<PAGE>
<PAGE>
ROYCE
LOW-PRICED
STOCK
FUND
SEMI-ANNUAL REPORT
JUNE 30, 1996
THE ROYCE FUNDS
<PAGE>
<PAGE>
The Royce Funds
1414 Avenue of the Americas
New York, NY 10019
(212) 355-7311
(800) 221-4268
Dear Shareholder:
After a left foot start in January, small company stocks, as measured by the
Russell 2000 Index, outperformed their large company brethren (S&P 500) in
February, March, April and May (15.2% versus 6.2%), but were unable to continue
their winning ways in June (-4.1% versus 0.4%). June's downturn in performance
was the first sign of potentially higher volatility for small-cap issues. In
fact, the Nasdaq Composite closed the second quarter off over 5% from the high
it established on June 5th, its largest decline since a 13.8% drop in the second
quarter of 1994. In spite of June's downturn, and because of the February-May
surge, the Russell 2000 Index of small-cap stocks won the first half performance
derby with a 10.4% total return versus a 10.2% total return for the large-cap
oriented S&P 500.
Within small-cap, 'growth' finished ahead of 'value' with the Russell 2000
Growth Index providing an 11.9% return versus an 8.7% gain for the Russell 2000
Value Index. A similar performance relationship, but with wider disparity, was
also present in the Wilshire Target Small Cap Index Funds, as the Small Cap
Growth Fund (+13.2%) handily outperformed the Small Cap Value Fund (+3.9%).
ROYCE LOW-PRICED STOCK FUND ('RLP') outperformed both small-cap value
proxies, posting a 21.7% return for the first six months. Contributing to the
Fund's performance were nice gains in two sectors (consumer durables and retail)
which had been mediocre performers in 1995.
To our knowledge, RLP remains one of only three 'low-priced' stock funds
currently available. The Fund, which has $14 million in total assets, qualified
for daily newspaper listing during the first half and can now be found under the
Royce Funds heading. Although the Fund's investment history is relatively short,
its returns are highly competitive on an absolute and relative basis. Average
annual total returns for the Fund over the one year and since inception
(December 15, 1993) periods were 26.9% and 18.5%, respectively. WE BELIEVE THAT
THE LOW-PRICED SECTOR IS A REWARDING ALTERNATIVE FOR INVESTORS WITH PATIENCE AND
A TOLERANCE FOR ABOVE AVERAGE VOLATILITY, AND THAT OUR RISK AVERSE APPROACH,
WHICH USES ABSOLUTE VALUATION STANDARDS, IS AN APPROPRIATE STRATEGY FOR
CAPTURING THE RETURNS THAT THE SECTOR AFFORDS.
FIREWORKS IN JULY
Louis Pasteur once [GRAPHIC]
said, 'Chance favors the prepared mind.' Although everyone was prepared for the
fireworks of July 4th, few were prepared for the market fireworks which began in
June and intensified throughout July. Double digit gains in small-cap indices
were erased and many investors now find themselves starting over at mid-year.
2
<PAGE>
<PAGE>
Performance Update Through July 31
<TABLE>
<CAPTION>
% Decline July '96 YTD Return
From High* Return thru 7/31/96
--------- -------- ------------
<S> <C> <C> <C>
RLP -9.7% -6.1% +14.2%
Russell 2000 -13.1% -8.7% +0.7%
Nasdaq Comp. -13.4% -8.8% +2.7%
</TABLE>
* Russell 2000 high was made on 5/22/96.
We view the current pyrotechnics of July from the vantage point that these
fluctuations are inevitable and desirable, and part of the normal rhythm of the
market. We are prone to keep ourselves at a distance. This is largely common
sense -- no special preparation needed.
WORTH REPEATING
To be quoted is flattering. To quote oneself presents the dual risk of boring
our readers and tooting our own horn. Nevertheless, we want to repeat some of
our comments from the 1995 Annual Report. (We promise we won't do this again.)
IN OUR LAST REPORT WE SAID:
'An interesting aspect of this five year rise in both
stocks and bonds is the ever increasing participation
of individual investors . . . . In fact, it is that very same
demand which is believed to ensure future success
and prevent any major reversal in market
fortunes . . . . The suggestion that continued success is
nearly guaranteed by demand is a scary
proposition . . . . We remain most astonished, not with
the magnitude of investor appetite for stocks, but the
nearly universal assumption of its permanence.'
WE NOW THINK:
In a perverse way, the least informed (the purchasing public) now appear to
be dictating investment policy to those presumed most knowledgeable (portfolio
managers). Normally prudent professionals have taken comfort in the fact that
the public is pouring money into equity mutual funds. As one of our shareholders
commented, 'The inmates are running the asylum.'
ALSO IN THE 1995 ANNUAL REPORT WE SAID:
'We are certain, particularly in a global
economy, that an ample supply of securities can
be created to meet and even exceed investors'
demands.'
