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Royce Value Trust
1st QUARTER REPORT
March 31, 1996
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Dear Stockholder:
It was a textbook case of supply and demand. Investors, euphoric over 1995's
spectacular returns, continued to push mutual fund assets and stock market
prices to unprecedented levels in 1996's first quarter. The demand side of the
equation has been strong and the supply side has not kept pace. However, we are
entering the prime selling season for IPOs (initial public offerings) and
secondary offerings, and it will be interesting to see just how long investor
demand can outstrip supply.
The first quarter's surge in demand for equity mutual funds occurred despite
a rise in long-term interest rates and a pickup in stock market volatility, two
phenomena generally perceived as negatively impacting stock market returns.
While the stock market was being driven to new highs in the first 90 days, bond
indices were going in the opposite direction. With long-term interest rates up
almost 100 basis points, total return for the long-term government bond was down
almost 8% for the quarter, quite a contrast to the 1995 record return of 30.7%.
Stock market volatility, which was virtually nonexistent in 1995, staged a
comeback and was especially evident in the more liquid, large-cap zone. Often a
change in volatility precedes a change in returns. One has to wonder if the
increase in long-term interest rates combined with the increase in market
volatility is presaging a shift in market direction.
1996's first quarter performance, like that of 1995, was led by the
large-cap sector of the market. Performance was especially strong for the Dow
Jones Industrial Average (+9.8%)* whose return was nearly double that of the
broader based S&P 500 (+5.5%)*. This performance divergence within large-cap is
reminiscent of the 'Nifty 50' in the early 1970s, when a handful of stocks
dominated returns. Although small-cap stocks lagged when compared to their large
company counterparts, returns for the sector were still attractive. The SmallCap
S&P 600 index of small-cap issues finished the quarter up 5.7%. ROYCE VALUE
TRUST, INC. ('RVT') provided a return that was below market, but decent
nevertheless, up 2.9% on an NAV basis and 3.2% on a market basis. For the
1-year, 5-year and since inception (11/26/86) periods ended March 31, the Fund
provided average annual NAV returns of 19.6%, 15.4% and 12.3%, respectively. As
of March 31, RVT's market price was trading at a double digit discount to its
NAV. We view this as an attractive investment opportunity for existing and
potential investors.
As we look out into the remainder of the year, we are reminded of historical
performance patterns where rising interest rates and higher market volatility
usually translate into lower market returns. Traditionally, value investing has
provided an edge during these periods. We remain committed to an approach which
emphasizes patience and value, one which is applied in a disciplined manner on a
daily basis, regardless of market conditions or outlook. Comments or questions
are always welcome and your continued confidence is appreciated.
Yours faithfully,
CHARLES M. ROYCE
Charles M. Royce Jack E. Fockler, Jr.
President W. Whitney George
Vice Presidents
April 4, 1996
* The Dow Jones Industrial Average, S&P 500 and S&P SmallCap 600 are unmanaged
indices and include the reinvestment of dividends.
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FUND HIGHLIGHTS
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<CAPTION>
March 31, 1996
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<S> <C>
Net Asset Value Per Share.......................... $13.95
Market Price Per Share............................. $12.25
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TOTAL RETURN PERFORMANCE
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<CAPTION>
NAV Market Value
Total Total S&P S&P Small- Russell
Return(a) Return(b) 500`D' Cap 600`D' 2000`D'
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<S> <C> <C> <C> <C> <C>
3 months ended 3/31/96 2.9% 3.2% 5.5% 5.7% 5.1%
Annual Returns (ended December 31)
1995 22.6% 20.5% 37.5% 30.0% 28.4%
1994 1.1 - 5.6 1.3 - 4.8 - 1.8
1993 17.9 14.8 10.0 18.8 18.9
1992 19.9 26.8 7.7 21.0 18.4
1991 39.5 35.3 30.5 48.5 46.1
Average Annual Total Returns (ended March 31, 1996)
1-Year 19.6% 20.2% 32.1% 31.2% 29.1%
3-Year 12.2 8.3 15.7 14.5 14.8
5-Year 15.4 12.6 14.7 17.1 16.0
Since Inception* 12.3 9.6 14.2 10.0 11.8
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(a) Reflects the NAV experience of a continuous shareholder who reinvested all
distributions and fully participated in primary rights offerings.
(b) Reflects the market value experience of a continuous shareholder who
reinvested all distributions and fully participated in primary rights
offerings.
* Inception date -- 11/26/86
`D' The indices are unmanaged and include the reinvestment of dividends. Source:
Frank Russell Co.
