<PAGE>
2000 SEMI-ANNUAL REPORT
----------------------------------
VALUE INVESTING IN SMALL COMPANIES
FOR MORE THAN 25 YEARS
THE
ROYCE
FUNDS
----------------------------------
PENNSYLVANIA MUTUAL FUND
ROYCE MICRO-CAP FUND
ROYCE TOTAL RETURN FUND
ROYCE LOW-PRICED STOCK FUND
ROYCE OPPORTUNITY FUND
ROYCE PREMIER FUND
ROYCE TRUST & GIFTSHARES FUND
ROYCE SELECT 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 INVEST IN 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 many choices (more than 6,100 companies), yet faces significant trading
difficulties, including 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, offering greater trading
volume 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
------------------------------------------------------------------------------------------
BROADLY DIVERSIFIED CONCENTRATED
------------------------------------------------------------------------------------------
<S> <C> <C>
SMALL-CAP COMPANIES ROYCE PREMIER FUND
------------------------------------------------------------------------------------------
SMALL- AND MICRO-CAP PENNSYLVANIA MUTUAL FUND
COMPANIES ROYCE TOTAL RETURN FUND ROYCE TRUST & GIFTSHARES FUND
ROYCE LOW-PRICED STOCK FUND ROYCE SELECT FUND
ROYCE OPPORTUNITY FUND
------------------------------------------------------------------------------------------
MICRO-CAP COMPANIES ROYCE MICRO-CAP FUND
------------------------------------------------------------------------------------------
</TABLE>
BROADLY DIVERSIFIED FUNDS
PENNSYLVANIA MUTUAL FUND - our flagship fund managed by Chuck Royce since 1973
that invests in small- and micro-cap companies.
ROYCE MICRO-CAP FUND - a portfolio that selects companies with market
capitalizations below $300 million that meet its pricing and valuation criteria.
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 - a small- and micro-cap portfolio incorporating an
opportunistic value approach.
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 - 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 for qualified investors
that incorporates an all-inclusive performance management fee.
<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 -- OUR ASSESSMENT OF WHAT WE BELIEVE A KNOWLEDGEABLE BUYER MIGHT
PAY TO ACQUIRE THE ENTIRE COMPANY, OR WHAT WE THINK THE VALUE OF THE COMPANY
SHOULD BE IN THE STOCK MARKET. THIS ANALYSIS TAKES INTO CONSIDERATION A NUMBER
OF RELEVANT FACTORS, INCLUDING THE COMPANY'S FUTURE PROSPECTS. WE SELECT THESE
SECURITIES USING A RISK-AVERSE VALUE APPROACH, WITH THE EXPECTATION THAT THEIR
MARKET PRICES SHOULD INCREASE TOWARD OUR ESTIMATE OF THE CURRENT WORTH,
RESULTING IN CAPITAL APPRECIATION FOR FUND INVESTORS.
LETTER TO OUR SHAREHOLDERS:
<TABLE>
<S> <C>
WHO WANTS TO BE A MILLIONAIRE...WHO WANTS TO BE A SURVIVOR? 2
--------------------------------------------------------------------------------
THROUGH THEIR EYES: PROFILES OF TWO ROYCE EMPLOYEES 8
--------------------------------------------------------------------------------
SMALL-CAP MARKET CYCLE PERFORMANCE 10
--------------------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS 11
--------------------------------------------------------------------------------
PERFORMANCE AND PORTFOLIO REVIEW: PENNSYLVANIA MUTUAL FUND,
ROYCE MICRO-CAP FUND, ROYCE TOTAL RETURN FUND, ROYCE
LOW-PRICED STOCK FUND, ROYCE OPPORTUNITY FUND, ROYCE PREMIER
FUND, ROYCE TRUST & GIFTSHARES FUND AND ROYCE SELECT FUND 12
--------------------------------------------------------------------------------
UPDATES AND NOTES: WHAT'S NEW AT www.roycefunds.com 28
--------------------------------------------------------------------------------
FINANCIAL STATEMENTS 29
--------------------------------------------------------------------------------
POSTSCRIPT: REMEMBER Y2K? INSIDE BACK COVER
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS Through June 30, 2000
------------------------------------------------------------------------------------------------------------------------------------
YEAR-TO-DATE FROM INCEPTION
FUND 2000* 1-YEAR 3-YEAR 5-YEAR INCEPTION DATE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PENNSYLVANIA MUTUAL FUND** 6.59% 7.40% 9.14% 12.19% 15.58% 6/30/73
------------------------------------------------------------------------------------------------------------------------------------
ROYCE MICRO-CAP FUND** 12.21 24.05 11.77 13.67 15.89 12/31/91
------------------------------------------------------------------------------------------------------------------------------------
ROYCE TOTAL RETURN FUND 3.26 2.89 6.43 13.61 13.38 12/15/93
------------------------------------------------------------------------------------------------------------------------------------
ROYCE LOW-PRICED STOCK FUND 13.97 29.30 19.02 18.28 17.09 12/15/93
------------------------------------------------------------------------------------------------------------------------------------
ROYCE OPPORTUNITY FUND** 18.36 35.87 21.59 N/A 22.61 11/19/96
------------------------------------------------------------------------------------------------------------------------------------
ROYCE PREMIER FUND 4.39 8.77 8.68 12.60 13.40 12/31/91
------------------------------------------------------------------------------------------------------------------------------------
ROYCE TRUST & GIFTSHARES FUND** 7.62 30.94 26.99 N/A 26.51 12/27/95
------------------------------------------------------------------------------------------------------------------------------------
ROYCE SELECT FUND 7.96 19.50 N/A N/A 32.54 11/18/98
------------------------------------------------------------------------------------------------------------------------------------
RUSSELL 2000 3.04 14.33 10.57 14.27 n/a n/a
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Pennsylvania Mutual Fund's 10-year average annual total return for the period
ended 6/30/00 was 11.15%.
* Not Annualized
** All performance and risk information reflect Investment Class results.
Shares of the Funds' Consultant Class and Institutional Service Class bear
an annual distribution expense, and Consultant Class Shares are subject to
a deferred sales charge, neither of which are borne by the Investment
Class.
<PAGE>
[SIDENOTE]
[PHOTO]
Charles M. Royce, PRESIDENT
WHILE MOST INVESTORS KNOW THAT THE RUSSELL 2000 IS AN INDEX OF SMALL-CAP
COMPANIES, VERY FEW KNOW MUCH ABOUT WHAT COMPRISES THE INDEX OR ITS HISTORY.
FRANK RUSSELL CO., A PENSION-CONSULTING FIRM BASED IN TACOMA, WASHINGTON,
CREATED THE INDEX ON JANUARY 1, 1979. IT ACTUALLY REPRESENTS THE 2000 SMALLEST
COMPANIES IN THE RUSSELL 3000 INDEX, WHICH IS MADE UP OF THE LARGEST 3000
PUBLICLY TRADED DOMESTIC COMPANIES. THE RUSSELL 1000 COMPRISES THE LARGEST 1000
COMPANIES. ALTHOUGH THE SMALL-CAP RUSSELL 2000 INCLUDES TWICE AS MANY COMPANIES
AS THE RUSSELL 1000, IT ACCOUNTS FOR LESS THAN 10% OF THE TOTAL MARKET
CAPITALIZATION OF THE RUSSELL 3000.
UNLIKE THE S&P INDICES, WHICH ARE REBALANCED AS MEMBERSHIP CRITERIA DICTATE, THE
RUSSELL INDICES ARE REBALANCED ANNUALLY IN JUNE. THIS ONCE-A-YEAR EXERCISE CAN
OFTEN MEAN HUGE SWINGS IN INDIVIDUAL SECURITIES' PRICES AS NAMES ENTER OR FALL
OUT OF THE REBALANCED INDEX. RUMORS OF PROSPECTIVE INCLUSION (OR EXCLUSION)
PRIOR TO THE
(cont'd on page 4)
LETTER TO OUR SHAREHOLDERS
--------------------------------------------------------------------------------
[GRAPHIC Royce portfolio managers stranded on island]
CAPTION: SURVIVORS ON VALUE ISLAND
WHO WANTS TO BE A MILLIONAIRE... Blaustein 2000
WHO WANTS TO BE A SURVIVOR?
What a difference the turn of a century makes! Just six months ago, the world
seemed like a very different place, dominated by large-cap companies, Internet
IPOs (Initial Public Offerings) and growth-stock investing. Market savvy was the
province of those who ignored traditional valuation yardsticks and breezily
asserted "This time it's different." For one brief, heady moment, it seemed as
if anyone who wanted to be a millionaire could be, and it did not require
sweating it out with Regis Philbin. All it took was a hot stock tip or two and
the click of a mouse. Today, thanks to a once unthinkable bear market in the
Nasdaq Composite and a bursting bubble in Internet (particularly e-commerce)
stock performance, we are in a market in which the discarded investment ideas of
the past -- small-cap companies, energy stocks and value investing -- now look
like great finds at an eBay auction. In fact, swashbuckling, multi-millionaire
hedge fund managers, once the toast of the investment world, now look like the
exiled participants on the hit series, SURVIVOR. Whoever said life imitates art
(or at least television) must have known something about the stock market.
The changes involve not just a shift in market psychology, but perhaps in
market leadership as well. Small-cap stocks arrived late to the high-return
party, finally showing up in 2000's opening quarter, just before the Federal
Reserve helped break up the celebration by once again raising interest rates.
THE ARRIVAL OF SMALL-CAPS WAS WELCOME NEWS FOR THOSE OF US WHO WATCHED THE
SMALL-CAP RUSSELL 2000 FINISH THIRD IN A THREE-INDEX RACE BEHIND THE NASDAQ
COMPOSITE AND S&P 500 FOR MUCH OF THE LATE `90s. Yet, after starting the new
year in fine fashion --
2 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
all three indices were up in the first quarter -- the trio posted negative
second-quarter returns. As befits latecomers, small-caps endured the post-boom
hangover with more grace than their large-cap counterparts. The Russell 2000
(+3.0% year-to-date) was the only one of the three indices to finish the six
months in positive territory (S&P 500: -0.4% YTD; Nasdaq Composite: -2.5% YTD).
The Russell 2000 managed to outperform the other indices year-to-date
despite suffering a 25% decline from March 9, 2000 through April 14, 2000. This
took place against a backdrop of rising interest rates, lower overall equity
returns (the S&P 500's one-year trailing total return dropped to 7.3% from 21.1%
at 12/31/99) and higher market volatility. According to THE NEW YORK TIMES, the
Nasdaq Composite rose or fell 3% or more in a single trading session on only 40
occasions from 1971 to 1997. Between 1998 and 1999, there were 35 such
occasions. Through the first six months of 2000, there were 41, or roughly one
out of every three trading sessions year-to-date. HISTORICALLY, A MORE VOLATILE,
LOWER RETURN ENVIRONMENT HAS GENERALLY BEEN POSITIVE FOR SMALL-CAP VALUE
INVESTING, YET IT'S STILL TOO EARLY TO GAUGE WHETHER SMALL-CAPS CAN DEVELOP AND
EXTEND MARKET LEADERSHIP.
[SIDENOTE]
Today, thanks to a once unthinkable bear market in the Nasdaq Composite and a
bursting bubble in Internet (particularly e-commerce) stock performance, we are
in a market in which the discarded investment ideas of the past -- small-cap
companies, energy stocks and value investing -- now look like great finds at an
eBay auction.
IT'S A SMALL WORLD
Although small-caps had a strong opening quarter, they actually began to
show some life late in 1999, with the Russell 2000 edging past the S&P 500 for
the calendar year (21.3% versus 21.1%). Nevertheless, expectations for our asset
class were low entering the current year, and the considerable downturn from
3/9/00 - 4/14/00 probably did little to raise many investors' hopes.
INTERMEDIATE-TERM PERFORMANCE, HOWEVER, HAS BEEN STRONG. AS SHOWN BELOW, THE
RUSSELL 2000 HELD A ONE-YEAR TRAILING RETURN ADVANTAGE AT 6/30/00 VERSUS THE S&P
500 AND AN EDGE FROM THE 10/8/98 SMALL-CAP MARKET TROUGH. In addition, the
Russell 2000 held a slight advantage from the S&P 500's market cycle low on
8/31/98 through 6/30/00 (+56.7% versus +55.6%).
[BAR CHART]
RUSSELL 2000 VS. S&P 500: CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
2000 YTD 1-YEAR ENDED 6/30/00 10/8/98 - 6/30/00
<S> <C> <C> <C>
RUSSELL 2000 3.0% 14.3% 70.3%
S&P 500 -0.4% 7.3% 54.9%
</TABLE>
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 3
<PAGE>
LETTER TO OUR SHAREHOLDERS
--------------------------------------------------------------------------------
After dominating performance within small-cap in late 1998, all of 1999 and
early 2000, Technology stocks tumbled, losing 16% in the second quarter and down
1% year-to-date. Timely first-quarter selling enabled all of THE ROYCE FUNDS to
avoid losing much of what we had gained in Technology before the small-cap
correction hit. In fact, the correction led us to re-purchase several Technology
issues in April and May after we had sold them earlier in the year. Energy and
Healthcare stepped in to take the lead as the Russell 2000's best-performing
sectors through 6/30/00. Energy stocks rallied following a mostly disappointing
1999 and Healthcare drew most of its performance from red-hot biotechnology
stocks in this year's first quarter. Depressed energy stock prices during 1999's
first quarter gave us the opportunity to increase our exposure to this sector in
several Royce Fund portfolios.
VALUE ADDED
Value began the year looking like the losing tribe on Survivor, unable to
catch a fish or even start a fire. BUT AFTER FALLING BEHIND IN JANUARY AND
FEBRUARY, VALUE PROVED THAT IT COULD SURVIVE SOME PRETTY TOUGH CONDITIONS, AS
THE RUSSELL 2000 VALUE INDEX OUTPERFORMED THE RUSSELL 2000 GROWTH INDEX IN
MARCH, APRIL AND MAY, AND FOR THE YEAR-TO-DATE PERIOD AS WELL. As we would
expect, the performance edge from March through May occurred during an overall
small-cap decline of 17.3% (as measured by the Russell 2000). The Russell 2000
Value index was down 0.5% versus a loss of 26.6% for the Russell 2000 Growth
index. While the virtues of GROWTH may be alluring, inside small-cap, we think
that VALUE'S virtues are more lasting, and better suited for a long-term
investment horizon.
[LINE GRAPH]
VALUE LED DURING THE DECLINE, OUTPERFORMING GROWTH
FROM 3/9/00 PEAK AND YEAR-TO-DATE
<TABLE>
<CAPTION>
<S> <C> <C>
Russell 2000 Russell 2000
Value Growth
12/31/99 0.00% 0.00%
1/3/00 -1.83% -1.18%
1/4/00 -3.93% -6.07%
1/5/00 -3.45% -6.24%
1/6/00 -2.98% -7.72%
1/7/00 -1.11% -4.64%
1/10/00 -0.10% -0.84%
1/11/00 -1.06% -3.27%
1/12/00 -1.30% -3.96%
1/13/00 0.06% -1.15%
1/14/00 0.78% 0.49%
1/18/00 1.08% 2.21%
1/19/00 1.52% 4.09%
1/20/00 1.82% 6.31%
1/21/00 2.31% 8.18%
1/24/00 0.74% 5.66%
1/25/00 0.29% 5.47%
1/26/00 0.17% 5.39%
1/27/00 -0.57% 4.54%
1/28/00 -1.85% 1.31%
1/31/00 -2.62% -0.93%
2/1/00 -1.55% 0.86%
2/2/00 -0.96% 2.49%
2/3/00 0.21% 5.56%
2/4/00 0.22% 6.85%
2/7/00 0.68% 8.81%
2/8/00 0.59% 10.55%
2/9/00 0.10% 10.39%
2/10/00 0.15% 12.43%
2/11/00 -0.81% 11.41%
2/14/00 -0.71% 12.27%
2/15/00 -0.11% 11.97%
2/16/00 0.23% 14.24%
2/17/00 1.07% 17.20%
2/18/00 -0.60% 14.13%
2/22/00 -0.87% 12.77%
2/23/00 -0.40% 15.37%
2/24/00 -0.15% 16.61%
2/25/00 0.13% 17.29%
2/28/00 0.17% 17.58%
2/29/00 3.34% 22.12%
3/1/00 3.75% 25.35%
3/2/00 3.48% 24.11%
3/3/00 4.81% 27.91%
3/6/00 5.14% 28.86%
3/7/00 3.65% 27.72%
3/8/00 3.30% 27.77%
3/9/00 4.62% 30.65%
3/10/00 3.92% 30.36%
3/13/00 2.50% 26.81%
3/14/00 0.32% 22.56%
3/15/00 0.45% 17.97%
3/16/00 4.23% 20.44%
3/17/00 4.26% 20.61%
3/20/00 2.57% 13.31%
3/21/00 3.12% 14.17%
3/22/00 4.94% 19.08%
3/23/00 5.04% 19.84%
3/24/00 5.03% 19.96%
3/27/00 4.67% 20.03%
3/28/00 3.03% 16.31%
3/29/00 2.71% 11.28%
3/30/00 2.36% 7.78%
3/31/00 3.82% 9.28%
4/3/00 2.17% 2.82%
4/4/00 0.85% 0.40%
4/5/00 2.39% 3.33%
4/6/00 4.12% 7.03%
4/7/00 5.30% 9.65%
4/10/00 2.64% 3.44%
4/11/00 2.58% 0.69%
4/12/00 1.93% -4.37%
4/13/00 1.59% -5.51%
4/14/00 -2.66% -14.36%
4/17/00 -2.02% -13.03%
4/18/00 0.62% -5.92%
4/19/00 0.60% -5.82%
4/20/00 0.68% -7.35%
4/24/00 -0.69% -10.80%
4/25/00 2.27% -6.00%
4/26/00 2.05% -7.41%
4/27/00 3.07% -4.70%
4/28/00 4.44% -1.75%
5/1/00 5.87% 1.49%
5/2/00 4.21% -1.90%
5/3/00 2.56% -4.00%
5/4/00 3.63% -2.62%
5/5/00 5.19% -0.04%
5/8/00 4.05% -3.46%
5/9/00 3.12% -5.88%
5/10/00 1.29% -10.07%
5/11/00 3.79% -6.72%
5/12/00 4.10% -6.43%
5/15/00 5.33% -5.00%
5/16/00 6.15% -2.84%
5/17/00 5.04% -4.17%
5/18/00 3.96% -6.31%
5/19/00 2.51% -9.07%
5/22/00 1.64% -11.13%
5/23/00 0.50% -14.52%
5/24/00 1.04% -13.91%
5/25/00 0.18% -15.22%
5/26/00 0.67% -15.12%
5/30/00 2.71% -10.12%
5/31/00 2.84% -10.35%
6/1/00 4.51% -6.10%
6/2/00 6.25% -0.57%
6/5/00 5.57% -0.01%
6/6/00 5.64% -0.60%
6/7/00 6.08% 0.73%
6/8/00 5.53% 0.45%
6/9/00 6.33% 2.73%
6/12/00 5.23% -1.28%
6/13/00 6.40% -0.30%
6/14/00 6.13% -1.37%
6/15/00 6.34% -0.65%
6/16/00 6.02% 0.01%
6/19/00 7.20% 2.23%
6/20/00 7.02% 3.30%
6/21/00 6.95% 3.99%
6/22/00 4.76% 1.32%
6/23/00 4.52% -0.06%
6/26/00 5.20% 1.44%
6/27/00 4.65% -0.87%
6/28/00 6.40% 2.24%
6/29/00 5.52% 0.08%
6/30/00 5.85% 1.23%
</TABLE>
Prior to the current period, it had been more than two years since anyone
used the words "value" and "outperformance" together in the same sentence.
INTERESTINGLY, VALUE HAD OUTPERFORMED GROWTH IN EVERY RUSSELL 2000 FULL-MARKET
CYCLE EXCEPT THE MOST RECENT ONE THAT RAN FROM 4/21/98 THROUGH 3/9/00. NOT ONLY
DID VALUE UNDERPERFORM IN THAT CYCLE, BUT IT ALSO POSTED
[SIDENOTE]
ANNUAL REBALANCING, AND THE SUBSEQUENT EFFECT ON A STOCK'S PRICE, FREQUENTLY
LEAD TO A FLURRY OF TRADING. INVESTORS SEEK TO ANTICIPATE THE NEW COMPOSITION,
KNOWING THAT MUTUAL FUNDS THAT MIMIC THE INDEX WILL NEED TO BUY LARGE AMOUNTS OF
THE NEW MEMBERS AND SELL OFF SHARES OF THE DISPLACED.
THE LARGEST COMPANY IN THE RUSSELL 2000 PRIOR TO THE JUNE 30 REBALANCING WAS
BROADVISION, WHICH SPORTED A MARKET CAPITALIZATION OF APPROXIMATELY $10 BILLION
-- HARDLY A SMALL-CAP COMPANY. IN CONTRAST, THE LARGEST COMPANY IN THE NEW,
REBALANCED INDEX HAS A MARKET CAP OF APPROXIMATELY $3.9 BILLION. THE SMALLEST
COMPANY'S MARKET CAP IS APPROXIMATELY $80 MILLION.
THERE ARE PLENTY OF NEW NAMES IN THE REBALANCED RUSSELL 2000. APPROXIMATELY 500
COMPANIES, ABOUT 26% OF THE INDEX, WERE ADDED TO REPLACE THOSE THAT DROPPED OUT
DUE TO CAPITALIZATION CUTOFFS OR MERGERS. IN TERMS OF INDUSTRY SECTORS,
TECHNOLOGY REMAINS THE LARGEST, BUT ITS WEIGHTING HAS BEEN REDUCED FROM
APPROXIMATELY 23% TO 20%. INSIDE THE TECHNOLOGY SECTOR, THE NUMBER OF INTERNET
COMPANIES INCREASED FROM 65 TO APPROXIMATELY 160 AND THEIR TOTAL WEIGHTING MORE
THAN DOUBLED FROM 4.0% TO 8.5%.
(cont'd on page 6)
4 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
A NEGATIVE RETURN OVER A FULL CYCLE, FOR THE FIRST TIME SINCE THE INDEX'S
INCEPTION. In the current cycle that began on March 9, 2000, value has performed
more in line with its historical norm, providing substantially better down
market performance. As value managers, maybe we should be careful what we wish
for -- better performance from small-cap value may correspond with more
difficult equity market conditions overall.
[SIDENOTE]
Prior to the current period, it had been more than two years since anyone used
the words "value" and "outperformance" together in the same sentence.
ROYCE ROLLS
In the more dynamic first quarter, five of THE ROYCE FUNDS (Royce Micro-Cap
Fund, Royce Low-Priced Stock Fund, Royce Trust & GiftShares Fund, Royce
Opportunity Fund and Royce Select Fund) outperformed the benchmark index. Our
more conservatively managed offerings (Pennsylvania Mutual Fund, Royce Total
Return Fund and Royce Premier Fund) lagged in what was the best first-quarter
start for small-cap companies since 1991. IN THE MORE DIFFICULT SECOND QUARTER,
ALL OF OUR FUNDS OUTPERFORMED THE SMALL-CAP INDEX, LED BY ROYCE LOW-PRICED STOCK
FUND AND PENNSYLVANIA MUTUAL FUND. MORE IMPORTANTLY, ALL ROYCE FUNDS WERE AHEAD
OF THE RUSSELL 2000 ON A YEAR-TO-DATE BASIS THROUGH JUNE 30, 2000.
[BAR CHART]
<TABLE>
<S> <C>
PENNSYLVANIA MUTUAL FUND 6.59%
ROYCE MICRO-CAP FUND 12.21%
ROYCE TOTAL RETURN FUND 3.26%
ROYCE LOW-PRICED STOCK FUND 13.97%
ROYCE OPPORTUNITY FUND 18.36%
ROYCE PREMIER FUND 4.39%
ROYCE TRUST & GIFTSHARES FUND 7.62%
ROYCE SELECT FUND 7.96%
RUSSELL 2000 3.04%
</TABLE>
Performance in the new market cycle that began on March 9 struck a similar
note -- all Royce Funds were ahead of the small-cap benchmark and all but Royce
Micro-Cap Fund provided positive performance. In contrast, the Russell 2000 was
off 14.4% from the March 9, 2000 peak through June 30. NOTEWORTHY PERFORMANCES
WERE TURNED IN BY ROYCE OPPORTUNITY FUND (OUR BEST YEAR-TO-DATE PERFORMER),
ROYCE LOW-PRICED STOCK FUND (OUR BEST PERFORMER IN THE SECOND QUARTER AND SINCE
THE MARCH 9 SMALL-CAP PEAK) AND ROYCE MICRO-CAP FUND (+12.2% YEAR-TO-DATE
THROUGH 6/30/00). While we are pleased with THE ROYCE FUNDS' recent relative
performance, we know that we have to maintain some perspective on what has so
far been a near-term recovery for small-cap value (for more complete performance
information, see pages 12-27).
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 5
<PAGE>
LETTER TO OUR SHAREHOLDERS
-------------------------------------------------------------------------------
[GRAPHIC The Royce Funds baseball team]
CAPTION: EARLY IN THE NEW GAME
Blaustein 2000
CYCLICAL MARKETS, EMOTIONAL INVESTORS
Many investors simply go where the action is, or where they think it is.
Media stories focusing on the return to traditional measures of valuation may
not represent anything more than the fact that value is what seems to be working
right now. Unless they are avowed value investors like ourselves, most people
are not terribly philosophical about investing, they simply want the best
returns. If better returns seem to be coming from stocks with attractive
valuations, then that is where the money will flow. While this may appear to be
cynicism on our part, it actually represents our ongoing faith both in cyclical
markets and emotional investors.
While momentum and emotion will remain potent motivators, most investors
now seem to realize that millions are not easily made by answering trivial
questions on a one-hour game show or by investing in every stock whose name
begins with a small "e" or "i." Throughout the euphoria of the previous cycle,
we resisted the siren song of what looked like easy, short-term gains. Instead,
we chose to concentrate on a
[SIDENOTE]
Throughout the euphoria of the previous cycle, we resisted the siren song of
what looked like easy, short-term gains. Instead, we chose to concentrate on a
long-term time frame and continued to select securities using the same criteria
that we always have, even though our methods looked antiquated to some observers
at the time.
[SIDENOTE]
FINANCIAL SERVICES REMAINS THE SECOND LARGEST SECTOR, FOLLOWED BY CONSUMER
SERVICES, HEALTHCARE AND CAPITAL GOODS.
THE NEW, REBALANCED RUSSELL 2000 CONTAINS MORE COMPANIES WITH NO EXPECTED
EARNINGS -- ACCORDING TO DATA FROM FIRST CALL AND I/B/E/S, APPROXIMATELY 20% ARE
EXPECTED TO LOSE MONEY, VERSUS 14% FROM THE PREVIOUSLY CONSTRUCTED SMALL-CAP
INDEX. THE NEWLY CONSTRUCTED RUSSELL 2000 IS CHEAPER IN TERMS OF VALUATION AS
MEASURED BY BOTH P/E (PRICE EARNINGS) AND PEG (P/E-TO-GROWTH) RATIOS.
DESPITE A REBALANCING POLICY THAT GENERALLY RESULTS IN SUBSTANTIAL ANNUAL
CHANGES, AS WELL AS SIGNIFICANT COMPETITION FROM OTHER VENDORS (S&P, WILSHIRE,
CALLAN, LIPPER AND SOON, DOW JONES), RUSSELL REMAINS THE OLDEST AND PROBABLY THE
MOST RECOGNIZABLE SMALL-CAP INDEX.
Reconstituted Index data provided by Frank Russell Co. and Morgan Stanley Dean
Witter.
6 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
-------------------------------------------------------------------------------
long-term time frame and continued to select securities using the same criteria
that we always have, even though our methods looked antiquated to some observers
at the time. Today, this same approach may look like the next big thing to some
of those same people. REGARDLESS OF WHAT'S TRENDY, WE STILL BELIEVE THAT
PORTFOLIO DIVERSIFICATION, ATTRACTIVE VALUATIONS AND LONG-TERM INVESTING CAN
CONTINUE TO HELP PEOPLE MEET THEIR FINANCIAL GOALS, REGARDLESS OF WHETHER THEY
WANT TO BE "MILLIONAIRES" OR JUST "SURVIVORS."
[PHOTO]
(L-R) CHARLIE DREIFUS, JACK FOCKLER, BUZZ ZAINO,
WHITNEY GEORGE, CHUCK ROYCE
LOWER OVERALL RETURNS, BETTER SMALL-CAP VALUE PERFORMANCE?
We have been claiming that the market's high returns were too good to last
(our own take on "irrational exuberance") since 1997. However poor or premature
our forecasting has been, our guess is that equity returns going forward will be
closer to their historical norms than they were through the late `90s, and that
this would be a positive development for small-cap value investors. More
historically typical equity returns do not necessarily mean lower, or negative,
small-cap returns. WHILE HISTORICAL MARKET PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS, OUR RESEARCH INDICATES THAT WHEN THE S&P 500 HAS
PROVIDED WHAT WE VIEW AS A MORE NORMAL LEVEL OF RETURN (13.8% OR LOWER ON A
ROLLING 10-YEAR BASIS), SMALL-CAPS TENDED TO OUTPERFORM LARGE-CAPS ON AVERAGE
ABOUT 80% OF THE TIME.*
We believe that small-caps are finally reversing the significant
performance divergence that previously plagued the asset class. IN FACT, WE
THINK THAT THE MAJOR MARKET PEAKS IN MARCH COINCIDED WITH A LEADERSHIP SHIFT
FAVORING SMALL-CAPS IN GENERAL AND SMALL-CAP VALUE IN PARTICULAR. At a minimum,
we think we are in the early innings of a new game, prepared as always to play
every inning with the same consistent approach.
Finally, we invite you to visit our continually evolving website at
www.roycefunds.com and to meet on page 8 of this report two of our valued team
members, Espie Spaulding and Dan O'Byrne, who make it a pleasure to work at
Royce & Associates.
Sincerely,
/s/ Charles M. Royce /s/ W. Whitney George /s/ Jack E. Fockler, Jr.
Charles M. Royce W. Whitney George Jack E. Fockler, Jr.
PRESIDENT VICE PRESIDENT VICE PRESIDENT
July 25, 2000
* Our examination of 10-year rolling return periods from 1936 - 1999, including
what we designated as above-average, average and below-average returns, showed
that small-cap stocks outperformed large-cap stocks in 82% of the average and
below-average S&P 500 10-year return periods and underperformed in 75% of the
above-average S&P 500 10-year return periods. For small-cap stocks, we used
the Center for Research in Security Prices 6-10 index, an unmanaged composite
of the bottom five deciles of stocks listed on the New York Stock Exchange,
the American Stock Exchange and the Nasdaq National Market. For large-cap
stocks, we used the S&P 500, an unmanaged index of domestic large-cap stocks.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 7
<PAGE>
THROUGH THEIR EYES
-------------------------------------------------------------------------------
IN A BUSINESS CHARACTERIZED BY HIGH EMPLOYEE TURNOVER IN A CITY WHERE PEOPLE
COME AND GO WITH ALARMING SPEED, WE ARE PROUD TO COUNT MANY LONG-TERM STAFF
MEMBERS. IN FACT, AS OF JUNE 30, 2000, 44% OF ROYCE EMPLOYEES HAVE BEEN WITH THE
FIRM MORE THAN FIVE YEARS. THE EVOLUTION OF THE FIRM IS CHARTED BELOW THROUGH
THE EYES OF TWO PEOPLE WHO CONTINUE TO MAKE SIGNIFICANT CONTRIBUTIONS, AND WHO
MAKE WORKING AT ROYCE THE SPECIAL EXPERIENCE THAT IT IS.
[PHOTO]
ESPIE SPAULDING
ESPIE IS CHUCK ROYCE'S ADMINISTRATIVE ASSISTANT.
How did a chance meeting at a Manhattan jeweler result in one of our
longest-term employees getting her job in 1984? The answer takes us back to
1969, when Chuck Royce was providing outside research information to the manager
of Pennsylvania Mutual Fund. Esperanza Spaulding was working as a Client Service
Representative for the Fund. In June 1973, Chuck became the portfolio manager of
the Fund and President and Chief Investment Officer of Quest Advisory Corp.
Earlier that year, however, Espie had left her job on maternity leave, devoting
most of the next 11 years to being a full-time mother to her son.
