1999 Semi-Annual Report
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THE
ROYCE
FUNDS
Value Investing In Small Companies
For More Than 25 Years
ROYCE VALUE TRUST
ROYCE MICRO-CAP TRUST
ROYCE FOCUS TRUST
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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 Focus Trust, formerly named Royce Global
Trust, a closed-end fund that typically invests in a limited number of domestic
and foreign companies.
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. Proceeds from the
offerings are invested in an actively managed portfolio of securities. 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.
- -------------------------------------------------------------------------------
A CLOSED-END FUND OFFERS SEVERAL DISTINCT ADVANTAGES NOT AVAILABLE FROM AN
OPEN-END FUND STRUCTURE
o 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.
o 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.
o 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.
o The fixed capital structure allows permanent leverage to be employed as a
means to enhance capital appreciation potential.
o 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.
- --------------------------------------------------------------------------------
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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[graphic: looking through magnifying glass at The Royce Funds listing in
newspaper]
SEMI-ANNUAL REPORT REFERENCE GUIDE
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For more than 25 years, our approach has focused on evaluating a company's
current worth -- what we believe a business would sell for in a private
transaction between rational and well-informed parties. This requires a thorough
analysis of the financial and operating dynamics of a business, as though we
were purchasing the entire company. The price we pay for a security must be
substantially lower than our appraisal of its current worth.
<TABLE>
<S> <C>
Letter to Our Stockholders: Reversal of Fortune ... Why Small Caps, Why Now 2
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A Recounting of an Idea 10
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Performance and Portfolio Review:
Royce Value Trust, Royce Micro-Cap Trust, Royce Focus Trust 12
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History Since Inception 18
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Distribution Reinvestment and Cash Purchase Options 19
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Updates and Notes: What's New on Our Website
(www.roycefunds.com) and a Y2K Update 20
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Schedules of Investments and Other Financial Statements 21
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Postscript: Funny Business Inside Back Cover
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</TABLE>
<TABLE>
<CAPTION>
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NAV AVERAGE ANNUAL TOTAL RETURNS Through June 30, 1999
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FUND 2ND QUARTER YEAR-TO-DATE FROM INCEPTION
1999* 1999* 1-YEAR 3-YEAR 5-YEAR INCEPTION DATE
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<S> <C> <C> <C> <C> <C> <C> <C>
Royce Value
Trust 20.2% 4.9% -0.2% 14.4% 15.2% 12.8% 11/26/86
- --------------------------------------------------------------------------------------------------
Royce
Micro-Cap
Trust 16.5 2.4 -9.4 9.5 13.4 12.3 12/14/93
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Royce Focus
Trust 29.4 10.1 -3.6 n/a n/a 10.1 11/01/96**
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Russell 2000 15.6 9.3 1.5 11.2 15.4
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</TABLE>
*Not annualized.
**Date Royce & Associates, Inc. assumed investment management responsibility.
<PAGE>
[photo: Charles M. Royce]
[caption]
Charles M. Royce, President
[sidebar]
The second-quarter rally represents a remarkable comeback. It really began in
late March, and I think it's an extension of what happened following the low on
October 8, 1998. In fact, the Russell 2000 was up 48.9% from October 8 through
June 30, while the S&P 500 was up 44.4% over the same period. I think many
people aren't aware of this recent period of small-cap outperformance -- their
attention is focused on year-to-date results.
[end sidebar]
LETTER TO OUR SHAREHOLDERS
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[cartoon graphic: Dual scene: Scene 1--Depressed people hiding under a table,
first quarter fund chart showing downward trend. Scene 2--Ecstatic people
dancing on the table with results of second quarter.]
Hank Blaustein 1999
REVERSAL OF FORTUNE
What an interesting six months! At the end of 1999's first quarter, the best
thing investors could say about the small-cap sector was that it was analogous
to one's brother-in-law -- a question mark backed by hope. But after a poor
start in both an absolute and relative sense, small-cap securities reversed
their fortunes
[bar chart]
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AFTER WEAK 1ST QUARTER, SMALL-CAPS SOAR IN
2ND QUARTER, INTERNET STOCKS SINK, LARGE-CAPS SIMMER
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Russell S&P Nasdaq DJ Internet
2000 500 Composite Commerce
---- --- --------- --------
<S> <C> <C> <C> <C>
1st Quarter -5.4% 5.0% 12.3% 55.9%
2nd Quarter 15.6% 7.1% 9.1% -2.1%
</TABLE>
[end bar chart]
2 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
in the second quarter by outperforming their large-company counterparts for the
first time since the third quarter of 1997. Perhaps the attitudes of those who
thought portfolio diversification wasn't necessary were reversed as well.
Although small-caps did not quite catch large-caps on a year-to-date performance
basis through June 30, 1999, the second quarter was as impressive for small-caps
as the first quarter was dismal.
