The
Royce
Funds
Value Investing in
Small Companies for 25 Years
Royce Value Trust
Royce Micro-Cap Trust
Royce Global Trust
1998 Semi-Annual Report
www.roycefunds.com
<PAGE>
A Few Words on Closed-End Funds
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Royce & Associates, Inc. manages three closed-end funds: Royce Value Trust, the
first small-cap value closed-end fund offering; Royce Micro-Cap Trust, the only
micro-cap closed-end fund; and Royce Global Trust, a closed-end fund that
focuses on domestic companies with an overseas presence or foreign firms that
conduct substantial business in the United States.
A closed-end fund is an investment company whose shares are listed on a stock
exchange or are traded in the over-the-counter market. Like all investment
companies, including open-end mutual funds, the assets of a closed-end fund are
professionally managed in accordance with the investment objectives and policies
approved by the fund's Board of Directors. A closed-end fund raises cash for
investment by issuing a fixed number of shares through initial and other public
offerings which may include periodic rights offerings. Investors wanting to buy
or sell shares of a publicly traded closed-end fund after the offerings must do
so on a stock exchange or the Nasdaq market, as with any publicly traded stock.
This is in contrast to open-end mutual funds where the fund sells and redeems
its shares on a continuous basis.
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A CLOSED-END FUND OFFERS SEVERAL DISTINCT ADVANTAGES
NOT AVAILABLE FROM AN OPEN-END FUND STRUCTURE
[bullet] Since a closed-end fund does not issue redeemable securities or offer
its securities on a continuous basis, it does not need to liquidate
securities or hold uninvested assets to meet investor demands for cash
redemptions, as an open-end fund must.
[bullet] In a closed-end fund, not having to meet investor redemption requests
or invest at inopportune times is ideal for value managers who attempt
to buy stocks when prices are depressed and sell securities when
prices are high.
[bullet] A closed-end fund may invest more freely in less liquid portfolio
securities because it is not subject to potential stockholder
redemption demands. This is particularly beneficial for Royce-managed
closed-end funds, which invest in small and micro-cap securities.
[bullet] The fixed capital structure allows permanent leverage to be employed
as a means to enhance capital appreciation potential.
[bullet] Unlike open-end funds, our closed-end funds are able to distribute
capital gains on a quarterly basis. Royce Value Trust has adopted a
quarterly distribution policy.
We believe that the closed-end fund structure is very suitable for the long-term
investor who understands the benefits of a stable pool of capital.
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WHY DIVIDEND REINVESTMENT IS IMPORTANT
A very important component of an investor's total return comes from the
reinvestment of distributions. By reinvesting distributions, our investors can
maintain an undiluted investment in a Fund. To get a fair idea of the impact of
reinvested distributions, please see the charts on pages 12, 14 and 16. For
additional information on the Funds' Distribution Reinvestment and Cash Purchase
Options and the benefits for stockholders, see page 19.
<PAGE>
The Royce Funds
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SEMI-ANNUAL REPORT REFERENCE GUIDE
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"Curiouser and Curiouser": The Equity Markets. 2
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Investing "Through the Looking Glass": Finding Value in 5
an Overvalued Market.
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Royce Value Trust outperformed both of its small-cap 12
benchmark indices, the Russell 2000 and the S&P 600, for
the quarter, the first half, and the one-year period ended
June 30, 1998 on both an NAV and a market price basis.
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Royce Micro-Cap Trust outperformed its benchmark index, 14
the Russell 2000, for the one- and three-year periods ended
June 30, 1998 on both an NAV and a market price basis.
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Royce Global Trust has provided an average annual NAV 16
total return of 19.2% and an average annual market price
total return of 21.5% since we assumed management of
the portfolio on November 1, 1996.
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Updates and Notes: Our New and Improved Website (www.roycefunds.com). 20
- --------------------------------------------------------------------------------
Schedules of Investments and Other Financial Statements. 22
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Postscript: Hang Time. Inside back cover
For 25 years, our value approach has focused on evaluating a company's private
worth what we believe an enterprise would sell for in a private transaction
between rational and well-informed parties. This requires a thorough analysis of
the financial and operating dynamics of a business, as though we were purchasing
the entire company. The price we will pay for a security must be significantly
lower than our appraisal of its private worth.
[graphic: looking through magnifying glass at The Royce Funds listing in
newspaper]
NAV AVERAGE ANNUAL TOTAL RETURNS Through June 30, 1998
<TABLE>
<CAPTION>
2ND QUARTER YEAR-TO-DATE
FUND (INCEPTION) 1998* 1998* 1-YEAR 3-YEAR
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Royce Value Trust (11/26/86) -2.7% 8.6% 22.4% 20.2%
- -----------------------------------------------------------------------------------------
Royce Micro-Cap Trust (12/14/93) -1.8 8.4 23.1 20.6
- -----------------------------------------------------------------------------------------
Royce Global Trust (11/1/96)** -5.3 6.5 11.3 N/A
- -----------------------------------------------------------------------------------------
</TABLE>
* Not annualized. **Date Royce & Associates assumed investment management.
<PAGE>
[sidebar]
[photo: Charles M. Royce]
Charles M. Royce, President
Many people argue that as long as the U.S. economy remains as robust as it has
been, the stock market should continue to rise. We believe, however, that the
factors that drive the stock market are very complex, and the notion that a
strong economy guarantees a strong market greatly oversimplifies the issue.
Markets will fluctuate.
[end sidebar]
Letter To Our Stockholders
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[cartoon graphic: Alice in Wonderland with Queen of Hearts, Mad Hatter and
Rabbit looking at chart of S&P 500 returns (Drawn in the style of Tenniel)]
Drawing by Hank Blaustein; -c- 1998
"CURIOUSER AND CURIOUSER"
Alice's wide-eyed response to Wonderland reflects our own take on the current
equity markets. Returns continued their ascent as all major stock market indices
reached record highs during 1998's first six months. Like the bully at the
playground, the "biggest" companies enjoyed the biggest rewards. The large-cap
indices - S&P 500 and Dow Jones Industrial Average ("DJIA") - along with the
technology driven Nasdaq Composite, each posted six-month results well in excess
of their average historic 12-month returns. We expect that most investors never
imagined investing would be so easy. As Berkshire Hathaway Vice Chairman Charlie
Munger once quipped, "If successful investing required merely extrapolating
history (and especially recent market returns), the Forbes 400 would consist
entirely of librarians."
Even more curious are the level and convergence of long and short-term
returns. We looked at quarter-end return periods for the S&P 500 over the last
52 years. We found that the time-weighted composite of one, three, five, 10, 15
and 20-year results ended June 30, 1998 was surpassed only by 1998's first
quarter-ending results. While the short-term returns were exceptional, the
long-term results were even more surprising. We could not help looking at the
median and worst performance periods, as well. Two of the bottom three
performance periods ended shortly after we began to manage Pennsylvania Mutual
Fund 25 years ago. We are all Alices living in Wonderland now.
2 | The Royce Funds Semi-Annual Report 1998
<PAGE>
For the first six months of 1998, the S&P 500 and DJIA were up 17.7% and
14.2%, respectively, while the Nasdaq Composite was up an even more amazing
20.7%. While it would be easy to declare, as Alice's Dodo did, "Everybody has
won, and all must have prizes," further investigation of first-half results
reveals a telling insight. According to statistics published by FactSet Data,
the S&P 500's 50 largest companies rose nearly 26% in the first half, while the
other 450 gained just 9.5%. Investors' preferences for the biggest and most
well-known companies stem from concerns about a potential economic slowdown,
global economic unrest and liquidity (the ability to easily buy and sell
securities). We find this ironic in that we believe that many of the companies
most likely to be affected by global problems are precisely the ones whose share
prices are rising the fastest.
Small-cap relative returns were affected by both the sector's significantly
higher level of volatility and by the substantial strength of the large-cap
market. For 1998's first half, the Russell 2000 was up an uninspiring 4.9%. As
good as the first quarter was for the index (+10.0%), it was not able to sustain
the pace, dropping 4.7% in the second quarter. As small-cap managers, we are
frequently asked, "if relative valuations and earnings growth for your sector
are better than for large-caps, when will small-cap stock prices reflect this?"
We do not know.
<TABLE>
<CAPTION>
Composite
Quarter 1-Year 3-Year 5-Year 10-Year 15-Year 20-Year Return Rank
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mar-98 48.0% 32.8% 22.4% 19.9% 17.8% 17.7% 20.1% 1
- ---------------------------------------------------------------------------------------
Jun-98 30.0 30.2 23.1 18.6 17.2 17.4 19.1 2
- ---------------------------------------------------------------------------------------
Dec-97 33.3 31.1 20.2 18.0 17.5 16.6 18.6 3
- ---------------------------------------------------------------------------------------
Mar-67 4.7 7.9 10.2 11.1 13.3 14.3 12.5 104
- ---------------------------------------------------------------------------------------
Dec-86 18.6 18.4 19.8 13.8 10.8 10.2 12.5 105
- ---------------------------------------------------------------------------------------
Dec-90 -3.1 14.1 13.1 13.9 13.9 11.1 12.5 106
- ---------------------------------------------------------------------------------------
Jun-49 -9.5 -3.0 7.1 8.6 8.1 2.3 5.0 208
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Dec-74 -26.3 -9.2 -2.4 1.2 4.3 6.9 2.7 209
- ---------------------------------------------------------------------------------------
Sep-74 -38.8 -10.6 -4.2 0.5 4.1 7.0 2.1 210
- ---------------------------------------------------------------------------------------
</TABLE>
Note: Composite return percentages were derived by time-weighting the returns of
each of the performance periods allotted by proportion of overall time period
vs. each period (e.g., the total of 1, 3, 5, 10, 15 and 20 is 54. The return for
the 20-year period is weighted 37% {20 [div.] 54}).
"Which Way? Which Way?"
Alice's question about which direction to follow upon arriving in Wonderland
aptly reflects investor sentiment regarding recent small-cap underperformance.
First the good news. Since the trough in October 1990, small-cap stocks, as
measured by the Russell 2000, have provided a 21.4% average annual total return.
And now the bad news. Since the May 1996 peak, the Russell 2000 has generated a
12.7% average annual total return. What's so bad about a 12.7% average annual
total return? Nothing, until you compare it to the large-cap S&P 500, which over
the same period compounded at a 29.9% average annual rate. Contributing to this
substantial performance disparity were more frequent and severe declines within
the small-cap sector. In fact, since the May 1996 small-cap peak, the Russell
2000 has undergone three separate 10%+ declines, while the S&P 500 has endured
only one. As we have suggested in past letters, higher volatility generally
precedes lower returns and, in our opinion,
Rolling Return of the S&P 500 over 1,3,5,10, 15 and 20-Year Periods Ranked by
Time-Weighted Score for 210 Periods Ended 3/31/46 Through 6/30/98
The Royce Funds Semi-Annual Report 1998 | 3
<PAGE>
[sidebar]
We think that the market has recently benefited from the economic misfortune of
other countries, such as Japan, and a superbly profitable moment in the U.S.
economy accompanied by a significant decline in interest rates. None of these
features are permanent and none are likely to continue to have the same
enormously positive impact.
[end sidebar]
provides an edge for value. Performance results for the "growth" and "value"
segments of the Russell 2000 bore this out. From the May 22, 1996 peak through
June 30, 1998, the Russell 2000 Value Index was up 51.5% versus a gain of only
9.6% for the Russell 2000 Growth Index.
Small Cap: REVERSAL OF FORTUNE
Total Returns of Russell 2000 vs. S&P 500
From Small-Cap Trough in 1990 and Peak in 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
10/31/90- 5/31/96-
5/31/96 6/30/98
- --------------------------------------------------------------------------------
<S> <C> <C>
Russell 2000 233.9% 29.9%
S&P 500 158.7% 75.8%
</TABLE>
Cause: MORE FREQUENT AND
SEVERE DECLINES
[BAR CHART]
<TABLE>
<CAPTION>
S&P 500 Russell 2000
- ------- -----------------------------------------------------
<S> <C> <C> <C>
10/7/97 - 5/22/96 - 10/13/97 - 4/21/98 -
10/27/97 7/24/96 1/12/98 6/15/98
- -------- ------- -------- -------
- -10.8% -11.5% -11.6% -15.5%
</TABLE>
Since the small-cap peak in May '96, small-caps have undergone three separate
10%+ declines, while the S&P 500 has had only one.
We believe that small-cap's higher level of volatility may have implications for
large-cap stocks as well - though many investors tend to look at this the other
way around and insist that large-caps lead small-caps. To us, however, the
small-cap world is more indicative of the "average" stock, so that at some
point, large-cap stocks will take their cues from small-cap's higher volatility
and overall performance. A period of high returns (similar to recent market
experience) - when accompanied by continued performance divergence - often
precedes a substantial market correction. We believe that this may occur in the
months ahead.
[cartoon graphic: school of small fish chasing large fish with caption "The
next cycle?"]
REASONABLE INVESTORS IN UNREASONABLE TIMES
As we sit back and assess our own six-month results, we are reminded of a
simple, yet important, premise - while we can control our investment process, we
cannot control our relative investment results, especially over the short term.
We believe that a well-planned and consistently applied approach will result in
attractive long-term returns, even when compared to appropriate indices and
peers. In the short term, however, anything can happen, and usually does. Thus,
when we report our semi-
[pull quote]
By not focusing on what we can't control, our relative results, we are able to
focus on what is important - understanding risk and reward while maintaining a
long-term perspective.
[end pull quote]
4 | The Royce Funds Semi-Annual Report 1998
<PAGE>
annual performance results, we try to temper our enthusiasm when things have
gone well and to keep our chins up when they have not. By not focusing on what
we can't control, our relative results, we are able to focus on what is
important--understanding risk and reward while maintaining a long-term
perspective.
Our investment approach provided a short-term advantage in this period of
higher volatility for small-cap stocks. For 1998's first six months, our
results, while reflecting the small-cap and micro-cap universe in which we
invest, were better than that of our small-cap benchmark index, the Russell
2000. The same performance relationship also has held true since the May 1996
small-cap peak. For a complete review and discussion of our results and our risk
profiles, please see pages 12-17.
RECENT PERFORMANCE RESULTS
<TABLE>
<CAPTION>
Year-to-date 5/22/96 -
1998 6/30/98
- --------------------------------------------------------------------------------
<S> <C> <C>
Royce Value Trust (NAV) 8.6% 47.0%
Royce Micro-Cap Trust (NAV) 8.4 43.1
Royce Global Trust (NAV) 6.5 N/A
Russell 2000 4.9 28.7
</TABLE>
THROUGH THE LOOKING GLASS:
FINDING VALUE IN AN OVERVALUED MARKET
Traditional measures of market value in large-cap stocks, such as
price/earnings, price/book and price/dividends ratios, are at their highest
levels in history. This suggests that we may be approaching fully valued
territory for equity markets overall. We are inclined to agree, and on one level
view the seemingly endless ascent of the market with great concern. On the other
hand, our business buyer's perspective points us in a different direction,
namely that we work in a market of stocks, not a stock market. Successful
investors have always emphasized the importance of a long-term view, one that
centers on understanding the nature of a company's business. It is an idea that
we have utilized throughout our 25 years of investing, one that we think enables
us to find value in an overvalued market, in spite of this apparent paradox.
Overvaluation relates directly to expectations. Many investors are chasing
performance, particularly in large-cap stocks. The current investment standard
is to continue investing in what has worked, not what will work. This is akin to
driving while using only the rear-view mirror. Our practice has always been to
mine low-expectation areas. Currently, we are finding opportunities, especially
in the micro-cap sector. Micro-caps represent the largest domestic equity market
in terms of names and often show little correlation with the large-cap market.
We believe that this sector of the market, which may be higher in risk than the
large-cap market, represents undervalued opportunity, especially in light of the
high expectations and short attention spans of investors in other areas.
"What do you mean by that," said Alice's Caterpillar sternly. "Explain
yourself!" By way of explanation, consider the vast size in our stock-selection
universe - close to 8,000 public companies currently have market capitalizations
of less than $1 billion.
The Royce Funds Semi-Annual Report 1998 | 5
<PAGE>
[sidebar]
A question we often hear is "why aren't small-caps doing better if the
valuations are so attractive?" It is worth remembering that valuations may have
nothing to do with performance in the short run. Very often performance comes
well after attractive valuations are present. Patience is critical.
[end sidebar]
[pull quote]
What value investing pioneer Professor David Dodd said many years ago has seldom
been more true than it is today: "There are no new eras, only new errors."
[end pull quote]
The size and diversity of the small-cap and micro-cap sectors allow for any
number of companies to escape the attention of both individual and institutional
investors. Even in a world where information travels across the globe in
seconds, interpretations remain imperfect, due in part to the sheer volume of
data and in part to more human factors. We are still finding well-managed,
financially sound companies that are either unnoticed by, or out of favor with,
the larger investment community. So while equal access to information exists,
you must know where to look and what to do with what you find.
Working in this fashion means that we still believe in market cycles and in
the importance of attempting to reduce risk. Of course, there are those
dissenting voices who insist that we have entered a "new era" of investing where
concepts such as "market cycle," "risk" and "negative return" are the quaint
relics of a distant past. These people insist that markets now move
sequentially, not cyclically, and offer a wildly optimistic view of the market's
future. We must take issue with this argument. What value investing pioneer
Professor David Dodd said many years ago has seldom been more true than it is
today: "There are no new eras, only new errors."
"THE TIME HAS COME, THE WALRUS SAID, TO TALK OF MANY THINGS"
Having enjoyed his first visit so much that he could not manage to stay away for
long, our investment advisor friend recently returned to midtown Manhattan for a
long weekend getaway that included fireworks, a poetry slam, an outdoor swing
concert at Lincoln Center and a stop at our office. The intrepid advisor arrived
with an array of questions. As Alice reminds us, "What is the use of a book
without pictures or conversations?"
When you are looking at a given company, how do the portfolio managers and
analysts interact?
We have substantial interaction between our six analysts and our four
portfolio managers. Our analysts are involved in every step of the stock
selection process. When we are interested in a company, we run a very
systematic "fire drill" on the company's basics. We examine the balance
sheet and income statement history, cash flows, and comments from
management to quickly assemble a snapshot of the company. We insist on
having multiple sets of eyes viewing every company.
6 | The Royce Funds Semi-Annual Report 1998
<PAGE>
[pull quote]
This format is critical because it brings together all of the information we
have gathered and opens our eyes to the kinds of risks we are considering.
[end pull quote]
After the "fire drill," what is the next step?
Quantitative information, now available to everybody instantly, is a commodity
today. This access is no longer an edge in and of itself. The next step is
dealing with non-quantitative research activity. When we first look at a given
company, one or two analysts work with a portfolio manager. Once we have decided
to follow through on an idea and begin the strategic analysis process, we test
our idea using the Socratic method. We ask ourselves questions that force us to
delve deeply. This format is critical because it brings together all of the
information we have gathered and opens our eyes to the kinds of risks we are
considering.
Do portfolio managers do any of their own research or is that left to the
analysts?
Everybody takes an active part in the research process, including both grunt
work and strategic analysis. We all wade through financial statements. We meet
with management. We speak to the company's customers, suppliers and competitors.
The kind of research we do is labor-intensive and time-consuming.
How do you track a company once you own it?
We stay in touch with management, we continue to carefully examine the financial
statements when they are published on a quarterly basis and we look for
developments both within the company and in the economy as a whole that may
affect the company's or its sector's business. Contrary to what people think,
companies do not change very much on a quarter-to-quarter basis. Prices, on the
other hand, change constantly, and we watch them every day.
Are there any advantages you have as an institutional trader that an individual
investor does not enjoy?
We deal with over 100 broker-dealers, which certainly gives us an advantage.
Today's electronic trading systems are a great help. We also attempt to trade
within the spreads, between the bid and ask, in a way that would be difficult
for an individual.
[pull quote]
Contrary to what people think, companies do not change very much on a
quarter-to-quarter basis. Prices, on the other hand, change constantly, and we
watch them every day.
[end pull quote]
The Royce Funds Semi-Annual Report 1998 | 7
<PAGE>
[sidebar]
We think of value investing as planting before the harvest. As confident as we
may feel, we cannot predict when, or even if, harvest time will come.
[end sidebar]
What is the time frame between discovering a company and buying its stock?
It can take hours, days or even months, depending on the situation. The
initial purchase in which we take a small position in a stock is often done
quickly and follows the "fire drill" process. These small positions then
"incubate" while we move through a longer, more complicated strategic
analysis that may entail weeks, or months, of research. It takes a long
time for us to gain a high enough level of confidence to want to build our
position in a stock. We generally set a price that we are willing to pay,
and it often requires a lot of patience and discipline to wait for a stock
to arrive at that price. We are looking for companies trading at discounts
of about 50% to our estimate of their value as a business. It can be
frustrating when, during the course of our research, these attractive
discounts disappear, but in order to keep an eye on risk, we cannot afford
a rush to judgment.
SAVING HUMPTY DUMPTY: THE RIGHT BALANCE
Unlike Alice, who followed the Rabbit down the hole "never once considering how
in the world she was to get out again," we view risk management as critical.
Historically, we have focused on five categories of risk as we analyze a
company: financial, business strategy, valuation, market and portfolio. Of
these, financial risk is probably the most important. Small companies, by virtue
of their size, are generally more fragile than large companies, which makes
strong financial condition a paramount concern for us.
How do we specifically attempt to reduce the financial risk inherent in
investing in equities? One of the most important steps involves the careful
scrutiny of the balance sheet. It gives us an x-ray of a company's financial
infrastructure and allows us to check its overall health and well being. The
process entails a number of subjective measures in addition to more objective,
quantifiable ones. It is not simply the numbers that tell the story, but one's
interpretation of their significance. This evaluation is an art. Renaissance
portrait painters sought to convey the essence and personality of their subjects
so that the viewer would see the whole person, not just the face and figure. A
careful reading of a balance sheet should yield similar results.