Fast-forward to 1984, when a small-cap value fund manager strolls into a
well-known Manhattan jeweler looking for a gift and chats with a salesman named
Tommy Spaulding (Espie's husband). Soon into their conversation, their
connection dawned on them. Chuck asked Tommy to have Espie call him if she were
interested in working in the mutual fund business again. So in September 1984,
Espie found herself working directly for Chuck. Espie's proximity to the
reception area and her excellent interpersonal skills soon led to increased
receptionist and administrative responsibilities as well.
She remembers the fall of 1986 as perhaps the most memorable of these
times. The firm was preparing to go public with the first small-cap value
closed-end fund, Royce Value Trust. "To this day, I've never seen anything quite
like Chuck, Tom Ebright and Joanne Newgard working day and night for two
straight weeks, trying to raise the money for the $100 million offering." While
the three of them were out on the road, Espie played a crucial part in keeping
business running smoothly at the firm's office. She even saved RVT's first order
ticket as a souvenir.
[SIDENOTE]
How did a chance meeting at a Manhattan jeweler result in one of our
longest-term employees getting her job in 1984? The answer takes us back to
1969.
Espie enjoys her work at Royce and the opportunity to continue learning.
She says that she feels more like "Chuck's time management consultant" than his
assistant, as she organizes his schedule, offers regular reminders as to what's
happening next and keeps the rest of us apprised of his agenda. Espie also
believes that her 20-plus years at Royce have given her the chance to grow and
mature personally and professionally.
8 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
-------------------------------------------------------------------------------
[PHOTO]
DAN O'BYRNE
DAN IS CURRENTLY VICE PRESIDENT AND A PRINCIPAL OF ROYCE & ASSOCIATES (THE ROYCE
FUNDS' INVESTMENT ADVISER) AND VICE PRESIDENT AND ASSISTANT SECRETARY OF THE
ROYCE FUNDS. HE PLAYS AN IMPORTANT ROLE IN OFFICE MANAGEMENT AND TRADING.
In 1986, Dan O'Byrne was tending bar at one of the many Irish pubs that populate
Manhattan's East Side. Having graduated from University College, Dublin in 1983,
he had tried his hand at various far-flung sales jobs in his native Ireland,
selling everything from insurance to hardware to men's clothing. Wanting a
change, he had come to New York City in 1985. Tending bar was lucrative, but the
nights were long and the work was often draining. Too many shifts ended with Dan
"arriving home at 6 a.m. just in time to see my wife off to work at 7." Dan's
wife, Mary, then herself a Royce employee, told him that a part-time position
was available as a mutual fund Client Service Representative for Pennsylvania
Mutual Fund, our sole offering at the time. Dan accepted the job, but also hung
on to a few shifts at the bar. "A wise move," he says, "since taking the
position at Royce initially meant a 75% pay cut. But the opportunity was too
good to turn down."
His first important assignment at Royce was researching series funds and
multiple class funds, a new trend in the mutual fund business back in 1986. The
fact that the eight funds in this report to shareholders are organized as series
of The Royce Fund results directly from Dan's seminal efforts. In 1988, he moved
from the mutual fund area to a position with the investment adviser. He
continued to work in multiple capacities, including helping to set up
appointments for company visits, answering the phone, and doing some "back
office" work settling trades. As it happened, his desk in the reception area was
next to the trading area. Soon, he was helping out as a trader, virtually full
time.
"I really enjoyed trading. I loved the quick, instant gratification you get
from doing a trade. What I didn't like about it," Dan says, "was that you
couldn't get away from the desk during the trading day and leave the phone. So
there was little time for other projects." By 1994, Dan's contributions to
several other projects, including the design of our internal Portfolio
Management System software, resulted in less time at the trading desk and more
attention to managerial and administrative duties. These changes coincided with
the expansion of Royce & Associates, as we added more funds, services and
employees throughout the `90s.
Dan credits his skills as a bartender in helping him become an effective
trader. He developed the ability to listen to several people at once while still
working and remaining "effective amidst the chaos." He sees the advent of
electronic trading systems and the attendant technological innovations that have
followed as critical developments for the industry, resulting in "a more
transparent market, which has been good for everyone." Having Dan around has
certainly been good for us.
[SIDENOTE]
Dan credits his ability to listen to several people at once in helping him
become an effective trader.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 9
<PAGE>
SMALL-CAP MARKET CYCLE PERFORMANCE
-------------------------------------------------------------------------------
The last full market cycle for small-caps included a long up phase, punctuated
by a recent downturn. This cycle, which ended with a peak on March 9, 2000,
marked the first time that VALUE underperformed GROWTH over a full market cycle
since the Russell 2000's 1979 inception. It was also the first time that VALUE
posted a negative return for a full market cycle. Since then, the small-cap
index has endured a major correction, losing 25.1% through its recent trough on
April 14, 2000. Although the index has rallied 14.2% from this trough through
6/30/00, it remains almost 15% below its historical peak.
1998 - 2000 Small-Cap Market Cycle: Russell 2000 Indices Total Returns
[LINE GRAPH]
1998 - 2000 SMALL-CAP MARKET CYCLE:
RUSSELL 2000 INDICES TOTAL RETURNS
<TABLE>
<CAPTION>
Russell Russell 2000 Russell 2000
2000 Value Growth
<S> <C> <C> <C>
Dec-97 0.00% 0.00% 0.00%
-0.13% 0.04% -0.30%
-0.01% -0.09% 0.07%
-0.91% -0.95% -0.87%
-1.65% -1.70% -1.60%
-2.57% -2.49% -2.66%
-5.47% -4.87% -6.12%
-5.95% -5.08% -6.88%
-4.21% -4.06% -4.37%
-3.41% -3.21% -3.62%
-3.44% -3.29% -3.60%
-2.39% -2.26% -2.53%
-1.25% -1.46% -1.02%
-1.59% -1.92% -1.25%
-2.43% -2.50% -2.35%
-2.76% -2.92% -2.59%
-3.64% -3.39% -3.89%
-3.29% -3.05% -3.55%
-1.92% -1.99% -1.84%
-1.14% -1.51% -0.74%
-1.58% -1.81% -1.33%
-1.58% -1.81% -1.33%
-0.60% -1.12% -0.04%
0.15% -0.63% 0.99%
1.10% -0.04% 2.32%
1.61% 0.42% 2.88%
1.95% 0.79% 3.19%
2.37% 1.03% 3.79%
3.26% 1.83% 4.78%
3.47% 2.02% 5.01%
3.56% 2.16% 5.05%
4.00% 2.42% 5.69%
3.71% 2.36% 5.14%
4.06% 2.65% 5.56%
3.96% 2.43% 5.59%
3.91% 2.44% 5.48%
4.43% 2.99% 5.97%
3.98% 2.86% 5.18%
4.94% 3.60% 6.37%
5.65% 4.13% 7.27%
5.70% 4.13% 7.38%
5.70% 4.13% 7.38%
5.62% 4.19% 7.14%
5.84% 4.63% 7.13%
5.77% 4.41% 7.22%
4.55% 3.40% 5.78%
6.12% 4.63% 7.70%
5.51% 4.42% 6.68%
6.30% 4.97% 7.72%
6.88% 5.48% 8.38%
7.04% 5.53% 8.66%
7.27% 5.64% 9.01%
7.95% 6.19% 9.82%
7.78% 6.47% 9.19%
8.07% 6.64% 9.59%
8.56% 6.93% 10.31%
8.56% 7.05% 10.17%
8.51% 6.86% 10.26%
9.04% 7.38% 10.81%
9.20% 7.55% 10.96%
9.37% 7.73% 11.12%
9.25% 7.57% 11.04%
9.06% 7.38% 10.85%
10.06% 8.35% 11.88%
11.04% 9.07% 13.13%
11.36% 9.48% 13.36%
11.22% 9.45% 13.11%
10.33% 8.93% 11.83%
8.83% 7.97% 9.76%
8.87% 7.69% 10.13%
9.95% 8.55% 11.44%
9.84% 8.66% 11.09%
11.04% 9.61% 12.58%
11.59% 9.90% 13.39%
10.96% 9.12% 12.92%
11.56% 9.80% 13.44%
11.95% 9.96% 14.08%
12.55% 10.43% 14.81%
12.50% 10.71% 14.41%
11.09% 9.65% 12.64%
10.03% 8.65% 11.50%
7.35% 6.30% 8.48%
8.27% 6.84% 9.79%
9.30% 7.52% 11.20%
10.67% 8.89% 12.57%
11.15% 9.49% 12.92%
11.26% 9.64% 12.98%
10.42% 8.89% 12.04%
9.90% 8.46% 11.44%
9.14% 7.91% 10.45%
9.94% 8.43% 11.55%
9.35% 8.16% 10.63%
9.17% 7.98% 10.43%
9.48% 8.23% 10.81%
9.03% 7.90% 10.23%
8.31% 7.33% 9.37%
7.19% 6.59% 7.85%
7.94% 7.24% 8.70%
7.41% 6.92% 7.95%
7.11% 6.76% 7.50%
6.15% 5.99% 6.35%
4.35% 4.64% 4.07%
3.26% 3.53% 2.99%
4.55% 4.63% 4.49%
4.71% 5.03% 4.39%
4.71% 5.03% 4.39%
3.47% 4.41% 2.50%
3.15% 4.15% 2.13%
3.03% 4.17% 1.86%
3.63% 4.57% 2.66%
4.20% 4.98% 3.41%
4.68% 5.30% 4.04%
4.75% 5.21% 4.29%
3.47% 4.33% 2.60%
1.94% 2.96% 0.89%
1.35% 2.25% 0.42%
-0.42% 0.79% -1.66%
0.62% 1.31% -0.09%
1.93% 2.40% 1.46%
0.92% 1.39% 0.45%
0.61% 0.96% 0.26%
1.34% 1.52% 1.17%
2.66% 2.38% 2.97%
3.61% 3.07% 4.19%
3.31% 2.85% 3.81%
3.37% 3.09% 3.68%
4.14% 3.74% 4.58%
Jun-98 4.93% 4.44% 5.46%
5.50% 5.25% 5.80%
5.16% 5.13% 5.23%
5.56% 5.36% 5.80%
5.35% 5.40% 5.35%
5.55% 5.40% 5.75%
5.56% 5.48% 5.70%
5.21% 5.01% 5.45%
5.29% 4.84% 5.78%
5.44% 4.98% 5.93%
6.04% 5.24% 6.87%
6.43% 5.45% 7.43%
6.14% 5.20% 7.10%
6.05% 4.79% 7.34%
4.75% 3.68% 5.85%
3.55% 2.57% 4.54%
1.58% 1.00% 2.19%
0.71% 0.13% 1.31%
-0.54% -1.00% -0.05%
-1.84% -2.19% -1.46%
-2.15% -2.34% -1.92%
-1.37% -1.77% -0.93%
-3.57% -3.74% -3.35%
-5.04% -4.71% -5.33%
-7.73% -7.14% -8.27%
-8.40% -7.56% -9.19%
-6.58% -6.05% -7.05%
-4.47% -4.30% -4.58%
-5.43% -5.24% -5.56%
-7.96% -7.50% -8.37%
-6.11% -5.87% -6.31%
-7.19% -6.68% -7.66%
-7.45% -6.69% -8.14%
-7.18% -6.52% -7.79%
-5.50% -5.09% -5.86%
-6.74% -6.16% -7.27%
-7.67% -6.91% -8.37%
-9.05% -8.08% -9.96%
-9.51% -8.37% -10.57%
-10.42% -9.22% -11.55%
-12.55% -11.06% -13.97%
-15.86% -13.93% -17.70%
-17.58% -15.17% -19.89%
-22.29% -18.82% -25.66%
-19.96% -17.23% -22.59%
-18.91% -16.46% -21.28%
-20.38% -17.83% -22.86%
-20.20% -17.62% -22.71%
-16.77% -15.07% -18.40%
-18.89% -16.83% -20.89%
-20.67% -18.44% -22.82%
-18.67% -16.77% -20.51%
-17.71% -16.05% -19.31%
-17.70% -15.76% -19.59%
-17.17% -15.47% -18.82%
-18.23% -16.29% -20.09%
-16.40% -14.41% -18.32%
-16.54% -14.51% -18.50%
-15.25% -13.43% -17.01%
-13.44% -12.01% -14.83%
-14.77% -13.12% -16.36%
-15.04% -13.54% -16.50%
-15.22% -13.57% -16.82%
-15.73% -13.90% -17.50%
-16.21% -14.23% -18.12%
-19.31% -16.52% -22.01%
-19.36% -16.15% -22.46%
-22.34% -18.39% -26.16%
-23.33% -19.25% -27.28%
-25.71% -21.01% -30.25%
-28.48% -23.56% -33.25%
-26.62% -22.48% -30.63%
-24.95% -21.65% -28.15%
-26.15% -22.64% -29.53%
-25.07% -21.85% -28.19%
-22.79% -20.21% -25.28%
-20.91% -18.50% -23.23%
-18.71% -16.59% -20.75%
-17.37% -15.13% -19.54%
-16.99% -14.84% -19.06%
-15.50% -13.61% -17.32%
-15.36% -13.63% -17.03%
-14.22% -12.61% -15.77%
-14.36% -12.95% -15.72%
-14.35% -13.01% -15.64%
-13.66% -12.41% -14.86%
-12.79% -11.69% -13.85%
-10.82% -10.14% -11.47%
-10.66% -9.96% -11.32%
-9.40% -8.84% -9.92%
-8.51% -7.87% -9.12%
-7.70% -7.27% -8.11%
-8.15% -8.01% -8.27%
-8.49% -8.44% -8.53%
-9.26% -9.15% -9.36%
-9.55% -9.45% -9.63%
-10.19% -9.91% -10.45%
-9.93% -10.02% -9.83%
-10.17% -10.38% -9.95%
-9.56% -10.13% -9.00%
-9.04% -9.74% -8.35%
-9.04% -9.78% -8.30%
-8.16% -9.46% -6.89%
-8.51% -9.53% -7.50%
-7.88% -9.05% -6.72%
-7.25% -8.89% -5.65%
-8.22% -9.30% -7.17%
-8.00% -9.04% -6.97%
-8.27% -9.36% -7.20%
-8.85% -9.80% -7.91%
-8.07% -9.23% -6.93%
-7.41% -8.68% -6.16%
-7.33% -8.92% -5.79%
-7.21% -9.03% -5.43%
-8.47% -10.04% -6.94%
-8.73% -10.34% -7.16%
-10.45% -11.56% -9.36%
-10.07% -11.40% -8.77%
-10.00% -11.42% -8.61%
-9.08% -10.90% -7.31%
-8.24% -10.51% -6.04%
-7.25% -9.98% -4.61%
-7.62% -10.36% -4.97%
-6.57% -9.71% -3.53%
-6.39% -9.64% -3.24%
-5.78% -9.45% -2.22%
-5.24% -8.99% -1.61%
-4.87% -8.42% -1.44%
Dec-98 -2.55% -6.45% 1.23%
-2.69% -6.07% 0.57%
-2.50% -5.85% 0.75%
-1.18% -5.14% 2.65%
-1.14% -5.59% 3.17%
-0.35% -5.22% 4.35%
0.13% -5.77% 5.80%
-1.20% -6.85% 4.23%
-1.79% -7.09% 3.31%
-2.90% -8.19% 2.19%
-1.32% -6.97% 4.11%
-0.40% -6.86% 5.81%
-0.47% -6.99% 5.80%
-1.99% -7.98% 3.77%
-2.36% -8.16% 3.22%
-2.45% -8.19% 3.07%
-1.71% -7.86% 4.20%
-2.68% -9.06% 3.46%
-2.01% -9.03% 4.74%
-1.25% -8.57% 5.78%
-1.51% -9.04% 5.72%
-2.50% -9.74% 4.45%
-2.04% -9.68% 5.29%
-3.40% -10.68% 3.59%
-4.54% -11.34% 1.98%
-4.88% -11.27% 1.26%
-6.78% -12.09% -1.67%
-7.94% -13.17% -2.91%
-6.05% -12.53% 0.17%
-7.86% -13.94% -2.02%
-8.29% -14.24% -2.58%
-9.86% -15.20% -4.73%
-9.52% -14.62% -4.61%
-9.23% -14.56% -4.10%
-7.97% -13.70% -2.45%
-7.70% -13.74% -1.89%
-8.57% -14.55% -2.83%
-9.14% -14.94% -3.57%
-9.25% -14.82% -3.89%
-8.76% -14.50% -3.23%
-8.75% -14.76% -2.97%
-9.31% -15.03% -3.81%
-8.82% -14.66% -3.21%
-7.90% -14.08% -1.98%
-7.43% -14.35% -0.81%
-7.61% -14.58% -0.92%
-7.15% -14.25% -0.34%
-7.14% -14.19% -0.39%
-7.76% -14.41% -1.38%
-7.19% -14.15% -0.52%
-7.58% -14.79% -0.66%
-7.74% -14.90% -0.88%
-7.48% -14.92% -0.35%
-8.17% -15.43% -1.21%
-8.96% -15.99% -2.21%
-11.22% -17.37% -5.31%
-10.96% -17.19% -4.98%
-8.97% -16.05% -2.18%
-8.75% -15.93% -1.87%
-7.36% -15.04% 0.00%
-7.57% -15.22% -0.25%
-7.83% -15.52% -0.47%
-7.57% -15.36% -0.12%
-6.75% -14.99% 1.12%
-7.03% -15.56% 1.11%
-7.79% -16.09% 0.15%
-7.29% -15.85% 0.89%
-5.91% -14.82% 2.60%
-4.41% -13.97% 4.70%
-3.26% -13.63% 6.62%
-3.21% -12.21% 5.38%
-3.14% -11.50% 4.87%
-2.23% -10.00% 5.22%
-4.35% -9.39% 0.55%
-3.67% -9.90% 2.34%
-1.07% -8.75% 6.29%
-0.55% -8.65% 7.21%
0.13% -8.30% 8.19%
0.88% -8.72% 10.05%
0.93% -8.33% 9.77%
0.57% -7.64% 8.44%
0.45% -7.41% 7.98%
0.43% -7.81% 8.32%
0.54% -7.26% 8.02%
0.38% -6.92% 7.39%
0.78% -6.91% 8.15%
0.57% -6.47% 7.34%
1.21% -6.11% 8.24%
2.55% -5.07% 9.87%
3.70% -4.46% 11.53%
4.28% -4.44% 12.64%
4.67% -3.85% 12.83%
2.88% -5.09% 10.53%
2.46% -5.75% 10.33%
2.74% -5.69% 10.81%
3.60% -5.05% 11.89%
4.04% -4.39% 12.12%
4.29% -3.76% 12.01%
2.27% -4.87% 9.11%
0.89% -5.40% 6.93%
1.11% -5.47% 7.43%
0.55% -5.83% 6.68%
1.89% -4.97% 8.49%
1.61% -4.69% 7.67%
1.45% -4.82% 7.49%
1.28% -4.76% 7.10%
2.76% -4.10% 9.34%
3.81% -3.66% 10.98%
3.13% -4.04% 10.02%
3.44% -4.05% 10.62%
2.75% -4.54% 9.75%
1.79% -5.08% 8.39%
0.28% -5.46% 5.82%
0.83% -4.87% 6.33%
2.54% -4.04% 8.87%
3.05% -3.62% 9.47%
3.44% -3.38% 10.00%
4.46% -2.85% 11.49%
3.97% -2.93% 10.62%
3.92% -3.11% 10.67%
3.02% -3.71% 9.50%
3.02% -3.54% 9.33%
4.32% -2.49% 10.87%
5.61% -1.81% 12.73%
Jun-99 6.50% -1.53% 14.21%
5.74% -1.98% 13.10%
6.22% -1.81% 13.92%
6.22% -2.01% 14.15%
5.34% -2.60% 12.95%
5.82% -2.29% 13.62%
6.58% -1.68% 14.53%
6.89% -1.45% 14.92%
6.62% -1.67% 14.59%
7.41% -1.49% 16.04%
8.41% -0.89% 17.48%
8.28% -0.91% 17.23%
7.39% -1.38% 15.88%
5.57% -2.44% 13.25%
5.82% -2.25% 13.58%
5.10% -2.53% 12.37%
4.38% -3.18% 11.58%
3.10% -3.86% 9.67%
3.95% -3.48% 11.01%
3.98% -3.62% 11.24%
2.83% -4.47% 9.77%
3.58% -3.87% 10.67%
3.08% -4.00% 9.77%
1.61% -4.79% 7.58%
0.08% -5.70% 5.38%
0.09% -5.84% 5.57%
-0.29% -6.16% 5.11%
-0.79% -6.33% 4.27%
-1.50% -6.89% 3.39%
-0.23% -6.04% 5.12%
-0.08% -6.23% 5.62%
1.13% -5.68% 7.55%
1.09% -5.85% 7.66%
1.60% -5.51% 8.34%
0.94% -5.99% 7.49%
0.86% -5.81% 7.12%
1.24% -5.45% 7.53%
1.90% -5.15% 8.58%
1.88% -5.32% 8.72%
2.06% -5.47% 9.27%
1.63% -5.78% 8.71%
0.81% -6.42% 7.69%
-0.36% -7.42% 6.34%
-0.25% -7.38% 6.53%
0.50% -6.91% 7.58%
-0.33% -7.52% 6.53%
1.65% -6.24% 9.24%
2.19% -6.00% 10.11%
1.66% -6.45% 9.50%
2.09% -6.29% 10.22%
2.88% -5.96% 11.51%
2.55% -6.19% 11.06%
2.22% -6.74% 10.97%
1.79% -6.71% 10.04%
0.38% -7.91% 8.42%
1.36% -7.43% 9.93%
1.06% -7.86% 9.78%
-0.50% -9.02% 7.81%
-0.24% -9.24% 8.57%
-1.95% -10.48% 6.38%
-2.67% -10.98% 5.41%
-1.56% -10.20% 6.88%
-2.31% -10.79% 5.97%
-1.60% -10.35% 6.97%
-0.23% -9.24% 8.59%
-1.12% -9.90% 7.48%
-0.40% -9.50% 8.53%
-0.54% -9.74% 8.49%
0.36% -9.39% 9.97%
-0.03% -9.84% 9.66%
-0.12% -10.04% 9.68%
0.46% -9.84% 10.67%
-0.82% -10.96% 9.24%
-2.06% -11.60% 7.37%
-2.05% -11.93% 7.73%
-3.14% -12.45% 6.04%
-4.49% -13.19% 4.05%
-4.01% -13.39% 5.26%
-3.31% -13.43% 6.74%
-3.22% -13.61% 7.11%
-2.19% -12.54% 8.10%
-2.40% -12.70% 7.82%
-2.87% -13.09% 7.28%
-2.62% -12.67% 7.35%
-1.21% -11.69% 9.21%
0.17% -11.05% 11.37%
0.90% -10.67% 12.47%
1.04% -10.31% 12.36%
2.48% -9.65% 14.62%
2.82% -9.83% 15.50%
3.40% -9.72% 16.59%
4.03% -9.65% 17.80%
4.32% -9.68% 18.43%
4.91% -9.64% 19.59%
4.62% -10.01% 19.40%
5.13% -9.68% 20.09%
5.90% -9.19% 21.14%
6.82% -8.77% 22.60%
6.83% -8.97% 22.82%
7.99% -8.42% 24.61%
7.80% -8.83% 24.67%
7.69% -9.57% 25.23%
6.22% -10.54% 23.22%
6.57% -10.64% 24.05%
7.26% -10.37% 25.19%
6.83% -10.86% 24.82%
6.15% -10.59% 23.15%
6.07% -10.68% 23.06%
7.65% -10.23% 25.82%
8.62% -9.93% 27.50%
8.90% -10.43% 28.60%
8.90% -10.92% 29.11%
9.63% -11.33% 31.04%
8.71% -12.09% 29.97%
9.13% -12.09% 30.83%
10.02% -11.88% 32.42%
8.22% -12.56% 29.46%
7.93% -12.51% 28.80%
8.86% -12.22% 30.41%
9.09% -12.07% 30.70%
9.32% -12.09% 31.20%
11.32% -11.28% 34.46%
11.83% -11.17% 35.39%
12.88% -10.41% 36.72%
13.34% -10.41% 37.67%
14.31% -10.23% 39.46%
16.40% -8.85% 42.29%
16.26% -9.02% 42.19%
Dec-99 18.17% -7.84% 44.85%
16.47% -9.53% 43.15%
12.01% -11.47% 36.06%
12.11% -11.02% 35.81%
11.29% -10.59% 33.67%
14.36% -8.87% 38.13%
17.53% -7.93% 43.63%
15.35% -8.82% 40.11%
14.75% -9.04% 39.12%
17.38% -7.79% 43.18%
18.89% -7.12% 45.56%
20.25% -6.85% 48.06%
21.78% -6.44% 50.77%
23.50% -6.17% 53.99%
25.06% -5.72% 56.71%
22.53% -7.16% 53.05%
22.18% -7.58% 52.77%
22.07% -7.69% 52.66%
21.12% -8.37% 51.43%
18.22% -9.55% 46.75%
16.27% -10.25% 43.50%
18.05% -9.27% 46.09%
19.49% -8.73% 48.46%
22.22% -7.65% 52.90%
23.14% -7.64% 54.78%
24.76% -7.22% 57.61%
25.95% -7.30% 60.13%
25.61% -7.75% 59.90%
27.08% -7.70% 62.86%
25.91% -8.59% 61.38%
26.57% -8.50% 62.63%
26.63% -7.95% 62.19%
28.40% -7.63% 65.47%
30.91% -6.86% 69.76%
27.94% -8.40% 65.32%
26.84% -8.64% 63.35%
28.91% -8.22% 67.12%
29.92% -7.98% 68.91%
30.53% -7.73% 69.90%
30.76% -7.68% 70.32%
35.47% -4.77% 76.89%
37.96% -4.38% 81.57%
36.95% -4.64% 79.77%
40.29% -3.41% 85.28%
41.11% -3.11% 86.65%
39.60% -4.48% 85.00%
39.48% -4.80% 85.07%
42.15% -3.58% 89.25%
41.62% -4.23% 88.83%
38.42% -5.54% 83.69%
34.37% -7.55% 77.53%
31.16% -7.43% 70.89%
34.69% -3.94% 74.45%
34.82% -3.92% 74.70%
28.83% -5.47% 64.13%
29.70% -4.97% 65.38%
34.05% -3.30% 72.49%
34.64% -3.19% 73.59%
34.72% -3.21% 73.77%
34.61% -3.54% 73.87%
31.18% -5.05% 68.47%
27.45% -5.34% 61.19%
24.78% -5.67% 56.12%
26.54% -4.32% 58.30%
21.14% -5.85% 48.94%
18.79% -7.06% 45.43%
21.61% -5.64% 49.68%
25.06% -4.05% 55.04%
27.48% -2.96% 58.83%
21.81% -5.41% 49.84%
19.81% -5.47% 45.85%
15.89% -6.06% 38.53%
14.91% -6.38% 36.87%
6.59% -10.29% 24.05%
7.84% -9.71% 25.97%
14.16% -7.27% 36.27%
14.23% -7.29% 36.42%
13.17% -7.21% 34.20%
10.06% -8.48% 29.21%
14.88% -5.75% 36.16%
13.76% -5.95% 34.11%
16.18% -5.01% 38.04%
18.93% -3.76% 42.31%
21.92% -2.44% 47.01%
18.71% -3.97% 42.10%
16.44% -5.48% 39.06%
17.93% -4.50% 41.06%
20.50% -3.06% 44.79%
17.51% -4.11% 39.83%
15.35% -4.97% 36.34%
11.48% -6.66% 30.26%
15.05% -4.35% 35.12%
15.40% -4.07% 35.54%
17.00% -2.93% 37.62%
18.93% -2.18% 40.74%
17.46% -3.20% 38.81%
15.42% -4.20% 35.71%
12.77% -5.53% 31.71%
10.88% -6.33% 28.73%
7.91% -7.38% 23.82%
8.60% -6.89% 24.71%
7.26% -7.68% 22.80%
7.56% -7.22% 22.95%
12.10% -5.35% 30.19%
Jun-00 11.99% -5.22% 29.85%
15.84% -3.69% 36.01%
20.65% -2.08% 44.03%
20.74% -2.71% 44.83%
20.34% -2.65% 43.98%
21.51% -2.24% 45.92%
21.06% -2.75% 45.51%
23.07% -2.01% 48.80%
19.66% -3.03% 43.00%
20.91% -1.95% 44.42%
20.01% -2.20% 42.87%
20.63% -2.00% 43.91%
20.96% -2.30% 44.87%
23.10% -1.21% 48.07%
23.79% -1.38% 49.63%
24.26% -1.44% 50.63%
21.33% -3.46% 46.76%
20.22% -3.68% 44.76%
21.62% -3.05% 46.94%
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
PEAK TO PEAK PEAK TO TROUGH PEAK TO CURRENT
4/21/98 - 3/9/00 3/9/00 - 4/14/00 3/9/00 - 6/30/00
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Russell 2000 26.3% -25.1% -14.4%
Russell 2000 Value -12.7 -7.0 1.2
Russell 2000 Growth 64.8 -34.5 -22.5
BROADLY DIVERSIFIED
FUNDS
-------------------------------------------------------------------------------
Pennsylvania Mutual 0.7 -4.3 4.4
Royce Micro-Cap 10.7 -8.8 -1.2
Royce Total Return -5.4 1.3 6.4
Royce Low-Priced Stock 18.8 -3.7 8.4
Royce Opportunity 43.3 -7.6 0.6
CONCENTRATED
FUNDS
-------------------------------------------------------------------------------
Royce Premier 8.3 -3.1 2.4
Royce Trust & GiftShares 54.0 -4.1 1.1
Royce Select n/a -2.5 1.8
</TABLE>
1998 - 2000 SMALL-CAP MARKET CYCLE: GROWTH outperformed VALUE over the full
market cycle for the first time in the history of the Russell 2000. In fact,
VALUE generated a negative return for the period. ROYCE PERFORMANCE WAS MIXED --
TWO FUNDS BEAT THE RUSSELL 2000 WHILE FIVE TRAILED. ALL SEVEN ROYCE FUNDS
OUTPERFORMED THE RUSSELL 2000 VALUE INDEX.
2000 SMALL-CAP PEAK-TO-CURRENT PERIOD: Since the new small-cap peak, VALUE has
returned to form, providing a positive return while GROWTH and the general
small-cap index suffered double-digit declines. ALL EIGHT ROYCE FUNDS HAVE
OUTPERFORMED THE RUSSELL 2000 OVER THIS PERIOD, AND FIVE OUT OF EIGHT ARE
OUTPERFORMING THE RUSSELL 2000 VALUE INDEX.
10 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
PERFORMANCE HIGHLIGHTS
-------------------------------------------------------------------------------
THE ROYCE FUNDS TURNED IN STRONG RELATIVE PERFORMANCES IN A MARKET CHARACTERIZED
BY BOTH INCREASED VOLATILITY AND EMERGENT SMALL-CAP LEADERSHIP.
<TABLE>
<CAPTION>
SMALL-CAP 2000 PEAK
YTD RETURN 3/9/00 - 6/30/00
<S> <C> <C>
---------------------------------------------------------------------------------------------------------------------
RUSSELL 2000 3.0% -14.4%
---------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA MUTUAL FUND * 6.6 4.4
our flagship Fund that invests in both small- and micro-cap companies
outperformed the Russell 2000 for the 20-year period through June 30, 2000,
14.7% versus 13.9%. The Fund's relatively strong second-quarter showing also
helped it to outperform the Russell 2000 year-to-date through June 30, 2000. The
Fund's 25-year and since inception (6/30/73) average annual total returns were
16.0% and 15.6%, respectively.
---------------------------------------------------------------------------------------------------------------------
ROYCE MICRO-CAP FUND * 12.2 -1.2
our broadly diversified portfolio that invests primarily in companies with
market caps less than $300 million, outperformed the Russell 2000 year-to-date
through June 30, 2000 and from the March 9, 2000 small-cap market peak. The Fund
was also ahead of its benchmark for the one-year, three-year and since inception
(12/31/91) periods ended June 30, 2000. The Fund's average annual total return
since inception was 15.9%.
---------------------------------------------------------------------------------------------------------------------
ROYCE TOTAL RETURN FUND 3.3 6.4
our diversified small- and micro-cap portfolio that invests primarily in
dividend-paying stocks, was our least volatile fund for the three years ended
June 30, 2000. Out of 514 small-cap funds with a three-year history tracked by
Morningstar, the Fund had the lowest standard deviation, the second lowest
Morningstar risk ratio and the fourth lowest beta for the period. RTR also
outperformed the Russell 2000 year-to-date through June 30, 2000. Its average
annual total return since inception (12/15/93) was 13.4%.