As exciting as small-cap performance was in 1999's second quarter, it was
the rise and fall of Internet stocks during the first six months that grabbed
headlines and held investor attention. With the Dow Jones Internet Commerce
Index up 55.9% in the first quarter alone, a return most investors would be
happy with over three years, there were plenty of Internet stock market gains
despite few real profits. Internet mania knew no bounds, impacting both large-
and small-cap indices -- most notably, the Nasdaq Composite and the small-cap
Russell 2000. The 53 Internet stocks in the Russell 2000 were up 54% on average
in the first quarter; without these companies, the index, which was down 5.4%,
would have been about 3% lower (Source: Frank Russell Co.). Although the
Internet sector was still up significantly year-to-date through June 30, 1999,
it was only after the second-quarter downturn (DJ Internet Commerce index was
off 22.7% from its high on 4/13/99 through 6/30/99) that the Monopoly-money
mentality began to subside. Like high school hoops hopefuls bypassing college
and going directly to the NBA, many Internet companies at the close of their
first day of trading skipped small-cap status and went directly to large-cap
standing. One has to wonder about the long-term prospects for many of these
companies.
[pull quote]
After a poor start in both an absolute and relative sense, small-cap securities
reversed their fortunes in the second quarter by outperforming their
large-company counterparts for the first time since the third quarter of 1997.
Perhaps the attitudes of those who thought portfolio diversification wasn't
necessary were reversed as well.
[end pull quote]
[pull quote]
Like high school hoops hopefuls bypassing college and going directly to the NBA,
many Internet companies at the close of their first day of trading skipped
small-cap status and went directly to large-cap standing. One has to wonder
about the long-term prospects for many of these companies.
[end pull quote]
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 3
<PAGE>
[sidebar]
It seems to be a commonly held belief that large-cap stocks in general are
currently overvalued and that small-caps in general are relatively undervalued,
but I think that many large-caps are so overpriced that small-caps can't help
but look attractive. The real issue for us is finding stocks whose absolute
values are attractive to us -- stocks that are trading at a discount to their
own value as a business, not at a discount to another company in another
business in a different asset class.
[end sidebar]
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REPORTS OF VALUE'S DEATH
Whoever said rules are made to be broken had the first quarter in mind as it
pertained to the relative performance of growth and value approaches inside
small-cap. The traditional beacon during difficult times -- value investing --
was no help at all during the first quarter (more to the point, our Funds also
performed poorly). The Russell 2000 Value index lost 9.7% versus a loss of 1.7%
for the Russell 2000 Growth index, its worst relative comparison since the
fourth quarter of 1979. It was also only the fourth time in the index's 20-year
history (4Q'79, 4Q'89 and 4Q'94) that the small-cap value index underperformed
the small-cap growth index during a down quarter. Fortunately, reports of the
demise of value investing were premature. In the second quarter, the Russell
2000 Value index rebounded sharply, up 16.6% versus 14.8% for the Russell 2000
Growth index. Although value still trails growth year-to-date through June 30,
1999, over a longer and perhaps more meaningful period, i.e., since the May 22,
1996 small-cap peak, value has significantly outperformed growth (+42.8% versus
+18.7%).
[pull quote]
The traditional beacon during difficult times -- value investing -- was no help
at all during the first quarter. It was only the fourth time in the Russell
2000's 20-year history that the small-cap value index underperformed the
small-cap growth index during a down quarter.
[end pull quote]
[bottombar]
When he stopped by our offices this summer (the only time it's easy to get a
good table at a great restaurant in New York), the intrepid advisor asked us
questions about our investment approach and the number of funds that we manage.
Chuck Royce sat down with him to share his insights regarding these topics.
Since Royce focuses on small-company value investing, why offer three closed-end
Funds that appear to do the same thing?
Let's not forget that small-cap is not only the largest -- with more than 8,000
names -- but also the most diverse sector of the domestic equity universe. Even
with a very focused approach like ours, this diversity allows us to offer Funds
whose portfolio selections and potential performance patterns may differ
substantially. For example, we offer a Fund that invests in the lower end, Royce
Micro-Cap Trust and one that invests in both small- and micro-cap companies,
Royce Value Trust. We also offer a Fund that is not restricted in terms of
market capitalization, Royce Focus Trust. It invests primarily in a limited
number of small- and micro-cap companies, but can also make selections outside
of the small-cap universe. While you may not expect differences in
[end bottombar]
4 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
[pull quote]
Who would have thought that our Funds would outperform in the dynamic second
quarter and underperform during the difficult first quarter? We certainly
didn't.
[end pull quote]
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WHO WOULD HAVE THOUGHT?
Our approach in the past regarding our performance discussion has been simple
and direct, cartoons aside -- temper our enthusiasm when things go well and keep
our chins up when they do not. In 1999, we have had opportunities to do both.