[graphic: pages from a financial report]
Presented only for illustration.
8 | The Royce Funds Semi-Annual Report 1998
<PAGE>
[pull quote]
There is a big difference between a good balance sheet that is the result of
stock offerings and one that is the result of doing business the old-fashioned
way - through earnings.
[end pull quote]
Rather than concentrate on traditional ratios such as debt and working
capital, we look at leverage globally: how much equity supports total assets? We
measure leverage by looking at the ratio of assets to stockholders' equity. (Our
bias is toward lower-leveraged companies; typically, in our portfolios, the
average ratio is one-and-a-half to one.) Using this method allows us to monitor
changes in all liabilities, not only changes in debt. Items that can have an
adverse affect on a company, such as short-term debt and payables, will give us
clues as to the direction of overall leverage. This paints a more complete
picture than simple debt analysis.
A conservatively capitalized company can better weather storms because it
has the necessary financial reserves. A company with too much debt, on the other
hand, runs a greater risk that stormy weather will turn into a hurricane. In
essence, we seek companies that we believe possess a substantial "margin of
safety" that these reserves can provide. In the spirit of "the best offense is a
good defense," we also view financially strong companies as well positioned to
grow. All reserves are not created equal. We target companies that have grown
their book value through retained earnings, rather than paid in capital; they
have demonstrated their ability to grow from their own success as a business.
At this point, one may well ask, "But don't all portfolio managers read
balance sheets?" Many do, but depending on their investment style or their
experience, they may be more focused on the income statement. Our obsession
takes us into the arcane world of bad debt reserves, inventory policy, warranty
liabilities, pending litigation, pension obligations, pollution and product
liabilities, etc. All of these factors may have a bearing on a company's - and
by extension a Fund's - exposure to risk. We look for changes from period to
period that can tell us about a company's direction. If we like the balance
sheet, we want to know how it got there. There is a big difference between a
good balance sheet that is the result of stock offerings and one that is the
result of doing business the old-fashioned way - through earnings.
The process of balance sheet analysis can be long, is seldom exciting and
certainly never glamorous. It is critical, however, in our search to find the
kind of healthy small-cap companies that have been our mainstay for 25 years.
[pull quote]
In essence, we seek companies that we believe possess a substantial "margin of
safety" that these reserves can provide.
[end pull quote]
The Royce Funds Semi-Annual Report 1998 | 9
<PAGE>
[sidebar]
In our investment approach, we strongly believe in the importance of using
volatility to our advantage. Volatility can drive prices to considerable lows
just as easily as it can push them to unreasonable highs. This creates potential
opportunities for us.
[end sidebar]
AND NOW THE TALE IS DONE, AND HOME WE STEER, A
MERRY CREW, BENEATH THE SETTING SUN
As we look to 1998's second half, we are encouraged about the relative prospects
for both our investment universe and investment style.
Relative valuations, as reflected by average P/E ratios and earnings growth
prospects, should favor the small-cap sector. In addition, significant
divergence between large-cap and small-cap performance has historically not been
sustained over long periods (the Russell 2000 just concluded its second worst
two-year relative performance period vis-...-vis the S&P 500 based on quarterly
trailing returns). The worst two-year period, which ended in the fourth quarter
of 1990 (and preceded small-cap's reemergence in 1991-1993), was accompanied by
a general market correction, similar to what we believe is happening now. It is
our belief that this performance divergence has negative implications for the
market as a whole.
A higher level of volatility, present since the small-cap peak in May 1996,
in our opinion favors a value style of investing. The current level of interest
rates should also benefit value, at least in a relative sense. Growth managers,
who seek the expansion of price multiples, rely heavily on falling interest
rates to drive their investment process. (P/E multiples and interest rates act
inversely to each other, i.e., as interest rates decline, P/E multiples tend to
expand.) Therefore, a more neutral interest rate environment should put value on
an equal footing. The momentum investing crowd also remains very involved in
small-cap (Internet stocks and cutting edge technology, in particular), which
only increases the sector's vulnerability and volatility.
[cartoon graphic: portfolio managers in a "police line-up"
with caption "Guilty as Charged: Attempting to manage risk."]
10 | The Royce Funds Semi-Annual Report 1998
<PAGE>
We remain committed to the same principles that have served us well over the
last 25 years. We believe that our focus on managing risk within the more
volatile small-cap and micro-cap sectors is especially appropriate at this
juncture in the market. We appreciate your continued support of our work and
welcome your questions and comments. Happy summer days.
[photo: Jack Fockler, Whitney George, Chuck Royce, Charlie Dreifus, Buzz Zaino]
(l-r) Jack Fockler, Whitney George, Chuck Royce, Charlie Dreifus, Buzz Zaino
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 20, 1998
PS We wanted to take this opportunity to introduce you to the two newest members
of our Senior Staff, Charlie Dreifus and Buzz Zaino.
Charlie, who joined the firm on February 1, 1998, was formerly with Lazard
Freres, where he was the Portfolio Manager for the Lazard Special Equity Fund.
He brings 29 years of experience to Royce & Associates, 18 of them as a
small-cap and micro-cap value portfolio manager. Charlie, who will be involved
in our research efforts, began managing a new open-end portfolio, Royce Special
Equity Fund, on May 1, 1998.
Buzz comes to us from Trust Company of the West where he was Group Managing
Director in charge of the company's small-cap value offerings. He has 30 years
of investment management experience, including 21 years as a small-cap value
portfolio manager. Buzz became the portfolio manager of PMF II, an open-end
fund, on April 1, 1998.
We are very excited to have such seasoned professionals working with us.
PPS This report's excursion into Wonderland was inspired by the extraordinary
market activity of the past few years, which to our eyes resembles the surreal
surroundings brought to life in Lewis Carroll's two classics, Alice's Adventures
in Wonderland and Through the Looking Glass. For those of you made "curiouser
and curiouser" by our "Saving Humpty Dumpty: The Right Balance" heading, the
title refers to the need to keep Humpty Dumpty "balanced" on the wall to prevent
his great fall.
The Royce Funds Semi-Annual Report 1998 | 11
<PAGE>
[sidebar]
What We Do
Royce Value Trust ("RVT") is a closed- end fund that invests primarily in small
and micro-cap companies using a disciplined value approach.
How We Did
Royce Value Trust's value orientation served it well during a difficult second
quarter for small-cap stocks. The Fund's NAV return of -2.7% put it ahead of the
small-cap oriented Russell 2000 and S&P 600 indices, which returned -4.7% and
- -4.5%, respectively. RVT also outperformed both small-cap indices on an NAV
basis for the first six months, returning 8.6% versus 4.9% for the Russell 2000
and 6.1% for the S&P 600. Contributing to the Fund's performance during 1998's
first half were strong gains by portfolio securities in the consumer products
and services, technology and financial services sectors.
RVT's market price performance was solid as well, exceeding that of its NAV for
the quarter and for the first half. The Fund also enjoyed an NAV and market
price performance edge over the Russell 2000 for the one and three-year
performance periods.
There have been important developments for the Fund's preferred issues in 1998.
On March 2, 1998, the Fund's stockholders approved an increase in the frequency
of the dividend payments for its 7.80% Cumulative Preferred (Symbol: RVT.PR)
from annual to quarterly. On May 22, 1998, the Fund issued 4,000,000 shares of
7.30% Tax-Advantaged Cumulative Preferred Stock (Symbol: RVT.PRA) at $25 per
share. Both preferred stock issues trade on the New York Stock Exchange.
RVT enjoys the distinction of being the oldest and largest small-company
closed-end fund available. The Fund's officers, employees and their affiliates
currently own over $4 million of the Fund's Common Stock.
[end sidebar]
ROYCE VALUE TRUST
- --------------------------------------------------------------------------------
NAV AVERAGE ANNUAL TOTAL RETURNS (Through 6/30/98)
<TABLE>
<S> <C>
2nd Quarter 1998* -2.7%
- --------------------------------------------------------------------------------
Year-to-Date* 8.6
- --------------------------------------------------------------------------------
1-Year 22.4
- --------------------------------------------------------------------------------
3-Year 20.2
- --------------------------------------------------------------------------------
5-Year 16.8
- --------------------------------------------------------------------------------
10-Year 15.3
- --------------------------------------------------------------------------------
Since Inception (11/26/86) 14.0
</TABLE>
*Not annualized.
RISK/RETURN COMPARISON 10-Year Period Ended 6/30/98
<TABLE>
<CAPTION>
Average Annual Standard
Total Return Deviation RUR
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
RVT (NAV) 15.3% 10.3 1.48
- ------------------------------------------------------------------------------
S&P 600 13.7 15.1 0.91
- ------------------------------------------------------------------------------
Russell 2000 13.6 14.9 0.91
</TABLE>
RUR = Return per Unit of Risk: Average annual total return divided by the
annualized standard deviation over a designated time period.
Over the last 10 years, Royce Value Trust has outperformed the S&P 600 and the
Russell 2000 on BOTH an absolute and a risk-adjusted basis.
- --------------------------------------------------------------------------------
ROYCE VALUE TRUST MARKET PRICE - ACTUAL vs. ADJUSTED*
Market Price Total Returns
Since Inception = 293.5%
10 Years = 324.5
5 Years = 109.4
3 Years = 89.8
1 Year = 35.6
[Line Chart -- plot points]
<TABLE>
<CAPTION>
Adjusted Actual
Market Market
Price Price
-------- ------
<S> <C> <C>
11/26/86 10.000 10.000
12/31/86 9.880 9.875
1/31/87 10.750 10.750
2/28/87 9.750 9.750
3/31/87 9.630 9.625
4/30/87 8.630 8.625
5/31/87 9.500 9.500
6/30/87 9.370 9.375
7/31/87 9.120 9.125
8/31/87 9.500 9.500
9/30/87 9.250 9.250
10/31/87 7.300 7.000
11/30/87 6.910 6.625
12/31/87 7.260 6.750
1/31/88 7.530 7.000
2/29/88 8.600 8.000
3/31/88 8.730 8.125
4/30/88 8.600 8.000
5/31/88 8.460 7.875
6/30/88 9.270 8.625
7/31/88 9.140 8.500
8/31/88 9.000 8.375
9/30/88 9.540 8.875
10/31/88 9.270 8.625
11/30/88 8.870 8.250
12/31/88 9.250 8.125
1/31/89 9.960 8.750
2/28/89 9.680 8.500
3/31/89 10.100 8.875
4/30/89 10.390 9.125
5/31/89 10.670 9.375
6/30/89 10.530 9.250
7/31/89 10.960 9.625
8/31/89 11.100 9.750
9/30/89 10.990 9.625
10/31/89 10.840 9.500
11/30/89 10.840 9.500
12/31/89 11.460 9.500
1/31/90 10.710 8.875
2/28/90 10.560 8.750
3/31/90 11.160 9.250
4/30/90 11.160 9.250
5/31/90 11.460 9.500
6/30/90 11.610 9.625
7/31/90 11.310 9.500
8/31/90 10.260 8.250
9/30/90 9.530 7.875
10/31/90 8.780 7.250
11/30/90 9.380 7.750
12/31/90 10.230 8.125
1/31/91 10.850 8.750
2/28/91 12.430 9.875
3/31/91 13.050 10.375
4/30/91 13.530 10.750
5/31/91 12.900 10.250
6/30/91 12.580 10.000
7/31/91 12.740 10.125
8/31/91 12.420 9.875
9/30/91 12.460 9.875
10/31/91 12.930 10.250
12/1/91 12.610 10.000
12/31/91 13.830 10.375
1/31/92 14.670 11.000
2/29/92 15.670 11.750
3/31/92 15.330 11.500
4/30/92 15.500 11.625
5/31/92 15.330 11.375
6/30/92 15.000 11.250
7/31/92 15.000 11.250
8/31/92 14.830 11.125
9/30/92 15.190 11.375
10/31/92 15.360 11.500
11/30/92 16.860 12.625
12/31/92 17.540 12.250
1/31/93 18.250 12.750
2/28/93 18.250 12.875
3/31/93 18.610 13.000
4/30/93 18.430 12.875
5/31/93 18.430 12.875
6/30/93 18.790 13.125
7/31/93 19.330 13.375
8/31/93 19.500 13.625
9/30/93 19.750 13.750
10/31/93 20.470 14.250
11/30/93 19.940 13.875
12/31/93 20.130 12.875
1/31/94 20.720 13.250
2/28/94 20.330 13.000
3/31/94 19.160 12.250
4/30/94 19.550 12.500
5/31/94 19.350 12.375
6/30/94 19.160 12.250
7/31/94 19.350 12.375
8/31/94 19.740 12.625
9/30/94 18.760 12.000
10/31/94 18.180 11.625
11/30/94 19.180 12.125
12/31/94 19.000 11.000
1/31/95 20.080 11.625
2/28/95 20.300 11.750
3/31/95 19.650 11.375
4/30/95 20.520 11.875
5/31/95 20.730 12.125
6/30/95 20.730 12.000
7/31/95 21.810 12.625
8/31/95 22.680 13.125
9/30/95 23.330 13.500
10/31/95 22.250 12.875
11/30/95 23.100 13.250
12/31/95 22.910 11.875
1/31/96 23.870 12.375
2/29/96 23.390 12.125
3/31/96 23.630 12.250
4/30/96 23.630 12.250
5/31/96 24.350 12.625
6/30/96 23.870 12.375
7/31/96 22.420 11.625
8/31/96 23.630 12.250
9/30/96 24.350 12.625
10/31/96 23.870 12.375
11/30/96 24.840 12.875
12/31/96 26.640 12.625
1/31/97 26.110 12.375
2/28/97 26.370 12.500
3/31/97 24.790 11.750
4/30/97 25.060 11.875
5/31/97 26.900 12.750
6/30/97 29.010 13.750
7/31/97 30.070 14.250
8/31/97 32.310 15.313
9/30/97 35.010 16.250
10/31/97 33.390 15.500
11/30/97 35.410 16.438
12/31/97 34.320 15.063
1/31/98 34.030 14.938
2/28/98 36.740 16.125
3/31/98 39.880 17.125
4/30/98 39.450 16.938
5/31/98 39.010 16.750
6/30/98 39.350 16.500
</TABLE>
[blue bar] Adjusted Market Price
[yellow bar] Actual Market Price
- ---------------------------------------
Annual distribution totals as indicated
- ---------------------------------------
[End Line Chart]
The regular reinvestment of distributions makes a difference!
* Reflects market price total return experience of a continuous stockholder who
reinvested all distributions and fully participated in primary subscriptions
of rights offerings. This graph illustrates the market price change from IPO
of $10 per share on 11/26/86.
12 | The Royce Funds Semi-Annual Report 1998
<PAGE>
PERFORMANCE AND PORTFOLIO REVIEW
- --------------------------------------------------------------------------------
[bar chart]
DOWN MARKET PERFORMANCE COMPARISON
All Down Periods of 7.5% or Greater, in Percentages (%)
<TABLE>
<CAPTION>
RVT (NAV) Russell 2000
--------- ------------
<S> <C> <C>
8/25/87 - -26.6 -39.1
10/28/87
10/9/89 - -22.0 -32.7
10/30/90
2/12/92 - -2.1 -11.9
7/8/92
3/18/94 - -5.3 -12.4
12/9/94
5/22/96 - -6.6 -15.5
7/24/96
1/22/97 - -3.1 -9.2
4/25/97
10/13/97- -8.1 -11.5
1/12/98
4/21/98 - -7.4 -11.6
6/15/98
</TABLE>
[end bar chart]
Royce Value Trust has outperformed the Russell 2000 during all eight major
downturns since its inception.
<TABLE>
<CAPTION>
Good Ideas That Worked
Realized and Unrealized Gain
Year-To-Date Through 6/30/98
- ---------------------------------------------------
<S> <C>
Level 3 Communications $5,754,715
- ---------------------------------------------------
LandAmerica Financial Group 2,851,522
- ---------------------------------------------------
Velcro Industries 2,423,544
- ---------------------------------------------------
Plenum Publishing Corporation 2,086,038
- ---------------------------------------------------
National Computer Systems 1,708,500
- ---------------------------------------------------
Combined Gain $14,824,319
- ---------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Good Ideas At The Time
Realized and Unrealized Loss
Year-To-Date Through 6/30/98
- ---------------------------------------------------
<S> <C>
DIMON Incorporated $1,987,924
- ---------------------------------------------------
Unitrode Corporation 1,738,508
- ---------------------------------------------------
Highlands Insurance Group 1,309,680
- ---------------------------------------------------
Denbury Resources 1,236,886
- ---------------------------------------------------
Standard Commercial Corporation 1,207,908
- ---------------------------------------------------
Combined Loss $7,480,906
- ---------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Portfolio Diagnostics
- ----------------------------------------------------------
<S> <C>
Median Market Cap. $405 million
- ----------------------------------------------------------
Weighted Average P/E Ratio 17.5x
- ----------------------------------------------------------
Weighted Average P/B Ratio 2.0x
- ----------------------------------------------------------
Weighted Average Yield 1.3%
- ----------------------------------------------------------
Net Assets $716 million
- ----------------------------------------------------------
Turnover Rate 17%
- ----------------------------------------------------------
Net Leverage 11%
- ----------------------------------------------------------
Symbol RVT
</TABLE>
<TABLE>
<CAPTION>
Top 10 Positions % of Net Assets
- ----------------------------------------------------------
<S> <C>
Velcro Industries 1.2
- ----------------------------------------------------------
MacDermid, Incorporated 1.0
- ----------------------------------------------------------
Wesco Financial Corporation 1.0
- ----------------------------------------------------------
Ash Grove Cement Company Cl. B 1.0
- ----------------------------------------------------------
Enesco Group 0.9
- ----------------------------------------------------------
Charming Shoppes 0.9
- ----------------------------------------------------------
National Computer Systems 0.9
- ----------------------------------------------------------
Florida Rock Industries 0.9
- ----------------------------------------------------------
Farmer Bros. 0.9
- ----------------------------------------------------------
Alliance Capital Management L.P. 0.8
</TABLE>
<TABLE>
<CAPTION>
Portfolio Sector Breakdown With Examples % of Net Assets*
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Industrial Products Building Systems and Components, Construction Materials, Specialty Chemicals and Materials 24
Financial Intermediaries Insurance, Banking, Closed-end Funds, Brokerage 16
Industrial Services Transportation and Logistics, Printing, Engineering and Construction 15
Consumer Products Home Furnishings/Appliances, Apparel and Shoes, Publishing 12
Technology Hardware, Software/Services, Distribution, Telecommunications 12
Financial Services Insurance Brokers, Investment Management, Information and Processing 7
Consumer Services Retail, Restaurants/Lodging, Leisure/Entertainment 5
Natural Resources Oil and Gas, Energy Services, Real Estate 5
Health Surgical Products and Devices, Drugs and Biotech, Health Services 3
Utilities 1
</TABLE>
*Excludes cash and short-term investments.
During 1998's first half, the companies listed above made the largest
positive and negative contributions in dollar terms to our performance. Our top
five Good Ideas That Worked contributed 31% to the Fund's total net realized and
unrealized gain for the period. While we are pleased with our successes, we have
learned over the years that there is often more wisdom to be drawn from
failures. An examination of past winners and losers has taught us that this
year's beast can easily be transformed into next year's beauty.
Level 3 Communications - A case of fortuitous timing, we discovered this
Internet pipeline builder, formerly known as Peter Kiewitt Diversified, in the
pink sheets when it was not yet a Nasdaq company. Both the company and its
business have since become very well known, as the stock went up over 150% in
the first half.
Dimon Incorporated and Standard Commercial Corporation - These tobacco-leaf
processors each suffered a downturn in the business cycle in what was already an
admittedly unpopular business. While the companies are not currently involved in
any tobacco litigation, the jury is still out on this investment idea.
The Royce Funds Semi-Annual Report 1998 | 13
<PAGE>
[sidebar]
WHAT WE DO
Royce Micro-Cap Trust ("OTCM") is a closed-end fund that uses a value approach
to invest primarily in companies with market capitalizations below $300 million.
We believe that the buying opportunities in this more volatile sector have more
potential for higher returns than any other in the domestic equity market due to
limited institutional attention and research coverage.
HOW WE DID
Royce Micro-Cap Trust's performance for the second quarter and first six months
reflects its focus on risk management and the potential divergence between
market price and NAV performance. For both of these periods, the Fund's NAV
performance was ahead of its benchmark index, the small-cap oriented Russell
2000, while the Fund's market price performance trailed that of the index.
On an NAV basis, the Fund was down 1.8% for the second quarter and up 8.4% for
the first six months, versus the Russell 2000 which was down 4.7% and up 4.9%,
respectively. Making the greatest positive impact on the Fund's performance were
portfolio holdings in the financial sevices and intermediaries, and industrial
products sectors. The Fund also outperformed the Russell 2000 on both an NAV and
market price basis for the one and three-year periods ended June 30, 1998.
Currently we believe that the micro-cap sector is the most attractive domestic
equity asset class. The sector remains substantially undiscovered by investors,
and therefore in our opinion offers significant investment opportunities in what
many believe is an overvalued market. We believe that the Fund's fixed capital
structure allows us to best take advantage of these opportunities.
OTCM remains the only micro-cap closed-end fund available and at year-end will
have five full years of performance history. The Fund's officers, employees and
their affiliates currently own over $10 million or over 7.5% of the Fund's
Common Stock.