---------------------------------------------------------------------------------------------------------------------
ROYCE LOW-PRICED STOCK FUND 14.0 8.4
managed by Whitney George, outperformed the Russell 2000 year-to-date through
June 30, 2000 and from the March 9, 2000 small-cap market peak. The Fund, which
invests primarily in small- and micro-cap companies trading for less than $15
per share at the time of purchase, also beat the Russell 2000 for the one-,
three-, five-year and since inception (12/15/93) periods ended June 30, 2000.
The Fund's average annual total return since inception was 17.1%.
---------------------------------------------------------------------------------------------------------------------
ROYCE OPPORTUNITY FUND * 18.4 0.6
managed by Buzz Zaino using an opportunistic value approach, outperformed the
Russell 2000 year-to-date through June 30, 2000 and from the March 9, 2000
small-cap market peak. The Fund also provided higher returns than its benchmark
for the one-year, three-year and since inception (11/19/96) periods ended June
30, 2000. The Fund's average annual total return since inception was 22.6%.
---------------------------------------------------------------------------------------------------------------------
ROYCE PREMIER FUND 4.4 2.4
our concentrated portfolio that invests primarily in companies with market caps
between $300 million and $1.5 billion, enjoyed a relatively strong second
quarter that enabled it to outperform the Russell 2000 year-to-date through June
30, 2000. The Fund's average annual total return since inception (12/31/91) was
13.4%.
---------------------------------------------------------------------------------------------------------------------
ROYCE TRUST & GIFTSHARES FUND * 7.6 1.1
a Fund designed for gifting and estate planning, substantially outperformed the
Russell 2000 from both the April 1998 and the March 9, 2000 small-cap market
peaks. The Fund also outperformed the Russell 2000 for the one-year, three-year
and since inception (12/27/95) periods ended June 30, 2000. The Fund's average
annual total return since inception was 26.5%.
---------------------------------------------------------------------------------------------------------------------
ROYCE SELECT FUND 8.0 1.8
our concentrated performance-fee fund for qualified clients, outperformed the
Russell 2000 year-to-date through June 30, 2000 and from the March 9, 2000
small-cap market peak. The Fund also outperformed its benchmark for the one-year
and since inception (11/18/98) periods ended June 30, 2000. The Fund's average
annual total return since inception was 32.5%.
---------------------------------------------------------------------------------------------------------------------
</TABLE>
* All performance and risk information reflect Investment Class results. Shares
of the Funds' Consultant Class and Institutional Service Class bear an
annual distribution expense, and Consultant Class Shares are subject to a
deferred sales charge, neither of which are borne by the Investment Class.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 11
<PAGE>
PENNSYLVANIA MUTUAL FUND +
-------------------------------------------------------------------------------
MANAGER'S DISCUSSION
While ideally it would be nice if it led the fleet, our flagship PENNSYLVANIA
MUTUAL FUND (PMF) sailed through the first half in the mid-range of Royce Fund
returns, up 6.59%. This was not unexpected, considering the Fund's broadly
diversified portfolio of small- and micro-cap stocks. We are pleased, then, with
PMF's performance, which was well ahead of the 3.04% year-to-date return of its
small-cap benchmark, the Russell 2000. The Fund's performance in the high-flying
first quarter was a lagging 2.75%, but in the bearish second quarter, PMF picked
up a head of steam with a return of 3.74%, second best among THE ROYCE FUNDS and
well ahead of the Russell 2000's showing of -3.78%. The Fund's average annual
total return since inception (6/30/73) was 15.58%.
The Fund's somewhat anomalous first-quarter performance was partly the
result of poor showings by companies in the Industrial Services and Consumer
Services sectors. Most of each sector's losses occurred before March 31,
diluting the strong performance of stocks in the Technology and Natural
Resources sectors in the same period. One notable flop was the bankruptcy of
Stone & Webster, which we discuss below. Other setbacks came from stocks whose
business fundamentals we still find attractive, especially in the face of
declining prices. For example, we increased our position in the clothing
retailer Urban Outfitters based on its strong brand name and disciplined
business growth. Recent earnings disappointments and a Street-wide distaste for
retail stocks have sent nervous investors scurrying since January, but we are
confident that it has what it takes to bounce back. Another holding that has
suffered through a tough year is Interim Services (now Spherion), a workforce
management company whose stock price took a nosedive in mid-March and has not
yet recovered. We like its balance sheet and talented
<TABLE>
<CAPTION>
------------------------------------------
GOOD IDEAS THAT WORKED
Net Realized and Unrealized Gain
Year-to-Date Through 6/30/00
------------------------------------------
<S> <C>
Lilly Industries Cl. A $4,791,409
Coherent 3,765,212
Pioneer Group (The) 3,293,129
Investors Financial Services 2,729,944
Exar 2,640,901
</TABLE>
LILLY INDUSTRIES -- A classic value scenario played out for this manufacturer of
industrial coatings and other chemical products. Its strong business seemed
unable to help its market performance until a larger company offered a
substantial premium for the business in June. The buyout prompted the sale of a
large number of shares at a considerable premium.
COHERENT -- This designer and manufacturer of lasers, laser systems and
precision optics first attracted our attention in 1998's third-quarter
technology meltdown. We sold most of our position in the first quarter and the
remainder in the second as the demand for laser-based technologies remained
fairly brisk through the first half of the year.
+ 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>
-------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
Through 6/30/00
-------------------------------------------------------
<S> <C>
Jan-June 2000* 6.59%
1-Year 7.40
3-Year 9.14
5-Year 12.19
10-Year 11.15
20-Year 14.68
25-Year 16.02
Since Inception (6/30/73) 15.58
</TABLE>
*Not annualized.
<TABLE>
<CAPTION>
-------------------------------------------------------
CALENDAR YEAR TOTAL RETURNS
-------------------------------------------------------
YEAR PMF YEAR PMF
<S> <C> <C> <C>
1999 6.0% 1991 31.8%
1998 4.2 1990 -11.5
1997 25.0 1989 16.7
1996 12.8 1988 24.6
1995 18.7 1987 1.4
1994 -0.7 1986 11.2
1993 11.3 1985 26.8
1992 16.2
</TABLE>
[BAR CHART]
<TABLE>
<CAPTION>
-------------------------------------------------------
DOWN MARKET PERFORMANCE COMPARISON
All Down Periods of 7.5% or Greater
Over the Last 15 Years, in Percentages (%)
-------------------------------------------------------
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
3/9/00- -4.3 -25.1
4/14/00
</TABLE>
/ / PMF / / Russell 2000
-------------------------------------------------------
MORNINGSTAR VOLATILITY MEASURES *
-------------------------------------------------------
<TABLE>
<CAPTION>
CATEGORY BEST DECILE
PMF MEDIAN BREAKPOINT
<S> <C> <C> <C>
Standard Deviation 5.81 27.37 17.72
Mstar Risk Ratio 0.82 1.25 0.95
Beta 0.54 0.86 0.62
</TABLE>
* Three years ended 6/30/00. Category Median and Best Decile Breakpoint based
on 309 small-cap objective funds (lowest expense class only) with at least
three years of history.
12 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
PERFORMANCE AND PORTFOLIO REVIEW
-------------------------------------------------------------------------------
management, which is now devoting more resources to the firm's growing business
in technology consulting. Insurance is a group with overall negative returns in
the portfolio year-to-date. Still, we are hanging on to companies whose
underlying business strengths should be an advantage when performance for the
industry turns around. Companies in this category include Medical Assurance, a
medical liability insurance provider.
PMF's strong performance in the second quarter's general market decline
came primarily from stocks in the Financial Services and the Natural Resources
sectors. Rising energy prices -- a factor that hurt the portfolio's retail
stocks -- boosted performance for companies such as Carbo Ceramics, Denbury
Resources and Input/Output (all micro-cap companies). We took some profits in
the first two companies, but in general we are `holding and happy' with regard
to energy stocks.
PMF's Financial Services holdings are dominated by industries that we feel
we know well -- financial information and processing, and investment management.
Investors Financial Services is a provider of transfer agent and global custody
services for financial asset managers that we have been selling at increasingly
higher prices for almost two years while maintaining a respectable-sized
position. We also sold shares of long-time holding Nvest, an investment advisory
firm, when its price skyrocketed on news of a takeover in June. Pioneer Group is
an asset management firm that we owned for more than a decade before finally
selling off the position in May at a substantial profit.
We believe that PMF's combination of small- and micro-cap stocks, selected
with our value approach, is well-suited for a market so far characterized by
higher levels of volatility and more historically typical returns.
<TABLE>
<CAPTION>
-----------------------------------
GOOD IDEAS AT THE TIME
Net Realized and Unrealized Loss
Year-to-Date Through 6/30/00
-----------------------------------
<S> <C>
Stone & Webster $2,825,341
Blanch (E.W.) Holdings 2,172,518
Medical Assurance 1,963,585
Urban Outfitters 1,842,342
Thor Industries 1,734,556
</TABLE>
STONE & WEBSTER -- Any hopes that we had for this engineering and construction
firm were dashed by bankruptcy. We thought that the new management that came
aboard in 1999 might steady a declining business, but the sudden disclosure of
massive overruns on existing projects sounded the death knell.
EW BLANCH HOLDINGS -- After proudly touting the virtues of this reinsurance and
insurance risk management company in 1999's Semi-Annual Report, we watched a
combination of missed earnings estimates and management defections lead to a
more than 50% loss in 2000's first quarter. We still believe in the high value
of the firm's core business, and added to our position in the spring.
<TABLE>
<CAPTION>
-------------------------------------------------------
PORTFOLIO DIAGNOSTICS
-------------------------------------------------------
<S> <C>
Median Market Cap. $393 million
Weighted Average P/E Ratio 13.0x
Weighted Average P/B Ratio 1.5x
Weighted Average Yield 1.6%
Fund Net Assets $480 million
Turnover Rate 21%
Symbol (Investment Class) PENNX
(Consultant Class) RYPCX
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------
TOP 10 POSITIONS % of Net Assets
-------------------------------------------------------
<S> <C>
Penn Engineering & Manufacturing 1.7%
Simpson Manufacturing 1.5
Curtiss-Wright 1.4
Velcro Industries 1.4
Gallagher (Arthur J.)& Company 1.4
Florida Rock Industries 1.3
Carbo Ceramics 1.1
Circle International Group 1.1
Arnold Industries 1.1
Denbury Resources 1.1
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------
PORTFOLIO SECTOR BREAKDOWN
% of Net Assets
-------------------------------------------------------
<S> <C>
Industrial Products 17.6%
Industrial Services 14.9
Financial Intermediaries 11.4
Technology 11.0
Consumer Products 9.6
Natural Resources 7.7
Financial Services 7.1
Consumer Services 4.9
Health 4.5
Miscellaneous 4.6
Cash & Cash Equivalents 6.7
</TABLE>
-------------------------------------------------------
RISK/RETURN COMPARISON
20-Year Period Ended 6/30/00
-------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL STANDARD
TOTAL RETURN DEVIATION RUR*
<S> <C> <C> <C>
Pennsylvania
Mutual Fund 14.7% 13.5 1.09
Russell 2000 13.9 18.8 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.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 13
<PAGE>
ROYCE MICRO-CAP FUND+
-------------------------------------------------------------------------------
MANAGER'S DISCUSSION
There was nothing micro about ROYCE MICRO-CAP FUND'S (RMC) performance in the
first half. The Fund turned in a 12.21% return year-to-date through June 30,
dramatically outperforming its small-cap benchmark, the Russell 2000, which was
up 3.04%. RMC also survived the second-quarter correction by posting a small
gain of 0.66%. The Fund's average annual total return since inception (12/31/91)
was 15.89%.
The significant correction in technology stocks is old news, but in RMC's
portfolio, the story read more like A TALE OF TWO SECTORS. We steadily reduced
our Technology exposure to half of what it was at 12/31/99, primarily via
first-quarter selling just before the bear's long hibernation ended. Yet we also
had successes with companies that rebounded before the end of the second
quarter, including our two largest winners, Richardson Electronics and Jaco
Electronics. Also in this category was Spectra-Physics Lasers, a manufacturer
and distributor of lasers and optics for the semiconductor industry, whose price
recovered after a report of high growth prospects for laser-based fast-network
equipment.
Within the Health sector, biotechnology stocks dominated, with scorching
first-quarter performances that generally cooled off with the arrival of spring.
One notable exception was Lexicon Genetics, a designer of gene trapping and
mutagenesis technologies. It looked as if the company would be subject to the
downturn that was affecting the rest of its industry group, until scientists
announced in June that they had successfully read the genetic code, an event
that sent the stock price soaring. Aurora Biosciences, a designer and developer
of drug enhancement technology, saw its price begin to recover in June on the
less earth-shattering rumor that it would be added to the Russell 2000 when the
index was rebalanced on June 30.
<TABLE>
<CAPTION>
------------------------------------
GOOD IDEAS THAT WORKED
Net Realized and Unrealized Gain
Year-to-Date Through 6/30/00
------------------------------------
<S> <C>
Richardson Electronics $2,266,104
Jaco Electronics 1,571,563
Rainbow Technologies 1,062,072
Aurora Biosciences 1,061,799
Carbo Ceramics 906,766
</TABLE>
RICHARDSON ELECTRONICS -- Wall Street finally noticed this distributor of
electronic components and equipment for industrial, communications, medical, and
scientific applications. The company first got our attention during 1998's
third-quarter correction. Unlike many technology stocks, its price kept climbing
throughout the second quarter.
JACO ELECTRONICS -- Growing demand combined with limited industry supply helped
the stock price of this electronic components distributor to take off in
February. An earnings recovery helped it stay afloat through the second quarter.
We began to sell larger lots in June as the price reached new one-year highs.
+ 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>
-------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
Through 6/30/00
-------------------------------------------------------
<S> <C>
Jan-June 2000* 12.21%
1-Year 24.05
3-Year 11.77
5-Year 13.67
Since Inception (12/31/91) 15.89
</TABLE>
*Not annualized.
<TABLE>
<CAPTION>
-------------------------------------------------------
CALENDAR YEAR TOTAL RETURNS
-------------------------------------------------------
YEAR RMC
<S> <C>
1999 13.7%
1998 -3.3
1997 24.7
1996 15.5
1995 19.1
1994 3.6
1993 23.7
1992 29.4
</TABLE>
[BAR CHART]
<TABLE>
<CAPTION>
-------------------------------------------------------
DOWN MARKET PERFORMANCE COMPARISON
All Down Periods of 7.5% or Greater, in Percentages (%)
-------------------------------------------------------
RMC 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
3/9/00- -8.8 -25.1
4/14/00
</TABLE>
/ / RMC / / Russell 2000
-------------------------------------------------------
MORNINGSTAR VOLATILITY MEASURES*
-------------------------------------------------------
<TABLE>
<CAPTION>
CATEGORY BEST QUARTILE
RMC MEDIAN BREAKPOINT
<S> <C> <C> <C>
Standard Deviation 21.56 21.66 17.98
Mstar Risk Ratio 1.02 1.43 1.11
Beta 0.62 0.64 0.55
</TABLE>
* Three years ended 6/30/00. Category Median and Best Quartile Breakpoint based
on 18 micro-cap objective funds (lowest expense class only) with at least
three years of history. (All small-cap objective funds with median market
capitalizations below $250 million.)
14 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
PERFORMANCE AND PORTFOLIO REVIEW
-------------------------------------------------------------------------------
Companies in the Natural Resources sector also did well, aided by energy
services and oil and gas stocks. Each group made a comeback in the first half,
although gains seemed to trickle down to the industries' micro-cap companies a
little more slowly than they did for larger capitalization classes. While we
began to act on what we thought were great bargains in these stocks in 1999, we
also used net proceeds from the sales of Technology stocks to add to existing
positions and to initiate new ones in these groups this year. For example, in
late June we took a significant position in 3TEC Energy. The company represents
the consolidation of several small regional natural gas exploration businesses
that focus on East Texas and the Gulf Coast. We like the company's business
fundamentals, its experienced and talented CEO and the fact that it remains
overlooked by Wall Street. Even allowing for the gains made so far, we think
that energy services and oil and gas continue to offer considerable performance
potential.
While we're on the subject of performance potential, one underperforming
group that we feel remains attractively undervalued (because performance in
general has been wretched) is insurance. We re-established a large position in
Medical Assurance, a leading provider of medical liability insurance, and took
advantage of low prices to increase our holdings in PXRE Group, a property and
casualty reinsurer. We are confident that our patience will be rewarded.
Although recognition is growing, micro-caps are still struggling towards
official institutional acceptance, which suits us just fine. Investor
indifference often creates the kinds of conditions where we believe our approach
works best.
<TABLE>
<CAPTION>
------------------------------------
GOOD IDEAS AT THE TIME
Net Realized and Unrealized Loss
Year-to-Date Through 6/30/00
------------------------------------
<S> <C>
Stone & Webster $1,079,874
Carlisle Holdings 805,066
RCM Technologies 687,300
Thor Industries 630,891
FLIR Systems 622,701
------------------------------------
</TABLE>
STONE & WEBSTER -- Any hopes that we had for this engineering and
construction firm were dashed by bankruptcy. We thought that the new management
that came aboard in 1999 might steady a declining business, but the sudden
disclosure of massive overruns on existing projects sounded the death knell.
CARLISLE HOLDINGS -- We still like this holding company that focuses on
facilities and staffing services. Despite its solid growth rate, its stock was
trading at around 7x earnings on June 30. We believe that its strong business is
unlikely to remain unnoticed forever, so we are holding on.
<TABLE>
<CAPTION>
-------------------------------------------------------
PORTFOLIO DIAGNOSTICS
-------------------------------------------------------
<S> <C>
Median Market Cap. $182 million
Weighted Average P/E Ratio 12.1x*
Weighted Average P/B Ratio 1.3x
Weighted Average Yield 1.0%
Fund Net Assets $127 million
Turnover Rate 45%
Symbol (Investment Class) RYOTX
(Consultant Class) RYMCX
</TABLE>
* Excludes 16% of portfolio holdings with zero or negative earnings as of
6/30/00.
<TABLE>
<CAPTION>
-------------------------------------------------------
TOP 10 POSITIONS % of Net Assets
-------------------------------------------------------
<S> <C>
Sevenson Environmental Services 2.0%
Florida Rock Industries 2.0
Richardson Electronics 1.9
Carbo Ceramics 1.6
Woodward Governor 1.6
Medical Assurance 1.6
Lazare Kaplan International 1.5
Blanch (E.W.)Holdings 1.5
Pure Resources 1.5
Simpson Manufacturing 1.5
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------
PORTFOLIO SECTOR BREAKDOWN
% of Net Assets
-------------------------------------------------------
<S> <C>
Industrial Products 16.1%
Technology 16.1
Industrial Services 15.7
Natural Resources 10.0
Consumer Products 8.3
Financial Intermediaries 8.3
Health 7.1
Consumer Services 4.2
Financial Services 2.9
Miscellaneous 4.6
Cash & Cash Equivalents 6.7
</TABLE>
-------------------------------------------------------
RISK/RETURN COMPARISON
Inception (12/31/91) through 6/30/00
-------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL STANDARD
TOTAL RETURN DEVIATION RUR*
<S> <C> <C> <C>
Royce
Micro-Cap Fund 15.9% 13.6 1.17
Russell 2000 14.1 17.1 0.83
</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.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 15
<PAGE>
ROYCE TOTAL RETURN FUND
-------------------------------------------------------------------------------
MANAGER'S DISCUSSION
When it comes to short-term relative performance, investing, like baseball, is a
game of inches. ROYCE TOTAL RETURN FUND (RTR) demonstrated this point by edging
past its small-cap benchmark, the Russell 2000, for the year-to-date period, up
3.26% versus 3.04%. RTR's average annual total return since inception (12/15/93)
was 13.38%.
Up only 1.00% in the first quarter, RTR spent much of its time playing
catch-up with a high-scoring, high-return market. In the bear-market atmosphere
of the second quarter, however, the Fund performed relatively well, up 2.23%.
RTR has also been our second-best performer since this year's small-cap market
peak on March 9. Its 6.38% return from March 9 through June 30 was substantially
ahead of the Russell's -14.35% mark for the same period.
First-quarter returns were hampered by lagging performances in the Consumer
Products sector. Our large holding in Enesco Group, a collectibles manufacturer
and licensor, fared poorly, although its status as the new domestic licenser for
all Harry Potter merchandise is a hopeful sign. Bassett Furniture Industries,
another large holding, also failed to keep pace with the market. The performance
of companies in the Industrial Services sector was also off, as large holdings
such as DIMON, a tobacco- leaf processor, and Central Steel and Wire, a
distributor of processed and unprocessed metals, continued to disappoint. RTR's
comparatively low exposure to Technology, the first quarter's best performing
sector in the market as a whole, also hindered performance. Of course, low
exposure to this sector provided a performance advantage in the second quarter,
when the prices of many Technology issues plummeted.
<TABLE>
<CAPTION>
-----------------------------------
GOOD IDEAS THAT WORKED
Net Realized and Unrealized Gain
Year-to-Date Through 6/30/00
-----------------------------------
<S> <C>
Lilly Industries Cl. A $1,661,880
Carbo Ceramics 1,615,599
NN 1,516,091
Richardson Electronics 1,350,503
Helmerich & Payne 1,311,533
</TABLE>
LILLY INDUSTRIES -- A classic value scenario played out for this manufacturer of
industrial coatings and other chemical products. Its strong business seemed
unable to help its market performance until a larger company offered a
substantial premium for the business in June. We sold our position in late June
at a handsome profit.
CARBO CERAMICS -- Rising natural gas prices, a New York Stock Exchange listing
and attractive financial characteristics all helped to raise the price of this
producer and supplier of ceramic proppants, an important ingredient in the
hydraulic fracturing of natural gas and oil wells.
<TABLE>
<CAPTION>
-------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
Through 6/30/00
-------------------------------------------------------
<S> <C>
Jan-June 2000* 3.26%
1-Year 2.89
3-Year 6.43
5-Year 13.61
Since Inception (12/15/93) 13.38
</TABLE>
*Not annualized.
<TABLE>
<CAPTION>
-------------------------------------------------------
CALENDAR YEAR TOTAL RETURNS
-------------------------------------------------------
YEAR RTR
<S> <C>
1999 1.6%
1998 4.8
1997 23.7
1996 25.5
1995 26.9
1994 5.1
</TABLE>
[BAR CHART]
<TABLE>
<CAPTION>
-------------------------------------------------------
DOWN MARKET PERFORMANCE COMPARISON
All Down Periods of 7.5% or Greater, in Percentages (%)
-------------------------------------------------------
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
3/9/00- 1.3 -25.1
4/14/00
</TABLE>
/ / RTR / / Russell 2000
-------------------------------------------------------
MORNINGSTAR VOLATILITY MEASURES*
-------------------------------------------------------
<TABLE>
<CAPTION>
CATEGORY BEST DECILE
RTR MEDIAN BREAKPOINT
<S> <C> <C> <C>
Standard Deviation 12.12 27.37 17.72
Mstar Risk Ratio 0.65 1.25 0.95
Beta 0.47 0.86 0.62
</TABLE>
*Three years ended 6/30/00. Category Median and Best Decile Breakpoint based on
309 small-cap objective funds (lowest expense class only) with at least three
years of history.
16 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
PERFORMANCE AND PORTFOLIO REVIEW
-------------------------------------------------------------------------------
Several of the Fund's holdings in the Natural Resources sector were steady
climbers throughout the first half, which helped to balance the portfolio's
first-quarter losses and the market's second-quarter downturn. Rising energy
costs and the end of an almost year-long slump translated into large gains for
companies such as Helmerich & Payne, a contract drilling and oil and gas
exploration company. We sold off more than half of this position between
February and June, when its price soared. Financial Services is a comparatively
small sector that made a big impact on performance, especially in the second
quarter. Shares of long-time holding Phoenix Investment Partners, an investment
management company, jumped nearly one hundred percent in the first half. We feel
that we know this business very well, and are happy about its long-term
prospects. In stark contrast to poor-performing insurance companies (those that
underwrite insurance policies), insurance brokers enjoyed a strong first half.
The Industrial Products sector contains several `Old Economy' companies.
For example, Ash Grove Cement and Florida Rock Industries are leading
construction materials producers with high internal rates of return in an
industry with modestly cyclical growth rates. Both stocks recovered a bit by
June 30, due to rising prices for materials and tightening supplies.
We are pleased with the Fund's recent down market strength, especially
since its more conservatively managed portfolio of dividend-paying small- and
micro-cap stocks has been out of favor during the strong bull market of the past
few years. We believe, however, that a return to more historically typical
long-term returns would provide RTR with a potential performance edge over its
small-cap peers.
<TABLE>
<CAPTION>
--------------------------------------
GOOD IDEAS AT THE TIME
Net Realized and Unrealized Loss
Year-to-Date Through 6/30/00
--------------------------------------
<S> <C>
Oregon Steel Mills $1,637,400
Lincoln Electric Holdings 1,200,413
Enesco Group 1,069,338
Charming Shoppes 840,000
Roper Industries 781,843
</TABLE>
OREGON STEEL MILLS -- The price of this producer of specialized steel products
declined into the low single digits as a result of recent losses, labor union
problems and a strong US dollar, which has hurt domestic steel producers.
LINCOLN ELECTRIC HOLDINGS -- After announcing a major acquisition in April, this
manufacturer of welding and cutting products said that it would need to borrow
money to finance the purchase, news that made investors flee. We think that the
risk of additional debt is outweighed by the growth prospects that the
acquisition potentially provides, so we are holding our shares.
<TABLE>
<CAPTION>
-------------------------------------------------------
PORTFOLIO DIAGNOSTICS
-------------------------------------------------------
<S> <C>
Median Market Cap. $376 million
Weighted Average P/E Ratio 12.4x
Weighted Average P/B Ratio 1.2x
Weighted Average Yield 3.4%
Fund Net Assets $223 million
Turnover Rate 12%
Symbol RYTRX
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------
TOP 10 POSITIONS % OF NET ASSETS
-------------------------------------------------------
<S> <C>
Trenwick Group 2.1%
Charming Shoppes 2.0
Phoenix Investment Partners 1.8
Carbo Ceramics 1.8
Arrow International 1.7
Zenith National Insurance 1.6
John Nuveen Company Cl. A 1.6
Chelsea GCARealty 1.5
Woodward Governor 1.5
Avnet 1.4
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------
PORTFOLIO SECTOR BREAKDOWN
% of Net Assets
-------------------------------------------------------
<S> <C>
Industrial Products 26.9%
Financial Intermediaries 16.5
Industrial Services 13.8
Natural Resources 8.4
Financial Services 7.8
Consumer Products 7.2
Technology 6.8
Health 2.4
Consumer Services 0.9
Utilities 0.6
Miscellaneous 4.0
Bonds & Preferred Stocks 4.0
Cash & Cash Equivalents 0.7
</TABLE>
-------------------------------------------------------
RISK/RETURN COMPARISON
Inception (12/15/93) through 6/30/00
-------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL STANDARD
TOTAL RETURN DEVIATION RUR*
<S> <C> <C> <C>
Royce Total
Return Fund 13.4% 9.2 1.46
Russell 2000 13.3 18.4 0.72
</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.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 17
<PAGE>
ROYCE LOW-PRICED STOCK FUND
-------------------------------------------------------------------------------
MANAGER'S DISCUSSION
ROYCE LOW-PRICED STOCK FUND (RLP) seems to have been in the right place at the
right time so far in 2000. The Fund, managed by Whitney George, was up 13.97%
through June 30, 2000, substantially ahead of its small-cap benchmark, the
Russell 2000, which was up 3.04% for the same period. RLP also managed to turn
in a positive performance in the bearish second quarter, up 5.68%, the result of
an abundance of strong performers. The Fund's average annual total return since
inception (12/15/93) was 17.09%.
In contrast to 1999, a year in which Technology issues dominated
performance in the market overall and in RLP's portfolio, year-to-date gains
were more evenly spread across sectors and industry groups. We significantly
reduced our exposure to Technology earlier in the year, selling many of our
positions prior to the mid-March "tech-wreck." With any position, and this was
certainly the case with RLP's Technology positions through June 30, we make
decisions to buy, sell or hold based on our estimate of the possibility of
sustainable returns. The prices of many of the Fund's Technology holdings leaped
past our sell targets and our expectations, which led to our selling into the
rally that preceded the recent correction.
Interestingly, some of the same stocks that underwent such dramatic price
movements soon became purchase candidates again. For example, we had sold our
position in Globecomm Systems, a company that builds satellite stations and
provides internet infrastructures to Third World countries, by mid-March. By
mid-April, its price had plummeted to about half of where we sold it, so we
began to buy again, still impressed by its strong core business and sterling
balance sheet.
-----------------------------------
GOOD IDEAS THAT WORKED
Net Realized and Unrealized Gain
Year-to-Date Through 6/30/00
-----------------------------------
Richardson Electronics $679,317
Oakley 677,222
Lexicon Genetics 596,573
Input/Output 496,625
Tom Brown 436,510
RICHARDSON ELECTRONICS -- Wall Street finally noticed this distributor of
electronic components and equipment for industrial, communications, medical, and
scientific applications. The company first got our attention during 1998's
third-quarter correction. Unlike many technology stocks, its price kept climbing
throughout the second quarter.
OAKLEY -- After spending much of the last two years wandering in the low-priced
wilderness, the stock of this leading designer, manufacturer and distributor of
high-performance eyewear, footwear, watches, apparel and accessories finally
came back as new products were more effectively integrated and institutional
interest returned.
<TABLE>
<CAPTION>
-------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
Through 6/30/00
-------------------------------------------------------
<S> <C>
Jan-June 2000* 13.97%
1-Year 29.30
3-Year 19.02
5-Year 18.28
Since Inception (12/15/93) 17.09
</TABLE>
*Not annualized.
<TABLE>
<CAPTION>
-------------------------------------------------------
CALENDAR YEAR TOTAL RETURNS
-------------------------------------------------------
YEAR RLP
<S> <C>
1999 29.8%
1998 2.4
1997 19.5
1996 22.8
1995 22.5
1994 3.0
</TABLE>
[BAR CHART]
<TABLE>
<CAPTION>
-------------------------------------------------------
DOWN MARKET PERFORMANCE COMPARISON
All Down Periods of 7.5% or Greater, in Percentages (%)
-------------------------------------------------------
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
3/9/00- -3.7 -25.1
4/14/00
</TABLE>
/ / RLP / / Russell 2000
-------------------------------------------------------
MORNINGSTAR VOLATILITY MEASURES*
-------------------------------------------------------
<TABLE>
<CAPTION>
CATEGORY BEST QUARTILE
RLP MEDIAN BREAKPOINT
<S> <C> <C> <C>
Standard Deviation 22.93 27.37 20.82
Mstar Risk Ratio 0.89 1.25 1.10
Beta 0.62 0.86 0.74
</TABLE>
*Three years ended 6/30/00. Category Median and Best Quartile Breakpoint based
on 309 small-cap objective funds (lowest expense class only) with at least three
years of history.
18 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
PERFORMANCE AND PORTFOLIO REVIEW
--------------------------------------------------------------------------------
Low prices have also created opportunities in the Industrial Services
sector, particularly in the commercial services and engineering and construction
groups. In the former, we increased our position in Interim Services (now
Spherion), a workforce management company that is concentrating more on its
profitable technology consulting business. The stock has struggled throughout
the year, but we like its business fundamentals and management. We also more
than doubled our position in Morrison Knudsen, an engineering and large-scale
construction management company, after its stock dipped to single-digit levels
late last year and stayed there through the first half. We think that the
company has terrific management and that the acquisition of Raytheon's
construction business should help what we think is a top-notch business.
The prices of some retail stocks that we like have also been hit hard,
reeling from the combined effects of higher energy prices, rising interest rates
and persistent rumors of an economic slowdown. We substantially increased
positions both in Charming Shoppes and Consolidated Stores, two companies that
we feel possess high-quality business characteristics and sturdy brand names. A
similar expectation holds for insurance stocks, whose comeback admittedly seems
long overdue. Still, we remain optimistic about Fidelity National Financial and
HCC Insurance Holdings, companies with the sort of management and financial
condition that we find attractive.
Even in the aftermath of terrific short-term performance, we are confident
as we look ahead. Increased market volatility is in our view an excellent
environment in which to be managing a low-priced small- and micro-cap portfolio
with a time-tested value approach.