Our performance through June 30, 1999 was influenced by our asset class, our
investment style and our portfolio positions. Our first-quarter travails (each
of the Funds were underwater and underperformed the Russell 2000) were matched
by our second-quarter triumphs (each provided 16%+ NAV quarterly returns, and
each outperformed the Russell 2000).
Especially noteworthy second quarter performances were turned in by Royce
Focus Trust, our concentrated portfolio, and Royce Value Trust, our oldest and
largest closed-end fund. In addition, RVT enjoyed a 3-year NAV performance
advantage over both of its benchmark indices. For a complete review and
discussion of individual fund results and risk profiles, see pages 12 - 17.
[bottombar]
MICRO-CAP VS. SMALL-CAP PERFORMANCE COMPARISON
3-YEAR TRAILING PERFORMANCE DIFFERENTIAL
[line chart]
Date Return Spread
---- -------------
Dec-28 2.51%
Mar-29 1.05%
Jun-29 -1.16%
Sep-29 -4.10%
Dec-29 -1.99%
Mar-30 1.87%
Jun-30 -0.59%
Sep-30 -3.03%
Dec-30 -5.21%
Mar-31 -2.69%
Jun-31 -5.82%
Sep-31 -5.14%
Dec-31 -5.50%
Mar-32 -4.20%
Jun-32 -2.31%
Sep-32 1.58%
Dec-32 0.18%
Mar-33 -1.59%
Jun-33 9.45%
Sep-33 11.15%
Dec-33 13.50%
Mar-34 14.77%
Jun-34 14.38%
Sep-34 15.00%
Dec-34 19.92%
Mar-35 13.25%
Jun-35 13.90%
Sep-35 8.33%
Dec-35 19.53%
Mar-36 28.36%
Jun-36 2.82%
Sep-36 7.19%
Dec-36 14.21%
Mar-37 10.66%
Jun-37 8.91%
Sep-37 8.73%
Dec-37 6.43%
Mar-38 5.27%
Jun-38 9.43%
Sep-38 5.95%
Dec-38 0.21%
Mar-39 -4.54%
Jun-39 -4.80%
Sep-39 -0.17%
Dec-39 -6.74%
Mar-40 -8.82%
Jun-40 -7.66%
Sep-40 -8.06%
Dec-40 -8.08%
Mar-41 -5.17%
Jun-41 -6.83%
Sep-41 -4.04%
Dec-41 -4.45%
Mar-42 -0.53%
Jun-42 1.93%
Sep-42 -2.74%
Dec-42 2.25%
Mar-43 11.28%
Jun-43 17.58%
Sep-43 17.40%
Dec-43 15.85%
Mar-44 18.01%
Jun-44 21.74%
Sep-44 17.72%
Dec-44 26.95%
Mar-45 20.17%
Jun-45 24.84%
Sep-45 21.63%
Dec-45 25.34%
Mar-46 11.37%
Jun-46 9.75%
Sep-46 7.38%
Dec-46 9.07%
Mar-47 7.34%
Jun-47 3.43%
Sep-47 4.71%
Dec-47 3.43%
Mar-48 4.64%
Jun-48 3.36%
Sep-48 2.10%
Dec-48 -1.10%
Mar-49 -0.85%
Jun-49 -1.99%
Sep-49 -1.08%
Dec-49 -0.63%
Mar-50 -0.37%
Jun-50 0.69%
Sep-50 0.92%
Dec-50 1.78%
Mar-51 -0.31%
Jun-51 -1.29%
Sep-51 -0.85%
Dec-51 0.40%
Mar-52 -1.51%
Jun-52 -0.53%
Sep-52 -0.19%
Dec-52 -0.97%
Mar-53 -1.13%
Jun-53 -0.94%
Sep-53 -1.99%
Dec-53 -4.06%
Mar-54 -2.46%
Jun-54 -2.89%
Sep-54 -1.46%
Dec-54 -0.51%
Mar-55 0.58%
Jun-55 0.51%
Sep-55 1.55%
Dec-55 1.05%
Mar-56 0.79%
Jun-56 0.50%
Sep-56 1.19%
Dec-56 1.28%
Mar-57 1.23%
Jun-57 2.46%
Sep-57 2.46%
Dec-57 0.57%
Mar-58 0.59%
Jun-58 1.80%
Sep-58 1.28%
Dec-58 2.36%
Mar-59 2.37%
Jun-59 2.51%
Sep-59 3.08%
Dec-59 3.58%
Mar-60 3.59%
Jun-60 1.89%
Sep-60 1.67%
Dec-60 1.57%
Mar-61 0.60%
Jun-61 -0.45%
Sep-61 -0.82%
Dec-61 -0.40%
Mar-62 0.58%
Jun-62 1.18%
Sep-62 0.92%
Dec-62 -0.39%
Mar-63 -0.94%
Jun-63 -0.40%
Sep-63 -1.36%