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STATEMENT OF CHANGES IN NET ASSETS
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<CAPTION>
Three Months Ended
March 31, 1996 Year Ended
(unaudited) December 31, 1995
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<S> <C> <C>
INVESTMENT ACTIVITIES:
Net investment income................................................. $ 759,905 $ 1,030,325
Net realized gain on investments...................................... 7,602,015 32,580,075
Net change in unrealized appreciation on investments.................. 1,771,627 29,032,226
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Total from investment activities.................................... 10,133,547 62,642,626
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DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income................................................. -- (693,347)
Net realized gain..................................................... -- (29,124,623)
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Total from dividends and distributions.............................. -- (29,817,970)
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CAPITAL STOCK TRANSACTIONS:
Increase in net assets from capital stock transactions................ -- 37,113,835
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INCREASE IN NET ASSETS.................................................. 10,133,547 69,938,491
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NET ASSETS:
Beginning of period................................................... 338,970,351 269,031,860
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End of period......................................................... $349,103,898 $ 338,970,351
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PORTFOLIO COMPOSITION
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<CAPTION>
% of
March 31, 1996 Total Investments
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<S> <C> <C>
Common Stocks.......................................................... $370,260,596 95.0%
Bonds and Preferred Stocks............................................. 4,421,275 1.1
Repurchase Agreement................................................... 15,000,000 3.9
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TOTAL INVESTMENTS.................................................... $389,681,871 100.0%
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The results presented in this report represent past performance and should not
be considered representative of the 'total return' from an investment in the
Fund today. They are provided only to give an historical perspective of the
Fund. The investment return and net asset and market values of Fund shares will
fluctuate, so that the shares may be worth more or less than their original cost
when sold.
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PORTFOLIO SUMMARY
The following information is provided as a 'bird's eye' view of the RVT
portfolio at March 31, 1996.
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WEIGHTED AVERAGES
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<S> <C>
Market Cap (Total Portfolio) $342 Million
Median Market Cap (Total Portfolio) $178 Million
P/E Ratio (100 Largest Positions) 13.9x
P/B Ratio (100 Largest Positions) 1.6x
Portfolio Yield (100 Largest Positions) 1.8%
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TOP TWENTY POSITIONS
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<CAPTION>
Market
Value
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<S> <C> <C>
1. Ash Grove Cement Company.................. $6,735,498
2. Comdisco, Inc. ........................... 3,813,244
3. The Standard Register Company............. 3,688,375
4. Wesco Financial Corporation............... 3,655,000
5. Vallen Corporation........................ 3,639,406
6. Family Dollar Stores, Inc................. 3,435,275
7. Pennsylvania Manufacturers Corporation.... 3,408,600
8. The Dress Barn, Inc. ..................... 3,327,600
9. Stanhome Inc. ............................ 3,273,563
10. Ethan Allen Interiors Inc. ............... 3,265,500
11. Florida Rock Industries, Inc. ............ 3,239,600
12. Kimball International, Inc. Cl. B......... 3,237,600
13. Velcro Industries N.V. ................... 3,200,325
14. Farmer Bros. Co. ......................... 3,125,500
15. The Pioneer Group, Inc. .................. 3,108,800
16. Baldwin & Lyons, Inc. Cl. B............... 3,076,575
17. National Bancorp of Alaska, Inc. ......... 3,005,470
18. Marshall Industries....................... 2,967,650
19. Woodward Governor Company................. 2,949,500
20. Stein Mart, Inc........................... 2,917,325
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ROYCE VALUE TRUST PHILOSOPHY
RVT concentrates on buying the securities of small capitalization companies.
RVT uses a strict fundamental approach which emphasizes the understanding of
balance sheets, cash flows and internal rates of return.
RVT concentrates on understanding the private worth or value of a business.
RVT attempts to reduce the risks associated with small company ownership.
Market risk is lowered by using non-mainstream securities and company risk by
favoring excess cash flow and low-leverage firms. Valuation risk is lowered by
using strict pricing standards and portfolio risk by achieving wide
diversification.
The source of performance is the consistent use of strict value disciplines
applied to less well-known securities. The Fund will apply these principles from
year-to-year and attempt to avoid the opportunistic and fashionable investment
styles of the moment. We believe that our method, emphasizing patience and
value, comes the closest to an all-weather strategy for delivering consistent,
above average long-term returns.
NOTE:
The Board of Directors has given the Fund's management the discretionary
authority to cause the Fund to repurchase up to 300,000 shares of its common
stock in open market and other transactions through December 31, 1996. Such
repurchases would be effected at a price per share which is less than the then
current net asset value, but not in excess of the then prevailing market price.
The Board of Directors of the Fund is authorized to offer stockholders an
opportunity to subscribe for additional shares of common stock of the Fund
through rights offerings at a price per share that may be less than the then
current net asset value of the Fund's common stock. The timing and terms of any
such offerings are left to the Board's discretion.
Royce Value Trust, Inc.
1414 Avenue of the Americas
New York, N.Y. 10019
800-221-4268
STATEMENT OF DIFFERENCES
The dagger symbol shall be expressed as 'D'
