1999 Semi-Annual Report
---------------------------------------------
Value Investing In Small Companies
For More Than 25 Years
THE
ROYCE
FUNDS
---------------------------------------------
ROYCE PREMIER FUND
ROYCE MICRO-CAP FUND
PENNSYLVANIA MUTUAL FUND
ROYCE SELECT FUND
ROYCE TRUST & GIFTSHARES FUND
ROYCE TOTAL RETURN FUND
ROYCE LOW-PRICED STOCK FUND
ROYCE OPPORTUNITY FUND
www.roycefunds.com
<PAGE>
THE ROYCE FUNDS ROAD MAP
- --------------------------------------------------------------------------------
TWO DISTINCT MARKETS
For more than 25 years, Royce & Associates has utilized a disciplined value
approach to select small-cap companies. We believe that the small-cap universe
is comprised of two distinct markets, small- and micro-cap, and that each
requires a distinct investment strategy.
MICRO-CAP
The micro-cap segment (companies with market caps less than $300 million)
provides more choices (more than 6,200 companies), yet significant trading
difficulties, limited trading volumes and high volatility. Therefore, we broadly
diversify most of the Funds' portfolios investing in this segment by holding
relatively smaller positions in most securities.
SMALL-CAP
The upper tier of the small-cap universe (companies with market caps between
$300 million and $1.5 billion) is more efficient, with greater trading volumes
and narrower bid/ask spreads. Therefore, we use a more concentrated approach in
this tier, holding larger positions in a relatively limited number of
securities.
<TABLE>
<CAPTION>
---------------------------------------------------------------------
PORTFOLIO APPROACH
---------------------------------------------------------------------
<S> <C> <C>
Concentrated Broadly Diversified
- ---------------------------------------------------------------------------------------------
Small-Cap Companies Royce Premier Fund
- -----------------------------------------------------------------------------------------------
Small- and Micro-Cap Royce Trust & GiftShares Fund Pennsylvania Mutual Fund
Companies Royce Select Fund Royce Total Return Fund
Royce Low-Priced Stock Fund
Royce Opportunity Fund
- -----------------------------------------------------------------------------------------------
Micro-Cap Companies Royce Micro-Cap Fund
</TABLE>
CONCENTRATED FUNDS
Royce Premier Fund - a portfolio whose top 35 holdings, selected almost
exclusively from the upper tier of small-cap, represent approximately 80% of the
portfolio's equities.
Royce Trust & GiftShares Fund (formerly named Royce GiftShares Fund) - a small-
and micro-cap portfolio for gifting and estate-planning that allows a donor to
combine the advantages of a trust with the benefits of a mutual fund.
Royce Select Fund - a small- and micro-cap portfolio that incorporates an
all-inclusive performance management fee.
BROADLY DIVERSIFIED FUNDS
Royce Micro-Cap Fund - a portfolio that selects companies with market
capitalizations below $300 million that meet its pricing and valuation
parameters.
Pennsylvania Mutual Fund - our flagship fund managed by Chuck Royce since 1973
that invests in small- and micro-cap companies.
Royce Total Return Fund - a small- and micro-cap portfolio that invests in
dividend-paying companies.
Royce Low-Priced Stock Fund - a portfolio that invests primarily in small- and
micro-cap companies trading at less than $15 per share at the time of purchase.
Royce Opportunity Fund (formerly named PMF II) a small- and micro-cap portfolio
incorporating an opportunistic value approach, managed by Buzz Zaino.
<PAGE>
THE ROYCE FUNDS
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT REFERENCE GUIDE
[graphic: looking through magnifying glass at The Royce Funds listing in
newspaper]
For more than 25 years, our approach has focused on evaluating a company's
current worth -- what we believe a business would sell for in a private
transaction between rational and well-informed parties. This requires a thorough
analysis of the financial and operating dynamics of a business, as though we
were purchasing the entire company. The price we pay for a security must be
substantially lower than our appraisal of its current worth.
<TABLE>
<S> <C>
Letter to Our Shareholders: Reversal of Fortune...
Why Small Caps, Why Now 2
- --------------------------------------------------------------------------------
A Recounting of an Idea 10
- --------------------------------------------------------------------------------
Fund Focus: Concentration -- Less Is More 12
- --------------------------------------------------------------------------------
Performance Highlights 13
- --------------------------------------------------------------------------------
Performance and Portfolio Review:
Royce Premier Fund, Royce Micro-Cap Fund,
Pennsylvania Mutual Fund, Royce Select Fund,
Royce Trust & GiftShares Fund,
Royce Total Return Fund, Royce Low-Priced Stock Fund,
Royce Opportunity Fund 14
- --------------------------------------------------------------------------------
Updates and Notes: What's New on Our Website
(www.roycefunds.com) and a Y2K Update 30
- --------------------------------------------------------------------------------
Schedules of Investments and Other
Financial Statements 31
- --------------------------------------------------------------------------------
Postscript: Funny Business Inside Back Cover
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS Through June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2ND QUARTER YEAR-TO-DATE FROM INCEPTION
FUND 1999** 1999** 1-YEAR 3-YEAR 5-YEAR INCEPTION DATE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Royce Premier Fund 21.0% 7.0% 5.3% 14.1% 14.3% 14.0% 12/31/91
- -------------------------------------------------------------------------------------------------------------------------
Royce Micro-Cap Fund* 22.6 2.8 -6.6 8.8 12.2 14.9 12/31/91
- -------------------------------------------------------------------------------------------------------------------------
Pennsylvania Mutual Fund* 19.5 5.2 0.7 13.5 13.5 15.9 6/30/73
- -------------------------------------------------------------------------------------------------------------------------
Royce Select Fund 27.7 22.4 n/a n/a n/a 32.0** 11/18/98
- -------------------------------------------------------------------------------------------------------------------------
Royce Trust & GiftShares Fund* 33.7 16.5 23.0 24.3 n/a 25.3 12/27/95
- -------------------------------------------------------------------------------------------------------------------------
Royce Total Return Fund 12.3 1.9 -0.5 13.2 17.3 15.4 12/15/93
- -------------------------------------------------------------------------------------------------------------------------
Royce Low-Priced Stock Fund 26.6 14.4 1.6 12.2 17.6 15.0 12/15/93
- -------------------------------------------------------------------------------------------------------------------------
Royce Opportunity Fund 31.2 15.3 12.4 n/a n/a 17.9 11/19/96
- -------------------------------------------------------------------------------------------------------------------------
Russell 2000 15.6 9.3 1.5 11.2 15.4
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Pennsylvania Mutual Fund's 10-year average annual total return for the period
ended 6/30/99 was 11.0%.
*Investment Class
**Not annualized
<PAGE>
[photo: Charles M. Royce]
[caption]
Charles M. Royce, President
[sidebar]
The second-quarter rally represents a remarkable comeback. It really began in
late March, and I think it's an extension of what happened following the low on
October 8, 1998. In fact, the Russell 2000 was up 48.9% from October 8 through
June 30, while the S&P 500 was up 44.4% over the same period. I think many
people aren't aware of this recent period of small-cap outperformance -- their
attention is focused on year-to-date results.
[end sidebar]
LETTER TO OUR SHAREHOLDERS
- --------------------------------------------------------------------------------
[cartoon graphic: Dual scene: Scene 1--Depressed people hiding under a table,
first quarter fund chart showing downward trend. Scene 2--Ecstatic people
dancing on the table with results of second quarter.]
Hank Blaustein 1999
REVERSAL OF FORTUNE
What an interesting six months! At the end of 1999's first quarter, the best
thing investors could say about the small-cap sector was that it was analogous
to one's brother-in-law -- a question mark backed by hope. But after a poor
start in both an absolute and relative sense, small-cap securities reversed
their fortunes
[bar chart]
- --------------------------------------------------------------------------------
AFTER WEAK 1ST QUARTER, SMALL-CAPS SOAR IN
2ND QUARTER, INTERNET STOCKS SINK, LARGE-CAPS SIMMER
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Russell S&P Nasdaq DJ Internet
2000 500 Composite Commerce
---- --- --------- --------
<S> <C> <C> <C> <C>
1st Quarter -5.4% 5.0% 12.3% 55.9%
2nd Quarter 15.6% 7.1% 9.1% -2.1%
</TABLE>
[end bar chart]
2 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
in the second quarter by outperforming their large-company counterparts for the
first time since the third quarter of 1997. Perhaps the attitudes of those who
thought portfolio diversification wasn't necessary were reversed as well.
Although small-caps did not quite catch large-caps on a year-to-date performance
basis through June 30, 1999, the second quarter was as impressive for small-caps
as the first quarter was dismal.
As exciting as small-cap performance was in 1999's second quarter, it was
the rise and fall of Internet stocks during the first six months that grabbed
headlines and held investor attention. With the Dow Jones Internet Commerce
Index up 55.9% in the first quarter alone, a return most investors would be
happy with over three years, there were plenty of Internet stock market gains
despite few real profits. Internet mania knew no bounds, impacting both large-
and small-cap indices -- most notably, the Nasdaq Composite and the small-cap
Russell 2000. The 53 Internet stocks in the Russell 2000 were up 54% on average
in the first quarter; without these companies, the index, which was down 5.4%,
would have been about 3% lower (Source: Frank Russell Co.). Although the
Internet sector was still up significantly year-to-date through June 30, 1999,
it was only after the second-quarter downturn (DJ Internet Commerce index was
off 22.7% from its high on 4/13/99 through 6/30/99) that the Monopoly-money
mentality began to subside. Like high school hoops hopefuls bypassing college
and going directly to the NBA, many Internet companies at the close of their
first day of trading skipped small-cap status and went directly to large-cap
standing. One has to wonder about the long-term prospects for many of these
companies.
[pull quote]
After a poor start in both an absolute and relative sense, small-cap securities
reversed their fortunes in the second quarter by outperforming their
large-company counterparts for the first time since the third quarter of 1997.
Perhaps the attitudes of those who thought portfolio diversification wasn't
necessary were reversed as well.
[end pull quote]
[pull quote]
Like high school hoops hopefuls bypassing college and going directly to the NBA,
many Internet companies at the close of their first day of trading skipped
small-cap status and went directly to large-cap standing. One has to wonder
about the long-term prospects for many of these companies.
[end pull quote]
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 3
<PAGE>
[sidebar]
It seems to be a commonly held belief that large-cap stocks in general are
currently overvalued and that small-caps in general are relatively undervalued,
but I think that many large-caps are so overpriced that small-caps can't help
but look attractive. The real issue for us is finding stocks whose absolute
values are attractive to us -- stocks that are trading at a discount to their
own value as a business, not at a discount to another company in another
business in a different asset class.
[end sidebar]
- --------------------------------------------------------------------------------
REPORTS OF VALUE'S DEATH
Whoever said rules are made to be broken had the first quarter in mind as it
pertained to the relative performance of growth and value approaches inside
small-cap. The traditional beacon during difficult times -- value investing --
was no help at all during the first quarter (more to the point, our Funds also
performed poorly). The Russell 2000 Value index lost 9.7% versus a loss of 1.7%
for the Russell 2000 Growth index, its worst relative comparison since the
fourth quarter of 1979. It was also only the fourth time in the index's 20-year
history (4Q'79, 4Q'89 and 4Q'94) that the small-cap value index underperformed
the small-cap growth index during a down quarter. Fortunately, reports of the
demise of value investing were premature. In the second quarter, the Russell
2000 Value index rebounded sharply, up 16.6% versus 14.8% for the Russell 2000
Growth index. Although value still trails growth year-to-date through June 30,
1999, over a longer and perhaps more meaningful period, i.e., since the May 22,
1996 small-cap peak, value has significantly outperformed growth (+42.8% versus
+18.7%).
[pull quote]
The traditional beacon during difficult times -- value investing -- was no help
at all during the first quarter. It was only the fourth time in the Russell
2000's 20-year history that the small-cap value index underperformed the
small-cap growth index during a down quarter.
[end pull quote]
[sidebar]
When he stopped by our offices this summer (the only time it's easy to get a
good table at a great restaurant in New York), the intrepid advisor asked us
questions about our investment approach and the number of funds that we manage.
Chuck Royce sat down with him to share his insights regarding these topics.
Since Royce focuses on small-company value investing, why offer so many funds
that appear to do the same thing?
Let's not forget that small-cap is not only the largest -- with more than 8,000
names -- but also the most diverse sector of the domestic equity universe. As
our Road Map on the inside cover shows, even with a very focused approach like
ours, this diversity allows us to offer Funds whose portfolio selections and
potential performance patterns may differ substantially. For example, we offer a
Fund that focuses primarily on the upper end of the small-cap market, Royce
Premier Fund, and one that invests in the lower end, Royce Micro-Cap Fund. While
you may not expect differences in performance, history shows that significant
variances have occurred between the small- and micro-cap sectors and among our
Funds as well.
[end sidebar]
4 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
- --------------------------------------------------------------------------------
WHO WOULD HAVE THOUGHT?
Our approach in the past regarding our performance discussion has been simple
and direct, cartoons aside -- temper our enthusiasm when things go well and keep
our chins up when they do not. In 1999, we have had opportunities to do both.
Our performance through June 30, 1999 was influenced by our asset class, our
investment style and our portfolio positions. Our first-quarter travails (each
of the Royce Funds in this report were underwater and underperformed the Russell
2000) were matched by our second-quarter triumphs (each provided 12%+ quarterly
returns, and all but one outperformed the Russell 2000).
Especially noteworthy second quarter and year-to-date performances were
turned in by Royce Trust & GiftShares Fund, our gifting and estate-planning
portfolio; Royce Opportunity Fund, an opportunistic value fund managed by Buzz
Zaino; and Royce Select Fund, our newest offering that incorporates an
all-inclusive performance management fee. In addition, most of our Funds enjoyed
a performance advantage over their benchmark for the three-year period ended
June 30, 1999. For a complete review and discussion of individual fund results
and risk profiles, see pages 14 -- 29.
[pull quote]
Who would have thought that most of our Funds would outperform in the dynamic
second quarter and underperform during the difficult first quarter? We certainly
didn't.
[end pull quote]
[line chart]
MICRO-CAP VS. SMALL-CAP PERFORMANCE COMPARISON
3-YEAR TRAILING PERFORMANCE DIFFERENTIAL
Data: Date Return Spread
Dec-28 2.51%
Mar-29 1.05%
Jun-29 -1.16%
Sep-29 -4.10%
Dec-29 -1.99%
Mar-30 1.87%
Jun-30 -0.59%
Sep-30 -3.03%
Dec-30 -5.21%
Mar-31 -2.69%
Jun-31 -5.82%
Sep-31 -5.14%
Dec-31 -5.50%
Mar-32 -4.20%
Jun-32 -2.31%
Sep-32 1.58%
Dec-32 0.18%
Mar-33 -1.59%
Jun-33 9.45%
Sep-33 11.15%
Dec-33 13.50%
Mar-34 14.77%
Jun-34 14.38%
Sep-34 15.00%
Dec-34 19.92%
Mar-35 13.25%
Jun-35 13.90%
Sep-35 8.33%
Dec-35 19.53%
Mar-36 28.36%
Jun-36 2.82%
Sep-36 7.19%
Dec-36 14.21%
Mar-37 10.66%
Jun-37 8.91%
Sep-37 8.73%
Dec-37 6.43%
Mar-38 5.27%
Jun-38 9.43%
Sep-38 5.95%
Dec-38 0.21%
Mar-39 -4.54%
Jun-39 -4.80%
Sep-39 -0.17%
Dec-39 -6.74%
Mar-40 -8.82%
Jun-40 -7.66%
Sep-40 -8.06%
Dec-40 -8.08%
Mar-41 -5.17%
Jun-41 -6.83%
Sep-41 -4.04%
Dec-41 -4.45%
Mar-42 -0.53%
Jun-42 1.93%
Sep-42 -2.74%
Dec-42 2.25%
Mar-43 11.28%
Jun-43 17.58%
Sep-43 17.40%
Dec-43 15.85%
Mar-44 18.01%
Jun-44 21.74%
Sep-44 17.72%
Dec-44 26.95%
Mar-45 20.17%
Jun-45 24.84%
Sep-45 21.63%
Dec-45 25.34%
Mar-46 11.37%
Jun-46 9.75%
Sep-46 7.38%
Dec-46 9.07%
Mar-47 7.34%
Jun-47 3.43%
Sep-47 4.71%
Dec-47 3.43%
Mar-48 4.64%
Jun-48 3.36%
Sep-48 2.10%
Dec-48 -1.10%
Mar-49 -0.85%
Jun-49 -1.99%
Sep-49 -1.08%
Dec-49 -0.63%
Mar-50 -0.37%
Jun-50 0.69%
Sep-50 0.92%
Dec-50 1.78%
Mar-51 -0.31%
Jun-51 -1.29%
Sep-51 -0.85%
Dec-51 0.40%
Mar-52 -1.51%
Jun-52 -0.53%
Sep-52 -0.19%
Dec-52 -0.97%
Mar-53 -1.13%
Jun-53 -0.94%
Sep-53 -1.99%
Dec-53 -4.06%
Mar-54 -2.46%
Jun-54 -2.89%
Sep-54 -1.46%
Dec-54 -0.51%
Mar-55 0.58%
Jun-55 0.51%
Sep-55 1.55%
Dec-55 1.05%
Mar-56 0.79%
Jun-56 0.50%
Sep-56 1.19%
Dec-56 1.28%
Mar-57 1.23%
Jun-57 2.46%
Sep-57 2.46%
Dec-57 0.57%
Mar-58 0.59%
Jun-58 1.80%
Sep-58 1.28%
Dec-58 2.36%
Mar-59 2.37%
Jun-59 2.51%
Sep-59 3.08%
Dec-59 3.58%
Mar-60 3.59%
Jun-60 1.89%
Sep-60 1.67%
Dec-60 1.57%
Mar-61 0.60%
Jun-61 -0.45%
Sep-61 -0.82%
Dec-61 -0.40%
Mar-62 0.58%
Jun-62 1.18%
Sep-62 0.92%
Dec-62 -0.39%
Mar-63 -0.94%
Jun-63 -0.40%
Sep-63 -1.36%
Dec-63 -1.74%
Mar-64 -1.00%
Jun-64 -2.20%
Sep-64 -0.97%
Dec-64 -1.09%
Mar-65 -1.88%
Jun-65 -2.85%
Sep-65 -4.34%
Dec-65 -0.68%
Mar-66 1.85%
Jun-66 1.82%
Sep-66 1.23%
Dec-66 1.24%
Mar-67 3.80%
Jun-67 7.49%
Sep-67 9.24%
Dec-67 10.23%
Mar-68 10.21%
Jun-68 14.98%
Sep-68 16.76%
Dec-68 15.44%
Mar-69 11.24%
Jun-69 10.64%
Sep-69 8.65%
Dec-69 8.85%
Mar-70 6.35%
Jun-70 2.20%
Sep-70 0.17%
Dec-70 -2.66%
Mar-71 -1.56%
Jun-71 -5.13%
Sep-71 -5.84%
Dec-71 -7.22%
Mar-72 -5.51%
Jun-72 -5.71%
Sep-72 -4.97%
Dec-72 -5.61%
Mar-73 -5.90%
Jun-73 -5.97%
Sep-73 -6.50%
Dec-73 -5.57%
Mar-74 -5.66%
Jun-74 -3.80%
Sep-74 -3.49%
Dec-74 -5.06%
Mar-75 -4.37%
Jun-75 -4.54%
Sep-75 -3.17%
Dec-75 -2.76%
Mar-76 -0.19%
Jun-76 -0.71%
Sep-76 -0.56%
Dec-76 1.37%
Mar-77 -0.19%
Jun-77 -1.22%
Sep-77 -0.23%
Dec-77 5.14%
Mar-78 3.18%
Jun-78 4.62%
Sep-78 6.12%
Dec-78 4.92%
Mar-79 1.73%
Jun-79 3.74%
Sep-79 3.71%
Dec-79 3.47%
Mar-80 2.77%
Jun-80 2.60%
Sep-80 3.90%
Dec-80 2.83%
Mar-81 1.53%
Jun-81 2.19%
Sep-81 0.30%
Dec-81 2.62%
Mar-82 2.78%
Jun-82 2.26%
Sep-82 1.46%
Dec-82 2.22%
Mar-83 3.15%
Jun-83 5.83%
Sep-83 3.55%
Dec-83 3.23%
Mar-84 1.77%
Jun-84 -1.38%
Sep-84 -1.98%
Dec-84 -3.79%
Mar-85 -4.32%
Jun-85 -5.32%
Sep-85 -3.24%
Dec-85 -4.93%
Mar-86 -5.80%
Jun-86 -7.21%
Sep-86 -7.36%
Dec-86 -7.98%
Mar-87 -9.05%
Jun-87 -7.35%
Sep-87 -6.76%
Dec-87 -6.02%
Mar-88 -6.15%
Jun-88 -5.93%
Sep-88 -5.94%
Dec-88 -5.43%
Mar-89 -5.45%
Jun-89 -6.13%
Sep-89 -6.80%
Dec-89 -7.17%
Mar-90 -6.70%
Jun-90 -7.28%
Sep-90 -6.13%
Dec-90 -8.23%
Mar-91 -7.24%
Jun-91 -6.37%
Sep-91 -7.19%
Dec-91 -7.53%
Mar-92 -3.51%
Jun-92 -3.40%
Sep-92 -2.98%
Dec-92 -1.00%
Mar-93 0.50%
Jun-93 0.44%
Sep-93 1.04%
Dec-93 4.85%
Mar-94 3.19%
Jun-94 3.19%
Sep-94 2.83%
Dec-94 3.06%
Mar-95 -0.12%
Jun-95 1.57%
Sep-95 3.28%
Dec-95 0.94%
Mar-96 0.30%
Jun-96 1.89%
Sep-96 1.20%
Dec-96 0.66%
Mar-97 0.61%
Jun-97 -2.13%
Sep-97 0.03%
Dec-97 0.40%
Mar-98 -1.04%
Jun-98 -2.42%
Sep-98 -4.19%
Dec-98 -3.42%
[end line chart]
*The above chart reflects the divergence of historical 3-year trailing average
annual total returns of micro-cap (CRSP 9-10 Composite) vs. small-cap (CRSP 6-8
Composite) stocks through 12/31/98. Each point on the line above zero indicates
a period of micro-cap outperformance, and those below zero indicate small-cap
outperformance for that trailing 3-year period.
[sidebar]
Do all of the Funds invest in either the small- or micro-cap sectors?
Not necessarily. While two of our Funds invest in either small- or micro-cap
stocks, our other Funds have the flexibility to invest in both segments. A
number of our Funds also have specific objectives that differentiate their
selections. For example, Royce Total Return Fund looks for companies that pay
dividends, while Royce Low-Priced Stock Fund focuses on companies whose stock
price is below $15 at the time of investment.
[end sidebar]
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 5
<PAGE>
[sidebar]
The full decades in which the CRSP 6-10 outperformed the S&P 500 -- the '30s,
'40s, '60s and '70s -- were average to low-return periods, while the decades in
which it trailed -- the '50s, '80s and '90s -- were high-return periods. We
think this is encouraging for small-cap investing today, as we believe that the
market as a whole has entered a lower-return period.
[end sidebar]
- --------------------------------------------------------------------------------
SAME AS IT EVER WAS
Performance snapshots can be misleading. As the name implies, a snapshot is
a picture that depicts performance at a single moment in time. It says nothing
about periods preceding or following the snapshot. The old adage, "Past
performance is no guarantee of future results," can be seen in the following:
<TABLE>
<CAPTION>
------------------------------ ------------------------------
PUT ALL MY MONEY IN SMALL-CAP? PUT ALL MY MONEY IN LARGE-CAP?
Average Annual Total Returns Average Annual Total Returns
------------------------------ ------------------------------
Periods Ended 9/30/95 Periods Ended 6/30/99
----------------------- -----------------------
Russell 2000 S&P 500 Russell 2000 S&P 500
<S> <C> <C> <C> <C> <C>
3-Year 19.0% 15.0% 3-Year 11.2% 29.1%
5-Year 21.7% 17.2% 5-Year 15.4% 27.9%
</TABLE>
While the period leading up to and including performance through 9/30/95
was a terrific time for small-cap investing, the period since has clearly
favored large-caps. Despite seemingly strong evidence in 1995 and again today,
investing based on a performance snapshot may be dangerous.
With all due respect to John Maynard Keynes's famous dictum, "The long run
is a misleading guide to current affairs because in the long run we are all
dead," we believe that the long run offers useful insight, especially when
examining shorter-term performance periods. We've recently completed an internal
analysis that has revealed some interesting points regarding long-term small-cap
performance. We examined small-cap returns (CRSP 6-10, Center for Research in
Security Prices) and S&P 500 returns from the '30s through the '90s and
discovered that the '90s are no different than any other decade. Small-cap has
had both a period of outperformance and a period of underperformance during each
10-year time horizon.
[sidebar]
Does it make sense to own more than one Royce Fund?
We think it could for some investors, partly because the small-cap world is so
diverse and partly because investors have different goals and levels of risk
tolerance. Someone may want a Fund such as Royce Total Return Fund or
Pennsylvania Mutual Fund, which have historically exhibited relatively lower
volatility, but also want some exposure to a Fund that's more aggressive, such
as Royce Low-Priced Stock Fund or Royce Opportunity Fund. For those interested
in college funding or estate-planning, we offer Royce Trust & GiftShares Fund.
We also recently developed a performance-fee based fund, Royce Select Fund, for
high net-worth investors.
If each Fund is different, why are you including all of them in the same
semi-annual report?
First, while each Fund focuses on a different aspect of small-cap investing, we
use a common value approach to security selection. Second, many shareholders own
more than one Royce Fund, and we want to make sure that everyone is aware of the
range of funds that we offer.
How did you develop your investment approach?
Our approach grew out of a fear of losing our shareholders' money, as well as
our own. When I became associated with Pennsylvania
[end sidebar]
6 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
What we also found was that small-caps outperformed large-caps for at least a
six-year period inside each decade, including the '90s. Many investors forget
that the early '90s were a very successful period for small-caps.
The full decades in which the CRSP 6-10 outperformed the S&P 500 -- the
'30s, '40s, '60s and '70s -- were average to low-return periods, while the
decades in which it trailed -- the '50s, '80s and '90s -- were high-return
periods. We think this is encouraging for small-cap investing today, because we
believe that the market as a whole has entered a lower-return period.
<TABLE>
<CAPTION>
- ----------------------------------------------- ----------------------
6-YEAR TOTAL RETURN
INTRA-DECADE SMALL-CAP OUTPERFORMANCE PERIODS RESULTS FOR SMALL-CAP
6-YEAR CUMULATIVE OUTPERFORMANCE BY DECADE OUTPERFORMANCE PERIODS
- ----------------------------------------------- ----------------------
<S> <C> <C> <C>
CRSP 6-10 S&P 500
'90-'99 9/30/90 - 9/30/96 223.9% 165.7%
'80-'89 3/1/80 - 3/31/86 281.6 211.1
'70-'79 12/31/73 - 12/31/79 261.9 46.5
'60-'69 12/31/62 - 12/31/68 315.7 99.0
'50-'59 9/30/53 - 9/30/59 222.5 205.6
'40-'49 6/30/40 - 6/30/46 517.1 158.3
'30-'39 12/31/30 - 12/31/36 243.1 59.7
</TABLE>
YEAR BY YEAR
Bar points indicate beginning and ending periods of 6-year small-cap
outperformance
- --------------------------------------------------------------------------------
CUMULATIVE RESULTS BY DECADE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1930's 1940's 1950's 1960's 1970's 1980's 1990's
<S> <C> <C> <C> <C> <C> <C> <C>
CRSP 6-10 47.7% 328.9% 438.3% 218.8% 150.1% 304.7% 244.7%
S&P 500 2.3 138.7 483.3 112.3 76.5 401.5 394.7
</TABLE>
[sidebar]
Mutual Fund -- first as a consultant and then in June 1973 as the manager -- I
focused, like a lot of investors, more on style than substance when selecting
securities. After a very difficult 1973 and 1974, I asked myself, "How can I try
to avoid losing money in the equity markets?" It was then that I developed the
approach that in essence the firm still uses today, one which looks for
attractive balance sheets, high internal rates of return and established records
of generating "free cash flow." Obviously an investor can lose money, but we
wanted to try to manage some of the risks of investing.
Was risk management as important a factor then as it is today?
Absolutely. Historically, small-company investors have had to deal with
higher-than-average levels of volatility. Conventional wisdom held that if you
wanted high returns from small-cap stocks, you had to take greater risks. We
believed, however, that our disciplined value approach could effectively reduce
risk without sacrificing long-term returns. This idea is as important today as
it was then. There are, of course, different methods of measuring whether we
have been successful in reducing volatility for the Funds. For example, standard
deviation is often used to
[end sidebar]
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 7
<PAGE>
[sidebar]
Notwithstanding the current small-cap rally, we are finding what we believe are
attractively priced companies. We did some internal research recently that
examined small-cap valuations on an earnings yield basis. The results indicate
to us that, adjusting for interest rates and allowing for the recent small-cap
rally, small-caps are still very attractively valued.
[end sidebar]
[cartoon graphic: Large parade of people carrying "Small Caps" banner]
Blaustein '99
WHY SMALL-CAPS, WHY NOW!
The last several years of small-cap underperformance have led many financial
commentators to suggest that the world has changed and that the small-cap sector
may not offer the return potential that it has in the past. We not only disagree
with this, but believe that recent performance is very typical of past
performance patterns, i.e., it has been cyclical and well within historical
norms.
- --------------------------------------------------------------------------------
SMALL-CAP AND LARGE-CAP OUTPERFORMANCE BY QUINTILE
ALL ROLLING 10-YEAR PERIODS FROM 1936 THROUGH 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Range of Total # of Total # of Percentage
Average Periods when Periods when of Periods
10-Year Returns Annual CRSP 6-10 S&P 500 CRSP 6-10
by Quintile Returns Outperformed Outperformed Outperformed
<S> <C> <C> <C> <C>
1st Quintile over 16.3% 10 41 20%
2nd Quintile 13.9 - 16.2 16 34 32
3rd Quintile 9.2 - 13.8 42 8 84
4th Quintile 6.4 - 9.1 45 6 88
5th Quintile (3.7) - 6.3 39 12 76
</TABLE>
[sidebar]
measure the extent of a fund's volatility. I am pleased that all but one of The
Royce Funds (Royce Trust & GiftShares Fund is the lone exception) with a
three-year history are in the best quintile (lowest deviation) of the 422
small-company objective funds tracked by Morningstar for standard deviation
measurements for the three-year period ended June 30, 1999.
What kind of changes have affected the small-cap market since you began to
manage Pennsylvania Mutual Fund?