[end sidebar]
ROYCE MICRO-CAP TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAV AVERAGE ANNUAL TOTAL RETURNS (Through 6/30/98)
<S> <C>
2nd Quarter 1998* -1.8%
- --------------------------------------------------------
Year-to-Date* 8.4
- --------------------------------------------------------
1-Year 23.1
- --------------------------------------------------------
3-Year 20.6
- --------------------------------------------------------
Since Inception (12/14/93) 17.7
</TABLE>
*Not annualized.
<TABLE>
<CAPTION>
RISK/RETURN COMPARISON From Inception (12/14/93) Through 6/30/98
Average Annual Standard
Total Return Deviation RUR
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
OTCM (NAV) 17.7% 9.4 1.88
- --------------------------------------------------------------------------------
Russell 2000 15.9% 13.2 1.20
- --------------------------------------------------------------------------------
</TABLE>
RUR = Return per Unit of Risk: Average annual total return divided by the
annualized standard deviation over a designated time period.
Since its inception, Royce Micro-Cap Trust has outperformed the Russell 2000 on
BOTH an absolute and a risk-adjusted basis.
ROYCE MICRO-CAP TRUST MARKET PRICE - ACTUAL vs. ADJUSTED*
Market Price Total Returns
Since Inception = 78.0%
3 Years = 78.1
1 Year = 26.3
[blue bar] Adjusted market price
[yellow bar] Actual market price
[Line Chart -- plot points]
<TABLE>
<CAPTION>
Adjusted Actual
Market Market
Price Price
-------- ------
<S> <C> <C>
12/14/93 7.500 7.50
1/31/94 7.750 7.75
2/28/94 7.500 7.50
3/31/94 6.500 6.50
4/30/94 6.625 6.63
5/31/94 7.125 7.13
6/30/94 6.750 6.75
7/31/94 7.000 7.00
8/31/94 7.125 7.13
9/30/94 7.000 7.00
10/31/94 7.375 7.38
11/30/94 7.185 7.13
12/31/94 7.111 7.00
1/31/95 6.857 6.75
2/28/95 7.238 7.13
3/31/95 6.984 6.88
4/30/95 6.984 6.88
5/31/95 7.111 7.00
6/30/95 7.492 7.38
7/31/95 7.873 7.75
8/31/95 8.127 8.00
9/30/95 8.508 8.38
10/31/95 7.873 7.75
11/30/95 7.746 7.63
12/31/95 8.517 8.00
1/31/96 8.250 7.75
2/29/96 8.250 7.75
3/31/96 8.250 7.75
4/30/96 8.915 8.38
5/31/96 8.915 8.38
6/30/96 9.182 8.63
7/31/96 8.251 7.75
8/31/96 8.451 7.94
9/30/96 8.518 8.00
10/31/96 8.518 8.00
11/30/90 9.050 8.50
12/31/96 9.705 8.25
1/31/97 9.300 7.88
2/28/97 9.411 8.00
3/31/97 8.970 7.63
4/30/97 9.558 8.13
5/31/97 10.146 8.63
6/30/97 10.569 8.98
7/31/97 10.661 9.06
8/31/97 11.323 9.63
9/30/97 13.160 11.19
10/31/97 12.794 10.88
11/30/97 12.721 10.81
12/31/97 13.104 10.13
1/31/98 12.619 9.75
2/28/98 13.428 10.38
3/31/98 13.642 11.31
4/30/98 14.399 11.13
5/31/98 13.914 10.75
6/30/98 13.348 10.31
</TABLE>
- ---------------------------------------
Annual distribution totals as indicated
- ---------------------------------------
[end line chart]
The regular reinvestment of distributions makes a difference!
* Reflects market price total return experience of a continuous stockholder who
reinvested all distributions and fully participated in the 1994 rights
offering. This graph illustrates the market price change from IPO of $7.50 per
share on 12/14/93.
14 | The Royce Funds Semi-Annual Report 1998
<PAGE>
PERFORMANCE AND PORTFOLIO REVIEW
- --------------------------------------------------------------------------------
DOWN MARKET PERFORMANCE COMPARISON
All Down Periods of 7.5% or Greater, in Percentages (%)
[bar chart]
<TABLE>
<CAPTION>
OTCM (NAV) Russell 2000
---------- ------------
<S> <C> <C>
3/18/94 - -0.4 -12.4
12/9/94
5/22/96 - -6.8 -15.5
7/24/96
1/22/97 - -3.4 -9.2
4/25/97
10/13/97 - -7.4 -11.5
1/12/98
4/21/98 - -6.4 -11.6
6/15/98
</TABLE>
[end bar chart]
Royce Micro-Cap Trust has outperformed the Russell 2000 during all five major
downturns since its inception.
<TABLE>
<CAPTION>
Good Ideas That Worked
Realized and Unrealized Gain
Year-To-Date Through 6/30/98
- ----------------------------------------------------------------
<S> <C>
International Isotopes $998,378
- ----------------------------------------------------------------
Wellington Underwriting 976,674
- ----------------------------------------------------------------
Cato Corporation Cl. A 827,885
- ----------------------------------------------------------------
Integral Systems 827,413
- ----------------------------------------------------------------
Duff & Phelps Credit Rating Co. 819,878
- ----------------------------------------------------------------
Combined Gain $4,450,228
- ----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Good Ideas At The Time
Realized and Unrealized Loss
Year-To-Date Through 6/30/98
- ----------------------------------------------------------------
<S> <C>
RockShox $722,541
- ----------------------------------------------------------------
Perceptron 665,247
- ----------------------------------------------------------------
Axiohm Transaction Solutions 498,758
- ----------------------------------------------------------------
Sevenson Environmental Services 484,840
- ----------------------------------------------------------------
Rainbow Technologies 367,200
- ----------------------------------------------------------------
Combined Loss $2,738,586
- ----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Portfolio Diagnostics
<S> <C>
Median Market Cap. $171 million
- ----------------------------------------------------------------
Weighted Average P/E Ratio 15.9x
- ----------------------------------------------------------------
Weighted Average P/B Ratio 1.9x
- ----------------------------------------------------------------
Weighted Average Yield 0.8%
- ----------------------------------------------------------------
Net Assets $194 million
- ----------------------------------------------------------------
Turnover Rate 17%
- ----------------------------------------------------------------
Net Leverage 4%
- ----------------------------------------------------------------
Symbol OTCM
</TABLE>
<TABLE>
<CAPTION>
Top 10 Positions % of Net Assets
<S> <C>
Oshkosh B'Gosh Cl. A 1.4
- -------------------------------------------------------------
Matthews International Corporation Cl. A 1.3
- -------------------------------------------------------------
Duff & Phelps Credit Rating Co. 1.3
- -------------------------------------------------------------
Wellington Underwriting 1.1
- -------------------------------------------------------------
Simpson Manufacturing 1.0
- -------------------------------------------------------------
PXRE Corporation 1.0
- -------------------------------------------------------------
Velcro Industries 1.0
- -------------------------------------------------------------
Ash Grove Cement Company 0.9
- -------------------------------------------------------------
Weyco Group 0.9
- -------------------------------------------------------------
BHI Corporation 0.9
</TABLE>
<TABLE>
<CAPTION>
Portfolio Sector Breakdown With Examples % of Net Assets*
<S> <C>
Industrial Products Building Systems and Components, Construction Materials,Specialty Chemicals and Materials 28
Consumer Products Home Furnishings/Appliances, Apparel and Shoes, Publishing 17
Technology Hardware, Software/Services, Distribution, Telecommunications 14
Financial Intermediaries Insurance, Banking, Closed-end Funds, Brokerage 13
Industrial Services Transportation and Logistics, Printing, Engineering and Construction 12
Consumer Services Retail, Restaurants/Lodging, Leisure/Entertainment 5
Natural Resources Oil and Gas, Energy Services, Real Estate 5
Health Surgical Products and Devices, Drugs and Biotech, Health Services 3
Financial Services Insurance Brokers, Investment Management, Information and Processing 3
</TABLE>
*Excludes cash and short-term investments.
During 1998's first half, the companies listed above made the largest
positive and negative contributions in dollar terms to our performance. Our top
five Good Ideas That Worked contributed 36% to the Fund's total net realized and
unrealized gain for the period. While we are pleased with our successes, we have
learned over the years that there is often more wisdom to be drawn from
failures. An examination of past winners and losers has taught us that this
year's beast can easily be transformed into next year's beauty.
International Isotopes - Atypically, we bought this undiscovered micro-cap
company on an IPO because they had bought $70 million in supercollider
technology equipment from the U.S. government for about $5 million, intending to
create radioactive isotopes for prostate cancer treatment.
RockShox - A manufacturer of mountain bike shock absorbers, this company
has a terrific balance sheet and solid brand name, although in hindsight we may
have bought a little too soon. Still, a new CEO and new products give us hope
that the stock will find a new direction, namely up.
The Royce Funds Semi-Annual Report 1998 | 15
<PAGE>
[sidebar]
WHAT WE DO
Royce Global Trust ("FUND") is a closed-end fund that invests primarily in a
limited number of domestic and foreign companies, selected using a value
approach. While it is not restricted as to stock market capitalization, Royce
focuses the Fund's investments primarily in small-cap companies with significant
business activities in the United States. Normally, at least 65% of the assets
will be invested in the securities of companies of at least three countries,
including the United States.
HOW WE DID
Royce Global Trust's second-quarter performance reflected the difficulties
experienced by many small-cap stocks. In the second quarter, the Fund was down
5.3% on an NAV basis and 2.8% on a market price basis, versus a decline of 4.7%
for the small-cap oriented Russell 2000 index and a gain of 2.0% for the Morgan
Stanley World Index ("MSWI"). For the first six months, the Fund's NAV return of
6.5% and market price return of 8.6% were ahead of the Russell 2000's gain of
4.9%, but lagged the MSWI's return of 16.6%. Contributing to the first half
performance were nice gains in the consumer products and services, technology
and industrial products sectors. In spite of a more difficult second quarter, we
are pleased with the Fund's 19.3% average annual NAV total return and its 21.5%
average annual market price total return since we assumed management of the Fund
on November 1, 1996.
The Fund focuses on domestic companies with an overseas presence or foreign
firms who conduct substantial business in the U.S. At present, the Fund's
portfolio is invested primarily in domestic small-cap companies, which have come
under considerable selling pressure and should offer significant investment
opportunities.
Total net assets are now over $74 million. As part of our ongoing commitment,
the Fund's officers, employees and their affiliates currently own over $4
million or over 9.5% of the Fund's Common Stock.
[end sidebar]
ROYCE GLOBAL TRUST
<TABLE>
<CAPTION>
NAV AVERAGE ANNUAL TOTAL RETURNS (Through 6/30/98)
<S> <C>
2nd Quarter 1998* -5.3%
- ------------------------------------------------
Year-to-Date* 6.5
- ------------------------------------------------
1-Year 11.3
- ------------------------------------------------
Since Inception** (11/1/96) 19.3
</TABLE>
*Not annualized.
**Royce & Associates assumed investment management responsibility for the Fund
on 11/1/96.
ROYCE GLOBAL TRUST MARKET PRICE - ACTUAL vs. ADJUSTED*
Market Price Total Returns
Since 6/26/96 = 44.6%
Since 11/1/96 = 38.4%
1 Year = 21.1%
[Line Chart -- plot points]
<TABLE>
<CAPTION>
Adjusted Actual
Market Market
Price Price
-------- ------
<S> <C> <C>
6/25/96 4.19 4.19
7/31/96 4.19 4.19
8/31/96 4.13 4.13
9/30/96 4.13 4.13
10/31/96 4.38 4.38
11/30/90 4.66 4.66
12/31/96 4.59 4.59
1/31/97 4.75 4.75
2/28/97 4.56 4.56
3/31/97 4.88 4.88
4/30/97 4.72 4.72
5/31/97 4.81 4.81
6/30/97 5.00 5.00
7/31/97 5.28 5.28
8/31/97 5.44 5.44
9/30/97 6.06 6.06
10/31/97 5.69 5.69
11/30/97 5.69 5.69
12/31/97 5.57 5.06
1/31/98 5.64 5.13
2/28/98 5.78 5.25
3/31/98 6.23 5.66
4/30/98 6.54 5.94
5/31/98 6.23 5.66
6/30/98 6.05 5.50
</TABLE>
[blue bar] Adjusted Market Price
[yellow bar] Actual Market Price
Annual distribution totals as indicated
The regular reinvestment of distributions makes a difference!
[end line chart]
* Reflects market price total return experience of a continuous stockholder who
reinvested all distributions. This graph illustrates the market price change
from $4.1875 on 6/25/96, the date the Fund's Board announced its
recommendation that stockholders approve the assumption by Royce & Associates
of investment management responsibility for the Fund.
ROYCE GLOBAL TRUST MARKET CAP. BREAKDOWN As of June 30, 1998
[bar chart]
<TABLE>
<CAPTION>
% of
Portfolio
---------
<S> <C>
> $1,000 17%
$500 - $1,000 24%
$300 - $500 33%
< $300 26%
</TABLE>
[end bar chart]
16 | The Royce Funds Semi-Annual Report 1998
<PAGE>
PERFORMANCE AND PORTFOLIO REVIEW
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Portfolio Diagnostics
<S> <C>
Median Market Cap. $556 million
- --------------------------------------------------------------------------------
Weighted Average P/E Ratio 19.2x
- --------------------------------------------------------------------------------
Weighted Average P/B Ratio 2.3x
- --------------------------------------------------------------------------------
Weighted Average Yield 1.3%
- --------------------------------------------------------------------------------
Top 3 Countries:
- --------------------------------------------------------------------------------
U.S. (84%), Canada (3%), United Kingdom (2%)
- --------------------------------------------------------------------------------
Net Assets $74 million
- --------------------------------------------------------------------------------
Turnover Rate 25%
- --------------------------------------------------------------------------------
Net Leverage 7%
- --------------------------------------------------------------------------------
Symbol FUND
</TABLE>
<TABLE>
<CAPTION>
Good Ideas That Worked
Realized and Unrealized Gain
Year-To-Date Through 6/30/98
- ------------------------------------------------------
<S> <C>
Level 3 Communications $1,234,130
- ------------------------------------------------------
Velcro Industries 805,445
- ------------------------------------------------------
Ryanair Holdings (ADR) 594,566
- ------------------------------------------------------
BHI Corporation 447,050
- ------------------------------------------------------
National Computer Systems 409,275
- ------------------------------------------------------
Combined Gain $3,490,466
- ------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Good Ideas At The Time
Realized and Unrealized Loss
Year-To-Date Through 6/30/98
- ------------------------------------------------------
<S> <C>
Dimon Incorporated $448,625
- ------------------------------------------------------
Denbury Resources 382,439
- ------------------------------------------------------
Pittston BAX Group 277,207
- ------------------------------------------------------
Peak International Limited 261,467
- ------------------------------------------------------
MK Gold Company 221,456
- ------------------------------------------------------
Combined Loss $1,591,194
- ------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Top 10 Positions % of Net Assets
- ------------------------------------------------------
<S> <C>
Enesco Group 2.6
- ------------------------------------------------------
Leucadia National Corporation 2.4
- ------------------------------------------------------
National Computer Systems 2.1
- ------------------------------------------------------
Nordson Corporation 2.0
- ------------------------------------------------------
BHI Corporation 2.0
- ------------------------------------------------------
PIMCO Advisors Holdings, L.P. 1.9
- ------------------------------------------------------
Richardson Electronics 1.9
- ------------------------------------------------------
Duff & Phelps Credit Rating Co. 1.9
- ------------------------------------------------------
Velcro Industries 1.9
- ------------------------------------------------------
Morrison Knudsen Corporation 1.9
</TABLE>
<TABLE>
<CAPTION>
Portfolio Sector Breakdown With Examples % of Net Assets*
<S> <C>
Financial Services Insurance Brokers, Investment Management, Information and Processing 18
Industrial Products Building Systems and Components, Construction Materials, Specialty Chemicals and Materials 18
Technology Hardware, Software/Services, Distribution, Telecommunications 15
Industrial Services Transportation and Logistics, Printing, Engineering and Construction 14
Financial Intermediaries Insurance, Banking, Closed-end Funds, Brokerage 12
Consumer Products Home Furnishings/Appliances, Apparel and Shoes, Publishing 10
Natural Resources Oil and Gas, Energy Services, Real Estate 5
Health Surgical Products and Devices, Drugs and Biotech, Health Services 5
Consumer Services Retail, Restaurants/Lodging, Leisure/Entertainment 3
</TABLE>
*Excludes cash and short-term investments.
During 1998's first half, the companies listed above made the largest
positive and negative contributions in dollar terms to our performance. Our top
five Good Ideas That Worked contributed 102% to the Fund's total net realized
and unrealized gain for the period. While we are pleased with our successes, we
have learned over the years that there is often more wisdom to be drawn from
failures. An examination of past winners and losers has taught us that this
year's beast can easily be transformed into next year's beauty.
Level 3 Communications - A case of fortuitous timing, we discovered this
Internet pipeline builder, formerly known as Peter Kiewitt Diversified, in the
pink sheets when it was not yet a Nasdaq company. Both the company and its
business have since become very well known, as the stock went up over 150% in
the first half.
Dimon Incorporated - This tobacco-leaf processor suffered a downturn in its
business cycle in what was already an admittedly unpopular business. While the
company is not currently involved in any tobacco litigation, the jury is still
out on this investment idea.
The Royce Funds Semi-Annual Report 1998 | 17
<PAGE>
HISTORY SINCE INCEPTION
- --------------------------------------------------------------------------------
The following table details the share accumulations by an initial investor in
the Funds who reinvested all distributions (including fractional shares) and
participated fully in primary subscriptions for each of the rights offerings.
Full participation in distribution reinvestments and rights offerings maximizes
the returns available to an investor. This table should be read in conjunction
with the Performance and Portfolio Reviews of the Funds.
<TABLE>
<CAPTION>
AMOUNT PURCHASE NAV MARKET
HISTORY INVESTED PRICE SHARES VALUE* VALUE*
------- -------- ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Royce Value Trust
11/28/86 Initial Purchase $10,000 $10.000 1,000 $ 9,280 $10,000
10/15/87 Distribution $0.30 7.000 42
12/31/87 Distribution $0.22 7.125 32 8,578 7,250
12/27/88 Distribution $0.51 8.625 63 10,529 9,238
9/22/89 Rights Offering 405 9.000 45
12/29/89 Distribution $0.52 9.125 67 12,942 11,866
9/24/90 Rights Offering 457 7.375 62
12/31/90 Distribution $0.32 8.000 52 11,713 11,074
9/23/91 Rights Offering 638 9.375 68
12/31/91 Distribution $0.61 10.625 82 17,919 15,697
9/25/92 Rights Offering 825 11.000 75
12/31/92 Distribution $0.90 12.500 114 21,999 20,874
9/27/93 Rights Offering 1,469 13.000 113
12/31/93 Distribution $1.15 13.000 160 26,603 25,428
10/28/94 Rights Offering 1,10 11.250 98
12/19/94 Distribution $1.05 11.375 191 27,939 24,905
11/3/95 Rights Offering 1,425 12.500 114
12/7/95 Distribution $1.29 12.125 253 35,676 31,243
12/6/96 Distribution $1.15 12.250 247 41,213 36,335
9/8/97 Distribution $0.33 15.625 61
12/5/97 Distribution $0.88 15.313 169 52,556 46,814
3/6/98 Distribution $0.37 16.688 69
6/5/98 Distribution $0.39 16.250 76
- -----------------------------------------------------------------------------------
6/30/98 $16,322 3,253 $57,058 $53,675
- -----------------------------------------------------------------------------------
Royce Micro-Cap Trust
12/14/93 Initial Purchase $ 7,500 $ 7.500 1,000 $ 7,250 $ 7,500
10/28/94 Rights Offering 1,400 7.000 200
12/19/94 Distribution $0.05 6.750 9 9,163 8,462
12/7/95 Distribution $0.36 7.500 58 11,264 10,136
12/6/96 Distribution $0.80 7.625 133 13,132 11,550
12/5/97 Distribution $1.00 10.000 140 16,694 15,593
- -----------------------------------------------------------------------------------
6/30/98 $ 8,900 1,540 $18,095 $15,881
- -----------------------------------------------------------------------------------
Royce Global Trust
10/31/96 Initial Purchase $ 4,375 $ 4.375 1,000 $5,280 $ 4,375
12/31/96 5,520 4,594
12/5/97 Distribution $0.53 5.250 101 6,650 5,574
- -----------------------------------------------------------------------------------
6/30/98 $ 4,375 1,101 $ 7,079 $ 6,056
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
</TABLE>
* Other than for initial purchase and June 30, 1998, values are stated as of
December 31 of the year indicated, after reinvestment of distributions.
18 | The Royce Funds Semi-Annual Report 1998
<PAGE>
DISTRIBUTION REINVESTMENT AND CASH PURCHASE OPTIONS FOR COMMON STOCKHOLDERS
- --------------------------------------------------------------------------------
WHY SHOULD I REINVEST MY DISTRIBUTIONS?
By reinvesting distributions, a stockholder can maintain an undiluted
investment in the Fund. The regular reinvestment of distributions has a
significant impact on stockholder returns. In contrast, the stockholder who
takes distributions in cash is penalized when shares are issued below net asset
value to other stockholders.
HOW DOES THE REINVESTMENT OF DISTRIBUTIONS FROM THE ROYCE CLOSED-END FUNDS WORK?
Simply put, the Funds automatically issue shares in payment of
distributions unless you indicate otherwise. The shares are issued at the lower
of the market price or net asset value on the valuation date.
HOW DOES THIS APPLY TO REGISTERED STOCKHOLDERS?
If your shares are registered directly with a Fund, your distributions are
automatically reinvested unless you have otherwise instructed the Funds'
custodian, State Street Bank and Trust Company, in writing. A registered
stockholder also has the option to receive the distribution in the form of a
stock certificate or in cash if State Street is properly notified.