<TABLE>
<CAPTION>
-----------------------------------
GOOD IDEAS AT THE TIME
Net Realized and Unrealized Loss
Year-to-Date Through 6/30/00
-----------------------------------
<S> <C>
Reliance Group Holdings $420,834
Enesco Group 287,463
RCM Technologies 242,757
Charming Shoppes 239,206
Online Resources & Comms. 234,854
</TABLE>
RELIANCE GROUP HOLDINGS -- We bought the stock of this property
and casualty insurer on a takeover announcement from a firm that we liked.
Reliance's financial condition, never especially great, turned out to be worse
than we had first thought. Now its suitor seems to be holding out for a better
price, and we are keeping our fingers crossed.
ENESCO GROUP -- After posting dismal earnings and announcing an acquisition that
we did not think was wise, we took our losses on what had been a disappointing
experience with this collectibles designer and licenser. We bought again, just
as we learned that the company holds exclusive domestic licensing rights to
Harry Potter.
<TABLE>
<CAPTION>
-------------------------------------------------------
PORTFOLIO DIAGNOSTICS
-------------------------------------------------------
<S> <C>
Median Market Cap. $462 million
Weighted Average P/E Ratio 12.4x*
Weighted Average P/B Ratio 1.3x
Weighted Average Yield 1.0%
Fund Net Assets $49 million
Turnover Rate 51%
Symbol RYLPX
</TABLE>
*Excludes 18% of portfolio holdings with zero or negative earnings as of
6/30/00.
<TABLE>
<CAPTION>
-------------------------------------------------------
TOP 10 POSITIONS % Of Net Assets
-------------------------------------------------------
<S> <C>
Input/Output 3.0%
Phoenix Investment Partners 2.9
Charming Shoppes 2.8
Oakley 2.8
Morrison Knudsen 2.7
Medical Assurance 2.5
Lincoln Electric Holdings 2.5
Consolidated Stores 2.3
Pure Resources 2.3
3TEC Energy 2.2
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------
PORTFOLIO SECTOR BREAKDOWN
% of Net Assets
-------------------------------------------------------
<S> <C>
Industrial Services 17.8%
Natural Resources 16.1
Technology 13.3
Financial Intermediaries 11.2
Consumer Services 10.9
Industrial Products 6.8
Health 6.2
Consumer Products 4.7
Financial Services 2.9
Miscellaneous 4.8
Cash & Cash Equivalents 5.3
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------
RISK/RETURN COMPARISON
Inception (12/15/93) through 6/30/00
-------------------------------------------------------
Average Annual Standard
Total Return Deviation RUR*
<S> <C> <C> <C>
Royce Low-Priced
Stock Fund 17.1% 15.7 1.09
Russell 2000 13.3 18.4 0.72
</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.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 19
<PAGE>
ROYCE OPPORTUNITY FUND +
-------------------------------------------------------------------------------
MANAGER'S DISCUSSION
ROYCE OPPORTUNITY FUND (ROF), managed by Buzz Zaino, had it both ways in the
year's first six months. The Fund turned in a terrific performance in the heady
first quarter -- up 20.45% -- yet gave back only a small portion of its gain --
down 1.73% -- in the correction that lasted through most of the second.
Year-to-date, ROF was up 18.36%, far ahead of its small-cap benchmark, the
Russell 2000, which was up 3.04%. The Fund's average annual total return since
inception (11/19/96) was 22.61%.
The contrast in performance from quarter to quarter, as the market suddenly
shifted from bull mode to bear, meant some changes in the portfolio's
activities. We sold a number of positions in the first quarter as the prices of
several portfolio holdings rocketed past our sell targets, such as Westell
Technologies, a designer and manufacturer of digital and analog products for the
telecommunications industry; and Keithley Instruments, a company that develops,
manufactures and sells measurement systems geared to the specialized needs of
electronics manufacturers for product development and research. These sales were
also part of an almost fifty percent reduction in Technology stocks, a sector we
began cutting back in late 1999. The resulting net proceeds were then used to
buy stocks whose prices became more and more depressed as the first quarter came
to a close and the second began.
One recipient of these proceeds was the Industrial Products sector,
currently the largest in the portfolio. Many of these companies' prices
struggled in March and April, before beginning to recover by June 30. We
increased our position in Stewart & Stevenson Services, a manufacturer of custom
engine-driven products, and in Flowserve, a manufacturer, distributor and
service provider of pumps, valves, and mechanical
<TABLE>
<CAPTION>
--------------------------------------
GOOD IDEAS THAT WORKED
Net Realized and Unrealized Gain
Year-to-Date Through 6/30/00
--------------------------------------
<S> <C>
Microsemi $1,638,155
GSI Lumonics 1,247,563
Lilly Industries Cl. A 1,095,947
Westell Technologies Cl. A 964,405
Precision Castparts 953,162
</TABLE>
MICROSEMI -- Although the company's primary business of supplying electronic
components for various markets struggled, their purchase of Infinity Products in
late February attracted the market's attention, causing the price to hit the
stratosphere and prompting us to sell out our position by mid-March.
GSI Lumonics -- We began to acquire the stock of this Canadian laser-based
capital equipment manufacturer in 1999. After selling some shares in February,
we watched the market fall in love with the company's business line that is
engaged in the manufacture of fiberoptic networks. The price accelerated from
February through the end of June, resulting in a handsome net profit.
+ All performance and risk information presented herein is for ROF's Investment
Class. Shares of ROF's Institutional Service Class, which commenced operations
on May 22, 2000, bear an annual distribution expense which is not borne by the
Investment Class.
<TABLE>
<CAPTION>
-------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
Through 6/30/00
-------------------------------------------------------
<S> <C>
Jan-June 2000* 18.36%
1-Year 35.87
3-Year 21.59
Since Inception (11/19/96) 22.61
</TABLE>
*Not annualized.
<TABLE>
<CAPTION>
-------------------------------------------------------
CALENDAR YEAR TOTAL RETURNS
-------------------------------------------------------
YEAR ROF
<S> <C>
1999 32.3%
1998 4.9
1997 20.8
</TABLE>
[BAR CHART]
<TABLE>
<CAPTION>
-------------------------------------------------------
DOWN MARKET PERFORMANCE COMPARISON
All Down Periods of 7.5% or Greater, in Percentages (%)
-------------------------------------------------------
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
3/9/00- -7.6 -25.1
4/14/00
</TABLE>
/ /ROF / / Russell 2000
-------------------------------------------------------
Morningstar Volatility Measures*
-------------------------------------------------------
<TABLE>
<CAPTION>
CATEGORY BEST QUARTILE
ROF MEDIAN BREAKPOINT
<S> <C> <C> <C>
Standard Deviation 25.31 27.37 20.82
Mstar Risk Ratio 0.97 1.25 1.10
Beta 0.67 0.86 0.74
</TABLE>
*Three years ended 6/30/00. Category Median and Best Quartile Breakpoint based
on 309 small-cap objective funds (lowest expense class only) with at least
three years of history.
20 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
PERFORMANCE AND PORTFOLIO REVIEW
-------------------------------------------------------------------------------
seals for the power and energy industries. Both stocks' prices have
recently been boosted by the increase in energy prices (itself a highly
profitable industry group for the Fund year-to-date); Flowserve is also in the
process of making a major acquisition.
One group that has performed poorly throughout the year, but whose comeback
potential we like, is software services. Many companies put off plans to upgrade
software applications following the non-event of Y2K, which drove prices of
software service providers down to what we felt were very attractive levels.
Companies in this group include Computer Horizons, which provides information
technology services to telecommunications, insurance, finance, and manufacturing
corporations; and Epicor Software, whose products integrate back office
applications for manufacturing, distribution and accounting with front office
applications for sales, marketing and customer support. We believe that
companies will have to devote resources to software upgrades and other services
some time this year, which should help these stocks to rebound.
Another distressed but promising group is property and casualty insurance
stocks, an industry whose prices have been down for more than a year in some
cases. Annuity and Life Re (Holdings) and Horace Mann Educators are two
companies in this group whose potential we like.
In general, the current volatile market has meant a watching and waiting
period as first and second quarter purchases across a variety of industry groups
have yet to bear fruit. This is not uncommon following a high-return period such
as 2000's first quarter. It has provided the Fund with what we believe are
excellent opportunities for potential future performance.
<TABLE>
<CAPTION>
-----------------------------------
GOOD IDEAS AT THE TIME
Net Realized and Unrealized Loss
Year-to-Date Through 6/30/00
-----------------------------------
<S> <C>
Computer Task Group $851,643
QuadraMed 743,284
Epicor Software 737,816
UNOVA 530,372
Evans & Sutherland Computer 481,742
</TABLE>
COMPUTER TASK GROUP -- This provider of information technology consulting
services suffered along with other service providers. After a management
reshuffling (the results of which we like), it is now devoting considerable
resources to e-commerce consulting, a move that leaves us confident about the
company's ability to flourish.
QUADRAMED -- Tight hospital budgets and proposed spending cuts in Medicare and
Medicaid conspired to drive down the price of this health information management
and consulting services company. A management reorganization didn't help,
either. We see this company's expertise in a niche business as the impetus for a
reversal of the stock price's fortunes.
<TABLE>
<CAPTION>
-------------------------------------------------------
PORTFOLIO DIAGNOSTICS
-------------------------------------------------------
<S> <C>
Median Market Cap. $284 million
Weighted Average P/E Ratio 11.8x*
Weighted Average P/B Ratio 1.2x
Weighted Average Yield 1.0%
Fund Net Assets $180 million
Turnover Rate 34%
Symbol (Investment Class) RYPNX
(Institutional Service Class) RYOFX
</TABLE>
*Excludes 24% of portfolio holdings with zero or negative earnings as of
6/30/00.
<TABLE>
<CAPTION>
-------------------------------------------------------
TOP 10 POSITIONS % of Net Assets
-------------------------------------------------------
<S> <C>
CoorsTek 1.1%
Stewart & Stevenson Services 1.1
Bell Microproducts 1.0
Hexcel Corporation 1.0
Precision Castparts 0.9
Flowserve 0.9
Allen Telecom 0.9
East West Bancorp 0.9
Albany International Cl. A 0.9
Smith (A.O.) Corporation 0.8
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------
PORTFOLIO SECTOR BREAKDOWN
% of Net Assets
-------------------------------------------------------
<S> <C>
Industrial Products 30.2%
Technology 19.0
Industrial Services 12.8
Consumer Services 7.3
Natural Resources 6.4
Financial Intermediaries 6.0
Consumer Products 4.7
Health 2.6
Miscellaneous 4.8
Bond 0.1
Cash & Cash Equivalents 6.1
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------
RISK/RETURN COMPARISON
Inception (11/19/96) through 6/30/00
-------------------------------------------------------
AVERAGE ANNUAL STANDARD
TOTAL RETURN DEVIATION RUR*
<S> <C> <C> <C>
Royce Opportunity
Fund 22.6% 19.4 1.16
Russell 2000 13.1 22.3 0.59
</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.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 21
<PAGE>
ROYCE PREMIER FUND
-------------------------------------------------------------------------------
MANAGER'S DISCUSSION
We felt a bit like recipients of a Dubious Achievement Award for ROYCE PREMIER
FUND'S (RPR) first-half performance. The Fund's year-to-date return of 4.39% was
unremarkable to us, but good enough to outpace its small-cap benchmark, the
Russell 2000, up 3.04% for the same period. The Fund's average annual total
return since inception (12/31/91) was 13.40%.
The dynamic first quarter was a relatively low-return period (+3.35%) for
RPR. The Fund's concentrated portfolio allows for individual positions to make a
greater impact on performance, which may have hindered its first-quarter return.
However, concentration also helped the Fund to have relatively strong
performance in the second-quarter downturn, when RPR was up 1.01%.
Two large holdings in the Industrial Products sector, an area with
disappointing year-to-date results, endured a difficult first quarter before
rebounding late in the second. The stock price of Florida Rock Industries, a
producer and seller of ready-mix concrete and other construction material
aggregates, was struggling until the company announced some key acquisitions in
early May, giving performance an upswing. An encouraging quarterly report from
Simpson Manufacturing, a building components manufacturer, made investors take
notice. Unfortunately, these gains were offset by Wall Street's disregard for
Lincoln Electric Holdings, a manufacturer of welding and cutting products. In
April, the company announced a large acquisition, but followed that news with a
report that it would need to borrow funds to complete the deal, which sent its
price into a tailspin. We believe in the company's long-term prospects based on
its previous business success and on the growth potential that the acquisition
offers.
<TABLE>
<CAPTION>
---------------------------------------------
GOOD IDEAS THAT WORKED
Net Realized and Unrealized Gain
Year-to-Date Through 6/30/00
---------------------------------------------
<S> <C>
Pioneer Group (The) $12,094,113
Tom Brown 7,950,992
Oakley 6,373,855
Arthur J. Gallagher & Company 5,235,154
Devon Energy 5,196,881
</TABLE>
PIONEER GROUP (THE) -- We began to buy shares of this well-managed asset
management firm in 1996. We sold it off between March and June as the price rose
to levels beyond our expectations on news of a buy-out by a large Italian bank.
TOM BROWN -- The price of this natural gas exploration and production company
appreciated substantially in April and showed no signs of slowing down as June
30 approached. We trimmed our position by taking some profit in the second
quarter, but are still holding shares. We like its management and believe that
energy stocks have not peaked.
<TABLE>
<CAPTION>
-------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
Through 6/30/00
-------------------------------------------------------
<S> <C>
Jan-June 2000* 4.39%
1-Year 8.77
3-Year 8.68
5-Year 12.60
Since Inception (12/31/91) 13.40
</TABLE>
*Not annualized.
-------------------------------------------------------
CALENDAR YEAR TOTAL RETURNS
-------------------------------------------------------
<TABLE>
<CAPTION>
Year RPR
<S> <C>
1999 11.5%
1998 6.7
1997 18.4
1996 18.1
1995 17.8
1994 3.3
1993 19.0
1992 15.8
</TABLE>
[BAR CHART]
<TABLE>
<CAPTION>
-------------------------------------------------------
DOWN MARKET PERFORMANCE COMPARISON
All Down Periods of 7.5% or Greater, in Percentages (%)
-------------------------------------------------------
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
3/9/00- -3.1 -25.1
4/14/00
</TABLE>
/ / RPR / / Russell 2000
-------------------------------------------------------
MORNINGSTAR VOLATILITY MEASURES*
-------------------------------------------------------
<TABLE>
<CAPTION>
CATEGORY BEST DECILE
RPR MEDIAN BREAKPOINT
<S> <C> <C> <C>
Standard Deviation 17.29 27.37 17.72
Mstar Risk Ratio 0.92 1.25 0.95
Beta 0.63 0.86 0.62
</TABLE>
*Three years ended 6/30/00. Category Median and Best Decile Breakpoint based on
309 small-cap objective funds (lowest expense class only) with at least three
years of history.
22 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
PERFORMANCE AND PORTFOLIO REVIEW
--------------------------------------------------------------------------------
Industrial Services was another sector that caused performance to lag
year-to-date. Morrison Knudsen reported its plan to purchase Raytheon's
construction and engineering business in April and was awarded two large
projects in May, events that temporarily pushed up the stock price before
concerns about the acquisition drove investors away again.
The portfolio's gains were spread across several industry groups and
include companies that we think are well positioned to continue growing. Oakley,
a leading designer, manufacturer and distributor of high-performance eyewear,
footwear, watches, apparel and accessories, enjoyed a terrific first half.
Strong earnings and more successful distribution and marketing of new products
brought investors back to the company after almost two years of uninspiring
performance. Energy-related companies from the top-performing Natural Resources
sector also did very well. The price of our second-largest winner in the energy
group, Devon Energy, an oil and gas producer, continued to climb throughout
2000, so we sold some shares. The stocks of insurance brokerage companies, such
as Arthur J. Gallagher & Company and Aon, performed very well, benefiting from
industry consolidation and from the rising cost of premiums, a benefit that
unfortunately has not yet reached insurance underwriters.
Our optimism about RPR's future is based primarily on our confidence in the
ability of those portfolio companies that have been making acquisitions when
their respective industry conditions are weak to remain industry leaders once
these acquisitions are more effectively integrated.
<TABLE>
<CAPTION>
-------------------------------------
GOOD IDEAS AT THE TIME
Net Realized and Unrealized Loss
Year-to-Date Through 6/30/00
-------------------------------------
<S> <C>
Blanch (E.W.) Holdings $8,526,895
Interim Services 5,461,900
Lincoln Electric Holdings 4,615,436
Medical Assurance 4,271,898
Dionex 3,701,862
</TABLE>
BLANCH (E.W.) HOLDINGS -- After proudly touting the virtues of this
reinsurance and insurance risk management company in 1999's Semi-Annual
Report, a combination of missed earnings estimates and management defections
led to a more than 50% loss in 2000's first quarter. Still believers in the
firm's core business, we built up our position before selling some shares
in May.
INTERIM SERVICES (NOW SPHERION) -- This industry leader in workforce management
missed an earnings estimate that caused what we think was a disproportionate
decline in the stock price. We like the company's growing technology consulting
business.
<TABLE>
<CAPTION>
-------------------------------------------------------
PORTFOLIO DIAGNOSTICS
-------------------------------------------------------
<S> <C>
Median Market Cap. $1.0 billion
Weighted Average P/E Ratio 15.5x
Weighted Average P/B Ratio 1.9x
Weighted Average Yield 1.1%
Fund Net Assets $581 million
Turnover Rate 24%
Symbol RYPRX
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------
TOP 10 POSITIONS % of Net Assets
-------------------------------------------------------
<S> <C>
Gallagher (Arthur J.) & Company 3.9%
Avnet 3.1
White Mountains Insurance Group 2.9
Florida Rock Industries 2.8
Simpson Manufacturing 2.7
Interim Services 2.6
National Instruments 2.6
Zenith National Insurance 2.5
Unifi 2.5
Haemonetics 2.5
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------
PORTFOLIO SECTOR BREAKDOWN
% of Net Assets
-------------------------------------------------------
<S> <C>
Technology 21.9%
Industrial Products 13.4
Financial Intermediaries 13.0
Financial Services 11.5
Industrial Services 8.8
Natural Resources 7.0
Health 4.6
Consumer Services 4.1
Consumer Products 2.4
Cash & Cash Equivalents 13.3
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------
RISK/RETURN COMPARISON
Inception (12/31/91) through 6/30/00
-------------------------------------------------------
AVERAGE ANNUAL STANDARD
TOTAL RETURN DEVIATION RUR*
<S> <C> <C> <C>
Royce
Premier Fund 13.4% 10.8 1.24
Russell 2000 14.2 17.1 0.83
</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.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 23
<PAGE>
ROYCE TRUST & GIFTSHARES FUND +
-------------------------------------------------------------------------------
MANAGER'S DISCUSSION
The stock market giveth and the stock market taketh away. ROYCE TRUST &
GIFTSHARES FUND (RTG) enjoyed a strong first quarter, up 10.30%, but gave some
of that gain back to the bear in the second quarter, when the Fund was down
2.42%. Overall, however, we are pleased with our gifting and estate-planning
portfolio's first half. The Fund's 7.62% year-to-date return more than doubled
that of its small-cap benchmark, the Russell 2000, which was up 3.04%
year-to-date through June 30. The Fund's average annual total return since
inception (12/27/95) was 26.51%.
The Fund's largest sector, Industrial Services, was also its worst
performer. However, we think that many companies in the sector are capable of
shaking off recent negative performances. For example, Morrison Knudsen is a
large-scale engineering and construction company whose proposed acquisition of
Raytheon's construction business led to a lag in the stock's performance because
investors were concerned about potential problems in closing the purchase.
Perhaps keeping an eye on the long-term more than others, we are instead
focusing on its contracts in Las Vegas and Denver.
Transportation and logistics was another depressed area within the sector
that we believe has untapped performance potential. We hold what we regard as
high-quality companies such as AirNet Systems, an air and ground courier
company, hopeful that this overlooked industry will eventually attract some
institutional attention. RCM Technologies and Interim Services (now Spherion)
are workforce management firms that have still not recovered from a post-Y2K
slowdown in the technology staffing and consulting business. We like the
long-term prospects for these businesses. Each is a leader in what we expect
will be a high-growth industry in the next few years.
<TABLE>
<CAPTION>
-----------------------------------
GOOD IDEAS THAT WORKED
Net Realized and Unrealized Gain
Year-to-Date Through 6/30/00
-----------------------------------
<S> <C>
Richardson Electronics $512,754
Oakley 404,147
Input/Output 312,523
REMEC 302,322
New Horizons Worldwide 295,344
</TABLE>
RICHARDSON ELECTRONICS -- Wall Street finally began to notice this distributor
of electronic components and equipment that first got our attention during
1998's third-quarter correction. Unlike many technology stocks, its price kept
climbing throughout the second quarter. We're content to retain a large
position.
OAKLEY -- After spending much of the last two years wandering in the
single-digit wilderness, the stock of this leading designer, manufacturer and
distributor of high-performance eyewear, footwear, watches and apparel finally
came back as new products were more effectively integrated and institutional
interest returned.
+ 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>
-------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
Through 6/30/00
-------------------------------------------------------
<S> <C>
Jan-June 2000* 7.62%
1-Year 30.94
3-Year 26.99
Since Inception (12/27/95) 26.51
</TABLE>
*Not annualized.
<TABLE>
<CAPTION>
-------------------------------------------------------
CALENDAR YEAR TOTAL RETURNS
-------------------------------------------------------
Year RTG
<S> <C>
1999 41.8%
1998 19.5
1997 26.0
1996 25.6
</TABLE>
[BAR CHART]
<TABLE>
<CAPTION>
-------------------------------------------------------
DOWN MARKET PERFORMANCE COMPARISON
All Down Periods of 7.5% or Greater, in Percentages (%)
-------------------------------------------------------
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
3/19/00- -4.1 -25.1
4/14/00
</TABLE>
/ / RTG / / Russell 2000
<TABLE>
<CAPTION>
-------------------------------------------------------
MORNINGSTAR VOLATILITY MEASURES*
-------------------------------------------------------
Category Best Quartile
RTG Median Breakpoint
<S> <C> <C> <C>
Standard Deviation 24.46 27.37 20.82
Mstar Risk Ratio 0.73 1.25 1.10
Beta 0.70 0.86 0.74
</TABLE>
*Three years ended 6/30/00. Category Median and Best Quartile Breakpoint based
on 309 small-cap objective funds (lowest expense class only) with at least
three years of history.
24 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
PERFORMANCE AND PORTFOLIO REVIEW
--------------------------------------------------------------------------------
Portfolio holdings in the Natural Resources and Technology sectors made the
greatest positive impact on the Fund's year-to-date performance, although
portfolio gains were spread across sectors and industry groups. In spite of the
second-quarter correction, some Technology companies managed to provide
attractive year-to-date gains. For example, IMRglobal, a provider of innovative
e-business and information technology solutions to large companies, eluded the
"tech-wreck" that began in early March. We also sold off positions in the
software companies REMEC and JDA Software at hefty profits before the prices of
many Technology stocks went south.
Within Natural Resources, energy services and oil and gas stocks turned
around in the first half, overcoming long periods of dismal performance. We sold
off positions in Barrett Resources, Tom Brown and Devon Energy when they
appreciated well beyond our sell targets. The price of Input/Output, a designer
and manufacturer of seismic data acquisition products used on land and water,
climbed steadily through the first half. Although we took a small gain in March,
we still retain a large position. We sold some shares of Carbo Ceramics, a
producer and supplier of ceramic proppants, an important ingredient in the
hydraulic fracturing of natural gas and oil wells, in April when rising prices
pushed the stock price higher. We think that these small, well-run energy
services companies remain attractively valued.
Looking forward, we think that the Fund's concentrated portfolio of small-
and micro-cap stocks, while potentially more subject to short-term volatility,
continues to benefit from its modest asset size and relatively stable pool of
capital.
<TABLE>
<CAPTION>
-----------------------------------
GOOD IDEAS AT THE TIME
Net Realized and Unrealized Loss
Year-to-Date Through 6/30/00
-----------------------------------
<S> <C>
Stone & Webster $764,225
Medical Assurance 277,434
RCM Technologies 276,500
Blanch (E.W.)Holdings 240,025
Frontier Insurance Group 198,884
</TABLE>
STONE & WEBSTER -- Any hopes that we had for this engineering and
construction firm were dashed by bankruptcy. We thought that the new management
that came aboard in 1999 might steady a declining business, but the sudden
disclosure of massive overruns on existing projects sounded the death knell.
MEDICAL ASSURANCE -- The stock of this medical liability insurance provider
declined from the low twenties to the low teens following its announcement that
poor market conditions would adversely affect its earnings. Our confidence in
management continues, so we nearly doubled our stake as its price slipped.
<TABLE>
<CAPTION>
-------------------------------------------------------
PORTFOLIO DIAGNOSTICS
-------------------------------------------------------
<S> <C>
Median Market Cap. $521 million
Weighted Average P/E Ratio 14.1x*
Weighted Average P/B Ratio 1.3x
Weighted Average Yield 0.8%
Fund Net Assets $22 million
Turnover Rate 55%
Symbol (Investment Class) RGFAX
(Consultant Class) RGFCX
</TABLE>
*Excludes 27% of portfolio holdings with zero or negative earnings
as of 6/30/00.
<TABLE>
<CAPTION>
-------------------------------------------------------
TOP 10 POSITIONS % of Net Assets
-------------------------------------------------------
<S> <C>
Pure Resources 4.5%
Richardson Electronics 4.2
Interim Services 4.1
LaSalle Re Holdings 3.6
Input/Output 3.4
Ritchie Bros. Auctioneers 3.1
MarchFirst 3.1
Medical Assurance 3.0
Schein (Henry) 2.9
Carbo Ceramics 2.9
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------
Portfolio Sector Breakdown
% of Net Assets
-------------------------------------------------------
<S> <C>
Industrial Services 20.6%
Technology 19.9
Natural Resources 16.4
Financial Intermediaries 14.3
Health 6.9
Financial Services 6.6
Consumer Products 5.8
Consumer Services 5.6
Industrial Products 2.8
Cash & Cash Equivalents 1.1
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------
RISK/RETURN COMPARISON
Inception (12/27/95) through 6/30/00
-------------------------------------------------------
AVERAGE ANNUAL STANDARD
TOTAL RETURN DEVIATION RUR*
<S> <C> <C> <C>
Royce Trust &
GiftShares Fund 26.5% 16.6 1.60
Russell 2000 13.2 21.7 0.63
</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.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 25
<PAGE>
ROYCE SELECT FUND
-------------------------------------------------------------------------------
MANAGER'S DISCUSSION
No one can say that we didn't give fair warning. In our 1999 Annual Report, we
stated that ROYCE SELECT FUND'S (RSF) impressive returns were "well in excess of
what we think is sustainable." But while the Fund had a relatively cooler first
half, we are pleased with its performance so far this year. RSF's concentrated
portfolio of small- and micro-cap stocks was up 7.96% year-to-date through June
30, easily outperforming its small-cap benchmark, the Russell 2000, which was up
3.04% for the same period. The Fund's average annual total return since
inception (11/18/98) was 32.54%
Holdings in the Industrial Services and Financial Intermediaries sectors
caused the greatest lag on first-half performance, specifically Stone & Webster
and Medical Assurance, both of which we discuss below. AirNet Systems, a ground
and air courier company in the transportation and logistics industry, delivered
an underwhelming performance, still unable to attract attention from Wall
Street. A slowdown in the technology staffing and consulting business stalled
the hoped-for recovery of workforce management company Interim Services (now
Spherion), although we think that its growing presence as a technology
consultant firm will help it reverse this trend.
Two industry groups whose turnaround potential we like are retail and
insurance stocks. Higher interest rates, rising energy costs and persistent
rumors of an economic slowdown all helped to drive retail stock prices down.
Seeing an opportunity to purchase what we think are high-quality undervalued
businesses, we initiated large positions in Urban Outfitters and Consolidated
Stores. The former has a strong brand and a pattern of disciplined franchise
growth, while the latter has multiple brands of smaller retailers and attractive
financial characteristics. Insurance companies have been
<TABLE>
<CAPTION>
-----------------------------------
GOOD IDEAS THAT WORKED
Net Realized and Unrealized Gain
Year-to-Date Through 6/30/00
-----------------------------------
<S> <C>
Richardson Electronics $249,843
Oakley 166,179
Tom Brown 130,910
Schein (Henry) 123,353
Carbo Ceramics 122,006
</TABLE>
RICHARDSON ELECTRONICS -- Wall Street finally began to notice this distributor
of electronic components and equipment that first got our attention during
1998's third-quarter correction. Unlike many technology stocks, its price kept
climbing throughout the second quarter.
OAKLEY -- After spending much of the last two years wandering in the
single-digit wilderness, the stock of this leading designer, manufacturer and
distributor of high-performance eyewear, footwear, watches and apparel finally
came back as new products were more effectively integrated and institutional
interest returned.
<TABLE>
<CAPTION>
-------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
Through 6/30/00
-------------------------------------------------------
<S> <C>
Jan-June 2000* 7.96%
1-Year 19.50
Since Inception (11/18/98) 32.54
</TABLE>
*Not annualized.
<TABLE>
<CAPTION>
-------------------------------------------------------
Calendar Year Total Returns
-------------------------------------------------------
Year RSF
<S> <C>
1999 35.4%
</TABLE>
- INVESTS IN A CONCENTRATED PORTFOLIO OF SMALL- AND MICRO-CAP STOCKS
- UNLIKE ANY OTHER MUTUAL FUND PRESENTLY OFFERED, THE FUND UTILIZES AN
ALL-INCLUSIVE MANAGEMENT FEE THAT VARIES BASED STRICTLY ON THE FUND'S
PERFORMANCE
- DESIGNED FOR QUALIFIED INVESTORS, THOSE WITH A NET WORTH EXCEEDING
$1.5 MILLION
26 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
PERFORMANCE AND PORTFOLIO REVIEW
-------------------------------------------------------------------------------
waiting so long to rebound that even our patience has been tested. Increased
premium costs have benefited insurance brokerage businesses (including Fund
holdings Arthur J. Gallagher & Company and Aon), but few gains have reached
those companies that underwrite policies. Our take is that insurance companies,
particularly those in the property and casualty business, have had an
undervalued product for the last few years, but that rising prices and a
cyclical turn should favor them.
Companies in the Natural Resources and Health sectors contributed to
first-half gains. Accelerating energy prices and a move to the New York Stock
Exchange boosted the stock price of Carbo Ceramics, a producer and supplier of
ceramic proppants, an important ingredient in the hydraulic fracturing of
natural gas and oil wells. We reduced our position in Input/Output, a designer
and manufacturer of seismic data acquisition products used on land and water, as
its price climbed steadily through the first half.
Over the years, we have made money in other Royce Fund portfolios through
investments in companies that were on the periphery of cutting-edge
technologies, such as semiconductor and other electronic component manufacturers
and distributors. We saw an analogous opportunity in a few select Internet and
telecommunications-related businesses in the wake of this year's downturn in
Technology stocks. In April, we took a position in internet.com, a provider of
global real-time news and information resources for Internet technology
professionals and web developers, then in May watched the price of MarchFirst,
an Internet consulting and services firm, fall to levels we found very
attractive.
Looking forward, we believe that RSF's concentrated portfolio of small- and
micro-cap value companies is well-suited to the current cycle's more volatile
market.
<TABLE>
<CAPTION>
-----------------------------------
GOOD IDEAS AT THE TIME
Net Realized and Unrealized Loss
Year-to-Date Through 6/30/00
-----------------------------------
<S> <C>
Stone & Webster $271,873
Medical Assurance 157,209
Frontier Insurance Group 127,311
Lincoln Electric Holdings 98,212
Interim Services 89,810
</TABLE>
STONE & WEBSTER -- Any hopes that we had for this engineering and
construction firm were dashed by bankruptcy. We thought that the new management
that came aboard in 1999 might steady a declining business, but the sudden
disclosure of massive overruns on existing projects sounded the death knell.
MEDICAL ASSURANCE -- The stock of this medical liability insurance provider
declined from the low twenties to the low teens following its announcement that
poor market conditions would adversely affect its earnings. Our confidence in
management continues, so we nearly doubled our stake as its price slipped.
<TABLE>
<CAPTION>
-------------------------------------------------------
PORTFOLIO DIAGNOSTICS
-------------------------------------------------------
<S> <C>
Median Market Cap. $395 million
Weighted Average P/E Ratio 12.9x*
Weighted Average P/B Ratio 1.3x
Weighted Average Yield 0.8%
Fund Net Assets $11 million
Turnover Rate 61%
Symbol RYSFX
</TABLE>
*Excludes 24% of portfolio holdings with zero or negative
earnings as of 6/30/00.