Dec-63 -1.74%
Mar-64 -1.00%
Jun-64 -2.20%
Sep-64 -0.97%
Dec-64 -1.09%
Mar-65 -1.88%
Jun-65 -2.85%
Sep-65 -4.34%
Dec-65 -0.68%
Mar-66 1.85%
Jun-66 1.82%
Sep-66 1.23%
Dec-66 1.24%
Mar-67 3.80%
Jun-67 7.49%
Sep-67 9.24%
Dec-67 10.23%
Mar-68 10.21%
Jun-68 14.98%
Sep-68 16.76%
Dec-68 15.44%
Mar-69 11.24%
Jun-69 10.64%
Sep-69 8.65%
Dec-69 8.85%
Mar-70 6.35%
Jun-70 2.20%
Sep-70 0.17%
Dec-70 -2.66%
Mar-71 -1.56%
Jun-71 -5.13%
Sep-71 -5.84%
Dec-71 -7.22%
Mar-72 -5.51%
Jun-72 -5.71%
Sep-72 -4.97%
Dec-72 -5.61%
Mar-73 -5.90%
Jun-73 -5.97%
Sep-73 -6.50%
Dec-73 -5.57%
Mar-74 -5.66%
Jun-74 -3.80%
Sep-74 -3.49%
Dec-74 -5.06%
Mar-75 -4.37%
Jun-75 -4.54%
Sep-75 -3.17%
Dec-75 -2.76%
Mar-76 -0.19%
Jun-76 -0.71%
Sep-76 -0.56%
Dec-76 1.37%
Mar-77 -0.19%
Jun-77 -1.22%
Sep-77 -0.23%
Dec-77 5.14%
Mar-78 3.18%
Jun-78 4.62%
Sep-78 6.12%
Dec-78 4.92%
Mar-79 1.73%
Jun-79 3.74%
Sep-79 3.71%
Dec-79 3.47%
Mar-80 2.77%
Jun-80 2.60%
Sep-80 3.90%
Dec-80 2.83%
Mar-81 1.53%
Jun-81 2.19%
Sep-81 0.30%
Dec-81 2.62%
Mar-82 2.78%
Jun-82 2.26%
Sep-82 1.46%
Dec-82 2.22%
Mar-83 3.15%
Jun-83 5.83%
Sep-83 3.55%
Dec-83 3.23%
Mar-84 1.77%
Jun-84 -1.38%
Sep-84 -1.98%
Dec-84 -3.79%
Mar-85 -4.32%
Jun-85 -5.32%
Sep-85 -3.24%
Dec-85 -4.93%
Mar-86 -5.80%
Jun-86 -7.21%
Sep-86 -7.36%
Dec-86 -7.98%
Mar-87 -9.05%
Jun-87 -7.35%
Sep-87 -6.76%
Dec-87 -6.02%
Mar-88 -6.15%
Jun-88 -5.93%
Sep-88 -5.94%
Dec-88 -5.43%
Mar-89 -5.45%
Jun-89 -6.13%
Sep-89 -6.80%
Dec-89 -7.17%
Mar-90 -6.70%
Jun-90 -7.28%
Sep-90 -6.13%
Dec-90 -8.23%
Mar-91 -7.24%
Jun-91 -6.37%
Sep-91 -7.19%
Dec-91 -7.53%
Mar-92 -3.51%
Jun-92 -3.40%
Sep-92 -2.98%
Dec-92 -1.00%
Mar-93 0.50%
Jun-93 0.44%
Sep-93 1.04%
Dec-93 4.85%
Mar-94 3.19%
Jun-94 3.19%
Sep-94 2.83%
Dec-94 3.06%
Mar-95 -0.12%
Jun-95 1.57%
Sep-95 3.28%
Dec-95 0.94%
Mar-96 0.30%
Jun-96 1.89%
Sep-96 1.20%
Dec-96 0.66%
Mar-97 0.61%
Jun-97 -2.13%
Sep-97 0.03%
Dec-97 0.40%
Mar-98 -1.04%
Jun-98 -2.42%
Sep-98 -4.19%
Dec-98 -3.42%
The above chart reflects the divergence of historical 3-year trailing returns of
micro-cap (CRSP 9-10 Composite) vs. small-cap (CRSP 6-8 Composite) stocks. Each
point on the line above zero indicates a period of micro-cap outperformance, and
those below zero indicate small-cap outperformance, for that trailing 3-year
period.)
[end line chart]
*The above chart reflects the divergence of historical 3-year trailing average
annual total returns of micro-cap (CRSP 9-10 Composite) vs. small-cap (CRSP 6-8
Composite) stocks through 12/31/98. Each point on the line above zero indicates
a period of micro-cap outperformance, and those below zero indicate small-cap
outperformance for that trailing 3-year period.
performance, history shows that significant variances have occurred between the
small- and micro-cap sectors and among our Funds as well.