AND NOW:
The $132 billion of new investments in equity mutual funds for the first half
of 1996 has eclipsed the prior annual record set in 1993 ($130 billion for the
full year). Yet, the dramatic upward progress that this commitment was expected
to produce has not materialized. A move up in long-term interest rates and
increased corporate insider selling activity are partly to blame, as well as a
surge in IPO activity. By late June, roughly 80 new offerings a week were
producing a fresh supply of securities at the rate of approximately $20 billion
a month.
3
<PAGE>
<PAGE>
[GRAPHIC]
One of the most instructive offerings of the recent IPO boom was the creation
and issuance of Berkshire Hathaway Inc. Class B shares. Berkshire Hathaway's
Chairman, Warren Buffett, is perhaps the best known investor of our time.
Multiple warnings on the front page of the prospectus included: 'Neither Mr.
Buffett nor Mr. Munger (Vice Chairman) would currently buy Berkshire shares (at
the current price), nor would they recommend that their families or friends do
so' and 'Berkshire has attempted to assess the current demand for Class B shares
and has tailored the size of this offering to fully satisfy that demand (and)
therefore, buyers hoping to capture quick profits are almost certain to be
disappointed.' Yet, despite the warnings, over $500 million was raised. WALL
STREET HAS BEEN SUCCESSFUL IN CREATING AN AMPLE SUPPLY OF NEW AND SECONDARY
OFFERINGS TO FULLY SATISFY DEMAND. HOWEVER, IT PROVIDES NO SIMILAR 'WARNING
LABELS.'
ADDITIONALLY WE SAID:
'The magnitude of the decline in interest rates
is virtually not repeatable. Consequently, a
further decline in interest rates will not have the
same favorable impact on stock prices, no
matter how bullish one is on rates.'
AND NOW:
The consensus expectations of lower rates (then at 6%) in an election year
have proved to be wrong. Long-term government bond yields rose by over 20% in
the first half to a current yield of over 7.0%. While this surprise has not
ended the party, it's getting hard to find the punch bowl.
AND FINALLY WE SAID:
'THE NEXT FIVE YEARS WILL BE DIFFERENT! It's
not likely that the next five years will rival the
previous five in terms of ideal wind conditions
or spectacular performance. History tells us
that periods of high valuation and high return
are usually followed by periods of lower, less
dynamic returns . . . . We see no reason why
performance should not revert to the mean and,
thus, a period of lower five year returns is
likely. Very simply, the last five years was a
period in which risk and reward were
synonymous and one in which risk management
provided virtually no benefit. It's likely that we
have completed the best five year performance
period for this decade.'
AND NOW?
Enough said.
4
<PAGE>
<PAGE>
THE VALUE IN VALUE INVESTING
A basic premise of value investing is that stocks, like other goods and
services, should be purchased at the most attractive prices possible, preferably
at a discount to their 'intrinsic worth.' The reality for most investors is just
the opposite. In other words, investor comfort levels and, therefore, demand
increase when prices rise, and diminish as prices decline. The higher a stock
rises, the greater the perceived opportunity.
Value investing, on the other hand, takes a contrary view to this highly
emotional process. By systematically reducing risk when others ignore it and
taking risk when it is feared, one can capitalize on valuation discrepancies
(opportunities) which develop from time to time. The greatest risk that the
value investor confronts is the loss of either patience or discipline when faced
with the prospect of being out-of-sync with the market. THE VALUE IN 'VALUE
INVESTING' IS TO PROVIDE A COHERENT SYSTEM FOR RATIONAL DECISION MAKING . . .
THE PURPOSE OF WHICH IS TO COMPOUND WEALTH WHILE MINIMIZING RISK. Its basic
premise is that the price one pays for an investment makes a significant
difference in the return one receives.
WHAT WE DO
[graphic] Royce Low-Priced Stock Fund uses a risk-averse approach
to invest in the common stocks of companies whose shares,
at the time of purchase, trade at a price below $15 per
share. Experience tells us that paying attention to risk does not diminish
long-term results, although individual market phases may not always confirm
this.
Our approach attempts to understand and value a company's private
worth -- what we believe an enterprise would sell for in a private transaction
between rational parties. The price we will pay for a security must be
significantly under our appraisal of its private worth. The consistent use of
this discipline, applied to less well-known securities, is the source of our
performance.
NO OTHER PLACE WE WOULD RATHER BE
While the Fund focuses on companies with market caps below $1 billion, our
weighted average and median market caps are actually much lower: $203 million
and $116 million, respectively, at June 30, 1996.
Although our orientation is small-cap stocks, our picking universe is by no
means small, with over 10,000 companies valued at more than $900 billion in
total market capitalization. It is both robust and perpetuating; IPO's, spin-
offs and reorganizations create hundreds of new prospects each year. The
small-cap sector is rich in opportunity and easily accommodates our strategy
given the size of the investable universe.