<TABLE>
<CAPTION>
-------------------------------------------------------
TOP 10 POSITIONS % of Net Assets
-------------------------------------------------------
<S> <C>
Pure Resources 4.2%
PMA Capital Cl. A 4.2
Richardson Electronics 4.0
Interim Services 3.7
Schein (Henry) 3.4
LaSalle Re Holdings 3.3
MarchFirst 3.1
Medical Assurance 3.1
internet.com 3.0
Denbury Resources 3.0
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------
PORTFOLIO SECTOR BREAKDOWN
% of Net Assets
-------------------------------------------------------
<S> <C>
Industrial Services 18.5%
Financial Intermediaries 18.1
Technology 17.3
Natural Resources 13.8
Consumer Services 11.5
Industrial Products 6.8
Consumer Products 6.1
Financial Services 4.6
Health 3.4
Cash & Cash Equivalents -0.1
</TABLE>
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 27
<PAGE>
UPDATES AND NOTES TO PERFORMANCE AND RISK INFORMATION
-------------------------------------------------------------------------------
[GRAPHIC]
NEW @ www.roycefunds.com
The process of keeping our website fresh is ongoing. We are currently
focusing on enriching our content, improving navigation and architecture, and
developing greater interactivity for our clients.
In the past couple of months, we have added and/or enhanced the following:
SEARCH-BY-FUND - Homepage pull-down menu to improve navigation.
E-NHANCEMENTS FOR SHAREHOLDERS - Open-end fund shareholders can establish online
account access, alter account PINs and request electronic delivery of
shareholder reports and prospectuses directly and immediately.
DISTRIBUTIONS: 1999 AND 2000 - Centralized distribution information. Go to
Open-End Funds or Closed-End Funds sections.
WHAT'S NEW - More performance commentary at month- and quarter-ends, and
features such as What's New on the Site and a What's New Archive.
IN THE NEWS - More in-depth treatment of press mentions. Go to What's New or
Bulletin Board sections.
ILLUSTRATION BANK - "We may be dead serious in our approach to value investing,
but `serious' is not our standard approach to ourselves..." Go to Just for Fun.
What would you like to see on www.roycefunds.com? We want your feedback. Please
e-mail any suggestions or comments to Heather MacLeod at [email protected].
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). The thoughts
expressed in this report concerning recent market movements and future prospects
for small-cap company stocks are solely those of Royce, and, of course,
historical market trends are not necessarily indicative of future market
movements. Statements regarding the future prospects for particular securities
held in the Funds' portfolios and Royce's investment intentions with respect to
those securities reflect Royce's opinions as of June 30, 2000 and are subject to
change at any time without notice.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. 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
and S&P 500 are unmanaged indices of domestic common stocks. The Royce Funds and
Royce Trust & GiftShares Fund are service marks of The Royce Funds. Distributor:
Royce Fund Services, Inc.
28 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS
PENNSYLVANIA MUTUAL FUND 30
ROYCE MICRO-CAP FUND 33
ROYCE TOTAL RETURN FUND 35
ROYCE LOW-PRICED STOCK FUND 38
ROYCE OPPORTUNITY FUND 40
ROYCE PREMIER FUND 43
ROYCE TRUST & GIFTSHARES FUND 44
ROYCE SELECT FUND 46
STATEMENTS OF ASSETS AND LIABILITIES 48
STATEMENTS OF CHANGES IN NET ASSETS 49
STATEMENTS OF OPERATIONS 51
FINANCIAL HIGHLIGHTS 52
NOTES TO FINANCIAL STATEMENTS 54
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 29
<PAGE>
<TABLE>
<CAPTION>
SCHEDULES OF INVESTMENTS
--------------------------------------------------------------------------------------
PENNSYLVANIA MUTUAL FUND
COMMON STOCKS - 93.3%
SHARES VALUE
<S> <C> <C>
CONSUMER PRODUCTS - 9.6%
APPAREL AND SHOES - 2.8%
Garan 89,500 $ 2,024,938
K-Swiss Cl. A 96,300 1,534,781
Nautica Enterprises(a) 79,000 844,312
Oshkosh B'Gosh Cl. A 130,100 2,130,388
WEYCO GROUP 196,600 5,013,300
Wolverine World Wide 194,800 1,923,650
---------------
13,471,369
---------------
COLLECTIBLES - 0.1%
Sotheby's Holdings Cl. A(a) 13,400 234,500
---------------
FOOD/BEVERAGE/TOBACCO - 0.1%
800 JR Cigar (a),(d) 84,000 829,500
---------------
HOME FURNISHING/APPLIANCES - 1.8%
Bassett Furniture Industries 173,575 2,191,384
Burnham Corporation Cl. A(a) 51,526 1,906,462
Lifetime Hoan 300,099 2,400,792
Mikasa 202,200 2,224,200
---------------
8,722,838
---------------
PUBLISHING - 0.5%
Marvel Enterprises(a),(d) 399,600 2,497,500
---------------
SPORTS AND RECREATION - 1.7%
Johnson Outdoors Cl. A(a) 86,870 613,519
Lund International Holdings(a) 217,800 1,034,550
Oakley(a) 306,600 3,525,900
Sturm, Ruger & Co. 325,000 2,884,375
---------------
8,058,344
---------------
OTHER CONSUMER PRODUCTS - 2.6%
Koala Corporation(a) 33,000 466,125
Lazare Kaplan International(a) 136,500 1,109,062
Matthews International Cl. A 138,200 4,007,800
VELCRO INDUSTRIES 601,500 6,804,469
---------------
12,387,456
---------------
TOTAL (Cost $33,860,855) 46,201,507
===============
CONSUMER SERVICES - 4.9%
LEISURE/ENTERTAINMENT - 0.2%
Coachmen Industries 110,000 1,265,000
---------------
RESTAURANTS/LODGINGS - 1.0%
BUFFETS(a) 370,200 4,696,913
---------------
RETAIL STORES - 3.7%
Cato Cl. A 142,700 1,658,887
CHARMING SHOPPES(a) 815,900 4,155,991
Claire's Stores 116,100 2,234,925
Consolidated Stores(a) 220,800 2,649,600
+Ross Stores 145,200 2,477,475
Sunglass Hut International(a) 262,100 2,154,134
Urban Outfitters(a) 257,900 2,272,744
---------------
17,603,756
---------------
TOTAL (Cost $21,020,471) 23,565,669
===============
FINANCIAL INTERMEDIARIES - 11.4%
BANKING - 1.3%
Baker Boyer Bancorp 31,300 $ 1,752,800
Community Banks 68,960 1,422,300
F & M Bancorporation (OK) 13,800 662,400
First American Corporation 42,900 614,006
Hanmi Financial(a) 30,911 421,166
Oriental Financial Group 84,833 1,224,776
---------------
6,097,448
---------------
INSURANCE - 10.1%
Alleghany Corporation(a) 3,517 590,856
Argonaut Group 130,300 2,231,388
Baldwin & Lyons Cl. B 115,678 1,973,756
Berkley (W.R.) 29,500 553,125
Capitol Transamerica 163,745 1,934,238
Commerce Group 92,542 2,729,989
+Everest Re Group 87,700 2,883,137
Fidelity National Financial 118,100 2,162,706
HCC Insurance Holdings 88,300 1,666,663
Horace Mann Educators 134,400 2,016,000
LaSalle Re Holdings(a) 89,800 1,274,037
Leucadia National 91,200 2,080,500
Medical Assurance(a) 248,254 2,792,858
Mutual Risk Management 76,100 1,317,481
Old Republic International 102,900 1,697,850
PMA CAPITAL CL. A 231,932 4,406,708
RLI 46,681 1,622,165
Trenwick Group 233,800 3,404,712
Wesco Financial 13,360 2,738,800
White Mountains Insurance Group 24,400 3,904,000
ZENITH NATIONAL INSURANCE 210,200 4,466,750
---------------
48,447,719
---------------
TOTAL (Cost $46,216,096) 54,545,167
===============
FINANCIAL SERVICES - 7.1%
INFORMATION AND PROCESSING - 1.8%
BARRA(a) 68,000 3,370,250
Fair, Isaac and Co. 65,200 2,868,800
Investors Financial Services 61,216 2,429,510
---------------
8,668,560
---------------
INSURANCE BROKERS - 3.4%
Blanch (E.W.) Holdings(d) 176,700 3,589,219
Clark/Bardes Holdings(a) 111,100 1,833,150
Crawford & Co. Cl. A 306,875 3,318,086
GALLAGHER (ARTHUR J.) & COMPANY 155,700 6,539,400
Hilb, Rogal & Hamilton 28,600 992,063
---------------
16,271,918
---------------
INVESTMENT MANAGEMENT - 1.9%
Affiliated Managers Group(a) 33,300 1,515,150
John Nuveen Company Cl. A 67,800 2,843,362
Nvest LP 68,800 2,605,800
Phoenix Investment Partners(d) 226,600 2,379,300
---------------
9,343,612
---------------
TOTAL (Cost $17,947,958) 34,284,090
===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
30 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------------
SHARES VALUE
<S> <C> <C>
HEALTH - 4.5%
COMMERCIAL SERVICES - 2.4%
IDEXX Laboratories(a) 39,900 $ 912,713
PAREXEL International(a) 223,500 2,137,219
Quintiles Transnational(a) 145,600 2,056,600
SCHEIN (HENRY)(a) 244,200 4,212,450
Young Innovations(a) 129,000 2,305,875
---------------
11,624,857
---------------
DRUGS AND BIOTECH - 0.5%
BioReliance(a) 115,300 562,087
Chiron(a) 34,100 1,619,750
---------------
2,181,837
---------------
SURGICAL PRODUCTS AND DEVICES - 1.6%
ARROW INTERNATIONAL 124,700 4,177,450
Haemonetics(a) 178,700 3,752,700
---------------
7,930,150
---------------
TOTAL (Cost $18,318,325) 21,736,844
===============
INDUSTRIAL PRODUCTS - 17.6%
BUILDING SYSTEMS AND COMPONENTS - 5.3%
Falcon Products 310,500 2,949,750
Fleetwood Enterprises 49,000 698,250
International Aluminum 111,700 1,926,825
Kimball International Cl. B 188,900 2,786,275
Liberty Homes Cl. A 93,350 571,769
Preformed Line Products Company 189,786 2,751,897
SIMPSON MANUFACTURING(a) 154,900 7,406,156
Skyline 98,500 2,117,750
Thor Industries 188,100 3,950,100
---------------
25,158,772
---------------
CONSTRUCTION MATERIALS - 3.2%
ASH GROVE CEMENT COMPANY 50,018 5,051,818
FLORIDA ROCK INDUSTRIES 179,900 6,408,937
Puerto Rican Cement Company 135,600 3,771,375
---------------
15,232,130
---------------
INDUSTRIAL COMPONENTS - 2.1%
PENN ENGINEERING & MANUFACTURING 190,750 6,723,938
PENN ENGINEERING & MANUFACTURING
CL. A(d) 47,050 1,517,362
Woodhead Industries 104,650 1,909,863
---------------
10,151,163
---------------
MACHINERY - 1.8%
Lincoln Electric Holdings 262,480 3,740,340
Nordson Corporation 50,700 2,566,687
PAXAR(a) 194,200 2,318,263
---------------
8,625,290
---------------
PAPER AND PACKAGING - 0.6%
CLARCOR 38,175 758,728
Liqui-Box 45,800 2,267,100
---------------
3,025,828
---------------
PUMPS, VALVES AND BEARINGS - 0.8%
Kaydon Corporation 130,500 2,740,500
NN 97,900 1,027,950
---------------
3,768,450
---------------
SPECIALTY CHEMICALS AND MATERIALS - 2.3%
CFC International(a) 149,200 $ 1,156,300
Chemfab(a) 134,300 1,594,812
Donaldson Company 94,000 1,856,500
Lilly Industries Cl. A 126,161 3,792,715
MacDermid 119,431 2,806,629
---------------
11,206,956
---------------
TEXTILES - 0.8%
Fab Industries 184,232 1,957,465
Unifi(a) 161,300 1,996,088
---------------
3,953,553
---------------
OTHER INDUSTRIAL PRODUCTS - 0.7%
BHA Group Holdings 189,857 1,851,106
Myers Industries 138,645 1,490,434
---------------
3,341,540
---------------
TOTAL (Cost $50,313,869) 84,463,682
===============
INDUSTRIAL SERVICES - 14.9%
ADVERTISING/PUBLISHING - 0.5%
True North Communications 53,300 2,345,200
---------------
COMMERCIAL SERVICES - 3.8%
ABM Industries 91,600 2,106,800
CDI(a) 159,400 3,247,775
Carlisle Holdings(a),(d) 310,500 2,280,234
Comdisco 80,500 1,796,156
Cornell Companies(a) 137,400 1,099,200
INTERIM SERVICES(a) 235,800 4,185,450
Modis Professional Services(a) 99,300 881,287
+RemedyTemp Cl. A(a) 217,500 2,664,375
---------------
18,261,277
---------------
ENGINEERING AND CONSTRUCTION - 1.3%
Morrison Knudsen(a) 482,500 3,498,125
Sevenson Environmental Services 234,400 2,622,350
Stone & Webster(a) 176,100 126,616
---------------
6,247,091
---------------
FOOD/TOBACCO PROCESSORS - 1.7%
Farmer Bros. 14,775 2,585,625
Midwest Grain Products(a) 369,950 3,075,209
Standard Commercial 545,521 2,488,940
---------------
8,149,774
---------------
INDUSTRIAL DISTRIBUTION - 0.8%
Ritchie Bros. Auctioneers(a) 158,800 3,801,275
---------------
PRINTING - 2.3%
Bowne & Co. 308,500 3,104,281
Ennis Business Forms 346,100 2,768,800
New England Business Service 191,200 3,107,000
Standard Register (The) 155,210 2,211,742
---------------
11,191,823
---------------
TRANSPORTATION AND LOGISTICS - 4.5%
Airborne Freight 107,600 2,037,675
AirNet Systems(a) 272,500 1,243,281
ARNOLD INDUSTRIES 435,048 5,247,767
CNF Transportation 24,500 557,375
CIRCLE INTERNATIONAL GROUP 211,874 5,323,334
Fritz Companies(a) 194,800 2,008,875
Frozen Food Express Industries(a) 418,867 1,256,601
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 31
<PAGE>
<TABLE>
<CAPTION>
SCHEDULES OF INVESTMENTS
--------------------------------------------------------------------------------------
PENNSYLVANIA MUTUAL FUND (continued)
SHARES VALUE
<S> <C> <C>
INDUSTRIAL SERVICES (CONTINUED)
TRANSPORTATION AND LOGISTICS (CONTINUED)
Kenan Transport 76,300 $ 1,573,687
Pittston Brink's Group 172,730 2,364,242
---------------
21,612,837
---------------
TOTAL (Cost $73,371,638) 71,609,277
===============
NATURAL RESOURCES - 7.7%
ENERGY SERVICES - 3.8%
CARBO CERAMICS 154,000 5,409,250
Global Industries(a) 89,400 1,687,425
Helmerich & Payne 81,300 3,038,588
Input/Output(a) 379,400 3,201,187
Nabors Industries(a) 24,000 997,500
Tidewater 17,000 612,000
Willbros Group(a) 481,950 3,313,406
---------------
18,259,356
---------------
OIL AND GAS - 3.4%
Barrett Resources(a) 91,600 2,788,075
Tom Brown(a) 167,400 3,860,663
DENBURY RESOURCES(a) 1,004,272 5,209,661
PetroCorp(a) 109,700 767,900
Pure Resources(a) 199,799 3,571,407
---------------
16,197,706
---------------
REAL ESTATE - 0.5%
Consolidated-Tomoka Land 39,800 482,575
Patriot Transportation Holding(a) 102,500 1,761,719
---------------
2,244,294
---------------
TOTAL (Cost $29,193,216) 36,701,356
===============
TECHNOLOGY - 11.0%
AEROSPACE/DEFENSE - 2.3%
CURTISS-WRIGHT 185,400 6,894,562
WOODWARD GOVERNOR 145,772 4,127,170
---------------
11,021,732
---------------
COMPONENTS AND SYSTEMS - 2.0%
Cognex(a) 15,400 796,950
Dionex(a) 107,276 2,869,633
Kronos(a) 31,800 826,800
MOCON 73,400 412,875
National Computer Systems 43,106 2,122,971
Perceptron(a) 215,800 735,069
Scitex(a) 170,000 1,880,625
---------------
9,644,923
---------------
DISTRIBUTION - 1.5%
Arrow Electronics(a) 54,400 1,686,400
Avnet 33,674 1,995,184
Richardson Electronics 225,762 3,626,302
---------------
7,307,886
---------------
IT SERVICES - 1.2%
American Management Systems(a) 54,200 $ 1,779,284
CIBER(a) 87,600 1,160,700
IMRglobal Corporation(a) 158,800 2,074,325
Keane(a) 24,600 531,975
Syntel(a),(d) 25,600 256,000
---------------
5,802,284
---------------
SEMICONDUCTORS AND EQUIPMENT - 1.1%
Dallas Semiconductor 21,800 888,350
Electroglas(a) 59,800 1,285,700
Exar(a) 19,700 1,717,594
Kulicke & Soffa Industries(a) 10,000 593,750
PCD(a) 91,100 707,448
---------------
5,192,842
---------------
SOFTWARE - 2.3%
Informix(a) 278,500 2,071,344
JDA Software Group(a) 173,800 3,334,788
MSC.Software(a) 144,500 1,345,656
National Instruments(a) 55,250 2,410,281
Structural Dynamics Research(a) 108,800 1,638,800
---------------
10,800,869
---------------
TELECOMMUNICATION - 0.6%
Plantronics(a) 11,900 1,374,450
REMEC(a) 26,000 1,088,750
Technitrol 5,000 484,375
---------------
2,947,575
---------------
TOTAL (Cost $32,284,829) 52,718,111
===============
MISCELLANEOUS - 4.6%
TOTAL (Cost $20,259,769) 21,907,855
===============
TOTAL COMMON STOCKS
(Cost $342,787,026) 447,733,558
===============
REPURCHASE AGREEMENT - 5.0%
State Street Bank & Trust Company,
5.50% dated 6/30/00, due 7/3/00,
maturity value $24,011,000
(collateralized by U.S. Treasury
Notes, 6.25% due 02/15/07,
valued at $24,482,981)
(Cost $24,000,000) 24,000,000
===============
TOTAL INVESTMENTS - 98.3%
(Cost $366,787,026) 471,733,558
CASH AND OTHER ASSETS
LESS LIABILITIES - 1.7% 8,081,507
---------------
NET ASSETS - 100.0% $ 479,815,065
===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
32 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------------
ROYCE MICRO-CAP FUND
COMMON STOCKS - 93.3%
SHARES VALUE
<S> <C> <C>
CONSUMER PRODUCTS - 8.3%
APPAREL AND SHOES - 0.8%
Oshkosh B'Gosh Cl. A 58,000 $ 949,750
---------------
FOOD/BEVERAGE/TOBACCO - 1.0%
800 JR Cigar(a) 133,300 1,316,338
---------------
HOME FURNISHING/APPLIANCES - 1.9%
Bassett Furniture Industries 63,100 796,637
Lifetime Hoan 90,880 727,040
Mikasa 62,600 688,600
Neutral Posture Ergonomics(a) 127,200 162,975
---------------
2,375,252
---------------
PUBLISHING - 0.9%
Marvel Enterprises(a) 185,400 1,158,750
---------------
SPORTS AND RECREATION - 0.5%
Aldila(a) 239,500 381,703
Lund International Holdings(a) 65,750 312,313
---------------
694,016
---------------
OTHER CONSUMER PRODUCTS - 3.2%
LAZARE KAPLAN INTERNATIONAL(a) 238,700 1,939,437
Matthews International Cl. A 45,500 1,319,500
Velcro Industries 34,100 385,756
WD-40 17,700 367,275
---------------
4,011,968
---------------
TOTAL (Cost $10,161,415) 10,506,074
===============
CONSUMER SERVICES - 4.2%
LEISURE/ENTERTAINMENT - 0.8%
+Coachmen Industries 89,500 1,029,250
---------------
RESTAURANTS/LODGINGS - 0.1%
Diedrich Coffee(a) 71,500 147,469
---------------
RETAIL STORES - 3.3%
Buckle (The)(a) 60,000 705,000
Cato Cl. A 99,100 1,152,037
Stein Mart(a) 91,700 939,925
Urban Outfitters(a) 148,100 1,305,131
---------------
4,102,093
---------------
TOTAL (Cost $5,761,350) 5,278,812
===============
FINANCIAL INTERMEDIARIES - 8.3%
BANKING - 0.2%
Bay Bancshares 20,000 310,000
---------------
INSURANCE - 8.1%
Capitol Transamerica 84,155 994,081
Highlands Insurance Group(a) 63,200 592,500
+IPC Holdings(a) 61,900 866,600
MEDICAL ASSURANCE(a) 174,800 1,966,500
MIIX Group 93,100 1,117,200
NYMAGIC 94,800 1,350,900
Navigators Group(a) 128,300 1,154,700
Nobel Insurance(a) 33,750 8,437
Trenwick Group 42,500 618,906
PXRE GROUP 114,300 1,543,050
---------------
10,212,874
---------------
TOTAL (Cost $10,746,493) 10,522,874
===============
FINANCIAL SERVICES - 2.9%
INFORMATION AND PROCESSING - 0.2%
CCC Information Services Group(a) 24,800 $ 263,500
---------------
INSURANCE BROKERS - 2.5%
BLANCH (E.W.) HOLDINGS 95,400 1,937,812
Clark/Bardes Holdings(a) 40,900 674,850
CorVel(a) 20,000 493,750
---------------
3,106,412
---------------
INVESTMENT MANAGEMENT - 0.2%
U.S. Global Investors Cl. A(a) 137,000 252,594
---------------
TOTAL (Cost $3,525,814) 3,622,506
===============
HEALTH - 7.1%
COMMERCIAL SERVICES - 3.0%
ChiRex(a) 43,300 866,000
PAREXEL International(a) 115,600 1,105,425
Simione Central Holdings(a) 2,044 6,132
YOUNG INNOVATIONS(a) 103,100 1,842,912
---------------
3,820,469
---------------
DRUGS AND BIOTECH - 1.9%
Aurora Biosciences(a) 4,200 286,388
BioReliance(a) 149,700 729,787
+Lexicon Genetics(a) 21,500 739,063
+Organogenesis(a) 53,800 615,337
---------------
2,370,575
---------------
HEALTH SERVICES - 0.5%
+DIANON Systems(a) 25,000 631,250
---------------
SURGICAL PRODUCTS AND DEVICES - 1.7%
Allied Healthcare Products(a) 71,000 239,625
+CONMED(a) 21,800 564,075
+Orthofix International(a) 30,000 536,250
+Vital Signs 48,000 870,000
---------------
2,209,950
---------------
TOTAL (Cost $7,653,006) 9,032,244
===============
INDUSTRIAL PRODUCTS - 16.1%
BUILDING SYSTEMS AND COMPONENTS - 3.3%
Falcon Products 52,500 498,750
SIMPSON MANUFACTURING(a) 39,200 1,874,250
THOR INDUSTRIES 87,900 1,845,900
---------------
4,218,900
---------------
CONSTRUCTION MATERIALS - 2.9%
FLORIDA ROCK INDUSTRIES 70,200 2,500,875
Puerto Rican Cement Company 44,800 1,246,000
---------------
3,746,875
---------------
INDUSTRIAL COMPONENTS - 2.4%
Herley Industries(a) 35,000 660,625
Penn Engineering & Manufacturing 29,300 1,032,825
Woodhead Industries 75,800 1,383,350
---------------
3,076,800
---------------
PUMPS, VALVES AND BEARINGS - 2.3%
Denison International ADR(a),(b) 85,800 1,083,225
NN 55,700 584,850
Sun Hydraulics 142,600 1,194,275
---------------
2,862,350
---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 33
<PAGE>
<TABLE>
<CAPTION>
SCHEDULES OF INVESTMENTS
--------------------------------------------------------------------------------------
ROYCE MICRO-CAP FUND (continued)
SHARES VALUE
<S> <C> <C>
INDUSTRIAL PRODUCTS (CONTINUED)
SPECIALTY CHEMICALS AND MATERIALS - 1.9%
CFC International(a) 105,600 $ 818,400
Chemfab(a) 74,000 878,750
Hauser(a) 82,875 145,031
Hawkins Chemical 4,707 37,068
Synalloy Corporation 80,700 573,727
---------------
2,452,976
---------------
TEXTILES - 0.3%
Fab Industries 30,700 326,187
---------------
OTHER INDUSTRIAL PRODUCTS - 3.0%
+AstroPower(a) 20,000 542,500
BHA Group Holdings 74,346 724,873
+CompX International 32,300 656,094
Cubic Corporation 52,900 991,875
FLIR Systems(a) 101,200 657,800
Mestek(a) 12,000 211,500
---------------
3,784,642
---------------
TOTAL (Cost $17,476,134) 20,468,730
===============
INDUSTRIAL SERVICES - 15.7%
COMMERCIAL SERVICES - 7.5%
Applied Analytical Industries(a) 89,000 853,844
Business Resource Group(a) 168,400 1,073,550
Carlisle Holdings(a) 172,900 1,269,734
Cornell Companies(a) 112,600 900,800
NEW HORIZONS WORLDWIDE(a) 68,900 1,600,848
RCM Technologies(a) 69,600 513,300
REMEDYTEMP CL. A(a) 127,400 1,560,650
Tyler Technologies(a) 210,400 539,150
+Wackenhut Corrections(a) 160,200 1,201,500
---------------
9,513,376
---------------
ENGINEERING AND CONSTRUCTION - 2.1%
SEVENSON ENVIRONMENTAL SERVICES 229,880 2,571,783
Stone & Webster(a) 67,100 48,245
---------------
2,620,028
---------------
FOOD/TOBACCO PROCESSORS - 0.5%
Midwest Grain Products(a) 80,550 669,572
---------------
PRINTING - 2.1%
Ennis Business Forms 154,600 1,236,800
New England Business Service 92,000 1,495,000
---------------
2,731,800
---------------
TRANSPORTATION AND LOGISTICS - 3.5%
AirNet Systems(a) 193,300 881,931
Circle International Group 40,300 1,012,537
Forward Air(a) 15,100 604,000
Frozen Food Express Industries(a) 211,450 634,350
Kenan Transport 34,430 710,119
+Knight Transportation(a) 37,400 544,638
---------------
4,387,575
---------------
TOTAL (Cost $20,981,408) 19,922,351
===============
NATURAL RESOURCES - 10.0%
ENERGY SERVICES - 4.5%
CARBO CERAMICS 58,900 $ 2,068,862
Dril-Quip(a) 18,300 855,525
+Gulf Island Fabrication(a) 35,000 595,000
INPUT/OUTPUT(a) 214,600 1,810,688
National-Oilwell(a) 7,278 239,256
Willbros Group(a) 10,000 68,750
---------------
5,638,081
---------------
OIL AND GAS - 5.1%
DENBURY RESOURCES(a) 326,600 1,694,237
PETROCORP(a) 252,300 1,766,100
PURE RESOURCES(a) 106,300 1,900,113
+3TEC Energy(a) 113,600 1,136,000
---------------
6,496,450
---------------
REAL ESTATE - 0.4%
Patriot Transportation Holding(a) 33,300 572,344
---------------
TOTAL (Cost $10,289,750) 12,706,875
===============
TECHNOLOGY - 16.1%
AEROSPACE/DEFENSE - 4.4%
CURTISS-WRIGHT 40,600 1,509,812
DUCOMMUN(a) 133,400 1,592,463
+Primex Technologies 25,000 550,000
WOODWARD GOVERNOR 69,648 1,971,909
---------------
5,624,184
---------------
COMPONENTS AND SYSTEMS - 3.8%
CSP(a) 88,523 708,184
Kronos(a) 26,000 676,000
MOCON 162,975 916,734
Perceptron(a) 65,000 221,406
Performance Technologies(a) 13,850 117,725
Rainbow Technologies(a) 11,850 576,206
SBS Technologies(a) 20,400 753,525
SIPEX Corporation(a) 15,000 415,312
TransAct Technologies(a) 33,500 364,313
---------------
4,749,405
---------------
DISTRIBUTION - 2.9%
Jaco Electronics(a) 31,500 693,000
Pioneer-Standard Electronics 40,100 591,475
RICHARDSON ELECTRONICS 146,700 2,356,369
---------------
3,640,844
---------------
IT SERVICES - 0.2%
Syntel(a) 32,800 328,000
---------------
SEMICONDUCTORS AND EQUIPMENT - 1.2%
Electroglas(a) 15,700 337,550
Exar(a) 6,200 540,563
PCD(a) 84,500 656,195
---------------
1,534,308
---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
34 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------------
SHARES VALUE
<S> <C> <C>
TECHNOLOGY (CONTINUED)
SOFTWARE - 3.3%
ANSYS(a) 72,500 $ 824,688
+Integral Systems(a) 44,300 742,025
InterVoice-Brite(a) 5,000 32,812
JDA Software Group(a) 62,700 1,203,056
MSC.Software(a) 73,100 680,744
SPSS(a) 23,300 678,613
---------------
4,161,938
---------------
TELECOMMUNICATION - 0.3%
REMEC(a) 8,800 368,500
---------------
TOTAL (Cost $15,465,645) 20,407,179
===============
MISCELLANEOUS - 4.6%
TOTAL (Cost $6,206,115) 5,859,764
===============
TOTAL COMMON STOCKS
(Cost $108,267,130) 118,327,409
===============
REPURCHASE AGREEMENT - 6.3%
State Street Bank & Trust Company,
5.50% dated 6/30/00, due 7/3/00,
maturity value $8,003,667
(collateralized by U. S. Treasury
Notes, 4.875% due 3/31/01,
valued at $8,160,000)
(Cost $8,000,000) 8,000,000
===============
TOTAL INVESTMENTS - 99.6%
(Cost $116,267,130) 126,327,409
---------------
CASH AND OTHER ASSETS
LESS LIABILITIES - 0.4% 455,755
---------------
NET ASSETS - 100.0% $126,783,164
===============
ROYCE TOTAL RETURN FUND
COMMON STOCKS - 95.3%