Does it make sense to own more than one Royce Fund?
We think it could for some investors, partly because the small-cap world is so
diverse and partly because investors have different goals and levels of risk
tolerance.
[end bottombar]
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 5
<PAGE>
[pull quote]
The full decades in which the CRSP 6-10 outperformed the S&P 500 -- the '30s,
'40s, '60s and '70s -- were average to low-return periods, while the decades in
which it trailed -- the '50s, '80s and '90s -- were high-return periods. We
think this is encouraging for small-cap investing today, as we believe that the
market as a whole has entered a lower-return period.
[end pull quote]
- --------------------------------------------------------------------------------
SAME AS IT EVER WAS
Performance snapshots can be misleading. As the name implies, a snapshot is
a picture that depicts performance at a single moment in time. It says nothing
about periods preceding or following the snapshot. The old adage, "Past
performance is no guarantee of future results," can be seen in the following:
<TABLE>
<CAPTION>
- ------------------------------------------- -----------------------------------------
PUT ALL MY MONEY IN SMALL-CAP? PUT ALL MY MONEY IN LARGE-CAP?
Average Annual Total Returns Average Annual Total Returns
- ------------------------------------------- -----------------------------------------
Periods Ended 9/30/95 Periods Ended 6/30/99
--------------------- ---------------------
Russell 2000 S&P 500 Russell 2000 S&P 500
- ------------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C>
3-Year 19.0% 15.0% 3-Year 11.2% 29.1%
- ------------------------------------------- -----------------------------------------
5-Year 21.7% 17.2% 5-Year 15.4% 27.9%
- ------------------------------------------- -----------------------------------------
</TABLE>
While the period leading up to and including performance through 9/30/95
was a terrific time for small-cap investing, the period since has clearly
favored large-caps. Despite seemingly strong evidence in 1995 and again today,
investing based on a performance snapshot may be dangerous.
With all due respect to John Maynard Keynes's famous dictum, "The long run
is a misleading guide to current affairs because in the long run we are all
dead," we believe that the long run offers useful insight, especially when
examining shorter-term performance periods. We've recently completed an internal
analysis that has revealed some interesting points regarding long-term small-cap
performance. We examined small-cap returns (CRSP 6-10, Center for Research in
Security Prices) and S&P 500 returns from the '30s through the '90s and
discovered that the '90s are no different than any other decade. Small-cap has
had both a period of outperformance and a period of underperformance during each
10-year time horizon.
[bottombar]
If each Fund is different, why do you include all of them in the same report?
First, while each Fund focuses on a different aspect of small-cap investing, we
use a common value approach to security selection. Second, many stockholders own
more than one Royce Fund, and we want to make sure that everyone is aware of the
range of funds that we offer.
How did you develop your investment approach?
Our approach grew out of a fear of losing our shareholders' money, as well as
our own. When I became associated with Royce & Associates -- first as a
consultant and then in June 1973 as owner and chief investment officer -- I
focused, like a lot of investors, more on style than substance when selecting
securities. After a very difficult 1973 and 1974, I asked myself, "How can I
[end bottombar]
6 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
What we also found was that small-caps outperformed large-caps for at least a
six-year period inside each decade, including the '90s. Many investors forget
that the early '90s were a very successful period for small-caps.
The full decades in which the CRSP 6-10 outperformed the S&P 500 -- the
'30s, '40s, '60s and '70s -- were average to low-return periods, while the
decades in which it trailed -- the '50s, '80s and '90s -- were high-return
periods. We think this is encouraging for small-cap investing today, because we
believe that the market as a whole has entered a lower-return period.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
6-YEAR TOTAL RETURN
INTRA-DECADE SMALL-CAP OUTPERFORMANCE PERIODS RESULTS FOR SMALL-CAP
6-YEAR CUMULATIVE OUTPERFORMANCE BY DECADE OUTPERFORMANCE PERIODS
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
'90-'99 9/30/90 - 9/30/96 CRSP 6-10 S&P 500
- ----------------------------------------------------------------------------------------
'80-'89 3/1/80 - 3/31/86 223.9% 165.7%
- ----------------------------------------------------------------------------------------
'70-'79 12/31/73 - 12/31/79 281.6 211.1
- ----------------------------------------------------------------------------------------
'60-'69 12/31/62 - 12/31/68 261.9 46.5
- ----------------------------------------------------------------------------------------
'50-'59 9/30/53 - 9/30/59 315.7 99.0
- ----------------------------------------------------------------------------------------
'40-'49 6/30/40 - 6/30/46 222.5 205.6
- ----------------------------------------------------------------------------------------
'30-'39 12/31/30 - 12/31/36 517.1 158.3
- ----------------------------------------------------------------------------------------
243.1 59.7
- ----------------------------------------------------------------------------------------
YEAR BY YEAR
</TABLE>
Bar points indicate beginning and ending periods of 6-year small-cap
outperformance
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
CUMULATIVE RESULTS BY DECADE
- ----------------------------------------------------------------------------------
1930's 1940's 1950's 1960's 1970's 1980's 1990's
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CRSP 6-10 47.7% 328.9% 438.3% 218.8% 150.1% 304.7% 244.7%
- ----------------------------------------------------------------------------------
S&P 500 2.3 138.7 483.3 112.3 76.5 401.5 394.7
- ----------------------------------------------------------------------------------
</TABLE>
[bottombar]
try to avoid losing money in the equity markets?" It was then that I developed
the approach that in essence the firm still uses today, one which looks for
attractive balance sheets, high internal rates of return and established records
of generating "free cash flow." Obviously an investor can lose money, but we
wanted to try to manage some of the risks of investing.