Not long ago we had a conversation with a highly successful and respected
fund manager about diversification. His contention was that statistical
diversification could be achieved with just 13 holdings. His own portfolio was
concentrated in a mere 20 selections. We were impressed. Yet, upon further
examination, we discovered his 20 large-cap holdings were involved in 61
different businesses. As defined by Standard Industrial Classification codes
(SICs), Philip Morris has seven different business groups, Pepsi has six,
Johnson & Johnson has five and so on. In contrast, the vast majority of
our holdings have single lines of business. When one adds up the numbers,
there's really not much difference in terms of diversification between
our approach and that of 'focused' managers.
5
<PAGE>
<PAGE>
VOLATILITY IS A FRIEND
Recently, stock market volatility has generated a great deal of attention
from the financial press. While large changes (100 point or greater moves) in
the Dow Jones Industrial Average make interesting reading in the morning papers,
their significance is exaggerated. The table below depicts the Russell 2000's
yearly price variation using the index's annual range as a percentage of the
beginning year's price.
[GRAPHIC]
It's interesting to note how tame the markets have remained in the last four
and a half years relative to the prior thirteen. TO US, VOLATILITY IS A FRIEND
IN THAT IT CREATES IRRATIONAL PRICING OF SECURITIES AND, THEREFORE,
OPPORTUNITIES FOR US TO CAPITALIZE ON OUR RISK MANAGEMENT SKILLS.
ARE THERE ANY REAL INVESTORS LEFT?
The term 'investor' denotes a long-term supplier of capital. [GRAPHIC]
In contrast, a 'speculator' is one who takes opportunistic risk
in hopes of generating quick profits. In essence, investors
expect to get paid by the correct assessment of underlying business
fundamentals, whereas speculators count on others (often referred to as greater
fools) to buy them out profitably.
In the current bull market, it has become very difficult to tell the
difference between investors and speculators. For example, what exactly is
'momentum investing?' The term seems oxymoronic. While equities represent a
permanent ownership position in an enterprise, in many fund portfolios, they are
reviewed and replaced more frequently than three month Treasury Bills. Wall
Street brokerage firms publish 'Buy' and 'Sell' recommendations based on a
company's quarterly progress down to the penny per share; and the country's
largest equity mutual fund lost its star manager after a short period of
underperformance, which may have contributed to the decision by that fund's
investors to withdraw in excess of $1 billion.
Only time and more difficult market conditions will separate the true
investors from disappointed speculators. GIVEN THAT WE BELIEVE THAT EQUITIES
REPRESENT LONG-TERM INTERESTS IN BUSINESSES, THE TERM 'INVESTOR' SUITS US JUST
FINE.
6
<PAGE>
<PAGE>
WHAT DO WE DO NOW?
Given our belief that the next phase of the market will include lower equity
returns and greater volatility -- the need for basic blocking and tackling, in
the form of commitment, focus and experience, is paramount. We remain committed
to investing in high quality, small-cap companies using absolute valuation
standards; our focus remains sharp, and exclusively on small and micro-cap
companies; and our 20+ years of investment experience ensures that our vigilance
and discipline remain constant. Your continued confidence is appreciated.
Yours faithfully,
<TABLE>
<C> <S>
CHARLES M. ROYCE
Jack E. Fockler, Jr.
Charles M. Royce W. Whitney George
President Vice Presidents
</TABLE>
August 1, 1996
P.S. Our 'new era' fund will wait for the 'new era.'
The Russell 2000, Russell 2000 Growth, Russell 2000 Value and S&P 500 indices
are unmanaged and include the reinvestment of dividends. The Nasdaq Composite is
an unmanaged index. The Wilshire Target Small Company Value and Growth Funds
attempt to replicate the performance of the Wilshire Next 1750 Small Company
Value and Growth Indices, respectively.
At the Special Meeting of Shareholders held on June 26, 1996,
Trust shareholders approved a conversion of the Trust to a Delaware
business trust, elected Trustees and ratified the Board's selection of the
Trust's independent public accountants, and Fund shareholders approved a
proposal to permit investment in warrants, rights and options.