CONSUMER PRODUCTS - 7.2%
APPAREL AND SHOES - 1.3%
Garan 49,600 $ 1,122,200
Oshkosh B'Gosh Cl. A 41,100 673,012
Wolverine World Wide 115,000 1,135,625
---------------
2,930,837
---------------
COLLECTIBLES - 0.4%
Enesco Group 169,400 804,650
---------------
FOOD/BEVERAGE/TOBACCO - 0.1%
Tootsie Roll Industries 6,210 217,350
---------------
HOME FURNISHING/APPLIANCES - 3.0%
Bassett Furniture Industries 166,700 2,104,588
Flexsteel Industries 175,500 2,149,875
La-Z-Boy 10,000 140,000
Lifetime Hoan 125,568 1,004,544
Mikasa 111,900 1,230,900
---------------
6,629,907
---------------
SPORTS AND RECREATION - 1.1%
Sturm, Ruger & Co. 283,000 2,511,625
---------------
OTHER CONSUMER PRODUCTS - 1.3%
Velcro Industries 212,000 2,398,250
WD-40 23,400 485,550
---------------
2,883,800
---------------
TOTAL (Cost $22,303,056) 15,978,169
===============
CONSUMER SERVICES - 0.9%
RETAIL STORES - 0.9%
Claire's Stores 63,000 1,212,750
Consolidated Stores(a) 72,700 872,400
---------------
TOTAL (Cost $1,867,352) 2,085,150
===============
FINANCIAL INTERMEDIARIES - 16.5%
BANKING - 0.5%
Bank of the Ozarks 17,500 286,562
Federal Realty Investment Trust 16,000 320,000
First Midwest Financial 3,700 35,497
Texas Regional Bancshares Cl. A 20,000 507,500
---------------
1,149,559
---------------
INSURANCE - 16.0%
Argonaut Group 125,500 2,149,188
Berkley (W.R.) 81,000 1,518,750
Capitol Transamerica 183,800 2,171,137
Commerce Group 36,400 1,073,800
Erie Indemnity Company Cl. A 79,000 2,488,500
Independence Holding 10,000 122,500
LandAmerica Financial Group 75,600 1,734,075
LaSalle Re Holdings(a) 34,900 495,144
Liberty Financial Companies 14,800 324,675
Mutual Risk Management 88,000 1,523,500
NYMAGIC 134,300 1,913,775
Nationwide Financial Services Cl. A 25,000 821,875
Old Republic International 97,500 1,608,750
PMA CAPITAL CL. A 152,580 2,899,020
PXRE Group 171,424 2,314,224
RLI 35,000 1,216,250
TRENWICK GROUP 317,860 4,628,836
WHITE MOUNTAINS INSURANCE GROUP 17,900 2,864,000
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 35
<PAGE>
<TABLE>
<CAPTION>
SCHEDULES OF INVESTMENTS
--------------------------------------------------------------------------------------
ROYCE TOTAL RETURN FUND (CONTINUED)
SHARES VALUE
<S> <C> <C>
FINANCIAL INTERMEDIARIES (CONTINUED)
INSURANCE (CONTINUED)
ZENITH NATIONAL INSURANCE 170,800 $ 3,629,500
---------------
35,497,499
---------------
TOTAL (Cost $42,031,509) 36,647,058
===============
FINANCIAL SERVICES - 7.8%
INSURANCE BROKERS - 2.9%
Aon 45,000 1,397,813
Crawford & Co. Cl.(a) 202,700 2,191,694
GALLAGHER (ARTHUR J.) & COMPANY 67,700 2,843,400
---------------
6,432,907
---------------
INVESTMENT MANAGEMENT - 4.9%
Federated Investors Cl. B 10,000 350,625
JOHN NUVEEN COMPANY CL.(a) 82,400 3,455,650
Mackenzie Financial 101,400 1,521,000
Nvest LP 40,000 1,515,000
PHOENIX INVESTMENT PARTNERS 392,000 4,116,000
---------------
10,958,275
---------------
TOTAL (Cost $12,773,354) 17,391,182
===============
HEALTH - 2.4%
COMMERCIAL SERVICES - 0.1%
IMS Health 1,000 18,000
---------------
SURGICAL PRODUCTS AND DEVICES - 2.3%
ARROW INTERNATIONAL 116,200 3,892,700
Invacare 30,000 787,500
Varian Medical Systems(a) 18,000 704,250
---------------
5,384,450
---------------
TOTAL (Cost $4,141,044) 5,402,450
===============
INDUSTRIAL PRODUCTS - 26.9%
BUILDING SYSTEMS AND COMPONENTS - 4.3%
Falcon Products 162,000 1,539,000
Fleetwood Enterprises 117,000 1,667,250
International Aluminum 50,000 862,500
Kimball International Cl. B 100,200 1,477,950
Mueller (Paul) c 59,500 1,487,500
Skyline 40,000 860,000
Thor Industries 75,000 1,575,000
---------------
9,469,200
---------------
CONSTRUCTION MATERIALS - 3.9%
Ameron International 20,500 732,875
ASH GROVE CEMENT COMPANY 27,610 2,788,610
Florida Rock Industries 75,000 2,671,875
Oregon Steel Mills 272,900 528,744
Puerto Rican Cement Company 68,600 1,907,937
---------------
8,630,041
---------------
INDUSTRIAL COMPONENTS - 2.3%
Penn Engineering & Manufacturing Cl.A 78,600 2,534,850
Woodhead Industries 139,100 2,538,575
---------------
5,073,425
---------------
MACHINERY - 3.2%
LINCOLN ELECTRIC HOLDINGS 188,300 $ 2,683,275
Minuteman International 143,000 1,179,750
NORDSON CORPORATION 56,300 2,850,188
Regal-Beloit 30,000 481,875
---------------
7,195,088
---------------
PAPER AND PACKAGING - 0.4%
Peak TRENDS Trust 133,800 936,600
---------------
PUMPS, VALVES AND BEARINGS - 4.0%
Franklin Electric 27,900 1,890,225
NN 227,600 2,389,800
Roper Industries 66,500 1,704,062
Sun Hydraulics 304,550 2,550,606
Tech/Ops Sevcon 43,700 382,375
---------------
8,917,068
---------------
SPECIALTY CHEMICALS AND MATERIALS - 4.8%
Arch Chemicals 122,500 2,679,688
Brady (W.H.) Cl.A 78,700 2,557,750
Calgon Carbon 174,000 1,348,500
Donaldson Company 25,000 493,750
Eastern 15,000 195,000
MacDermid 53,600 1,259,600
Schulman (A.) 10,000 120,625
Synalloy Corporation 295,000 2,097,266
---------------
10,752,179
---------------
TEXTILES - 0.6%
Fab Industries 130,100 1,382,312
---------------
OTHER INDUSTRIAL PRODUCTS - 3.4%
BHA Group Holdings 223,829 2,182,333
Baldor Electric 100,000 1,862,500
Landauer 69,600 1,083,150
Myers Industries 34,870 374,853
Steelcase Cl.A 50,000 850,000
Tennant 33,800 1,267,500
---------------
7,620,336
---------------
TOTAL (Cost $65,499,439) 59,976,249
===============
INDUSTRIAL SERVICES - 13.8%
COMMERCIAL SERVICES - 3.7%
ABM Industries 107,300 2,467,900
Angelica 155,700 1,245,600
Hardinge 137,400 1,434,113
Interim Services(a) 95,000 1,686,250
Superior Uniform Group 164,200 1,426,487
---------------
8,260,350
---------------
ENGINEERING AND CONSTRUCTION - 0.5%
Sevenson Environmental Services 101,160 1,131,728
---------------
FOOD/TOBACCO PROCESSORS - 1.6%
DIMON 632,200 1,343,425
Universal 104,800 2,213,900
---------------
3,557,325
---------------
INDUSTRIAL DISTRIBUTION - 1.7%
Central Steel & Wire 3,898 1,956,796
Lawson Products 72,100 1,775,462
---------------
3,732,258
---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
36 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------------
SHARES VALUE
<S> <C> <C>
INDUSTRIAL SERVICES (CONTINUED)
PRINTING - 2.1%
Bowne & Co. 50,000 $ 503,125
Ennis Business Forms 311,500 2,492,000
New England Business Service 75,000 1,218,750
Standard Register (The) 25,000 356,250
---------------
4,570,125
---------------
TRANSPORTATION AND LOGISTICS - 4.2%
Airborne Freight 52,500 994,219
Arnold Industries 192,300 2,319,619
CIRCLE INTERNATIONAL GROUP 111,300 2,796,413
Frozen Food Express Industries(a) 456,635 1,369,905
Pittston Brink's Group 140,010 1,916,387
---------------
9,396,543
---------------
TOTAL (Cost $41,446,912) 30,648,329
===============
NATURAL RESOURCES - 8.4%
ENERGY SERVICES - 3.4%
CARBO CERAMICS 116,000 4,074,500
Helmerich & Payne 39,600 1,480,050
Lufkin Industries 67,700 1,074,737
Tidewater 27,000 972,000
---------------
7,601,287
---------------
GOLD - 1.3%
ANGLOGOLD ADR(b) 143,600 2,952,775
---------------
OIL AND GAS - 1.3%
PURE RESOURCES(a) 156,757 2,802,031
---------------
REAL ESTATE - 2.4%
CHELSEA GCA REALTY 98,500 3,404,406
Glenborough Realty Trust 25,000 435,938
Thornburg Mortgage 115,000 826,562
Vornado Realty Trust 20,000 695,000
---------------
5,361,906
---------------
TOTAL (Cost $14,665,465) 18,717,999
===============
TECHNOLOGY - 6.8%
AEROSPACE/DEFENSE - 2.8%
CURTISS-WRIGHT 76,800 2,856,000
WOODWARD GOVERNOR 120,100 3,400,331
---------------
6,256,331
---------------
DISTRIBUTION - 2.4%
AVNET 51,000 3,021,750
Richardson Electronics 144,400 2,319,425
---------------
5,341,175
---------------
IT SERVICES - 0.6%
Analysts International 115,000 1,070,938
Computer Task Group 55,000 278,437
---------------
1,349,375
---------------
SEMICONDUCTORS AND EQUIPMENT - 0.1%
Innovex(a) 30,000 292,500
---------------
TELECOMMUNICATION - 0.9%
Communications Systems 89,000 1,357,250
Technitrol(a) 5,000 484,375
---------------
1,841,625
---------------
TOTAL (Cost $12,732,054) 15,081,006
===============
UTILITIES - 0.6%
EnergySouth 23,250 $ 438,844
NUI 35,000 945,000
---------------
TOTAL (Cost $1,298,118) 1,383,844
===============
MISCELLANEOUS - 4.0%
TOTAL (Cost $8,689,693) 8,908,123
===============
TOTAL COMMON STOCKS
(Cost $227,447,996) 212,219,559
===============
PREFERRED STOCKS - 0.9%
Fleetwood Capital Trust 6.00% Conv. 50,000 1,150,000
Frontier Financing Trust 6.25% Conv. 50,000 175,000
Vornado Realty Trust 6.50% Conv. 15,000 777,188
---------------
TOTAL PREFERRED STOCKS
(Cost $3,766,406) 2,102,188
===============
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
CORPORATE BONDS - 3.1%
CHARMING SHOPPES 7.50%
Conv. Sub. Note due 7/15/06 $ 5,250,000 4,515,000
HMT Technology 5.75%
Conv. Sub. Note due 1/15/04 2,750,000 838,750
Standard Commercial 7.25%
Conv. Sub. Deb. due 3/31/07 500,000 301,250
Sunglass Hut International 5.25%
Conv. Sub. Note due 6/15/03 1,750,000 1,260,000
---------------
TOTAL CORPORATE BONDS
(Cost $8,788,400) 6,915,000
===============
REPURCHASE AGREEMENT - 0.5%
State Street Bank & Trust Company,
5.50% dated 6/30/00, due
7/3/00, maturity value $1,000,458
(collateralized by U. S. Treasury
Bonds, 8.875% due 08/15/17
valued at $1,020,825)
(Cost $1,000,000) 1,000,000
===============
TOTAL INVESTMENTS - 99.8%
(Cost $241,002,802) 222,236,747
CASH AND OTHER ASSETS
LESS LIABILITIES - 0.2% 469,288
---------------
NET ASSETS - 100.0% $ 222,706,035
===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 37
<PAGE>
<TABLE>
<CAPTION>
SCHEDULES OF INVESTMENTS
--------------------------------------------------------------------------------------
ROYCE LOW-PRICED STOCK FUND
SHARES VALUE
<S> <C> <C>
COMMON STOCKS - 94.7%
CONSUMER PRODUCTS - 4.7%
FOOD/BEVERAGE/TOBACCO - 1.1%
800 JR Cigar(a) 52,900 $ 522,388
---------------
PUBLISHING - 0.8%
Topps Company (The)(a) 36,800 423,200
---------------
SPORTS AND RECREATION - 2.8%
OAKLEY(a) 121,200 1,393,800
---------------
TOTAL (Cost $1,740,842) 2,339,388
===============
CONSUMER SERVICES - 10.9%
LEISURE/ENTERTAINMENT - 1.2%
+Coachmen Industries 50,800 584,200
---------------
RESTAURANTS/LODGINGS - 1.7%
Buffets(a) 65,400 829,762
---------------
RETAIL STORES - 8.0%
Cato Cl.A 40,000 465,000
CHARMING SHOPPES(a) 275,300 1,402,309
Claire's Stores 35,000 673,750
CONSOLIDATED STORES(a) 95,100 1,141,200
Finish Line (The) Cl. A(a) 35,500 290,656
---------------
3,972,915
---------------
TOTAL (Cost $5,093,848) 5,386,877
===============
FINANCIAL INTERMEDIARIES - 11.2%
INSURANCE - 11.2%
+FIDELITY NATIONAL FINANCIAL 60,000 1,098,750
HCC INSURANCE HOLDINGS 50,000 943,750
+MEDICAL ASSURANCE(a) 109,400 1,230,750
PMA Capital Cl. A 16,800 319,200
Reliance Group Holdings(a) 240,000 180,000
TRENWICK GROUP 60,000 873,750
+PXRE GROUP 67,100 905,850
---------------
TOTAL (Cost $5,501,034) 5,552,050
===============
FINANCIAL SERVICES - 2.9%
INVESTMENT MANAGEMENT - 2.9%
PHOENIX INVESTMENT PARTNERS 135,200 1,419,600
---------------
TOTAL (Cost $990,323) 1,419,600
===============
HEALTH - 6.2%
COMMERCIAL SERVICES - 2.7%
PAREXEL International(a) 62,500 597,656
Schein (Henry)(a) 20,000 345,000
Young Innovations(a) 20,000 357,500
---------------
1,300,156
---------------
DRUGS AND BIOTECH - 2.9%
DURA PHARMACEUTICALS(a) 65,200 937,250
+Organogenesis(a) 45,000 514,688
---------------
1,451,938
---------------
SURGICAL PRODUCTS AND DEVICES - 0.6%
STERIS(a) 35,000 $ 310,625
---------------
TOTAL (Cost $2,853,129) 3,062,719
===============
INDUSTRIAL PRODUCTS - 6.8%
BUILDING SYSTEMS AND COMPONENTS - 1.3%
+Fleetwood Enterprises 45,100 642,675
---------------
MACHINERY - 2.5%
+Lincoln Electric Holdings 85,400 1,216,950
---------------
SPECIALTY CHEMICALS AND MATERIALS - 1.6%
+Chemfab(a) 35,000 415,625
Schulman (A.) 30,000 361,875
---------------
777,500
---------------
TEXTILES - 1.4%
Unifi(a) 56,900 704,137
---------------
TOTAL (Cost $3,279,999) 3,341,262
===============
INDUSTRIAL SERVICES - 17.8%
COMMERCIAL SERVICES - 7.4%
Applied Analytical Industries(a) 47,800 458,581
CARLISLE HOLDINGS(a) 120,700 886,391
Cornell Companies(a) 60,000 480,000
Interim Services(a) 45,900 814,725
RCM Technologies(a) 35,400 261,075
RemedyTemp Cl. A(a) 60,000 735,000
---------------
3,635,772
---------------
ENGINEERING AND CONSTRUCTION - 5.7%
McDermott International 90,000 793,125
MORRISON KNUDSEN(a) 182,400 1,322,400
Sevenson Environmental Services 63,660 712,196
---------------
2,827,721
---------------
INDUSTRIAL DISTRIBUTION - 1.3%
+Westburne(a) 49,200 631,622
---------------
PRINTING - 0.7%
Ennis Business Forms 45,000 360,000
---------------
TRANSPORTATION AND LOGISTICS - 2.7%
AirNet Systems(a) 101,200 461,725
Arnold Industries 41,200 496,975
Knight Transportation(a) 26,000 378,625
---------------
1,337,325
---------------
TOTAL (Cost $9,331,501) 8,792,440
===============
NATURAL RESOURCES - 16.1%
ENERGY SERVICES - 4.3%
Global Industries(a) 10,000 188,750
INPUT/OUTPUT(a) 175,000 1,476,563
National-Oilwell(a) 13,540 445,128
---------------
2,110,441
---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
38 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------------
SHARES VALUE
<S> <C> <C>
NATURAL RESOURCES (CONTINUED)
GOLD - 1.7%
Homestake Mining 120,000 $ 825,000
---------------
OIL AND GAS - 8.4%
Tom Brown(a) 23,100 532,744
Denbury Resources(a) 135,000 700,312
PURE RESOURCES(a) 63,373 1,132,792
Renaissance Energy(a) 70,000 678,716
+3TEC ENERGY(a) 110,000 1,100,000
---------------
4,144,564
---------------
REAL ESTATE - 1.7%
GLENBOROUGH REALTY TRUST 50,000 871,875
---------------
TOTAL (Cost $6,443,745) 7,951,880
===============
TECHNOLOGY - 13.3%
COMPONENTS AND SYSTEMS - 0.7%
CSP(a) 44,000 352,000
---------------
DISTRIBUTION - 2.1%
RICHARDSON ELECTRONICS 62,700 1,007,119
---------------
IT SERVICES - 1.2%
Syntel(a) 61,000 610,000
---------------
INTERNET SERVICES - 1.0%
+internet.com(a) 23,900 470,531
---------------
SEMICONDUCTORS AND EQUIPMENT - 1.8%
ESS TECHNOLOGY(a) 62,500 906,250
---------------
SOFTWARE - 5.7%
ANSYS(a) 55,000 625,625
+Covance(a) 80,000 705,000
Informix(a) 70,000 520,625
JDA SOFTWARE GROUP(a) 50,100 961,294
---------------
2,812,544
---------------
TELECOMMUNICATION - 0.8%
Globecomm Systems(a) 28,000 $ 385,000
---------------
TOTAL (Cost $5,843,019) 6,543,444
---------------
MISCELLANEOUS - 4.8%
TOTAL (Cost $2,261,645) 2,357,188
---------------
TOTAL COMMON STOCKS
(Cost $43,339,085) 46,746,848
===============
REPURCHASE AGREEMENT - 4.1%
State Street Bank & Trust Company,
5.50% dated 6/30/00, due
7/3/00, maturity value $2,000,917
(collateralized by U. S. Treasury
Bonds, 8.125% due 08/15/21,
valued at $2,041,575)
(Cost $2,000,000) 2,000,000
---------------
TOTAL INVESTMENTS - 98.8%
(Cost $45,339,085) 48,746,848
CASH AND OTHER ASSETS
LESS LIABILITIES - 1.2% 615,162
---------------
NET ASSETS - 100.0% $ 49,362,010
===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 39
<PAGE>
<TABLE>
<CAPTION>
SCHEDULES OF INVESTMENTS
--------------------------------------------------------------------------------------
ROYCE OPPORTUNITY FUND
COMMON STOCKS - 93.8%
SHARES VALUE
<S> <C> <C>
CONSUMER PRODUCTS - 4.7%
APPAREL AND SHOES - 1.9%
Brown Shoe Company 102,500 $ 1,332,500
Donna Karan International(a) 187,900 1,197,863
Gymboree(a) 140,000 420,000
Hartmarx(a) 170,000 435,625
---------------
3,385,988
---------------
PUBLISHING - 1.4%
Houghton Mifflin 29,000 1,353,937
Topps Company (The)(a) 100,000 1,150,000
---------------
2,503,937
---------------
OTHER CONSUMER PRODUCTS - 1.4%
Cross (A.T.) & Company Cl. A(a) 110,000 543,125
Toro 39,200 1,291,150
Velcro Industries 66,000 746,625
---------------
2,580,900
---------------
TOTAL (Cost $8,204,093) 8,470,825
===============
CONSUMER SERVICES - 7.3%
DIRECT MARKETING - 0.8%
SPIEGEL CL. A 176,800 1,502,800
---------------
LEISURE/ENTERTAINMENT - 2.6%
AMC Entertainment(a) 205,900 1,003,763
Metro-Goldwyn-Mayer(a) 50,000 1,306,250
+Steinway Musical Instruments(a) 54,500 899,250
+VAIL RESORTS(a) 88,000 1,435,500
---------------
4,644,763
---------------
RESTAURANTS/LODGINGS - 0.7%
Cooker Restaurant(a) 100,400 288,650
+IHOP Corporation(a) 50,000 837,500
Piccadilly Cafeterias(a) 23,600 66,375
---------------
1,192,525
---------------
RETAIL STORES - 3.2%
Bombay Company (The)(a) 151,700 445,619
Burlington Coat Factory Warehouse 85,000 919,062
Fred's Cl. A 61,000 1,098,000
Good Guys (The)(a) 189,000 685,125
Noodle Kidoodle(a) 172,000 516,000
Paul Harris Stores(a) 129,300 339,413
Phar-Mor(a) 110,500 165,750
+Sharper Image(a) 64,800 810,000
+ShopKo Stores(a) 49,400 759,525
---------------
5,738,494
---------------
TOTAL (Cost $14,582,537) 13,078,582
===============
FINANCIAL INTERMEDIARIES - 6.0%
BANKING - 3.1%
+Bank United Cl.A 19,200 675,600
+BankNorth Group 51,600 790,125
EAST WEST BANCORP 108,000 1,552,500
+Enhance Financial Services Group 77,500 1,114,062
Hudson City Bancorp 30,000 511,875
+Sterling Bancorp 61,800 973,350
---------------
5,617,512
---------------
INSURANCE - 2.9%
+Annuity and Life Re (Holdings) 41,400 $ 1,014,300
Berkley (W.R.) 47,000 881,250
Fremont General 145,000 570,938
+Highlands Insurance Group(a) 85,000 796,875
+Horace Mann Educators 56,200 843,000
PXRE Group 87,500 1,181,250
---------------
5,287,613
---------------
TOTAL (Cost $10,182,762) 10,905,125
===============
HEALTH - 2.6%
DRUGS AND BIOTECH - 0.3%
QuadraMed(a) 200,600 501,500
---------------
HEALTH SERVICES - 0.2%
Balanced Care(a) 177,200 310,100
---------------
PERSONAL CARE - 1.1%
Herbalife International Cl. A 59,200 518,000
Nu Skin Enterprises Cl. A(a) 179,800 1,033,850
Weider Nutrition International Cl. A 180,000 540,000
---------------
2,091,850
---------------
SURGICAL PRODUCTS AND DEVICES - 1.0%
+Acuson(a) 79,000 1,066,500
SpaceLabs Medical(a) 65,000 731,250
---------------
1,797,750
---------------
TOTAL (Cost $6,390,539) 4,701,200
===============
INDUSTRIAL PRODUCTS - 30.2%
BUILDING SYSTEMS AND COMPONENTS - 0.9%
Aztec Manufacturing 57,500 934,375
+Fleetwood Enterprises 50,200 715,350
---------------
1,649,725
---------------
CONSTRUCTION MATERIALS - 0.8%
Foster (L.B.) Cl. A(a) 100,000 318,750
Huttig Building Products(a) 84,100 346,912
Lamson & Sessions(a) 40,000 612,500
Northwest Pipe(a) 12,000 142,500
---------------
1,420,662
---------------
INDUSTRIAL COMPONENTS - 8.1%
Cable Design Technologies(a) 37,000 1,239,500
+Channell Commercial(a) 58,500 702,000
DT Industries(a) 97,500 914,063
ESCO Electronics(a) 80,000 1,360,000
EDO Corporation 139,800 882,487
FLOWSERVE(a) 106,000 1,596,625
Gundle/SLT Environmental(a) 155,000 581,250
+Herley Industries(a) 45,000 849,375
+HEXCEL CORPORATION(a) 185,000 1,757,500
LeCroy Corporation(a) 46,000 454,250
New Brunswick Scientific Co.(a) 77,830 466,980
Osmonics(a) 100,000 925,000
PENN ENGINEERING & MANUFACTURING 42,000 1,480,500
+Timken 72,000 1,341,000
---------------
14,550,530
---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
40 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------------
SHARES VALUE
<S> <C> <C>
INDUSTRIAL PRODUCTS (CONTINUED)
INDUSTRIAL OEM - 0.8%
SMITH (A.O.) CORPORATION 72,400 $ 1,515,875
---------------
MACHINERY - 4.2%
Atchison Casting(a) 106,000 609,500
Baldwin Technology Company(a) 180,000 382,500
CMI Corporation Cl. A 104,200 364,700
Chart Industries(a) 200,000 975,000
GSI Lumonics(a) 20,000 702,500
+GenRad(a) 116,200 1,045,800
Hurco Companies(a) 80,000 320,000
MTS Systems 100,000 625,000
PRECISION CASTPARTS 36,100 1,633,525
UNOVA(a) 126,800 927,225
---------------
7,585,750
---------------
PAPER AND PACKAGING - 1.5%
Applied Extrusion Technologies(a) 137,500 721,875
Graphic Packaging International(a) 122,400 260,100
Longview Fibre 102,000 1,128,375
Peak International(a) 71,000 497,000
---------------
2,607,350
---------------
PUMPS, VALVES AND BEARINGS - 0.8%
Kaydon Corporation 37,000 777,000
NN 55,000 577,500
---------------
1,354,500
---------------
SPECIALTY CHEMICALS AND MATERIALS - 10.1%
ALBANY INTERNATIONAL CL. A(a) 106,626 1,546,077
ARCH CHEMICALS 66,700 1,459,063
+Brady (W.H.) Cl. A 19,100 620,750
Calgon Carbon 154,400 1,196,600
CARPENTER TECHNOLOGY 71,000 1,499,875
+Chemfab(a) 57,000 676,875
COORSTEK(a) 44,700 2,056,200
Deswell Industries 50,000 650,000
+Hanna (M.A.) 100,300 902,700
+JLG Industries 73,800 876,375
Lydall(a) 107,000 1,136,875
Olin Corporation 70,000 1,155,000
+Quaker Chemical 75,000 1,303,125
Rogers(a) 14,000 490,000
+SPS TECHNOLOGIES(a) 35,800 1,470,037
+Solutia 50,000 687,500
Sybron Chemicals(a) 12,700 277,813
Terra Industries(a) 195,900 208,144
---------------
18,213,009
---------------
TEXTILES - 0.3%
Burlington Industries(a) 234,000 394,875
Cone Mills(a) 24,500 151,594
---------------
546,469
---------------
OTHER INDUSTRIAL PRODUCTS - 2.7%
Cubic Corporation 48,400 907,500
FLIR Systems(a) 10,000 65,000
Fansteel(a) 106,600 419,737
Griffon(a) 173,200 963,425
Maxwell Technologies(a) 49,500 668,250
STEWART & STEVENSON SERVICES 127,900 1,926,494
---------------
4,950,406
---------------
TOTAL (Cost $50,723,080) 54,394,276
===============
INDUSTRIAL SERVICES - 12.8%
ADVERTISING/PUBLISHING - 0.2%
True North Communications 9,900 435,600
---------------
COMMERCIAL SERVICES - 4.7%
AAR Corporation 57,800 693,600
Alexander & Baldwin 25,000 551,563
+Banta Corporation 70,000 1,325,625
+Central Garden & Pet(a) 95,000 852,031
+Encompass Services(a) 180,100 1,035,575
GTS Duratek(a) 87,000 739,500
+Interpool 82,000 799,500
Ogden Corporation(a) 114,400 1,029,600
VOLT INFORMATION SCIENCES(a) 43,300 1,426,194
---------------
8,453,188
---------------
ENGINEERING AND CONSTRUCTION - 1.1%
Modtech Holdings(a) 138,700 1,248,300
Morrison Knudsen(a) 67,100 486,475
Weston (Roy F.) Cl. A(a) 70,200 214,987
---------------
1,949,762
---------------
INDUSTRIAL DISTRIBUTION - 1.0%
Kaman Corporation Cl. A 94,000 1,004,625
Lawson Products 25,000 615,625
Pameco Corporation(a) 80,500 206,281
---------------
1,826,531
---------------
PRINTING - 1.2%
Bowne & Co. 90,000 905,625
+Wallace Computer Services 116,000 1,145,500
---------------
2,051,125
---------------
TRANSPORTATION AND LOGISTICS - 4.6%
Arkansas Best Corporation(a) 75,700 752,269
Circle International Group 52,600 1,321,575
Fritz Companies(a) 125,000 1,289,063
+FRONTIER AIRLINES(a) 96,000 1,374,000
Genesee & Wyoming Cl. A(a) 40,000 670,000
Mesa Air Group(a) 154,500 854,578
OMI Corporation(a) 164,100 892,294
+Overseas Shipholding Group 48,000 1,182,000
---------------
8,335,779
---------------
TOTAL (Cost $21,677,290) 23,051,985
---------------
NATURAL RESOURCES - 6.4%
ENERGY SERVICES - 0.7%
Pride International(a) 25,000 618,750
Willbros Group(a) 86,000 591,250
---------------
1,210,000
---------------
METALS AND MINING - 1.5%
Brush Engineered Materials 60,900 951,562
Century Aluminum 50,000 543,750
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 41
<PAGE>
<TABLE>
<CAPTION>
SCHEDULES OF INVESTMENTS
--------------------------------------------------------------------------------------
ROYCE OPPORTUNITY FUND (CONTINUED)
SHARES VALUE
<S> <C> <C>
NATURAL RESOURCES (CONTINUED)
Metals and Mining (continued)
Cleveland-Cliffs 32,000 $ 826,000
Coeur d'Alene Mines(a) 135,900 331,256
---------------
2,652,568
---------------
Oil and Gas - 3.8%
+Barrett Resources(a) 24,800 754,850
Tom Brown(a) 20,000 461,250
Denbury Resources(a) 130,500 676,969
+Forcenergy(a) 42,000 845,250
Forest Oil(a) 71,000 1,131,562
Patina Oil & Gas 59,800 1,240,850
Santa Fe Snyder(a) 54,825 623,634
Clayton Williams Energy(a) 36,700 1,172,106
---------------
6,906,471
---------------
Other Natural Resources - 0.4%
Cadiz(a) 85,000 680,000
---------------
TOTAL (Cost $8,325,948) 11,449,039
---------------
---------------
TECHNOLOGY - 19.0%
Aerospace/Defense - 2.2%
Curtiss-Wright 27,500 1,022,656
+Esterline Technologies(a) 80,500 1,197,438
Hawker Pacific Aerospace(a) 91,700 412,650
+Moog Cl. A(a) 47,000 1,239,625
---------------
3,872,369
---------------
Components and Systems - 5.7%
+Analogic 25,500 1,020,000
Auspex Systems(a) 85,000 419,687
Boca Research(a) 79,100 415,275
Chyron(a) 190,000 546,250
Ciprico(a) 36,800 340,400
DRS TECHNOLOGIES(a) 125,000 1,453,125
Del Global Technologies(a) 68,000 660,875