Was risk management as important a factor then as it is today?
Absolutely. Historically, small-company investors have had to deal with
higher-than-average levels of volatility. Conventional wisdom held that if you
wanted high returns from small-cap stocks, you had to take greater risks. We
believed, however, that our disciplined value approach could effectively reduce
risk without sacrificing long-term returns. This idea is as important today as
it was then.
[end bottombar]
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 7
<PAGE>
[sidebar]
Notwithstanding the current small-cap rally, we are finding what we believe are
attractively priced companies. We did some internal research recently that
examined small-cap valuations on an earnings yield basis. The results indicate
to us that, adjusting for interest rates and allowing for the recent small-cap
rally, small-caps are still very attractively valued.
[end sidebar]
[Graphic: Parade with people holding banner which reads SMALL-CAPS]
WHY SMALL-CAPS, WHY NOW!
The last several years of small-cap underperformance have led many financial
commentators to suggest that the world has changed and that the small-cap sector
may not offer the return potential that it has in the past. We not only disagree
with this, but believe that recent performance is very typical of past
performance patterns, i.e., it has been cyclical and well within historical
norms.
SMALL-CAP AND LARGE-CAP OUTPERFORMANCE BY QUINTILE
ALL ROLLING 10-YEAR PERIODS FROM 1936 THROUGH 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
10-Year Returns by Range of Average Total # of Periods Total # of Periods Percentage of
10-Year Returns by Range of Average when CRSP 6-10 when S&P 500 Periods CRSP 6-10
Quintile Annual Returns Outperformed Outperformed Outperformed
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1st Quintile over 16.3% 10 41 20%
- ----------------------------------------------------------------------------------------------------------
2nd Quintile 13.9 - 16.2 16 34 32
- ----------------------------------------------------------------------------------------------------------
3rd Quintile 9.2 - 13.8 42 8 84
- ----------------------------------------------------------------------------------------------------------
4th Quintile 6.4 - 9.1 45 6 88
- ----------------------------------------------------------------------------------------------------------
5th Quintile (3.7) - 6.3 39 12 76
- ----------------------------------------------------------------------------------------------------------
</TABLE>
[bottombar]
What kind of changes have affected the small-cap market since you began managing
money?
When I began, small-caps were not recognized as a separate asset class.
Regardless of investment approach, all small-cap portfolios -- of which there
were few -- were categorized as "Aggressive Growth" by Lipper Analytical
Services. So the most significant change by far is the way that small-cap has
evolved into a professional asset class, with its own indices, analysts and
institutional coverage. A direct result of this has been an increase in the in
the number of small-cap funds and an extension of the effective market cap
ceiling from $500 million at the beginning of the '90s to $1.5 billion today.
How has the firm responded to these changes?
We now view the small- and micro-cap sectors as distinct segments, a distinction
we first identified in the early '90s. We have developed investment approaches
that we believe are appropriate for each, namely concentration in the upper tier
and broader diversification in the lower tier.
[end bottombar]
8 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
[photo: Jack Fockler, Whitney George, Chuck Royce, Charlie Dreifus, Buzz Zaino]
(l-r) Jack Fockler, Whitney George, Chuck Royce, Charlie Dreifus, Buzz Zaino
The performance table on page eight confirms what our earlier studies had
shown -- large-caps have historically tended to outperform in high-return
periods, while small-caps have outperformed during average and low-return
periods.
As satisfying as the second quarter small-cap rally was, we are even more
encouraged by the performance of small-cap since the bottom last October. Not
only did the Russell 2000 outperform the S&P 500 from the October 8, 1998 bottom
through June 30, 1999 (+48.9% versus +44.4%), it did so during a period of
rising interest rates -- Treasury bond yields were up more than 26% during the
period! We think that in the current cycle, small-cap can keep leading the
parade.
As we enter what we believe will be a relatively low-return period for the
market -- possibly for an extended time -- our confidence in small-cap value
investing remains as high as ever.