<TABLE>
<CAPTION>
Proposal/ Votes Cast Votes Votes Cast Votes
Name of Trustee For Withheld Against Abstained
- ------------------------------------------------------ ---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Convert the Trust to a Delaware business trust........ 37,472,360 N/A 845,090 3,121,147
Proposal to change the Fund's investment policy
concerning warrants, rights and options............. 1,145,409 N/A 23,228 15,751
Ratification of independent public accountants........ 51,370,026 N/A 442,499 2,816,187
Charles M. Royce...................................... 52,309,497 2,319,215 N/A N/A
Thomas R. Ebright..................................... 52,314,207 2,314,505 N/A N/A
Hubert L. Cafritz..................................... 52,219,769 2,408,943 N/A N/A
Richard M. Galkin..................................... 52,305,456 2,323,256 N/A N/A
Stephen L. Isaacs..................................... 52,258,406 2,370,306 N/A N/A
William L. Koke....................................... 52,300,723 2,327,989 N/A N/A
David L. Meister...................................... 52,282,477 2,346,235 N/A N/A
</TABLE>
7
<PAGE>
<PAGE>
FINANCIAL REVIEW
<TABLE>
<CAPTION>
PERIOD TOTAL RETURN
- ------------------------------- ------------
<S> <C>
1996 (through 6/30)............ 21.7%
1995........................... 22.5%
1994........................... 3.0%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
<S> <C>
(THROUGH 6/30/96)
1 year......................... 26.9%
Since Inception*............... 18.5%
</TABLE>
ROYCE LOW-PRICED STOCK FUND VERSUS S&P 500
VALUE OF $10,000 INVESTED ON 12/15/93
<TABLE>
<CAPTION>
PERIOD ENDED ROYCE LOW-PRICED FUND S&P 500
- ------------ --------------------- -------
<S> <C> <C>
12/15/93 10,000 10,000
12/31/93 10,020 10,100
01/31/94 10,020 10,439
02/28/94 9,960 10,155
03/31/94 9,780 9,715
04/30/94 9,780 9,840
05/31/94 9,659 10,000
06/30/94 9,659 9,752
07/31/94 9,739 10,075
08/31/94 10,220 10,485
09/30/94 10,260 10,231
10/31/94 10,399 10,469
11/30/94 10,339 10,085
12/31/94 10,319 10,233
01/31/95 10,217 10,498
02/28/95 10,502 10,905
03/31/95 11,010 11,229
04/30/95 11,377 11,560
05/31/95 11,315 12,017
06/30/95 12,129 12,299
07/31/95 12,720 12,713
08/31/95 12,821 12,747
09/30/95 13,005 13,282
10/31/95 11,885 13,235
11/30/95 12,414 13,817
12/31/95 12,642 14,073
01/31/96 12,688 14,555
02/29/96 13,430 14,696
03/31/96 14,443 14,840
04/30/96 15,387 15,062
05/31/96 16,084 15,450
06/30/96 15,386 15,513
</TABLE>
* Inception Date - December 15, 1993
The results presented in this report should not be considered
representative of the total return from an investment in the Fund today. They
are provided only to give an historical perspective of the Fund. The investment
return and principal value of Fund shares will fluctuate, so that shares may be
worth more or less than their original cost when redeemed. Redemption fees are
not included because they apply only to purchases held for less than one year.
8
<PAGE>
<PAGE>
PORTFOLIO SUMMARY
The following information is provided as a 'bird's eye' view of the Royce
Low-Priced Stock Fund portfolio. For a more complete picture, the full portfolio
and accompanying financial statements should be read in their entirety.
<TABLE>
<S> <C> <C>
PORTFOLIO COMPOSITION VALUE % OF NET ASSETS
- --------------------------------------------------------------------------------------------------------
Common Stocks $11,175,446 80.2%
Cash & Other Net Assets 2,757,355 19.8
Total Net Assets $13,932,801 100.0%
PORTFOLIO DIAGNOSTICS
- --------------------------------------------------------------------------------------------------------
Weighted Average Market Capitalization $203 Million
Median Market Capitalization $116 Million
Weighted Average P/E Ratio 16.2x
Weighted Average P/B Ratio 1.3x
Weighted Average Portfolio Yield 0.6%
COMMON STOCK SECTORS % OF NET ASSETS
- --------------------------------------------------------------------------------------------------------
Services 16.5%
Industrial Cyclicals 15.3
Consumer Durables 10.9
Technology 10.3
Financial 6.9
Retail 6.9
Consumer Staples 5.4
Miscellaneous 4.6
Health 2.6
Energy 0.8
TOP TWENTY POSITIONS VALUE % OF NET ASSETS
- --------------------------------------------------------------------------------------------------------
1. Buffets, Inc. $490,000 3.5%
2. Oregon Steel Mills, Inc. 412,500 3.0
3. J & J Snack Foods Corp. 318,550 2.3
4. Electroglas, Inc. 306,375 2.2
5. TPI Enterprises, Inc. 297,203 2.1
6. Lifetime Hoan Corporation 268,750 1.9
7. PCD Inc. 265,000 1.9
8. Aldila, Inc. 234,500 1.7
9. Perrigo Company 225,000 1.6
10. Arnold Industries, Inc. 220,875 1.6
11. Mikasa, Inc. 220,000 1.6
12. Todd Shipyards Corporation 198,000 1.4