Dot Hill Systems(a) 117,700 1,294,700
Evans & Sutherland Computer(a) 85,000 541,875
Exabyte(a) 108,500 488,250
HMT Technology(a) 118,400 181,300
Maxtor Corporation(a) 83,900 886,194
Network Equipment Technologies(a) 29,400 295,838
PLANAR SYSTEMS(a) 117,000 1,513,687
Sonic Solutions(a) 69,600 265,350
---------------
10,322,806
---------------
Distribution - 1.8%
Bell Industries(a) 144,600 379,575
BELL MICROPRODUCTS(a) 100,200 1,841,175
Richardson Electronics 35,000 562,187
Ultrak(a) 47,900 389,187
---------------
3,172,124
---------------
IT Services - 1.2%
+Computer Task Group 160,200 811,013
Computer Horizons(a) 53,000 712,187
SCB Computer Technology(a) 136,900 80,771
Technology Solutions(a) 96,700 598,331
---------------
2,202,302
---------------
Semiconductors and Equipment - 3.8%
Cirrus Logic(a) 16,200 259,200
ESS Technology(a) 46,500 674,250
FSI International(a) 22,700 492,306
Innovex(a) 39,900 389,025
MEMC Electronic Materials(a) 52,800 950,400
Mentor Graphics(a) 40,900 812,888
Robotic Vision Systems(a) 47,000 846,000
Sheldahl(a) 100,000 543,750
Sigma Designs(a) 145,000 616,250
Spectrian Corporation(a) 16,600 275,975
White Electronic Designs(a) 85,000 1,078,437
---------------
6,938,481
---------------
SOFTWARE - 2.3%
AlphaNet Solutions(a) 90,500 378,969
Carreker(a) 77,500 697,500
Epicor Software(a) 167,500 418,750
General DataComm Industries(a) 9,000 54,563
MSC.Software(a) 134,000 1,247,875
Phoenix Technologies(a) 27,300 445,331
+Salient 3 Communications Cl. A(a) 71,000 856,438
---------------
4,099,426
---------------
TELECOMMUNICATION - 2.0%
ALLEN TELECOM(a) 90,000 1,591,875
Comtech Telecommunications(a) 44,400 732,600
Symmetricom(a) 51,500 1,300,375
---------------
3,624,850
---------------
TOTAL (Cost $29,220,298) 34,232,358
---------------
---------------
MISCELLANEOUS - 4.8%
TOTAL (Cost $9,137,104) 8,613,126
---------------
---------------
TOTAL COMMON STOCKS
(Cost $158,443,651) 168,896,516
---------------
---------------
CORPORATE BOND - 0.1%
System Software Associates 7.00%
Conv. Sub. Note due 9/15/02,
principal amount $1,149,000
(Cost $257,575) 22,980
---------------
---------------
REPURCHASE AGREEMENT - 4.9%
State Street Bank & Trust Company,
5.50% dated 6/30/00, due
7/3/00, maturity value
$9,004,125 (collateralized by
U.S. Treasury Notes 4.875%
due 3/31/01, valued at $9,180,000)
(Cost $9,000,000) 9,000,000
---------------
---------------
TOTAL INVESTMENTS - 98.8%
(Cost $167,701,226) 177,919,496
CASH AND OTHER ASSETS
LESS LIABILITIES - 1.2% 2,121,449
---------------
NET ASSETS - 100.0% $180,040,945
---------------
---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
42 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------------
ROYCE PREMIER FUND
COMMON STOCKS - 86.7%
SHARES VALUE
<S> <C> <C>
CONSUMER PRODUCTS - 2.4%
Apparel and Shoes - 1.2%
Wolverine World Wide 720,200 $ 7,111,975
---------------
Sports and Recreation - 1.2%
Oakley(a) 616,100 7,085,150
---------------
TOTAL (Cost $13,200,597) 14,197,125
---------------
---------------
CONSUMER SERVICES - 4.1%
Retail Stores - 4.1%
Charming Shoppes(a) 1,443,800 7,354,356
Claire's Stores 293,000 5,640,250
Consolidated Stores(a) 234,000 2,808,000
+Ross Stores 460,900 7,864,106
---------------
TOTAL (Cost $21,315,038) 23,666,712
---------------
---------------
FINANCIAL INTERMEDIARIES - 13.0%
Insurance - 13.0%
Commerce Group 265,500 7,832,250
Erie Indemnity Company Cl. A 324,400 10,218,600
Medical Assurance(a) 581,899 6,546,364
RenaissanceRe Holdings 224,600 9,784,138
Wesco Financial 47,000 9,635,000
WHITE MOUNTAINS INSURANCE GROUP 104,000 16,640,000
ZENITH NATIONAL INSURANCE 694,400 14,756,000
---------------
TOTAL (Cost $72,056,482) 75,412,352
---------------
---------------
FINANCIAL SERVICES - 11.5%
Information and Processing - 1.9%
FAIR, ISAAC AND CO. 250,300 11,013,200
---------------
Insurance Brokers - 8.0%
+AON 451,000 14,009,187
Blanch (E.W.) Holdings 507,400 10,306,563
GALLAGHER (ARTHUR J.) & COMPANY 535,800 22,503,600
---------------
46,819,350
---------------
Investment Management - 1.6%
John Nuveen Company Cl. A 216,800 9,092,050
---------------
TOTAL (Cost $45,994,335) 66,924,600
---------------
---------------
HEALTH - 4.6%
Commercial Services - 2.1%
+IMS HEALTH 596,000 10,728,000
Quintiles Transnational(a) 97,600 1,378,600
---------------
12,106,600
---------------
Surgical Products and Devices - 2.5%
HAEMONETICS(a) 687,500 14,437,500
---------------
TOTAL (Cost $22,624,965) 26,544,100
---------------
---------------
INDUSTRIAL PRODUCTS - 13.4%
Building Systems and Components - 2.7%
SIMPSON MANUFACTURING(a) 331,300 15,840,281
---------------
Construction Materials - 2.8%
FLORIDA ROCK INDUSTRIES 453,700 16,163,063
---------------
Machinery - 4.0%
Lincoln Electric Holdings 723,990 10,316,858
NORDSON CORPORATION 255,800 12,949,875
---------------
23,266,733
---------------
Pumps, Valves and Bearings - 1.4%
Roper Industries 318,500 8,161,562
---------------
Textiles - 2.5%
UNIFI(a) 1,171,700 14,499,788
---------------
TOTAL (Cost $71,787,018) 77,931,427
---------------
---------------
INDUSTRIAL SERVICES - 8.8%
Commercial Services - 2.6%
INTERIM SERVICES(a) 839,900 14,908,225
---------------
Engineering and Construction - 1.3%
Morrison Knudsen(a) 1,106,800 8,024,300
---------------
Transportation and Logistics - 4.9%
C. H. Robinson Worldwide 103,300 5,113,350
Circle International Group 278,100 6,987,262
Expeditors International of Washington 121,600 5,776,000
PITTSTON BRINK'S GROUP 776,594 10,629,630
---------------
28,506,242
---------------
TOTAL (Cost $52,348,859) 51,438,767
---------------
---------------
NATURAL RESOURCES - 7.0%
Gold - 1.9%
ANGLOGOLD ADR(b) 547,300 11,253,856
---------------
Oil and Gas - 5.1%
TOM BROWN(a) 593,910 13,697,049
Devon Energy 90,200 5,068,113
RENAISSANCE ENERGY(a) 1,105,300 10,716,929
---------------
29,482,091
---------------
TOTAL (Cost $34,759,974) 40,735,947
---------------
---------------
TECHNOLOGY - 21.9%
Aerospace/Defense - 3.8%
CURTISS-WRIGHT 361,600 13,447,000
Woodward Governor 309,556 8,764,304
---------------
22,211,304
---------------
Components and Systems - 3.1%
Dionex(a) 276,700 7,401,725
NATIONAL COMPUTER SYSTEMS 218,000 10,736,500
---------------
18,138,225
---------------
Distribution - 4.6%
Arrow Electronics(a) 285,200 8,841,200
AVNET 303,881 18,004,949
---------------
26,846,149
---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 43
<PAGE>
<TABLE>
<CAPTION>
SCHEDULES OF INVESTMENTS
--------------------------------------------------------------------------------------
ROYCE PREMIER FUND (CONTINUED)
SHARES VALUE
<S> <C> <C>
TECHNOLOGY (CONTINUED)
IT Services - 5.4%
American Management Systems(a) 302,100 $ 9,917,377
+Gartner Group Cl. A(a) 638,800 7,665,600
Keane(a) 195,400 4,225,525
+MarchFirst(a) 536,000 9,782,000
---------------
31,590,502
---------------
Semiconductors and Equipment - 1.1%
Dallas Semiconductor 147,600 6,014,700
---------------
Software - 2.6%
NATIONAL INSTRUMENTS(a) 339,950 14,830,319
---------------
Telecommunication - 1.3%
Plantronics(a) 66,000 7,623,000
---------------
TOTAL (Cost $86,800,777) 127,254,199
---------------
---------------
TOTAL COMMON STOCKS
(Cost $420,888,045) 504,105,229
---------------
---------------
REPURCHASE AGREEMENT - 10.8%
State Street Bank & Trust Company
5.50% dated 6/30/00, due
7/3/00, maturity value
$63,028,875 (collateralized
by U.S. Treasury Bonds,
13.875% due 5/15/11, valued
at $64,260,625)
(Cost $63,000,000) 63,000,000
---------------
---------------
TOTAL INVESTMENTS - 97.5%
(Cost $483,888,045) 567,105,229
CASH AND OTHER ASSETS
LESS LIABILITIES - 2.5% 14,380,559
---------------
NET ASSETS - 100.0% $ 581,485,788
---------------
---------------
ROYCE TRUST & GIFTSHARES FUND
COMMON STOCKS - 98.9%
CONSUMER PRODUCTS - 5.8%
Food/Beverage/Tobacco - 1.5%
800 JR Cigar(a) 33,500 $ 330,813
---------------
Publishing - 1.8%
Marvel Enterprises(a) 65,000 406,250
---------------
Sports and Recreation - 1.6%
Oakley(a) 31,500 362,250
---------------
Other Consumer Products - 0.9%
Lazare Kaplan International(a) 22,800 185,250
---------------
TOTAL (Cost $1,043,307) 1,284,563
---------------
---------------
CONSUMER SERVICES - 5.6%
Restaurants/Lodgings - 1.7%
Buffets(a) 30,000 380,625
---------------
Retail Stores - 3.9%
+Consolidated Stores(a) 32,000 384,000
URBAN OUTFITTERS(a) 53,000 467,062
---------------
851,062
---------------
TOTAL (Cost $1,271,668) 1,231,687
---------------
---------------
FINANCIAL INTERMEDIARIES - 14.3%
Insurance - 14.3%
+ARGONAUT GROUP 27,200 465,800
+Berkley (W.R.) 18,900 354,375
+Horace Mann Educators 25,000 375,000
LASALLE RE HOLDINGS(a) 56,200 797,338
MEDICAL ASSURANCE(a) 59,548 669,915
+Reliance Group Holdings(a) 100,000 75,000
Zenith National Insurance 20,000 425,000
---------------
TOTAL (Cost $3,670,447) 3,162,428
---------------
---------------
FINANCIAL SERVICES - 6.6%
Insurance Brokers - 6.6%
+AON 20,000 621,250
Blanch (E.W.) Holdings 20,700 420,469
Gallagher (Arthur J.) & Company 10,000 420,000
---------------
TOTAL (Cost $1,140,616) 1,461,719
---------------
---------------
HEALTH - 6.9%
Commercial Services - 4.9%
+IMS Health 25,000 450,000
SCHEIN (HENRY)(a) 37,000 638,250
---------------
1,088,250
---------------
Surgical Products and Devices - 2.0%
ARROW INTERNATIONAL 13,500 452,250
---------------
TOTAL (Cost $1,251,379) 1,540,500
---------------
---------------
INDUSTRIAL PRODUCTS - 2.8%
Machinery - 1.8%
Lincoln Electric Holdings 28,900 411,825
---------------
Other Industrial Products - 1.0%
BHA Group Holdings 21,843 212,969
---------------
TOTAL (Cost $881,323) 624,794
---------------
---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
44 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------------
SHARES VALUE
<S> <C> <C>
INDUSTRIAL SERVICES - 20.6%
Commercial Services - 10.7%
INTERIM SERVICES(a) 51,500 $ 914,125
NEW HORIZONS WORLDWIDE(a) 26,000 604,094
RCM Technologies(a) 28,000 206,500
+RemedyTemp Cl. A(a) 34,000 416,500
+Wackenhut Corrections(a) 30,500 228,750
---------------
2,369,969
---------------
Engineering and Construction - 1.2%
Morrison Knudsen(a) 37,600 272,600
---------------
Industrial Distribution - 3.2%
RITCHIE BROS. AUCTIONEERS(a) 29,000 694,187
---------------
Transportation and Logistics - 5.5%
AIRNET SYSTEMS(a) 111,000 506,437
+Fritz Companies(a) 25,000 257,812
PITTSTON BRINK'S GROUP 33,270 455,383
---------------
1,219,632
---------------
TOTAL (Cost $4,752,243) 4,556,388
---------------
---------------
NATURAL RESOURCES - 16.4%
Energy Services - 7.8%
CARBO CERAMICS 18,000 632,250
Global Industries(a) 18,000 339,750
INPUT/OUTPUT(a) 90,000 759,375
---------------
1,731,375
---------------
Gold - 1.6%
Homestake Mining 50,000 343,750
---------------
Oil and Gas - 7.0%
DENBURY RESOURCES(a) 106,400 551,950
PURE RESOURCES(a) 56,145 1,003,592
---------------
1,555,542
---------------
TOTAL (Cost $2,370,742) 3,630,667
---------------
---------------
TECHNOLOGY - 19.9%
Components and Systems - 0.3%
Kronos(a) 3,000 78,000
---------------
Distribution - 7.2%
Arrow Electronics(a) 10,000 310,000
Avnet 6,000 355,500
RICHARDSON ELECTRONICS 57,300 920,381
---------------
1,585,881
---------------
IT Services - 6.6%
+American Management Systems(a) 5,000 164,141
+Complete Business Solutions(a) 5,000 87,812
+IMRGLOBAL CORPORATION(a) 40,400 527,725
+MARCHFIRST(a) 37,500 684,375
---------------
1,464,053
---------------
Internet Services - 2.2%
+internet.com(a) 25,000 492,188
---------------
Semiconductors and Equipment - 1.2%
PC D(a) 35,000 271,797
---------------
Software - 2.4%
+Integral Systems(a) 20,000 335,000
National Instruments(a) 4,400 191,950
---------------
526,950
---------------
TOTAL (Cost $3,289,021) 4,418,869
---------------
---------------
TOTAL COMMON STOCKS
(Cost $19,670,746) 21,911,615
---------------
---------------
TOTAL INVESTMENTS - 98.9%
(Cost $19,670,746) 21,911,615
CASH AND OTHER ASSETS
LESS LIABILITIES - 1.1% 235,078
---------------
NET ASSETS - 100.0% $ 22,146,693
---------------
---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 45
<PAGE>
<TABLE>
<CAPTION>
SCHEDULES OF INVESTMENTS
--------------------------------------------------------------------------------------
ROYCE SELECT FUND
COMMON STOCKS - 100.1%
SHARES VALUE
<S> <C> <C>
CONSUMER PRODUCTS - 6.1%
Apparel and Shoes - 1.6%
+Wolverine World Wide 19,000 $ 187,625
---------------
Food/Beverage/Tobacco - 2.0%
800 JR Cigar(a) 22,600 223,175
---------------
Sports and Recreation - 1.4%
+Oakley(a) 14,300 164,450
---------------
Other Consumer Products - 1.1%
Lazare Kaplan International(a) 16,100 130,813
---------------
TOTAL (Cost $603,282) 706,063
---------------
---------------
CONSUMER SERVICES - 11.5%
Restaurants/Lodgings - 3.0%
BUFFETS(a) 26,600 337,487
---------------
Retail Stores - 8.5%
Charming Shoppes(a) 20,000 101,875
Claire's Stores 10,500 202,125
+CONSOLIDATED STORES(a) 22,000 264,000
+Ross Stores 6,000 102,375
+URBAN OUTFITTERS(a) 35,000 308,438
---------------
978,813
---------------
TOTAL (Cost $1,242,654) 1,316,300
---------------
---------------
FINANCIAL INTERMEDIARIES - 18.1%
Insurance - 18.1%
+Argonaut Group 12,500 214,062
Erie Indemnity Company Cl. A 3,800 119,700
+Fidelity National Financial 9,000 164,813
LASALLE RE HOLDINGS(a) 26,900 381,644
MEDICAL ASSURANCE(a) 31,487 354,229
PMA CAPITAL CL. A 25,600 486,400
+Reliance Group Holdings(a) 50,000 37,500
ZENITH NATIONAL INSURANCE 15,000 318,750
---------------
TOTAL (Cost $2,270,961) 2,077,098
---------------
---------------
FINANCIAL SERVICES - 4.6%
Insurance Brokers - 4.6%
+Aon 5,000 155,312
Blanch (E.W.) Holdings 10,100 205,156
+Gallagher (Arthur J.) & Company 4,000 168,000
---------------
TOTAL (Cost $427,082) 528,468
---------------
---------------
HEALTH - 3.4%
Commercial Services - 3.4%
SCHEIN (HENRY)(a) 22,500 388,125
---------------
TOTAL (Cost $248,750) 388,125
---------------
---------------
INDUSTRIAL PRODUCTS - 6.8%
Construction Materials - 1.7%
Florida Rock Industries 5,500 195,937
---------------
Machinery - 3.6%
Lincoln Electric Holdings 15,700 223,725
+Micro General(a) 12,600 182,700
---------------
406,425
---------------
Other Industrial Products - 1.5%
BHA Group Holdings 17,800 173,550
---------------
TOTAL (Cost $846,657) 775,912
---------------
---------------
INDUSTRIAL SERVICES - 18.5%
Commercial Services - 7.0%
INTERIM SERVICES(a) 23,800 422,450
+RemedyTemp Cl. A(a) 18,500 226,625
+Wackenhut Corrections(a) 21,100 158,250
---------------
807,325
---------------
Engineering and Construction - 2.0%
Morrison Knudsen(a) 32,600 236,350
---------------
Industrial Distribution - 2.1%
+RITCHIE BROS. AUCTIONEERS(a) 10,000 239,375
---------------
Transportation and Logistics - 7.4%
AIRNET SYSTEMS(a) 52,900 241,356
Aramex International(a) 20,800 208,000
+Fritz Companies(a) 10,000 103,125
PITTSTON BRINK'S GROUP 21,613 295,828
---------------
848,309
---------------
TOTAL (Cost $2,242,785) 2,131,359
---------------
---------------
NATURAL RESOURCES - 13.8%
Energy Services - 6.6%
CARBO CERAMICS 9,200 323,150
Input/Output(a) 22,500 189,844
WILLBROS GROUP(a) 34,500 237,188
---------------
750,182
---------------
Oil and Gas - 7.2%
DENBURY RESOURCES(a) 66,000 342,375
PURE RESOURCES(a) 27,268 487,415
---------------
829,790
---------------
TOTAL (Cost $1,022,188) 1,579,972
---------------
---------------
TECHNOLOGY - 17.3%
Aerospace/Defense - 2.2%
CURTISS-WRIGHT 6,800 252,875
---------------
Distribution - 4.8%
Arrow Electronics(a) 3,000 93,000
RICHARDSON ELECTRONICS 28,500 457,781
---------------
550,781
---------------
IT Services - 5.9%
+American Management Systems(a) 5,000 164,141
+IMRglobal Corporation(a) 11,900 155,444
+MARCHFIRST(a) 19,500 355,875
---------------
675,460
---------------
Internet Services - 3.0%
+internet.com(a) 17,500 344,531
---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
46 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------------
SHARES VALUE
<S> <C> <C>
TECHNOLOGY (CONTINUED)
Software - 1.4%
+Integral Systems(a) 10,000 $ 167,500
---------------
TOTAL (Cost $1,567,443) 1,991,147
---------------
---------------
TOTAL COMMON STOCKS
(Cost $10,471,802) 11,494,444
---------------
---------------
TOTAL INVESTMENTS - 100.1%
(Cost $10,471,802) 11,494,444
LIABILITIES LESS CASH
AND OTHER ASSETS - (0.1%) (2,252)
---------------
NET ASSETS - 100.0% $ 11,492,192
---------------
---------------
</TABLE>
--------------------------------------------------------------------------------
(a) NON-INCOME PRODUCING.
(b) AMERICAN DEPOSITORY RECEIPT.
(c) AT JUNE 30, 2000, 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.
(d) A PORTION OF THESE SECURITIES WERE ON LOAN AT JUNE 30, 2000. TOTAL MARKET
VALUE OF ALL SECURITIES ON LOAN AT JUNE 30, 2000 WAS $5,074,644 FOR WHICH
THE FUND HAD RECEIVED $5,478,300 AS COLLATERAL.
+ NEW ADDITIONS IN 2000.
BOLD INDICATES A FUND'S LARGEST 20 EQUITY HOLDINGS IN TERMS OF JUNE 30,
2000 MARKET VALUE.
--------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 47
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES JUNE 30, 2000 (UNAUDITED)
----------------------------------------------------------------------------------------------------------------
PENNSYLVANIA ROYCE ROYCE ROYCE
MUTUAL MICRO-CAP TOTAL RETURN LOW-PRICED
FUND FUND FUND STOCK FUND
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments at value* $447,733,558 $118,327,409 $221,236,747 $46,746,848
Repurchase agreements (at cost and value) 24,000,000 8,000,000 1,000,000 2,000,000
Cash 1,146,226 239,589 453,270 592,972
Collateral from brokers on securities loaned 5,478,300 -- -- --
Receivable for investments sold 6,435,374 1,308,696 552,715 274,718
Receivable for capital shares sold 4,413,898 404,420 267,460 460,530
Receivable for dividends and interest 533,282 37,507 706,276 41,773
Prepaid expenses and other assets 23,422 5,750 11,047 1,267
----------------------------------------------------------------------------------------------------------------
Total Assets 489,764,060 128,323,371 224,227,515 50,118,108
----------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for collateral on securities loaned 5,478,300 -- -- --
Payable for investments purchased 3,775,732 1,315,928 1,117,565 630,624
Payable for capital shares redeemed 177,891 38,529 103,374 61,515
Payable for investment advisory fees 306,614 125,846 189,639 41,594
Accrued expenses 210,458 59,904 110,902 22,365
----------------------------------------------------------------------------------------------------------------
Total Liabilities 9,948,995 1,540,207 1,521,480 756,098
----------------------------------------------------------------------------------------------------------------
Net Assets $479,815,065 $126,783,164 $222,706,035 $49,362,010
================================================================================================================
ANALYSIS OF NET ASSETS:
Undistributed net investment income (loss) $ 680,613 $ (119,933) $ 352,982 $ 11,080
Accumulated net realized gain on investments 114,619,240 26,160,370 18,630,523 6,022,787
Net unrealized appreciation (depreciation)
on investments 104,946,532 10,060,279 (18,766,055) 3,407,763
Capital shares 61,919 11,896 30,489 5,309
Additional paid-in capital 259,506,761 90,670,552 222,458,096 39,915,071
----------------------------------------------------------------------------------------------------------------
Net Assets $479,815,065 $126,783,164 $222,706,035 $49,362,010
----------------------------------------------------------------------------------------------------------------
Investment Class $355,438,448 $125,315,288 $222,706,035 $49,362,010
Consultant/Institutional
Service Class** $124,376,617 $ 1,467,876
================================================================================================================
SHARES OUTSTANDING:
(unlimited number of $.001 par value
shares authorized for each Fund)
Investment Class 45,829,905 11,756,780 30,488,576 5,308,904
Consultant/Institutional Service Class** 16,088,970 139,276
================================================================================================================
NET ASSET VALUES:
(Net Assets / Shares Outstanding)
Investment Class (1) $ 7.76 $ 10.66 $ 7.30 $ 9.30
Consultant (2)/Institutional
Service Class (1)** $ 7.73 $ 10.54
================================================================================================================
* Investments at identified cost $342,787,026 $108,267,130 $240,002,802 $43,339,085
----------------------------------------------------------------------------------------------------------------
<CAPTION>
ROYCE ROYCE ROYCE TRUST & ROYCE
OPPORTUNITY PREMIER GIFTSHARES SELECT
FUND FUND FUND FUND
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments at value* $168,919,496 $504,105,229 $21,911,615 $11,494,444
Repurchase agreements (at cost and value) 9,000,000 63,000,000 -- --
Cash 1,031,972 300,894 137,999 80,708
Collateral from brokers on securities loaned -- -- --
Receivable for investments sold 1,739,375 19,118,958 119,786 --
Receivable for capital shares sold 1,668,111 892,927 407 50,041
Receivable for dividends and interest 120,918 378,225 9,703 6,862
Prepaid expenses and other assets 11,019 25,934 2,551 --
----------------------------------------------------------------------------------------------------------------
Total Assets 182,490,891 587,822,167 22,182,061 11,632,055
----------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for collateral on securities loaned -- -- -- --
Payable for investments purchased 2,235,524 5,409,730 -- 99,000
Payable for capital shares redeemed 21,141 236,934 -- --
Payable for investment advisory fees 138,678 486,123 15,375 40,863
Accrued expenses 54,603 203,592 19,993 --
----------------------------------------------------------------------------------------------------------------
Total Liabilities 2,449,946 6,336,379 35,368 139,863
----------------------------------------------------------------------------------------------------------------
Net Assets $180,040,945 $581,485,788 $22,146,693 $11,492,192
================================================================================================================
ANALYSIS OF NET ASSETS:
Undistributed net investment income (loss) $ (19,984) $ 871,526 $ (81,351) $ (139,827)
Accumulated net realized gain on investments 17,419,477 69,502,649 3,833,763 1,625,975
Net unrealized appreciation (depreciation)
on investments 10,218,270 83,217,184 2,240,869 1,022,642
Capital shares 21,147 58,279 2,047 75
Additional paid-in capital 152,402,035 427,836,150 16,151,365 8,983,327
----------------------------------------------------------------------------------------------------------------
Net Assets $180,040,945 $581,485,788 $22,146,693 $11,492,192
----------------------------------------------------------------------------------------------------------------
Investment Class $179,936,151 $581,485,788 $17,916,607 $11,492,192
Consultant/Institutional
Service Class** $ 104,794 $ 4,230,086
================================================================================================================
SHARES OUTSTANDING:
(unlimited number of $.001 par value
shares authorized for each Fund)
Investment Class 21,134,287 58,279,419 1,648,456 75,475
Consultant/Institutional Service Class** 12,315 398,806
================================================================================================================
NET ASSET VALUES:
(Net Assets / Shares Outstanding)
Investment Class (1) $ 8.51 $ 9.98 $ 10.87 $ 152.27
CONSULTANT (2)/INSTITUTIONAL
SERVICE CLASS (1)** $ 8.51 $ 10.61
================================================================================================================
* Investments at identified cost $158,701,226 $420,888,045 $19,670,746 $10,471,802
----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Offering and redemption price per share; shares redeemed within six months
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.