When I began managing the Fund, small-caps were not recognized as a separate
asset class. Regardless of investment approach, all small-cap portfolios -- of
which there were few -- were categorized as "Aggressive Growth" by Lipper
Analytical Services. So the most significant change by far is the way that
small-cap has evolved into a professional asset class, with its own indices,
analysts and institutional coverage. A direct result of this has been an
increase in the number of small-cap funds and an extension of the effective
market cap ceiling from $500 million at the beginning of the '90s to $1.5
billion today.
[end sidebar]
8 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
[photo: Jack Fockler, Whitney George, Chuck Royce, Charlie Dreifus, Buzz Zaino]
(l-r) Jack Fockler, Whitney George, Chuck Royce, Charlie Dreifus, Buzz Zaino
The performance table on page eight confirms what our earlier studies had
shown -- large-caps have historically tended to outperform in high-return
periods, while small-caps have outperformed during average and low-return
periods.
As satisfying as the second quarter small-cap rally was, we are even more
encouraged by the performance of small-cap since the bottom last October. Not
only did the Russell 2000 outperform the S&P 500 from the October 8, 1998 bottom
through June 30, 1999 (+48.9% versus +44.4%), it did so during a period of
rising interest rates -- Treasury bond yields were up more than 26% during the
period! We think that in the current cycle, small-cap can keep leading the
parade.
As we enter what we believe will be a relatively low-return period for the
market -- possibly for an extended time -- our confidence in small-cap value
investing remains as high as ever.
We appreciate your continued support of our work.
Sincerely,
<TABLE>
<S> <C> <C>
[Signature Charles M. Royce] [Signature W. Whitney George] [Signature Jack E. Fockler, Jr.]
Charles M. Royce W. Whitney George Jack E. Fockler, Jr.
President Vice President Vice President
</TABLE>
August 6, 1999
PS We invite you to visit our Website at www.roycefunds.com for up-to-date
information on our Funds and our company. Your questions and comments are
always welcome.
[sidebar]
How has the firm responded to these changes?
We now view the small- and micro-cap sectors as distinct segments, a distinction
we first identified in the early '90s. We have developed investment approaches
that we believe are appropriate for each, namely concentration in the upper tier
and broader diversification in the lower tier.
What's next?
We're going to continue doing the same things we've done for the past 25 years
- -- look to invest in good companies that are substantially undervalued in the
market.
* Standard deviation measures the range of performance within which a fund's
monthly returns have fallen. The lower the standard deviation of the fund, the
less volatile and more consistent the fund's monthly returns have been over
the period. When the standard deviation of a fund is lower than that of its
benchmark, the fund has been less volatile. The standard deviation for the
Russell 2000 for the three-year period ended 6/30/99 was 20.70. Standard
deviation measurements are historical in nature and are not necessarily
predictive of future volatility.
[end sidebar]
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 9
<PAGE>
[sidebar]
The companies that we consider as investments for our Fund portfolios all have
stories behind them, with plots that often resemble the twists and turns of a
Victorian novel, featuring courageous heroes and virtuous heroines, unexpected
appearances from mysterious strangers, terrible secrets revealed at the worst
possible moment and (at least we always hope) a happy ending.
[end sidebar]
A RECOUNTING OF AN IDEA
- --------------------------------------------------------------------------------
Prologue
Although we try to provide a lot of information about our investment approach,
many investors want to know more about how we make specific investment
decisions. A good example of how our selection process is designed to work is
E.W. Blanch Holdings (NYSE: EWB). Primarily a reinsurance intermediary, the
company works with insurance companies to place unwanted risk with reinsurers
who can absorb that risk. In many ways, the business functions analogously to a
securities brokerage. Insurance and reinsurance are businesses that we believe
we know well, since our experience with them dates back many years.
Chapter One, In Which a Reinsurance Broker's IPO Attracts the Close Attention of
Everyone at the Firm Known as Royce.
E.W. Blanch enjoyed an excellent reputation as a reinsurance broker and was
known to us even before the company's initial public offering in May, 1993. Many
of its clients were companies whose stock we owned, which is how it initially
came to our attention. At the time, E.W. Blanch had a strong balance sheet and
solid prospects to grow as a business, two elements that must be present for us
to take a second look at any company. Soon after the company went public with a
successful IPO in 1993, we bought a small number of shares and began to watch
more closely, something we occasionally do when we're interested, but not yet
fully committed (think of it as dating).
Chapter Two, In Which the Need for Grace Under Pressure is Clearly Demonstrated
to All.
Although the CEO was (and remains) an energetic and talented recruiter and
marketer, we had concerns about how well the firm would make the transition from
private business to public company -- as we typically do when any primarily
entrepreneurial business becomes publicly traded. Any business that goes through
this process suddenly finds itself with a different set of very real partners.
These new partners, the stockholders, are seldom shy about asking in-depth
questions, offering suggestions or even complaining about the business on at
least a quarterly basis, when a company posts its latest financial results. Not
every business is prepared for this phenomenon. Even for a company that
eventually handles these matters with grace, the passage usually begins less
than smoothly as the company adjusts to this changing culture. And so it was at
Blanch.
Chapter Three, In Which Trouble Rears Its Loathsome Head, as Reinsurance
Premiums Decline, Institutional Attention Wanes and the Stock Price Languishes.
Although E.W. Blanch came on the market as a micro-cap security, there was
some institutional interest in the stock (which is not always the case with
micro-caps). In what was then a declining market for reinsurance premiums, the
firm told investors that it could grow at 20% per year, a target that proved to
be more optimistic than the company could consistently deliver on a quarterly
basis. From shortly after the offering through 1995, the stock languished as the
initial expectations were dashed, and institutional investors grew timid.
* Past performance is no guarantee of future results. As of June 30, 1999, E.W.
Blanch represented 2.7% of Royce Premier Fund's net assets, 1.0% of
Pennsylvania Mutual Fund's net assets and was not held by the other Royce
Funds in this report. There can be no assurance that this stock will be
included in any Royce-managed fund in the future.
10 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
Chapter Four, In Which a Period of Bumpy Growth for the Company Creates the
Seemingly Paradoxical Consequence of Additional Buying Opportunities for Royce.
Drawing encouragement from our ongoing conversations with Blanch's
management, its solid balance sheet and sterling business reputation, we saw an
opportunity. We continued to build our position in the stock from late 1993
through 1995 at prices ranging from $15-3/4 -- $22-3/8, prices that we estimated
to be approximately 10 times earnings. However, there were important issues that
tested our confidence. The company's overly optimistic short-term growth
expectations at the outset, inconsistent growth and some substantial insider
selling were all matters that made us re-examine our commitment. Yet we looked
at both past and potential growth with a long-term perspective and saw a company
that had been providing a 15% annualized growth rate, albeit in an admittedly
bumpy fashion. Although E.W. Blanch was still a distant third among reinsurance
brokers, we became increasingly convinced of its potential to close the gap. Our
confidence seemed to grow in direct proportion to the indifference of our peers.
When we describe the tendency of micro-cap stocks to fly beneath Wall Street's
radar, companies such as E.W. Blanch are what we have in mind.
Chapter Five, In Which the Company's Innovations Move the Stock Price and the
Business Forward, Causing All to Rejoice.
An important but costly acquisition in 1995 kept the company's stock
performance sluggish that year, but by 1996 its business profile began to turn
around, especially in light of its participation in two highly significant
innovations in their industry. It played an integral part in the formation of
the California Earthquake Authority, with a $3.5 billion reinsurance placement
in that state. It also developed a new plan to dramatically reduce an insurer's
risk exposure to hurricane damage in Florida. We had established our position
and remained patient, and by 1997, the stock price began to climb.
Chapter Six, In Which a Boutique Firm Evolves Into a Global Business Presence,
Potentially Ensuring a Happy Ending for All.
Today, the company is considered a major innovator in the reinsurance
business, often acting more as a consultant dealing with such issues as risk
management, than a broker. As of this writing, the stock is trading just below
$65 per share, and E.W. Blanch has delivered on its potential, evolving from a
small, boutique-style firm into a global business presence. During the years in
which stock performance was disappointing, we stayed in touch with both
management and clients, asking tough questions and thinking strategically along
with them to determine where the business was headed. Obviously, we liked what
we heard, but we also kept a close eye on the company's financial condition and
how well it was functioning as a business.
Epilogue, In Which the Company of Royce is Most Pleased.
Each time that we make a selection, our goal, not always attained, is to
choose a stock of E.W. Blanch's caliber, a company whose stock price will
eventually reflect its business strengths and potential. As pleased as we are
with the progress that the company has made, the payoff would not have
materialized if we hadn't shown patience and conviction.
[sidebar]
Our confidence seemed to grow in direct proportion to the indifference of our
peers. When we describe the tendency of micro-cap stocks to fly beneath Wall
Street's radar, companies such as E.W. Blanch are what we have in mind.
[end sidebar]
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 11
<PAGE>
FUND FOCUS
- --------------------------------------------------------------------------------
CONCENTRATION -- LESS IS MORE
The story of small-cap in the 1990s has been the story of more -- more
companies, more funds, more attention and more, i.e., higher, market caps. The
small stock market cap ceiling has extended from $500 million at the beginning
of the decade to the current level of $1.5 billion. This extension ensures that
the small-cap universe now includes companies with established corporate
cultures, not merely entrepreneurial enterprises. We would add that, as early as
1991, the increase in cap ceiling also created two distinct markets among
smaller companies -- small-cap at the upper end, with market caps now between
$300 million and $1.5 billion, and micro-cap at the lower end, with market caps
below $300 million. We believe that as a result of these changes, portfolio
concentration within small-cap is now a sensible strategy, enabling us to
potentially do more with less.
The rules for concentration vary in accordance with cap size. Concentration
works differently for small-caps than it does with larger stocks, where it has
been an established strategy for many years. While a concentrated large-cap
stock portfolio typically contains 20 - 25 securities, we think that a
corresponding small-cap portfolio can hold up to 50 positions. A concentrated
large-cap portfolio with 20 securities may represent 50 - 75 lines of business.
Conversely, the average small-cap company operates under a single line of
business, so 50 stocks generally translates into 50 businesses. Add to this the
disparity in each sector's number of securities: the large-cap world consists of
500 stocks, the small-cap world more than 8,000. While a portfolio of 20
securities represents 4% of the large-cap universe, 50 securities in a small-cap
portfolio represents less than 1%.
What, then, does it take to construct a concentrated small-cap portfolio?
The security selection process intensifies, for one thing. We must act more as
business analysts than as stock pickers, meaning that we develop deep knowledge
about the company as a business, not simply as a stock. Our concerns about what
a company does and how well they do it go beyond conversations with management
to those with customers, suppliers and occasionally even competitors. Critical
to this is our willingness to adopt a long-term perspective. Patience is a must
not only because we are dealing with a limited number of names, but also because
conviction must precede purchase. If this sounds familiar, it is because these
standards are consistent with the way that we have been managing money since
1973.
Does it work? One might expect a concentrated small-cap portfolio to
potentially provide higher long-term returns, but also be subject to greater
risk than a more diversified one. We wouldn't disagree, but the table below
shows that our approach to concentration has not necessarily led to higher
volatility.
We offer three funds with concentrated portfolios: Royce Premier Fund,
Royce Trust & GiftShares Fund and Royce Select Fund. Each generally limits its
portfolio to 50 or fewer stocks, and all seek to effectively manage risk without
sacrificing returns. Royce Premier Fund makes its selections exclusively in
small-cap's upper tier. Liquidity, institutional attention and research coverage
are all higher in this sector than in the small-cap universe as a whole, so
limiting our holdings is a suitable strategy for this open-end mutual fund. In
Royce Trust & GiftShares Fund, we cull selections from both the small- and
micro-cap sectors. The long-term nature of the Fund's account base leads to
limited capital outflows and allows us to concentrate in the small-cap universe
as a whole. Similarly, in Royce Select Fund, our offering for high net-worth
individuals that focuses on both small- and micro-cap companies, the 2%
redemption fee gives us more freedom to use a concentrated approach.
We are pleased with the results of our concentrated portfolios so far, and
firmly believe that concentration is an effective small-cap strategy.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/99 3-YEAR VOLATILITY SCORES
AS OF 6/30/99
- -----------------------------------------------------------------------------------------------------
Since Standard Morningstar
Y-T-D 1-Year 3-Year Inception* Beta Deviation Risk Ratio
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Royce Premier 7.0% 5.3% 14.1% 14.0% 0.64 17.38 0.88
Fund
- -----------------------------------------------------------------------------------------------------
Royce Trust & 16.5 23.0 24.3 25.3 0.68 23.02 0.86
GiftShares
Fund
- -----------------------------------------------------------------------------------------------------
Royce Select 22.4 N/A N/A 32.0 N/A N/A N/A
Fund
- -----------------------------------------------------------------------------------------------------
Russell 2000 9.3 1.5 11.2 N/A 0.99 20.70
- -----------------------------------------------------------------------------------------------------
</TABLE>
The five year average annual total return for Royce Premier Fund as of June 30,
1999 was 14.3%
*Inception dates: Royce Premier Fund --12/31/91, Royce Trust & GiftShares Fund
-- 12/27/95, Royce Select Fund -- 11/18/98 (Return not annualized.)
The Royce Funds invest primarily in securities of small- and/or micro-cap
companies that may involve considerably more risk than investments in securities
of large-cap companies (see "Primary Risks" in the Prospectus). See page 30 for
definitions of beta, standard deviation and Morningstar risk ratio.
12 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
PERFORMANCE HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Small-Cap Small-Cap
1998 Peak 1996 Peak
Y-T-D 4/21/98- 5/22/96-
1999 6/30/99 6/30/99
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RUSSELL 2000 9.3% -5.4% 31.0%
- -----------------------------------------------------------------------------------------------------------
ROYCE PREMIER FUND our concentrated small-cap portfolio that 7.0 1.9 45.8
invests in companies with market caps between
$300 million and $1.5 billion, outperformed
the Russell 2000 for the quarter, the
one-year and three-year periods ended June
30, 1999, and from the last two small-cap
market peaks. The Fund, whose average annual
total return since inception (12/31/91) was
14.0% as of June 30, 1999, is one of three
Royce Funds featured in this report's Fund
Focus.
- -----------------------------------------------------------------------------------------------------------
ROYCE MICRO-CAP FUND* our diversified micro-cap portfolio, 2.8 -11.8 26.2
outperformed the Russell 2000 for the quarter
and the since inception (12/31/91) period
ended June 30, 1999. The Fund's strong
showing in the second quarter was part of an
overall rebound for micro-cap stocks, those
with market caps less than $300 million,
following a disappointing first quarter.
- -----------------------------------------------------------------------------------------------------------
PENNSYLVANIA MUTUAL our flagship Fund that combines both small- 5.2 -2.1 43.7
FUND* and micro-cap companies, outperformed the
Russell 2000 for the quarter and the three-,
15- and 20-year periods ended June 30, 1999.
The Fund was also ahead of its benchmark from
both the April 1998 and May 1996 small-cap
market peaks. Its average annual total return
since inception (6/30/73) was 15.9% as of
June 30, 1999.
- -----------------------------------------------------------------------------------------------------------
ROYCE SELECT FUND was up 27.7% for the quarter versus 15.6% for 22.4 N/A N/A
the Russell 2000, and was up 22.4% for the
year-to-date period ended June 30, 1999
versus 9.3% for the index. A concentrated,
performance-fee fund for qualified clients of
registered investment advisors, Royce Select
Fund invests in a limited number of small-
and micro-cap companies using a disciplined
value approach. Although the Fund's tenure
has been brief, we are pleased with the
results so far; the Fund's cumulative return
since inception (11/18/98) was 32.0% as of
June 30, 1999.
- -----------------------------------------------------------------------------------------------------------
ROYCE TRUST & formerly named Royce GiftShares Fund, 16.5 18.9 92.3
GIFTSHARES FUND* outperformed the Russell 2000 for the
quarter, the one-year, three-year and since
inception periods ended June 30, 1999. The
Fund also outperformed the Russell 2000 from
the April 1998 and May 1996 small-cap market
peaks. The Fund, our gifting and
estate-planning portfolio, invests in a
limited number of small- and micro-cap stocks
using a concentrated strategy. As of June 30,
1999, the Fund had an average annual total
return since inception (12/27/95) of 25.3%.
- -----------------------------------------------------------------------------------------------------------
ROYCE TOTAL RETURN one of the few mutual funds to focus on 1.9 -2.2 47.7
FUND dividend-paying small- and micro-cap
companies, outperformed the Russell 2000 for
the three-year, five-year and since inception
(12/15/93) periods ended June 30, 1999, as
well as from the April 1998 and May 1996
small-cap market peaks.
- -----------------------------------------------------------------------------------------------------------
ROYCE LOW-PRICED outperformed the Russell 2000 for the 14.4 -0.4 35.8
STOCK FUND quarter, one-, three-, five-year and since
inception periods ended June 30, 1999. The
Fund also outperformed the index from the two
most recent small-cap market peaks. Royce
Low-Priced Stock Fund, which invests in
small- and micro-cap companies trading at
less than $15 per share at the time of
investment, remains one of only two
low-priced stock mutual funds.
- -----------------------------------------------------------------------------------------------------------
ROYCE OPPORTUNITY managed by Buzz Zaino and formerly named PMF 15.3 6.1 N/A
FUND II, outperformed the Russell 2000 for the
quarter, the one-year and since inception
(11/19/96) periods. The Fund, which takes a
more opportunistic approach to small- and
micro-cap value investing, performed strongly
in the second quarter's small-cap rebound,
and was up 15.3% year-to-date for the period
ended June 30, 1999. Its average annual total
return since inception was 17.9%.
</TABLE>
*All performance and risk information reflect Investment Class results. Shares
of the Funds' Consultant Class bear an annual distribution expense and are
subject to a deferred sales charge, which are not borne by the Investment
Class. See pages 14-29 for a complete discussion of performance returns.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 13
<PAGE>
[sidebar]
WHAT WE DO
Royce Premier Fund (RPR), a concentrated portfolio, seeks long-term growth of
capital. The Fund uses a value approach to invest 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."
HOW WE DID
Royce Premier Fund's concentrated portfolio emerged from the first-quarter
doldrums to enjoy the rewards of small-cap's second quarter comeback, up 21.0%
in the last three months 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 Fund's impressive second
quarter. Many of RPR's recent successes were the result of our concentrated
approach, with the Fund's top five winners accounting for virtually all of the
Fund's total net realized and unrealized gains year-to-date. RPR also
outperformed its benchmark for the one-year and three-year periods ended June
30, 1999. While the effects of the difficult first quarter left the Fund
trailing the Russell 2000 for the year-to-date period, RPR was ahead of its
benchmark from both the May 1996 (+45.8% vs. +31.0%) and the April 1998 (-1.9%
vs. -5.4%) small-cap market peaks.
Year-to-date through June 30, 1999, the Fund benefited from solid performance by
companies in the technology sector, where we began to increase our exposure
during 1998's third-quarter downturn. Stocks in the industrial products,
financial services and financial intermediaries sectors also fared well in the
second quarter, giving the Fund broad participation in the small-cap rebound.
RPR has historically been one of Morningstar's "least volatile" funds as
measured by beta and the Morningstar risk ratio.
[end sidebar]
ROYCE PREMIER FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS Through 6/30/99
- --------------------------------------------------------------------------------
<S> <C>
Second Quarter 1999* 21.0%
- --------------------------------------------------------------------------------
Jan-June 1999* 7.0
- --------------------------------------------------------------------------------
1-Year 5.3
- --------------------------------------------------------------------------------
3-Year 14.1
- --------------------------------------------------------------------------------
5-Year 14.3
- --------------------------------------------------------------------------------
Since Inception (12/31/91) 14.0
- --------------------------------------------------------------------------------
</TABLE>
*Not annualized.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
RISK/RETURN COMPARISON Inception (12/31/91) Through 6/30/99
- --------------------------------------------------------------------------------
Average Annual Standard
Total Return Deviation RUR
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
RPR 14.0% 10.6 1.32
- --------------------------------------------------------------------------------
Russell 2000 14.1% 15.7 0.90
- --------------------------------------------------------------------------------
</TABLE>
Return per Unit of Risk (RUR) is the average annual total return divided by the
annualized standard deviation over a designated time period. Please read the
prospectus for a more complete discussion of risk.
Since its inception, Royce Premier Fund outperformed the Russell 2000 on a
risk-adjusted basis.
[line chart]
- --------------------------------------------------------------------------------
RECENT MARKET PERFORMANCE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------- --------------------
5/22/96 -- 6/30/99 4/21/98 -- 6/30/99
- -------------------- --------------------
<S> <C> <C> <C>
RPR 45.8% RPR -1.9%
- -------------------- --------------------
Russell 2000 31.0% Russell 2000 -5.4%
- -------------------- --------------------
</TABLE>
Data Date Russell 2000
12/31/95 0.00%
1/31/96 -0.11%
2/29/96 3.01%
3/31/96 5.11%
4/30/96 10.73%
5/31/96 15.09%
6/30/96 10.36%
7/31/96 0.73%
8/31/96 6.58%
9/30/96 10.75%
10/31/96 9.04%
11/30/96 13.54%
12/31/96 16.51%
1/31/97 18.84%
2/28/97 15.95%
3/31/97 10.48%
4/30/97 10.79%
5/31/97 23.12%
6/30/97 28.40%
7/31/97 34.37%
8/31/97 37.45%
9/30/97 47.51%
10/31/97 41.04%
11/30/97 40.12%
12/31/97 42.57%
1/31/98 40.32%
2/28/98 50.69%
3/31/98 56.90%
4/30/98 57.76%
5/31/98 49.26%
6/30/98 49.57%
7/31/98 37.45%
8/31/98 10.73%
9/30/98 19.40%
10/31/98 24.27%
11/30/98 30.78%
12/31/98 38.88%
1/31/99 40.73%
2/28/99 29.33%
3/31/99 31.32%
4/30/99 43.09%
5/31/99 45.18%
6/30/99 51.74%
[end line chart]
Royce Premier Fund outperformed the Russell 2000 from the 1996 and 1998
small-cap peaks.
[line chart]
- --------------------------------------------------------------------------------
ROYCE PREMIER FUND VS. RUSSELL 2000 Value of $10,000 Invested on 12/31/91
- --------------------------------------------------------------------------------
Data
RPR Rus. 2000
quarter ended Value Value
12/31/91 10,000 10,000
3/31/92 10,160 10,750
6/30/92 10,140 10,017
9/30/92 10,440 10,303
12/31/92 11,580 11,841
3/31/93 12,125 12,346
6/30/93 12,608 12,615
9/30/93 12,923 13,718
12/31/93 13,784 14,079
3/31/94 13,891 13,704
6/30/94 13,741 13,171
9/30/94 14,258 14,085
12/31/94 14,236 13,823
3/31/95 14,851 14,460
6/30/95 16,103 15,815
9/30/95 16,807 17,378
12/31/95 16,774 17,755
3/31/96 17,339 18,662
6/30/96 18,022 19,595
9/30/96 18,469 19,662
12/31/96 19,813 20,684
3/31/97 20,041 19,613
6/30/97 22,705 22,794
9/30/97 24,837 26,186
12/31/97 23,460 25,309
3/31/98 25,726 27,852
6/30/98 25,456 26,554
9/30/98 21,762 21,206
12/31/98 25,041 24,665
3/31/99 22,137 23,328
6/30/99 26,795 26,956
[end line chart]
Includes reinvestment of distributions.
14 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
PERFORMANCE AND PORTFOLIO REVIEW
- --------------------------------------------------------------------------------
[bar chart]
DOWN MARKET PERFORMANCE COMPARISON
All Down Periods of 7.5% or Greater, in Percentages (%)
<TABLE>
<CAPTION>
RPR Russell 2000
--- ------------
<S> <C> <C>
2/12/92 - 0.0 -12.0
7/8/92
- ----------------------------------------------
3/18/94 - -4.2 -12.3
12/9/94
- ----------------------------------------------
5/22/96 - -6.4 -15.4
7/24/96
- ----------------------------------------------
1/22/97 - 0.3 -9.0
4/25/97
- ----------------------------------------------
10/13/97 - -11.0 -11.3
1/12/98
- ----------------------------------------------
4/21/98 - -26.9 -36.5
10/8/98
- ----------------------------------------------
</TABLE>
[end line chart]
Royce Premier Fund outperformed the Russell 2000 during all six major downturns
since its inception.
<TABLE>
<CAPTION>
- ------------------------------------ ----------------------------------
PORTFOLIO DIAGNOSTICS TOP 10 POSITIONS % of Net Assets
- ------------------------------------ ----------------------------------
<S> <C> <C> <C>
Median Market Cap. $772 million Marshall Industries 3.8%
- ------------------------------------ ----------------------------------
Weighted Average P/E Ratio 15.7x National Computer Systems 3.6
- ------------------------------------ ----------------------------------
Weighted Average P/B Ratio 2.0x Florida Rock Industries 3.4
- ------------------------------------ ----------------------------------
Weighted Average Yield 1.1% Charming Shoppes 3.1
- ------------------------------------ ----------------------------------
Fund Assets $599 million Zenith National Insurance 2.8
- ------------------------------------ ----------------------------------
Turnover Rate 23% Unifi 2.8
- ------------------------------------ ----------------------------------
Symbol RYPRX Gallagher (Arthur J.) & Co. 2.7
- ------------------------------------ ----------------------------------
Avnet 2.7
----------------------------------
Blanch (E.W.) Holdings 2.7
----------------------------------
Tom Brown 2.7
----------------------------------
The top 35 positions
represented 86% of
the equity portfolio
as of 6/30/99.
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
PORTFOLIO SECTOR BREAKDOWN With Examples % of Net Assets
- -----------------------------------------------------------------------------------------------------
<S> <C>
Technology Components and Systems, Software/Services, Semiconductors and Equipment 22.5%
- -----------------------------------------------------------------------------------------------------
Industrial Products Building Systems and Components, Construction Materials,
Specialty Chemicals and Materials 18.2
- ---------------------------------------------------------------------------------------------------
Financial Intermediaries Insurance, Banking, Securities Brokers 12.1
- --------------------------------------------------------------------------------------------------
Industrial Services Transportation and Logistics, Printing, Engineering and Construction 11.0
- -------------------------------------------------------------------------------------------------
Financial Services Insurance Brokers, Investment Management, Information and Processing 10.4
- ------------------------------------------------------------------------------------------------
Natural Resources Oil and Gas, Energy Services, Real Estate 7.3
- -----------------------------------------------------------------------------------------------
Health Surgical Products and Devices, Drugs and Biotech, Health Services 4.6
- ----------------------------------------------------------------------------------------------
Consumer Services Retail Stores, Restaurants/Lodgings, Leisure/Entertainment 3.9
- ---------------------------------------------------------------------------------------------
Consumer Products Home Furnishing/Appliances, Apparel and Shoes, Publishing 2.3
- --------------------------------------------------------------------------------------------
Cash & Cash Equivalents 7.7
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------
GOOD IDEAS THAT WORKED
Realized and Unrealized Gain
Year-to-Date Through 6/30/99
- -----------------------------------------
<S> <C>
Comdisco $ 8,739,241
- -----------------------------------------
Marshall Industries 8,643,571
- -----------------------------------------
Florida Rock Industries 6,865,059
- -----------------------------------------
Tom Brown 5,928,859
- -----------------------------------------
Charming Shoppes 5,918,494
- -----------------------------------------
Combined Gain $36,095,224
- -----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------
GOOD IDEAS AT THE TIME
Realized and Unrealized Loss
Year-to-Date Through 6/30/99
- -----------------------------------------
<S> <C>
New England Business Service $ 4,342,583
- -----------------------------------------
Commerce Group 4,021,910
- -----------------------------------------
Gibson Greetings 3,884,587
- -----------------------------------------
Trenwick Group 3,260,016
- -----------------------------------------
Chiron 2,999,325
- -----------------------------------------
Combined Loss $18,508,421
- -----------------------------------------
</TABLE>
Comdisco -- We re-evaluated this technology leasing firm earlier this year and
learned that the second generation of this family-run business was doing a
superb job unlocking the company's potential. It is not only dominating the
technology leasing business, but is expanding into profitable Internet services
as well.
Marshall Industries -- An "old favorite," this electronics distribution firm was
battling against outdated industry practices that hindered its development and
was coming off a disappointing earnings cycle when a larger company, Avnet,
bought them. Our years of patience with the company and our belief in its
innovative CEO paid off as Marshall was recognized for its superb value by an
industry leader.
New England Business Service -- The stock price moved slightly ahead of what we
believed the fundamentals of this business forms company could justify, and the
firm then had trouble integrating some new acquisitions, both of which caused a
decline in the stock price. However, with a talented CEO and new opportunities
on the horizon, we are as enthusiastic as ever.
Commerce Group -- Excess capacity and the resulting fierce competition in the
auto insurance industry (even in Massachusetts, where it had been dominant)
created tough conditions for the company that were reflected in the stock price.
Commerce Group has been buying back shares and aggressively expanding into new
states, so we remain confident in the company's long-term prospects.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 15
<PAGE>
[sidebar]
WHAT WE DO
Royce Micro-Cap Fund (RMC) seeks long-term growth of capital. The Fund uses a
value approach to invest in a broadly diversified portfolio of micro-cap stocks,
companies with market caps less than $300 million. We believe that the more
volatile micro-cap sector, while often higher in risk, offers greater potential
for higher returns than any other sector of the domestic equity marketplace.
HOW WE DID
Royce Micro-Cap Fund's broadly diversified portfolio came roaring back in 1999's
second quarter -- up 22.6%. This strong showing was part of an overall rebound
for micro-cap stocks. In what was truly a tale of two quarters, second-quarter
performance was as impressive as the first quarter's was dismal. While RMC
outperformed its benchmark, the small-cap oriented Russell 2000, in the second
quarter, it remained behind on a year-to-date basis through June 30, 1999.
Companies in the technology, consumer products, industrial products and
industrial services sectors all contributed to the Fund's gains through June 30,
although technology's overall performance was mixed, with the Fund's largest net
gains and losses coming from that sector. During 1998's third-quarter small-cap
correction, we began to increase our exposure to this sector, taking advantage
of what we believed were excellent purchase opportunities. It's not often that
such stocks reach prices that are attractive to us.
While micro-cap stocks have endured some short-term performance disappointments,
our confidence in the long-term performance potential of this volatile, but
opportunity-laden sector of the small-cap universe is undiminished. RMC remains
one of only a dozen micro-cap funds with more than seven years of performance
history. Total assets as of June 30, 1999 were $135 million and the Fund's
average annual total return since inception was 14.9%. This compares to a return
of 14.1% for the Russell 2000.