WHAT IF MY SHARES ARE HELD BY A BROKERAGE FIRM OR A BANK?
If your shares are held in the name of a brokerage firm, bank, or other
intermediary, as the stockholder of record, you should contact your brokerage
firm or bank to be certain that it is automatically reinvesting distri-butions
on your behalf. If they are unable to reinvest distributions on your behalf, you
should have your shares registered in your name in order to participate.
WHAT OTHER FEATURES ARE AVAILABLE FOR REGISTERED STOCKHOLDERS?
The Distribution Reinvestment and Cash Purchase Plans also allow registered
stockholders to make optional cash purchases of shares of a Fund's common stock
directly through State Street on a monthly basis, and to deposit certificates
representing your Fund shares with State Street for safekeeping. The Funds'
investment adviser is absorbing all commissions on optional cash purchases under
the Plans through December 31, 1998.
HOW DO THE PLANS WORK FOR REGISTERED STOCKHOLDERS?
State Street maintains the accounts for registered stockholders in the
Plans and sends written confirmation of all transactions in the account. Shares
in the account of each participant will be held by State Street in
non-certificated form in the name of the participant, and each participant will
be able to vote those shares at a stockholder meeting or by proxy. A participant
may also send other stock certificates held by them to State Street to be held
in non-certificated form. There is no service fee charged to participants for
reinvesting distributions. If a participant elects to sell shares from a Plan
account, State Street will deduct a $2.50 fee plus brokerage commissions from
the sale transaction. If a nominee is the registered owner of your shares, the
nominee will maintain the accounts on your behalf.
HOW CAN I GET MORE INFORMATION ON THE PLANS?
You can call Investor Services Representatives at (800) 221-4268 or you can
request a copy of the Plan for your Fund from State Street. All correspondence
(including notifications) should be directed to: [Name of Fund] Distribution
Reinvestment and Cash Purchase Plan, c/o State Street Bank and Trust Company, PO
Box 8200, Boston, MA 02266-8200, telephone (800) 426-5523.
The Royce Funds Semi-Annual Report 1998 | 19
<PAGE>
UPDATES AND NOTES TO PERFORMANCE AND RISK INFORMATION
- --------------------------------------------------------------------------------
[graphic: desktop computer, "THE ROYCE FUNDS" displayed on the screen]
NEW AND IMPROVED . . . www.roycefunds.com
Visit our newly redesigned website. The site includes both organizational
and navigational changes in an effort to create a more user-friendly interface.
New featured sections include Res Praecipua ("special features") and a weekly
What's New area.
GIVING A GIFT OR LEAVING A LEGACY - IT'S YOUR CHOICE!
The dilemma when making a gift is often whether the desire to be generous
outweighs the concern over how the gift will be spent. Will the gift that you
thought would fund a college education rust away in the driveway after a few
years?
Royce GiftShares Fund may be the solution to your gifting concerns. When
you set up a GiftShares account, you establish a trust for your beneficiary. As
the donor, you choose when the beneficiary will have access to the assets by
selecting the termination date of the trust. If you would like the beneficiary
to be able to use the assets before the termination date to pay college
expenses, you may indicate your wishes when you establish the trust. The Trustee
will pay the college expenses directly to the educational institution. No
Porsche payment here! And while you are enjoying this new form of gifting, you
may be able to take advantage of some tax and estate-planning benefits as well.
To receive a prospectus, which includes fees and expenses, call (800) 221-4268.
Please read the prospectus and Trust Adoption Agreement carefully before
investing or sending money.
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. Stock prices will fluctuate, so that shares may be worth more or
less than their original cost when sold. Royce Micro-Cap Trust invests primarily
in the securities of micro-cap companies, which may involve considerably more
risk than investments in the securities of larger-cap companies.
Morningstar proprietary risk ratio measures a fund's downside volatility
relative to all equity funds, which have an average score of 1.00. The average
score for the 35 funds in the closed-end domestic equity objective category with
a three-year history was 1.11 for the three years ended 6/30/98. The lower the
risk ratio, the lower a fund's downside volatility has been. The risk scores for
Royce Value Trust and Royce Micro-Cap Trust for this period were 0.91 and 0.96,
respectively. Standard deviation is a statistical measure within which a fund's
total returns have varied over time. The greater the standard deviation, the
greater a fund's volatility. The Russell 2000, Russell 2000 Value, Russell 2000
Growth, S&P 500, S&P 600 and Dow Jones Industrial Average are unmanaged indices
of domestic common stocks. The Morgan Stanley World Index is an unmanaged index
of global common stocks. The Royce Funds and Royce GiftShares Fund are service
marks of The Royce Funds.
The Boards of Directors have given Royce Value Trust's and Royce Micro-Cap
Trust's management the discretionary authority to allow the Fund to repurchase
up to 300,000 shares of its common stock in the open market and other
transactions through December 31, 1998. Such repurchases would be effected at a
price per share that is less than the then current net asset value, but not in
excess of the then prevailing market price.
The Boards of Directors of Royce Value Trust, Royce Micro-Cap Trust and
Royce Global Trust are authorized to offer stockholders an opportunity to
subscribe for additional shares of common stock of the Funds 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 offering are
left to the Boards' discretion.
Net leverage is the percentage, in excess of 100%, of the total value of
equity type investments divided by net assets, excluding preferred stock.
20 | The Royce Funds Semi-Annual Report 1998
<PAGE>
THE ROYCE FUNDS
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
[background graphic: montage: deal-making handshake, stockmarket tote board,
clocks, computer operator using mouse, stock pages from newspaper]
<TABLE>
<S> <C>
Royce Value Trust, Inc. 22-32
- --------------------------------------------------------------------------------
Royce Micro-Cap Trust, Inc. 33-42
- --------------------------------------------------------------------------------
Royce Global Trust, Inc. 43-50
- --------------------------------------------------------------------------------
Stockholder Meeting Results 51
- --------------------------------------------------------------------------------
</TABLE>
[graphic: looking through magnifying glass at The Royce Funds listing in
newspaper]
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
ROYCE VALUE TRUST, INC. JUNE 30, 1998 (unaudited)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 84.4%
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Consumer Products -- 10.3%
Apparel and Shoes - 2.2%
Garan Incorporated 135,800 $ 3,683,575
K-Swiss Cl. A 133,900 2,627,787
Marisa Christina, Incorporated* 62,600 148,675
Oakley* 155,900 2,085,162
Oshkosh B'Gosh Cl. A 99,400 4,423,300
Weyco Group 90,600 2,366,925
Wolverine World Wide 1,000 21,688
------------
15,357,112
------------
Collectibles - 0.9%
Enesco Group 214,200 6,586,650
------------
Food/Beverage/Tobacco - 0.6%
800-JR CIGAR* 73,000 1,441,750
Hershey Creamery Company 643 1,446,750
J & J Snack Foods* 27,200 567,800
WLR Foods* 106,577 706,073
------------
4,162,373
------------
Home Furnishings/Appliances - 3.2%
Bassett Furniture Industries 130,087 3,666,827
Burnham Corporation Cl. A 42,514 1,960,958
Burnham Corporation Cl. B 18,000 830,250
Conso Products* 158,575 1,308,244
Ethan Allen Interiors 24,500 1,223,469
Flexsteel Industries 91,400 1,279,600
La-Z-Boy 9,400 531,100
Lifetime Hoan Corporation 221,069 2,210,690
The Rival Company 128,500 1,734,750
Velcro Industries 60,100 8,368,925
------------
23,114,813
------------
Publishing - 1.6%
Gibson Greetings* 181,700 4,542,500
Plenum Publishing Corporation 64,000 4,688,000
Scholastic Corporation 6,200 247,225
The Topps Company* 696,800 2,155,725
------------
11,633,450
------------
Sports and Recreation - 0.7%
Johnson Worldwide Associates Cl. A* 193,300 2,440,412
Sturm, Ruger & Company 130,500 2,185,875
------------
4,626,287
------------
Other Consumer Products - 1.1%
Lazare Kaplan International* 135,200 1,428,050
Matthews International
Corporation Cl. A 109,400 2,687,137
The L. S. Starrett Company Cl. A 73,700 2,911,150
Toy Biz* 93,000 860,250
------------
7,886,587
------------
73,367,272
============
SHARES VALUE
------ -----
Consumer Services -- 3.4%
Leisure/Entertainment - 0.2%
Colonial Downs Holdings Cl. A* 14,500 $ 37,156
Seattle Filmworks* 146,787 1,133,012
------------
1,170,168
------------
Restaurants/Lodging - 0.6%
Bob Evans Farms 10,000 211,875
Buffets* 189,550 2,973,566
Lone Star Steakhouse & Saloon* 72,000 994,500
Sbarro 15,000 406,875
------------
4,586,816
------------
Retail - 2.6%
Abercrombie & Fitch Cl. A* 1,000 44,000
Catherines Stores Corporation* 212,400 2,084,175
Cato Corporation Cl. A 40,900 711,916
Charming Shoppes* 718,000 3,410,500
Claire's Stores 2,400 49,200
Deb Shops 110,900 956,512
Family Dollar Stores 4,700 86,950
Little Switzerland* 60,000 270,000
Mikasa 154,500 1,969,875
Pier 1 Imports 5,000 119,375
Sotheby's Holdings Cl. A 130,100 2,910,987
Sunglass Hut International* 216,600 2,396,137
Suzy Shier 10,000 66,257
Talbots 132,600 3,472,463
------------
18,548,347
------------
24,305,331
============
Financial Intermediaries -- 12.7%
Banking - 1.3%
The First National Bank of Anchorage 2,100 2,761,500
The Mechanics Bank 200 2,380,000
National Bancorp of Alaska 73,880 2,281,045
Oriental Financial Group 51,000 1,880,625
------------
9,303,170
------------
Brokerage - 0.1%
Legg Mason 4,333 249,418
Raymond James Financial 7,500 224,531
------------
473,949
------------
Closed-end Funds - 0.3%
Baker, Fentress & Company 138,600 2,538,112
------------
</TABLE>
22 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1998
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
ROYCE VALUE TRUST, INC. JUNE 30, 1998 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Financial Intermediaries (continued)
Insurance - 11.0%
Alleghany Corporation* 20,705 $4,829,441
ALLIED Life Financial
Corporation 94,000 2,714,250
Baldwin & Lyons Cl. B 126,000 2,929,500
Capitol Transamerica Corporation 115,450 2,373,941
The Commerce Group 119,718 4,639,072
Erie Indemnity Company Cl. A 6,500 187,688
Fremont General Corporation 53,350 2,890,903
Fund American Enterprises Holdings 18,400 2,723,200
Highlands Insurance Group* 144,500 2,673,250
Independence Holding Company 56,664 793,296
Intercargo Corporation 143,100 1,681,425
LandAmerica Financial Group 87,400 5,003,650
Leucadia National Corporation 130,400 4,311,350
Markel Corporation* 2,200 391,600
Medical Assurance* 155,076 4,303,359
NYMAGIC 57,100 1,563,113
Nobel Insurance Limited 119,500 1,613,250
Old Guard Group 148,000 2,747,250
Orion Capital Corporation 55,074 3,077,260
PXRE Corporation 178,710 5,361,300
Pennsylvania Manufacturers
Corporation Cl. A 222,400 5,115,200
Philadelphia Consolidated
Holding* 9,200 193,200
RLI 24,062 979,023
Trenwick Group 111,850 4,344,673
Wesco Financial Corporation 17,790 6,955,890
Zenith National Insurance 158,100 4,456,444
----------
78,852,528
----------
91,167,759
==========
Financial Services -- 6.7%
Information and Processing - 0.8%
Duff & Phelps Credit Rating Co. 36,300 2,023,725
Fair Isaac and Company, Incorporated 59,700 2,268,600
Investors Financial Services Corporation 28,259 1,497,727
----------
5,790,052
----------
Insurance Brokers - 2.4%
E.W. Blanch Holdings 85,900 3,156,825
Crawford & Company Cl. A 155,250 2,910,938
Crawford & Company Cl. B 75,300 1,411,875
Arthur J. Gallagher & Co. 86,900 3,888,775
Hilb, Rogal & Hamilton Company 146,075 2,282,422
Willis Corroon Group ADR+ 290,900 3,654,431
----------
17,305,266
----------
SHARES VALUE
------ -----
Investment Management - 3.5%
Affiliated Managers Group* 59,800 $2,220,075
Alliance Capital Management L.P. 225,100 5,697,844
Eaton Vance 101,800 4,714,613
The John Nuveen Company Cl. A 26,400 1,047,750
NVEST L.P. 76,800 2,443,200
PIMCO Advisors Holdings L.P. 102,740 3,506,003
Phoenix Investment Partners 157,900 1,371,756
The Pioneer Group 133,600 3,515,350
SEI Investments Company 2,000 124,000
U.S. Global Investors Cl. A* 249,205 498,410
----------
25,139,001
----------
48,234,319
==========
Health -- 2.0%
Commercial Services - 0.1%
IDEXX Laboratories* 20,000 497,500
----------
Drugs and Biotech - 0.5%
Biogen* 7,000 343,000
Centocor* 5,000 181,250
Cerus Corporation* 26,800 375,200
Chiron Corporation* 110,000 1,725,625
Genzyme (General Division)* 10,000 255,625
Genzyme (Tissue Repair)* 15,300 100,406
Guilford Pharmaceuticals* 20,000 352,500
IDEC Pharmaceuticals
Corporation* 10,000 235,625
----------
3,569,231
----------
Health Services - 0.4%
Jenny Craig* 161,600 979,700
Life Technologies 71,750 2,251,156
----------
3,230,856
----------
Personal Care - 0.1%
Jean-Philippe Fragrances* 82,200 662,737
----------
Surgical Products and Devices - 0.9%
Biomet 5,000 165,312
Diagnostic Products Corporation 33,200 956,575
Haemonetics Corporation* 191,000 3,056,000
Marquette Medical Systems* 37,500 962,109
Nitinol Medical Technologies* 114,600 859,500
Spacelabs Medical* 27,200 455,600
----------
6,455,096
----------
14,415,420
==========
Industrial Products -- 19.1%
Aerospace/Defense - 1.6%
Curtiss-Wright Corporation 116,900 4,581,019
Special Metals Corporation* 205,100 2,871,400
Woodward Governor Company 126,800 3,914,950
----------
11,367,369
----------
</TABLE>
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1998 | 23
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
ROYCE VALUE TRUST, INC. JUNE 30, 1998 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Industrial Products (continued)
Building Systems and Components - 4.4%
Decker Manufacturing Corporation 6,022 $ 331,210
Falcon Products 150,700 1,902,587
++General Builders Corporation* 73,645 59,873
International Aluminum Corporation 64,900 2,011,900
Juno Lighting 105,800 2,499,525
Kimball International Cl. B 168,580 3,055,513
Knape & Vogt Manufacturing Company 79,750 1,794,375
Paul Mueller Company 53,200 2,061,500
Preformed Line Products Company 82,600 2,560,600
Simpson Manufacturing* 126,700 4,893,788
Skyline Corporation 133,400 4,352,175
**Thermal Industries* 42,586 638,790
Thor Industries 174,450 4,830,084
Woodhead Industries 39,300 604,237
-----------
31,596,157
-----------
Construction Materials - 3.1%
Ameron International
Corporation 13,000 751,563
Ash Grove Cement Company Cl. B 77,518 6,937,861
CalMat 182,300 4,010,600
Florida Rock Industries 213,000 6,216,938
Puerto Rican Cement Company 96,300 4,550,175
-----------
22,467,137
-----------
Machinery - 1.8%
Atchison Casting Corporation* 58,600 1,047,475
DeVlieg-Bullard* 61,400 138,150
Federal Signal Corporation 9,000 218,812
Lincoln Electric Holding Co. 227,980 5,044,058
Nordson Corporation 35,600 1,673,200
Oshkosh Truck Corporation Cl. B 124,500 3,112,500
Tecumseh Products Company Cl. A 33,300 1,758,656
-----------
12,992,851
-----------
Paper and Packaging - 1.3%
CLARCOR 14,550 305,550
P. H. Glatfelter Company 93,700 1,481,631
Liqui-Box Corporation 66,778 3,163,608
PalEx* 218,100 2,071,950
Shorewood Packaging Corporation* 123,900 1,966,912
-----------
8,989,651
-----------
Pumps, Valves and Bearings - 1.7%
ConBraCo Industries 7,630 4,082,050
Kaydon Corporation 141,800 5,007,313
NN Ball and Roller 132,500 1,581,719
Robroy Industries Cl. A 51,270 781,868
Roper Industries 35,000 914,375
-----------
12,367,325
-----------
SHARES VALUE
------ -----
Specialty Chemicals and Materials - 3.5%
Aceto Corporation 50,010 $ 812,663
W. H. Brady Cl. A 83,100 2,311,219
Calgon Carbon Corporation 40,000 397,500
Chemfab Corporation* 133,219 2,772,620
Hach Company 42,150 522,923
Hach Company Cl. A 50,650 550,819
Hawkins Chemical 133,117 1,597,404
LeaRonal 89,475 2,136,216
Lilly Industries Cl. A 210,983 4,562,507
MacDermid, Incorporated 264,331 7,467,351
Quaker Chemical Corporation 66,950 1,267,866
SAES Getters 5,000 47,187
Synalloy Corporation 40,900 552,150
-----------
24,998,425
-----------
Textiles - 0.9%
Delta Woodside Industries 125,400 650,513
Fab Industries 156,200 4,354,075
Unifi 47,800 1,637,150
Wellman 5,000 113,438
-----------
6,755,176
-----------
Other Industrial Products - 0.8%
BHA Group Holdings 77,009 1,270,648
Baldor Electric Company 22,000 536,250
Franklin Electric 3,800 258,400
Landauer 112,900 3,372,887
-----------
5,438,185
-----------
136,972,276
===========
Industrial Services -- 12.0%
Advertising - 0.8%
Grey Advertising 9,617 3,808,332
True North Communications 58,000 1,696,500
-----------
5,504,832
-----------
Commerical Services - 1.1%
BHI Corporation* 76,900 3,037,550
CDI* 29,800 797,150
Cornell Corrections* 46,600 978,600
Fisher Companies 16,096 1,142,816
The Olsten Corporation 163,600 1,830,275
Open Plan Systems* 34,600 80,012
-----------
7,866,403
-----------
Engineering and Construction - 2.0%
Dames & Moore 32,800 422,300
Insituform Technologies Cl. A* 182,100 2,520,947
Morrison Knudsen Corporation* 122,800 1,726,875
Perini Corporation* 44,200 378,462
++Sevenson Environmental Services 220,520 1,846,855
Stone & Webster 79,000 3,130,375
Todd Shipyards Corporation* 39,200 218,050
</TABLE>
24 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1998
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
ROYCE VALUE TRUST, INC. JUNE 30, 1998 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Industrial Services (continued)
Engineering and Construction (continued)
The Turner Corporation* 73,800 $1,918,800
Willbros Group* 141,200 2,206,250
----------
14,368,914
----------
Food/Tobacco Processors - 2.1%
DIMON Incorporated 181,100 2,037,375
Farmer Bros. 26,000 6,214,000
Midwest Grain Products* 225,250 3,266,125
Seaboard Corporation 3,750 1,091,250
Standard Commercial Corporation* 225,125 2,476,375
----------
15,085,125
----------
Industrial Distribution - 1.5%
Central Steel & Wire Company 3,699 3,772,980
Rush Enterprises* 160,600 1,666,225
TBC Corporation* 98,000 649,250
Treadco 67,100 612,288
Vallen Corporation* 202,929 4,033,214
----------
10,733,957
----------
Printing - 1.9%
Bowne & Co. 43,600 1,962,000
Ennis Business Forms 191,900 2,230,837
Merrill Corporation 143,000 3,154,937
New England Business Service 86,000 2,773,500
The Standard Register Company 92,700 3,279,262
----------
13,400,536
----------
Transportation and Logistics - 2.6%
Air Express International
Corporation 97,068 2,596,569
AirNet Systems* 98,000 1,580,250
Arnold Industries 233,648 3,446,308
Circle International Group 125,825 3,523,100
Comair Holdings 32,650 1,008,069
Frozen Food Express Industries 269,135 2,657,708
Kenan Transport Company 40,500 1,392,187
Pittston BAX Group 155,200 2,415,300
----------
18,619,491
----------
85,579,258
==========
Natural Resources -- 3.9%
Energy Services - 0.7%
Carbo Ceramics 77,400 2,641,275
Lufkin Industries 45,700 1,508,100
Nabors Industries* 5,000 99,062
++Peerless Mfg. 79,300 1,016,031
----------
5,264,468
----------
Oil and Gas - 2.4%
Barrett Resources* 90,000 3,369,375
Tom Brown* 293,800 5,527,113
Denbury Resources* 287,800 3,759,387
SHARES VALUE
------ -----
Devon Energy Corporation 77,700 $2,714,644
PetroCorp Incorporated* 121,900 929,487
Toreador Royalty Corporation* 97,100 303,437
Valley National Gases* 30,100 331,100
----------
16,934,543
----------
Real Estate - 0.8%
Alico 72,700 1,490,350
Consolidated-Tomoka Land 7,800 135,525
FRP Properties* 119,900 3,896,750
Resurgence Properties* 143,400 107,550
----------
5,630,175
----------
27,829,186
==========
Technology -- 9.5%
Distribution - 1.2%
Daisytek International* 10,000 254,375
Marshall Industries* 167,200 4,556,200
Pioneer-Standard Electronics 161,525 1,554,678
Richardson Electronics 173,500 2,342,250
----------
8,707,503
----------
Hardware - 4.9%
Axiohm Transaction Solutions* 97,100 995,275
Cognex* 121,700 2,251,450
Credence Systems Corporation* 15,300 290,700
Dallas Semiconductor Corporation 68,000 2,108,000
Dionex Corporation* 153,200 4,040,650
DuPont Photomasks* 5,000 172,500
Etec Systems* 5,000 175,938
Electroglas* 212,200 2,771,863
Exar Corporation* 182,000 3,822,000
Giga-tronics Incorporated* 57,100 260,519
Helix Technology Corporation 55,700 835,500
IFR Systems 9,133 164,394
Itron* 5,000 63,750
KLA-Tencor* 39,000 1,079,813
National Instruments* 7,500 268,125
Newport Corporation 60,900 1,202,775
PCD* 10,000 171,250
PRI Automation* 49,500 844,594
Peak International Limited* 97,300 1,337,875
Penn Engineering and
Manufacturing 136,800 3,420,000
Penn Engineering and
Manufacturing Cl. A 34,800 713,400
Scitex Corporation Limited* 156,400 2,042,975
TCI Satellite Entertainment Cl. A* 238,900 1,403,538
Unitrode Corporation* 367,200 4,222,800
Vicor Corporation* 5,000 69,375
Xylan Corporation* 7,800 232,537
----------
34,961,596
----------
Software/Services - 2.6%
Adobe Systems Incorporated 20,800 882,700
</TABLE>
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1998 | 25
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
ROYCE VALUE TRUST, INC. JUNE 30, 1998 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Technology (continued)
Software/Services - (continued)
Aspect Development* 3,000 $ 226,875
Check Point Software Technologies* 15,000 491,250
DAOU Systems* 7,600 173,850
Documentum* 5,000 240,000
Industri-Matematik International* 4,000 43,750
++Integral Systems* 157,800 2,682,600
Integrated Systems* 5,000 76,875
i2 Technologies* 10,000 351,250
Lycos* 3,000 226,125
MacNeal-Schwendler Corporation* 71,800 704,538
Macromedia* 3,000 56,063
Manugistics Group* 15,000 371,250
Mosaix* 40,000 392,500
National Computer Systems 268,000 6,432,000
Nichols Research Corporation* 15,950 435,634
Phoenix Technologies* 61,200 780,300
QRS* 5,000 188,125
Siebel Systems* 10,140 327,015
Sterling Commerce* 7,500 363,750
Sybase* 165,100 1,150,541
Technical Communications Corporation* 43,100 218,194
VideoServer* 124,100 1,520,225
Yahoo!* 1,000 157,500
------------
18,492,910
------------
Telecommunications - 0.8%
Communications Systems 32,000 512,000
Level 3 Communications* 66,900 4,950,600
------------
5,462,600
------------
67,624,609
============
Utilities -- 0.4%
Southern Union Company* 79,515 2,564,359
============
Miscellaneous -- 4.4% 31,775,039
============
TOTAL COMMON STOCKS
(Cost $411,318,743) 603,834,828
============
PREFERRED STOCKS -- 0.5%
Pioneer Standard Electronics (Conv.) 60,000 2,730,000
SVB Capital 20,000 500,000
------------
TOTAL PREFERRED STOCKS
(Cost $3,500,000) 3,230,000
============
PRINCIPAL
AMOUNT VALUE
------ -----
CORPORATE BONDS -- 1.6%
Charming Shoppes 7.50% Conv.