** Consultant Class of Pennsylvania Mutual, Royce Micro-Cap and Royce Trust &
GiftShares Funds; Institutional Service Class of Royce Opportunity Fund.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
48 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
-------------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA MUTUAL FUND ROYCE MICRO--CAP FUND
-------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, JUNE 30, 2000 DECEMBER 31,
(UNAUDITED) 1999 (UNAUDITED) 1999
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT OPERATIONS:
Net investment income (loss) $ 680,613 $ 1,730,855 $ (119,933) $ (918,186)
Net realized gain on investments 77,716,484 74,551,017 20,699,903 13,613,347
Net change in unrealized appreciation (depreciation)
on investments (49,024,290) (49,966,971) (6,986,884) (1,349,281)
Net increase in net assets from investment operations 29,372,807 26,314,901 13,593,086 11,345,880
DISTRIBUTIONS:
Net investment income
Investment Class -- (2,134,230) -- --
Consultant Class -- -- -- --
Net realized gain on investments
Investment Class -- (24,038,046) -- (2,442,694)
Consultant Class -- (7,297,352) -- (14,421)
Total distributions -- (33,469,628) -- (2,457,115)
CAPITAL SHARE TRANSACTIONS:
Value of shares sold
Investment Class 23,599,045 110,144,607 26,194,932 40,224,271
Consultant Class 2,269,107 8,441,698 183,179 876,925
Distributions reinvested
Investment Class -- 24,614,377 -- 2,385,304
Consultant Class -- 6,960,350 -- 13,976
Value of shares redeemed
Investment Class (61,212,354) (224,864,326) (26,138,817) (104,983,480)
Consultant Class (14,529,212) (24,725,094) (18,614) (607,065)
Net increase (decrease) in net assets from
capital share transactions (49,873,414) (99,428,388) 220,680 (62,090,069)
NET INCREASE (DECREASE) IN NET ASSETS (20,500,607) (106,583,115) 13,813,766 (53,201,304)
NET ASSETS:
Beginning of period 500,315,672 606,898,787 112,969,398 166,170,702
End of period $ 479,815,065 $ 500,315,672 $ 126,783,164 $ 112,969,398
UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)
AT END OF PERIOD $ 680,613 $ -- $ (119,933) $ --
CAPITAL SHARE TRANSACTIONS (IN SHARES):
Shares sold
Investment Class 3,174,633 15,393,095 2,554,585 4,833,895
Consultant Class 313,638 1,161,060 18,066 106,795
Shares issued for reinvestment of distributions
Investment Class -- 3,506,321 -- 266,252
Consultant Class -- 991,503 -- 1,568
Shares redeemed
Investment Class (8,311,228) (31,484,752) (2,562,420) (12,677,352)
Consultant Class (1,972,830) (3,475,881) (1,900) (73,655)
Net increase (decrease) in shares outstanding
Investment Class (5,136,595) (12,585,336) (7,835) (7,577,205)
Consultant Class (1,659,192) (1,323,318) 16,166 34,708
<CAPTION>
ROYCE TOTAL RETURN FUND ROYCE LOW-PRICED STOCK FUND
--------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, JUNE 30, 2000 DECEMBER 31,
(UNAUDITED) 1999 (UNAUDITED) 1999
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT OPERATIONS:
Net investment income (loss) $ 2,488,665 $ 5,841,476 $ 11,080 $ (96,152)
Net realized gain on investments 10,654,610 9,427,902 4,271,883 3,043,498
Net change in unrealized appreciation (depreciation
on investments (6,578,043) (13,140,078) 439,877 2,355,583
Net increase in net assets from investment operations 6,565,232 2,129,300 4,722,840 5,302,929
DISTRIBUTIONS:
Net investment income
Investment Class (2,476,795) (5,500,364) -- --
Consultant Class -- --
Net realized gain on investments
Investment Class -- (11,884,623) -- (2,139,524)
Consultant Class -- -- -- --
Total distributions (2,476,795) (17,384,987) -- (2,139,524)
CAPITAL SHARE TRANSACTIONS:
Value of shares sold
Investment Class 42,547,431 174,904,937 24,404,854 9,773,106
Consultant Class
Distributions reinvested
Investment Class 2,276,445 16,150,461 -- 2,116,496
Consultant Class
Value of shares redeemed
Investment Class (74,654,245) (172,341,101) (4,295,972) (11,696,326)
Consultant Class
Net increase (decrease) in net assets from
capital share transactions (29,830,369) 18,714,297 20,108,882 193,276
NET INCREASE (DECREASE) IN NET ASSETS (25,741,932) 3,458,610 24,831,722 3,356,681
NET ASSETS:
Beginning of period 248,447,967 244,989,357 24,530,288 21,173,607
End of period $ 222,706,035 $ 248,447,967 $ 49,362,010 $ 24,530,288
UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)
AT END OF PERIOD $ 352,982 $ 341,112 $ 11,080 $ --
CAPITAL SHARE TRANSACTIONS (IN SHARES):
Shares sold
Investment Class 6,029,606 23,846,182 2,810,544 1,284,856
Consultant Class
Shares issued for reinvestment of distributions
Investment Class 322,764 2,304,373 -- 282,226
Consultant Class
Shares redeemed
Investment Class (10,628,131) (23,809,533) (508,592) (1,606,069)
Consultant Class
Net increase (decrease) in shares outstanding
Investment Class (4,275,761) 2,341,022 2,301,952 (38,987)
Consultant Class
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 49
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------------------------------------------------
ROYCE OPPORTUNITY FUND ROYCE PREMIER FUND
-------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, JUNE 30, 2000 DECEMBER 31,
(UNAUDITED) 1999 (UNAUDITED) 1999
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT OPERATIONS:
Net investment income (loss) $ (19,984) $ (28,090) $ 561,333 $ 623,449
Net realized gain on investments 13,378,708 8,130,158 59,309,913 35,201,455
Net change in unrealized appreciation on investments 3,606,601 4,869,512 (36,479,050) 23,616,241
Net increase in net assets from investment operations 16,965,325 12,971,580 23,392,196 59,441,145
DISTRIBUTIONS:
Net investment income
Investment Class -- -- -- (559,042)
Consultant/Institutional Service Class* --
Net realized gain on investments
Investment Class -- (5,264,466) -- (32,917,955)
Consultant/Institutional Service Class*
Total distributions -- (5,264,466) -- (33,476,997)
CAPITAL SHARE TRANSACTIONS:
Value of shares sold
Investment Class 115,357,474 34,020,800 70,087,752 209,759,206
Consultant/Institutional Service Class* 100,000
Distributions reinvested
Investment Class -- 5,105,827 -- 32,606,628
Consultant/Institutional Service Class* --
Value of shares redeemed
Investment Class (12,780,521) (20,712,759) (79,827,743) (269,484,982)
Consultant/Institutional Service Class* --
Net increase (decrease) in net assets from
capital share transactions 102,676,953 18,413,868 (9,739,991) (27,119,148)
NET INCREASE (DECREASE) IN NET ASSETS 119,642,278 26,120,982 13,652,205 (1,155,000)
NET ASSETS:
Beginning of period 60,398,667 34,277,685 567,833,583 568,988,583
End of period $ 180,040,945 $ 60,398,667 $ 581,485,788 $ 567,833,583
UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)
AT END OF PERIOD $ (19,984) $ -- $ 871,526 $ 310,193
CAPITAL SHARE TRANSACTIONS (IN SHARES):
Shares sold
Investment Class 18,783,643 5,125,146 7,212,152 23,316,380
Consultant/Institutional Service Class* 12,315
Shares issued for reinvestment of distributions
Investment Class -- 745,409 -- 3,643,201
Consultant/Institutional Service Class*
Shares redeemed
Investment Class (6,048,438) (3,162,986) (8,329,788) (29,796,842)
Consultant/Institutional Service Class* --
Net increase (decrease) in shares outstanding
Investment Class 12,735,205 2,707,569 (1,117,636) (2,837,261)
Consultant/Institutional Service Class* 12,315
<CAPTION>
ROYCE TRUST & GIFTSHARES FUND ROYCE SELECT FUND
-------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, JUNE 30, 2000 DECEMBER 31,
(UNAUDITED) 1999 (UNAUDITED) 1999
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT OPERATIONS:
Net investment income (loss) $ (81,351) $ (95,958) $ (139,827) $ (198,784)
Net realized gain on investments 2,261,770 3,337,654 1,479,253 626,805
Net change in unrealized appreciation on investments (694,007) 1,906,238 (523,278) 1,494,250
Net increase in net assets from investment operations 1,486,412 5,147,934 816,148 1,922,271
DISTRIBUTIONS:
Net investment income
Investment Class -- -- -- --
Consultant/Institutional Service Class* -- --
Net realized gain on investments
Investment Class -- (1,839,807) -- (308,001)
Consultant/Institutional Service Class* -- (381,924)
Total distributions -- (2,221,731) -- (308,001)
CAPITAL SHARE TRANSACTIONS:
Value of shares sold
Investment Class 1,283,991 2,803,572 880,236 6,959,269
Consultant/Institutional Service Class* 536,705 1,382,324
Distributions reinvested
Investment Class -- 1,839,613 -- 215,515
Consultant/Institutional Service Class* -- 379,837
Value of shares redeemed
Investment Class (67,050) (43,597) (61,889) (21,330)
Consultant/Institutional Service Class* (36,338) (39,171)
Net increase (decrease) in net assets from
capital share transactions 1,717,308 6,322,578 818,347 7,153,454
NET INCREASE (DECREASE) IN NET ASSETS 3,203,720 9,248,781 1,634,495 8,767,724
NET ASSETS:
Beginning of period 18,942,973 9,694,192 9,857,697 1,089,973
End of period $ 22,146,693 $ 18,942,973 $ 11,492,192 $ 9,857,697
UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)
AT END OF PERIOD $ (81,351) $ -- $ (139,827) $ --
CAPITAL SHARE TRANSACTIONS (IN SHARES):
Shares sold
Investment Class 123,318 316,220 6,013 58,314
Consultant/Institutional Service Class*
Shares issued for reinvestment of distributions 52,286 156,335
Investment Class -- 198,448 -- 1,625
Consultant/Institutional Service Class* -- 41,741
Shares redeemed
Investment Class (6,245) (4,453) (431) (158)
Consultant/Institutional Service Class* (3,457) (4,840)
Net increase (decrease) in shares outstanding
Investment Class 117,073 510,215 5,582 59,781
Consultant/Institutional Service Class*
</TABLE>
* Consultant Class of Royce Trust & GiftShares Fund; Institutional Service
Class of Royce Opportunity Fund.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
50 | The Royce Funds Semi-Annual Report 2000
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2000 (unaudited)
-----------------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA ROYCE ROYCE ROYCE
MUTUAL MICRO-CAP TOTAL RETURN LOW-PRICED
FUND FUND FUND STOCK FUND
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Income:
Dividends $ 3,273,914 $ 485,846 $ 3,478,817 $ 171,688
Interest 340,908 291,989 401,840 99,803
-----------------------------------------------------------------------------------------------------------------------------
Total income 3,614,822 777,835 3,880,657 271,491
-----------------------------------------------------------------------------------------------------------------------------
Expenses:
Investment advisory fees 1,862,457 897,333 1,113,594 262,158
Distribution fees - Investment Class -- -- -- 43,693
Distribution fees - Consultant/Institutional
Service Class* 619,356 6,417 -- --
Shareholder servicing - Investment Class 134,862 52,011 116,576 17,078
Shareholder servicing - Consultant/
Institutional Service Class* 33,942 3,982 -- --
Shareholder reports - Investment Class 108,237 40,769 65,873 10,037
Shareholder reports - Consultant/
Institutional Service Class* 35,716 1,036 -- --
Administrative and office facilities 110,775 26,688 52,630 5,867
Custodian 62,704 45,054 39,116 19,357
Trustees' fees 35,252 8,942 16,726 2,545
Audit 23,600 10,700 12,600 7,030
Registration - Investment Class 9,495 9,898 11,047 6,706
Registration - Consultant Class 5,262 2,671 -- --
Legal 13,421 3,252 6,412 745
Other expenses 33,982 8,933 14,850 2,435
-----------------------------------------------------------------------------------------------------------------------------
Total expenses 3,089,061 1,117,686 1,449,424 377,651
Fees waived by investment adviser
and distributor (154,852) (213,387) (57,432) (117,240)
Expenses reimbursed by investment
adviser - Consultant/Institutional
Service Class* -- (6,531) -- --
-----------------------------------------------------------------------------------------------------------------------------
Net expenses 2,934,209 897,768 1,391,992 260,411
-----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 680,613 (119,933) 2,488,665 11,080
-----------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investments 77,716,484 20,699,903 10,654,610 4,271,883
Net change in unrealized appreciation
(depreciation) on investments (49,024,290) (6,986,884) (6,578,043) 439,877
-----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
on investments 28,692,194 13,713,019 4,076,567 4,711,760
-----------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
INVESTMENT OPERATIONS $ 29,372,807 $ 13,593,086 $ 6,565,232 $ 4,722,840
-----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
ROYCE ROYCE ROYCE TRUST & ROYCE
OPPORTUNITY PREMIER GIFTSHARES SELECT
FUND FUND FUND FUND
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Income:
Dividends $ 586,837 $ 2,910,846 $ 74,133 $ 40,838
Interest 228,692 1,072,202 18,948 240
-----------------------------------------------------------------------------------------------------------------------------
Total income 815,529 3,983,048 93,081 41,078
-----------------------------------------------------------------------------------------------------------------------------
Expenses:
Investment advisory fees 649,974 2,802,247 104,084 180,905
Distribution fees - Investment Class -- -- 21,184 --
Distribution fees - Consultant/Institutional
Service Class* 27 -- 19,346 --
Shareholder servicing - Investment Class 35,887 190,617 7,500 --
Shareholder servicing - Consultant/
Institutional Service Class* 650 -- 3,960 --
Shareholder reports - Investment Class 17,189 128,918 8,906 --
Shareholder reports - Consultant/
Institutional Service Class* 120 -- 2,701 --
Administrative and office facilities 18,502 122,089 4,009 --
Custodian 75,346 57,944 13,166 --
Trustees' fees 9,664 41,976 1,605 --
Audit 12,000 18,900 9,450 --
Registration - Investment Class 6,789 12,377 6,606 --
Registration - Consultant Class -- -- 4,368 --
Legal 2,438 15,011 512 --
Other expenses 7,680 31,636 4,483 --
-----------------------------------------------------------------------------------------------------------------------------
Total expenses 836,266 3,421,715 211,880 180,905
Fees waived by investment adviser
and distributor (27) -- (32,263) --
Expenses reimbursed by investment
adviser - Consultant/Institutional
Service Class* (726) -- (5,185) --
-----------------------------------------------------------------------------------------------------------------------------
Net expenses 835,513 3,421,715 174,432 180,905
-----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (19,984) 561,333 (81,351) (139,827)
-----------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investments 13,378,708 59,309,913 2,261,770 1,479,253
Net change in unrealized appreciation
(depreciation) on investments 3,606,601 (36,479,050) (694,007) (523,278)
-----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
on investments 16,985,309 22,830,863 1,567,763 955,975
-----------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
INVESTMENT OPERATIONS $ 16,965,325 $ 23,392,196 $ 1,486,412 $ 816,148
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Consultant Class of Pennsylvania Mutual, Royce Micro-Cap and Royce Trust &
GiftShares Funds; Institutional Service Class of Royce Opportunity Fund.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 51
<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 ASSET NET NET REALIZED DISTRIBUTIONS DISTRIBUTIONS
VALUE, INVESTMENT AND UNREALIZED TOTAL FROM FROM NET FROM NET
BEGINNING INCOME GAIN (LOSS) INVESTMENT INVESTMENT REALIZED GAIN TOTAL
OF PERIOD (LOSS) ON INVESTMENTS OPERATIONS INCOME ON INVESTMENTS DISTRIBUTIONS
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PENNSYLVANIA MUTUAL FUND - INVESTMENT CLASS
+ 2000 $ 7.28 $ 0.02 $ 0.46 $ 0.48 $ -- $ -- $ --
1999 7.35 0.04 0.38 0.42 (0.04) (0.45) (0.49)
1998 7.82 0.05 0.24 0.29 (0.05) (0.71) (0.76)
1997 7.11 0.07 1.70 1.77 (0.06) (1.00) (1.06)
1996 7.71 0.11 0.84 0.95 (0.11) (1.44) (1.55)
1995 7.41 0.11 1.27 1.38 (0.11) (0.97) (1.08)
PENNSYLVANIA MUTUAL FUND - CONSULTANT CLASS (a)
+ 2000 $ 7.28 $ (0.01) $ 0.46 $ 0.45 $ -- $ -- $ --
1999 7.34 (0.02) 0.39 0.37 -- (0.43) (0.43)
1998 7.81 (0.01) 0.24 0.23 -- (0.70) (0.70)
1997 7.90 0.02 0.93 0.95 (0.04) (1.00) (1.04)
ROYCE MICRO-CAP FUND - INVESTMENT CLASS
+ 2000 $ 9.50 $ (0.01) $ 1.17 $ 1.16 $ -- $ -- $ --
1999 8.55 (0.08) 1.24 1.16 -- (0.21) (0.21)
1998 9.40 (0.05) (0.29) (0.34) (0.01) (0.50) (0.51)
1997 8.14 -- 2.01 2.01 -- (0.75) (0.75)
1996 7.53 (0.01) 1.17 1.16 -- (0.55) (0.55)
1995 6.48 -- 1.24 1.24 -- (0.19) (0.19)
ROYCE MICRO-CAP FUND - CONSULTANT CLASS (b)
+ 2000 $ 9.45 $ (0.06) $ 1.15 $ 1.09 $ -- $ -- $ --
1999 8.50 (0.16) 1.23 1.07 -- (0.12) (0.12)
1998 10.58 (0.07) (1.50) (1.57) (0.01) (0.50) (0.51)
ROYCE TOTAL RETURN FUND
+ 2000 $ 7.15 $ 0.08 $ 0.15 $ 0.23 $ (0.08) $ -- $ (0.08)
1999 7.56 0.17 (0.07) 0.10 (0.16) (0.35) (0.51)
1998 7.52 0.15 0.20 0.35 (0.15) (0.16) (0.31)
1997 6.29 0.11 1.38 1.49 (0.11) (0.15) (0.26)
1996 5.76 0.14 1.28 1.42 (0.16) (0.73) (0.89)
1995 5.12 0.13 1.24 1.37 (0.13) (0.60) (0.73)
ROYCE LOW-PRICED STOCK FUND
+ 2000 $ 8.16 $ -- $ 1.14 $ 1.14 $ -- $ -- $ --
1999 6.95 (0.03) 2.03 2.00 -- (0.79) (0.79)
1998 6.82 (0.01) 0.17 0.16 -- (0.03) (0.03)
1997 6.30 (0.03) 1.26 1.23 -- (0.71) (0.71)
1996 5.62 (0.03) 1.31 1.28 -- (0.60) (0.60)
1995 5.07 (0.04) 1.18 1.14 -- (0.59) (0.59)
<CAPTION>
RATIO OF RATIO OF NET
NET ASSET NET ASSETS, EXPENSES TO INVESTMENT INCOME PORTFOLIO
VALUE, END TOTAL END OF PERIOD AVERAGE NET (LOSS) TO AVERAGE TURNOVER
OF PERIOD RETURN (IN THOUSANDS) ASSETS (c) NET ASSETS RATE
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PENNSYLVANIA MUTUAL FUND - INVESTMENT CLASS
+ 2000 $ 7.76 6.6%** $ 355,438 1.05%* 0.48%* 21%**
1999 7.28 6.0% 371,055 1.04% 0.49% 21%
1998 7.35 4.2% 466,857 1.01% 0.62% 29%
1997 7.82 25.0% 507,635 1.05% 0.88% 18%
1996 7.11 12.8% 456,868 0.99% 1.05% 29%
1995 7.71 18.7% 630,119 0.98% 1.18% 10%
PENNSYLVANIA MUTUAL FUND - CONSULTANT CLASS (a)
+ 2000 $ 7.73 6.2%** $ 124,377 1.78%* (0.24)%* 21%**
1999 7.28 5.3% 129,261 1.77% (0.24)% 21%
1998 7.34 3.4% 140,042 1.74% (0.11)% 29%
1997 7.81 12.0%** 151,948 1.65%* 0.29%* 18%**
ROYCE MICRO-CAP FUND - INVESTMENT CLASS
+ 2000 $ 10.66 12.2%** $ 125,315 1.49%* (0.19)%* 45%**
1999 9.50 13.7% 111,806 1.49% (0.72)% 24%
1998 8.55 (3.3)% 165,420 1.49% (0.57)% 56%
1997 9.40 24.7% 199,637 1.49% 0.04% 38%
1996 8.14 15.5% 141,329 1.79% (0.20)% 70%
1995 7.53 19.1% 97,729 1.94% 0.10% 25%
ROYCE MICRO-CAP FUND - CONSULTANT CLASS (b)
+ 2000 $ 10.54 11.5%** $ 1,468 2.49%* (1.24)%* 45%**
1999 9.45 12.7% 1,163 2.49% (1.71)% 24%
1998 8.50 (14.6)%** 751 2.49%* (1.62)%* 56%**
ROYCE TOTAL RETURN FUND
+ 2000 $ 7.30 3.3%** $ 222,706 1.25%* 2.23%* 12%**
1999 7.15 1.6% 248,448 1.25% 2.32% 39%
1998 7.56 4.8% 244,989 1.25% 2.75% 66%
1997 7.52 23.7% 120,446 1.25% 3.15% 26%
1996 6.29 25.5% 6,234 1.25% 2.50% 111%
1995 5.76 26.9% 2,548 1.67% 2.42% 68%
ROYCE LOW-PRICED STOCK FUND
+ 2000 $ 9.30 14.0%** $ 49,362 1.49%* 0.06%* 51%**
1999 8.16 29.8% 24,530 1.49% (0.49)% 103%
1998 6.95 2.4% 21,174 1.49% (0.11)% 111%
1997 6.82 19.5% 18,096 1.49% (0.47)% 99%
1996 6.30 22.8% 15,905 1.88% (0.67)% 137%
1995 5.62 22.5% 4,215 1.97% (1.11)% 114%
</TABLE>
(a) The Class commenced operations on June 18, 1997.
(b) The Class commenced operations on May 4, 1998.
(c) 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: 1.03% and
0.99% in 1996 and 1995, respectively, for Pennsylvania Mutual
Fund - Investment Class; 2.03%, 2.02%, 1.99% and 2.00% in 2000 to 1997,
respectively, for Pennsylvania Mutual Fund - Consultant Class; 1.85%,
1.86%, 1.81%, 1.80%, 1.87% and 1.97% in 2000 to 1995, respectively, for
Royce Micro-Cap Fund - Investment Class; 3.87%, 3.99% and 4.52% in 2000 to
1998, respectively, for Royce Micro-Cap Fund - Consultant Class; 1.30%,
1.31%, 1.35%, 1.67%, 2.23% and 2.38% in 2000 to 1995, respectively, for
Royce Total Return Fund; and 2.16%, 2.28%, 2.31%, 2.38%, 2.59% and 3.47% in
2000 to 1995, respectively, for Royce Low-Priced Stock Fund.
* Annualized.
** Not annualized.
+ Six months ended June 30, 2000 (unaudited).
52 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<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 ASSET NET NET REALIZED DISTRIBUTIONS DISTRIBUTIONS
VALUE, INVESTMENT AND UNREALIZED TOTAL FROM FROM NET FROM NET
BEGINNING INCOME GAIN (LOSS) INVESTMENT INVESTMENT REALIZED GAIN TOTAL
OF PERIOD (LOSS) ON INVESTMENTS OPERATIONS INCOME ON INVESTMENTS DISTRIBUTIONS
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ROYCE OPPORTUNITY FUND - INVESTMENT CLASS (a)
+ 2000 $ 7.19 $ -- $ 1.32 $ 1.32 $ -- $ -- $ --
1999 6.02 -- 1.91 1.91 -- (0.74) (0.74)
1998 5.92 (0.01) 0.29 0.28 -- (0.18) (0.18)
1997 5.26 0.07 1.03 1.10 (0.08) (0.36) (0.44)
1996 5.00 -- 0.26 0.26 -- -- --
ROYCE OPPORTUNITY FUND - INSTITUTIONAL SERVICE CLASS (b)
+ 2000 $ 8.12 $ -- $ 0.39 $ 0.39 $ -- $ -- $ --
ROYCE PREMIER FUND
+ 2000 $ 9.56 $ 0.01 $ 0.41 $ 0.42 $ -- $ -- $ --
1999 9.14 0.01 1.00 1.01 (0.01) (0.58) (0.59)
1998 8.70 0.05 0.53 0.58 (0.05) (0.09) (0.14)
1997 7.81 0.09 1.35 1.44 (0.09) (0.46) (0.55)
1996 7.12 0.10 1.18 1.28 (0.10) (0.49) (0.59)
1995 6.48 0.10 1.05 1.15 (0.09) (0.42) (0.51)
ROYCE TRUST & GIFTSHARES FUND - INVESTMENT CLASS (c)
+ 2000 $ 10.10 $ (0.03) $ 0.80 $ 0.77 $ -- $ -- $ --
1999 8.24 (0.04) 3.35 3.31 -- (1.45) (1.45)
1998 6.91 (0.02) 1.37 1.35 -- (0.02) (0.02)
1997 5.83 (0.01) 1.52 1.51 -- (0.43) (0.43)
1996 5.01 -- 1.27 1.27 -- (0.45) (0.45)
1995 5.00 -- 0.01 0.01 -- -- --
ROYCE TRUST & GIFTSHARES FUND - CONSULTANT CLASS (d)
+ 2000 $ 9.91 $ (0.08) $ 0.78 $ 0.70 $ -- $ -- $ --
1999 8.14 (0.09) 3.25 3.16 -- (1.39) (1.39)
1998 6.88 (0.06) 1.34 1.28 -- (0.02) (0.02)
1997 7.21 (0.01) 0.11 0.10 -- (0.43) (0.43)
ROYCE SELECT FUND (e)
+ 2000 $ 141.04 $ (1.85) $ 13.08 $ 11.23 $ -- $ -- $ --
1999 107.79 (2.84) 40.71 37.87 -- (4.62) (4.62)
1998 100.00 0.06 7.79 7.85 (0.06) -- (0.06)
<CAPTION>
RATIO OF RATIO OF NET
NET ASSET NET ASSETS, EXPENSES TO INVESTMENT INCOME PORTFOLIO
VALUE, END TOTAL END OF PERIOD AVERAGE NET (LOSS) TO AVERAGE TURNOVER
OF PERIOD RETURN (IN THOUSANDS) ASSETS (f) NET ASSETS RATE
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ROYCE OPPORTUNITY FUND - INVESTMENT CLASS (a)
+ 2000 $ 8.51 18.4%** $ 179,936 1.29%* (0.03)%* 34%**
1999 7.19 32.3% 60,399 1.46% (0.07)% 122%
1998 6.02 4.9% 34,278 1.25% (0.16)% 120%
1997 5.92 20.8% 22,244 0.99% 1.23% 77%
1996 5.26 5.2%** 17,857 0.97%* 0.83%* 1%**
ROYCE OPPORTUNITY FUND - INSTITUTIONAL SERVICE CLASS (b)
+ 2000 $ 8.51 4.8%** $ 105 1.49%* (0.38)%* 34%**
ROYCE PREMIER FUND
+ 2000 $ 9.98 4.4%** $ 581,486 1.22%* 0.20%* 24%**
1999 9.56 11.5% 567,834 1.23% 0.11% 48%
1998 9.14 6.7% 568,989 1.23% 0.55% 46%
1997 8.70 18.4% 533,141 1.24% 1.20% 18%
1996 7.81 18.1% 317,024 1.25% 1.25% 34%
1995 7.12 17.8% 302,239 1.25% 1.48% 39%
ROYCE TRUST & GIFTSHARES FUND - INVESTMENT CLASS (c)
+ 2000 $ 10.87 7.6%** $ 17,917 1.49%* (0.60)%* 55%**
1999 10.10 41.8% 15,474 1.49% (0.60)% 152%
1998 8.24 19.5% 8,418 1.49% (0.35)% 153%
1997 6.91 26.0% 3,614 1.49% (0.32)% 64%
1996 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 (d)
+ 2000 $ 10.61 7.1%** $ 4,230 2.49%* (1.60)%* 55%**
1999 9.91 40.3% 3,469 2.49% (1.60)% 152%
1998 8.14 18.5% 1,276 2.49% (1.39)% 153%
1997 6.88 1.5%** 107 2.49%* (1.35)%* 64%**
ROYCE SELECT FUND (e)
+ 2000 $ 152.27 8.0%** $ 11,492 1.68%** (1.30)%** 61%**
1999 141.04 35.4% 9,858 4.61% (3.94)% 136%
1998 107.79 7.9%** 1,090 0.00%** 0.06%** 27%**
</TABLE>
(a) The Fund commenced operations on November 19, 1996.
(b) The Class commenced operations on May 22, 2000.
(c) The Fund commenced operations on December 27, 1995.
(d) The Class commenced operations on September 26, 1997.
(e) The Fund commenced operations on November 18, 1998.
(f) 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: 1.54%, 1.56%
and 1.97% in 1998 to 1996, respectively, for Royce Opportunity
Fund - Investment Class; 8.39% in 2000 for Royce Opportunity
Fund - Institutional Service Class; 1.28% in 1996 for Royce Premier Fund;
1.85%, 2.12%, 2.45%, 3.82%, 6.53% and 1.95% in 2000 to 1995, respectively,
for Royce Trust & GiftShares Fund - Investment Class; 2.87%, 3.53%, 4.70%
and 30.28% in 2000 to 1997, respectively, for Royce Trust & GiftShares
Fund - Consultant Class; and 5.38% and 1.03% in 1999 and 1998,
respectively, for Royce Select Fund.
* Annualized.
** Not annualized.
+ Six months ended June 30, 2000 (unaudited).
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 53
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Pennsylvania Mutual Fund, Royce Micro-Cap Fund, Royce Total Return Fund,
Royce Low-Priced Stock Fund, Royce Opportunity Fund, Royce Premier Fund, Royce
Trust & GiftShares Fund and Royce Select 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.
Three funds in the series, Pennsylvania Mutual Fund, Royce Micro-Cap Fund and
Royce Trust & GiftShares Fund, offer both an Investment Class and a Consultant
Class of shares. Royce Opportunity Fund offers both an Investment Class and,
effective May 22, 2000, an Institutional Service Class of shares. Classes of
shares have equal rights as to earnings and assets, except that each class may
bear different fees and expenses for distribution, shareholder servicing,
registration and shareholder reports, and different 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 the 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
(NMS) 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 NMS securities. Quotations are taken from the market where the
security is primarily traded. Other over-the-counter securities for which market
quotations are readily available are valued at their bid price. Securities for
which market quotations are not readily available are valued at their fair value
under procedures established 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. The Fund has adopted a
deferred fee agreement that allows the Trustees to defer the receipt of all or a
portion of Trustees Fees otherwise payable. The deferred fees remain invested in
certain Royce funds until distribution in accordance with the agreement.
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,
typically in money market mutual funds, 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 and performance fees
that are computed daily and payable monthly. Royce has contractually committed
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, 2000.
54 THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
<TABLE>
<CAPTION>
NOTES TO FINANCIAL STATEMENTS (unaudited)(continued)
----------------------------------------------------------------------------------------------------------------------------------
COMMITTED NET ANNUAL
OPERATING EXPENSE RATIO PERIOD ENDED JUNE 30, 2000
------------------------------------ ---------------------------
ANNUAL CONTRACTUAL ADVISORY FEE INVESTMENT CONSULTANT/INSTITUTIONAL NET ADVISORY ADVISORY
AS A PERCENTAGE OF AVERAGE NET ASSETS CLASS SERVICE CLASS FEES ACCRUED FEES WAIVED
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PENNSYLVANIA MUTUAL FUND 0.79%* N/A N/A $1,862,457 $ -
ROYCE MICRO-CAP FUND 1.50% 1.49% 2.49% 683,946 213,387
ROYCE TOTAL RETURN FUND 1.00% 1.25% N/A 1,056,162 57,432
ROYCE LOW-PRICED STOCK FUND 1.50% 1.49% N/A 188,611 73,547
ROYCE OPPORTUNITY FUND 1.00% N/A 1.49% 649,974 -
ROYCE PREMIER FUND 1.00% N/A N/A 2,802,247 -
ROYCE TRUST & GIFTSHARES FUND 1.00% 1.49% 2.49% 93,005 11,079
----------------------------------------------------------------------------------------------------------------------------------
</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 average 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, subject to high watermark accounting.
Fund shares will not bear a fee for any day on which the Fund's pre-fee
cumulative total return does not exceed its pre-fee cumulative total return as
of the day on which a fee was last accrued. However, Royce will not reimburse
previously accrued fees because of any negative total returns occurring after
their accrual. The agreement provides that all expenses of the Fund, except
brokerage commissions, taxes, interest and extraordinary expenses, will be paid
by Royce. For the period ended June 30, 2000, the Fund accrued $180,905 of
performance fees.
DISTRIBUTOR:
Royce Fund Services, Inc. ("RFS"), the distributor of the Trust's shares, is
a wholly owned subsidiary of Royce. 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 Royce Low-Priced Stock Fund,
the Institutional Service Class of Royce Opportunity Fund, and the Investment
Class of Royce Trust & GiftShares Fund. For the period ended June 30, 2000, RFS
received 12b-1 distribution fees of $464,504 (net of voluntary waivers of
$154,852), $6,417 and $19,346 from the Consultant Classes of Pennsylvania
Mutual, Royce Micro-Cap and Royce Trust & GiftShares Funds, respectively. RFS
voluntarily waived the distribution fees of $43,693, $27 and $21,184 from Royce
Low-Priced Stock Fund, the Institutional Service Class of Royce Opportunity
Fund, and the Investment Class of Royce Trust & GiftShares Fund, respectively.
PURCHASES AND SALES OF INVESTMENT SECURITIES:
For the period ended June 30, 2000, 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>
PENNSYLVANIA MUTUAL FUND $ 96,779,002 $163,594,950
ROYCE MICRO-CAP FUND 50,000,664 51,307,107
ROYCE TOTAL RETURN FUND 27,346,616 50,032,146
ROYCE LOW-PRICED STOCK FUND 35,652,732 16,191,772
ROYCE OPPORTUNITY FUND 134,628,499 41,113,856
ROYCE PREMIER FUND 123,951,524 160,105,833
ROYCE TRUST & GIFTSHARES FUND 15,043,969 10,911,249
ROYCE SELECT FUND 7,295,387 6,449,196
------------------------------------------------------------------
</TABLE>
-------------------------------------------------------------------------------
TAX BASIS OF INVESTMENTS:
At June 30, 2000, tax basis net unrealized appreciation (depreciation) 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>
NET UNREALIZED GROSS UNREALIZED
TAX BASIS APPRECIATION -----------------------------
COST (DEPRECIATION) APPRECIATION DEPRECIATION
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PENNSYLVANIA MUTUAL FUND $367,833,048 $103,900,510 $132,773,277 $28,872,767
ROYCE MICRO-CAP FUND 116,649,184 9,678,225 22,271,833 12,593,608
ROYCE TOTAL RETURN FUND 241,556,867 (19,320,120) 25,641,482 44,961,602
ROYCE LOW-PRICED STOCK FUND 45,525,334 3,221,514 6,034,605 2,813,091
ROYCE OPPORTUNITY FUND 168,354,551 9,564,945 26,219,056 16,654,111
ROYCE PREMIER FUND 484,785,733 82,319,496 117,580,567 35,261,071
ROYCE TRUST & GIFTSHARES FUND 19,710,853 2,200,762 3,870,787 1,670,025
ROYCE SELECT FUND 10,471,802 1,022,642 1,722,259 699,617
</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 5% or more of the company's outstanding voting
securities. The following transactions were effected in shares of such companies
for the period ended June 30, 2000.
<TABLE>
<CAPTION>
PURCHASES SALES
-------------------- ------------------- REALIZED DIVIDEND
AFFILIATED COMPANY SHARES COST SHARES COST GAIN (LOSS) INCOME
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ROYCE TOTAL
RETURN FUND Mueller (Paul) - - - - - $71,400
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 55
<PAGE>
OFFICERS
Charles M. Royce, President and Treasurer
Jack E. Fockler, Jr., Vice President
W. Whitney George, Vice President
Daniel A. O'Byrne, Vice President and Assistant Secretary
John E. Denneen, Secretary
TRUSTEES
Hubert L. Cafritz
Financial Consultant
Donald R. Dwight
Dwight Partners, Inc., President
Richard M. Galkin
Richard M. Galkin Associates, Inc., President
Stephen L. Isaacs
The Center for Health and Social Policy,
President; Attorney
William L. Koke
Shoreline Financial Consultants
Registered Investment Adviser
David L. Meister
Communications Industry, Consultant
Charles M. Royce
Royce & Associates, Inc., President
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company
56 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
[GRAPHIC Pair of eyeglass reflecting "Value"]
POSTSCRIPT
--------------------------------------------------------------------------------
REMEMBER Y2K?
Only a short time ago, the media was covering stories of people
digging fallout shelters, stocking up on canned food and gearing up for the
computer apocalypse known as Y2K. Even those of us not quite convinced that
the end of the world was at hand were at least a bit apprehensive. As
midnight approached on December 31, the world collectively held its breath
time zone by time zone. By the afternoon of January 1, however, it all
seemed like a joke, a major case of much ado about nothing. Many of us
bragged that we knew that all the hysteria wouldn't amount to much.
Everybody else may have been taken in, but we weren't fooled.
This is how perceptions often work, especially with the benefit of
20/20 hindsight. One minute we can be certain that something is true, only
to be convinced of the opposite moments later when new experience or
information comes into view. How do you keep an eye on `reality' when it
refuses to stand still?
As value investors, we confront this problem in various ways every
day. How do we size up a business when so many factors change, sometimes
radically, and often very quickly? The picture that we create of a company
is not a portrait or a photograph -- it more closely resembles a video,
with several inputs that cause the picture to shift over time. We walk a
fine line between remaining true to our convictions and acknowledging that
our perspective on a company can turn in a heartbeat.
Many of the companies that we look at as potential purchase candidates
are not high on other investors' hit lists. Often this relates to
perceptions. A couple of quarters' worth of missed earnings, a depressed
stock price and a difficult business cycle is a recipe for discouragement
for many investors, while to us it can smack of a potentially sweet
opportunity. The same company looks very different based on the multiple
perspectives of investors. Our eyes are always on the long term, so we can
afford to be patient while a company that we think is well-run rights
itself.
Sometimes a company falls out of favor, although its underlying
business strengths remain very attractive to us. We may take a position in
this kind of company and wait for Wall Street to catch on. After all, the
band Kiss, currently in the midst of a highly profitable farewell tour, was
for years derided by parents and critics alike for being dangerous on the
one hand and derivative on the other. Today, they are routinely cited as a
positive influence on younger musicians and seem as safe and familiar as
Donny and Marie. Shaquille O'Neal used to be the poster child for a whole
generation of slackers and underachievers; today he is the very model of a
champion. Kiss still sounds the same as they did when shag carpeting was in
style. Shaquille insists that all he ever wanted to do was win. So what
exactly changed, the players or the perceptions?
We see companies go through similar ups and downs all the time. Our
goal is to buy them when interest is low so that we can reap the potential
rewards when sentiments shift later on. By keeping our perspective on the
companies that we invest in -- the strength of a balance sheet, the ability
to generate free cash flow and the prospect of future growth -- we believe
that we can potentially provide our shareholders with strong absolute
returns over long-term periods.
<PAGE>
--------------------------------------------------------------------------------
-------------
THE
ROYCE
FUNDS
-------------
WEALTH OF EXPERIENCE
With approximately $3.3 billion in total assets under management, Royce &
Associates is an independent firm committed to the same small-company investing
principles that have served us well for more than 25 years. Charles M. Royce,
who has been our primary portfolio manager since 1973, enjoys one of the longest
tenures of any active mutual fund manager. He is supported by a senior staff
that includes three Portfolio Managers and a Managing Director, as well as six
analysts and four traders.
MULTIPLE FUNDS, COMMON FOCUS
Our goal is to offer both individual and institutional investors the best
available small-cap value portfolios. Unlike a lot of mutual fund groups with
broad product offerings, we have chosen to concentrate on small-company value
investing by providing investors with a range of funds that take full advantage
of this large and diverse sector.
CONSISTENT DISCIPLINE
Our approach emphasizes paying close attention to risk and maintaining the same
discipline, regardless of market movements and trends. The price we pay for a
security must be significantly below our appraisal of its current worth. This
requires a thorough analysis of the financial and business dynamics of an
enterprise, as though we were purchasing the entire company.
CO-OWNERSHIP OF FUNDS
It is important that our employees and shareholders share a common financial
goal; our officers, employees and their affiliates currently have approximately
$45 MILLION invested in The Royce Funds.
--------------------------------------------------------------------------------
THE ROYCE FUNDS
1414 AVENUE OF THE AMERICAS, NEW YORK NY10019
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)
www.roycefunds.com
[email protected]
This report must be accompanied or preceded by a current
prospectus for the Funds. Please read the prospectus carefully
before investing or sending money.