[end sidebar]
ROYCE MICRO-CAP FUND+
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS Through 6/30/99
- --------------------------------------------------------------------------------
<S> <C>
Second Quarter 1999* 22.6%
- --------------------------------------------------------------------------------
Jan-June 1999* 2.8
- --------------------------------------------------------------------------------
1-Year -6.6
- --------------------------------------------------------------------------------
3-Year 8.8
- --------------------------------------------------------------------------------
5-Year 12.2
- --------------------------------------------------------------------------------
Since Inception (12/31/91) 14.9
- --------------------------------------------------------------------------------
</TABLE>
*Not annualized.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
RISK/RETURN COMPARISON Inception (12/31/91) Through 6/30/99
- --------------------------------------------------------------------------------
Average Annual Standard
Total Return Deviation RUR
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
RMC 14.9% 13.4 1.11
- --------------------------------------------------------------------------------
Russell 2000 14.1% 15.7 0.90
- --------------------------------------------------------------------------------
</TABLE>
Return per Unit of Risk (RUR) is the average annual total return divided by the
annualized standard deviation over a designated time period. Please read the
prospectus for a more complete discussion of risk.
Since its inception, Royce Micro-Cap Fund has outperformed the Russell 2000 on
BOTH an absolute and a risk-adjusted basis.
[line chart]
- --------------------------------------------------------------------------------
RECENT MARKET PERFORMANCE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------- --------------------
5/22/96 -- 6/30/99 4/21/98 -- 6/30/99
- -------------------- --------------------
<S> <C> <C> <C>
RPR 26.2% RPR -11.8%
- -------------------- --------------------
Russell 2000 31.0% Russell 2000 -5.4%
- -------------------- --------------------
</TABLE>
Data Date Russell 2000
12/31/95 0.00%
1/31/96 -0.11%
2/29/96 3.01%
3/31/96 5.11%
4/30/96 10.73%
5/31/96 15.09%
6/30/96 10.36%
7/31/96 0.73%
8/31/96 6.58%
9/30/96 10.75%
10/31/96 9.04%
11/30/96 13.54%
12/31/96 16.51%
1/31/97 18.84%
2/28/97 15.95%
3/31/97 10.48%
4/30/97 10.79%
5/31/97 23.12%
6/30/97 28.40%
7/31/97 34.37%
8/31/97 37.45%
9/30/97 47.51%
10/31/97 41.04%
11/30/97 40.12%
12/31/97 42.57%
1/31/98 40.32%
2/28/98 50.69%
3/31/98 56.90%
4/30/98 57.76%
5/31/98 49.26%
6/30/98 49.57%
7/31/98 37.45%
8/31/98 10.73%
9/30/98 19.40%
10/31/98 24.27%
11/30/98 30.78%
12/31/98 38.88%
1/31/99 40.73%
2/28/99 29.33%
3/31/99 31.32%
4/30/99 43.09%
5/31/99 45.18%
6/30/99 51.74%
[end line chart]
Royce Micro-Cap Fund underperformed the Russell 2000 from the 1996 and 1998
small-cap peaks.
[line chart]
- --------------------------------------------------------------------------------
ROYCE MICRO-CAP FUND VS. RUSSELL 2000 Value of $10,000 Invested on 12/31/91
- --------------------------------------------------------------------------------
Data
RMC Rus. 2000
quarter ended Value Value
12/31/91 10,000 10,000
3/31/92 11,100 10,750
6/30/92 10,700 10,017
9/30/92 11,421 10,303
12/31/92 12,941 11,841
3/31/93 14,184 12,346
6/30/93 14,207 12,615
9/30/93 15,316 13,718
12/31/93 16,004 14,079
3/31/94 16,127 13,704
6/30/94 15,855 13,171
9/30/94 16,770 14,085
12/31/94 16,572 13,823
3/31/95 17,185 14,460
6/30/95 18,464 15,815
9/30/95 19,717 17,378
12/31/95 19,731 17,755
3/31/96 20,544 18,662
6/30/96 21,906 19,595
9/30/96 21,172 19,662
12/31/96 22,798 20,684
3/31/97 22,602 19,613
6/30/97 25,095 22,794
9/30/97 29,015 26,186
12/31/97 28,427 25,309
3/31/98 31,360 27,852
6/30/98 30,241 26,554
9/30/98 23,981 21,206
12/31/98 27,476 24,665
3/31/99 23,042 23,328
6/30/99 28,312 26,956
[end line chart]
Includes reinvestment of distributions.
16 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
PERFORMANCE AND PORTFOLIO REVIEW
- --------------------------------------------------------------------------------
[bar chart]
DOWN MARKET PERFORMANCE COMPARISON
All Down Periods of 7.5% or Greater, in Percentages (%)
<TABLE>
<CAPTION>
RPR Russell 2000
--- ------------
<S> <C> <C>
2/12/92 - -1.5 -12.0
7/8/92
- ----------------------------------------------
3/18/94 - -4.4 -12.3
12/9/94
- ----------------------------------------------
5/22/96 - -8.7 -15.4
7/24/96
- ----------------------------------------------
1/22/97 - -5.1 -9.0
4/25/97
- ----------------------------------------------
10/13/97 - -7.8 -11.3
1/12/98
- ----------------------------------------------
4/21/98 - -33.6 -36.5
10/8/98
- ----------------------------------------------
</TABLE>
[end bar chart]
Royce Micro-Cap Fund outperformed the Russell 2000 during all six major
downturns since its inception.
<TABLE>
<CAPTION>
- ------------------------------------- -----------------------------------------
PORTFOLIO DIAGNOSTICS TOP 10 POSITIONS % of Net Assets
- ------------------------------------- -----------------------------------------
<S> <C> <S> <C>
Median Market Cap. $147 million Pioneer-Standard Electronics 2.3%
- ------------------------------------- -----------------------------------------
Weighted Average P/E Ratio 15.8x Sevenson Environmental Services 2.1
- ------------------------------------- -----------------------------------------
Weighted Average P/B Ratio 1.4x Kronos 2.1
- ------------------------------------- -----------------------------------------
Weighted Average Yield 0.7% Electroglas 2.1
- ------------------------------------- -----------------------------------------
Net Assets $135 million Exar 2.0
- ------------------------------------- -----------------------------------------
Turnover Rate 7% Carlisle Holdings 2.0
- ------------------------------------- -----------------------------------------
Symbol (Investment Class) RYOTX Florida Rock Industries 1.9
(Consultant Class) RYMCX -----------------------------------------
- ------------------------------------- Lazare Kaplan International 1.8
-----------------------------------------
Coherent 1.7
-----------------------------------------
Richardson Electronics 1.7
-----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
PORTFOLIO SECTOR BREAKDOWN With Examples % of Net Assets
- ------------------------------------------------------------------------------------------------
<S> <C>
Technology Components and Systems, Software/Services, Semiconductors and Equipment 31.7%
- --------------------------------------------------------------------------------------------
Industrial Products Building Systems and Components, Construction Materials,
Specialty Chemicals and Materials 17.6
- -------------------------------------------------------------------------------------------
Industrial Services Transportation and Logistics, Printing, Engineering
and Construction 16.1
- ------------------------------------------------------------------------------------------
Consumer Products Home Furnishing/Appliances, Apparel and Shoes, Publishing 12.6
- -----------------------------------------------------------------------------------------
Natural Resources Oil and Gas, Energy Services, Real Estate 5.0
- ----------------------------------------------------------------------------------------
Health Surgical Products and Devices, Drugs and Biotech, Health Services 3.9
- ---------------------------------------------------------------------------------------
Consumer Services Retail Stores, Restaurants/Lodgings, Leisure/Entertainment 2.0
- --------------------------------------------------------------------------------------
Financial Services Insurance Brokers, Investment Management, Information
and Processing 1.3
- -------------------------------------------------------------------------------------
Financial Intermediaries Insurance, Banking, Securities Brokers 1.2
- ------------------------------------------------------------------------------------
Miscellaneous 4.7
- ------------------------------------------------------------------------------------------
Cash & Cash Equivalents 3.9
- -----------------------------------------------------------------------------------------
</TABLE>
+ All performance and risk information presented herein is for RMC's Investment
Class. Shares of RMC's Consultant Class, which commenced operations on May 4,
1998, bear an annual distribution expense which is not borne by the Investment
Class.
<TABLE>
<CAPTION>
- -----------------------------------------
GOOD IDEAS THAT WORKED
Realized and Unrealized Gain
Year-to-Date Through 6/30/99
- -----------------------------------------
<S> <C>
- -----------------------------------------
Electroglas $1,193,500
- -----------------------------------------
Kronos 971,557
- -----------------------------------------
Exar 939,000
- -----------------------------------------
Carbo Ceramics 913,388
- -----------------------------------------
Coherent 899,981
- -----------------------------------------
Combined Gain $4,917,426
- -----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------
GOOD IDEAS AT THE TIME
Realized and Unrealized Loss
Year-to-Date Through 6/30/99
- -----------------------------------------
<S> <C>
HMT Technology $1,572,193
- -----------------------------------------
VideoServer 1,328,644
- -----------------------------------------
Richardson Electronics 967,500
- -----------------------------------------
800 JR Cigar 944,522
- -----------------------------------------
BHA Group Holdings 805,641
- -----------------------------------------
Combined Loss $5,618,500
- -----------------------------------------
</TABLE>
Electroglas -- We built a position in this semiconductor capital equipment
supplier during the 1998 third-quarter downturn, a period when many small-cap
technology companies were priced to our liking. An opportunistic purchase for
us, Electroglas is a dominant growth company in its niche. Although subject to
the cyclical nature of the semiconductor business, we believe that the company
is well-positioned for future growth.
Kronos -- The company began as a timecard machine manufacturer and has developed
into a leading provider of work-planning, payroll and timecard software. We
began to buy the stock when the price was low due to an earnings growth slowdown
and product transitions. It's a good example of a growth stock that we purchased
when its stock price became low enough to fit our value criteria.
HMT Technology -- The anticipated gains for this supplier of high-performance
thin-film discs for personal computer hard drives that we purchased in 1998's
third-quarter downturn failed to materialize. In light of the continued stock
price decline, we are re-examining our position.
VideoServer -- Although a leader in the high-growth video-conferencing area,
profits have been thus far disappointing, as has its stock price performance.
The company's prospects for future growth remain a question mark.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 17
<PAGE>
[sidebar]
WHAT WE DO
Pennsylvania Mutual Fund (PMF), our flagship fund, seeks long-term growth of
capital. The Fund uses a value approach to invest in a broadly diversified
portfolio of small- and micro-cap stocks that are trading significantly below
our estimate of their "current worth."
HOW WE DID
Pennsylvania Mutual Fund's broadly diversified portfolio of small- and micro-cap
stocks fully participated in small-cap's second-quarter rebound. PMF followed
1999's difficult first quarter with a second quarter return of 19.5%, giving the
Fund a 5.2% year-to-date return versus 9.3% for its benchmark, the small-cap
oriented Russell 2000. The Fund outperformed the Russell 2000 for the second
quarter and for the three-, 15- and 20-year periods ended June 30, 1999. PMF's
average annual total return since Chuck Royce became the portfolio manager
(6/30/73) was 15.9%, and its 25-year average annual total return for the period
ended June 30, 1999 was 17.8%.
Portfolio gains in 1999 have come chiefly from the Fund's five best-performing
positions, which made significant contributions to its year-to-date performance.
Our successes in many ways reflect the consistent application of our disciplined
approach. For more than 25 years, we have sought to take advantage of
opportunities when small-cap interest and respective stock prices are low.
PMF is one of the oldest small-cap funds available, with total net assets of
$592 million. The Fund has historically been among Morningstar's "least
volatile" small-cap funds as measured by the Morningstar risk ratio and beta.
[end sidebar]
Pennsylvania Mutual Fund+
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Through 6/30/99
- --------------------------------------------------------------------------------
<S> <C>
Second Quarter 1999* 19.5%
- --------------------------------------------------------------------------------
Jan-June 1999* 5.2
- --------------------------------------------------------------------------------
1-Year 0.7
- --------------------------------------------------------------------------------
3-Year 13.5
- --------------------------------------------------------------------------------
5-Year 13.5
- --------------------------------------------------------------------------------
10-Year 11.0
- --------------------------------------------------------------------------------
25-Year 17.8
- --------------------------------------------------------------------------------
Since Inception (6/30/73) 15.9
- --------------------------------------------------------------------------------
</TABLE>
*Not Annualized
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
RISK/RETURN COMPARISON 20-Year Period Ended 6/30/99
- --------------------------------------------------------------------------------
Average Annual Standard
Total Return Deviation RUR
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
PMF 14.7% 15.2 0.97
- --------------------------------------------------------------------------------
Russell 2000 14.2% 19.1 0.74
- --------------------------------------------------------------------------------
</TABLE>
Return per Unit of Risk (RUR) is the average annual total return divided by the
annualized standard deviation over a designated time period. Please read the
prospectus for a more complete discussion of risk.
Over the last 20 years, Pennsylvania Mutual Fund outperformed the Russell 2000
on BOTH an absolute and a risk-adjusted basis.
[line chart]
- --------------------------------------------------------------------------------
RECENT MARKET PERFORMANCE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------- --------------------
5/22/96 -- 6/30/99 4/21/98 -- 6/30/99
- -------------------- --------------------
<S> <C> <C> <C>
PMF 43.7% PMF -2.1%
- -------------------- --------------------
Russell 2000 31.0% Russell 2000 -5.4%
- -------------------- --------------------
</TABLE>
Data Date Russell 2000
12/31/95 0.00%
1/31/96 -0.11%
2/29/96 3.01%
3/31/96 5.11%
4/30/96 10.73%
5/31/96 15.09%
6/30/96 10.36%
7/31/96 0.73%
8/31/96 6.58%
9/30/96 10.75%
10/31/96 9.04%
11/30/96 13.54%
12/31/96 16.51%
1/31/97 18.84%
2/28/97 15.95%
3/31/97 10.48%
4/30/97 10.79%
5/31/97 23.12%
6/30/97 28.40%
7/31/97 34.37%
8/31/97 37.45%
9/30/97 47.51%
10/31/97 41.04%
11/30/97 40.12%
12/31/97 42.57%
1/31/98 40.32%
2/28/98 50.69%
3/31/98 56.90%
4/30/98 57.76%
5/31/98 49.26%
6/30/98 49.57%
7/31/98 37.45%
8/31/98 10.73%
9/30/98 19.40%
10/31/98 24.27%
11/30/98 30.78%
12/31/98 38.88%
1/31/99 40.73%
2/28/99 29.33%
3/31/99 31.32%
4/30/99 43.09%
5/31/99 45.18%
6/30/99 51.74%
[end line chart]
Pennsylvania Mutual outperformed the Russell 2000 from the 1996 and 1998
small-cap peaks.
[line chart]
PENNSYLVANIA MUTUAL FUND VS. RUSSELL 2000 Value of $10,000 Invested on 6/30/79
PMF Rus. 2000
Quarter ended Value Value
6/30/1979 10,000 10,000
9/30/1979 11,111 11,110
12/31/1979 11,079 11,472
3/31/1980 8,970 10,002
6/30/1980 10,719 12,022
9/30/1980 13,216 14,745
12/31/1980 13,927 15,898
3/31/1981 14,792 17,216
6/30/1981 16,255 17,855
9/30/1981 12,391 14,725
12/31/1981 14,020 16,221
3/31/1982 12,817 14,709
6/30/1982 13,029 14,497
9/30/1982 14,556 16,025
12/31/1982 18,711 20,267
3/31/1983 22,275 23,803
6/30/1983 25,888 28,632
9/30/1983 25,567 27,229
12/31/1983 26,291 26,171
3/31/1984 25,381 24,415
6/30/1984 25,158 23,680
9/30/1984 26,760 24,982
12/31/1984 27,116 24,258
3/31/1985 30,026 27,633
6/30/1985 30,999 28,612
9/30/1985 30,906 27,366
12/31/1985 34,377 31,789
3/31/1986 38,041 36,291
6/30/1986 40,183 38,051
9/30/1986 37,350 33,390
12/31/1986 38,220 33,597
3/31/1987 43,777 41,766
6/30/1987 44,342 41,469
9/30/1987 46,431 43,205
12/31/1987 38,746 30,650
3/31/1988 44,341 36,496
6/30/1988 47,246 38,901
9/30/1988 47,884 38,536
12/31/1988 48,267 38,281
3/31/1989 51,655 41,229
6/30/1989 54,666 43,855
9/30/1989 57,001 46,815
12/31/1989 56,322 44,498
3/31/1990 55,827 43,514
6/30/1990 57,635 45,194
9/30/1990 48,097 34,103
12/31/1990 49,823 35,819
3/31/1991 59,908 46,471
6/30/1991 60,513 45,751
9/30/1991 62,927 49,480
12/31/1991 65,683 52,315
3/31/1992 70,636 56,238
6/30/1992 68,835 52,403
9/30/1992 70,459 53,902
12/31/1992 76,314 61,944
3/31/1993 80,222 64,589
6/30/1993 79,363 65,997
9/30/1993 82,514 71,765
12/31/1993 84,899 73,652
3/31/1994 83,982 71,693
6/30/1994 82,143 68,904
9/30/1994 85,207 73,686
12/31/1994 84,286 72,316
3/31/1995 87,700 75,649
6/30/1995 93,392 82,738
9/30/1995 99,985 90,912
12/31/1995 100,065 92,885
3/31/1996 102,147 97,632
6/30/1996 105,783 102,513
9/30/1996 105,783 102,862
12/31/1996 112,923 108,210
3/31/1997 113,398 102,605
6/30/1997 127,697 119,248
9/30/1997 143,902 136,992
12/31/1997 141,108 132,403
3/31/1998 154,641 145,709
6/30/1998 153,558 138,919
9/30/1998 130,642 110,941
12/31/1998 146,985 129,035
3/31/1999 129,387 122,041
6/30/1999 154,584 141,019
[end line chart]
18 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
PERFORMANCE AND PORTFOLIO REVIEW
- --------------------------------------------------------------------------------
[bar chart]
DOWN MARKET PERFORMANCE COMPARISON
All Down Periods of 7.5% or Greater Over the Last 15 Years, in Percentages (%)
<TABLE>
<CAPTION>
PMF Russell 2000
--- ------------
<S> <C> <C>
- ----------------------------------------------
7/3/86- -8.6 -14.6
9/16/86
- ----------------------------------------------
8/25/87- -23.2 -38.9
10/28/87
- ----------------------------------------------
10/9/89- -20.9 -32.5
10/31/90
- ----------------------------------------------
2/12/92- -2.6 -12.0
7/8/92
- ----------------------------------------------
3/18/94- -7.6 -12.3
12/9/94
- ----------------------------------------------
5/22/96- -6.5 -15.4
7/24/96
- ----------------------------------------------
1/22/97- -2.5 -9.0
4/25/97
- ----------------------------------------------
10/13/97- -7.5 -11.3
1/12/98
- ----------------------------------------------
4/21/98- -25.1 -36.5
10/8/98
- ----------------------------------------------
</TABLE>
[end bar chart]
Pennsylvania Mutual Fund outperformed the Russell 2000 during all nine major
downturns over the last 15 years.
<TABLE>
<CAPTION>
- ------------------------------------- -----------------------------------
PORTFOLIO DIAGNOSTICS TOP 10 POSITIONS % of Net Assets
- ------------------------------------- -----------------------------------
<S> <C> <S> <C>
Median Market Cap. $389 million Florida Rock Industries 1.5%
- ------------------------------------- -----------------------------------
Weighted Average P/E Ratio 15.7x Simpson Manufacturing 1.5
- ------------------------------------- -----------------------------------
Weighted Average P/B Ratio 1.7x Gallagher (Arthur J.) & Co. 1.4
- ------------------------------------- -----------------------------------
Weighted Average Yield 1.4% National Computer Systems 1.4
- ------------------------------------- -----------------------------------
Net Assets $592 million Unitrode 1.3
- ------------------------------------- -----------------------------------
Turnover Rate 8% Velcro Industries 1.3
- ------------------------------------- -----------------------------------
Symbol (Investment Class) PENNX Curtiss-Wright 1.2
(Consultant Class) RYPCX -----------------------------------
- ------------------------------------- Marshall Industries 1.2
-----------------------------------
Circle International Group 1.1
-----------------------------------
Duff & Phelps Credit Rating 1.1
-----------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PORTFOLIO SECTOR BREAKDOWN With Examples % of Net Assets
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Industrial Products Building Systems and Components, Construction Materials, Specialty Chemicals and Materials 16.7%
- --------------------------------------------------------------------------------------------------------------------
Industrial Services Transportation and Logistics, Printing, Engineering and Construction 16.1
- -----------------------------------------------------------------------------------------------------
Technology Components and Systems, Software/Services, Semiconductors and Equipment 14.9
- ---------------------------------------------------------------------------------------------------
Consumer Products Home Furnishing/Appliances, Apparel and Shoes, Publishing 11.3
- ------------------------------------------------------------------------------------------------
Financial Intermediaries Insurance, Banking, Securities Brokers 10.0
- ----------------------------------------------------------------------------------------------
Financial Services Insurance Brokers, Investment Management, Information and Processing 9.5
- -------------------------------------------------------------------------------------------
Natural Resources Oil and Gas, Energy Services, Real Estate 6.2
- ---------------------------------------------------------------------------------------
Consumer Services Retail Stores, Restaurants/Lodgings, Leisure/Entertainment 3.0
- ----------------------------------------------------------------------------------
Health Surgical Products and Devices, Drugs and Biotech, Health Services 2.2
- ------------------------------------------------------------------------------
Utilities 0.1
- ---------------------------------------------------------------------
Miscellaneous 4.9
- -------------------------------------------------------------------------------------
Cash & Cash Equivalents 5.1
- ---------------------------------------------------------------------------------------
</TABLE>
+ All performance and risk information presented herein is for PMF's Investment
Class. Shares of PMF's Consultant Class, which commenced operations on June
18, 1997, bear an annual distribution expense which is not borne by the
Investment Class.
<TABLE>
<CAPTION>
- -----------------------------------------
GOOD IDEAS THAT WORKED
Realized and Unrealized Gain
Year-to-Date Through 6/30/99
- -----------------------------------------
<S> <C>
- -----------------------------------------
K-Swiss Cl. A $ 5,035,724
- -----------------------------------------
Unitrode 4,060,967
- -----------------------------------------
Sunglass Hut International 3,706,246
- -----------------------------------------
Barrett Resources Group 2,931,728
- -----------------------------------------
Florida Rock Industries 2,688,550
- -----------------------------------------
Combined Gain $18,423,215
- -----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------
GOOD IDEAS AT THE TIME
Realized and Unrealized Loss
Year-to-Date Through 6/30/99
- -----------------------------------------
<S> <C>
Commerce Group $2,017,830
- ------------------------------------------
800 JR Cigar 1,924,875
- ------------------------------------------
New England Business Service 1,876,045
- ------------------------------------------
Preformed Line Products Company 1,779,244
- ------------------------------------------
Velcro Industries 1,751,335
- ------------------------------------------
Combined Loss $9,349,329
- ------------------------------------------
</TABLE>
K-Swiss -- Sometimes it's better to be lucky than good. That was certainly the
case with K-Swiss, a manufacturer of tennis and sailing sneakers for people 40
and over, which we purchased when it was trading just above net-net working
capital. Soon after a prominent appearance on an episode of Buffy the Vampire
Slayer, the stock price quadrupled, and we're still shaking our heads.
Unitrode -- We began to build a position in this analog semiconductor
manufacturer during 1998's third-quarter downdraft, when its stock became cheap.
The business cycle for semiconductors turned around, and investors soon
followed, moving the stock price higher.
Commerce Group -- Excess capacity and fierce competition in the auto insurance
industry (even in Massachusetts, where it had been dominant) created tough
conditions for the company that were reflected in the stock price. Commerce
Group has been buying back shares and aggressively expanding into new states, so
we remain confident in the company's long-term prospects.
800 JR Cigar -- A leading retail marketer selling premium cigars at a discount,
the company has been caught in a glut that has reduced cigar and stock prices
alike. We are confident that its clever management -- who own the majority of
the stock -- can get the company smoking again.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 19
<PAGE>
[sidebar]
WHAT WE DO
Royce Select Fund (RSF), a performance-fee based fund for "qualified clients,"
seeks long-term growth of capital. The Fund uses a value approach to invest in a
concentrated portfolio of small- and micro-cap companies that we believe are
trading significantly below our estimate of their "current worth."
HOW WE DID
Royce Select Fund's concentrated portfolio of small- and micro-cap companies
survived the difficult first quarter and shined in the strong second quarter, up
27.7%. The Fund finished the year-to-date period ended June 30, 1999 up 22.4%,
well ahead of its benchmark, the small-cap oriented Russell 2000, which was up
9.3%.
Portfolio gains came from several sectors, with companies in the consumer
products, consumer services, natural resources, health and technology sectors
all contributing to the Fund's recent strong performance.
Although the Fund's tenure has been brief, we are very pleased with the results
so far. RSF's cumulative total return since inception (11/18/98) through June
30, 1999 was 32.0%. Total net assets as of June 30, 1999 were $5.3 million.
[end sidebar]
ROYCE SELECT FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS Through 6/30/99
- --------------------------------------------------------------------------------
<S> <C>
Second Quarter 1999 27.7%
- --------------------------------------------------------------------------------
Jan-June 1999 22.4
- --------------------------------------------------------------------------------
Since Inception (11/18/98) 32.0
- --------------------------------------------------------------------------------
</TABLE>
[line chart]
- --------------------------------------------------------------------------------
ROYCE SELECT FUND vs. RUSSELL 2000
Value of $10,000 Invested on 11/18/98
- --------------------------------------------------------------------------------
Date RSF Russell
Nov-98 10,000 10,000
Nov-98 10,016 10,148
Dec-98 10,785 10,776
Jan-99 10,889 10,919
Feb-99 10,433 10,035
Mar-99 10,336 10,192
Apr-99 11,605 11,105
May-99 12,454 11,267
Jun-99 13,196 11,776
[end line chart]
Includes reinvestment of distributions.
<TABLE>
<CAPTION>
- ------------------------------------- -----------------------------------
PORTFOLIO DIAGNOSTICS TOP 10 POSITIONS % of Net Assets
- ------------------------------------- -----------------------------------
<S> <C> <S> <C>
Median Market Cap. $389 million Pioneer-Standard Electronics 4.5%
- ------------------------------------- -----------------------------------
Weighted Average P/E Ratio 16.2x Charming Shoppes 4.0
- ------------------------------------- -----------------------------------
Weighted Average P/B Ratio 1.6x Richardson Electronics 4.0
- ------------------------------------- -----------------------------------
Weighted Average Yield 0.7% Denbury Resources 3.6
- ------------------------------------- -----------------------------------
Net Assets $5.3 million Carbo Ceramics 3.5
- ------------------------------------- -----------------------------------
Turnover Rate 70% Circle International Group 3.3
- ------------------------------------- -----------------------------------
Symbol N/A CDI 3.2
- ------------------------------------- -----------------------------------
Haemonetics 3.0
-----------------------------------
Arrow Electronics 2.9
-----------------------------------
Curtiss-Wright 2.8
-----------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO SECTOR BREAKDOWN With Examples % of Net Assets
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Technology Components and Systems, Software/Services, Semiconductors and Equipment 28.4%
- --------------------------------------------------------------------------------------------------------------------------------
Industrial Services Transportation and Logistics, Printing, Engineering and Construction 19.4
- --------------------------------------------------------------------------------------------------------------------------
Industrial Products Building Systems and Components, Construction Materials, Specialty Chemicals and Materials 11.2
- ---------------------------------------------------------------------------------------------------------------------
Natural Resources Oil and Gas, Energy Services, Real Estate 8.5
- ---------------------------------------------------------------------------------------
Consumer Products Home Furnishing/Appliances, Apparel and Shoes, Publishing 8.2
- ------------------------------------------------------------------------------------
Consumer Services Retail Stores, Restaurants/Lodgings, Leisure/Entertainment 5.8
- ---------------------------------------------------------------------------------
Health Surgical Products and Devices, Drugs and Biotech, Health Services 5.3
- ------------------------------------------------------------------------------
Financial Intermediaries Insurance, Banking, Securities Broker 2.2
- ------------------------------------------------------------------
Cash & Cash Equivalents 11.0
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
20 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
PERFORMANCE AND PORTFOLIO REVIEW
- --------------------------------------------------------------------------------
QUESTIONS AND ANSWERS --
A CONVERSATION WITH CHUCK ROYCE
- --------------------------------------------------------------------------------
What makes RSF unique within the Royce Fund family?
First, the Fund is only available to "qualified clients" within the Securities
and Exchange Commission's definition. Second, it incorporates a performance fee
structure. Finally, the Fund assesses a redemption fee of 2% on shares held less
than 3 years, which discourages casual short-term investors.
How does the performance fee benefit investors?
Our fee and expense structure, unique among mutual funds, is tied directly to
the total return of the Fund. The Fund pays a management fee to the Adviser
equal to 12-1/2% of its pre-fee total return calculated on a daily basis. The
Adviser absorbs all other ordinary expenses of the Fund. The Fund's management
fee is subject to a high watermark, which means that the Adviser will only
receive a fee during positive performance periods. If total returns recede from
the high watermark, no fee will be taken until the Fund's pre-fee total return
again exceeds the high watermark. It is calculated in a manner that we believe
is the most equitable for the investor and aligns the manager's interests with
the shareholders'. The real advantage is that during low and negative return
periods, the expenses have a much more modest impact on returns.
What are the advantages of using a concentrated portfolio
in a combined small- and micro-cap fund?
Concentration, by our definition, requires that a portfolio be invested in no
more than 50 companies. We think that this is a highly appropriate method for
investing in a smaller portfolio. Because of its small size and limits on asset
growth (the Fund currently intends to close to new investors once it reaches
$150 million), the Fund can take advantage of both small- and micro-cap
opportunities, similar to the method used by one of our other concentrated
funds, Royce Trust & GiftShares Fund.
What are the risks of investing in such a concentrated fund?
Our firm has historically had a risk-averse value approach to small- and
micro-cap investing. The use of concentration is an added risk that we would
expect to give this fund a slightly higher risk profile, which we hope will be
offset by superior long-term returns.
THE ROYCE FUND
- --------------------------------------------------------------------------------
At a Special Meeting of Shareholders of the Registrant held on April 21, 1999,
the Shareholders approved an amendment to the Investment Advisory Agreement for
Royce Select Fund, changing the application of the high watermark test for the
12.5% performance fee from quarter-end to daily after December 31, 1999, as
follows:
<TABLE>
<CAPTION>
Votes Cast for Votes Cast Against Votes Abstained
--------------------------------------------------------------------
<S> <C> <C>
31,349 278 935
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------
GOOD IDEAS THAT WORKED
Realized and Unrealized Gain
Year-to-Date Through 6/30/99
- ------------------------------------------
<S> <C>
Pioneer-Standard Electronics $108,750
- ------------------------------------------
Unitrode 100,926
- ------------------------------------------
Comdisco 93,410
- ------------------------------------------
Carbo Ceramics 87,383
- ------------------------------------------
Charming Shoppes 80,579
- ------------------------------------------
Combined Gain $471,048
- ------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------
GOOD IDEAS AT THE TIME
Realized and Unrealized Loss
Year-to-Date Through 6/30/99
- ------------------------------------------
<S> <C>
Hauser $19,445
- ------------------------------------------
Midwest Grain Products 17,662
- ------------------------------------------
Olsten 17,609
- ------------------------------------------
Balanced Care 17,315
- ------------------------------------------
Conso International 15,625
- ------------------------------------------
Combined Loss $87,656
- ------------------------------------------
</TABLE>
Pioneer-Standard Electronics -- This distributor of electronic components has
begun to recover after a recent slowdown in its business cycle. We are very
confident in the future prospects for Pioneer-Standard, a well-established firm
in an area of technology that we like.
