-CAP PORTFOLIO June 30, 1999 (unaudited)
- -------------------------------------------------------------------------------
COMMON STOCKS - 97.2%
SHARES VALUE
------ -----
Consumer Products - 11.4%
Food/Beverage/Tobacco - 3.1%
800 JR Cigar* 8,000 $99,000
---------
Home Furnishing/Appliances - 1.1%
Conso International* 6,000 34,500
---------
Publishing - 1.1%
Topps Company (The)* 5,000 36,406
---------
Other Consumer Products - 6.1%
Lazare Kaplan International* 10,000 101,250
Marvel Enterprises* 4,500 33,188
Velcro Industries 5,000 60,625
---------
195,063
---------
364,969
---------
Consumer Services - 1.1%
Leisure/Entertainment - 0.4%
Seattle FilmWorks* 4,000 12,250
---------
Restaurants/Lodgings - 0.7%
Pizza Inn 6,600 22,069
---------
34,319
---------
Financial Intermediaries - 3.0%
Insurance - 3.0%
Capitol Transamerica 2,900 38,425
Navigators Group* 2,100 31,500
Nobel Insurance* 400 300
PICO Holdings* 1,000 25,312
---------
95,537
---------
Financial Services - 1.5%
Information and Processing - 1.5%
Duff & Phelps Credit Rating 700 46,812
---------
Health - 6.9%
Commercial Services - 1.5%
Young Innovations* 3,400 49,725
---------
Drugs and Biotech - 5.4%
International Isotopes* 4,000 37,000
Myriad Genetics* 5,000 45,000
Respironics* 5,000 75,625
ViroPharma* 2,000 15,375
---------
173,000
---------
222,725
---------
Industrial Products - 13.9%
Building Systems and Components - 1.9%
Falcon Products 6,000 61,125
---------
Construction Materials - 1.5%
Monarch Cement 2,500 48,125
---------
SHARES VALUE
------ -----
Industrial Components - 0.5%
Woodhead Industries 1,300 $15,925
---------
Machinery - 1.0%
DeVlieg-Bullard* 1,500 525
Lund International Holdings* 4,900 30,625
---------
31,150
---------
Paper and Packaging - 1.7%
PalEx* 9,000 54,563
---------
Pumps, Valves and Bearings - 0.5%
Sun Hydraulics 1,800 16,087
---------
Specialty Chemicals and Materials - 5.3%
CFC International* 7,500 80,625
Chemfab* 3,000 54,563
Hauser* 1,775 9,762
Synalloy 3,000 24,375
---------
169,325
---------
Other Industrial Products - 1.5%
BHA Group Holdings 6,100 50,325
---------
446,625
---------
Industrial Services - 17.2%
Commercial Services - 2.0%
Business Resource Group* 12,500 41,406
Carlisle Holdings* 1,500 21,750
---------
63,156
---------
Engineering and Construction - 0.2%
Sevenson Environmental Services 480 5,580
---------
Food/Tobacco Processors - 1.8%
Midwest Grain Products* 5,200 57,850
---------
Industrial Distribution - 0.7%
Vallen* 1,400 22,400
---------
Printing - 2.0%
Ennis Business Forms 7,500 64,219
---------
Transportation and Logistics - 10.5%
AirNet Systems* 7,200 97,200
Circle International Group 6,100 133,438
Eagle USA Airfreight* 1,800 76,387
Kenan Transport 1,000 30,750
---------
337,775
---------
550,980
---------
Natural Resources - 5.0%
Metals and Mining - 0.2%
MK Gold* 15,000 7,350
---------
Oil and Gas - 4.8%
Denbury Resources* 20,000 87,500
PetroCorp* 500 3,063
Titan Exploration* 12,500 62,500
---------
153,063
---------
160,413
---------
<PAGE>
SCHEDULES OF INVESTMENTS
- -------------------------------------------------------------------------------
ROYCE CAPITAL FUND - MICRO-CAP PORTFOLIO June 30, 1999 (unaudited)
- -------------------------------------------------------------------------------
SHARES VALUE
------ -----
Technology - 33.3%
Aerospace/Defense - 1.1%
Special Metals* 6,100 $ 35,456
---------
Components and Systems - 4.4%
Axiohm Transaction Solutions* 700 2,800
MOCON 4,500 26,437
Newport 3,000 46,500
PCD* 5,000 55,000
Perceptron* 2,500 11,406
---------
142,143
---------
Distribution - 11.6%
Marshall Industries* 5,700 204,844
Pioneer-Standard Electronics 9,000 108,000
Richardson Electronics 9,000 61,313
---------
374,157
---------
Semiconductors and Equipment - 4.7%
Exar* 3,000 74,250
Helix Technology 2,000 47,875
Intevac* 5,000 27,500
---------
149,625
---------
Software/Services - 9.6%
ANSYS* 1,800 17,887
Aspen Technology* 5,600 65,800
JDA Software Group* 6,000 55,875
Kronos* 2,700 122,850
MSC.Software* 8,000 46,500
---------
308,912
---------
SHARES VALUE
------ -----
Telecommunication - 1.9%
REMEC* 3,700 $ 59,663
---------
1,069,956
-----------
Miscellaneous - 3.9% 125,937
---------
TOTAL COMMON STOCKS
(Cost $3,279,089) 3,118,273
-----------
TOTAL INVESTMENTS - 97.2%
(Cost $3,279,089) 3,118,273
CASH AND OTHER ASSETS
LESS LIABILITIES - 2.8% 91,136
---------
NET ASSETS - 100.0% $ 3,209,409
-----------
* Non-income producing.