We appreciate your continued support of our work.
Sincerely,
<TABLE>
<S> <C> <C>
[Signature Charles M. Royce] [Signature W. Whitney George] [Signature Jack E. Fockler, Jr.]
Charles M. Royce W. Whitney George Jack E. Fockler, Jr.
President Vice President Vice President
</TABLE>
August 6, 1999
PS We invite you to visit our Website at www.roycefunds.com for up-to-date
information on our Funds and our company. Your questions and comments are
always welcome.
[bottombar]
What's next?
We're going to continue doing the same things we've done for the past 25 years
- -- look to invest in good companies that are substantially undervalued in the
market.
[end bottombar]
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 9
<PAGE>
[sidebar]
The companies that we consider as investments for our Fund portfolios all have
stories behind them, with plots that often resemble the twists and turns of a
Victorian novel, featuring courageous heroes and virtuous heroines, unexpected
appearances from mysterious strangers, terrible secrets revealed at the worst
possible moment and (at least we always hope) a happy ending.
[end sidebar]
A RECOUNTING OF AN IDEA
- --------------------------------------------------------------------------------
Prologue
Although we try to provide a lot of information about our investment approach,
many investors want to know more about how we make specific investment
decisions. A good example of how our selection process is designed to work is
E.W. Blanch Holdings (NYSE: EWB). Primarily a reinsurance intermediary, the
company works with insurance companies to place unwanted risk with reinsurers
who can absorb that risk. In many ways, the business functions analogously to a
securities brokerage. Insurance and reinsurance are businesses that we believe
we know well, since our experience with them dates back many years.
Chapter One, In Which a Reinsurance Broker's IPO Attracts the Close Attention of
Everyone at the Firm Known as Royce.
E.W. Blanch enjoyed an excellent reputation as a reinsurance broker and was
known to us even before the company's initial public offering in May, 1993. Many
of its clients were companies whose stock we owned, which is how it initially
came to our attention. At the time, E.W. Blanch had a strong balance sheet and
solid prospects to grow as a business, two elements that must be present for us
to take a second look at any company. Soon after the company went public with a
successful IPO in 1993, we bought a small number of shares and began to watch
more closely, something we occasionally do when we're interested, but not yet
fully committed (think of it as dating).
Chapter Two, In Which the Need for Grace Under Pressure is Clearly Demonstrated
to All.
Although the CEO was (and remains) an energetic and talented recruiter and
marketer, we had concerns about how well the firm would make the transition from
private business to public company - as we typically do when any primarily
entrepreneurial business becomes publicly traded. Any business that goes through
this process suddenly finds itself with a different set of very real partners.
These new partners, the stockholders, are seldom shy about asking in-depth
questions, offering suggestions or even complaining about the business on at
least a quarterly basis, when a company posts its latest financial results. Not
every business is prepared for this phenomenon. Even for a company that
eventually handles these matters with grace, the passage usually begins less
than smoothly as the company adjusts to this changing culture. And so it was at
Blanch.
Chapter Three, In Which Trouble Rears Its Loathsome Head, as Reinsurance
Premiums Decline, Institutional Attention Wanes and the Stock Price Languishes.
Although E.W. Blanch came on the market as a micro-cap security, there was
some institutional interest in the stock (which is not always the case with
micro-caps). In what was then a declining market for reinsurance premiums, the
firm told investors that it could grow at 20% per year, a target that proved to
be more optimistic than the company could consistently deliver on a quarterly
basis. From shortly after the offering through 1995, the stock languished as the
initial expectations were dashed, and institutional investors grew timid.
* Past performance is no guarantee of future results. As of June 30, 1999, E.W.
Blanch represented 0.4% of Royce Value Trust's net assets, 0.0% of Royce
Micro-Cap Trust's net assets and 3.1% of Royce Focus Trust's net assets. There
can be no assurance that this stock will be included in any Royce-managed fund
in the future.
10 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
- --------------------------------------------------------------------------------
Chapter Four, In Which a Period of Bumpy Growth for the Company Creates the
Seemingly Paradoxical Consequence of Additional Buying Opportunities for Royce.
Drawing encouragement from our ongoing conversations with Blanch's
management, its solid balance sheet and sterling business reputation, we
continued to build our position in the stock from late 1993 through 1995 at
prices ranging from $15 3/4 - $22 3/8, prices that we estimated to be
approximately 10 times earnings. However, there were important issues that
tested our confidence. The company's overly optimistic short-term growth
expectations at the outset, inconsistent growth and some substantial insider
selling were all matters that made us re-examine our commitment. Yet we looked
at both past and potential growth with a long-term perspective and saw a company
that had been providing a 15% annualized growth rate, albeit in an admittedly
bumpy fashion. Although E.W. Blanch was still a distant third among reinsurance
brokers, we became increasingly convinced of its potential to close the gap. Our
confidence seemed to grow in direct proportion to the indifference of our peers.