Unitrode -- We began to build a position in this analog semiconductor
manufacturer at the Fund's inception, following 1998's third-quarter downdraft,
when its stock was cheap. The business cycle for semiconductors turned around,
and investors soon followed, moving the stock price higher.
Hauser -- This maker of food supplements was recently part of a merger involving
a reverse stock split that had a short-term negative effect on the stock price.
With a heightened uncertainty for the near term, we sold our position in this
Fund.
Midwest Grain Products -- Although attractively priced when we bought the stock,
an anticipated turnaround in the wheat gluten business has so far failed to
materialize, as has any increase in the stock price.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 21
<PAGE>
[sidebar]
WHAT WE DO
Royce Trust & GiftShares Fund (RTG), formerly named Royce GiftShares Fund, is a
concentrated portfolio that seeks long-term growth of capital. The Fund uses a
value approach to invest in a limited number of small- and micro-cap companies,
focusing on those that we believe are trading at significant discounts to our
estimate of their "current worth." RTG is designed to enable investors to make
long-term gifts for college funding, long-term financial security or estate
planning.
HOW WE DID
Royce Trust & GiftShares Fund, with an eye-opening second quarter return of
33.7%, overcame a disappointing first quarter for small-cap stocks. Year-to-date
through June 30, 1999, RTG was up 16.5% versus 9.3% for its benchmark, the
small-cap oriented Russell 2000. The Fund also finished ahead of its benchmark
for the one-year, three-year and since inception (12/27/95) periods ended June
30, 1999. RTG's average annual total return since inception through June 30,
1999 was 25.3%.
Companies in the technology and natural resources sectors saw the largest gains
through June 30, 1999, but solid performing stocks could be found in almost
every sector of the portfolio. This is consistent with our value approach, in
which individual companies, not sector groups, are the basis for portfolio
decisions.
RTG has historically been one of Morningstar's "least volatile" funds as
measured by the Morningstar risk ratio and beta. The Fund, which allows donors
to combine the advantages of a trust with the benefits of a mutual fund, remains
one of the few mutual funds specifically designed for gifting and
estate-planning purposes. RTG's total net assets as of June 30, 1999 were $13
million.
[end sidebar]
ROYCE TRUST & GIFTSHARES FUND+
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS Through 6/30/99
- --------------------------------------------------------------------------------
<S> <C>
Second Quarter 1999* 33.7%
- --------------------------------------------------------------------------------
Jan-June 1999* 16.5
- --------------------------------------------------------------------------------
1-Year 23.0
- --------------------------------------------------------------------------------
3-Year 24.3
- --------------------------------------------------------------------------------
Since Inception (12/27/95) 25.3
- --------------------------------------------------------------------------------
</TABLE>
*Not Annualized
- --------------------------------------------------------------------------------
RISK/RETURN COMPARISON Inception (12/27/95) Through 6/30/99
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Average Annual Standard
Total Return Deviation RUR*
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
RTG 25.3% 19.7 1.28
- --------------------------------------------------------------------------------
Russell 2000 12.8% 21.1 0.61
- --------------------------------------------------------------------------------
</TABLE>
*Return per Unit of Risk (RUR) is the average annual total return divided by the
annualized standard deviation over a designated time period. Please read the
prospectus for a more complete discussion of risk.
Since its inception, Royce Trust & GiftShares Fund outperformed the Russell 2000
on BOTH an absolute and a risk-adjusted basis.
[line chart]
- --------------------------------------------------------------------------------
RECENT MARKET PERFORMANCE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------- --------------------
5/22/96 -- 6/30/99 4/21/98 -- 6/30/99
- -------------------- --------------------
<S> <C> <C> <C>
RTG 92.3% RTG 18.9%
- -------------------- --------------------
Russell 2000 31.0% Russell 2000 -5.4%
- -------------------- --------------------
</TABLE>
Data Date Russell 2000
12/31/95 0.00%
1/31/96 -0.11%
2/29/96 3.01%
3/31/96 5.11%
4/30/96 10.73%
5/31/96 15.09%
6/30/96 10.36%
7/31/96 0.73%
8/31/96 6.58%
9/30/96 10.75%
10/31/96 9.04%
11/30/96 13.54%
12/31/96 16.51%
1/31/97 18.84%
2/28/97 15.95%
3/31/97 10.48%
4/30/97 10.79%
5/31/97 23.12%
6/30/97 28.40%
7/31/97 34.37%
8/31/97 37.45%
9/30/97 47.51%
10/31/97 41.04%
11/30/97 40.12%
12/31/97 42.57%
1/31/98 40.32%
2/28/98 50.69%
3/31/98 56.90%
4/30/98 57.76%
5/31/98 49.26%
6/30/98 49.57%
7/31/98 37.45%
8/31/98 10.73%
9/30/98 19.40%
10/31/98 24.27%
11/30/98 30.78%
12/31/98 38.88%
1/31/99 40.73%
2/28/99 29.33%
3/31/99 31.32%
4/30/99 43.09%
5/31/99 45.18%
6/30/99 51.74%
[end line chart]
Royce Trust & GiftShares Fund outperformed the Russell 2000 from the 1996 and
1998 small-cap peaks.
- --------------------------------------------------------------------------------
ROYCE TRUST & GIFTSHARES FUND vs. RUSSELL 2000
Value of $10,000 Invested on 12/27/95
- --------------------------------------------------------------------------------
[line chart]
Data
RTG Rus. 2000
Quarter Ended Cumul. Return Cumul. Return
12/31/95 10,000 10,000
12/31/95 10,020 10,064
3/31/96 10,600 10,578
6/30/96 11,500 11,107
9/30/96 11,600 11,145
12/31/96 12,580 11,724
3/31/97 12,645 11,117
6/30/97 14,111 12,920
9/30/97 15,621 14,843
12/31/97 15,853 14,346
3/31/98 18,033 15,787
6/30/98 17,941 15,052
9/30/98 14,752 12,020
12/31/98 18,941 13,981
3/31/99 16,505 13,223
6/30/99 22,067 15,279
[end line chart]
Includes reinvestment of distributions.
22 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
PERFORMANCE AND PORTFOLIO REVIEW
- --------------------------------------------------------------------------------
DOWN MARKET PERFORMANCE COMPARISON
All Down Periods of 7.5% or Greater, in Percentages (%)
[bar chart]
<TABLE>
<CAPTION>
RTG Russell 2000
--- ------------
<S> <C> <C>
- ----------------------------------------------
5/22/96 - -3.5 -15.4
7/24/96
- ----------------------------------------------
1/22/97 - -0.5 -9.0
4/25/97
- ----------------------------------------------
10/13/97 - -3.8 -11.3
1/12/98
- ----------------------------------------------
4/21/98 - -30.7 -36.5
10/8/98
- ----------------------------------------------
</TABLE>
[end bar chart]
Royce Trust & GiftShares Fund outperformed the Russell 2000 during all four down
market periods since its inception.
<TABLE>
<CAPTION>
- ------------------------------------- -----------------------------------
PORTFOLIO DIAGNOSTICS TOP 10 POSITIONS % of Net Assets
- ------------------------------------- -----------------------------------
<S> <C> <S> <C>
Median Market Cap. $391 million Richardson Electronics 3.2%
- ------------------------------------- -----------------------------------
Weighted Average P/E Ratio 15.8x Nabors Industries 3.1
- ------------------------------------- -----------------------------------
Weighted Average P/B Ratio 1.7x Kent Electronics 2.9
- ------------------------------------- -----------------------------------
Weighted Average Yield 0.7% Carbo Ceramics 2.7
- ------------------------------------- -----------------------------------
Net Assets $13 million Pioneer-Standard Electronics 2.7
- ------------------------------------- -----------------------------------
Turnover Rate 86% Charming Shoppes 2.7
- ------------------------------------- -----------------------------------
Symbol (Investment Class) RGFAX Air Express International 2.6
(Consultant Class) RGFCX -----------------------------------
- ------------------------------------- Avnet 2.6
-----------------------------------
Exar 2.4
-----------------------------------
Respironics 2.4
-----------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO SECTOR BREAKDOWN With Examples % of Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Technology Components and Systems, Software/Services, Semiconductors and Equipment 30.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Natural Resources Oil and Gas, Energy Services, Real Estate 11.9
- ------------------------------------------------------------------------------------------------------------------------------
Consumer Products Home Furnishing/Appliances, Apparel and Shoes, Publishing 10.5
- ---------------------------------------------------------------------------------------------------------------------------
Industrial Services Transportation and Logistics, Printing, Engineering and Construction 10.1
- -------------------------------------------------------------------------------------------------------------------------
Health Surgical Products and Devices, Drugs and Biotech, Health Services 9.2
- -----------------------------------------------------------------------------------------------------------------------
Industrial Products Building Systems and Components, Construction Materials, Specialty Chemicals and Materials 4.6
- ------------------------------------------------------------------------------------------------------------------
Financial Intermediaries Insurance, Banking, Securities Broker 2.8
- ---------------------------------------------------------------------------------------
Consumer Services Retail Stores, Restaurants/Lodgings, Leisure/Entertainment 2.7
- -----------------------------------------------------------------------------------
Miscellaneous 3.8
- ------------------------------------------------------------------------------------------------------
Cash & Cash Equivalents 14.1
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ All performance and risk information presented herein is for RTG's Investment
Class. Shares of RTG's Consultant Class, which commenced operations on
September 26, 1997, bear an annual distribution expense and are subject to a
deferred sales charge, which are not borne by the Investment Class.
<TABLE>
<CAPTION>
- ------------------------------------------
GOOD IDEAS THAT WORKED
Realized and Unrealized Gain
Year-to-Date Through 6/30/99
- ------------------------------------------
<S> <C>
Trex Company $251,326
- ------------------------------------------
Kent Electronics 218,175
- ------------------------------------------
Unitrode 185,033
- ------------------------------------------
Carbo Ceramics 167,377
- ------------------------------------------
Pioneer-Standard Electronics 123,484
- ------------------------------------------
Combined Gain $945,395
- ------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------
GOOD IDEAS AT THE TIME
Realized and Unrealized Loss
Year-to-Date Through 6/30/99
- ------------------------------------------
<S> <C>
BHA Group Holdings $ 88,952
- ------------------------------------------
800 JR Cigar 79,232
- ------------------------------------------
BioReliance Corporation 44,531
- ------------------------------------------
Olsten 43,629
- ------------------------------------------
Segue Software 41,738
- ------------------------------------------
Combined Loss $298,082
- ------------------------------------------
</TABLE>
Trex Company -- A rare instance of an attractively priced IPO, Trex manufactures
recycled porch, patio and deck installation materials. The stock performed
beyond our expectations, more than doubling after two months, so we sold our
position.
Unitrode -- We began to build a position in this analog semiconductor
manufacturer during 1998's third-quarter downdraft, when its stock became cheap.
The business cycle for semiconductors turned around, and investors soon
followed, moving the stock price higher.
BHA Group Holdings -- This manufacturer of air-pollution filtration systems for
smokestacks was plagued by a slowdown in global manufacturing, particularly in
southeast Asia, at a time when they were expanding into the apparel business.
Although somewhat skeptical about the new venture, we believe that the core
business is strong enough to help the stock price to recover.
800 JR Cigar -- A leading retail marketer selling premium cigars at a discount,
the company, one of our top gainers in 1998, has been caught in a glut that has
reduced cigar and stock prices alike. We are confident that its clever
management -- who own the majority of the stock -- can get the company smoking
again.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 23
<PAGE>
[sidebar]
WHAT WE DO
Royce Total Return Fund (RTR) 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.
HOW WE DID
Royce Total Return Fund overcame a difficult first quarter for small-cap stocks
with a return of 12.3% in the second quarter. The Fund's slow first-quarter
start hindered its year-to-date progress. Through June 30, 1999, RTR was up 1.9%
versus a gain of 9.3% for its benchmark, the small-cap oriented Russell 2000.
However, the Fund has outperformed its benchmark for the three-year, five-year
and since inception (12/15/93) periods ended June 30, 1999. RTR also enjoyed a
performance edge over its benchmark from the small-cap market peaks in May 1996
(+47.7% vs. +31.0% for the Russell 2000) and April 1998 (-2.2% vs. -5.4%).
The Fund's year-to-date performance through June 30, 1999 is best viewed not as
an isolated period, but as part of the small-cap rebound that began following
the small-cap bottom on October 8, 1998. Due to its emphasis on risk management,
RTR performed much better relative to its benchmark, the Russell 2000, as well
as the other Royce Funds during the 1998 downturn, giving it less ground to
recover in 1999.
Still one of the few mutual funds to focus on dividend-paying small- and
micro-cap companies, RTR has historically been one of Morningstar's "least
volatile" small-cap funds as measured by the Morningstar risk ratio and beta.
Total net assets at June 30, 1999 were $267 million. The Fund's average annual
total return since inception was 15.4%.
[end sidebar]
ROYCE TOTAL RETURN FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS Through 6/30/99
- --------------------------------------------------------------------------------
<S> <C>
Second Quarter 1999* 12.3%
- --------------------------------------------------------------------------------
Jan-June 1999* 1.9
- --------------------------------------------------------------------------------
1-Year -0.5
- --------------------------------------------------------------------------------
3-Year 13.2
- --------------------------------------------------------------------------------
5-Year 17.3
- --------------------------------------------------------------------------------
Since Inception (12/15/93) 15.4
- --------------------------------------------------------------------------------
</TABLE>
*Not annualized
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
RISK/RETURN COMPARISON Inception (12/15/93) Through 6/30/99
- --------------------------------------------------------------------------------
Average Annual Standard
Total Return Deviation RUR
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
RTR 15.4% 9.4 1.64
- --------------------------------------------------------------------------------
Russell 2000 13.1% 16.8 0.78
- --------------------------------------------------------------------------------
</TABLE>
Return per Unit of Risk (RUR) is the average annual total return divided by the
annualized standard deviation over a designated time period. Please read the
prospectus for a more complete discussion of risk.
Since its inception, Royce Total Return Fund outperformed the Russell 2000 on
BOTH an absolute and a risk-adjusted basis.
[line chart]
- --------------------------------------------------------------------------------
RECENT MARKET PERFORMANCE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------- ----------------------
5/22/96 -- 6/30/99 4/21/98 -- 6/30/99
- ---------------------- ----------------------
<S> <C> <S> <C>
RTR 47.7% RTR -2.2%
- ---------------------- ----------------------
Russell 2000 31.0% Russell 2000 -5.4%
- ---------------------- ----------------------
</TABLE>
Data Date Russell 2000
12/31/95 0.00%
1/31/96 -0.11%
2/29/96 3.01%
3/31/96 5.11%
4/30/96 10.73%
5/31/96 15.09%
6/30/96 10.36%
7/31/96 0.73%
8/31/96 6.58%
9/30/96 10.75%
10/31/96 9.04%
11/30/96 13.54%
12/31/96 16.51%
1/31/97 18.84%
2/28/97 15.95%
3/31/97 10.48%
4/30/97 10.79%
5/31/97 23.12%
6/30/97 28.40%
7/31/97 34.37%
8/31/97 37.45%
9/30/97 47.51%
10/31/97 41.04%
11/30/97 40.12%
12/31/97 42.57%
1/31/98 40.32%
2/28/98 50.69%
3/31/98 56.90%
4/30/98 57.76%
5/31/98 49.26%
6/30/98 49.57%
7/31/98 37.45%
8/31/98 10.73%
9/30/98 19.40%
10/31/98 24.27%
11/30/98 30.78%
12/31/98 38.88%
1/31/99 40.73%
2/28/99 29.33%
3/31/99 31.32%
4/30/99 43.09%
5/31/99 45.18%
6/30/99 51.74%
[end line chart]
Royce Total Return Fund outperformed the Russell 2000 from the 1996 and 1998
small-cap peaks.
[Line chart]
- --------------------------------------------------------------------------------
ROYCE TOTAL RETURN FUND vs. RUSSELL 2000
Value of $10,000 Invested on 12/15/93
- --------------------------------------------------------------------------------
Data
RTR Rus. 2000
Quarter Ended Value Value
12/15/93 10,000 10,000
12/31/93 10,000 10,353
3/31/94 9,940 10,078
6/30/94 9,960 9,686
9/30/94 10,360 10,358
12/31/94 10,513 10,165
3/31/95 11,149 10,634
6/30/95 12,010 11,630
9/30/95 12,996 12,779
12/31/95 13,336 13,056
3/31/96 13,961 13,724
6/30/96 15,234 14,410
9/30/96 15,512 14,459
12/31/96 16,734 15,211
3/31/97 17,159 14,423
6/30/97 18,861 16,762
9/30/97 20,483 19,256
12/31/97 20,698 18,611
3/31/98 22,129 20,482
6/30/98 22,212 19,527
9/30/98 19,872 15,594
12/31/98 21,682 18,138
3/31/99 19,671 17,155
6/30/99 22,095 19,822
[End line chart]
Includes reinvestment of distributions.
24 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
PERFORMANCE AND PORTFOLIO REVIEW
- --------------------------------------------------------------------------------
[bar chart]
- --------------------------------------------------------------------------------
DOWN MARKET PERFORMANCE COMPARISON
All Down Periods of 7.5% or Greater, in Percentages (%)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RTR Russell 2000
- ---------------------------------------
<S> <C> <C>
3/18/94 - 1.8 -12.3
12/9/94
- ---------------------------------------
5/22/96 - -0.5 -15.4
7/24/96
- ---------------------------------------
1/22/97 - 0.2 -9.0
4/25/97
- ---------------------------------------
10/13/97 - -2.7 -11.3
1/12/98
- ---------------------------------------
4/21/98 - -19.0 -36.5
10/8/98
- ---------------------------------------
</TABLE>
[end bar chart]
Royce Total Return Fund outperformed the Russell 2000 during all five major
downturns since its inception.
<TABLE>
<CAPTION>
- ------------------------------------- -----------------------------------
PORTFOLIO DIAGNOSTICS TOP 10 POSITIONS % of Net Assets
- ------------------------------------- -----------------------------------
<S> <C> <S> <C>
Median Market Cap. $390 million Charming Shoppes 1.9%
- ------------------------------------- -----------------------------------
Weighted Average P/E Ratio 13.4x Zenith National Insurance 1.6
- ------------------------------------- -----------------------------------
Weighted Average P/B Ratio 1.5x FirstWorld Communications 1.5
- ------------------------------------- -----------------------------------
Weighted Average Yield 3.3% Helmerich & Payne 1.5
- ------------------------------------- -----------------------------------
Net Assets $267 million Lincoln Electric Holdings 1.4
- ------------------------------------- -----------------------------------
Turnover Rate 15% Carbo Ceramics 1.4
- ------------------------------------- -----------------------------------
Symbol (Investment Class) RYTRX Air Express International 1.4
- ------------------------------------- -----------------------------------
NN Ball & Roller 1.4
-----------------------------------
Chelsea GCA Realty 1.3
-----------------------------------
Florida Rock Industries 1.3
-----------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PORTFOLIO SECTOR BREAKDOWN With Examples % of Net Assets
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Industrial Products Building Systems and Components, Construction Materials, Specialty Chemicals and Materials 21.4%
- ---------------------------------------------------------------------------------------------------------------------
Industrial Services Transportation and Logistics, Printing, Engineering and Construction 16.2
- ----------------------------------------------------------------------------------------------------------------
Financial Intermediaries Insurance, Banking, Securities Brokers 11.0
- -------------------------------------------------------------------------------------------------------------
Natural Resources Oil and Gas, Energy Services, Real Estate 8.3
- ---------------------------------------------------------------------------------------------------------
Consumer Products Home Furnishing/Appliances, Apparel and Shoes, Publishing 7.9
- -------------------------------------------------------------------------------------------------------
Technology Components and Systems, Software/Services, Semiconductors and Equipment 5.4
- ----------------------------------------------------------------------------------------------------
Financial Services Insurance Brokers, Investment Management, Information and Processing 5.2
- --------------------------------------------------------------------------------------------------
Health Surgical Products and Devices, Drugs and Biotech, Health Services 1.0
- --------------------------------------------------------------------------------------------
Consumer Services Retail Stores, Restaurants/Lodgings, Leisure/Entertainment 0.6
- -----------------------------------------------------------------------------------
Utilities 0.3
- ------------------------------------------------------------------------------
Miscellaneous 5.0
- ------------------------------------------------------------------------------------------------
Bonds & Preferred Stocks 7.9
- -------------------------------------------------------------------------------------------------------
Cash & Cash Equivalents 9.8
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------
GOOD IDEAS THAT WORKED
Realized and Unrealized Gain
Year-to-Date Through 6/30/99
- ------------------------------------------
<S> <C>
Carbo Ceramics $1,633,797
- ------------------------------------------
Helix Technology 1,254,531
- ------------------------------------------
Roper Industries 1,162,500
- ------------------------------------------
Florida Rock Industries 1,149,263
- ------------------------------------------
Helmerich & Payne 913,224
- ------------------------------------------
Combined Gain $6,113,315
- ------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------
GOOD IDEAS AT THE TIME
Realized and Unrealized Loss
Year-to-Date Through 6/30/99
- ------------------------------------------
<S> <C>
Stone & Webster $ 919,873
- ------------------------------------------
PXRE 911,754
- ------------------------------------------
Capitol Transamerica 892,912
- ------------------------------------------
Fab Industries 805,000
- ------------------------------------------
Velcro Industries 616,050
- ------------------------------------------
Combined Loss $4,145,589
- ------------------------------------------
</TABLE>
Carbo Ceramics -- A manufacturer of propends, a ceramic pellet used in oil
exploration, Carbo's fortunes tend to move with the oil industry's. Even in the
context of a general rebound in energy stocks, we were pleasantly surprised by
the stock's performance, and remain enthused about the long-term prospects for
the company.
Helix Technology -- A strong dividend-paying company whose shares we bought
during the 1998 third-quarter downturn, this semiconductor capital equipment
supplier was something of an opportunistic purchase for us. Although subject to
the cyclical nature of the semiconductor business, Helix is a solid company that
we believe is well-positioned for future growth.
Stone & Webster -- A slowdown in the global economy made life difficult for many
engineering and construction firms, and Stone & Webster was no exception. Signs
of strain on the balance sheet led us to sell the position in this Fund.
PXRE -- The catastrophe reinsurance industry was pressured by a glut of capital
and not enough well-placed risk to absorb it. The situation has depressed the
earnings of several reinsurers, but recent industry-wide consolidation activity
makes us hopeful about the future of PXRE.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 25
<PAGE>
[sidebar]
WHAT WE DO
Royce Low-Priced Stock Fund (RLP) seeks long-term growth of capital. The Fund
uses a value approach to invest in a diversified portfolio of small- and
micro-cap companies trading for less than $15 per share at the time of
investment.
HOW WE DID
Royce Low-Priced Stock Fund's diversified portfolio of small- and micro-cap
companies helped it to recover from a disappointing first quarter, with a
second-quarter return of 26.6%. Strong performance for small-cap in general, and
our own disciplined approach in particular, contributed to the Fund's impressive
second quarter. Many of RLP's recent successes were the result of our discipline
- -- namely, investing when both small-cap interest and respective stock prices
were low. Year-to-date through June 30, 1999, the Fund was up 14.4% versus 9.3%
for its benchmark, the small-cap oriented Russell 2000. For the second quarter,
one-year, three-year, five-year and since inception (12/15/93) periods ended
June 30, 1999, RLP outperformed its benchmark. The Fund's average annual total
return since inception was 15.0%.
The Fund's ten-best performing stocks contributed to much of the portfolio's net
gains year-to-date through June 30, 1999. These companies represent both newer
selections and longer-term holdings in which our patience was rewarded.
RLP remains one of only two low-priced stock mutual funds. Institutional
investors generally do not make low-priced securities an area of focus, and
research coverage is limited. We believe that these conditions create
significant investment opportunity. While low-priced stocks are typically higher
in risk than many larger, more established companies, we believe that the
potential for higher reward is commensurate with the higher level of risk. The
Fund, with total net assets through June 30, 1999 of $22 million, now has more
than five years of performance history.
[end sidebar]
ROYCE LOW-PRICED STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS Through 6/30/99
- --------------------------------------------------------------------------------
<S> <C>
Second Quarter 1999* 26.6%
- --------------------------------------------------------------------------------
Jan-June 1999* 14.4
- --------------------------------------------------------------------------------
1-Year 1.6
- --------------------------------------------------------------------------------
3-Year 12.2
- --------------------------------------------------------------------------------
5-Year 17.6
- --------------------------------------------------------------------------------
Since Inception (12/15/93) 15.0
- --------------------------------------------------------------------------------
</TABLE>
*Not annualized
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
RISK/RETURN COMPARISON Inception (12/15/93) Through 6/30/99
- --------------------------------------------------------------------------------
Average Annual Standard
Total Return Deviation RUR
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
RLP 15.0% 15.4 0.97
- --------------------------------------------------------------------------------
Russell 2000 13.1% 16.8 0.78
- --------------------------------------------------------------------------------
</TABLE>
Return per Unit of Risk (RUR) is the average annual total return divided by the
annualized standard deviation over a designated time period. Please read the
prospectus for a more complete discussion of risk.
Since its inception, Royce Low-Priced Stock Fund outperformed the Russell 2000
on BOTH an absolute and risk-adjusted basis.
[line chart]
- -------------------------------------------------------
RECENT MARKET PERFORMANCE
- -------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------- ----------------------
5/22/96 -- 6/30/99 4/21/98 -- 6/30/99
- ---------------------- ----------------------
<S> <C> <S> <C>
RLP 35.8% RLP -0.4%
- ---------------------- ----------------------
Russell 2000 31.0% Russell 2000 -5.4%
- ---------------------- ----------------------
</TABLE>
Data Date Russell 2000
12/31/95 0.00%
1/31/96 -0.11%
2/29/96 3.01%
3/31/96 5.11%
4/30/96 10.73%
5/31/96 15.09%
6/30/96 10.36%
7/31/96 0.73%
8/31/96 6.58%
9/30/96 10.75%
10/31/96 9.04%
11/30/96 13.54%
12/31/96 16.51%
1/31/97 18.84%
2/28/97 15.95%
3/31/97 10.48%
4/30/97 10.79%
5/31/97 23.12%
6/30/97 28.40%
7/31/97 34.37%
8/31/97 37.45%
9/30/97 47.51%
10/31/97 41.04%
11/30/97 40.12%
12/31/97 42.57%
1/31/98 40.32%
2/28/98 50.69%
3/31/98 56.90%
4/30/98 57.76%
5/31/98 49.26%
6/30/98 49.57%
7/31/98 37.45%
8/31/98 10.73%
9/30/98 19.40%
10/31/98 24.27%
11/30/98 30.78%
12/31/98 38.88%
1/31/99 40.73%
2/28/99 29.33%
3/31/99 31.32%
4/30/99 43.09%
5/31/99 45.18%
6/30/99 51.74%
[end line chart]
Royce Low-Priced Stock Fund outperformed the Russell 2000 from the 1996 and 1998
small-cap peaks.
[Line chart]
- --------------------------------------------------------------------------------
ROYCE LOW-PRICED STOCK FUND vs. RUSSELL 2000
Value of $10,000 Invested on 12/15/93
- --------------------------------------------------------------------------------
Data
RLP Rus. 2000
Quarter Ended Value Value
12/15/93 10,000 10,000
12/31/93 10,020 10,353
3/31/94 9,780 10,078
6/30/94 9,659 9,686
9/30/94 10,259 10,358
12/31/94 10,319 10,165
3/31/95 11,011 10,634
6/30/95 12,131 11,630
9/30/95 13,005 12,779
12/31/95 12,644 13,056
3/31/96 14,443 13,724
6/30/96 15,388 14,410
9/30/96 14,780 14,459
12/31/96 15,526 15,211
3/31/97 15,404 14,423
6/30/97 16,660 16,762
9/30/97 19,125 19,256
12/31/97 18,550 18,611
3/31/98 21,107 20,482
6/30/98 21,379 19,527
9/30/98 16,782 15,594
12/31/98 18,989 18,138
3/31/99 17,159 17,155
6/30/99 21,722 19,822
[End line chart]
Includes reinvestment of distributions.
26 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
PERFORMANCE AND PORTFOLIO REVIEW
- --------------------------------------------------------------------------------
[bar chart]
- --------------------------------------------------------------------------------
DOWN MARKET PERFORMANCE COMPARISON
All Down Periods of 7.5% or Greater, in Percentages (%)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RLP Russell 2000
- ---------------------------------------
<S> <C> <C>
3/18/94 - -2.7 -12.3
12/9/94
- ---------------------------------------
5/22/96 - -10.5 -15.4
7/24/96
- ---------------------------------------
1/22/97 - -4.8 -9.0
4/25/97
- ---------------------------------------
10/13/97 - -9.9 -11.3
1/12/98
- ---------------------------------------
4/21/98 - -31.3 -36.5
10/8/98
- ---------------------------------------
</TABLE>
[end bar chart]
Royce Low-Priced Stock Fund outperformed the Russell 2000 during all five major
downturns since its inception.