Sub. Note due 7/15/06 $3,194,000 $ 3,134,112
Dixie Group 7.00% Conv. Sub.
Deb. due 5/15/12 775,000 678,125
FirstWorld Communications 0%
Sr. Note due 4/15/08 3,493,000 1,536,920
International Semi-Tech 0%
Sr. Disc. Note due 8/15/03 6,158,000 1,785,820
Richardson Electronics 8.25%
Conv. Sub. Deb. due 6/15/06 2,049,000 2,066,929
Richardson Electronics 7.25%
Conv. Sub. Deb. due 12/15/06 419,000 375,529
Shoney's 0% Conv. Sub. Deb.
due 4/11/04 2,146,000 922,780
Sunglass Hut International
5.25% Conv. Sub. Note due
6/15/03 500,000 410,000
Thorn Apple Valley 9.00% Conv.
Sub. Deb. due 4/01/07 100,000 85,000
Tops Appliance City 6.50% Conv.
Sub. Deb. due 11/30/03 1,000,000 630,000
------------
TOTAL CORPORATE BONDS
(Cost $12,900,633) 11,625,215
============
U.S. TREASURY OBLIGATION -- 1.4%
U. S. Treasury Notes, principal amount
$10,000,000, 6.25% due 8/31/02
(Cost $9,994,530) 10,260,900
============
REPURCHASE AGREEMENT -- 12.2%
State Street Bank and Trust Company,
5.15% dated 6/30/98, due 7/01/98,
maturity value $87,612,532
(collateralized by U.S. Treasury Bonds,
9.875% due 11/15/15 and 7.25% due
5/15/16, valued at $89,356,983)
(Cost $87,600,000) 87,600,000
============
TOTAL INVESTMENTS -- 100.1%
(Cost $525,313,906) 716,550,943
LIABILITIES LESS CASH
AND OTHER ASSETS -- (0.1)% (849,348)
------------
NET ASSETS -- 100.0% $715,701,595
============
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing.
** A security for which market quotations are no longer readily available
represents 0.09% of net assets. This security has been valued in good faith
by the Board of Directors.
+ American Depository Receipt.
++ At June 30, 1998, 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.
INCOME TAX INFORMATION: The cost of total investments for federal income tax
purposes was $525,313,906. At June 30, 1998, net unrealized appreciation for all
securities was $191,237,037, consisting of aggregate gross unrealized
appreciation of $214,794,676 and aggregate gross unrealized depreciation of
$23,557,639.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
26 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1998
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
ROYCE VALUE TRUST, INC. JUNE 30, 1998 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments at value (identified cost $437,713,906) $628,950,943
Repurchase agreement (at cost and value) 87,600,000
Cash 75,706
Receivable for dividends and interest 1,011,726
Receivable for investments sold 682,107
Prepaid expenses and other assets 133,224
- -----------------------------------------------------------------------------------------------------
Total Assets 718,453,706
- -----------------------------------------------------------------------------------------------------
LIABILITIES:
Preferred dividend accrued but not yet declared 266,222
Payable for investments purchased 1,667,366
Payable for investment advisory fee 425,078
Accrued expenses 393,445
- -----------------------------------------------------------------------------------------------------
Total Liabilities 2,752,111
- -----------------------------------------------------------------------------------------------------
Net Assets $715,701,595
- -----------------------------------------------------------------------------------------------------
Net Assets applicable to Preferred Stock at a liquidation value of $25 per share $160,000,000
- -----------------------------------------------------------------------------------------------------
Net Assets applicable to Common Stock at a value of $17.54 per share on June 30, 1998 $555,701,595
- -----------------------------------------------------------------------------------------------------
SUMMARY OF STOCKHOLDERS' EQUITY:
7.80% Cumulative Preferred Stock - par value $0.001 per share; 2,400,000 shares $ 2,400
outstanding
7.30% Tax-Advantaged Cumulative Preferred Stock - par value $0.001 per share; 4,000,000 4,000
shares outstanding
Common Stock - par value $0.001 per share; 31,687,398 shares outstanding (150,000,000 31,687
shares authorized)
Additional paid-in capital 504,055,047
Undistributed net investment income 4,662,005
Accumulated net realized gain on investments 42,639,016
Quarterly and accrued distributions (26,929,597)
Net unrealized appreciation on investments 191,237,037
- -----------------------------------------------------------------------------------------------------
Net Assets $715,701,595
- -----------------------------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months ended Year ended
June 30, 1998 December 31,
(unaudited) 1997
----------- ----
<S> <C> <C>
INVESTMENT OPERATIONS:
Net investment income $ 2,525,680 $ 6,702,922
Net realized gain on investments 36,612,095 29,196,786
Net change in unrealized appreciation on investments 11,250,575 80,620,819
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets from investment operations 50,388,350 116,520,527
- ----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income -- (736,536)
Net realized gain on investments -- (4,063,464)
Quarterly and accrued distributions* (3,248,167) (106,667)
- ----------------------------------------------------------------------------------------------------------------------
Total distributions to Preferred Stockholders (3,248,167) (4,906,667)
- ----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income -- (5,058,567)
Net realized gain on investments -- (27,907,269)
Quarterly distributions* (23,574,763) --
- ----------------------------------------------------------------------------------------------------------------------
Total distributions to Common Stockholders (23,574,763) (32,965,836)
- ----------------------------------------------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
Conversion of Notes to Common Stock 26,814,113 11,874,610
Reinvestment of distributions to Common Stockholders 14,607,138 21,871,618
Net proceeds from issuance of Preferred Stock 96,484,000 --
- ----------------------------------------------------------------------------------------------------------------------
Total capital stock transactions 137,905,251 33,746,228
- ----------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 161,470,671 112,394,252
NET ASSETS:
Beginning of period 554,230,924 441,836,672
- ----------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income of $4,662,005 and
$2,136,325, respectively) $715,701,595 $554,230,924
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* To be allocated to net investment income and capital gains at year-end.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1998 | 27
<PAGE>
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
ROYCE VALUE TRUST, INC. SIX MONTHS ENDED JUNE 30, 1998 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends $ 4,044,660
Interest 1,575,174
- --------------------------------------------------------------------------------
Total Income 5,619,834
- --------------------------------------------------------------------------------
Expenses:
Investment advisory fees 2,548,459
Administrative and office facilities expenses 148,129
Custodian and transfer agent fees 87,634
Professional fees 31,886
Directors' fees 28,094
Amortization of underwriting discount and offering costs of Notes 13,004
Interest expense 1,390
Other expenses 249,699
- --------------------------------------------------------------------------------
Total Expenses 3,108,295
Fees Waived by Investment Adviser (14,141)
- --------------------------------------------------------------------------------
Net Expenses 3,094,154
- --------------------------------------------------------------------------------
Net Investment Income 2,525,680
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 36,612,095
Net change in unrealized appreciation on investments 11,250,575
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investments 47,862,670
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS $50,388,350
- --------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
28 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1998
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
ROYCE VALUE TRUST, INC.
- --------------------------------------------------------------------------------
This table is presented to show selected data for a share of Common Stock
outstanding throughout each period, and to assist stockholders in evaluating the
Fund's performance for the periods presented.
<TABLE>
<CAPTION>
Six months ended
June 30, 1998
(unaudited)
----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.91
- ------------------------------------------------------------------
INVESTMENT OPERATIONS (a):
Net investment income 0.07
Net realized and unrealized gain on investments 1.56
- ------------------------------------------------------------------
Total investment operations 1.63
- ------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income --
Net realized gain on investments --
Quarterly and accrued distributions* (0.10)
- ------------------------------------------------------------------
Total distributions to Preferred Stockholders (0.10)
- ------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income --
Net realized gain on investments --
Quarterly distributions* (0.76)
- ------------------------------------------------------------------
Total distributions to Common Stockholders (0.76)
- ------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
Effect of rights offerings or Preferred Stock offerings (0.11)
Effect of reinvestment of distributions by Common
Stockholders (0.03)
- ------------------------------------------------------------------
Total capital stock transactions (0.14)
- ------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD (a) $17.54
- ------------------------------------------------------------------
MARKET VALUE, END OF PERIOD $16.500
- ------------------------------------------------------------------
TOTAL RETURN(b):
Net Asset Value (a) 8.6%
Market Value 14.7%
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:
Total expenses (c, d) 1.14%***
Management fee expense 0.93%***
Interest expense 0.01%***
Other operating expenses 0.20%***
Net investment income 0.93%***
SUPPLEMENTAL DATA:
Net Assets, End of Period (in thousands) $715,702
Portfolio Turnover Rate 17%
Average Commission Rate Paid+ $0.0660
NOTES:
Total amount outstanding (in thousands) --
Asset coverage per note --
Average market value per note (e) --
PREFERRED STOCK:
Total shares outstanding 6,400,000
Asset coverage per share 447%
Liquidation preference per share $25.00
Average market value per share, 7.80% Cumulative (e) $25.97
Average market value per share, 7.30% Tax-Advantaged
Cumulative (e) $25.22
- ------------------------------------------------------------------
<CAPTION>
Years ended December 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $14.32 $13.56 $12.34 $13.47 $ 12.50
- ---------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS (a):
Net investment income 0.21 0.26 0.04 0.04 0.09
Net realized and unrealized gain on investments 3.85 1.92 2.70 0.09 2.12
- ---------------------------------------------------------------------------------------------------------------------------------
Total investment operations 4.06 2.18 2.74 0.13 2.21
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income (0.03) (0.01) -- -- --
Net realized gain on investments (0.15) (0.06) -- -- --
Quarterly and accrued distributions* -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions to Preferred Stockholders (0.18) (0.07) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income (0.19) (0.15) (0.03) (0.01) (0.09)
Net realized gain on investments (1.02) (1.00) (1.26) (1.04) (1.06)
Quarterly distributions* -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions to Common Stockholders (1.21) (1.15) (1.29) (1.05) (1.15)
- ---------------------------------------------------------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
Effect of rights offerings or Preferred Stock offerings -- (0.09) (0.12) (0.14) (0.08)
Effect of reinvestment of distributions by Common
Stockholders (0.08) (0.11) (0.11) (0.07)** (0.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Total capital stock transactions (0.08) (0.20) (0.23) (0.21) (0.09)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD (a) $16.91 $14.32 $13.56 $12.34 $13.47
- ---------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE, END OF PERIOD $15.063 $12.625 $11.875 $11.000 $12.875
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(b):
Net Asset Value (a) 27.5% 15.5% 22.6% 1.1% 17.9%
Market Value 28.8% 16.3% 20.5% (5.6)% 14.8%
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:
Total expenses (c, d) 1.12% 1.28% 2.01% 2.01% 1.33%
Management fee expense 0.39% 0.39% 0.97% 1.21% 1.09%
Interest expense 0.45% 0.64% 0.75% 0.46% --
Other operating expenses 0.28% 0.25% 0.29% 0.34% 0.24%
Net investment income 1.53% 1.27% 0.34% 0.31% 0.74%
SUPPLEMENTAL DATA:
Net Assets, End of Period (in thousands) $554,231 $441,837 $338,970 $269,032 $246,558
Portfolio Turnover Rate 29% 34% 32% 35% 33%
Average Commission Rate Paid+ $0.0605 $0.0574 -- -- --
NOTES:
Total amount outstanding (in thousands) $27,801 $40,000 $40,000 $40,000 --
Asset coverage per note 2091% 1202% 944% 769% --
Average market value per note (e) $107.69 $100.68 $96.92 $95.62 --
PREFERRED STOCK:
Total shares outstanding 2,400,000 2,400,000 -- -- --
Asset coverage per share 662% 481% -- -- --
Liquidation preference per share $25.00 $25.00 -- -- --
Average market value per share, 7.80% Cumulative (e) $25.70 $25.20 -- -- --
Average market value per share, 7.30% Tax-Advantaged
Cumulative (e) -- -- -- -- --
</TABLE>
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
(a) From June 21, 1995 through December 31, 1997, Net Asset Value per share, Net Asset Value Total Returns and Income from
Investment Operations were calculated assuming the Notes had been fully converted, except when the effect of doing so
resulted in a higher Net Asset Value per share than would have been calculated without such assumption. If it were not
assumed the Notes had been converted, the Net Asset Value per share would have been increased by $0.31, $0.17 and $0.09 at
December 31, 1997, 1996 and 1995, respectively.
(b) The Net Asset Value and Market Value Total Returns assume a continuous Common Stockholder who reinvested all net investment
income dividends and capital gain distributions and fully participated in subscriptions of primary rights offerings.
(c) Expense ratios based on total average net assets were 0.99%, 0.99% , 1.20%, 2.01%, 2.01% and 1.33% for the periods ended June
30, 1998(annualized) and December 31, 1997, 1996, 1995, 1994 and 1993, respectively.
(d) Expense ratios based on average net assets applicable to Common Stockholders before waiver of fees by the investment adviser
would have been 1.14%, 1.14% , 1.31%, 2.04% and 2.02% for the periods ended June 30, 1998(annualized) and December 31, 1997,
1996, 1995 and 1994, respectively.
(e) The average of month-end market values during the period.
* To be allocated to net investment income and capital gains at year-end.
** Includes distributions paid January 31, 1994 and distributions paid December 30, 1994.
*** Annualized.
+ Beginning in 1996, funds are required to disclose average commission rates paid per share for purchases and sales of
investments.
</TABLE>
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1998 | 29
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
- --------------------------------------------------------------------------------
ROYCE VALUE TRUST, INC.
- --------------------------------------------------------------------------------
Summary of Significant Accounting Policies:
Royce Value Trust, Inc. (the "Fund") was incorporated under the laws of the
State of Maryland on July 1, 1986 as a diversified closed-end investment
company. The Fund commenced operations on November 26, 1986.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
Valuation of investments:
Securities listed on an exchange or on the Nasdaq National Market System
are valued on the basis of the last reported sale prior to the time the
valuation is made or, if no sale is reported for such day, at their bid price
for exchange-listed securities and at the average of their bid and asked prices
for Nasdaq securities. Quotations are taken from the market where the security
is primarily traded. Other over-the-counter securities for which market
quotations are readily available are valued at their bid price. Securities for
which market quotations are not readily available are valued at their fair
value under procedures established and supervised by the Fund's Board of
Directors. 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 and unrealized appreciation and depreciation of investments are
determined on the basis of identified cost for book and tax purposes.
Expenses:
The Fund incurs direct and indirect expenses. Expenses directly
attributable to the Fund are charged to the Fund's operations, while expenses
applicable to one or more Royce Funds are allocated in an equitable manner.
Allocated personnel costs of employees of The Royce Funds are included in
administrative and office facilities expenses.
Taxes:
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the extent
that it distributes substantially all of its taxable income for its fiscal
year. The Schedule of Investments includes information regarding income taxes
under the caption "Income Tax Information".
Distributions:
The Fund currently has a policy of paying quarterly distributions on the
Fund's Common Stock. Distributions are currently being made at the annual rate
of 9% of the rolling average of the prior four calendar quarter-end NAVs of the
Fund's Common Stock, with the fourth quarter distribution being the greater of
2.25% of the rolling average or the distribution required by IRS regulations.
Distributions paid to Preferred Stockholders are recorded on an accrual basis
and paid quarterly. Distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
Permanent book and tax basis differences relating to stockholder 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 at
fiscal year end is distributable in the following year.
Repurchase agreements:
The Fund enters into repurchase agreements with respect to its portfolio
securities solely with State Street Bank and Trust Company ("SSB&T"), the
custodian of its assets. The Fund restricts repurchase agreements to maturities
of no more than seven days. Securities pledged as collateral for repurchase
agreements, 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 the Fund to dispose of the underlying securities.
Investment Company Convertible Notes:
On February 5, 1998, the Fund redeemed $256,000 of Investment Company
Convertible Notes ("Notes"), constituting all of the then outstanding Notes, at
a price equal to 100% of the principal amount of each Note plus accrued unpaid
interest to that date. Prior to February 5, 1998, the remainder of the Notes
had been converted to Common Stock of the Fund. The Fund issued 2,091,425 and
937,268 shares of Common Stock upon conversion of Notes for the periods ended
June 30, 1998 and December 31, 1997, respectively.
30 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1998
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
- --------------------------------------------------------------------------------
ROYCE VALUE TRUST, INC.
- --------------------------------------------------------------------------------
Capital Stock:
The Fund currently has two issues of Preferred Stock outstanding. At a
Special Meeting on March 2, 1998, Stockholders approved an increase in the
frequency of the dividend payments on the Cumulative Preferred Stock then
outstanding, from an annual payment at a rate of 8% to a quarterly payment at
an annual rate of 7.80%. Stockholders also approved an extension of the call
protection period on the 7.80% Cumulative Preferred Stock by two years to
August 15, 2003. In conjunction with the rate change, an extra $.05 per share
of Cumulative Preferred Stock was paid on March 23, 1998. On May 22, 1998, the
Fund issued and sold 4,000,000 shares of 7.30% Tax-Advantaged Cumulative
Preferred Stock. Both issues of Preferred Stock have a liquidation preference
of $25.00 per share.
Under the Investment Company Act of 1940, the Fund is required to maintain
an asset coverage of at least 200% for the Preferred Stock. In addition,
pursuant to the Rating Agency Guidelines, the Fund is required to maintain a
certain discounted asset coverage for its portfolio that equals or exceeds the
Basic Maintenance Amount under the guidelines established by Moody's. The Fund
has met these requirements since issuing Preferred Stock.
The Fund is required to allocate long-term capital gain distributions and
other types of income proportionately to distributions made to holders of
shares of Common Stock and Preferred Stock. To the extent that dividends on the
shares of Preferred Stock are not paid from long-term capital gains, net
investment income, or net short-term capital gains, they will represent a
return of capital.
The Fund issued 887,375 and 1,422,952 shares of Common Stock as
reinvestment by Common Stockholders of dividends and distributions for the
periods ended June 30, 1998 and December 31, 1997, respectively.
Investment Advisory Agreement:
As compensation for its services under the Investment Advisory Agreement,
Royce & Associates, Inc. ("Royce") receives a fee comprised of a Basic Fee
("Basic Fee") and an adjustment to the Basic Fee based on the investment
performance of the Fund in relation to the investment record of the S&P 600
SmallCap Index ("S&P 600"). Prior to July 1, 1996, the Fund's investment
performance was measured against the record of the S&P's 500 index over a
rolling period of 36 months. The Investment Advisory Agreement provides that,
for the 18-month period from July 1, 1996 to December 31, 1997, the monthly fee
payable to Royce was the lower of the fee calculated under it or the fee that
would have been payable under the prior investment advisory agreement.