INCOME TAX INFORMATION- The cost of total investments for Federal income tax
purposes was $3,279,089. At June 30, 1999, net unrealized depreciation for
all securities was $160,816, consisting of aggregate gross unrealized
appreciation of $529,838 and aggregate gross unrealized depreciation of
$690,654.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
SCHEDULES OF INVESTMENTS
- -------------------------------------------------------------------------------
ROYCE CAPITAL FUND - PREMIER PORTFOLIO June 30, 1999 (unaudited)
- -------------------------------------------------------------------------------
COMMON STOCKS- 86.9%
SHARES VALUE
------ -----
Consumer Products- 8.1%
Apparel and Shoes- 1.3%
Superior Uniform Group 500 $ 6,250
-----------
Collectibles- 4.7%
Enesco Group 1,000 23,125
-----------
Sports and Recreation- 2.1%
Oakley* 1,000 7,125
Sturm, Ruger & Co. 300 3,206
-----------
10,331
-----------
39,706
-----------
Consumer Services- 2.9%
Retail Stores- 2.9%
Charming Shoppes* 2,300 14,016
-----------
Financial Intermediaries- 17.8%
Insurance- 17.8%
Berkley (W. R.) 500 12,500
Commerce Group 300 7,313
Leucadia National* 200 5,075
Medical Assurance* 200 5,650
PMA Capital Cl. A 300 6,169
Trenwick Group 300 7,397
Wesco Financial 100 31,000
Zenith National Insurance 500 12,312
-----------
87,416
-----------
Financial Services- 5.8%
Information and Processing- 1.4%
Duff & Phelps Credit Rating 100 6,688
-----------
Insurance Brokers- 3.4%
Blanch (E.W.) Holdings 100 6,819
Gallagher (Arthur J.) & Co. 200 9,900
-----------
16,719
-----------
Investment Management- 1.0%
Pioneer Group (The)* 300 5,175
-----------
28,582
-----------
Health-5.6%
Commercial Services- 2.8%
ICON ADR+* 700 13,737
-----------
Health Services- 1.6%
Arrow International 300 7,763
-----------
Surgical Products and Devices- 1.2%
Haemonetics* 300 6,019
-----------
27,519
-----------
Industrial Products- 18.6%
Building Systems and Components- 3.9%
Simpson Manufacturing* 400 19,000
-----------
Construction Materials- 4.6%
Florida Rock Industries 500 22,750
-----------
SHARES VALUE
------ -----
Machinery- 5.4%
Lincoln Electric Holdings 1,000 $ 20,500
Nordson 100 6,125
-----------
26,625
-----------
Pumps, Valves and Bearings- 2.8%
Kaydon Corporation 400 13,450
-----------
Specialty Chemicals and Materials- 1.9%
Lilly Industries Cl. A 500 9,281
-----------
91,106
-----------
Industrial Services- 11.6%
Engineering and Construction- 3.7%
Morrison Knudsen* 1,000 10,312
Stone & Webster 300 7,988
-----------
18,300
-----------
Industrial Distribution- 1.0%
Lawson Products 200 5,037
-----------
Printing- 2.1%
Merrill Corporation 700 10,150
-----------
Transportation and Logistics- 4.8%
Air Express International 400 10,150
Circle International Group 600 13,125
-----------
23,275
-----------
56,762
-----------
Natural Resources- 4.1%
Energy Services- 2.5%
Nabors Industries* 500 12,219
-----------
Oil and Gas- 1.6%
Barrett Resources* 200 7,675
-----------
19,894
-----------
Technology- 12.4%
Aerospace/Defense- 4.0%
Curtiss-Wright 500 19,437
-----------
Components and Systems- 0.8%
National Instruments* 100 4,037
-----------
Distribution- 5.5%
Avnet 200 9,300
Marshall Industries* 500 17,969
-----------
27,269
-----------
Software/Services- 2.1%
National Computer Systems 300 10,125
-----------
60,868
-----------
TOTAL COMMON STOCKS
(Cost $379,829) 425,869
-----------
TOTAL INVESTMENTS- 86.9%
(Cost $379,829) 425,869
CASH AND OTHER ASSETS
LESS LIABILITIES- 13.1% 64,092
-----------
NET ASSETS- 100.0% $ 489,961
-----------
* Non-income producing.