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------
PORTFOLIO DIAGNOSTICS TOP 10 POSITIONS % of Net Assets
- ------------------------------------- ------------------------------------
<S> <C> <S> <C>
Median Market Cap. $261 million Charming Shoppes 3.8%
- ------------------------------------- ------------------------------------
Weighted Average P/E Ratio 17.1x Sevenson Environmental Services 3.3
- ------------------------------------- ------------------------------------
Weighted Average P/B Ratio 1.5x Morrison Knudsen 2.9
- ------------------------------------- ------------------------------------
Weighted Average Yield 0.9% Richardson Electronics 2.5
- ------------------------------------- ------------------------------------
Net Assets $22 million Denbury Resources 2.4
- ------------------------------------- ------------------------------------
Turnover Rate 29% Oakley 2.4
- ------------------------------------- ------------------------------------
Symbol RYLPX Frozen Food Express Industries 2.3
- ------------------------------------- ------------------------------------
AirNet Systems 2.3
------------------------------------
Titan Exploration 2.2
------------------------------------
Arnold Industries 2.2
------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Sector Breakdown With Examples % of Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Industrial Services Transportation and Logistics, Printing, Engineering and Construction 17.3%
- -----------------------------------------------------------------------------------------------------------------------------------
Technology Components and Systems, Software/Services, Semiconductors and Equipment 15.6
- --------------------------------------------------------------------------------------------------------------------------------
Health Surgical Products and Devices, Drugs and Biotech, Health Services 12.1
- ----------------------------------------------------------------------------------------------------------------------------
Consumer Products Home Furnishing/Appliances, Apparel and Shoes, Publishing 11.4
- --------------------------------------------------------------------------------------------------------------------------
Natural Resources Oil and Gas, Energy Services, Real Estate 9.0
- ------------------------------------------------------------------------------------------------------------------------
Consumer Services Retail Stores, Restaurants/Lodgings, Leisure/Entertainment 6.9
- ----------------------------------------------------------------------------------------------------------------------
Industrial Products Building Systems and Components, Construction Materials, Specialty Chemicals and Materials 4.3
- ------------------------------------------------------------------------------------------------------------------
Financial Intermediaries Insurance, Banking, Securities Brokers 2.1
- ------------------------------------------------------------------------------------------------------------
Financial Services Insurance Brokers, Investment Management, Information and Processing 2.1
- ------------------------------------------------------------------------------------------------------------
Miscellaneous 5.0
- --------------------------------------------------------------------------------------------------------------------
Cash & Cash Equivalents 14.2
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------
GOOD IDEAS THAT WORKED
Realized and Unrealized Gain
Year-to-Date Through 6/30/99
- -----------------------------------------
<S> <C>
Marshall Industries $ 427,926
- -----------------------------------------
Helix Technology 345,668
- -----------------------------------------
Global Industries 324,433
- -----------------------------------------
Charming Shoppes 265,956
- -----------------------------------------
ImClone Systems 228,394
- -----------------------------------------
Combined Gain $1,592,377
- -----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------
GOOD IDEAS AT THE TIME
Realized and Unrealized Loss
Year-to-Date Through 6/30/99
- -----------------------------------------
<S> <C>
Gibson Greetings $277,503
- -----------------------------------------
Richardson Electronics 228,375
- -----------------------------------------
Oakley 176,212
- -----------------------------------------
Titan Exploration 158,615
- -----------------------------------------
800 JR Cigar 146,211
- -----------------------------------------
Combined Loss $986,916
- -----------------------------------------
</TABLE>
Marshall Industries -- A long-time holding, this electronics distribution firm
was battling against outdated industry practices that hindered its development
and was coming off a disappointing earnings cycle when a larger company, Avnet,
bought them. Our years of patience with the company and our belief in its
innovative CEO paid off as Marshall was recognized for its superb value by an
industry leader.
Helix Technology -- A strong dividend-paying company whose shares we bought
during the 1998 third-quarter downturn, this semiconductor capital equipment
supplier was something of an opportunistic purchase for us. Although subject to
the cyclical nature of the semiconductor business, Helix is a solid company that
we believe is well-positioned for future growth.
Gibson Greetings -- Warren Buffet once remarked that when a great manager meets
a tough business, the business wins every time. So far, this investment has
proven him right, and we've reduced our position firm-wide.
Richardson Electronics -- The slowing Asian economy caused the stock of this
electronic components distributor to slump. The business has recently rebounded
sharply, and we hope that stock performance is not far behind. Our continued
confidence has led us to increase our position.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 27
<PAGE>
[sidebar]
WHAT WE DO
Royce Opportunity Fund (ROF), managed by Buzz Zaino and formerly named PMF II,
seeks long-term growth of capital. The Fund uses an opportunistic value approach
to invest in a diversified portfolio of small- and micro-cap companies.
HOW WE DID
Royce Opportunity Fund's diversified portfolio of small- and micro-cap
securities enjoyed a very strong second quarter, up 31.2% versus 15.6% for its
benchmark, the small-cap oriented Russell 2000. The Fund's more opportunistic
approach also helped it to outperform its benchmark on a year-to-date basis
through June 30, 1999, up 15.3% versus 9.3% for the Russell 2000. In addition,
ROF was ahead of its benchmark for the one-year and since inception (11/19/96)
periods, as well as from the April 1998 small-cap market peak, through June 30,
1999.
The Fund's strong year-to-date performance was helped by portfolio gains from
companies in the technology, industrial services and industrial products
sectors. An increased exposure to technology issues reflects the Fund's more
opportunistic approach.
ROF focuses its investment attention on turnarounds, undervalued growth
companies, unrecognized asset values and companies with interrupted earnings.
The Fund's total net assets as of June 30, 1999 were $47 million, and its
average annual total return since inception through June 30, 1999 was 17.9%.
[end sidebar]
ROYCE OPPORTUNITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS Through 6/30/99
- --------------------------------------------------------------------------------
<S> <C>
Second Quarter 1999* 31.2%
- --------------------------------------------------------------------------------
Jan-June 1999* 15.3
- --------------------------------------------------------------------------------
1-Year 12.4
- --------------------------------------------------------------------------------
2-Year 6.1
- --------------------------------------------------------------------------------
Since Inception (11/19/96) 17.9
- --------------------------------------------------------------------------------
</TABLE>
*Not Annualized
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
RISK/RETURN COMPARISON Inception (11/19/96) Through 6/30/99
- --------------------------------------------------------------------------------
Average Annual Standard
Total Return Deviation RUR
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
ROF 17.9% 20.9 0.86
- --------------------------------------------------------------------------------
Russell 2000 12.7% 21.1 0.60
- --------------------------------------------------------------------------------
</TABLE>
Return per Unit of Risk (RUR) is the average annual total return divided by the
annualized standard deviation over a designated time period. Please read the
prospectus for a more complete discussion of risk.
Since its inception, Royce Opportunity Fund outperformed the Russell 2000 on
BOTH an absolute and a risk-adjusted basis.
[line chart]
- --------------------------------------------------------------------------------
RECENT MARKET PERFORMANCE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------- --------------------
1/22/97 -- 6/30/99 4/21/98 -- 6/30/99
- -------------------- --------------------
<S> <C> <S> <C>
ROF 46.4% ROF 6.1%
- -------------------- --------------------
Russell 2000 27.4% Russell 2000 -5.4%
- -------------------- --------------------
</TABLE>
Data
Recent Market Peak Line for: ROF
Date Russell 2000
12/31/96 0.00%
1/31/97 2.00%
2/28/97 -0.48%
3/31/97 -5.18%
4/30/97 -4.91%
5/31/97 5.67%
6/30/97 10.21%
7/31/97 15.33%
8/31/97 17.97%
9/30/97 26.61%
10/31/97 21.05%
11/30/97 20.26%
12/31/97 22.37%
1/31/98 20.43%
2/28/98 29.33%
3/31/98 34.66%
4/30/98 35.40%
5/31/98 28.10%
6/30/98 28.37%
7/31/98 17.98%
8/31/98 -4.96%
9/30/98 2.48%
10/31/98 6.66%
11/30/98 12.25%
12/31/98 19.20%
1/31/99 20.79%
2/28/99 11.01%
3/31/99 12.72%
4/30/99 22.82%
5/31/99 24.61%
6/30/99 30.24%
[end line chart]
ROF outperformed the Russell 2000 from the 1997 and 1998 small-cap peaks.
[line chart]
- --------------------------------------------------------------------------------
ROYCE OPPORTUNITY FUND vs. RUSSELL 2000
Value of $10,000 invested on 11/19/96
- --------------------------------------------------------------------------------
Data
ROF Rus. 2000
Quarter ended Value Value
11/19/96 10,000 10,000
12/31/96 10,520 10,476
3/31/97 10,420 9,933
6/30/97 11,620 11,545
9/30/97 13,340 13,262
12/31/97 12,711 12,818
3/31/98 14,129 14,106
6/30/98 13,678 13,449
9/30/98 10,929 10,740
12/31/98 13,336 12,492
3/31/99 11,719 11,815
6/30/99 15,374 13,652
[end line chart]
Includes reinvestment of distributions.
28 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
PERFORMANCE AND PORTFOLIO REVIEW
- --------------------------------------------------------------------------------
[bar chart]
- --------------------------------------------------------------------------------
DOWN MARKET PERFORMANCE COMPARISON
All Down Periods of 7.5% or Greater, in Percentages (%)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ROF Russell 2000
- ---------------------------------------
<S> <C> <C>
1/22/97 - -1.1 -9.0
4/25/97
- ---------------------------------------
10/13/97 - -10.1 -11.3
1/12/98
- ---------------------------------------
4/21/98 - -33.6 -36.5
10/8/98
- ---------------------------------------
</TABLE>
[end bar chart]
ROF outperformed the Russell 2000 during all three down market periods since its
inception.
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------
PORTFOLIO DIAGNOSTICS TOP 10 POSITIONS % of Net Assets
- ------------------------------------- ------------------------------------
<S> <C> <S> <C>
Median Market Cap. $200 million Phoenix Technologies 1.4%
- ------------------------------------- ------------------------------------
Weighted Average P/E Ratio 13.6x Adaptive Broadband 1.2
- ------------------------------------- ------------------------------------
Weighted Average P/B Ratio 1.3x Merix 1.2
- ------------------------------------- ------------------------------------
Weighted Average Yield 0.7% Kent Electronics 1.1
- ------------------------------------- ------------------------------------
Net Assets $47 million DRS Technologies 1.1
- ------------------------------------- ------------------------------------
Turnover Rate 64% Varien Medical Systems 1.1
- ------------------------------------- ------------------------------------
Symbol RYPNX Cypress Semiconductor 1.0
- ------------------------------------- ------------------------------------
Innovex 1.0
------------------------------------
Vishay Intertechnology 1.0
------------------------------------
PSC 1.0
------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO SECTOR BREAKDOWN With Examples % of Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Technology Components and Systems, Software/Services, Seminconductors and Equipment 39.3%
- ------------------------------------------------------------------------------------------------------------------------------
Industrial Products Building Systems and Components, Construction Materials, Specialty Chemicals and Materials 20.8
- -------------------------------------------------------------------------------------------------------------------------
Industrial Services Transportation and Logistics, Printing, Engineering and Construction 11.0
- ------------------------------------------------------------------------------------------------------------------
Consumer Services Retail Stores, Restaurants/Lodgings, Leisure/Entertainment 5.9
- -----------------------------------------------------------------------------------------------------
Consumer Products Home Furnishing/Appliances, Apparel and Shoes, Publishing 5.9
- -----------------------------------------------------------------------------------------------------
Natural Resources Oil and Gas, Energy Services, Real Estate 2.8
- -------------------------------------------------------------------------------------
Health Surgical Products and Devices, Drugs and Biotech, Health Services 1.8
- -------------------------------------------------------------------------------
Financial Intermediaries Insurance, Banking, Securities Brokers 1.0
- --------------------------------------------------------------------------
Miscellaneous 4.7
- ----------------------------------------------------------------------------------------------
Bonds 0.3
- -------------------------------------------------------------------
Cash & Cash Equivalents 6.5
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------
GOOD IDEAS THAT WORKED
Realized and Unrealized Gain
Year-to-Date Through 6/30/99
- ------------------------------------------
<S> <C>
Adaptive Broadband $ 379,817
- ------------------------------------------
Phoenix Technologies 344,859
- ------------------------------------------
Arch Chemicals 316,268
- ------------------------------------------
InterTAN 296,440
- ------------------------------------------
Photon Dynamics 278,248
- ------------------------------------------
Combined Gain $1,615,632
- ------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------
GOOD IDEAS AT THE TIME
Realized and Unrealized Loss
Year-to-Date Through 6/30/99
- ------------------------------------------
<S> <C>
American Bank Note Holographics $ 358,673
- -------------------------------------------
Systems Software Associates 285,667
- -------------------------------------------
HMT Technology 283,118
- -------------------------------------------
Olin Corporation 265,415
- -------------------------------------------
Bell Industries 231,448
- -------------------------------------------
Combined Loss $1,424,321
- -------------------------------------------
</TABLE>
Adaptive Broadband -- This manufacturer of microwave relay equipment began both
to sell off other businesses in order to re-focus on their core product line,
and to buy back stock. An upturn in its industry also helped it to achieve some
very strong stock performance.
Phoenix Technologies -- The company was doing quite well manufacturing
IBM-compatible personal computer operating systems. Business became even
brighter with a so-far successful venture into Internet-related technologies.
American Bank Note Holographics -- Fraudulent accounting made this manufacturer
of holographic financial products look far better than it actually was.
Fortunately, some timely selling on our part saved the unfortunate experience
from being a total loss.
HMT Technology -- The anticipated gains for this supplier of high-performance
thin-film discs for personal computer hard drives that we purchased in 1998's
third quarter downturn failed to materialize. In light of the continued stock
price decline, we are re-examining our position.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 29
<PAGE>
UPDATES AND NOTES TO PERFORMANCE AND RISK INFORMATION
- --------------------------------------------------------------------------------
[graphic: desktop computer, THE ROYCE FUNDS displayed on the screen]
New @ www.roycefunds.com
We will soon be rolling out a new look for our website, designed for better
navigation and to make it easier than ever to stay connected to The Royce Funds.
What's New, our weekly feature, continues to be one of the site's most
popular spots. It gives you the latest from Royce, including market commentary
from Chuck Royce, performance highlights and updates on all of The Royce Funds.
Our inaugural plain-English Prospectus and Shareholder Guide debuted in
print and on our website in May. If you would like additional copies, please
call Investors Services at (800) 221-4268.
Y2K UPDATE
On June 3, 1999, Royce & Associates filed its latest report on Year 2000
(Y2K) readiness -- Form ADV-Y2K (Part I, Part II, and Continuation Sheet for
Part I, Item 11) -- as required by the U.S. Securities and Exchange Commission
(SEC). Form ADV-Y2K asks for specific Y2K information, such as the existence and
progress of Y2K compliance plans and contingency plans, systems that may be
affected by Y2K and readiness of third parties. Royce and the Funds are working
to ensure that our systems and those of our service providers are Y2K compliant,
and currently we do not anticipate that any Y2K-related problems will have a
material impact on Royce's ability to provide services to the Funds at current
levels.
- --------------------------------------------------------------------------------
NOTES TO PERFORMANCE AND RISK INFORMATION
All performance information is presented on a total return basis and
reflects the reinvestment of distributions. Past performance is no guarantee of
future results. Investment return and principal value will fluctuate, so that
shares may be worth more or less than their original cost when redeemed. The
Royce Funds invest primarily in securities of small-cap and/or micro-cap
companies that may involve considerably more risk than investments in securities
of larger-cap companies (see "Primary Risks" in the prospectus). Historical
market trends are not necessarily indicative of future market movements. There
can be no assurance that securities mentioned in this report will be included in
any Royce- managed portfolio in the future.
Morningstar proprietary risk ratio measures a fund's downside volatility
relative to all equity funds, which have an average score of 1.00. The lower the
risk ratio, the lower a fund's downside volatility has been. Beta is a measure
of sensitivity to market movements compared to the unmanaged S&P Index, with the
beta of the S&P 500 equal to 1.00. A low beta means that a fund's market
reflected volatility has been low. For the 422 funds in the small-cap objective
category with a three-year history the average Morningstar risk score was 1.45
and the average beta was 1.03 for the three years ended 6/30/99. The risk scores
for Royce Premier Fund, Royce Total Return Fund, Pennsylvania Mutual Fund and
Royce Trust & GiftShares Fund for this period were 0.88, 0.60, 0.86 and 0.86,
respectively, and the betas were 0.64, 0.45, 0.61 and 0.68, respectively.
Standard deviation is a statistical measure within which a fund's total returns
have varied over time. The greater the standard deviation, the greater a fund's
volatility.
The Russell 2000, Russell 2000 Value, Russell 2000 Growth, Nasdaq
Composite, Nasdaq 100, Dow Jones Internet Commerce Index and S&P 500 are
unmanaged indices of domestic common stocks. The (Center for Research in
Security Prices) CRSP 9-10 is an unmanaged composite representing the bottom two
deciles of stocks listed on the New York Stock Exchange, the American Stock
Exchange and the Nasdaq National Market. The CRSP 6-8 Composite represents the
next largest three deciles of stocks listed on these exchanges. The Royce Funds
and Royce Trust & GiftShares Fund are service marks of The Royce Funds.
Distributor: Royce Fund Services, Inc.
- --------------------------------------------------------------------------------
30 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
SCHEDULES OF INVESTMENTS JUNE 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
ROYCE PREMIER FUND
<TABLE>
<CAPTION>
COMMON STOCKS - 92.3%
SHARES VALUE
<S> <C> <C>
Consumer Products - 2.3%
Apparel and Shoes - 1.0%
Wolverine World Wide 431,000 $ 6,034,000
-------------
Sports and Recreation - 1.3%
Oakley* 1,058,800 7,543,950
-------------
13,577,950
=============
Consumer Services - 3.9%
Restaurants/Lodgings - 0.8%
Buffets* 448,385 5,156,427
-------------
Retail Stores - 3.1%
Charming Shoppes* 3,008,500 18,333,047
-------------
23,489,474
=============
Financial Intermediaries - 12.1%
Insurance - 12.1%
Commerce Group 623,500 15,197,812
Erie Indemnity Company Cl. A 215,700 6,147,450
Medical Assurance* 196,390 5,548,018
RenaissanceRe Holdings 196,600 7,274,200
Trenwick Group 409,100 10,086,872
Wesco Financial 36,730 11,386,300
Zenith National Insurance 681,400 16,779,475
-------------
72,420,127
=============
Financial Services - 10.4%
Information and Processing - 0.4%
Fair, Isaac and Co. 63,900 2,240,494
-------------
Insurance Brokers - 5.4%
Blanch (E.W.) Holdings 239,300 16,317,269
Gallagher (Arthur J.) & Co. 330,700 16,369,650
-------------
32,686,919
-------------
Investment Management - 4.6%
Affiliated Managers Group* 200,700 6,058,631
John Nuveen Company Cl. A 216,800 9,254,650
Pioneer Group (The)* 695,900 12,004,275
-------------
27,317,556
-------------
62,244,969
=============
Health - 4.6%
Drugs and Biotech - 2.0%
Chiron* 578,400 12,001,800
-------------
Surgical Products and Devices - 2.6%
Haemonetics* 780,000 15,648,750
-------------
27,650,550
=============
Industrial Products - 18.2%
Building Systems and Components - 2.6%
Simpson Manufacturing* 332,000 15,770,000
-------------
Construction Materials - 3.5%
Florida Rock Industries 453,700 20,643,350
-------------
<CAPTION>
SHARES VALUE
<S> <C> <C>
Machinery - 4.6%
Lincoln Electric Holdings 713,890 $ 14,634,745
Nordson 212,800 13,034,000
-------------
27,668,745
-------------
Pumps, Valves and Bearings - 3.2%
Kaydon Corporation 324,700 10,918,037
Roper Industries 263,500 8,432,000
-------------
19,350,037
-------------
Specialty Chemicals and Materials - 1.5%
Lilly Industries Cl. A 491,200 9,117,900
-------------
Textiles - 2.8%
Unifi* 777,200 16,515,500
-------------
109,065,532
=============
Industrial Services - 11.0%
Engineering and Construction - 2.1%
Morrison Knudsen* 1,232,400 12,709,125
-------------
Printing - 3.4%
Bowne & Co. 416,100 5,409,300
Merrill Corporation 392,200 5,686,900
New England Business Service 298,900 9,228,538
-------------
20,324,738
-------------
Transportation and Logistics - 5.5%
Air Express International 571,500 14,501,813
Arnold Industries 581,300 8,973,819
Circle International Group 278,100 6,083,437
Expeditors International
of Washington 121,600 3,313,600
-------------
32,872,669
-------------
65,906,532
=============
Natural Resources - 7.3%
Gold - 0.9%
Anglogold ADR+ 245,100 5,269,650
-------------
Oil and Gas - 6.4%
Tom Brown* 1,022,010 15,905,031
Devon Energy 342,300 12,237,225
Renaissance Energy* 755,800 10,162,879
-------------
38,305,135
-------------
43,574,785
=============
Technology - 22.5%
Aerospace/Defense - 3.6%
Curtiss-Wright 356,600 13,862,825
Woodward Governor 294,556 7,658,456
-------------
21,521,281
-------------
Components and Systems - 3.1%
Dionex* 236,700 9,586,350
National Instruments* 223,300 9,015,737
-------------
18,602,087
-------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 31
<PAGE>
SCHEDULES OF INVESTMENTS
- --------------------------------------------------------------------------------
ROYCE PREMIER FUND (continued)
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Technology (continued)
Distribution - 7.1%
Arrow Electronics* 180,200 $ 3,423,800
Avnet 351,400 16,340,100
Marshall Industries* 632,600 22,734,063
------------
42,497,963
------------
Semiconductors and Equipment - 2.3%
Dallas Semiconductor 276,300 13,953,150
------------
Software/Services - 6.4%
Comdisco 577,600 14,801,000
National Computer Systems 642,600 21,687,750
Structural Dynamics Research* 80,000 1,485,000
------------
37,973,750
------------
134,548,231
============
TOTAL COMMON STOCKS
(Cost $425,973,148) 552,478,150
============
REPURCHASE AGREEMENT - 3.5%
State Street Bank and Trust Company,
4.25% dated 6/30/99, due 7/01/99,
maturity value $21,002,479
(collateralized by U.S. Treasury Notes,
5.50% due 2/29/00, valued at $21,422,636)
(Cost $21,000,000) 21,000,000
============
TOTAL INVESTMENTS - 95.8%
(Cost $446,973,148) 573,478,150
CASH AND OTHER ASSETS
LESS LIABILITIES - 4.2% 25,099,654
------------
NET ASSETS--100.0% $598,577,804
============
</TABLE>
ROYCE MICRO-CAP FUND
COMMON STOCKS - 96.1%
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Consumer Products - 12.6%
Apparel and Shoes - 2.1%
North Face (The)* 82,100 $ 810,738
Oshkosh B'Gosh Cl. A 94,400 1,994,200
------------
2,804,938
------------
Food/Beverage/Tobacco - 0.9%
800 JR Cigar* 95,400 1,180,575
------------
Home Furnishing/Appliances - 3.7%
Bassett Furniture Industries 85,000 1,944,375
Conso International* 252,200 1,450,150
Fedders Corporation Cl. A 71,900 440,387
Lifetime Hoan 127,780 1,165,993
Neutral Posture Ergonomics* 20,200 42,925
------------
5,043,830
------------
Publishing - 1.4%
Franklin Electronic Publishers* 47,000 173,312
Topps Company (The)* 249,000 1,813,031
------------
1,986,343
------------
Sports and Recreation - 1.3%
Aldila* 425,000 783,594
Johnson Worldwide Associates Cl. A* 105,250 960,406
------------
1,744,000
------------
Other Consumer Products - 3.2%
Lazare Kaplan International* 243,700 2,467,463
Rock of Ages Cl. A* 83,500 855,875
Velcro Industries 84,500 1,024,562
------------
4,347,900
------------
17,107,586
============
Consumer Services - 2.0%
Restaurants/Lodgings - 0.3%
Pizza Inn 133,400 446,056
------------
Retail Stores - 1.7%
Lechters* 237,300 593,250
Mikasa 70,000 791,875
Urban Outfitters* 32,900 826,613
------------
2,211,738
------------
2,657,794
============
Financial Intermediaries - 1.2%
Banking - 0.3%
Bay Bancshares 20,000 310,000
------------
Insurance - 0.9%
Capitol Transamerica 20,835 276,064
Highlands Insurance Group* 54,700 574,350
Navigators Group* 25,200 378,000
Nobel Insurance* 33,750 25,312
------------
1,253,726
------------
1,563,726
============
</TABLE>
32 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
JUNE 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Financial Services - 1.3%
Information and Processing - 1.2%
Duff & Phelps Credit Rating 24,000 $ 1,605,000
-------------
Investment Management - 0.1%
U.S. Global Investors Cl. A* 137,000 175,531
-------------
1,780,531
=============
Health - 3.9%
Commercial Services - 1.7%
ChiRex* 28,000 899,500
Young Innovations* 98,100 1,434,713
-------------
2,334,213
-------------
Drugs and Biotech - 1.3%
BioReliance* 166,500 1,082,250
International Isotopes* 73,100 676,175
-------------
1,758,425
-------------
Surgical Products and Devices - 0.9%
Allied Healthcare Products* 168,200 291,722
Empi* 38,000 926,250
-------------
1,217,972
-------------
5,310,610
=============
Industrial Products - 17.6%
Building Systems and Components - 3.9%
Falcon Products 159,600 1,625,925
Simpson Manufacturing* 40,800 1,938,000
Thor Industries 59,800 1,696,825
-------------
5,260,750
-------------
Construction Materials - 2.8%
Florida Rock Industries 57,200 2,602,600
Puerto Rican Cement 37,000 1,227,937
-------------
3,830,537
-------------
Industrial Components - 0.8%
Woodhead Industries 85,800 1,051,050
-------------
Machinery - 1.8%
Alamo Group 11,000 96,250
Lund International Holdings* 213,750 1,335,937
Oshkosh Truck 19,100 960,969
-------------
2,393,156
-------------
Paper and Packaging - 0.9%
PalEx* 200,400 1,214,925
-------------
Pumps, Valves and Bearings - 1.9%
Denison International ADR+* 67,400 1,036,275
NN Ball & Roller 55,700 320,275
Sun Hydraulics 137,600 1,229,800
-------------
2,586,350
-------------
Specialty Chemicals and Materials - 3.7%
CFC International* 158,600 1,704,950
Chemfab* 102,200 1,858,763
Hauser* 45,400 249,700
Synalloy 154,400 1,254,500
-------------
5,067,913
-------------
<CAPTION>
SHARES VALUE
<S> <C> <C>
Textiles - 0.3%
Fab Industries 30,700 $ 468,175
-------------
Other Industrial Products - 1.5%
Aerovox* 202,200 530,775
BHA Group Holdings 143,225 1,181,606
Mestek* 12,000 264,000
-------------
1,976,381
-------------
23,849,237
=============
Industrial Services - 16.1%
Commercial Services - 3.9%
++ Business Resource Group* 473,900 1,569,794
Carlisle Holdings* 185,400 2,688,300
Cornell Corrections* 64,200 1,055,287
-------------
5,313,381
-------------
Engineering and Construction - 3.0%
Sevenson Environmental Services 248,480 2,888,580
Willbros Group* 135,000 1,147,500
-------------
4,036,080
-------------
Food/Tobacco Processors - 2.0%
Midwest Grain Products* 148,050 1,647,056
Standard Commercial 166,755 979,686
-------------
2,626,742
-------------
Industrial Distribution - 1.5%
MPW Industrial Services Group* 28,800 288,000
Vallen* 109,300 1,748,800