13. Resurgence Properties Inc. 197,206 1.4
14. Pentech International, Inc. 195,475 1.4
15. Mity-Lite, Inc. 188,325 1.4
16. Rykoff-Sexton, Inc. 186,875 1.3
17. Haggar Corp. 186,300 1.3
18. American Software, Inc. Cl. A 184,538 1.3
19. Open Plan Systems, Inc. 180,000 1.3
20. Mestek, Inc. 179,988 1.3
</TABLE>
9
<PAGE>
<PAGE>
ROYCE LOW-PRICED STOCK FUND
SCHEDULE OF INVESTMENTS AT JUNE 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
COMMON STOCKS - 80.2%
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
CONSUMER DURABLES - 10.9%
56,000 *Aldila, Inc.................. $ 234,500
10,000 Arctco, Inc................... 125,000
9,900 Fedders Corporation........... 70,538
13,800 Haggar Corp................... 186,300
1,700 *Lazare Kaplan International,
Inc......................... 22,312
25,000 *Lifetime Hoan Corporation.... 268,750
9,600 *Lund International Holdings,
Inc......................... 129,600
24,300 *Mity-Lite, Inc............... 188,325
25,000 Semi-Tech Corp................ 125,000
42,000 *The Sirena Apparel Group,
Inc......................... 131,250
7,000 *The Topps Company, Inc....... 39,375
-----------
1,520,950
-----------
CONSUMER STAPLES - 5.4%
27,700 *J & J Snack Foods Corp....... 318,550
10,000 *Jean-Philippe Fragrances,
Inc......................... 86,250
12,000 *Midwest Grain Products,
Inc......................... 156,000
111,700 *Pentech International,
Inc......................... 195,475
-----------
756,275
-----------
ENERGY - 0.8%
8,000 *Equity Oil Company........... 38,500
10,000 Ranger Oil Limited............ 73,750
-----------
112,250
-----------
FINANCIAL - 6.9%
9,500 The Chicago Dock and Canal
Trust....................... 141,312
10,000 Intercargo Corporation........ 86,250
7,900 Nobel Insurance Limited....... 91,838
23,700 Phoenix Duff & Phelps
Corporation................. 177,750
5,400 Piper Jaffray Companies
Inc......................... 67,500
22,700 *Resurgence Properties
Inc......................... 197,206
2,500 *Toreador Royalty
Corporation................. 6,875
<CAPTION>
Shares Value
<C> <S> <C>
16,000 *U.S. Global Investors Inc.
Cl. A....................... $ 46,000
12,000 `D'Willis Corroon Group plc... 142,500
-----------
957,231
-----------
HEALTH - 2.6%
20,000 *Hauser Chemical Research,
Inc......................... 135,000
20,000 *Perrigo Company.............. 225,000
-----------
360,000
-----------
INDUSTRIAL CYCLICALS - 15.3%
11,100 *Guy F. Atkinson Company of
California.................. 149,850
2,310 BHA Group, Inc. Cl. A......... 30,607
10,000 Battle Mountain Gold
Company..................... 72,500
4,400 Blessings Corporation......... 45,100
7,500 *CFC International, Inc....... 121,875
8,000 Calgon Carbon Corporation..... 108,000
14,000 *C. H. Heist Corp............. 94,500
9,100 Lilly Industries, Inc. Cl. A.. 154,700
41,500 *MK Gold Company.............. 62,250
12,100 *Mestek, Inc.................. 179,988
15,000 *Open Plan Systems, Inc....... 180,000
30,000 Oregon Steel Mills, Inc....... 412,500
1,000 Oshkosh Truck Corporation Cl.
B........................... 14,125
4,000 Peerless Mfg. Co.............. 43,000
10,000 *Pegasus Gold Inc............. 122,500
400 *Perini Corporation........... 4,800
10,000 *Royal Oaks Mines Inc......... 36,875
2,000 *Steel of West Virginia,
Inc......................... 18,000
26,400 *Todd Shipyards Corporation... 198,000
7,600 *UNC, Inc..................... 63,650
4,000 *Webco Industries, Inc........ 24,000
-----------
2,136,820
-----------
RETAIL - 6.9%
4,000 J. Baker, Inc................. 30,000
7,800 *CATHERINES STORES
CORPORATION................. 77,025
20,000 Cato Corporation Cl. A........ 120,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<PAGE>
ROYCE LOW-PRICED STOCK FUND
SCHEDULE OF INVESTMENTS AT JUNE 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
RETAIL (continued)
8,500 *Designs, Inc................. $ 51,000
15,000 *The Dress Barn, Inc.......... 157,500
800 Frederick's of Hollywood, Inc.
Cl. A....................... 4,000
20,000 *Hanover Direct, Inc.......... 27,500
22,000 *InterTAN Inc................. 126,500
20,000 *Mikasa, Inc.................. 220,000
5,000 *One Price Clothing Stores,
Inc......................... 27,500
22,000 *Suzy Shier Ltd............... 120,019
-----------
961,044
-----------
SERVICES - 16.5%
5,000 Air Transportation Holding
Company, Inc................ 21,875
11,500 *Allwaste, Inc................ 53,187
5,000 *American Waste Services, Inc.
Cl. A....................... 16,250
15,500 Arnold Industries, Inc........ 220,875
5,000 *Bertucci's, Inc.............. 26,875
40,000 *Buffets, Inc................. 490,000
10,000 Dames & Moore................. 121,250
3,800 Ecology and Environment, Inc.