INCOME TAX INFORMATION- The cost of total investments for Federal income tax
purposes was $379,829. At June 30, 1999, net unrealized appreciation for all
securities was $46,040, consisting of aggregate gross unrealized appreciation
of $66,100 and aggregate gross unrealized depreciation of $20,060.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
SCHEDULES OF INVESTMENTS
- -------------------------------------------------------------------------------
ROYCE CAPITAL FUND - TOTAL RETURN PORTFOLIO June 30, 1999 (unaudited)
- -------------------------------------------------------------------------------
COMMON STOCKS-80.6%
SHARES VALUE
------ -----
Consumer Products-9.6%
Apparel and Shoes-1.4%
Superior Uniform Group 300 $ 3,750
---------
Collectibles-3.5%
Enesco Group 400 9,250
---------
Home Furnishing/Appliances-3.5%
Bassett Furniture Industries 400 9,150
---------
Sports and Recreation-1.2%
Sturm, Ruger & Company 300 3,206
---------
25,356
---------
Financial Intermediaries-16.3%
Insurance-16.3%
Berkley (W.R.) 300 7,500
Capitol Transamerica 400 5,250
Chicago Title 100 3,507
Commerce Group 200 4,875
LandAmerica Financial Group 200 5,675
PMA Capital Cl. A 200 4,113
Trenwick Group 100 2,466
Zenith National Insurance 400 9,850
---------
43,236
---------
Financial Services-2.6%
Insurance Brokers-1.0%
Crawford & Company Cl. A 200 2,700
---------
Investment Management-1.6%
John Nuveen Company Cl. A 100 4,269
---------
6,969
---------
Health- 2.2%
Health Services- 2.2%
Arrow International 200 5,700
---------
Industrial Products-19.3%
Building Systems and Components-4.7%
Falcon Products 200 2,037
Kimball International Cl. B 600 10,288
---------
12,325
---------
Construction Materials- 5.4%
Ameron International 100 4,338
Puerto Rican Cement 300 9,956
---------
14,294
---------
Machinery-3.1%
Lincoln Electric Holdings 400 8,200
---------
Pumps, Valves and Bearings-1.3%
Kaydon Corporation 100 3,363
---------
Specialty Chemicals and Materials-2.6%
Synalloy 200 1,625
WD-40 200 5,264
---------
6,889
---------
Other Industrial Products- 2.2%
Baldor Electric 300 5,852
---------
50,923
---------
Industrial Services-13.5%
Commerical Services- 2.4%
Olsten 1,000 6,312
---------
SHARES VALUE
------ -----
Engineering and Construction-1.0%
Stone & Webster 100 $ 2,663
---------
Food/Tobacco Processors- 2.1%
Universal 200 5,689
---------
Industrial Distribution- 2.9%
Lawson Products 300 7,556
---------
Printing-5.1%
Ennis Business Forms 900 7,706
Merrill Corporation 400 5,900
---------
13,606
---------
35,826
---------
Natural Resources-9.1%
Energy Services- 3.8%
Helmerich & Payne 200 4,762
Lufkin Industries 300 5,250
---------
10,012
---------
Gold-1.6%
Anglogold ADR+ 200 4,300
---------
Oil and Gas-3.7%
Devon Energy 100 3,575
Tidewater 200 6,100
---------
9,675
---------
23,987
---------
Technology-8.0%
Aerospace/Defense-3.4%
Curtiss-Wright 100 3,888
Woodward Governor 200 5,200
---------
9,088
---------
Distribution- 1.8%
Avnet 100 4,695
---------
Telecommunication- 2.8%
Clarent Corporation 500 7,500
---------
21,283
---------
TOTAL COMMON STOCKS
(Cost $216,023) 213,280
---------
PREFERRED STOCK- 3.0%
Fleetwood Capital Trust
(Cost $8,100) 200 8,000
---------
CORPORATE BOND-2.2%
Charming Shoppes 7.50%
Conv. Sub. Note due 7/15/06,
principal amount $6,000
(Cost $5,985) 5,820
---------
TOTAL INVESTMENTS-85.8%
(Cost $230,108) 227,100
CASH AND OTHER ASSETS
LESS LIABILITIES-14.2% 37,665
---------
NET ASSETS- 100.0% $ 264,765
---------
+ American Depository Receipt.