The Basic Fee is a monthly fee equal to 1/12 of 1% (1% on an annualized
basis) of the average of the net assets of the Fund at the end of each month
included in the applicable performance period. The performance period for each
such month will be from July 1, 1996 to the most recent month-end, until the
Investment Advisory Agreement has been in effect for 60 full calendar months,
when it will become a rolling 60-month period ending with the most recent
calendar month.
The Basic Fee for each such month will be increased or decreased at the
rate of 1/12 of .05% per percentage point, depending on the extent, if any, by
which the investment performance of the Fund exceeds by more than two
percentage points, or is exceeded by more than two percentage points by, the
percentage change in the investment record of the S&P 600 for the performance
period. The maximum increase or decrease in the Basic Fee for any month may not
exceed 1/12 of .5%. Accordingly, for each month, the maximum monthly fee rate
as adjusted for performance is 1/12 of 1.5% and is payable if the investment
performance of the Fund exceeds the percentage change in the investment record
of the S&P 600 by 12 or more percentage points for the performance period, and
the minimum monthly fee rate as adjusted for performance is 1/12 of .5% and is
payable if the percentage change in the investment record of the S&P 600
exceeds the investment performance of the Fund by 12 or more percentage points
for the performance period.
Notwithstanding the foregoing, Royce is not entitled to receive any fee for
any month when the investment performance of the Fund for the rolling 36-month
period ending with such month is negative on an absolute basis. In the event
that the Fund's investment performance for such a performance period is less
than zero, Royce will not be required to refund to the Fund any fee earned in
respect of any prior performance period.
Royce has voluntarily committed to waive the portion of its investment
advisory fee attributable to an issue of the Fund's Preferred Stock for any
month when the Fund's average annual NAV total return since issuance of the
Preferred Stock fails to exceed the applicable Preferred Stock dividend rate
during that period.
For the six months ended June 30, 1998, the Fund accrued and paid Royce
advisory fees totaling $2,534,318, which is net of $14,141 voluntarily waived
by Royce.
Purchases and Sales of Investment Securities:
For the six months ended June 30, 1998, the cost of purchases and proceeds
from sales of investment securities, other than short-term securities, amounted
to $100,296,571 and $99,621,431, respectively.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1998 | 31
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
- --------------------------------------------------------------------------------
ROYCE VALUE TRUST, INC.
- --------------------------------------------------------------------------------
Transactions in Shares of Affiliated Companies:
An "Affiliated Company", as defined in the Investment Company Act of 1940,
is a company in which a Fund owns at least 5% of the company's outstanding
voting securities. The Fund effected the following transactions in shares of
such companies during the six months ended June 30, 1998.
<TABLE>
<CAPTION>
==========================================================================================================================
Purchases Sales
----------------- ------------------------
Affiliated Company Shares Cost Shares Cost Realized Gain/Loss Dividend Income
------------------ ------ ---- ------ ---- ------------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
General Builders Corporation -- -- -- -- -- --
Integral Systems -- -- -- -- -- --
Peerless Mfg. -- -- -- -- -- $19,825
Sage Laboratories -- -- 108,000 $813,888 $1,036,427 --
Sevenson Environmental Services -- -- -- -- -- $15,436
==========================================================================================================================
</TABLE>
32 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1998
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
ROYCE MICRO-CAP TRUST, INC. JUNE 30, 1998 (unaudited)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 82.9%
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Consumer Products -- 12.9%
Apparel and Shoes - 3.6%
Garan Incorporated 53,200 $ 1,443,050
Haggar 20,000 255,000
K-Swiss Cl. A 27,800 545,575
**Kleinert's* 14,200 170,400
Oshkosh B'Gosh Cl. A 60,100 2,674,450
Wellco Enterprises 18,000 191,250
Weyco Group 68,400 1,786,950
------------
7,066,675
------------
Food/Beverage/Tobacco - 0.8%
Golden Enterprises 70,600 445,663
++The Smithfield Companies 148,400 1,113,000
------------
1,558,663
------------
Home Furnishings/Appliances - 3.1%
Bassett Furniture Industries 52,800 1,488,300
Conso Products* 95,700 789,525
Lifetime Hoan Corporation 120,054 1,200,540
Mity-Lite* 14,200 252,050
The Rival Company 34,000 459,000
Velcro Industries 13,300 1,852,025
------------
6,041,440
------------
Publishing - 1.3%
Gibson Greetings* 37,000 925,000
Plenum Publishing Corporation 12,100 886,325
The Topps Company* 227,300 703,209
------------
2,514,534
------------
Sports and Recreation - 2.0%
Baldwin Piano & Organ Company 42,300 634,500
Johnson Worldwide Associates Cl. A* 67,100 847,137
Lund International Holdings* 110,700 1,259,213
RockShox* 263,200 1,052,800
------------
3,793,650
------------
Other Consumer Products - 2.1%
Lazare Kaplan International* 43,500 459,469
Matthews International Corporation Cl. A 106,000 2,603,625
Toy Biz* 109,800 1,015,650
------------
4,078,744
------------
25,053,706
============
Consumer Services -- 4.3%
Direct Marketing - 0.2%
Lillian Vernon Corporation 24,900 413,962
------------
Leisure/Entertainment - 0.8%
MovieFone Cl. A* 107,600 1,076,000
Seattle Filmworks* 44,600 344,256
------------
1,420,256
------------
SHARES VALUE
------ -----
Restaurants/Lodging - 0.5%
IHOP* 5,000 $ 206,875
Pizza Inn 132,500 737,031
------------
943,906
------------
Retail - 2.8%
The Bombay Company* 46,600 221,350
Brookstone* 33,000 495,000
Catherines Stores Corporation* 136,700 1,341,369
Cato Corporation Cl. A 50,000 870,312
Lechters* 93,400 458,244
Suzy Shier 156,800 1,038,904
Urban Outfitters* 56,900 1,038,425
------------
5,463,604
------------
8,241,728
============
Financial Intermediaries -- 9.4%
Banking - 1.1 %
Iron & Glass Bancorp 16,600 892,250
Oriental Financial Group 23,350 861,031
Queen City Investments* 948 365,928
------------
2,119,209
------------
Insurance - 8.3%
ALLIED Life Financial Corporation 19,200 554,400
Baldwin & Lyons Cl. B 28,024 651,558
Capitol Transamerica Corporation 55,965 1,150,780
Chartwell Re Corporation 28,500 838,969
Highlands Insurance Group* 44,500 823,250
Independence Holding Company 33,300 466,200
Intercargo Corporation 80,500 945,875
Medical Assurance* 35,592 987,678
NYMAGIC 40,400 1,105,950
The Navigators Group* 10,100 191,269
Nobel Insurance Limited 87,700 1,183,950
Old Guard Group 56,500 1,048,781
PXRE Corporation 62,364 1,870,920
Pennsylvania Manufacturers
Corporation Cl. A 56,609 1,302,007
Trenwick Group 21,950 852,620
Wellington Underwriting* 515,770 2,230,459
------------
16,204,666
------------
18,323,875
============
Financial Services -- 2.8%
Information and Processing - 1.3%
Duff & Phelps Credit Rating Co. 44,600 2,486,450
------------
Insurance Brokers - 0.4%
Hilb, Rogal & Hamilton Company 50,300 785,937
------------
</TABLE>
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1998 | 33
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
ROYCE MICRO-CAP TRUST, INC. JUNE 30, 1998 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Financial Services (continued)
Investment Management - 1.1%
Eaton Vance 19,300 $ 893,831
Phoenix Investment Partners 136,400 1,184,975
------------
2,078,806
------------
5,351,193
============
Health -- 1.9%
Commercial Services - 0.1%
++ICON ADR+* 1,000 25,250
------------
Drugs and Biotech - 1.2%
BioReliance Corporation* 107,500 1,619,219
International Isotopes* 50,600 844,388
------------
2,463,607
------------
Health Services - 0.2%
Jenny Craig* 57,000 345,562
------------
Surgical Products and Devices - 0.4%
Nitinol Medical Technologies* 118,100 885,750
------------
3,720,169
============
Industrial Products -- 21.9%
Aerospace/Defense - 1.2%
Curtiss-Wright Corporation 35,000 1,371,562
Special Metals Corporation* 68,000 952,000
------------
2,323,562
------------
Building Systems and Components - 6.8%
AFC Cable Systems* 14,750 523,625
American Buildings Company* 35,700 1,062,075
Falcon Products 115,600 1,459,450
International Aluminum
Corporation 19,300 598,300
Juno Lighting 57,500 1,358,437
Kit Manufacturing* 54,200 379,400
LSI Industries 25,900 518,000
Paul Mueller Company 16,650 645,188
Simpson Manufacturing* 51,100 1,973,737
Skyline Corporation 32,100 1,047,263
**Thermal Industries* 58,700 880,500
Thor Industries 55,200 1,528,350
Vertex Communications* 10,000 235,000
Woodhead Industries 67,900 1,043,962
------------
13,253,287
------------
Construction Materials - 3.2%
Ash Grove Cement Company 20,000 1,790,000
Florida Rock Industries 55,000 1,605,312
The Monarch Cement Company 35,210 897,855
Northwest Pipe Company* 13,900 326,650
Puerto Rican Cement Company 34,300 1,620,675
------------
6,240,492
------------
SHARES VALUE
------ -----
Machinery - 1.5%
Alamo Group 16,000 $ 304,000
++Art's-Way Manufacturing* 124,000 1,023,000
Atchison Casting Corporation* 40,000 715,000
DeVlieg-Bullard* 24,000 54,000
Oshkosh Truck Corporation Cl. B 32,100 802,500
------------
2,898,500
------------
Paper and Packaging - 1.0%
Liqui-Box Corporation 13,100 620,612
PalEx* 137,600 1,307,200
------------
1,927,812
------------
Pumps, Valves and Bearings - 1.0%
NN Ball and Roller 55,400 661,338
Sun Hydraulics Corporation 78,400 1,254,400
------------
1,915,738
------------
Specialty Chemicals and Materials - 3.9%
Aceto Corporation 43,875 712,969
Aldila* 213,200 1,412,450
CFC International* 113,800 1,258,913
Chemfab Corporation* 80,700 1,679,569
Hauser* 59,500 345,844
Hawkins Chemical 122,667 1,472,004
Synalloy Corporation 56,800 766,800
------------
7,648,549
------------
Textiles - 1.0%
Fab Industries 44,700 1,246,012
Thomaston Mills Cl. A 100,000 587,500
------------
1,833,512
------------
Other Industrial Products - 2.3%
BHA Group Holdings 79,113 1,305,365
Landauer 32,300 964,962
Modern Controls 70,300 527,250
Myers Industries 52,690 1,264,560
Pioneer Metals* 1,570 464,720
------------
4,526,857
------------
42,568,309
============
Industrial Services -- 10.2%
Commercial Services - 2.0%
BHI Corporation* 42,800 1,690,600
Cornell Corrections* 61,200 1,285,200
Exponent* 53,200 452,200
Gulfmark Offshore* 5,000 113,750
C. H. Heist* 41,012 302,463
------------
3,844,213
------------
Engineering and Construction - 2.0%
Insituform Technologies Cl. A* 87,400 1,209,944
Sevenson Environmental Services 125,120 1,047,880
Todd Shipyards Corporation* 26,400 146,850
Willbros Group* 92,900 1,451,563
------------
3,856,237
------------
</TABLE>
34 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1998
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
ROYCE MICRO-CAP TRUST, INC. JUNE 30, 1998 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Industrial Services (continued)
Food/Tobacco Processors - 1.6%
Farmer Bros. 5,000 $ 1,195,000
Midwest Grain Products* 89,322 1,295,169
Standard Commercial
Corporation* 62,022 682,242
------------
3,172,411
------------
Industrial Distribution - 0.8%
Vallen Corporation* 76,800 1,526,400
------------
Printing - 1.8%
Ennis Business Forms 77,900 905,587
Merrill Corporation 40,800 900,150
New England Business Service 50,300 1,622,175
Schawk 1,300 19,500
------------
3,447,412
------------
Transportation and Logistics - 2.0%
AirNet Systems* 38,100 614,363
Circle International Group 20,500 574,000
Frozen Food Express Industries 138,500 1,367,687
Kenan Transport Company 34,800 1,196,250
Knight Transportation* 7,500 143,438
------------
3,895,738
------------
19,742,411
============
Natural Resources -- 3.5%
Energy Services - 1.0%
Carbo Ceramics 36,700 1,252,388
Dailey International* 58,400 350,400
Peerless Mfg. 21,600 276,750
------------
1,879,538
------------
Metals and Mining - 0.1%
MK Gold Company* 291,600 273,375
------------
Oil and Gas - 1.7%
Domain Energy Corporation* 72,200 866,400
MarkWest Hydrocarbon* 15,200 235,600
Middle Bay Oil Company* 10,000 51,250
PetroCorp Incorporated* 133,800 1,020,225
Titan Exploration* 136,600 1,212,325
------------
3,385,800
------------
Real Estate - 0.7%
FRP Properties* 39,700 1,290,250
------------
6,828,963
============
Technology -- 11.4%
Distribution - 1.7%
Jaco Electronics* 25,000 155,469
Perceptron* 119,100 1,429,200
Richardson Electronics 124,500 1,680,750
------------
3,265,419
------------
SHARES VALUE
------ -----
Hardware - 6.8%
ADE Corporation* 21,300 $ 311,512
Advanced Energy Industries* 35,500 412,688
Aetrium Incorporated* 11,000 94,875
Align-Rite International* 30,000 446,250
Axiohm Transaction Solutions* 73,890 757,372
Benchmarq Microelectronics* 49,100 552,375
CEM Corporation* 75,700 917,862
Control Devices 83,332 1,083,316
Electroglas* 89,900 1,174,319
Exar Corporation* 53,900 1,131,900
Giga-tronics Incorporated* 22,982 104,855
Industrial Scientific Corporation 22,900 561,050
Intevac* 97,900 1,052,425
Newport Corporation 60,300 1,190,925
Optek Technology* 29,300 560,362
Penn Engineering and Manufacturing 49,700 1,242,500
Penn Engineering and
Manufacturing Cl. A 15,400 315,700
Performance Technologies* 30,000 337,500
Printronix* 10,000 160,000
Watkins-Johnson Company 30,000 780,000
------------
13,187,786
------------
Software/Services - 2.9%
CSP* 40,150 376,406
Integral Systems* 42,600 724,200
Kronos Incorporated* 39,000 1,413,750
MacNeal-Schwendler Corporation* 128,000 1,256,000
Rainbow Technologies* 43,200 885,600
Tyler Corporation* 97,300 1,003,406
------------
5,659,362
------------
22,112,567
============
Miscellaneous -- 4.6% 9,017,276
============
TOTAL COMMON STOCKS
(Cost $118,245,808) 160,960,197
============
</TABLE>
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1998 | 35
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
ROYCE MICRO-CAP TRUST, INC. JUNE 30, 1998 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------ -----
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 5.2%
U.S. Treasury Notes
6.25%, due 8/31/00 $5,000,000 $ 5,073,450
6.25%, due 8/31/02 5,000,000 5,130,450
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $10,015,235) 10,203,900
============
</TABLE>
<TABLE>
<CAPTION>
VALUE
-----
<S> <C>
REPURCHASE AGREEMENT -- 11.8%
State Street Bank & Trust Company, 5.15%
dated 6/30/98, due 7/01/98 maturity
value $22,903,276 (collateralized by
U.S. Treasury Bonds, 8.375% due
8/15/08 and 9.875% due 11/15/15,
valued at $23,361,583)
(Cost $22,900,000) $ 22,900,000
============
TOTAL INVESTMENTS -- 99.9%
(Cost $151,161,043) 194,064,097
CASH AND OTHER ASSETS
LESS LIABILITIES -- 0.1% 168,173
------------
NET ASSETS -- 100.0% $194,232,270
============
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing.
** Two securities for which market quotations are no longer readily available
represent 0.54% of net assets. These securities have been valued in good
faith by the Board of Directors.
+ American Depository Receipt.
++ At June 30, 1998, the Fund owned 5% or more of the Company's outstanding
voting securities thereby making the Company an Affiliated Company as the
term is defined in the Investment Company Act of 1940.
INCOME TAX INFORMATION: The cost of total investments for federal income tax
purposes was $151,161,043. At June 30, 1998, net unrealized appreciation for all
securities was $42,903,054, consisting of aggregate gross unrealized
appreciation of $49,435,103 and aggregate gross unrealized depreciation of
$6,532,049.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
36 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1998
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
ROYCE MICRO-CAP TRUST, INC. JUNE 30, 1998 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments at value (identified cost $128,261,043) $171,164,097
Repurchase agreement (at cost and value) 22,900,000
Cash 47,199
Receivable for dividends and interest 350,593
Receivable for investments sold 7,651
Prepaid expenses and other assets 33,725
- ----------------------------------------------------------------------------------------------------------------------------
Total Assets 194,503,265
- ----------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Preferred dividend accrued but not yet declared 68,889
Payable for investment advisory fee 55,997
Payable for investments purchased 55,917
Payable for administration fee 10,985
Accrued expenses 79,207
- ----------------------------------------------------------------------------------------------------------------------------
Total Liabilities 270,995
- ----------------------------------------------------------------------------------------------------------------------------
Net Assets $194,232,270
- ----------------------------------------------------------------------------------------------------------------------------
Net Assets applicable to Preferred Stock at a liquidation value of $25 per share $ 40,000,000
- ----------------------------------------------------------------------------------------------------------------------------
Net Assets applicable to Common Stock at a value of $11.75 per share on June 30, 1998 $154,232,270
- ----------------------------------------------------------------------------------------------------------------------------
SUMMARY OF STOCKHOLDERS' EQUITY:
7.75% Cumulative Preferred Stock - par value $0.001 per share; 1,600,000 shares outstanding $ 1,600
Common Stock - par value $0.001 per share; 13,129,779 shares outstanding (150,000,000 shares authorized) 13,130
Additional paid-in capital 136,302,534
Undistributed net investment income 1,343,196
Accumulated net realized gain on investments and foreign currency 15,286,637
Quarterly and accrued distributions (1,618,889)
Net unrealized appreciation on investments and foreign currency 42,904,062
- ----------------------------------------------------------------------------------------------------------------------------
Net Assets $194,232,270
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months ended Year ended
June 30, 1998 December 31,
(unaudited) 1997
----------- ----
<S> <C> <C>
INVESTMENT OPERATIONS:
Net investment income $1,162,463 $ 2,268,785
Net realized gain on investments and foreign currency 11,648,118 10,619,371
Net change in unrealized appreciation on investments and foreign currency 610,044 21,021,456
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from investment operations 13,420,625 33,909,612
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income -- (242,787)
Net realized gain on investments and foreign currency -- (1,298,601)
Quarterly and accrued distributions* (1,550,000) (68,889)
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions to Preferred Stockholders (1,550,000) (1,610,277)
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income -- (1,914,145)
Net realized gain on investments and foreign currency -- (10,239,254)
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions to Common Stockholders -- (12,153,399)
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
Reinvestment of distributions to Common Stockholders -- 9,762,687
Net proceeds from issuance of Preferred Stock -- 38,500,000
- ----------------------------------------------------------------------------------------------------------------------------
Total capital stock transactions -- 48,262,687
- ----------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 11,870,625 68,408,623
NET ASSETS:
Beginning of period 182,361,645 113,953,022
- ----------------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income of $1,343,196 and $180,733,
respectively) $194,232,270 $ 182,361,645
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* To be allocated to net investment income and capital gains at year-end.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1998 | 37
<PAGE>
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
ROYCE MICRO-CAP TRUST, INC. SIX MONTHS ENDED JUNE 30, 1998 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest $ 988,790
Dividends 770,016
- -------------------------------------------------------------------------------------------
Total Income 1,758,806
- -------------------------------------------------------------------------------------------
Expenses:
Investment advisory fees 317,470
Administration fees 65,846
Administrative and office facilities expenses 46,012
Custodian fees 38,193
Professional fees 23,583
Directors' fees 12,033
Transfer agent fees 11,948
Other expenses 81,258
- -------------------------------------------------------------------------------------------
Total Expenses 596,343
- -------------------------------------------------------------------------------------------
Net Investment Income 1,162,463
- -------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain on investments and foreign currency 11,648,118
Net change in unrealized appreciation on investments and foreign currency 610,044
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign currency 12,258,162
- -------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS $13,420,625
- -------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
38 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1998
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
ROYCE MICRO-CAP TRUST, INC.
- --------------------------------------------------------------------------------
This table is presented to show selected data for a share of Common Stock
outstanding throughout each period, and to assist stockholders in evaluating the
Fund's performance for the periods presented.