Cl. A....................... 31,350
10,000 Ennis Business Forms,
Inc......................... 113,750
5,000 Jackpot Enterprises, Inc...... 63,750
12,300 *MovieFone, Inc. Cl. A........ 52,275
6,600 PCA International, Inc........ 110,550
2,247 Richardson Electronics,
Ltd......................... 22,470
17,000 *Rollins Environmental
Services, Inc............... 65,875
8,000 *Rush Enterprises, Inc........ 99,000
13,000 Rykoff-Sexton, Inc............ 186,875
15,800 *Shoney's, Inc................ 171,825
5,300 Sotheby's Holdings, Inc. Cl.
A........................... 76,850
<CAPTION>
Shares Value
<C> <S> <C>
6,000 *TBC Corporation.............. $ 51,750
82,700 *TPI Enterprises, Inc......... 297,203
-----------
2,293,835
-----------
TECHNOLOGY - 10.3%
39,900 *American Software, Inc. Cl.
A........................... 184,538
21,500 *Electroglas, Inc............. 306,375
10,000 *ILC Technology, Inc.......... 116,250
10,000 Kentech Information Systems,
Inc......................... 106,250
19,500 MacNeal-Schwendler
Corporation................. 146,250
10,000 Newport Corporation........... 98,750
4,500 Numerex Corp. Cl. A........... 24,187
20,000 *PCD Inc...................... 265,000
1,000 Scitex Corporation Limited.... 17,250
11,000 *Technical Communications
Corporation................. 174,625
-----------
1,439,475
-----------
MISCELLANEOUS - 4.6% 637,566
-----------
Total Common Stocks
(Cost $10,963,212).......... 11,175,446
-----------
REPURCHASE AGREEMENT - 20.8%
State Street Bank and Trust
Company, 4.90% due 7/01/96,
collateralized by U.S. Treasury
Notes, 5.25% due 12/31/97, valued at
$2,961,122
(Cost $2,900,000)..................... 2,900,000
-----------
TOTAL INVESTMENTS - 101.0%
(COST $13,863,212).................... 14,075,446
LIABILITIES LESS CASH AND
OTHER ASSETS - (1.0%)................. (142,645)
-----------
NET ASSETS - 100.0%..................... $13,932,801
-----------
-----------
</TABLE>
* Non-income producing.
`D' American Depository Receipt.
INCOME TAX INFORMATION - The cost of total investments for federal income tax
purposes was $13,883,270. At June 30, 1996, net unrealized appreciation for all
securities amounted to $192,176, consisting of aggregate gross unrealized
appreciation of $748,198 and aggregate gross unrealized depreciation of
$556,022.
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<PAGE>
ROYCE LOW-PRICED STOCK FUND
STATEMENT OF ASSETS AND LIABILITIES AT JUNE 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments at value (identified cost $10,963,212)................................................ $11,175,446
Repurchase agreement.............................................................................. 2,900,000
Cash.............................................................................................. 63,077
Receivable for investments sold................................................................... 379,896
Receivable for shares of beneficial interest sold................................................. 17,963
Receivable for dividends and interest............................................................. 6,037
Prepaid expenses and other assets................................................................. 7,747
-----------
TOTAL ASSETS.................................................................................... 14,550,166
-----------
LIABILITIES:
Payable for investments purchased................................................................. 579,761
Payable for shares of beneficial interest redeemed................................................ 5,000
Payable for investment advisory fees.............................................................. 16,431
Accrued expenses.................................................................................. 16,173
-----------
TOTAL LIABILITIES............................................................................... 617,365
-----------
NET ASSETS...................................................................................... $13,932,801
-----------
-----------
ANALYSIS OF NET ASSETS:
Net investment loss............................................................................... $ (19,185)
Accumulated net realized gain on investments...................................................... 1,247,958
Net unrealized appreciation on investments........................................................ 212,234
Shares of beneficial interest..................................................................... 2,038
Additional paid-in capital........................................................................ 12,489,756
-----------
NET ASSETS...................................................................................... $13,932,801
-----------
-----------
PRICING OF SHARES:
Net asset value, offering and redemption price per share
($13,932,801[div]2,038,449 shares outstanding).................................................. $6.84
-----------
-----------
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months ended Year ended
June 30, 1996 December 31,
(unaudited) 1995
---------------- ------------
<S> <C> <C>
INVESTMENT OPERATIONS:
Net investment loss............................................................. $ (19,185) $ (27,929)
Net realized gain on investments................................................ 1,104,468 529,308
Net change in unrealized appreciation on investments............................ 190,434 (32,889)
---------------- ------------
Net increase in net assets resulting from investment operations............... 1,275,717 468,490
DIVIDENDS AND DISTRIBUTIONS:
Net realized gain on investments................................................ -- (356,922)
CAPITAL SHARE TRANSACTIONS:
Net increase in net assets from capital share transactions...................... 8,442,031 2,223,635
---------------- ------------
NET INCREASE IN NET ASSETS........................................................ 9,717,748 2,335,203
NET ASSETS:
Beginning of period............................................................. 4,215,053 1,879,850
---------------- ------------
End of period................................................................... $ 13,932,801 $4,215,053
---------------- ------------
---------------- ------------
</TABLE>
The accompaning notes are an integral part of the financial statements.