INCOME TAX INFORMATION- The cost of total investments for Federal income tax
purposes was $230,108. At June 30, 1999, net unrealized depreciation for all
securities was $3,008, consisting of aggregate gross unrealized appreciation
of $3,823 and aggregate gross unrealized depreciation of $6,831.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
ROYCE CAPITAL FUND
STATEMENTS OF ASSETS AND LIABILITIES June 30, 1999 (unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Micro-Cap Premier Total Return
Portfolio Portfolio Portfolio
--------- --------- ---------
<S> <C> <C> <C>
ASSETS:
Investments at value* $3,118,273 $425,869 $227,100
Cash 126,931 142,359 183,790
Receivable for investments sold 14,000 15,999 -
Receivable for capital shares sold 1,741 - -
Receivable for dividends and interest 487 612 358
Prepaid expenses and other assets 5,269 5,148 8,005
- -----------------------------------------------------------------------------------------------------------------------
Total Assets 3,266,701 589,987 419,253
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 51,750 97,410 152,016
Payable for investment advisory fees 434 - -
Accrued expenses 5,108 2,616 2,472
- ------------------------------------------------------------------------------------------------------------------------
Total Liabilities 57,292 100,026 154,488
- ------------------------------------------------------------------------------------------------------------------------
Net Assets $3,209,409 $489,961 $264,765
========================================================================================================================
ANALYSIS OF NET ASSETS:
Undistributed net investment income (loss) ($11,826) ($500) $575
Accumulated net realized gain on investments 213,884 4,647 2,531
Net unrealized appreciation (depreciation) on investments (160,816) 46,040 (3,008)
Capital shares 554 85 53
Additional paid-in capital 3,167,613 439,689 264,614
- ------------------------------------------------------------------------------------------------------------------------
Net Assets $3,209,409 $489,961 $264,765
========================================================================================================================
SHARES OUTSTANDING:
(unlimited number of $.001 par value shares authorized for each Fund) 553,544 85,081 53,167
========================================================================================================================
NET ASSET VALUES (Net Assets/Shares Outstanding):
(offering and redemption price per share) $5.80 $5.76 $4.98
========================================================================================================================
* Investments at identified cost $3,279,089 $379,829 $230,108
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
ROYCE CAPITAL FUND
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------------------------------------------
Micro-Cap Portfolio Premier Portfolio
-------------------------------- -------------------------------
Six months ended Year ended Six months ended Year ended
June 30, 1999 December 31, June 30, 1999 December 31,
(unaudited) 1998 (unaudited) 1998
------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT OPERATIONS:
Net investment income (loss) ($11,826) ($17,548) ($500) ($260)
Net realized gain (loss) on investments 213,579 434,110 4,246 23,777
Net change in unrealized appreciation
(depreciation) on investments 75,782 (268,413) 24,617 3,045
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from investment operations 277,535 148,149 28,363 26,562
- ------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income - - - -
Net realized gain on investments - (417,977) - (23,389)
- ------------------------------------------------------------------------------------------------------------
Total distributions - (417,977) - (23,389)
- ------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Value of shares sold 324,399 2,647,803 87,272 52,281
Distributions reinvested - 417,974 - 23,387
Value of shares redeemed (729,905) (522,951) (91) (47)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
from capital share transactions (405,506) 2,542,826 87,181 75,621
- ------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS (127,971) 2,272,998 115,544 78,794
NET ASSETS:
Beginning of period 3,337,380 1,064,382 374,417 295,623
- ------------------------------------------------------------------------------------------------------------
End of period $3,209,409 $3,337,380 $489,961 $374,417
============================================================================================================