<TABLE>
<CAPTION>
Six months ended
June 30, 1998
(unaudited)
- --------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.84
- ------------------------------------------------------------------------
INVESTMENT OPERATIONS:
Net investment income 0.09
Net realized and unrealized gain on investments and
foreign currency 0.94
- ------------------------------------------------------------------------
Total investment operations 1.03
- ------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income --
Net realized gain on investments and foreign currency --
Quarterly and accrued distributions** (0.12)
- ------------------------------------------------------------------------
Total distributions to Preferred Stockholders (0.12)
- ------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income --
Net realized gain on investments and foreign currency --
- ------------------------------------------------------------------------
Total distributions to Common Stockholders --
- ------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
Effect of rights offering or Preferred Stock offering --
Effect of reinvestment of distributions by Common
Stockholders --
- ------------------------------------------------------------------------
Total capital stock transactions --
- ------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.75
- ------------------------------------------------------------------------
MARKET VALUE, END OF PERIOD $10.3125
- ------------------------------------------------------------------------
TOTAL RETURN (a):
Net Asset Value 8.4%
Market Value 1.9%
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:
Total expenses (b, c) 0.80%***
Management fee expense 0.42%***
Other operating expenses 0.38%***
Net investment income (loss) 1.55%***
SUPPLEMENTAL DATA:
Net Assets, End of Period (in thousands) $194,232
Portfolio Turnover Rate 17%
Average Commission Rate Paid+ $0.0588
PREFERRED STOCK:
Total shares outstanding 1,600,000
Asset coverage per share 486%
Liquidation preference per share $25.00
Average market value per share (d) $25.60
- -----------------------------------------------------------------------
<CAPTION>
For the period
Years ended December 31, December 14, 1993*
---------------------------------------------------- through December
1997 1996 1995 1994 31, 1993
- -------------------------------------------------------------------------------------------------------------- ------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.38 $8.89 $7.58 $7.27 $7.25
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS:
Net investment income 0.17 0.09 0.02 0.01 --
Net realized and unrealized gain on investments and
foreign currency 2.61 1.32 1.69 0.41 0.02
- ---------------------------------------------------------------------------------------------------------------------------
Total investment operations 2.78 1.41 1.71 0.42 0.02
- ---------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income (0.02) -- -- -- --
Net realized gain on investments and foreign currency (0.12) -- -- -- --
Quarterly and accrued distributions** -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions to Preferred Stockholders (0.14) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income (0.16) (0.10) (0.02) (0.02) --
Net realized gain on investments and foreign currency (0.84) (0.70) (0.34) (0.03) --
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions to Common Stockholders (1.00) (0.80) (0.36) (0.05) --
- ---------------------------------------------------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
Effect of rights offering or Preferred Stock offering (0.12) -- -- (0.06) --
Effect of reinvestment of distributions by Common
Stockholders (0.06) (0.12) (0.04) -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total capital stock transactions (0.18) (0.12) (0.04) (0.06) --
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.84 $9.38 $8.89 $7.58 $7.27
- ---------------------------------------------------------------------------------------------------------------------------
MARKET VALUE, END OF PERIOD $10.125 $8.25 $8.00 $7.00 $7.50
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (a):
Net Asset Value 27.1% 16.6% 22.9% 6.0% 0.3%
Market Value 35.0% 13.9% 19.8% (5.1)% 0.0%
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:
Total expenses (b, c) 0.83% 0.85% 1.36% 1.88% 1.92%***
Management fee expense 0.40% 0.47% 0.77% 1.20% 0.00%
Other operating expenses 0.43% 0.38% 0.59% 0.68% 1.92%***
Net investment income (loss) 1.77% 0.88% 0.26% 0.21% (0.06)%***
SUPPLEMENTAL DATA:
Net Assets, End of Period (in thousands) $182,362 $113,953 $100,065 $82,534 $71,126
Portfolio Turnover Rate 34% 51% 51% 23% 0%
Average Commission Rate Paid+ $0.0549 $0.0485 -- -- --
PREFERRED STOCK:
Total shares outstanding 1,600,000 -- -- -- --
Asset coverage per share 456% -- -- -- --
Liquidation preference per share $25.00 -- -- -- --
Average market value per share (d) $25.56 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Net Asset Value and Market Value Total Returns assume a continuous
Common Stockholder who reinvested all net investment income dividends and
capital gain distributions and fully participated in primary rights
offerings.
(b) Expense ratios based on total average net assets were 0.63%, 0.72% , 0.85%,
1.36%, 1.88% and 1.92% for the periods ended June 30, 1998 (annualized) and
December 31, 1997, 1996, 1995, 1994 and 1993 (annualized), respectively.
(c) Expense ratios based on average net assets applicable to Common
Stockholders before waiver of fees by the investment adviser and
administrator would have been 2.12% for the period ended December 31, 1993.
(d) The average of month-end market values during the period.
* Commencement of operations.
** To be allocated to net investment income and capital gains at year-end.
*** Annualized.
+ Beginning in 1996, funds are required to disclose average commission rates
paid per share for purchases and sales of investments.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1998 | 39
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
- --------------------------------------------------------------------------------
ROYCE MICRO-CAP TRUST, INC.
- --------------------------------------------------------------------------------
Summary of Significant Accounting Policies:
Royce Micro-Cap Trust, Inc. (the "Fund"), was incorporated under the laws
of the State of Maryland on September 9, 1993 as a diversified closed-end
investment company. The Fund commenced operations on December 14, 1993.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
Valuation of investments:
Securities listed on an exchange or on the Nasdaq National Market System
are valued on the basis of the last reported sale prior to the time the
valuation is made or, if no sale is reported for such day, at their bid price
for exchange-listed securities and at the average of their bid and asked prices
for Nasdaq securities. Quotations are taken from the market where the security
is primarily traded. Other over-the-counter securities for which market
quotations are readily available are valued at their bid price. Securities for
which market quotations are not readily available are valued at their fair
value under procedures established and supervised by the Fund's Board of
Directors. 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.
Foreign Currency:
The Fund does not isolate that portion of the results of operations which
result from changes in foreign exchange rates on investments from the portion
arising from changes in market prices of securities held. Such fluctuations are
included with net realized and unrealized gains and losses on investments.
Net realized foreign exchange gains or losses arise from currency gains or
losses realized between the trade and settlement dates on securities
transactions and from the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books and the
U.S. dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets and
liabilities, including investments in securities, as a result of changes in the
exchange rates.
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 and unrealized appreciation and depreciation of investments are
determined on the basis of identified cost for book and tax purposes.
Expenses:
The Fund incurs direct and indirect expenses. Expenses directly
attributable to the Fund are charged to the Fund's operations, while expenses
applicable to one or more Royce Funds are allocated in an equitable manner.
Allocated personnel costs of employees of The Royce Funds are included in
administrative and office facilities expenses.
Taxes:
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the extent
that it distributes substantially all of its taxable income for its fiscal
year. The Schedule of Investments includes information regarding income taxes
under the caption "Income Tax Information".
Distributions:
Distributions paid to Common Stockholders are recorded on the ex-dividend
date and paid annually in December. Distributions paid to Preferred
Stockholders are recorded on an accrual basis and paid quarterly. Distributions
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. Permanent book and tax basis
differences relating to stockholder 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 at fiscal year end
is distributable in the following year.
Repurchase agreements:
The Fund enters into repurchase agreements with respect to its portfolio
securities solely with State Street Bank and Trust Company ("SSB&T"), the
custodian of its assets. The Fund restricts repurchase agreements to maturities
of no more than seven days. Securities pledged as collateral for repurchase
agreements, 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 the Fund to dispose of the underlying securities.
40 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1998
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
- --------------------------------------------------------------------------------
ROYCE MICRO-CAP TRUST, INC.
- --------------------------------------------------------------------------------
Capital Stock:
On July 2, 1997, the Fund issued and sold 1,600,000 shares of 7.75%
Cumulative Preferred Stock. The stock has a liquidation preference of $25.00
per share.
Under the Investment Company Act of 1940, the Fund is required to maintain
an asset coverage of at least 200% for the Preferred Stock. In addition,
pursuant to the Rating Agency Guidelines, the Fund is required to maintain a
certain discounted asset coverage for its portfolio that equals or exceeds the
Basic Maintenance Amount under the guidelines established by Moody's. The Fund
has met these requirements since issuing Preferred Stock.
The Fund is required to allocate long-term capital gain distributions and
other types of income proportionately to distributions made to holders of
shares of Common Stock and Preferred Stock. To the extent that dividends on the
shares of Preferred Stock are not paid from long-term capital gains, net
investment income, or net short-term capital gains, they will represent a
return of capital.
The Fund issued 976,268 shares of Common Stock as reinvestment by Common
Stockholders of dividends and distributions for the year ended December 31,
1997.
Investment Advisory Agreement:
As compensation for its services under the Investment Advisory Agreement,
Royce & Associates, Inc. ("Royce") receives a fee comprised of a basic fee
("Basic Fee") and an adjustment to the Basic Fee based on the investment
performance of the Fund in relation to the investment record of the Russell
2000 index for certain prescribed performance periods, as described below.
The Basic Fee is a monthly fee equal to 1/12 of 1% (1% on an annualized
basis) of the average of the net assets of the Fund at the end of each month
included in a period consisting of the rolling 36 months ending with such
month. The performance period for each such month is from January 1, 1997 to
the most recent month-end, until the Investment Advisory Agreement has been in
effect for 36 full calendar months, when the performance period will become a
rolling 36-month period ending with such month.
The Basic Fee for each such month may be increased or decreased at the rate
of 1/12 of .05% per percentage point, depending on the extent, if any, by which
the investment performance of the Fund exceeds by more than two percentage
points, or is exceeded by more than two percentage points by, the percentage
change in the investment record of the Russell 2000 index for the performance
period. The maximum increase or decrease in the Basic Fee for any month may not
exceed 1/12 of .5%. Accordingly, for each month, the maximum monthly fee rate
as adjusted for performance is 1/12 of 1.5% and would be payable if the
investment performance of the Fund exceeded the percentage change in the
investment record of the Russell 2000 index by 12 or more percentage points for
the performance period, and the minimum monthly fee rate as adjusted for
performance is 1/12 of .5% and would be payable if the percentage change in the
investment record of the Russell 2000 index exceeded the investment performance
of the Fund by 12 or more percentage points for the performance period.
The present Investment Advisory Agreement replaced a similar investment
advisory agreement between the Fund and Royce, under which the Fund's
investment performance was measured against the record of the Nasdaq Composite
over a rolling period of up to 36 months. The present Investment Advisory
Agreement provides that, for the 18-month period from January 1, 1997 to June
30, 1998, the monthly fee payable to Royce was the lower of the fee calculated
under such Agreement or the fee that would have been payable to Royce for the
month involved under the prior agreement.
Royce has voluntarily committed to waive the portion of its investment
advisory fee attributable to the Fund's Preferred Stock for any month when the
Fund's average annual NAV total return from the date of the Preferred Stock
original issue fails to exceed the Preferred Stock's dividend rate during that
period.
For the six months ended June 30, 1998, the Fund accrued and paid Royce
advisory fees totaling $317,470.
Administration Agreement:
Under an Administration Agreement with the Fund, Mitchell Hutchins Asset
Management Inc. (the "Administrator") serves as the Administrator, and performs
or assists in certain aspects of the Fund's operations. As compensation for its
services, the Administrator is paid an annual fee, payable monthly, of $50,000
plus .05% on the first $125 million of the Fund's average daily net assets, and
.03% of average daily net assets exceeding $125 million.
Purchases and Sales of Investment Securities:
For the six months ended June 30, 1998, the cost of purchases and proceeds
from sales of investment securities, other than short-term securities, amounted
to $32,065,477 and $28,153,160, respectively.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1998 | 41
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
- --------------------------------------------------------------------------------
ROYCE MICRO-CAP TRUST, INC.
- --------------------------------------------------------------------------------
Transactions in Shares of Affiliated Companies:
An "Affiliated Company", as defined in the Investment Company Act of 1940,
is a company in which a Fund owns at least 5% of the company's outstanding
voting securities. The Fund effected the following transactions in shares of
such companies during the six months ended June 30, 1998.
<TABLE>
<CAPTION>
=================================================================================================================
Purchases Sales
---------------------- -----------------
Affiliated Company Shares Cost Shares Cost Realized Gain/Loss Dividend Income
------------------ ------ ---- ------ ---- ------------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Art's Way Manufacturing 30,000 $258,700 -- -- -- --
ICON ADR 1,000 $ 24,508 -- -- -- --
The Smithfield Companies 67,000 $473,200 -- -- -- $4,848
=================================================================================================================
</TABLE>
42 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1998
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
ROYCE GLOBAL TRUST, INC. JUNE 30, 1998 (unaudited)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 75.0%
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Consumer Products -- 8.9%
Apparel and Shoes - 1.1%
Oakley* 62,100 $ 830,588
-----------
Collectibles - 2.6%
Enesco Group 61,500 1,891,125
-----------
Food/Beverage/Tobacco - 0.2%
Barbeques Galore ADR*+ 20,000 160,000
-----------
Home Furnishings/Appliances - 1.9%
Velcro Industries 10,200 1,420,350
-----------
Publishing - 1.6%
Gibson Greetings* 47,400 1,185,000
-----------
Sports and Recreation - 0.7%
Johnson Worldwide Associates Cl. A* 43,700 551,712
-----------
Other Consumer Products - 0.8%
Lazare Kaplan International* 52,800 557,700
-----------
6,596,475
===========
Consumer Services -- 2.2%
Direct Marketing - 0.7%
Amway Asia Pacific 10,000 130,625
Amway Japan ADR+ 64,300 349,631
-----------
480,256
-----------
Leisure/Entertainment - 0.2%
Livent, Inc.* 20,000 175,000
-----------
Retail - 1.3%
Suzy Shier 147,800 979,274
-----------
1,634,530
===========
Financial Intermediaries -- 6.6%
Brokerage - 1.0%
Nomura Securities ADR+ 7,000 752,500
-----------
Insurance - 5.6%
Leucadia National Corporation 54,200 1,791,988
PXRE Corporation 36,000 1,080,000
Trenwick Group 32,850 1,276,017
-----------
4,148,005
-----------
4,900,505
===========
Financial Services -- 13.9%
Information and Processing - 2.6%
Duff & Phelps Credit Rating Co. 25,500 1,421,625
Fair Isaac and Company,
Incorporated 13,100 497,800
-----------
1,919,425
-----------
Insurance Brokers - 3.8%
E.W. Blanch Holdings 21,800 801,150
Arthur J. Gallagher & Co. 18,100 809,975
Willis Corroon Group ADR+ 94,100 1,182,131
-----------
2,793,256
-----------
SHARES VALUE
------ -----
Investment Management - 7.1%
Alliance Capital Management L.P. 50,000 $ 1,265,625
MacKenzie Financial Corporation 61,400 848,088
NVEST, L.P. 15,000 477,187
PIMCO Advisors Holdings, L.P. 41,700 1,423,013
The Pioneer Group 48,000 1,263,000
-----------
5,276,913
-----------
Other Financial Services - 0.4%
Peak TRENDS Trust* 21,500 303,687
-----------
10,293,281
===========
Health -- 2.9%
Drugs and Biotech - 1.0%
Chiron Corporation* 20,000 313,750
Scotia Holdings* 75,000 405,737
-----------
719,487
-----------
Surgical Products and Devices - 1.9%
Haemonetics Corporation* 53,800 860,800
Marquette Medical Systems* 22,500 577,266
-----------
1,438,066
-----------
2,157,553
===========
Industrial Products -- 13.1%
Aerospace/Defense - 2.6%
Curtiss-Wright Corporation 22,300 873,881
Woodward Governor Company 34,000 1,049,750
-----------
1,923,631
-----------
Building Systems and Components - 1.1%
Simpson Manufacturing* 20,700 799,537
-----------
Construction Materials - 1.9%
CalMat 17,900 393,800
Puerto Rican Cement Company 21,400 1,011,150
-----------
1,404,950
-----------
Industrial OEM - 0.5%
Ionics, Incorporated* 10,000 368,750
-----------
Machinery - 3.8%
Lincoln Electric Holding Co. 60,000 1,327,500
Nordson Corporation 31,200 1,466,400
-----------
2,793,900
-----------
Paper and Packaging - 0.6%
Shorewood Packaging Corporation* 30,000 476,250
-----------
Pumps, Valves and Bearings - 1.2%
Kaydon Corporation 26,100 921,656
-----------
Textiles - 1.0%
Unifi 22,600 774,050
-----------
Other Industrial Products - 0.4%
BHA Group Holdings 16,423 270,980
-----------
9,733,704
===========
</TABLE>
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1998 | 43
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
ROYCE GLOBAL TRUST, INC. JUNE 30, 1998 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Industrial Services -- 12.4%
Advertising - 0.9%
Young & Rubicam* 8,000 $ 256,000
Ziff-Davis* 31,700 439,838
------------
695,838
------------
Commercial Services - 2.0%
BHI Corporation* 36,800 1,453,600
------------
Engineering and Construction - 5.0%
Morrison Knudsen Corporation* 98,200 1,380,937
Stone & Webster 25,200 998,550
Willbros Group* 86,400 1,350,000
------------
3,729,487
------------
Food/Tobacco Processors - 0.7%
DIMON Incorporated 46,100 518,625
Midwest Grain Products* 2,000 29,000
------------
547,625
------------
Industrial Distribution - 1.0%
Ritchie Bros. Auctioneers* 27,000 717,188
------------
Transportation and Logistics - 2.5%
Circle International Group 23,600 660,800
Ryanair Holdings ADR*+ 32,000 1,140,000
------------
1,800,800
------------
Other Industrial Services - 0.3%
Elamex* 36,800 218,500
------------
9,163,038
============
Natural Resources -- 4.7%
Energy Services - 1.0%
Carbo Ceramics 22,000 750,750
------------
Metals and Mining - 2.3%
Anglogold Limited ADR+ 67,100 1,325,225
MK Gold Company* 393,700 369,094
------------
1,694,319
------------
Oil and Gas - 1.4%
Denbury Resources* 80,500 1,051,531
------------
3,496,600
============
Technology -- 10.3%
Distribution - 2.3%
Marshall Industries* 39,300 1,070,925
Richardson Electronics 29,000 391,500
Zebra Technologies Corporation* 6,050 258,637
------------
1,721,062
------------
Hardware - 2.3%
Exar Corporation* 27,500 577,500
Peak International Limited* 25,000 343,750
Penn Engineering and
Manufacturing Cl. A 32,800 672,400
Scitex Corporation Limited* 10,000 130,625
------------
1,724,275
------------
SHARES VALUE
------ -----
Software/Services - 4.1%
Business Objects ADR*+ 15,000 $ 253,125
MacNeal-Schwendler
Corporation* 72,500 711,406
National Computer Systems 64,200 1,540,800
Sybase* 50,000 348,438
Technomatix Technologies* 10,000 200,000
------------
3,053,769
------------
Telecommunications - 1.6%
Level 3 Communications* 4,900 362,600
PT Indosat ADR+ 6,000 66,750
Telekomunikasi ADR+ 125,000 726,562
------------
1,155,912
------------
7,655,018
============
TOTAL COMMON STOCKS
(Cost $47,040,482) 55,630,704
============
PREFERRED STOCK -- 1.3%
Pioneer Standard
Electronics (Conv.)
(Cost $1,000,000) 20,000 910,000
============
PRINCIPAL
AMOUNT
------
CORPORATE BONDS -- 2.0%
FirstWorld Communications 0%
Sr. Note due 4/15/08 $ 996,000 438,240
Richardson Electronics 8.25%
Conv. Sub. Deb. due 6/15/06 400,000 403,500
Richardson Electronics 7.25%
Conv. Sub. Deb. due 12/15/06 700,000 627,375
-------
TOTAL CORPORATE BONDS
(Cost $1,542,790) 1,469,115
=========
U.S. TREASURY OBLIGATIONS -- 16.3%
U.S. Treasury Notes
7.125%, due 9/30/99 2,000,000 2,038,120
5.75%, due 11/15/00 5,000,000 5,025,000
5.75%, due 10/31/02 5,000,000 5,040,600
---------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $12,066,406) 12,103,720
==========
</TABLE>
44 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1998
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
ROYCE GLOBAL TRUST, INC. JUNE 30, 1998 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
-----
<S> <C>
REPURCHASE AGREEMENT -- 5.1%
State Street Bank & Trust Company, 5.15%
dated 6/30/98, due 7/01/98, maturity
value $3,800,544 (collateralized by
U.S.Treasury Bonds, 7.25% due 5/15/16
and U.S. Treasury Notes, 6.125% due
12/31/01, valued at $3,880,511)
(Cost $3,800,000) $ 3,800,000
===========
VALUE
-----
TOTAL INVESTMENTS -- 99.7%
(Cost $65,449,678) $73,913,539
CASH AND OTHER ASSETS
LESS LIABILITIES -- 0.3% 218,936
-----------
NET ASSETS -- 100% $74,132,475
===========
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing
+ American Depository Receipt.