-------------
2,036,800
-------------
Printing - 1.0%
Ennis Business Forms 154,600 1,323,762
-------------
Transportation and Logistics - 4.7%
AirNet Systems* 68,200 920,700
Circle International Group 105,700 2,312,188
Frozen Food Express Industries 252,650 1,926,456
Kenan Transport 34,430 1,058,723
Mark VII* 10,000 166,250
-------------
6,384,317
-------------
21,721,082
=============
Natural Resources - 5.0%
Energy Services - 1.6%
Carbo Ceramics 70,600 2,148,888
-------------
Oil and Gas - 3.4%
Denbury Resources* 385,100 1,684,812
PetroCorp* 202,300 1,239,088
Titan Exploration* 346,600 1,733,000
-------------
4,656,900
-------------
6,805,788
=============
Technology - 31.7%
Aerospace/Defense - 2.4%
Cubic 52,900 1,302,663
Special Metals* 204,300 1,187,494
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 33
<PAGE>
SCHEDULES OF INVESTMENTS
- --------------------------------------------------------------------------------
ROYCE MICRO-CAP FUND (continued)
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Technology (continued)
Aerospace/Defense (continued)
Woodward Governor 30,448 $ 791,648
------------
3,281,805
------------
Components and Systems - 10.1%
CEM* 85,700 642,750
Cerprobe* 5,500 55,000
Coherent* 126,300 2,352,337
HMT Technology* 154,000 385,000
Indigo* 10,000 35,625
Kentek Information Systems 73,400 569,997
Kofax Image Products* 37,500 365,625
Mackie Designs* 69,600 338,212
MOCON 162,975 957,478
Newport 112,700 1,746,850
PCD* 126,500 1,391,500
Penn Engineering &
Manufacturing 29,300 659,250
Perceptron* 65,000 296,563
Performance Technologies* 79,500 1,599,937
Rainbow Technologies* 103,450 1,222,003
VideoServer* 116,100 1,102,950
------------
13,721,077
------------
Distribution - 4.8%
Jaco Electronics* 101,800 419,925
Kent Electronics* 28,800 570,600
Pioneer-Standard Electronics 259,200 3,110,400
Richardson Electronics 344,000 2,343,500
------------
6,444,425
------------
Semiconductors and Equipment - 6.6%
Electroglas* 140,000 2,800,000
Exar* 110,500 2,734,875
Intevac* 222,900 1,225,950
Unitrode* 57,400 1,646,662
Veeco Instruments* 14,600 496,400
------------
8,903,887
------------
<CAPTION>
SHARES VALUE
<S> <C> <C>
Software/Services - 6.0%
CFI ProServices* 20,000 $ 225,000
CSP* 123,523 818,340
JDA Software Group* 112,400 1,046,725
Kronos* 62,700 2,852,850
MSC.Software* 297,500 1,729,219
New Horizons Worldwide* 12,500 246,875
Tyler Technologies* 175,400 1,205,875
------------
8,124,884
------------
Telecommunication - 1.8%
InterVoice* 50,000 721,875
Quanta Services* 5,000 220,000
REMEC* 88,700 1,430,287
------------
2,372,162
------------
42,848,240
============
Miscellaneous - 4.7% 6,332,163
============
TOTAL COMMON STOCKS
(Cost $122,822,251) 129,976,757
============
REPURCHASE AGREEMENT - 3.0%
State Street Bank and Trust Company,
4.25% dated 6/30/99, due 7/01/99,
maturity value $4,000,472
(collateralized by U. S. Treasury Bonds,
12.75% due 11/15/10, valued at $4,086,739)
(Cost $4,000,000) 4,000,000
============
TOTAL INVESTMENTS - 99.1%
(Cost $126,822,251) 133,976,757
CASH AND OTHER ASSETS
LESS LIABILITIES - 0.9% 1,229,280
------------
NET ASSETS - 100.0% $135,206,037
============
</TABLE>
34 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
JUNE 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
PENNSYLVANIA MUTUAL FUND
<TABLE>
<CAPTION>
COMMON STOCKS - 94.9%
SHARES VALUE
<S> <C> <C>
Consumer Products - 11.3%
Apparel and Shoes - 3.1%
Garan 89,500 $ 2,875,187
K-Swiss Cl. A 93,100 4,329,150
** North Face (The)* 95,100 939,112
Oshkosh B'Gosh Cl. A 262,100 5,536,863
Weyco Group 196,600 4,521,800
Wolverine World Wide 24,500 343,000
------------
18,545,112
------------
Collectibles - 1.1%
Department 56* 67,200 1,806,000
Enesco Group 206,200 4,768,375
------------
6,574,375
------------
Food/Beverage/Tobacco - 0.4%
** 800 JR Cigar* 177,000 2,190,375
------------
Home Furnishing/Appliances - 1.7%
Bassett Furniture Industries 171,575 3,924,778
Burnham Corporation Cl. A 51,526 1,945,107
Burnham Corporation Cl. B 4,442 167,685
Conso International* 74,700 429,525
Lifetime Hoan 368,199 3,359,816
------------
9,826,911
------------
Publishing - 1.4%
Gibson Greetings* 355,800 2,257,106
Topps Company (The)* 836,100 6,087,853
------------
8,344,959
------------
Sports and Recreation - 1.3%
Aldila* 207,100 381,841
Johnson Worldwide Associates Cl. A* 116,870 1,066,439
Oakley* 305,600 2,177,400
Sturm, Ruger & Co. 381,700 4,079,419
------------
7,705,099
------------
Other Consumer Products - 2.3%
Koala Corporation* 16,500 441,375
Lazare Kaplan International* 146,100 1,479,263
Matthews International Cl. A 138,200 4,094,175
Velcro Industries 628,000 7,614,500
------------
13,629,313
------------
66,816,144
============
Consumer Services - 3.0%
Restaurants/Lodgings - 0.5%
Buffets* 252,400 2,902,600
------------
Retail Stores - 2.5%
Catherines Stores* 145,800 1,804,275
Charming Shoppes* 994,900 6,062,672
Mikasa 202,200 2,287,388
Sunglass Hut International* 282,100 4,848,594
------------
15,002,929
------------
17,905,529
============
<CAPTION>
SHARES VALUE
<S> <C> <C>
Financial Intermediaries - 10.0%
Banking - 1.6%
Baker Boyer Bancorp 31,300 $ 1,627,600
Community Banks 65,677 1,403,846
F & M Bancorporation 13,800 814,200
Farmers & Merchants Bank of
Long Beach 1,266 3,513,150
Hanmi Bank* 27,849 407,289
Oriental Financial Group 84,833 2,046,596
------------
9,812,681
------------
Insurance - 8.3%
Alleghany Corporation* 5,409 1,000,665
Baldwin & Lyons Cl. B 125,678 2,976,998
Berkley (W. R.) 18,700 467,500
Capitol Transamerica 144,745 1,917,871
Chicago Title 62,409 2,227,221
Commerce Group 176,342 4,298,336
Fremont General 106,340 2,007,167
Highlands Insurance Group* 164,300 1,725,150
Medical Assurance* 230,909 6,523,179
NYMAGIC 72,800 1,137,500
Orion Capital 35,686 1,280,235
PMA Capital Cl. A 231,932 4,769,102
PXRE 207,441 3,759,868
RLI 46,681 1,808,889
Trenwick Group 153,800 3,792,131
Wesco Financial 13,560 4,203,600
Zenith National Insurance 209,400 5,156,475
------------
49,051,887
------------
Securities Brokers - 0.1%
Legg Mason 9,500 365,750
------------
59,230,318
============
Financial Services - 9.5%
Information and Processing - 2.2%
Duff & Phelps Credit Rating 98,299 6,573,746
Fair, Isaac and Co. 79,100 2,773,444
Investors Financial Services 85,608 3,424,320
------------
12,771,510
------------
Insurance Brokers - 4.0%
Blanch (E.W.) Holdings 83,000 5,659,562
Crawford & Co. Cl. A 386,875 5,222,813
Gallagher (Arthur J.) & Co. 172,500 8,538,750
Hilb, Rogal & Hamilton 183,300 4,101,338
------------
23,522,463
------------
Investment Management - 3.3%
Affiliated Managers Group* 98,900 2,985,544
Eaton Vance 171,200 5,895,700
John Nuveen Company Cl. A 67,800 2,894,213
Nvest LP 95,400 2,349,225
Phoenix Investment Partners 226,600 1,954,425
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 35
<PAGE>
SCHEDULES OF INVESTMENTS
- --------------------------------------------------------------------------------
PENNSYLVANIA MUTUAL FUND (continued)
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Financial Services (continued)
Investment Management (continued)
Pioneer Group (The)* 213,700 $ 3,686,325
-------------
19,765,432
-------------
56,059,405
=============
Health - 2.2%
Commercial Services - 0.5%
PAREXEL International* 203,600 2,710,425
-------------
Drugs and Biotech - 0.7%
BioReliance* 68,000 442,000
Chiron* 191,000 3,963,250
-------------
4,405,250
-------------
Health Services - 0.1%
** Jenny Craig* 123,400 431,900
-------------
Surgical Products and Devices - 0.9%
Haemonetics* 279,400 5,605,462
-------------
13,153,037
=============
Industrial Products - 16.7%
Building Systems and Components - 6.1%
Falcon Products 237,900 2,423,606
International Aluminum 131,700 3,629,981
Juno Lighting- WI 4,843 92,017
Juno Lighting 148,200 3,635,531
Kimball International Cl. B 178,000 3,003,750
Liberty Homes Cl. A 93,350 889,742
Liberty Homes Cl. B 21,950 201,666
Preformed Line Products Company 189,786 3,534,764
Simpson Manufacturing* 180,900 8,592,750
Skyline 169,200 4,959,675
Thor Industries 183,100 5,195,462
-------------
36,158,944
-------------
Construction Materials - 3.1%
Ash Grove Cement Company 50,018 4,814,233
Ash Grove Cement Company Cl. B 5,000 481,250
Florida Rock Industries 189,900 8,640,450
Puerto Rican Cement 135,600 4,500,225
-------------
18,436,158
-------------
Industrial Components - 0.2%
Woodhead Industries 104,650 1,281,962
-------------
Machinery - 1.9%
Lincoln Electric Holdings 257,380 5,276,290
Lund International Holdings* 117,300 733,125
Nordson 48,900 2,995,125
Oshkosh Truck 40,100 2,017,531
-------------
11,022,071
-------------
Paper and Packaging - 1.0%
CLARCOR 58,175 1,116,233
Liqui-Box 60,800 3,268,000
PalEx* 286,300 1,735,694
-------------
6,119,927
-------------
<CAPTION>
SHARES VALUE
<S> <C> <C>
Pumps, Valves and Bearings - 0.8%
Kaydon Corporation 118,900 $ 3,998,013
Robroy Industries Cl. A 26,274 312,004
Roper Industries 5,000 160,000
Sun Hydraulics 25,000 223,437
-------------
4,693,454
-------------
Specialty Chemicals and Materials - 1.6%
Aceto 24,546 282,279
CFC International* 59,100 635,325
Chemfab* 28,500 518,344
Lilly Industries Cl. A 229,761 4,264,939
MacDermid 86,231 4,009,742
-------------
9,710,629
-------------
Textiles - 1.3%
Fab Industries 184,232 2,809,538
Unifi* 219,300 4,660,125
-------------
7,469,663
-------------
Other Industrial Products - 0.7%
BHA Group Holdings 169,857 1,401,320
Myers Industries 135,132 2,702,640
-------------
4,103,960
-------------
98,996,768
=============
Industrial Services - 16.1%
Advertising/Publishing - 0.6%
Grey Advertising 10,031 3,340,323
-------------
Commercial Services - 2.1%
ABM Industries 96,600 2,964,412
CDI* 65,600 2,234,500
Carlisle Holdings* 310,500 4,502,250
Cornell Corrections* 102,700 1,688,131
Manpower 34,200 773,775
Olsten 8,900 56,181
-------------
12,219,249
-------------
Engineering and Construction - 2.9%
Morrison Knudsen* 433,400 4,469,438
Sevenson Environmental Services 234,400 2,724,900
Stone & Webster 205,700 5,476,762
Willbros Group* 518,050 4,403,425
-------------
17,074,525
-------------
Food/Tobacco Processors - 1.8%
** DIMON 243,000 1,260,563
Farmer Bros. 18,475 3,741,187
** Midwest Grain Products* 369,950 4,115,694
Standard Commercial 263,020 1,545,243
-------------
10,662,687
-------------
Industrial Distribution - 0.9%
Ritchie Bros. Auctioneers* 28,900 1,101,812
** Vallen* 269,400 4,310,400
-------------
5,412,212
-------------
</TABLE>
36 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
JUNE 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Industrial Services (continued)
Printing - 2.7%
Bowne & Co. 183,300 $ 2,382,900
Ennis Business Forms 346,100 2,963,481
Merrill Corporation 223,300 3,237,850
New England Business Service 129,900 4,010,663
Standard Register (The) 119,010 3,659,557
-------------
16,254,451
-------------
Transportation and Logistics - 5.1%
Air Express International 178,330 4,525,124
AirNet Systems* 292,100 3,943,350
Arnold Industries 351,048 5,419,304
Circle International Group 302,574 6,618,806
Frozen Food Express Industries 418,867 3,193,861
Kenan Transport 76,300 2,346,225
Pittston Company BAX Group 315,100 2,993,450
** Ryanair Holdings ADR+* 24,300 1,287,900
-------------
30,328,020
-------------
95,291,467
=============
Natural Resources - 6.2%
Energy Services - 1.4%
Carbo Ceramics 164,000 4,991,750
Helmerich & Payne 146,200 3,481,388
-------------
8,473,138
-------------
Oil and Gas - 4.2%
Barrett Resources* 156,200 5,994,175
Tom Brown* 380,600 5,923,088
** Denbury Resources* 1,056,872 4,623,815
Devon Energy 123,700 4,422,275
PetroCorp* 94,800 580,650
Tidewater 32,000 976,000
Titan Exploration* 488,900 2,444,500
-------------
24,964,503
-------------
Real Estate - 0.6%
Consolidated-Tomoka Land 49,400 719,387
FRP Properties* 102,500 2,639,375
-------------
3,358,762
-------------
36,796,403
=============
Technology - 14.9%
Aerospace/Defense - 2.2%
Curtiss-Wright 185,400 7,207,425
Special Metals* 307,600 1,787,925
Woodward Governor 159,272 4,141,072
-------------
13,136,422
-------------
Components and Systems - 3.2%
CEM* 50,000 375,000
Credence Systems* 15,400 571,725
Dionex* 132,276 5,357,178
Hach 25,350 459,469
<CAPTION>
SHARES VALUE
<S> <C> <C>
Hach Cl. A 28,461 $ 501,625
MOCON 83,400 489,975
Newport 141,200 2,188,600
PCD* 104,100 1,145,100
Penn Engineering &
Manufacturing 210,750 4,741,875
Penn Engineering &
Manufacturing Cl. A 47,050 958,644
Perceptron* 221,800 1,011,962
VideoServer* 138,100 1,311,950
-------------
19,113,103
-------------
Distribution - 1.6%
Arrow Electronics* 25,000 475,000
Marshall Industries* 189,600 6,813,750
Pioneer-Standard Electronics 20,000 240,000
Richardson Electronics 270,262 1,841,160
-------------
9,369,910
-------------
Semiconductors and Equipment - 5.0%
Analog Devices* 66,900 3,357,544
Dallas Semiconductor 73,400 3,706,700
Electroglas* 227,300 4,546,000
Exar* 243,900 6,036,525
Helix Technology 73,000 1,747,438
Kulicke & Soffa Industries* 39,600 1,061,775
** PRI Automation* 23,000 833,750
Unitrode* 277,200 7,952,175
Veeco Instruments* 7,100 241,400
-------------
29,483,307
-------------
Software/Services - 2.8%
Cognex* 101,200 3,194,125
Comdisco 59,300 1,519,563
Kronos* 21,900 996,450
MSC.Software* 144,500 839,906
National Computer Systems 251,106 8,474,828
Sybase* 150,400 1,654,400
Tyler Technologies* 25,000 171,875
-------------
16,851,147
-------------
Telecommunication - 0.1%
Level 3 Communications* 2,800 168,175
-------------
88,122,064
=============
Utilities - 0.1%
Southern Union* 7,946 172,825
=============
Miscellaneous - 4.9% 28,988,190
=============
TOTAL COMMON STOCKS
(Cost $368,702,750) 561,532,150
=============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 37
<PAGE>
SCHEDULES OF INVESTMENTS
- --------------------------------------------------------------------------------
PENNSYLVANIA MUTUAL FUND (continued)
<TABLE>
<CAPTION>
VALUE
<S> <C>
REPURCHASE AGREEMENT - 4.4%
State Street Bank and Trust
Company,
4.25% dated 6/30/99, due 7/01/99,
maturity value $26,003,069
(collateralized by U.S. Treasury Bonds,
8.00% due 11/15/21, valued at $26,520,156)
(Cost $26,000,000) $ 26,000,000
=============
TOTAL INVESTMENTS - 99.3%
(Cost $394,702,750) 587,532,150
CASH AND OTHER ASSETS
LESS LIABILITIES - 0.7% 4,211,636
------------
NET ASSETS - 100.0% $591,743,786
============
</TABLE>
ROYCE SELECT FUND
<TABLE>
<CAPTION>
COMMON STOCKS - 89.0%
SHARES VALUE
<S> <C> <C>
Consumer Products - 8.2%
Apparel and Shoes - 1.8%
North Face (The)* 9,900 $ 97,763
-----------
Food/Beverage/Tobacco - 2.3%
800 JR Cigar* 10,000 123,750
-----------
Home Furnishing/Appliances - 1.4%
Conso International* 13,000 74,750
-----------
Other Consumer Products - 2.7%
Lazare Kaplan International* 9,000 91,125
Velcro Industries 4,300 52,137
-----------
143,262
-----------
439,525
===========
Consumer Services - 5.8%
Restaurants/Lodgings - 1.8%
Buffets* 8,300 95,450
-----------
Retail Stores - 4.0%
Charming Shoppes* 35,000 213,281
-----------
308,731
===========
Financial Intermediaries - 2.2%
Insurance - 2.2%
Erie Indemnity Company Cl. A 2,500 71,250
Medical Assurance* 1,650 46,613
-----------
117,863
===========
Health - 5.3%
Drugs and Biotech - 2.3%
Respironics* 8,000 121,000
-----------
Surgical Products and Devices - 3.0%
Haemonetics* 8,000 160,500
-----------
281,500
===========
Industrial Products - 11.2%
Building Systems and Components - 2.3%
Falcon Products 12,000 122,250
-----------
Construction Materials - 1.7%
Florida Rock Industries 2,000 91,000
-----------
Machinery - 2.7%
Lincoln Electric Holdings 4,000 82,000
Nordson 1,000 61,250
-----------
143,250
-----------
Paper and Packaging - 1.8%
Peak International* 14,000 94,937
-----------
Specialty Chemicals and Materials - 1.2%
CFC International* 6,000 64,500
-----------
Other Industrial Products - 1.5%
BHA Group Holdings 9,600 79,200
-----------
595,137
===========
</TABLE>
38 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
JUNE 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Industrial Services - 19.4%
Commercial Services - 7.6%
Business Resource Group* 7,500 $ 24,844
CDI* 5,000 170,313
Manpower 4,000 90,500
Olsten 19,000 119,937
------------
405,594
------------
Food/Tobacco Processors - 1.4%
Midwest Grain Products* 6,500 72,313
------------
Transportation and Logistics - 10.4%
Air Express International 5,000 126,875
Circle International Group 8,000 175,000
Frozen Food Express Industries 18,000 137,250
Pittston Company BAX Group 12,000 114,000
------------
553,125
------------
1,031,032
============
Natural Resources - 8.5%
Energy Services - 4.9%
Carbo Ceramics 6,200 188,712
Nabors Industries* 3,000 69,673
------------
258,385
------------
Oil and Gas - 3.6%
Denbury Resources* 44,000 192,500
------------
450,885
============
<CAPTION>
SHARES VALUE
<S> <C> <C>
Technology - 28.4%
Aerospace/Defense - 2.8%
Curtiss-Wright 3,800 $ 147,725
------------
Components and Systems - 4.6%
National Instruments* 2,700 109,013
PCD* 12,500 137,500
------------
246,513
------------
Distribution - 14.0%
Arrow Electronics* 8,000 152,000
Avnet 3,000 139,500
Pioneer-Standard Electronics 20,000 240,000
Richardson Electronics 31,000 211,187
------------
742,687
------------
Semiconductors and Equipment - 2.7%
Align-Rite International* 5,000 69,375
Exar* 3,000 74,250
------------
143,625
------------
Software/Services - 1.9%
Structural Dynamics Research* 5,500 102,094
------------
Telecommunication - 2.4%
REMEC* 8,000 129,000
------------
1,511,644
============
TOTAL COMMON STOCKS
(Cost $4,015,550) 4,736,317
============
TOTAL INVESTMENTS - 89.0%
(Cost $4,015,550) 4,736,317
CASH AND OTHER ASSETS
LESS LIABILITIES - 11.0% 587,980
------------
NET ASSETS - 100.0% $ 5,324,297
============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 39
<PAGE>
SCHEDULES OF INVESTMENTS
- --------------------------------------------------------------------------------
ROYCE TRUST & GIFTSHARES FUND
<TABLE>
<CAPTION>
COMMON STOCKS - 85.9%
SHARES VALUE
<S> <C> <C>
Consumer Products - 10.5%
Apparel and Shoes - 2.6%
North Face (The)* 20,000 $ 197,500
Superior Uniform Group 12,000 150,000
------------
347,500
------------
Food/Beverage/Tobacco - 1.7%
800 JR Cigar* 18,500 228,938
------------
Home Furnishing/Appliances - 1.7%
Conso International* 40,000 230,000
------------
Publishing - 1.7%
Topps Company (The)* 31,500 229,359
------------
Other Consumer Products - 2.8%
Lazare Kaplan International* 22,800 230,850
Velcro Industries 12,000 145,500
------------
376,350
------------
1,412,147
============
Consumer Services - 2.7%
Retail Stores - 2.7%
Charming Shoppes* 58,300 355,266
============
Financial Intermediaries - 2.8%
Insurance - 2.8%
Medical Assurance* 4,318 121,983
Zenith National Insurance 10,000 246,250
------------
368,233
============
Health - 9.2%
Commercial Services - 0.9%
Young Innovations* 8,500 124,313
------------
Drugs and Biotech - 4.5%
Chiron* 13,400 278,050
Respironics* 21,000 317,625
------------
595,675
------------
Surgical Products and Devices - 3.8%
Empi* 10,500 255,937
Haemonetics* 12,600 252,788
------------
508,725
------------
1,228,713
============
Industrial Products - 4.6%
Machinery - 1.7%
Lincoln Electric Holdings 10,900 223,450
------------
Paper and Packaging - 1.8%
Peak International* 36,000 244,125
------------
Other Industrial Products - 1.1%
BHA Group Holdings 17,443 143,905
------------
611,480
============
<CAPTION>
SHARES VALUE
<S> <C> <C>
Industrial Services - 10.1%
Commercial Services - 3.4%
Manpower 9,300 $ 210,412
Olsten 38,000 239,875
------------
450,287
------------
Transportation and Logistics - 6.7%
Air Express International 13,800 350,175
AirNet Systems* 20,000 270,000
Circle International Group 12,900 282,188
------------
902,363
------------
1,352,650
============
Natural Resources - 11.9%
Energy Services - 5.9%
Carbo Ceramics 12,000 365,250
Nabors Industries* 17,000 415,437
------------
780,687
------------
Oil and Gas - 6.0%
Barrett Resources* 4,300 165,013
Denbury Resources* 70,000 306,250
Devon Energy 7,900 282,425
Titan Exploration* 10,100 50,500
------------
804,188
------------
1,584,875
============
Technology - 30.3%
Components and Systems - 3.7%
National Instruments* 5,600 226,100
Newport 6,000 93,000
PCD* 15,900 174,900
------------
494,000
------------
Distribution - 13.2%
Arrow Electronics* 12,000 228,000
Avnet 7,500 348,750
Kent Electronics* 19,700 390,306
Pioneer-Standard Electronics 30,000 360,000
Richardson Electronics 63,300 431,231
------------
1,758,287
------------
Semiconductors and Equipment - 4.6%
Dallas Semiconductor 2,600 131,300
Electroglas* 8,000 160,000
Exar* 13,200 326,700
------------
618,000
------------
Software/Services - 5.0%
Check Point Software Technologies* 5,000 268,125
JDA Software Group* 20,000 186,250
Kronos* 4,500 204,750
------------
659,125
------------
</TABLE>
40 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
JUNE 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Technology (continued)
Telecommunication - 3.8%
Excel Switching* 10,000 $ 299,375
REMEC* 13,100 211,237
-----------
510,612
-----------
4,040,024
===========
Miscellaneous - 3.8% 502,869
===========
TOTAL COMMON STOCKS
(Cost $9,573,845) 11,456,257
===========
REPURCHASE AGREEMENT - 7.5%
State Street Bank and Trust Company,
4.25% dated 6/30/99, due 7/01/99,
maturity value $1,000,118
(collateralized by U.S. Treasury
Notes, 5.625% due 11/30/99, valued at
$1,021,583) Cost $1,000,000) 1,000,000
===========
TOTAL INVESTMENTS - 93.4%
(Cost $10,573,845) 12,456,257
CASH AND OTHER ASSETS LESS
LIABILITIES - 6.6% 885,887
-----------
NET ASSETS - 100.0% $13,342,144
===========
</TABLE>
ROYCE TOTAL RETURN FUND
<TABLE>
<CAPTION>
COMMON STOCKS - 82.3%
SHARES VALUE
<S> <C> <C>
Consumer Products - 7.9%
Apparel and Shoes - 2.7%
Garan 69,600 $ 2,235,900
Oshkosh B'Gosh Cl. A 68,700 1,451,288
Superior Uniform Group 138,200 1,727,500
Wolverine World Wide 115,000 1,610,000
------------
7,024,688
------------
Collectibles - 0.8%
Enesco Group 94,400 2,183,000
------------
Food/Beverage/Tobacco - 0.5%
Fleetwood Enterprises 47,000 1,242,562
------------
Home Furnishing/Appliances - 1.8%
Bassett Furniture Industries 106,400 2,433,900
Flexsteel Industries 175,500 2,336,344
------------
4,770,244
------------
Sports and Recreation - 1.1%
Sturm, Ruger & Co. 283,000 3,024,563
------------
Other Consumer Products - 1.0%
Velcro Industries 222,000 2,691,750
------------
20,936,807
============
Consumer Services - 0.6%
Direct Marketing - 0.1%
Amway Japan ADR+ 80,000 400,000
------------
Retail Stores - 0.5%
Mikasa 111,900 1,265,869
------------
1,665,869
============
Financial Intermediaries - 11.0%
Insurance - 10.9%
Capitol Transamerica 166,800 2,210,100
Chartwell Re 40,300 750,588
Chicago Title 38,800 1,384,675
Commerce Group 145,700 3,551,437
Erie Indemnity Company Cl. A 79,000 2,251,500
LandAmerica Financial Group 16,300 468,625
LaSalle Re Holdings 74,900 1,273,300
NYMAGIC 83,900 1,310,938
PMA Capital Cl. A 154,380 3,174,439
PXRE 131,424 2,382,060
Trenwick Group 95,100 2,344,809
Wesco Financial 6,820 2,114,200
White Mountains Insurance Group 10,000 1,410,000
Zenith National Insurance 173,800 4,279,825
------------
28,906,496
------------
Securities Brokers - 0.1%
Legg Mason 9,666 372,141
------------
29,278,637
============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 41
<PAGE>
SCHEDULES OF INVESTMENTS
- --------------------------------------------------------------------------------
ROYCE TOTAL RETURN FUND (continued)
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Financial Services - 5.2%
Insurance Brokers - 2.1%
Crawford & Co. Cl. A 202,700 $ 2,736,450
Gallagher (Arthur J.) & Co. 58,400 2,890,800
-------------
5,627,250
-------------
Investment Management - 3.1%
Alliance Capital Management L.P. 27,000 872,438
John Nuveen Company Cl. A 77,900 3,325,356
Mackenzie Financial 101,400 1,118,569
Phoenix Investment Partners 354,000 3,053,250
-------------
8,369,613
-------------
13,996,863
=============
Health - 1.0%
Health Services - 1.0%
Arrow International 102,500 2,652,187
=============
Industrial Products - 21.4%
Building Systems and Components - 3.7%
Falcon Products 178,300 1,816,431
International Aluminum 55,200 1,521,450
Kimball International Cl. B 85,700 1,446,188
++ Mueller (Paul) 59,500 1,851,937
Skyline 40,000 1,172,500
Thor Industries 75,000 2,128,125
-------------
9,936,631
-------------
Construction Materials - 4.2%
Ameron International 20,500 904,563
Ash Grove Cement Company 610 58,712
Ash Grove Cement Company Cl. B 27,000 2,598,750
Florida Rock Industries 78,400 3,567,200
Oregon Steel Mills 140,000 1,863,750
Puerto Rican Cement 68,600 2,276,663
-------------
11,269,638
-------------
Industrial Components - 0.9%
Woodhead Industries 184,100 2,255,225
-------------
Machinery - 3.3%
Federal Signal 10,000 211,875
Lincoln Electric Holdings 188,300 3,860,150
Minuteman International 143,000 1,501,500
Nordson 51,300 3,142,125
-------------
8,715,650
-------------
Paper and Packaging - 0.4%
Peak TRENDS Trust 148,400 1,094,450
-------------
Pumps, Valves and Bearings - 4.1%
Franklin Electric 19,900 1,293,500
Kaydon Corporation 30,000 1,008,750
NN Ball & Roller 628,900 3,616,175
Roper Industries 100,000 3,200,000
Sun Hydraulics 127,500 1,139,531
<CAPTION>
SHARES VALUE
<S> <C> <C>
Tech/Ops Sevcon 43,700 $ 540,787
-------------
10,798,743
-------------
Specialty Chemicals and Materials - 2.1%
Brady (W.H.) Cl. A 78,700 2,557,750
Lilly Industries Cl. A 40,000 742,500
Synalloy 295,000 2,396,875
-------------
5,697,125
-------------
Textiles - 0.8%
Fab Industries 145,200 2,214,300
-------------
Other Industrial Products - 1.9%
Baldor Electric 100,000 1,987,500
Landauer 49,600 1,463,200
Myers Industries 31,700 634,000
Tennant 30,000 960,000
-------------
5,044,700
-------------
57,026,462
=============
Industrial Services - 16.2
Advertising/Publishing - 1.3%
True North Communications 111,000 3,330,000
-------------
Commercial Services - 3.6%
ABM Industries 79,800 2,448,863
Angelica 86,700 1,528,087
Hardinge 136,400 2,395,525
Olsten 312,000 1,969,500
Shared Medical Systems 20,000 1,305,000
-------------
9,646,975
-------------
Engineering and Construction - 0.4%
Sevenson Environmental Services 96,960 1,127,160
-------------
Food/Tobacco Processors - 1.7%
DIMON 390,200 2,024,162
Universal 85,000 2,417,188
-------------
4,441,350
-------------
Industrial Distribution - 1.0%
Central Steel & Wire 3,898 2,728,600
-------------
Printing - 2.2%
Ennis Business Forms 311,500 2,667,219
Standard Register (The) 106,700 3,281,025
-------------
5,948,244
-------------
Transportation and Logistics - 6.0%
Air Express International 148,500 3,768,187
Airborne Freight 47,500 1,315,156
Arnold Industries 152,800 2,358,850
C. H. Robinson Worldwide 30,000 1,102,500
Circle International Group 151,400 3,311,875
Frozen Food Express Industries 263,135 2,006,404
Pittston Company BAX Group 237,800 2,259,100
-------------
16,122,072
-------------
43,344,401
=============
</TABLE>
42 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
JUNE 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Natural Resources - 8.3%
Energy Services - 3.0%
Carbo Ceramics 124,000 $ 3,774,250
Helmerich & Payne 164,100 3,907,631
Lufkin Industries 22,000 440,000
------------
8,121,881
------------
Gold - 1.2%
Anglogold ADR+ 143,600 3,087,400
------------
Oil and Gas - 2.0%
Devon Energy 85,900 3,070,925
Tidewater 75,000 2,287,500
------------
5,358,425
------------
Real Estate - 2.1%
Chelsea GCA Realty 96,500 3,582,563
Redwood Trust 5,000 82,812
Thornburg Mortgage Asset 115,000 1,150,000
Vornado Realty Trust 20,000 706,250
------------
5,521,625
------------
22,089,331
============
Technology - 5.4%
Aerospace/Defense - 2.1%
Curtiss-Wright 69,800 2,713,475
Woodward Governor 106,600 2,771,600
------------
5,485,075
------------
Components and Systems - 0.6%
Penn Engineering &
Manufacturing Cl. A 78,600 1,601,475
------------
Distribution - 1.3%
Avnet 49,200 2,287,800
Richardson Electronics 164,400 1,119,975
------------
3,407,775
------------
Semiconductors and Equipment - 1.0%
Helix Technology 114,700 2,745,631
------------
Telecommunication - 0.4%
Communications Systems 89,000 1,101,375
FirstWorld Communications
(Warrants)* 7,000 70,000
------------
1,171,375
------------
14,411,331
============
Utilities - 0.3%
NUI 35,000 875,000
============
Miscellaneous - 5.0% 13,272,047
============
TOTAL COMMON STOCKS
(Cost $215,156,306) 219,548,935
============
<CAPTION>
SHARES VALUE
<S> <C> <C>
PREFERRED STOCKS - 0.7%
Fleetwood Capital Trust (Conv.) 25,000 $ 1,000,000
Vornado Realty Trust (Conv.) 15,000 757,500
------------
TOTAL PREFERRED STOCKS
(Cost $1,772,656) 1,757,500
============
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
CORPORATE BONDS - 7.2%
Amkor Technologies 5.75%
Conv. Sub. Note due 5/01/03 $ 500,000 449,375
Charming Shoppes 7.50%
Conv. Sub. Note due 7/15/06 5,250,000 5,092,500
Credence Systems 5.25%
Conv. Sub. Note due 9/15/02 1,000,000 877,500
Cymer 3.50%
Conv. Sub. Note due 8/06/04 1,000,000 846,250
FirstWorld Communications 0%
(Step) Sr. Note due 4/15/08 7,000,000 3,990,000
HMT Technology 5.75%
Conv. Sub. Note due 1/15/04 2,750,000 1,003,750
MSC.Software 7.875%
Conv. Sub. Deb. due 8/18/04 3,465,000 2,910,600
Richardson Electronics 8.25%
Conv. Sub. Deb. due 6/15/06 1,657,000 1,292,460
Standard Commercial 7.25%
Conv. Sub. Deb. due 3/31/07 500,000 305,000
Sunglass Hut International 5.25%
Conv. Sub. Note due 6/15/03 1,750,000 1,496,250
System Software Associates 7.00%
Conv. Sub. Note due 9/15/02 2,449,000 857,150
------------
TOTAL CORPORATE BONDS
(Cost $19,913,350) 19,120,835
============
REPURCHASE AGREEMENT - 9.7%
State Street Bank and Trust Company,
4.25% dated 6/30/99, due 7/01/99,
maturity value $26,003,069
(collateralized by U.S. Treasury Bonds,
12.75% due 11/15/10, valued at
$26,526,528)
(Cost $26,000,000) 26,000,000
============
TOTAL INVESTMENTS - 99.9%
(Cost $262,842,312) 266,427,270
CASH AND OTHER ASSETS
LESS LIABILITIES - 0.1% 194,402