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS) ($11,826) - ($500) -
- ------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (in shares):
Shares sold 65,020 460,617 16,592 9,013
Shares issued for reinvestment
of distributions - 84,099 - 4,438
Shares redeemed (148,154) (91,527) (16) (9)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
shares outstanding (83,134) 453,189 16,576 13,442
- ------------------------------------------------------------------------------------------------------------
--------------------------------
Total Return Portfolio
--------------------------------
Six months ended Period ended
June 30, 1999 December 31,
(unaudited) 1998 (a)
--------------------------------
<S> <C> <C>
INVESTMENT OPERATIONS:
Net investment income (loss) $575 $56
Net realized gain (loss) on investments (1,711) 5,322
Net change in unrealized appreciation
(depreciation) on investments (347) (2,661)
- -----------------------------------------------------------------------------
Net increase (decrease) in net assets
from investment operations (1,483) 2,717
- -----------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income - (227)
Net realized gain on investments - (909)
- -----------------------------------------------------------------------------
Total distributions - (1,136)
- -----------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Value of shares sold 150,284 113,694
Distributions reinvested - 1,136
Value of shares redeemed (405) (42)
- -----------------------------------------------------------------------------
Net increase (decrease) in
from capital share transactions 149,879 114,788
- -----------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS 148,396 116,369
NET ASSETS:
Beginning of period 116,369 -
- -----------------------------------------------------------------------------
End of period $264,765 $116,369
=============================================================================
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS) $575 -
- -----------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (in shares):
Shares sold 30,299 22,728
Shares issued for reinvestment
of distributions - 229
Shares redeemed (81) (8)
- -----------------------------------------------------------------------------
Net increase (decrease) in
shares outstanding 30,218 22,949
- -----------------------------------------------------------------------------
</TABLE>
(a) Total Return Portfolio commenced operations on May 15, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
ROYCE CAPITAL FUND
STATEMENTS OF OPERATIONS Six months ended June 30, 1999 (unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Micro-Cap Premier Total Return
Portfolio Portfolio Portfolio
--------- --------- ----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Income:
Dividends $8,749 $2,081 $1,282
Interest - - 225
- ---------------------------------------------------------------------------------------------------------------
Total Income 8,749 2,081 1,507
- ---------------------------------------------------------------------------------------------------------------
Expenses:
Investment advisory fees 19,051 1,911 690
Custodian 5,308 2,386 2,046
Shareholder servicing 3,902 3,902 3,901
Audit 1,960 1,335 1,335
Organizational expenses 1,062 1,062 1,044
Legal 924 102 32
Trustees' fees 891 94 29
Administrative and office facilities expenses 748 88 28
Other expenses 1,690 774 764
- ---------------------------------------------------------------------------------------------------------------
Total Expenses 35,536 11,654 9,869
Fees Waived by Investment Adviser (14,961) (1,911) (690)
Expenses Reimbursed by Investment Adviser - (7,162) (8,247)
- ---------------------------------------------------------------------------------------------------------------
Net Expenses 20,575 2,581 932
- ---------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) (11,826) (500) 575
- ---------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments 213,579 4,246 (1,711)
Net change in unrealized appreciation (depreciation) on investments 75,782 24,617 (347)
- ---------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 289,361 28,863 (2,058)
- ---------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM INVESTMENT OPERATIONS $277,535 $28,363 ($1,483)
===============================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
This table is presented to show selected data for a share outstanding
throughout each period, and to assist shareholders in evaluating each Fund's
performance for the periods presented.