INCOME TAX INFORMATION: The cost of total investments for federal income tax
purposes was $65,449,678. At June 30, 1998, net unrealized appreciation for all
securities was $8,463,861,consisting of aggregate gross unrealized appreciation
of $10,941,991 and aggregate gross unrealized depreciation of $2,478,130.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1998 | 45
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
ROYCE GLOBAL TRUST, INC. JUNE 30, 1998 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments at value (identified cost $61,649,678) $70,113,539
Repurchase agreement (at cost and value) 3,800,000
Cash 85,724
Receivable for dividends and interest 228,207
Prepaid expenses and other assets 22,856
- -----------------------------------------------------------------------------------------------------
Total Assets 74,250,326
- -----------------------------------------------------------------------------------------------------
LIABILITIES:
Preferred dividend accrued but not yet declared 33,112
Payable for investment advisory fee 61,011
Accrued expenses 23,728
- -----------------------------------------------------------------------------------------------------
Total Liabilities 117,851
- -----------------------------------------------------------------------------------------------------
Net Assets $74,132,475
- -----------------------------------------------------------------------------------------------------
Net Assets applicable to Preferred Stock at a liquidation value of $25 per share $20,000,000
- -----------------------------------------------------------------------------------------------------
Net Assets applicable to Common Stock at a value of $6.43 per share on June 30, 1998 $54,132,475
- -----------------------------------------------------------------------------------------------------
SUMMARY OF STOCKHOLDERS' EQUITY:
7.45% Cumulative Preferred Stock - par value $0.001 per share; 800,000 shares outstanding $ 800
Common Stock - par value $0.001 per share; 8,423,423 shares outstanding
(100,000,000 shares authorized) 8,423
Additional paid-in capital 61,385,724
Undistributed net investment income 1,041,469
Accumulated net realized gain on investments and foreign currency 4,010,271
Quarterly and accrued distributions (778,112)
Net unrealized appreciation on investments and foreign currency 8,463,900
- -----------------------------------------------------------------------------------------------------
Net Assets $74,132,475
- -----------------------------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months ended Year ended
June 30, 1998 December 31,
(unaudited) 1997
----------- ------------
<S> <C> <C>
INVESTMENT OPERATIONS:
Net investment income $ 552,850 $ 667,252
Net realized gain on investments and foreign currency 3,233,177 2,063,873
Net change in unrealized appreciation on investments and foreign currency 198,687 7,000,782
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets from investment operations 3,984,714 9,731,907
- ---------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income -- (30,862)
Net realized gain on investments and foreign currency -- (101,582)
Quarterly and accrued distributions* (745,000) (33,112)
- ---------------------------------------------------------------------------------------------------------------
Total distributions to Preferred Stockholders (745,000) (165,556)
- ---------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income -- (987,805)
Net realized gain on investments and foreign currency -- (3,251,357)
- ---------------------------------------------------------------------------------------------------------------
Total distributions to Common Stockholders -- (4,239,162)
- ---------------------------------------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
Reinvestment of distributions to Common Stockholders -- 2,231,274
Net proceeds from issuance of Preferred Stock -- 19,180,000
- ---------------------------------------------------------------------------------------------------------------
Total capital stock transactions -- 21,411,274
- ---------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 3,239,714 26,738,463
NET ASSETS:
Beginning of period 70,892,761 44,154,298
- ---------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income of
$1,041,469 and $488,619, respectively) $74,132,475 $70,892,761
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* To be allocated to net investment income and capital gains at year-end.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
46 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1998
<PAGE>
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
ROYCE GLOBAL TRUST, INC. SIX MONTHS ENDED JUNE 30, 1998 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest $ 580,772
Dividends 413,517
- --------------------------------------------------------------------------------------
Total Income 994,289
- --------------------------------------------------------------------------------------
Expenses:
Investment advisory fees 369,888
Professional fees 27,696
Custodian and transfer agent fees 26,405
Administrative and office facilities expenses 17,467
Directors' fees 7,847
Other expenses 22,393
- --------------------------------------------------------------------------------------
Total Expenses 471,696
Fees Waived by Investment Adviser (30,257)
- --------------------------------------------------------------------------------------
Net Expenses 441,439
- --------------------------------------------------------------------------------------
Net Investment Income 552,850
- --------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain on investments and foreign currency 3,233,177
Net change in unrealized appreciation on investments and foreign currency 198,687
- --------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign currency 3,431,864
- --------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS $3,984,714
- --------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1998 | 47
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
ROYCE GLOBAL TRUST, INC.
- --------------------------------------------------------------------------------
This table is presented to show selected data for a share of Common Stock
outstanding throughout each period, and to assist stockholders in evaluating the
Fund's performance for the periods presented.
<TABLE>
<CAPTION>
Six months ended Years ended December 31,
June 30, 1998 -----------------------------------------------------
(unaudited) 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $6.04 $5.52 $5.09 $4.70 $5.24 $4.99
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS:
Net investment income 0.07 0.08 0.06 0.13 0.19 0.04
Net realized and unrealized gain on investments and
foreign currency 0.41 1.12 0.35 0.36 (0.62) 0.46
- --------------------------------------------------------------------------------------------------------------------------------
Total investment operations 0.48 1.20 0.41 0.49 (0.43) 0.50
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income -- -- -- -- -- --
Net realized gain on investments and foreign currency -- (0.01) -- -- -- --
Quarterly and accrued distributions* (0.09) -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions to Preferred Stockholders (0.09) (0.01) -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income -- (0.12) -- (0.16) (0.11) (0.03)
Net realized gain on investments and foreign currency -- (0.41) -- (0.01) -- (0.22)
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions to Common Stockholders -- (0.53) -- (0.17) (0.11) (0.25)
- --------------------------------------------------------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
Effect of Preferred Stock offering -- (0.10) -- -- -- --
Effect of reinvestment of distributions by
Common Stockholders -- (0.04) -- -- -- --
Other Sources -- -- 0.02 0.07 -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total capital stock transactions -- (0.14) 0.02 0.07 -- --
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $6.43 $6.04 $5.52 $5.09 $4.70 $5.24
- --------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE, END OF PERIOD $5.50 $5.06 $4.59 $4.19 $3.56 $4.31
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (a):
Net Asset Value (b) 6.5% 20.5% -- -- -- --
Market Value 8.6% 21.3% 9.6% 22.3% (17.4)% 9.3%
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:
Total expenses (c, d) 1.63%** 0.94% 1.91% 2.14% 2.27% 2.43%
Management fee expense 1.25%** 0.39% 0.83% 1.00% 1.00% 1.00%
Other operating expenses 0.38%** 0.55% 1.08% 1.14% 1.27% 1.43%
Net investment income 2.04%** 1.35% 1.80% 2.80% 3.81% 0.74%
SUPPLEMENTAL DATA:
Net Assets, End of Period (in thousands) $74,132 $70,893 $44,154 $41,385 $41,106 $45,839
Portfolio Turnover Rate 25% 74% 159% 76% 483% 445%
Average Commission Rate Paid+ $0.0591 $0.0610 $0.0396 -- -- --
PREFERRED STOCK:
Total shares outstanding 800,000 800,000 -- -- -- --
Asset coverage per share 371% 354% -- -- -- --
Liquidation preference per share $25.00 $25.00 -- -- -- --
Average market value per share (e) $25.28 $25.25 -- -- -- --
</TABLE>
(a) The Net Asset Value and Market Value Total Returns assume a continuous
Common Stockholder who reinvested all net investment income dividends and
capital gain distributions.
(b) For years prior to 1997, the Net Asset Value Total Return is not available.
(c) Expense ratios based on total average net assets were 1.19%, 0.90%, 1.91%,
2.14%, 2.27% and 2.43% for the periods ended June 30, 1998 (annualized) and
December 31, 1997, 1996, 1995, 1994 and 1993, respectively.
(d) Expense ratios based on average net assets applicable to Common
Stockholders before waiver of fees by the investment adviser would have
been 1.74%, 1.60% and 2.08% for the periods ended June 30, 1998
(annualized) and December 31, 1997 and 1996, respectively.
(e) The average of month-end market values during the period.
* To be allocated to net investment income and capital gains at year-end.
** Annualized.
+ Beginning in 1996, funds are required to disclose average commission rates
paid per share for purchases and sales of investments.
48 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1998
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
- --------------------------------------------------------------------------------
ROYCE GLOBAL TRUST, INC.
- --------------------------------------------------------------------------------
Summary of Significant Accounting Policies:
Royce Global Trust, Inc. (the "Fund"), formerly named All Seasons Global
Fund, Inc., is a diversified closed-end investment company. The Fund commenced
operations on March 2, 1988.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
Valuation of investments:
Securities listed on an exchange or on the Nasdaq National Market System
are valued on the basis of the last reported sale prior to the time the
valuation is made or, if no sale is reported for such day, at their bid price
for exchange-listed securities and at the average of their bid and asked prices
for Nasdaq securities. Quotations are taken from the market where the security
is primarily traded. Other over-the-counter securities for which market
quotations are readily available are valued at their bid price. Securities for
which market quotaions are not readily available are valued at their fair value
under procedures established and supervised by the Fund's Board of Directors.
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.
Foreign Currency:
The Fund does not isolate that portion of the results of operations which
result from changes in foreign exchange rates on investments from the portion
arising from changes in market prices of securities held. Such fluctuations are
included with net realized and unrealized gains and losses on investments.
Net realized foreign exchange gains or losses arise from currency gains or
losses realized between the trade and settlement dates on securities
transactions and from the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books and the
U.S. dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets and
liabilities, including investments in securities, as a result of changes in the
exchange rates.
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 and unrealized appreciation and depreciation of investments are
determined on the basis of identified cost for book and tax purposes.
Expenses:
The Fund incurs direct and indirect expenses. Expenses directly
attributable to the Fund are charged to the Fund's operations, while expenses
applicable to one or more Royce Funds are allocated in an equitable manner.
Allocated personnel costs of employees of The Royce Funds are included in
administrative and office facilities expenses.
Taxes:
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the extent
that it distributes substantially all of its taxable income for its fiscal
year. The Schedule of Investments includes information regarding income taxes
under the caption "Income Tax Information".
Distributions:
Distributions paid to Common Stockholders are recorded on the ex-dividend
date and paid annually in December. Distributions paid to Preferred
Stockholders are recorded on an accrual basis and paid quarterly. Distributions
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. Permanent book and tax basis
differences relating to stockholder 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 at fiscal year end
is distributable in the following year.
Repurchase agreements:
The Fund enters into repurchase agreements with respect to its portfolio
securities solely with State Street Bank and Trust Company ("SSB&T"), the
custodian of its assets. The Fund restricts repurchase agreements to maturities
of no more than seven days. Securities pledged as collateral for repurchase
agreements, 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 the Fund to dispose of the underlying securities.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1998 | 49
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
- --------------------------------------------------------------------------------
ROYCE GLOBAL TRUST, INC.
- --------------------------------------------------------------------------------
Capital Stock:
On November 21, 1997, the Fund issued and sold 800,000 shares of 7.45%
Cumulative Preferred Stock. The stock has a liquidation preference of $25.00
per share.
Under the Investment Company Act of 1940, the Fund is required to maintain
an asset coverage of at least 200% for the Preferred Stock. In addition,
pursuant to the Rating Agency Guidelines, the Fund is required to maintain a
certain discounted asset coverage for its portfolio that equals or exceeds the
Basic Maintenance Amount under the guidelines established by Moody's. The Fund
has met these requirements since issuing Preferred Stock.
The Fund is required to allocate long-term capital gain distributions and
other types of income proportionately to distributions made to holders of
shares of Common Stock and Preferred Stock. To the extent that dividends on the
shares of Preferred Stock are not paid from long-term capital gains, net
investment income, or net short-term capital gains, they will represent a
return of capital.
The Fund issued 425,004 shares of Common Stock as reinvestment by Common
Stockholders of dividends and distributions for the year ended December 31,
1997.
Investment Advisory Agreement:
Royce & Associates, Inc. ("Royce") assumed investment management
responsibility for the Fund on November 1, 1996. The Investment Advisory
Agreement between Royce and the Fund provides for fees at an annual rate of
1.0% of the average daily net assets of the Fund. In conjunction with its
assumption of investment management, Royce agreed to voluntarily waive its fee
until the Fund's market price had closed on the Nasdaq National Market at or
above $5.28, the Net Asset Value per share of the Fund on October 31, 1996, for
twenty consecutive trading days. On August 20, 1997, this condition was met and
the fee waiver was discontinued.
Royce has voluntarily committed to waive the portion of its investment
advisory fee attributable to the Fund's Preferred Stock for any month when the
Fund's average annual NAV total return since issuance of the Preferred Stock
fails to exceed the Preferred Stock dividend rate during that period.
Additionally, Royce has voluntarily committed to waive its fee to the extent
necessary to reduce the Fund's expenses, as a percentage of total average net
assets, to 1.375% from the date of Preferred Stock issuance to December 31,
1998.
For the six months ended June 30, 1998, the Fund accrued and paid Royce
advisory fees totaling $339,631, which is net of $30,257 voluntarily waived by
Royce.
Purchases and Sales of Investment Securities:
For the six months ended June 30, 1998, the cost of purchases and proceeds
from sales of investment securities, other than short-term securities, amounted
to $19,264,266 and $17,379,564, respectively.
50 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1998
<PAGE>
STOCKHOLDER MEETING RESULTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ROYCE VALUE TRUST, INC.
- --------------------------------------------------------------------------------
At a Special Meeting of Stockholders adjourned to and held on March 2 and 16,
1998, the Fund's stockholders approved (a) various amendments to the Articles
Supplementary for the Fund's 7.80% Cumulative Preferred Stock to increase the
frequency of dividend payments from annual to quarterly, reduce the annual
dividend rate from 8.00% to 7.80% and extend the optional call protection period
from August 15, 2001 to August 15, 2003, and (b) amendments concerning
non-substantive stockholder voting rights and Board modifications. In addition,
at the 1998 Annual Meeting of Stockholders held on April 28, 1998, the Fund's
stockholders: (i) elected the board of directors, consisting of (a) Charles M.
Royce, (b) Richard M. Galkin, (c) Stephen L. Isaacs, (d) John D. Diederich and
(e) David L. Meister and (ii) ratified the selection of Tait, Weller & Baker as
independent accountants.
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK COMMON STOCK
AND PREFERRED AND PREFERRED AND PREFERRED
STOCK VOTING STOCK VOTING STOCK VOTING PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
TOGETHER AS A TOGETHER AS A TOGETHER AS A VOTING AS A VOTING AS A VOTING AS A
SINGLE CLASS - SINGLE CLASS - SINGLE CLASS - SEPARATE CLASS - SEPARATE CLASS - SEPARATE CLASS -
VOTES FOR VOTES AGAINST VOTES ABSTAINED VOTES FOR VOTES AGAINST VOTES ABSTAINED
--------- ------------- --------------- --------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
March 2 and 16, 1998 Special Meeting
(a) 18,440,939 1,229,397 517,382 1,644,994 58,612 49,533
(b) 17,432,485 1,552,041 664,331 1,601,273 91,584 86,872
April 28, 1998 Annual Meeting
(i) (a) 26,677,343 N/A 298,820 N/A N/A N/A
(b) 26,626,342 N/A 349,821 N/A N/A N/A
(c) 26,616,551 N/A 359,612 N/A N/A N/A
(d) N/A N/A N/A 2,164,132 N/A 6,060
(e) N/A N/A N/A 2,164,132 N/A 6,060
(ii) 26,575,665 212,127 188,371 N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------
ROYCE MICRO-CAP TRUST, INC.
- ---------------------------------------------------------------------------------------------------------------
At the 1998 Annual Meeting of Stockholders held on April 28, 1998, the Fund's stockholders: (i) elected of
the board of directors, consisting of (a) Charles M. Royce, (b) Richard M. Galkin, (c) Stephen L. Isaacs,
(d) John D. Diederich and (e) David L. Meister and (ii) ratified the selection of Tait, Weller & Baker as
independent accountants.
(i) (a) 12,829,818 N/A 83,714 N/A N/A N/A
(b) 12,824,470 N/A 89,062 N/A N/A N/A
(c) 12,824,470 N/A 89,062 N/A N/A N/A
(d) N/A N/A N/A 1,492,018 N/A 4,249
(e) N/A N/A N/A 1,492,018 N/A 4,249
(ii) 12,823,634 37,258 9,831 N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------
ROYCE GLOBAL TRUST, INC.
- ---------------------------------------------------------------------------------------------------------------
At the 1998 Annual Meeting of Stockholders held on April 28, 1998, the Fund's stockholders: (i) elected
the board of directors, consisting of (a) Charles M. Royce, (b) Richard M. Galkin, (c) William L. Koke,
(d) Stephen L. Isaacs and (e) David L. Meister and (ii) ratified the selection of Tait, Weller & Baker as
independent accountants.
(i) (a) 6,544,999 N/A 249,148 N/A N/A N/A
(b) 6,542,040 N/A 252,108 N/A N/A N/A
(c) 6,542,987 N/A 251,161 N/A N/A N/A
(d) N/A N/A N/A 765,606 N/A 4,906
(e) N/A N/A N/A 765,606 N/A 4,906
(ii) 6,320,159 437,654 36,334 N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
By-law Amendments
On June 18, 1998, the Boards of Directors of Royce Value Trust, Inc., Royce
Micro-Cap Trust, Inc. and Royce Global Trust, Inc. approved By-law amendments
which set forth the procedures and prior notice requirements for stockholders to
nominate directors at, and bring other business before, a stockholders' meeting.
The Royce Funds Semi-Annual Report 1998 | 51
<PAGE>
OFFICERS
Charles M. Royce, President and Treasurer
John D. Diederich, Vice President
Jack E. Fockler, Jr., Vice President
W. Whitney George, Vice President
Daniel A. O'Byrne, Vice President
and Assistant Secretary
John E. Denneen, Secretary
DIRECTORS
John D. Diederich (RVT and OTCM)
Royce Fund Services, Inc., President
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 (FUND)
Shoreline Financial Consultants
Registered Investment Adviser
David L. Meister
Communications Industry, Consultant
Charles M. Royce
Royce & Associates, Inc., President
INDEPENDENT ACCOUNTANTS
Tait, Weller & Baker
CUSTODIAN, TRANSFER AGENT
AND REGISTRAR
State Street Bank and Trust Company
<PAGE>
Postscript
- --------------------------------------------------------------------------------
[page background image: man playing basketball; shooting a basket--basketball is
a graphic montage: Wall Street street sign, stock certificates, Stock Market
building front, people working the stock market floor]
Hang Time
By now, the sight has grown familiar to all of us. A man with a basketball
launches himself off the hardwood into the air from what looks like an absurdly
early spot at the very top - the very tip - of the key. Moving gracefully and
effortlessly skyward, he displays an uncanny ability to evade any defender in
his path. The bodies of opponents gyrate at awkward angles, bobbing up and down
in a futile effort to stop him -- they do not even slow him down. As he cruises
toward the basket, there typically remains one hardy soul who will attempt to
forestall the inevitable. Yet this defender is also left confounded and
frustrated. Taking evasive action, the man shifts the ball from his left hand to
his right, now back again to his left, as the last defender plummets earthward,
landing on the court, able only to gaze upward and watch enviously as the man
dunks the ball with an elegance that a dunk is not supposed to possess. Michael
Jordan has done it again.
Jordan's aerial exploits have become the stuff of legend because of moments
such as this. With what looks like a casual disregard for the laws of gravity,
he has risen to be not only the greatest athlete of his time and the greatest
basketball player in the history of the game, but arguably the most famous human
being on the face of the earth. Basketball writers looking for a way to do
justice to his airness' high-flying feats have contributed a new phrase to our
collective lexicon, used to describe anything that lingers longer in the air
than physics or common sense would seem to allow - Hang Time.
In our view, the stock market of the past four years is best characterized
as Jordanesque in the ability of a different sort of rampaging bull to remain at
lofty levels longer than any rational explanation would seem capable of
justifying. The prognosticators who have explained exactly why the Dow had
reached a peak at (take your pick) 7000, 8000 or 9000 have subsequently felt
like the multitude of sports writers who have prematurely predicted Jordan's
retirement. This explains why we like to avoid prognostication and instead save
our energy for the real game - striving to build wealth for our stockholders.
The fundamentals of our small-cap value style - finding attractively priced
companies with solid financials - are the equivalent of good shot selection and
tough defense.
The market's remarkable hang time, like Jordan's, while enabling it to fly
to unparalleled heights for unequaled lengths of time, also makes it the
exception that proves the rule. Most would agree that Jordan is one of a kind,
and we feel much the same way about the recent run of the market. We should all
enjoy the good times while we can, without losing sight of the fact that, sooner
or later, all good things come to an end. Someday, and the day is not far off,
Michael will be more concerned about a tee time than a tip-off, having returned
the game to mere mortals. We believe that the market, too, will return to more
historical levels of performance and volatility, and when it does, we will be
where we have always been, playing the game with a solid fundamental approach.
[sidebar]
The market's remarkable hang time, like Jordan's, while enabling it to fly to
unparalleled heights for unequaled lengths of time, also makes it the exception
that proves the rule. Most would agree that Jordan is one of a kind, and we feel
much the same way about the recent run of the market.
[end sidebar]
<PAGE>
The
Royce
Funds
ONE OF THE INDUSTRY'S MOST EXPERIENCED AND
HIGHLY-RESPECTED SMALL COMPANY VALUE MANAGERS
Charles M. Royce, who has been our primary portfolio manager since 1973, enjoys
one of the longest tenures of any active mutual fund manager. Today, with $3
billion in total assets under management, Royce & Associates, Inc. remains an
independent firm committed to the same principles that have served us well for
25 years.
MULTIPLE FUNDS, COMMON FOCUS
Over the years, we have chosen to concentrate on small company value investing.
Chuck Royce and his team provide investors with a range of funds that take full
advantage of the large and diverse small-cap sector. Our goal is to offer both
individual and institutional investors the best available small-cap value
portfolios by providing above-average full market cycle total returns with
below-average risk.
REALISTIC EXPECTATIONS AND CONSISTENT DISCIPLINE
Royce Premier Fund, Royce Total Return Fund and Pennsylvania Mutual Fund have
been among the "lowest risk" small-cap equity funds available. We cultivated our
approach by paying close attention to risk and by always maintaining the same
discipline, regardless of market movements and trends.
CO-OWNERSHIP OF FUNDS
As part of this commitment, it is important that our employees and shareholders
share a common financial goal; our principals, employees and their affiliates
currently have more than $40 million invested in The Royce Funds.
VALUE INVESTING IN SMALL COMPANIES FOR 25 YEARS
<TABLE>
<S> <C>
THE ROYCE FUNDS ADVISOR SERVICES
1414 Avenue of the Americas For Fund Materials, Performance Updates
New York, NY 10019 (800) 59-ROYCE (597-6923)
GENERAL INFORMATION
Additional Report Copies E-MAIL:
(800) 221-4268 [email protected]
STATE STREET BANK AND TRUST COMPANY
Custodian, Transfer Agent and Registrar WEB ADDRESS:
(800) 426-5523 www.roycefunds.com
</TABLE>