------------
NET ASSETS - 100.0% $266,621,672
============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 43
<PAGE>
SCHEDULES OF INVESTMENTS
- --------------------------------------------------------------------------------
ROYCE LOW-PRICED STOCK FUND
<TABLE>
<CAPTION>
COMMON STOCKS - 85.8%
SHARES VALUE
<S> <C> <C>
Consumer Products - 11.4%
Collectibles - 1.6%
Enesco Group 15,000 $ 346,875
-----------
Food/Beverage/Tobacco - 0.7%
800 JR Cigar* 12,900 159,637
-----------
Publishing - 2.9%
Gibson Greetings* 47,100 298,791
Topps Company (The)* 46,900 341,491
-----------
640,282
-----------
Sports and Recreation - 4.2%
Oakley* 76,200 542,925
Sturm, Ruger & Co. 37,700 402,919
-----------
945,844
-----------
Other Consumer Products - 2.0%
Lazare Kaplan International* 45,100 456,637
-----------
2,549,275
===========
Consumer Services - 6.9%
Restaurants/Lodgings - 1.8%
Buffets* 35,400 407,100
-----------
Retail Stores - 5.1%
Charming Shoppes* 139,600 850,688
Finish Line (The) Cl. A* 25,500 286,875
-----------
1,137,563
-----------
1,544,663
===========
Financial Intermediaries - 2.1%
Insurance - 2.1%
Highlands Insurance Group* 25,000 262,500
PMA Capital Cl. A 9,800 201,512
-----------
464,012
===========
Financial Services - 2.1%
Investment Management - 2.1%
Phoenix Investment Partners 17,900 154,387
Pioneer Group (The)* 18,700 322,575
-----------
476,962
===========
Health - 12.1%
Commercial Services - 3.0%
Healthworld Corporation* 10,000 112,500
PAREXEL International* 25,000 332,813
Young Innovations* 15,000 219,375
-----------
664,688
-----------
Drugs and Biotech - 9.1%
Aurora Biosciences* 50,000 362,500
Cephalon* 20,000 347,500
Dura Pharmaceuticals* 20,000 238,750
ImClone Systems* 10,000 253,750
International Isotopes* 15,000 138,750
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Liposome Company (The)* 25,000 $ 478,125
Respironics* 15,000 226,875
-----------
2,046,250
-----------
2,710,938
===========
Industrial Products - 4.3%
Building Systems and Components - 1.8%
Falcon Products 39,000 397,312
-----------
Pumps, Valves and Bearings - 0.4%
Sun Hydraulics 10,000 89,375
-----------
Specialty Chemicals and Materials - 2.1%
CFC International* 44,600 479,450
-----------
966,137
===========
Industrial Services - 17.3%
Engineering and Construction - 6.9%
Morrison Knudsen* 62,300 642,469
Sevenson Environmental Services 63,660 740,047
Willbros Group* 20,000 170,000
-----------
1,552,516
-----------
Food/Tobacco Processors - 1.1%
Midwest Grain Products* 22,100 245,863
-----------
Printing - 2.5%
Ennis Business Forms 50,000 428,125
Schawk 15,000 134,062
-----------
562,187
-----------
Transportation and Logistics - 6.8%
AirNet Systems* 38,300 517,050
Arnold Industries 31,200 481,650
Frozen Food Express Industries 68,000 518,500
-----------
1,517,200
-----------
3,877,766
===========
Natural Resources - 9.0%
Energy Services - 2.8%
Global Industries* 25,000 320,313
Input/Output* 40,000 302,500
-----------
622,813
-----------
Oil and Gas - 6.2%
Tom Brown* 23,000 357,937
Denbury Resources* 125,000 546,875
Titan Exploration* 97,700 488,500
-----------
1,393,312
-----------
2,016,125
===========
Technology - 15.6%
Components and Systems - 2.1%
Coherent* 16,800 312,900
Newport 10,000 155,000
-----------
467,900
-----------
</TABLE>
44 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
JUNE 30, 1999(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Technology (continued)
Distribution - 2.5%
Richardson Electronics 81,200 $ 553,175
-----------
Semiconductors and Equipment - 3.4%
Electroglas* 20,000 400,000
Helix Technology 15,000 359,063
-----------
759,063
-----------
Software/Services - 6.5%
Aspen Technology* 25,000 293,750
Comdisco 9,000 230,625
Corel* 80,000 310,000
JDA Software Group* 45,100 419,994
Tyler Technologies* 30,000 206,250
-----------
1,460,619
-----------
Telecommunication - 1.1%
REMEC* 15,300 246,712
-----------
3,487,469
===========
Miscellaneous - 5.0% 1,107,875
===========
TOTAL COMMON STOCKS
(Cost $17,824,935) 19,201,222
===========
REPURCHASE AGREEMENT - 8.9%
State Street Bank and Trust Company,
4.25% dated 6/30/99, due 7/01/99,
maturity value $2,000,236
(collateralized by U.S. Treasury Bonds,
8.125% due 8/15/19, valued at $2,045,730)
(Cost $2,000,000) 2,000,000
===========
TOTAL INVESTMENTS - 94.7%
(Cost $19,824,935) 21,201,222
CASH AND OTHER ASSETS
LESS LIABILITIES - 5.3% 1,181,298
-----------
NET ASSETS - 100.0% $22,382,520
===========
</TABLE>
ROYCE OPPORTUNITY FUND
<TABLE>
<CAPTION>
COMMON STOCKS - 93.2%
SHARES VALUE
<S> <C> <C>
Consumer Products - 5.9%
Apparel and Shoes - 2.7%
Burlington Coat Factory
Warehouse 14,200 $ 274,238
Burlington Industries* 36,600 331,687
Donna Karan International* 44,200 439,238
Leslie Fay Companies (The)* 35,000 225,312
-----------
1,270,475
-----------
Collectibles - 0.8%
Enesco Group 17,200 397,750
-----------
Publishing - 1.2%
Polaroid 14,000 386,750
Topps Company (The)* 22,500 163,828
-----------
550,578
-----------
Other Consumer Products - 1.2%
Cross (A. T.) & Company Cl. A 42,900 238,631
Jostens 15,300 322,256
-----------
560,887
-----------
2,779,690
===========
Consumer Services - 5.9%
Leisure/Entertainment - 0.5%
AMC Entertainment* 12,500 239,062
-----------
Restaurants/Lodgings - 0.6%
Cooker Restaurant 43,500 241,969
Piccadilly Cafeterias 6,000 49,875
-----------
291,844
-----------
Retail Stores - 4.8%
Bombay Company (The)* 55,000 422,812
Elder-Beerman Stores* 32,000 234,000
Fred's 20,000 312,500
Good Guys (The)* 48,000 360,000
InterTAN* 15,000 307,500
Paul Harris Stores* 50,000 340,625
Phar-Mor* 64,000 272,000
-----------
2,249,437
-----------
2,780,343
===========
Financial Intermediaries - 1.0%
Banking - 0.8%
East West Bancorp 37,500 377,344
-----------
Insurance - 0.2%
Old Guard Group 7,000 93,625
-----------
470,969
===========
Health - 1.8%
Commercial Services - 0.5%
Ultrak* 38,000 223,250
-----------
Health Services - 0.3%
Jenny Craig* 37,000 129,500
-----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 45
<PAGE>
SCHEDULES OF INVESTMENTS
- --------------------------------------------------------------------------------
ROYCE OPPORTUNITY FUND (continued)
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Health (continued)
Personal Care - 1.0%
Herbalife International Cl. A 26,900 $ 294,219
Weider Nutrition International Cl. A 47,800 197,175
-----------
491,394
-----------
844,144
===========
Industrial Products - 20.8%
Building Systems and Components - 0.8%
Pameco Corporation* 50,000 381,250
-----------
Construction Materials - 2.1%
Foster (L.B.) Cl. A* 57,300 336,638
Giant Cement Holding* 10,000 228,750
Lamson & Sessions* 41,000 246,000
Northwest Pipe* 12,000 199,500
-----------
1,010,888
-----------
Industrial Components - 3.1%
Chyron* 100,400 169,425
Gundle/SLT Environmental* 50,000 212,500
LeCroy* 18,200 431,112
Tektronix 11,900 359,231
Woodhead Industries 22,900 280,525
-----------
1,452,793
-----------
Machinery - 4.3%
Atchison Casting* 25,000 257,813
Chart Industries 1,700 13,388
CMI Cl. A 47,100 429,787
ESCO Electronics* 32,500 416,406
Hurco Companies* 44,400 222,000
Lincoln Electric Holdings 17,000 348,500
Osmonics* 32,500 353,437
-----------
2,041,331
-----------
Paper and Packaging - 2.3%
Applied Extrusion Technologies* 53,600 408,700
Gaylord Container Cl. A* 44,100 350,044
Peak International* 49,300 334,316
-----------
1,093,060
-----------
Pumps, Valves and Bearings - 0.4%
NN Ball & Roller 37,000 212,750
-----------
Specialty Chemicals and Materials - 4.7%
Arch Chemicals 19,500 474,094
Calgon Carbon 23,300 138,344
Furon 12,000 228,000
Lilly Industries Cl. A 10,000 185,625
NL Industries 40,000 445,000
Olin Corporation 12,000 158,250
Rogers* 10,000 295,000
Sybron Chemicals* 16,000 284,000
-----------
2,208,313
-----------
Textiles - 1.3%
Cone Mills* 40,000 240,000
Delta Woodside Industries 43,800 262,800
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Dixie Group 12,000 $ 101,812
-----------
604,612
-----------
Other Industrial Products - 1.8%
Fansteel* 49,800 273,900
Maxwell Technologies* 9,900 238,219
Medar* 44,000 96,250
Scotsman Industries 12,000 258,750
-----------
867,119
-----------
9,872,116
===========
Industrial Services - 11.0%
Advertising/Publishing - 1.0%
True North Communications 15,000 450,000
-----------
Commercial Services - 2.1%
Alexander & Baldwin 12,000 267,000
Carlisle Holdings* 30,000 435,000
Todd-AO Cl. A 25,000 275,000
-----------
977,000
-----------
Engineering and Construction - 1.7%
Modtech Holdings* 33,344 379,288
Weston (Roy F.) Cl. A* 44,200 132,600
Willbros Group* 35,800 304,300
-----------
816,188
-----------
Food/Tobacco Processors - 0.6%
Midwest Grain Products* 26,500 294,813
-----------
Industrial Distribution - 0.6%
Del Global Technologies* 28,300 275,925
-----------
Printing - 1.2%
Bowne & Co. 21,800 283,400
Merrill Corporation 19,200 278,400
-----------
561,800
-----------
Transportation and Logistics - 3.8%
Arkansas Best Corporation* 37,500 372,656
Circle International Group 19,000 415,625
Fritz Companies* 25,000 268,750
Mesa Air Group* 50,000 375,781
OMI Corporation* 12,100 24,956
Sea Containers Cl. A 10,600 355,762
-----------
1,813,530
-----------
5,189,256
===========
Natural Resources - 2.8%
Metals and Mining - 0.9%
Century Aluminum 42,400 262,350
Inco 10,000 180,000
-----------
442,350
-----------
Oil and Gas - 1.9%
Tom Brown* 12,500 194,531
Forest Oil* 22,500 282,656
Patina Oil & Gas 65,000 410,313
-----------
887,500
-----------
1,329,850
===========
</TABLE>
46 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
JUNE 30, 1999(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Technology - 39.3%
Aerospace/Defense - 2.3%
Cubic 19,000 $ 467,875
DRS Technologies* 48,600 513,338
Hawker Pacific Aerospace* 59,500 141,312
-----------
1,122,525
-----------
Components and Systems - 7.2%
Aavid Thermal Technologies* 11,200 253,400
Auspex Systems* 40,000 435,000
Box Hill Systems* 60,000 352,500
Ciprico* 25,100 249,431
Exabyte* 35,000 135,625
HMT Technology* 52,900 132,250
Innovex 35,200 492,800
Mentor Graphics* 27,800 356,188
PSC* 49,500 485,719
Penn Engineering &
Manufacturing 18,300 411,750
Smartflex Systems* 30,000 99,375
-----------
3,404,038
-----------
Distribution - 5.3%
Bell Industries 33,800 149,987
Bell Microproducts* 60,000 412,500
Keithley Instruments 38,100 340,519
Kent Electronics* 26,300 521,069
Pioneer-Standard Electronics 20,000 240,000
Richardson Electronics 17,500 119,219
SBS Technologies* 11,000 222,750
Varian Medical Systems 20,000 505,000
-----------
2,511,044
-----------
Semiconductors and Equipment - 9.8%
California Micro Devices* 52,600 118,350
Cirrus Logic* 42,000 372,750
Cypress Semiconductor* 30,000 495,000
ESS Technology* 29,000 389,688
Exar* 8,000 198,000
FSI International* 27,000 224,437
General Semiconductor* 31,400 286,525
International Rectifier* 30,000 399,375
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Microsemi* 23,900 $ 224,063
Photon Dynamics* 33,800 405,600
S3 Incorporated* 34,800 316,462
Sigma Designs* 45,300 277,463
Silicon Valley Group* 25,800 433,762
Vishay Intertechnology* 23,375 490,875
-----------
4,632,350
-----------
Software/Services - 6.8%
Benchmark Electronics* 9,000 323,438
Evans & Sutherland Computer* 22,400 292,600
MSC.Software* 53,200 309,225
Merix* 72,000 549,000
Network Equipment Technologies* 38,000 375,250
Phoenix Technologies* 38,000 679,250
Planar Systems* 41,000 317,750
System Software Associates* 50,000 82,813
Technology Solutions* 26,100 282,206
-----------
3,211,532
-----------
Telecommunication - 7.9%
Adaptive Broadband* 25,600 560,000
Allen Telecom* 38,000 408,500
Boca Research* 25,700 195,962
C-COR Electronics* 11,700 326,138
Cable Design Technologies* 22,600 348,888
Comtech Telecommunications* 25,200 267,750
General DataComm Industries* 40,900 107,362
Spectrian* 19,800 287,100
Symmetricom* 52,700 428,188
Vertex Communications* 27,500 376,406
Watkins-Johnson 15,000 442,500
-----------
3,748,794
-----------
18,630,283
===========
Miscellaneous - 4.7% 2,243,321
===========
TOTAL COMMON STOCKS
(Cost $37,929,482) 44,139,972
===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 47
<PAGE>
JUNE 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
ROYCE OPPORTUNITY FUND (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS - 0.3%
Adaptive Broadbrand 5.25%
Conv. Sub. Note due 12/15/03 $ 50,000 $ 44,563
System Software Associates 7.00%
Conv. Sub. Note due 9/15/02 280,000 98,000
-----------
TOTAL CORPORATE BONDS
(Cost $179,975) 142,563
===========
REPURCHASE AGREEMENT - 2.1%
State Street Bank and Trust Company,
4.25% dated 6/30/99, due 7/01/99,
maturity value $1,000,118
(collateralized by U.S. Treasury Notes,
5.625% due 11/30/99, valued at $1,021,583)
(Cost $1,000,000) 1,000,000
===========
TOTAL INVESTMENTS - 95.6%
(Cost $39,109,457) 45,282,535
CASH AND OTHER ASSETS
LESS LIABILITIES - 4.4% 2,065,313
-----------
NET ASSETS - 100.0% $47,347,848
===========
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing.
+ American Depository Receipt.
++ At June 30, 1999, the Fund owned 5% or more of the Company's outstanding
voting securities thereby making the Company an Affiliated Company as that
term is defined in the Investment Company Act of 1940.
** A portion of these securities were on loan at June 30, 1999. Total market
value of all securities on loan at June 30, 1999 was $2,256,506, for which
the Fund had received $2,330,171 as collateral.
- --------------------------------------------------------------------------------
48 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES JUNE 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Royce Royce Pennsylvania
Premier Micro-Cap Mutual
Fund Fund Fund
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investments at value* $552,478,150 $129,976,757 $561,532,150
Repurchase agreements (at cost and value) 21,000,000 4,000,000 26,000,000
Cash 138,204 364,779 629,185
Collateral from brokers on securities loaned - - 2,330,171
Receivable for investments sold 23,239,721 663,701 5,774,739
Receivable for capital shares sold 2,755,455 376,847 3,426,688
Receivable for dividends and interest 468,316 38,122 659,869
Prepaid expenses and other assets 25,337 6,925 27,574
- ----------------------------------------------------------------------------------------------
Total Assets 600,105,183 135,427,131 600,380,376
- ----------------------------------------------------------------------------------------------
LIABILITIES:
Payable for collateral on securities loaned - - 2,330,171
Payable for investments purchased 266,426 - 3,456,894
Payable for capital shares redeemed 656,640 53,053 2,319,614
Payable for investment advisory fees 466,668 118,438 363,490
Accrued expenses 137,645 49,603 166,421
- ----------------------------------------------------------------------------------------------
Total Liabilities 1,527,379 221,094 8,636,590
- ----------------------------------------------------------------------------------------------
Net Assets $598,577,804 $135,206,037 $591,743,786
- ----------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS:
Undistributed net investment income (loss) $ 642,284 $ (532,689) $ 858,219
Accumulated net realized gain on investments 17,829,092 13,689,436 37,927,004
Net unrealized appreciation on investments 126,505,002 7,154,506 192,829,400
Capital shares 61,178 15,384 76,636
Additional paid-in capital 453,540,248 114,879,400 360,052,527
- ----------------------------------------------------------------------------------------------
Net Assets $598,577,804 $135,206,037 $591,743,786
- ----------------------------------------------------------------------------------------------
Investment Class $598,577,804 $133,982,584 $455,109,703
Consultant Class $ 1,223,453 $136,634,083
- ----------------------------------------------------------------------------------------------
SHARES OUTSTANDING:
(unlimited number of $.001 par value
shares authorized for each Fund)
Investment Class 61,177,824 15,243,758 58,885,845
Consultant Class 140,686 17,750,268
- ----------------------------------------------------------------------------------------------
NET ASSET VALUES:
(Net Assets [divided by] Shares Outstanding)
Investment Class (1) $9.78 $8.79 $7.73
Consultant Class (2) $8.70 $7.70
- ----------------------------------------------------------------------------------------------
* Investments at identified cost $425,973,148 $122,822,251 $368,702,750
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Royce Royce Trust & Royce Royce Royce
Select GiftShares Total Return Low-Priced Opportunity
Fund Fund Fund Stock Fund Fund
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments at value* $4,736,317 $11,456,257 $240,427,270 $19,201,222 $44,282,535
Repurchase agreements (at cost and value) - 1,000,000 26,000,000 2,000,000 1,000,000
Cash 450,769 320,347 865,233 221,440 852,465
Collateral from brokers on securities loaned - - - - -
Receivable for investments sold 401,382 1,486,405 1,458,045 740,911 191,801
Receivable for capital shares sold - 400 894,482 777,500 2,014,335
Receivable for dividends and interest 4,300 5,671 893,668 1,668 23,652
Prepaid expenses and other assets - 6,099 9,397 850 13,156
- --------------------------------------------------------------------------------------------------------------------------
Total Assets 5,592,768 14,275,179 270,548,095 22,943,591 48,377,944
- --------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for collateral on securities loaned - - - - -
Payable for investments purchased 176,318 911,851 3,053,846 489,426 964,681
Payable for capital shares redeemed - - 563,735 39,750 5,500
Payable for investment advisory fees 92,153 6,249 199,753 15,889 36,496
Accrued expenses - 14,935 109,089 16,006 23,419
- --------------------------------------------------------------------------------------------------------------------------
Total Liabilities 268,471 933,035 3,926,423 561,071 1,030,096
- --------------------------------------------------------------------------------------------------------------------------
Net Assets $5,324,297 $13,342,144 $266,621,672 $22,382,520 $47,347,848
- --------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS:
Undistributed net investment income (loss) $ (78,098) $ (30,722) $ 197,531 $ (51,832) $ 73,004
Accumulated net realized gain on investments 372,958 1,677,976 8,634,641 2,686,130 2,303,390
Net unrealized appreciation on investments 720,767 1,882,412 3,584,942 1,376,287 6,173,078
Capital shares 40 1,394 34,999 2,814 6,821
Additional paid-in capital 4,308,630 9,811,084 254,169,559 18,369,121 38,791,555
- --------------------------------------------------------------------------------------------------------------------------
Net Assets $5,324,297 $13,342,144 $266,621,672 $22,382,520 $47,347,848
- --------------------------------------------------------------------------------------------------------------------------
Investment Class $5,324,297 $11,261,531 $266,621,672 $22,382,520 $47,347,848
Consultant Class $ 2,080,613
- --------------------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING:
(unlimited number of $.001 par value
shares authorized for each Fund)
Investment Class 40,373 1,173,615 34,998,622 2,813,778 6,820,996
Consultant Class 220,607
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUES:
(Net Assets [divided by] Shares Outstanding)
Investment Class (1) $131.88 $9.60 $7.62 $7.95 $6.94
Consultant Class (2) $9.43
- --------------------------------------------------------------------------------------------------------------------------
* Investments at identified cost $4,015,550 $ 9,573,845 $236,842,312 $17,824,935 $38,109,457
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Offering and redemption price per share; shares redeemed within one year of
purchase are subject to a 1% redemption fee, payable to the Fund (2% for
Royce Select Fund within three years of purchase, N/A for Royce Trust &
GiftShares Fund).
(2) Offering and redemption price per share; redemption price per share is equal
to NAV, less applicable deferred sales charge.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 49
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Royce Premier Fund Royce Micro-Cap Fund
--------------------------------------------------------------------
Six months ended Year ended Six months ended Year ended
June 30, 1999 December 31, June 30, 1999 December 31,
(unaudited) 1998 (unaudited) 1998
--------------------------------------------------------------------
INVESTMENT OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss) $ 344,329 $ 3,026,370 $ (532,689) $ (1,077,422)
Net realized gain on investments 6,972,026 16,476,014 12,467,016 11,052,305
Net change in unrealized appreciation on investments 30,425,009 15,256,788 (11,241,938) (17,036,282)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
investment operations 37,741,364 34,759,172 692,389 (7,061,399)
- ---------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income
Investment Class - (3,095,427) - (72,742)
Consultant Class - (293)
Net realized gain on investments
Investment Class - (5,571,075) - (9,504,473)
Consultant Class - (44,548)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions - (8,666,502) - (9,622,056)
- ---------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Value of shares sold
Investment Class 127,837,183 221,957,563 27,286,331 55,074,780
Consultant Class 485,569 925,930
Distributions reinvested
Investment Class - 8,428,754 - 9,270,159
Consultant Class - 39,659
Value of shares redeemed
Investment Class (135,989,326) (220,631,891) (59,356,968) (81,986,610)
Consultant Class (71,986) (106,404)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
capital share transactions (8,152,143) 9,754,426 (31,657,054) (16,782,486)
- ---------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 29,589,221 35,847,096 (30,964,665) (33,465,941)
NET ASSETS:
Beginning of period 568,988,583 533,141,487 166,170,702 199,636,643
- ---------------------------------------------------------------------------------------------------------------------------
End of period $ 598,577,804 $ 568,988,583 $135,206,037 $166,170,702
- ---------------------------------------------------------------------------------------------------------------------------
UNDISTRIBUTED NET INVESTMENT INCOME (LOSS) $ 642,284 $ 297,955 $ (532,689) $ -
- ---------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (IN SHARES):
Shares sold
Investment Class 14,694,820 24,809,013 3,356,889 5,872,063
Consultant Class 61,672 96,259
Shares issued for reinvestment of distributions
Investment Class - 963,284 - 1,138,769
Consultant Class - 4,902
Shares redeemed
Investment Class (15,751,312) (24,840,814) (7,454,951) (8,912,344)
Consultant Class (9,388) (12,759)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in shares outstanding (1,056,492) 931,483 (4,045,778) (1,813,110)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Pennsylvania Mutual Fund Royce Select Fund
-------------------------------------------------------------------
Six months ended Year ended Six months ended Period ended
June 30, 1999 December 31, June 30, 1999 December 31,
(unaudited) 1998 (unaudited) 1998(a)
-------------------------------------------------------------------
INVESTMENT OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss) $ 807,894 $ 2,847,051 $ (78,098) $ 582
Net realized gain on investments 35,886,817 67,731,907 346,256 26,721
Net change in unrealized appreciation on investments (11,108,393) (43,310,982) 669,097 51,670
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
investment operations 25,586,318 27,267,976 937,255 78,973
- --------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income
Investment Class - (2,894,969) - (601)
Consultant Class - -
Net realized gain on investments
Investment Class - (41,174,076) - -
Consultant Class - (12,374,251)
- --------------------------------------------------------------------------------------------------------------------------
Total distributions - (56,443,296) - (601)
- --------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Value of shares sold
Investment Class 77,840,145 131,448,215 3,297,069 1,011,000
Consultant Class 5,166,624 4,633,372
Distributions reinvested
Investment Class - 41,415,445 - 601
Consultant Class - 11,840,244
Value of shares redeemed
Investment Class 109,598,323) (192,077,698) - -
Consultant Class (14,149,765) (20,768,837)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
capital share transactions (40,741,319) (23,509,259) 3,297,069 1,011,601
- --------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (15,155,001) (52,684,579) 4,234,324 1,089,973
NET ASSETS:
Beginning of period 606,898,787 659,583,366 1,089,973 -
- --------------------------------------------------------------------------------------------------------------------------
End of period $591,743,786 $ 606,898,787 $5,324,297 $1,089,973
- --------------------------------------------------------------------------------------------------------------------------
UNDISTRIBUTED NET INVESTMENT INCOME (LOSS) $ 858,219 $ 50,325 $ (78,098) $ -
- --------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (IN SHARES):
Shares sold
Investment Class 11,111,847 16,866,770 30,261 10,106
Consultant Class 720,514 579,570
Shares issued for reinvestment of distributions
Investment Class - 5,899,787 - 6
Consultant Class - 1,686,598
Shares redeemed
Investment Class (15,777,838) (24,138,522) - -
Consultant Class (2,041,726) (2,651,359)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in shares outstanding (5,987,203) (1,757,156) 30,261 10,112
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Royce Select Fund commenced operations on November 18, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
50 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Royce Trust & GiftShares Fund Royce Total Return Fund
---------------------------------------------------------------------
Six months ended Year ended Six months ended Year ended
June 30, 1999 December 31, June 30, 1999 December 31,
(unaudited) 1998 (unaudited) 1998
---------------------------------------------------------------------
INVESTMENT OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss) $ (30,722) $ (28,802) $ 2,890,210 $ 4,629,697
Net realized gain (loss) on investments 1,125,948 585,011 (1,744,936) 15,482,353
Net change in unrealized appreciation on investments 853,774 730,213 2,632,876 (10,546,575)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from
investment operations 1,949,000 1,286,422 3,778,150 9,565,475
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income
Investment Class - - (2,692,679) (4,676,552)
Consultant Class - -
Net realized gain on investments
Investment Class - (13,608) - (4,986,404)
Consultant Class - (2,159)
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions - (15,767) (2,692,679) (9,662,956)
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Value of shares sold
Investment Class 1,196,717 3,728,172 117,294,104 224,193,061
Consultant Class 528,313 1,021,791
Distributions reinvested
Investment Class - 13,603 2,467,150 8,855,052
Consultant Class - 2,136
Value of shares redeemed
Investment Class (257) (57,930) (99,214,410) (108,407,737)
Consultant Class (25,821) (5,398)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
capital share transactions 1,698,952 4,702,374 20,546,844 124,640,376
- ----------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 3,647,952 5,973,029 21,632,315 124,542,895
NET ASSETS:
Beginning of period 9,694,192 3,721,163 244,989,357 120,446,462
- ----------------------------------------------------------------------------------------------------------------------------
End of period $13,342,144 $9,694,192 $266,621,672 $ 244,989,357
- ----------------------------------------------------------------------------------------------------------------------------
UNDISTRIBUTED NET INVESTMENT INCOME (LOSS) $ (30,722) $ - $ 197,531 $ -
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (IN SHARES):
Shares sold
Investment Class 152,480 503,437 16,084,635 29,334,388
Consultant Class 67,301 141,588
Shares issued for reinvestment of distributions
Investment Class - 1,753 340,186 1,199,870
Consultant Class - 278
Shares redeemed
Investment Class (33) (7,319) (13,849,514) (14,135,279)
Consultant Class (3,435) (692)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in shares outstanding 216,313 639,045 2,575,307 16,398,979
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Royce Low-Priced Stock Fund Royce Opportunity Fund
------------------------------------------------------------------
Six months ended Year ended Six months ended Year ended
June 30, 1999 December 31, June 30, 1999 December 31,
(unaudited) 1998 (unaudited) 1998
------------------------------------------------------------------
INVESTMENT OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss) $ (51,832) $ (22,279) $ 73,004 $ (44,314)
Net realized gain (loss) on investments 1,743,048 1,031,027 1,100,223 1,597,782
Net change in unrealized appreciation on investments 763,984 (925,593) 4,430,921 (373,765)
- -------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from
investment operations 2,455,200 83,155 5,604,148 1,179,703
- -------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income
Investment Class - - - -
Consultant Class
Net realized gain on investments
Investment Class - (95,688) - (933,562)
Consultant Class
- -------------------------------------------------------------------------------------------------------------------------
Total distributions - (95,688) - (933,562)
- -------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Value of shares sold
Investment Class 4,261,256 14,794,912 18,196,544 15,585,247
Consultant Class
Distributions reinvested
Investment Class - 94,106 - 891,292
Consultant Class
Value of shares redeemed
Investment Class (5,507,543) (11,799,296) (10,730,529) (4,688,495)
Consultant Class