================================================================================
<TABLE>
<CAPTION>
Net Realized Distributions
Net Asset Net and Distributions From Net Net Asset
Value, Investment Unrealized From Net Realized Value,
Beginning Income Gain (Loss) on Investment Gain on End
of Period (Loss) Investments Income Investments of Period
========================================================================================
<S> <C> <C> <C> <C> <C> <C>
Micro-Cap Portfolio (a)
- -----------------------
1999 $5.24 ($0.02) $0.58 - - $5.80
1998 5.80 (0.03) 0.23 - (0.76) 5.24
1997 5.01 (0.02) 1.08 - (0.27) 5.80
1996 5.00 - 0.01 - - 5.01
Premier Portfolio (b)
- ---------------------
1999 $5.47 ($0.01) $0.30 - - $5.76
1998 5.37 - 0.47 - (0.37) 5.47
1997 5.05 (0.01) 0.87 - (0.54) 5.37
1996 5.00 - 0.05 - - 5.05
Total Return Portfolio (c)
- --------------------------
1999 $5.07 $0.01 ($0.10) - - $4.98
1998 5.00 0.01 0.11 (0.01) (0.04) 5.07
Ratio of Net
Ratio of Investment
Expenses Income (Loss)
Total Net Assets, to Average to Average Portfolio
Return End of Period Net Assets Net Assets Turnover Rate
========================================================================================
<S> <C> <C> <C> <C> <C>
Micro-Cap Portfolio (a)
- -----------------------
1999 10.7% $3,209,409 1.35% * -0.78% * 37%
1998 4.1% 3,337,380 1.35% -0.79% 88%
1997 21.2% 1,064,382 1.35% -0.96% 132%
1996 0.2% 250,462 1.99% * -1.99% * 0%
Premier Portfolio (b)
- ---------------------
1999 5.3% $489,961 1.35% * -0.26% * 29%
1998 8.9% 374,417 1.35% -0.08% 109%
1997 17.1% 295,623 1.35% -0.18% 79%
1996 1.0% 252,419 1.99% * -1.99% * 0%
Total Return Portfolio (c)
- --------------------------
1999 -1.8% $264,765 1.35% * 0.83% * 10%
1998 2.4% 116,369 1.35% * 0.08% * 77%
</TABLE>
(a) Expense ratios are shown after fee waivers and expense reimbursements by
the investment adviser. For the periods June 30, 1999 and December 31, 1998,
1997 and 1996, the expense ratios before the waivers and reimbursements would
have been 2.33%, 2.59%, 7.32% and 22.49%, respectively. The Fund commenced
operations on December 27, 1996.
(b) Expense ratios are shown after fee waivers and expense reimbursements by
the investment adviser. For the periods ended June 30, 1999 and December 31,
1998, 1997 and 1996, the expense ratios before the waivers and reimbursements
would have been 6.10%, 7.05%, 8.87% and 22.49%, respectively. The Fund
commenced operations on December 27, 1996.
(c) Expense ratios are shown after fee waivers and expense reimbursements by
the investment adviser. For the periods ended June 30, 1999 and December 31,
1998, the expense ratios before the waivers and reimbursements would have been
14.30% and 18.08%, respectively. The Fund commenced operations on May 15, 1998.
* Annualized.
<PAGE>
Royce Capital Fund
Notes to Financial Statements (unaudited)
- -------------------------------------------------------------------------------
Summary of Significant Accounting Policies:
Royce Micro-Cap Portfolio, Royce Premier Portfolio and Royce Total
Return Portfolio (the "Fund" or "Funds") are three series of Royce Capital
Fund (the "Trust"), a diversified open-end management investment company
organized as a Delaware business trust. Micro-Cap Portfolio and Premier
Portfolio commenced operations on December 27, 1996 and Total Return
Portfolio commenced operations on May 15, 1998.
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 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.
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 Funds incur direct and indirect expenses. Expenses directly
attributable to a Fund are charged to the Fund's operations, while expenses
applicable to more than one series of the Trust 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 qualified 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 Schedules of Investments include information regarding
income taxes under the caption "Income Tax Information."
<PAGE>
Notes to Financial Statements (unaudited) (continued)
- -------------------------------------------------------------------------------
Distributions:
Any dividend and capital gain distributions are recorded on the ex-
dividend date and paid annually in December. These distributions are
determined in accordance with income tax regulations that may differ from
generally accepted accounting principles. Permanent book and tax basis
differences relating to shareholder 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 Funds enter into repurchase agreements with respect to portfolio
securities solely with State Street Bank and Trust Company ("SSB&T"), the
custodian of the Funds' assets. Each 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 each Fund to dispose of its underlying
securities.
Investment Adviser:
Under the Trust's investment advisory agreements with Royce &
Associates, Inc. ("Royce"), Royce is entitled to receive management fees,
which are computed daily and payable monthly, at an annual rate of 1.25%,
1.0% and 1.0% of the average net assets of Micro-Cap Portfolio, Premier
Portfolio and Total Return Portfolio, respectively. Royce has contractually
agreed to waive its fees and reimburse expenses to the extent necessary to
maintain a net annual operating expense ratio of expenses to average net
assets at or below 1.35% for each Fund through December 31, 1999. For the
period ended June 30, 1999, Micro-Cap Portfolio recorded advisory fees of
$4,090 (net of waivers of $14,961). Royce waived advisory fees of $1,911
for Premier Portfolio and $690 for Total Return Portfolio.
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, were as follows:
Micro-Cap Portfolio Premier Portfolio Total Return Portfolio
------------------- ----------------- ----------------------
Purchases $1,094,853 $167,912 $154,489
Sales $1,415,816 $87,965 $9,275