12
<PAGE>
<PAGE>
ROYCE LOW-PRICED STOCK FUND
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends........................................................................................ $ 26,395
Interest......................................................................................... 34,189
----------
Total Income................................................................................. 60,584
----------
Expenses:
Investment advisory fees......................................................................... 62,986
Custodian and transfer agent fees................................................................ 11,896
Distribution fees................................................................................ 10,554
Professional fees................................................................................ 2,799
Administrative and office facilities expenses.................................................... 2,278
Trustees' fees................................................................................... 388
Other expenses................................................................................... 20,644
----------
Total Expenses............................................................................... 111,545
----------
Fees waived by investment adviser and distibutor............................................. (31,776)
----------
Net Expenses................................................................................. 79,769
----------
Net Investment Loss...................................................................... (19,185)
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments..................................................................... 1,104,468
Net change in unrealized appreciation on investments................................................. 190,434
----------
Net realized and unrealized gain on investments.................................................. 1,294,902
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................................. $1,275,717
----------
----------
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
This table is presented to show selected data for a share outstanding
throughout each period, and to assist shareholders in evaluating the Fund's
performance for the periods presented.
<TABLE>
<CAPTION>
Six Months Years ended Period
ended December 31, December 15, 1993
June 30, 1996 ------------------ through
(unaudited) 1995 1994 December 31, 1993
------------- ----- ----- -----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............... $5.62 $5.07 $5.01 $5.00
------ ----- ----- ------
INVESTMENT OPERATIONS:
Net investment loss............................ -- -- (0.03) --
Net realized and unrealized gain on
investments.................................. 1.22 1.14 0.18 0.01
------ ----- ----- ------
Total from investment operations........... 1.22 1.14 0.15 0.01
------ ----- ----- ------
DIVIDENDS AND DISTRIBUTIONS:
Net realized gain on investments............... -- (0.59) (0.09) --
------ ----- ----- ------
NET ASSET VALUE, END OF PERIOD..................... $6.84 $5.62 $5.07 $5.01
------ ----- ----- ------
------ ----- ----- ------
TOTAL RETURN....................................... 21.7% 22.5% 3.0% 0.2%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period.......................... $13,932,801 $4,215,053 $1,879,850 $452,137
Ratio of Expenses to Average Net Assets (a)........ 1.89%* 1.97% 1.89% 0.29%*
Ratio of Net Investment Loss to Average Net
Assets........................................... (0.45)%* (1.11)% (1.11)% (0.29)%*
Portfolio Turnover Rate............................ 72% 114% 95% 0%
Average Commission Rate Paid`D'.................... $0.0452 -- -- --
</TABLE>
- ------------
(a) Expenses are shown after fee waivers by the investment adviser and
distributor. For the period ended June 30, 1996 and for the periods ended
December 31, 1995, 1994 and 1993, the expense ratios before fee waivers
would have been 2.64%, 3.47%, 3.63%, and 2.04%, respectively.
* Annualized.
`D' For fiscal years beginning on or after October 1, 1995, the Fund is
required to disclose its average commission rate paid per share for
purchases and sales of investments.
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
<PAGE>
ROYCE LOW-PRICED STOCK FUND
NOTES TO FINANCIAL STATEMENTS (unaudited)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Royce Low-Priced Stock Fund (the 'Fund') is a series of The Royce Fund (the
'Trust'), a diversified open-end management investment company. The Trust,
originally established as a business trust under the laws of Massachusetts,
coverted to a Delaware business trust at the close of business on June 28, 1996.
The Fund commenced operations on December 15, 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.
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. 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'.
d. Distributions:
Any dividend and capital gain distributions are recorded on the ex-dividend
date and paid annually in December. These distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. Permanent book and tax basis differences relating to
shareholder distributions will result in reclassification to paid-in capital and
may affect net investment income per share. Undistributed net investment income
may include temporary book and tax basis differences which will reverse in a
subsequent period. Any taxable income or gain remaining at fiscal year end is
distributed in the following year.
14
<PAGE>
<PAGE>
ROYCE LOW-PRICED STOCK FUND
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
- --------------------------------------------------------------------------------
e. Repurchase agreements:
The Fund enters into repurchase agreements with respect to its portfolio
securities solely with State Street Bank and Trust Company ('SSB&T'), the
custodian of its assets. The Fund restricts repurchase agreements to maturities
of no more than seven days. Securities pledged as collateral for repurchase
agreements are held by SSB&T until maturity of the repurchase agreements.