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
capital share transactions (1,246,287) 3,089,722 7,466,015 11,788,044
- -------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 1,208,913 3,077,189 13,070,163 12,034,185
NET ASSETS:
Beginning of period 21,173,607 18,096,418 34,277,685 22,243,500
- -------------------------------------------------------------------------------------------------------------------------
End of period $22,382,520 $ 21,173,607 $ 47,347,848 $34,277,685
- -------------------------------------------------------------------------------------------------------------------------
UNDISTRIBUTED NET INVESTMENT INCOME (LOSS) $ (51,832) $ - $ 73,004 $ -
- -------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (IN SHARES):
Shares sold
Investment Class 577,979 2,009,166 2,880,159 2,584,105
Consultant Class
Shares issued for reinvestment of distributions
Investment Class - 14,237 - 156,949
Consultant Class
Shares redeemed
Investment Class (810,140) (1,632,413) (1,750,676) (808,098)
Consultant Class
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in shares outstanding (232,161) 390,990 1,129,483 1,932,956
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 51
<PAGE>
STATEMENTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Royce Royce Pennsylvania
Premier Micro-Cap Mutual
Fund Fund Fund
------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Income:
Dividends $ 3,041,282 $ 422,546 $ 3,740,529
Interest 573,823 44,804 382,393
- --------------------------------------------------------------------------------------
Total Income 3,615,105 467,350 4,122,922
- --------------------------------------------------------------------------------------
Expenses:
Investment advisory fees 2,639,533 1,002,336 2,131,317
Distribution fees - Investment Class - - -
Distribution fees - Consultant Class - 4,384 629,571
Shareholder servicing - Investment Class 186,462 63,417 152,152
Shareholder servicing - Consultant Class - 3,920 30,329
Administrative and office facilities 134,297 39,730 145,594
Shareholder reports - Investment Class 128,644 50,955 139,046
Shareholder reports - Consultant Class - 1,078 45,458
Custodian 56,512 37,685 61,205
Trustees' fees 39,721 9,933 40,687
Audit 17,325 10,725 21,900
Registration - Investment Class 15,713 11,612 10,029
Registration - Consultant Class - 2,462 5,438
Legal 13,652 3,984 16,850
Other expenses 38,917 13,536 42,845
- --------------------------------------------------------------------------------------
Total Expenses 3,270,776 1,255,757 3,472,421
Fees Waived by Investment Adviser
and Distributor - (249,135) (157,393)
Expenses Reimbursed by Investment
Adviser - Consultant Class - (6,583) -
- --------------------------------------------------------------------------------------
Net Expenses 3,270,776 1,000,039 3,315,028
- --------------------------------------------------------------------------------------
Net Investment Income (Loss) 344,329 (532,689) 807,894
- --------------------------------------------------------------------------------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments 6,972,026 12,467,016 35,886,817
Net change in unrealized appreciation
on investments 30,425,009 (11,241,938) (11,108,393)
- --------------------------------------------------------------------------------------
Net realized and unrealized gain
on investments 37,397,035 1,225,078 24,778,424
- --------------------------------------------------------------------------------------
NET INCREASE IN NET
ASSETS FROM INVESTMENT OPERATIONS $37,741,364 $ 692,389 $ 25,586,318
- --------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Royce Royce Trust & Royce Royce Royce
Select GiftShares Total Return Low-Priced Opportunity
Fund Fund Fund Stock Fund Fund
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Income:
Dividends $ 14,055 $ 41,384 $ 3,144,228 $ 80,207 $ 309,215
- ------------------------------------------------------------------------------------------------------------------
Total Income 14,055 54,343 4,383,836 84,657 334,476
- ------------------------------------------------------------------------------------------------------------------
Expenses:
Investment advisory fees 130,899 51,853 1,194,901 137,405 175,484
Distribution fees - Investment Class - 11,012 - 22,901 -
Distribution fees - Consultant Class - 7,804 - - -
Shareholder servicing - Investment Class - 5,356 126,336 10,125 10,064
Shareholder servicing - Consultant Class - 3,951 - - -
Administrative and office facilities - 2,239 56,239 4,903 8,040
Shareholder reports - Investment Class - 9,206 104,439 6,859 8,671
Shareholder reports - Consultant Class - 2,423 - - -
Custodian - 8,865 40,555 11,675 43,322
Trustees' fees - 794 18,652 1,373 2,629
Audit - 9,175 10,325 6,950 6,175
Registration - Investment Class - 6,642 26,947 7,625 8,272
Registration - Consultant Class - 2,328 - - -
Legal - 233 5,814 497 827
Other expenses - 3,666 15,390 2,464 5,524
- ------------------------------------------------------------------------------------------------------------------
Total Expenses 130,899 125,547 1,599,598 212,777 269,008
Fees Waived by Investment Adviser
and Distributor (38,746) (36,039) (105,972) (76,288) (7,536)
Expenses Reimbursed by Investment
Adviser - Consultant Class - (4,443) - - -
- ------------------------------------------------------------------------------------------------------------------
Net Expenses 92,153 85,065 1,493,626 136,489 261,472
- ------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) (78,098) (30,722) 2,890,210 (51,832) 73,004
- ------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments 346,256 1,125,948 (1,744,936) 1,743,048 1,100,223
Net change in unrealized appreciation
on investments 669,097 853,774 2,632,876 763,984 4,430,921
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
on investments 1,015,353 1,979,722 887,940 2,507,032 5,531,144
- ------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET
ASSETS FROM INVESTMENT OPERATIONS $ 937,255 $1,949,000 $ 3,778,150 $2,455,200 $5,604,148
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
52 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
This table is presented to show selected data for a share outstanding
throughout each period, and to assist shareholders in evaluating a Fund's
performance for the periods presented.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Net Net Realized Distributions Distributions
Asset Value, Investment and Unrealized Total from from Net from Net
Beginning Income Gain (Loss) Investment Investment Realized Gain
of Period (Loss) on Investments Operations Income on Investments
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ROYCE PREMIER FUND
+ 1999 $ 9.14 $0.01 $0.63 $0.64 $ - $ -
1998 8.70 0.05 0.53 0.58 (0.05) (0.09)
1997 7.81 0.09 1.35 1.44 (0.09) (0.46)
1996 7.12 0.10 1.18 1.28 (0.10) (0.49)
1995 6.48 0.10 1.05 1.15 (0.09) (0.42)
1994 6.41 0.06 0.15 0.21 (0.05) (0.09)
ROYCE MICRO-CAP FUND - INVESTMENT CLASS
+ 1999 $ 8.55 $(0.03) $0.27 $0.24 $ - $ -
1998 9.40 (0.05) (0.29) (0.34) (0.01) (0.50)
1997 8.14 - 2.01 2.01 - (0.75)
1996 7.53 (0.01) 1.17 1.16 - (0.55)
1995 6.48 - 1.24 1.24 - (0.19)
1994 6.47 - 0.23 0.23 - (0.22)
ROYCE MICRO-CAP FUND - CONSULTANT CLASS (a)
+ 1999 $ 8.50 $(0.05) $0.25 $0.20 $ - $ -
1998 10.58 (0.07) (1.50) (1.57) (0.01) (0.50)
PENNSYLVANIA MUTUAL FUND - INVESTMENT CLASS
+ 1999 $ 7.35 $ 0.02 $0.36 $0.38 $ - $ -
1998 7.82 0.05 0.24 0.29 (0.05) (0.71)
1997 7.11 0.07 1.70 1.77 (0.06) (1.00)
1996 7.71 0.11 0.84 0.95 (0.11) (1.44)
1995 7.41 0.11 1.27 1.38 (0.11) (0.97)
1994 8.31 0.12 (0.18) (0.06) (0.11) (0.73)
PENNSYLVANIA MUTUAL FUND - CONSULTANT CLASS (b)
+ 1999 $ 7.34 $(0.01) $0.37 $0.36 $ - $ -
1998 7.81 (0.01) 0.24 0.23 - (0.70)
1997 7.90 0.02 0.93 0.95 (0.04) (1.00)
ROYCE SELECT FUND (c)
+ 1999 $107.79 $(1.93) $26.02 $24.09 $ - $ -
1998 100.00 0.06 7.79 7.85 (0.06) -
</TABLE>
<TABLE>
<CAPTION>
Ratio of Ratio of Net
Net Asset Net Assets, Expenses to Investment Income Portfolio
Total Value, End Total End of Period Average Net (Loss) to Average Turnover
Distributions of Period Return (in thousands) Assets (d) Net Assets Rate
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ROYCE PREMIER FUND
+ 1999 $ - $ 9.78 7.0% $598,578 1.24%* 0.13%* 23%
1998 (0.14) 9.14 6.7% 568,989 1.23% 0.55% 46%
1997 (0.55) 8.70 18.4% 533,141 1.24% 1.20% 18%
1996 (0.59) 7.81 18.1% 317,024 1.25% 1.25% 34%
1995 (0.51) 7.12 17.8% 302,239 1.25% 1.48% 39%
1994 (0.14) 6.48 3.3% 202,390 1.38% 1.19% 38%
ROYCE MICRO-CAP FUND - INVESTMENT CLASS
+ 1999 $ - $ 8.79 2.8% $133,983 1.49%* (0.79)%* 7%
1998 (0.51) 8.55 (3.3)% 165,420 1.49% (0.57)% 56%
1997 (0.75) 9.40 24.7% 199,637 1.49% 0.04% 38%
1996 (0.55) 8.14 15.5% 141,329 1.79% (0.20)% 70%
1995 (0.19) 7.53 19.1% 97,729 1.94% 0.10% 25%
1994 (0.22) 6.48 3.6% 26,774 1.99% 0.02% 54%
ROYCE MICRO-CAP FUND - CONSULTANT CLASS (a)
+ 1999 $ - $ 8.70 2.4% $ 1,223 2.49%* (1.76)%* 7%
1998 (0.51) 8.50 (14.6)% 751 2.49%* (1.62)%* 56%
PENNSYLVANIA MUTUAL FUND - INVESTMENT CLASS
+ 1999 $ - $ 7.73 5.2% $455,110 1.05%* 0.47%* 8%
1998 (0.76) 7.35 4.2% 466,857 1.01% 0.62% 29%
1997 (1.06) 7.82 25.0% 507,635 1.05% 0.88% 18%
1996 (1.55) 7.11 12.8% 456,868 0.99% 1.05% 29%
1995 (1.08) 7.71 18.7% 630,119 0.98% 1.18% 10%
1994 (0.84) 7.41 (0.7)% 771,417 0.98% 1.33% 17%
PENNSYLVANIA MUTUAL FUND - CONSULTANT CLASS (b)
+ 1999 $ - $ 7.70 4.9% $136,634 1.78%* (0.27)%* 8%
1998 (0.70) 7.34 3.4% 140,042 1.74% (0.11)% 29%
1997 (1.04) 7.81 12.0% 151,948 1.65%* 0.29%* 18%
ROYCE SELECT FUND (c)
+ 1999 $ - $131.88 22.4% $ 5,324 2.70% (4.61)%* 70%
1998 (0.06) 107.79 7.9% 1,090 0.00% 0.50%* 27%
</TABLE>
(a) The Class commenced operations on May 4, 1998.
(b) The Class commenced operations on June 18, 1997.
(c) The Fund commenced operations on November 18, 1998.
(d) Expense ratios are shown net of fee waivers and expense reimbursements by
the adviser and/or the distributor, as applicable. Expense ratios for each
period before the waivers and reimbursements would have been: 1.28% in
1996 for Royce Premier Fund; 1.86%, 1.81%, 1.80%, 1.87%, 1.97% and 2.34%
in 1999 to 1994, respectively, for Royce Micro-Cap Fund-Investment Class;
4.37% and 4.52% in 1999 and 1998, respectively, for Royce Micro-Cap
Fund-Consultant Class; 1.03% and 0.99% in 1996 and 1995, respectively, for
Pennsylvania Mutual Fund-Investment Class; 2.03%, 1.99% and 2.00% in 1999
to 1997, respectively, for Pennsylvania Mutual Fund-Consultant Class; and
3.83% and 1.03% in 1999 and 1998, respectively, for Royce Select Fund.
* Annualized.
+ Six months ended June 30, 1999 (unaudited).
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 53
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
This table is presented to show selected data for a share outstanding
throughout each period, and to assist shareholders in evaluating a Fund's
performance for the periods presented.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Net Net Realized Distributions Distributions
Asset Value, Investment and Unrealized Total from from Net from Net
Beginning Income Gain (Loss) Investment Investment Realized Gain
of Period (Loss) on Investments Operations Income on Investments
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ROYCE TRUST & GIFTSHARES FUND - INVESTMENT CLASS (a)
+ 1999 $8.24 $(0.02) $1.38 $1.36 $ - $ -
1998 6.91 (0.02) 1.37 1.35 - (0.02)
1997 5.83 (0.01) 1.52 1.51 - (0.43)
1996 5.01 - 1.27 1.27 - (0.45)
1995 5.00 - 0.01 0.01 - -
ROYCE TRUST & GIFTSHARES FUND - CONSULTANT CLASS (b)
+ 1999 $8.14 $(0.05) $1.34 $1.29 $ - $ -
1998 6.88 (0.06) 1.34 1.28 - (0.02)
1997 7.21 (0.01) 0.11 0.10 - (0.43)
ROYCE TOTAL RETURN FUND
+ 1999 $7.56 $ 0.09 $0.05 $0.14 $(0.08) $ -
1998 7.52 0.15 0.20 0.35 (0.15) (0.16)
1997 6.29 0.11 1.38 1.49 (0.11) (0.15)
1996 5.76 0.14 1.28 1.42 (0.16) (0.73)
1995 5.12 0.13 1.24 1.37 (0.13) (0.60)
1994 5.00 0.02 0.24 0.26 (0.02) (0.12)
ROYCE LOW-PRICED STOCK FUND
+ 1999 $6.95 $(0.02) $1.02 $1.00 $ - $ -
1998 6.82 (0.01) 0.17 0.16 - (0.03)
1997 6.30 (0.03) 1.26 1.23 - (0.71)
1996 5.62 (0.03) 1.31 1.28 - (0.60)
1995 5.07 (0.04) 1.18 1.14 - (0.59)
1994 5.01 (0.03) 0.18 0.15 - (0.09)
ROYCE OPPORTUNITY FUND (c)
+ 1999 $6.02 $ 0.01 $0.91 $0.92 $ - $ -
1998 5.92 (0.01) 0.29 0.28 - (0.18)
1997 5.26 0.07 1.03 1.10 (0.08) (0.36)
1996 5.00 - 0.26 0.26 - -
</TABLE>
<TABLE>
<CAPTION>
Ratio of Ratio of Net
Net Asset Net Assets, Expenses to Investment Income Portfolio
Total Value, End Total End of Period Average Net (Loss) to Average Turnover
Distributions of Period Return (in thousands) Assets (d) Net Assets Rate
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ROYCE TRUST & GIFTSHARES FUND - INVESTMENT CLASS (a)
+ 1999 $ - $9.60 16.5% $ 11,261 1.49%* (0.46)%* 86%
1998 (0.02) 8.24 19.5% 8,418 1.49% (0.35)% 153%
1997 (0.43) 6.91 26.0% 3,614 1.49% (0.32)% 64%
1996 (0.45) 5.83 25.6% 1,064 1.49% (0.05)% 93%
1995 - 5.01 0.2% 502 0.70%* 0.00%* 0%
ROYCE TRUST & GIFTSHARES FUND - CONSULTANT CLASS (b)
+ 1999 $ - $9.43 15.8% $ 2,081 2.49%* (1.36)%* 86%
1998 (0.02) 8.14 18.5% 1,276 2.49% (1.39)% 153%
1997 (0.43) 6.88 1.5% 107 2.49%* (1.35)%* 64%
ROYCE TOTAL RETURN FUND
+ 1999 $(0.08) $7.62 1.9% $266,622 1.25%* 2.42%* 15%
1998 (0.31) 7.56 4.8% 244,989 1.25% 2.75% 66%
1997 (0.26) 7.52 23.7% 120,446 1.25% 3.15% 26%
1996 (0.89) 6.29 25.5% 6,234 1.25% 2.50% 111%
1995 (0.73) 5.76 26.9% 2,548 1.67% 2.42% 68%
1994 (0.14) 5.12 5.2% 1,656 1.96% 0.49% 88%
ROYCE LOW-PRICED STOCK FUND
+ 1999 $ - $7.95 14.4% $ 22,383 1.49%* (0.57)%* 29%
1998 (0.03) 6.95 2.4% 21,174 1.49% (0.11)% 111%
1997 (0.71) 6.82 19.5% 18,096 1.49% (0.47)% 99%
1996 (0.60) 6.30 22.8% 15,905 1.88% (0.67)% 137%
1995 (0.59) 5.62 22.5% 4,215 1.97% (1.11)% 114%
1994 (0.09) 5.07 3.0% 1,880 1.89% (1.11)% 95%
ROYCE OPPORTUNITY FUND (c)
+ 1999 $ - $6.94 15.3% $ 47,348 1.49%* 0.42%* 64%
1998 (0.18) 6.02 4.9% 34,278 1.25% (0.16)% 120%
1997 (0.44) 5.92 20.8% 22,244 0.99% 1.23 % 77%
1996 - 5.26 5.2% 17,857 0.97%* 0.83%* 1%
</TABLE>
(a) The Fund commenced operations on December 27, 1995.
(b) The Class commenced operations on September 26, 1997.
(c) The Fund commenced operations on November 19, 1996.
(d) Expense ratios are shown net of fee waivers and expense reimbursements by
the adviser and/or the distributor, as applicable. Expense ratios for each
period before the waivers and reimbursements would have been: 2.22%,
2.45%, 3.82%, 6.53% and 1.95% in 1999 to 1995, respectively, for Royce
Trust & GiftShares Fund - Investment Class; 3.54%, 4.70% and 30.28% in
1999 to 1997, respectively, for Royce Trust & GiftShares Fund - Consultant
Class; 1.34%, 1.35%, 1.67%, 2.23%, 2.38% and 3.21% in 1999 to 1994,
respectively, for Royce Total Return Fund; 2.32%, 2.31%, 2.38%, 2.59%,
3.47% and 3.63% in 1999 to 1994, respectively, for Royce Low-Priced Stock
Fund; and 1.53%, 1.54%, 1.56% and 1.97% in 1999 to 1996, respectively, for
Royce Opportunity Fund.
* Annualized.
+ Six months ended June 30, 1999 (unaudited).
54 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
- --------------------------------------------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Royce Premier Fund, Royce Micro-Cap Fund, Pennsylvania Mutual Fund, Royce
Select Fund, Royce Trust & GiftShares Fund, Royce Total Return Fund, Royce
Low-Priced Stock Fund and Royce Opportunity Fund (the "Fund" or "Funds"), are
eight series of The Royce Fund (the "Trust"), a diversified open-end management
investment company organized as a Delaware business trust. Effective April 30,
1999, Royce GiftShares Fund changed its name to Royce Trust & GiftShares Fund
and PMF II changed its name to Royce Opportunity Fund.
Three funds in the series, Pennsylvania Mutual Fund, Royce Micro-Cap Fund
and Royce Trust & GiftShares Fund, offer two classes of shares; an Investment
Class and a Consultant Class.
Classes of shares have equal rights as to earnings and assets, except that
each class may bear different distribution, shareholder servicing, registration
and shareholder reports fees and expenses and expense reimbursements.
Investment income, realized and unrealized capital gains or losses on
investments, and expenses other than those attributable to a specific class are
allocated to each class of shares based on its relative net assets.
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.
Distributions:
Royce Total Return Fund pays dividends from its net investment income on a
quarterly basis and makes any distributions from net realized capital gains
annually in December. The other Funds pay any dividends and capital gain
distributions 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.
Security lending:
Pennsylvania Mutual Fund loans securities to qualified institutional
investors for the purpose of realizing additional income. This income is
included in interest income. Collateral on all securities loaned for
Pennsylvania Mutual Fund is accepted in cash and is invested temporarily by the
custodian. The collateral is equal to at least 100% of the current market value
of the loaned securities.
INVESTMENT ADVISER AND DISTRIBUTOR:
Investment Adviser:
Under the Trust's investment advisory agreements with Royce & Associates,
Inc. ("Royce"), Royce is entitled to receive management fees that are computed
daily and payable monthly (except for Royce Select Fund). Royce has
contractually agreed to waive its fees and reimburse expenses to the extent
necessary to maintain certain Funds' net annual operating expense ratios at
specified levels through December 31, 1999.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 55
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Annual contractual rate of advisory
fee based on average net assets
- ---------------------------------------------------------------------
<S> <C>
Royce Premier Fund 1.00%
Royce Micro-Cap Fund 1.50%
Pennsylvania Mutual Fund 0.78%*
Royce Select Fund see below
Royce Trust & GiftShares Fund 1.00%
Royce Total Return Fund 1.00%
Royce Low-Priced Stock Fund 1.50%
Royce Opportunity Fund 1.00%
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Specified ratio of Six months ended June 30, 1999
expenses to average net assets ------------------------------
----------------------------------- Net advisory Advisory
Investment Class Consultant Class fees accrued fees waived
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Royce Premier Fund N/A N/A $2,639,533 $ -
Royce Micro-Cap Fund 1.49% 2.49% 753,201 249,135
Pennsylvania Mutual Fund N/A N/A 2,131,317 -
Royce Select Fund
Royce Trust & GiftShares Fund 1.49% 2.49% 26,826 25,027
Royce Total Return Fund 1.25% N/A 1,088,929 105,972
Royce Low-Priced Stock Fund 1.49% N/A 84,018 53,387
Royce Opportunity Fund 1.49% N/A 167,948 7,536
- ------------------------------------------------------------------------------------------------------
</TABLE>
* Pennsylvania Mutual Fund's fees are calculated at the annual rate of 1.0% of
the first $50 million of the Fund's average net assets, 0.875% of the next
$50 million of such net assets and 0.75% of average net assets in excess of
$100 million.
Royce is entitled to receive from Royce Select Fund a performance fee of
12.5% of the Fund's pre-fee total return. The agreement provides that all
expenses of the Fund, except brokerage commissions, taxes, interest and
extraordinary expenses, will be paid by Royce. This fee is calculated and
accrued daily, based on the Fund's then current net assets. The fee for the
period from commencement date through December 31, 1999 is payable on December
31, 1999. Royce voluntarily committed to waive performance fees until the Fund
achieved a 15% total return since inception of the Fund. This condition was met
on April 27, 1999. For the six months ended June 30, 1999, the Fund accrued
$92,153 of performance fees (net of voluntary waivers of $38,746).
Distributor:
Royce Fund Services, Inc. ("RFS"), the distributor of the Trust's shares,
is a wholly owned subsidiary of Royce. For the six months ended June 30, 1999,
RFS received 12b-1 distribution fees of $472,178 (net of voluntary waivers of
$157,393), $4,384 and $7,804 from the Consultant Classes of Pennsylvania
Mutual, Royce Micro-Cap and Royce Trust & GiftShares Funds, respectively. RFS
voluntarily waived the distribution fees of $11,012 and $22,901 from the
Investment Class of Royce Trust & GiftShares Fund and Royce Low-Priced Stock
Fund. The distribution agreement provides for maximum fees at the annual rate
of 1.0% of each Fund's Consultant Class average net assets and 0.25% of the
average net assets of the Investment Class of Royce Trust & GiftShares Fund and
Royce Low-Priced Stock Fund.
PURCHASES AND SALES OF INVESTMENT SECURITIES:
For the six months ended June 30, 1999, the cost of purchases and the
proceeds from sales of investment securities, other than short-term securities,
were as follows:
<TABLE>
<CAPTION>
Purchases Sales
-----------------------------------------------------------------
<S> <C> <C>
Royce Premier Fund $117,062,803 $120,816,561
Royce Micro-Cap Fund 9,039,389 43,635,510
Pennsylvania Mutual Fund 41,548,712 96,358,609
Royce Select Fund 4,937,867 2,004,656
Royce Trust & GiftShares Fund 8,720,735 8,334,477
Royce Total Return Fund 59,508,165 33,958,904
Royce Low-Priced Stock Fund 5,194,854 8,712,053
Royce Opportunity Fund 27,458,280 22,285,531
-----------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
TAX BASIS OF INVESTMENTS:
At June 30, 1999, tax basis net unrealized appreciation was equal to the
difference between aggregate gross unrealized appreciation for all securities
in which there was an excess of market value over tax cost, and aggregate gross
unrealized depreciation for all securities in which there was an excess of tax
cost over market value, as follows:
<TABLE>
<CAPTION>
Gross Unrealized
Tax Basis Net Unrealized ----------------------------
Cost Appreciation Appreciation Depreciation
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Royce Premier Fund $425,973,148 $126,505,002 $139,242,527 $12,737,525
Royce Micro-Cap Fund 122,822,251 7,154,506 29,289,268 22,134,762
Pennsylvania Mutual Fund 368,702,750 192,829,400 222,164,288 29,334,888
Royce Select Fund 4,015,550 720,767 819,333 98,566
Royce Trust & GiftShares Fund 9,573,845 1,882,412 2,169,003 286,591
Royce Total Return Fund 236,842,312 3,584,958 21,505,191 17,920,233
Royce Low-Priced Stock Fund 17,824,935 1,376,287 2,983,335 1,607,048
Royce Opportunity Fund 38,109,457 6,173,078 8,569,159 2,396,081
- ------------------------------------------------------------------------------------------------------
</TABLE>
TRANSACTIONS IN AFFILIATED COMPANIES:
An "Affiliated Company," as defined in the Investment Company Act of 1940,
is a company in which a Fund owns at least 5% of the company's outstanding
voting securities. The following transactions were effected in shares of such
companies for the six months ended June 30, 1999.
<TABLE>
<CAPTION>
Purchases Sales
----------------- ----------------- Realized Dividend
Affiliated Company Shares Cost Shares Cost Gain (Loss) Income
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Royce Micro-Cap Fund Business Resource Group - - - - - -
Royce Total Return Fund Mueller (Paul) - - - - - $71,400
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
56 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
POSTSCRIPT
- --------------------------------------------------------------------------------
FUNNY BUSINESS
A senior member of our investment staff related the following story to us.
Early this past March, my old college buddy Jerry had asked me to meet him at a
trendy downtown restaurant. I was looking forward to a pleasant night out with
an old friend to take some of the sting out of one of the worst periods for
small-cap stocks in recent memory. I arrived just in time to see Jerry's cab
roll up to the restaurant's door. He sprung out smiling from the back seat as he
chomped on a cigar about the size of a baseball bat. After getting our table and
informing me that dinner was on him, he looked at me shaking his head with a
pitying look in his eye. "And I always thought you were the smart one," he said,
"but man I've been making such a killing lately that I may just have to come by
your office and show you guys how it's done."
I was confused. Jerry couldn't be talking about investing. He thought hedge
funds invested in plant life. He wouldn't know Warren Buffet from Warren Beatty.
Jerry in the market? It just didn't seem possible.
"Oh, it's possible," he said with a laugh. "I opened up one of those
accounts where you pick your own stocks on your computer. I've been doing it for
a while now, and don't think I haven't learned anything from you -- I'm in it
all for the long haul, just like your company. I'll give you a good example. I
held my last Internet stock for almost three months before I sold it."
"Three months? Jerry, that's a lunchtime in this business" I said.
"Long-term usually means a minimum of three years to us."
He started shaking his head again, "You guys need to stop looking at all
that balance sheet and numbers stuff and watch a little TV or get on the net.
It's a whole new world out there. The money's practically falling out of the
sky, and you guys are sitting around looking at your reports and buying these
teeny little companies that make things." He laughed. "I mean, news flash,
buddy, the earth isn't flat!" With that he leaned back and handed the busboy $5
for refilling his water glass.
I left that night feeling worse than ever. Not only were small-cap stocks
struggling, but one of my oldest friends was getting rich in the stock market
almost because he didn't know what he was doing. Ignorance was turning into
Jerry's very profitable advantage. I knew investing could be a funny business,
but it wasn't supposed to be this funny.
Around mid-June, there was a lot of volatility in the market as a whole, but
small-caps were rebounding, and I was in a much better mood. Even when
everything couldn't have looked worse, our patience, consistency and long-term
outlook kept us from losing our composure. Over the years, depending on what was
hot in the stock market at the time, we've heard it all -- small-caps are out,
value investing is passe, the old ways of looking for financially solid,
well-run companies are obsolete. But through it all, we've just kept doing what
we do. I started wondering how Jerry was doing, since I hadn't heard from him in
a while. I dialed his number and after several rings he picked up.
"Hello?" He sounded kind of hoarse.
"Hey, how are you?" I asked. "How are your adventures in investing?"
"Um, well, not bad, I guess...but not great. I just bought this hot new
internet company, Sell-at-Any-Price.com, that gives free online investment
advice for a very reasonable monthly fee to people who make their own picks like
me. I didn't get in on the ground floor, but it still looked like they couldn't
lose. They had almost 30,000 customers and the market cap when I bought was only
$1 billion...I mean, it was like stealing, really. But now suddenly it's off 75%
from the high, and the high's where I bought in."
"Well at least you didn't put all your money into this company, did you?
What's it called again," I asked, "sucker's_bet.com? Jerry...Jerry...Jerry, are
you there?"
It's never fun to hear an old friend cry, but maybe Jerry will become a
small-cap value investor.
[begin sidebar}
Even when everything couldn't have looked worse, our patience, consistency and
long-term outlook kept us from losing our composure. Over the years, depending
on what was hot in the stock market at the time, we've heard it all - small-caps
are out, value investing is passe, the old ways of looking for financially
solid, well-run companies are obsolete. But through it all, we've just kept
doing what we do.
[end sidebar]
[graphic: hare chasing turtle]
<PAGE>
THE
ROYCE
FUNDS
ONE OF THE INDUSTRY'S MOST EXPERIENCED AND
HIGHLY RESPECTED SMALL-COMPANY VALUE MANAGERS
Charles M. Royce, who has been our primary portfolio manager since 1973, enjoys
one of the longest tenures of any active mutual fund manager. Today, with $2.9
billion in total assets under management, Royce & Associates remains an
independent firm committed to the same principles that have served us well for
more than 25 years.
MULTIPLE FUNDS, COMMON FOCUS
Over the years, we have chosen to concentrate on small-company value investing.
Chuck Royce and his team provide investors with a range of funds that take full
advantage of the large and diverse small-cap sector. Our goal is to offer both
individual and institutional investors the best available small-cap value
portfolios by participating in the small-cap market's total returns with
below-average volatility.
REALISTIC EXPECTATIONS AND CONSISTENT DISCIPLINE
Royce Premier Fund, Royce Total Return Fund, Pennsylvania Mutual Fund and Royce
Trust & GiftShares Fund have been among the "least volatile" small-cap equity
funds available. We cultivated our approach by paying close attention to risk
and by always maintaining the same discipline, regardless of market movements
and trends.
CO-OWNERSHIP OF FUNDS
As part of this commitment, it is important that our employees and shareholders
share a common financial goal; our officers, employees and their families
currently have approximately $40 million invested in The Royce Funds.
THE ROYCE FUNDS
1414 AVENUE OF THE AMERICAS, NEW YORK NY 10019
<TABLE>
<CAPTION>
<S> <C>
GENERAL INFORMATION ADVISOR SERVICES
Additional Report Copies For Fund Materials, Performance Updates,
and Prospectus Inquiries Transactions or Account Inquiries
(800) 221-4268 (800) 33-ROYCE (337-6923)
SHAREHOLDER SERVICES BROKER/DEALER SERVICES
(800) 841-1180 For Fund Materials and Performance Updates
(800) 59-ROYCE (597-6923)
AUTOMATED TELEPHONE SERVICES
(800) 78-ROYCE (787-6923)
</TABLE>
www.roycefunds.com
[email protected]
This report must be accompanied or preceded by a current prospectus
of each of the Funds. Please read the prospectus carefully before
investing or sending money.