Repurchase agreements could involve certain risks in the event of default or
insolvency of SSB&T, including possible delays or restrictions upon the ability
of the Fund to dispose of the underlying securities.
f. Organizational expenses:
Costs incurred by the Fund in connection with its organization have been
deferred and are being amortized on a straight line basis over a five-year
period from the date of commencement of operations.
2. INVESTMENT ADVISER AND DISTRIBUTOR:
Under the Trust's investment advisory agreement with Quest Advisory Corp.
('Quest'), the Fund accrued and paid Quest fees totalling $41,764 (net of
$21,222 voluntarily waived by Quest) for the six months ended June 30, 1996. The
agreement provides for fees equal to 1.50% per annum of the Fund's average net
assets. Such fees are computed daily and are payable monthly to Quest.
Quest Distributors, Inc. ('QDI'), the distributor of the Fund's shares, is
an affiliate of Quest. QDI voluntarily waived the Fund's distribution fee of
$10,554 for the six months ended June 30, 1996. The distribution agreement
provides for maximum fees of .25% per annum of the Fund's average net assets.
3. FUND SHARES:
The Board of Trustees has authority to issue an unlimited number of shares
of beneficial interest of the Fund, with a par value of $.001. Share
transactions were as follows:
<TABLE>
<CAPTION>
Six Months ended
June 30, 1996 Year ended
(unaudited) December 31, 1995
----------------------- ---------------------
Shares Amount Shares Amount
--------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Sold..................................................... 1,383,686 $9,057,312 350,288 $2,067,601
Issued as reinvested dividends and distributions......... -- -- 60,362 338,028
Redeemed................................................. (95,286) (615,281) (31,052) (181,994)
</TABLE>
Shares redeemed within one year of purchase are subject to a 1% redemption
fee, payable to the Fund, which is used to offset costs associated with the
redemption.
4. PURCHASES AND SALES OF INVESTMENT SECURITIES:
For the six months ended June 30, 1996, the cost of purchases and the
proceeds from sales of investment securities, other than short-term securities,
amounted to $11,844,110 and $6,071,842, respectively.
15
<PAGE>
<PAGE>
POSTSCRIPT: NEW ERA DEFINITIONS
A by-product of any new era is a change in its language. The use of new
words and definitions typically signifies the emergence of a new culture. For
example, the acceptance of popular slang words 'cool' and 'hip' in the '60s
ushered in an era known as 'pop culture.'
The protracted bull market of the last five years has many believing that
we have entered into a new age of investing. Just as 'bad' came to mean 'good'
in the slang of the '70s, Steve Leuthold, stock market researcher and money
manager, with further corroboration from USA Today 'Money Talk' columnist,
Daniel Kadlec, has suggested, with tongue firmly in cheek, that the following
'new definitions for a new era' have replaced those established by Mr. Webster:
BEAR MARKET: When stocks decline for a week.
MAJOR CORRECTION: When stocks decline for a day.
OLD-TIMER: A person who knows someone who lost money in the stock market.
CYNIC: Anyone reminding you stocks can go down.
CONSERVATIVE: Anyone without a margin account.
RISK: How much you can lose being out of the market.
INFLATION: Historical phenomena that used to adversely affect stocks.
CONTRARIAN: Someone with nothing to talk about at parties.
IPO: Instant profit opportunity.
SHORT SALE: Temporary condition associated with memory failure.
GRAHAM & DODD: Ancient philosophers who believed the book value of a
company was too much to pay. It's widely assumed they also believed the world
was flat.
MUTUAL FUND: A pool of money guaranteed to grow because it has lots of
contributors, and you just know that many people can't be wrong.
As conservative cynics, we can only hope that when the current market is no
longer 'hip,' it will not find too many people feeling 'bad,' as it was
originally defined.
------------------------------------------------------
THE ROYCE FUNDS
General Information and Telephone Purchases ......... 1 (800) 221-4268
Shareholder Account Services ........................ 1 (800) 841-1180
Investment Advisor Services ......................... 1 (800) 33-ROYCE
The Royce Funds InfoLine ............................ 1 (800) 78-ROYCE
E-mail Address ................................ [email protected]
Internet Homepage .......................... http://www.roycefunds.com
1414 Avenue of the Americas, New York, New York 10019
This report must be accompanied by or preceded by a current prospectus of the
Fund.
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as `D'
The division sign shall be expressed as [div]
GRAPHIC APPENDIX
On page 2 of the paper format Royce Low-Priced Stock Fund report:
Picture of firecracker exploding
On page 4 of the paper format Royce Low-Priced Stock Fund report:
A picture of a Prospectus cover of Berkshire Hathaway Inc.
On page 5 of the paper format Royce Low-Priced Stock Fund report:
A picture of a scale balancing a dollar sign and a factory.
On page 6 of the paper format Royce Low-Priced Stock Fund report:
A bar graph of the Russell 2000 price variations from 1979 to 1996.
A picture of a ticker tape machine.