When we describe the tendency of micro-cap stocks to fly beneath Wall Street's
radar, companies such as E.W. Blanch are what we have in mind.
Chapter Five, In Which the Company's Innovations Move the Stock Price and the
Business Forward, Causing All to Rejoice.
An important but costly acquisition in 1995 kept the company's stock
performance sluggish that year, but by 1996 its business profile began to turn
around, especially in light of its participation in two highly significant
innovations in their industry. It played an integral part in the formation of
the California Earthquake Authority, with a $3.5 billion reinsurance placement
in that state. It also developed a new plan to dramatically reduce an insurer's
risk exposure to hurricane damage in Florida. We had established our position
and remained patient, and by 1997, the stock price began to climb.
Chapter Six, In Which a Boutique Firm Evolves Into a Global Business Presence,
Potentially Ensuring a Happy Ending for All.
Today, the company is considered a major innovator in the reinsurance
business, often acting more as a consultant dealing with such issues as risk
management, than a broker. As of this writing, the stock is trading just below
$65 per share, and E.W. Blanch has delivered on its potential, evolving from a
small, boutique-style firm into a global business presence. During the years in
which stock performance was disappointing, we stayed in touch with both
management and clients, asking tough questions and thinking strategically along
with them to determine where the business was headed. Obviously, we liked what
we heard, but we also kept a close eye on the company's financial condition and
how well it was functioning as a business.
Epilogue, In Which the Company of Royce is Most Pleased.
Each time that we make a selection, our goal, not always attained, is to
choose a stock of E.W. Blanch's caliber, a company whose stock price will
eventually reflect its business strengths and potential. As pleased as we are
with the progress that the company has made, the payoff would not have
materialized if we hadn't shown patience and conviction.
[pull quote]
Our confidence seemed to grow in direct proportion to the indifference of our
peers. When we describe the tendency of micro-cap stocks to fly beneath Wall
Street's radar, companies such as E.W. Blanch are what we have in mind.
[end pull quote]
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 11
<PAGE>
[sidebar]
WHAT WE DO
Royce Value Trust (RVT) is a closed-end fund that seeks long-term growth of
capital. The Fund uses a value approach to invest in a broadly diversified
portfolio of small- and micro-cap companies that are trading significantly below
our estimate of their "current worth."
HOW WE DID
Royce Value Trust's broadly diversified portfolio of small- and micro-cap stocks
fully participated in small-cap's second-quarter rebound. RVT followed 1999's
disappointing first quarter with a second-quarter NAV return of 20.2% and a
market price return of 20.1%. For the second quarter, the Fund outperformed its
small-cap benchmarks, the Russell 2000 (+15.6%) and S&P 600 (+15.4%), on both an
NAV and a market price basis. Although trailing both of its benchmarks on an NAV
and market price basis year-to-date through June 30, 1999, RVT was ahead of the
S&P 600 on an NAV basis for the one-year period, while trailing the Russell
2000. The Fund outperformed both indices on an NAV and market price basis for
the three-year and ten-year periods ended June 30, 1999.
The Fund's five best-performing positions made significant contributions to its
year-to-date performance. Our successes in many ways reflect the consistent
application of our disciplined value approach, in which we seek to take
advantage of opportunities when small-cap interest and respective stock prices
are low.
RVT remains the oldest and largest small-cap value closed-end fund available,
with total net assets of $688 million as of June 30, 1999. The Fund's officers,
employees and their families currently own more than $4 million of the Fund's
outstanding Common Stock.
[end sidebar]
ROYCE VALUE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAV AVERAGE ANNUAL TOTAL RETURNS Through 6/30/99
- --------------------------------------------------------------------------------
<S> <C>
Second Quarter 1999* 20.2%
- --------------------------------------------------------------------------------
Jan-June 1999* 4.9
- --------------------------------------------------------------------------------
1-Year -0.2
- --------------------------------------------------------------------------------
3-Year 14.4
- --------------------------------------------------------------------------------
5-Year 15.2
- --------------------------------------------------------------------------------
10-Year 13.3
- --------------------------------------------------------------------------------
Since Inception (11/26/86) 12.8
- --------------------------------------------------------------------------------
</TABLE>
*Not annualized.
<TABLE>
<CAPTION>
RISK/RETURN COMPARISON 10-Year Period Ended 6/30/99
- --------------------------------------------------------------------------------
Average Annual Standard
Total Return Deviation RUR
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
RVT (NAV) 13.3% 12.6 1.06
- --------------------------------------------------------------------------------
S&P 600 12.4 17.4 0.71
- --------------------------------------------------------------------------------
Russell 2000 12.4 17.0 0.73
- --------------------------------------------------------------------------------
</TABLE>
Return per Unit of Risk (RUR) is the average annual total return divided by the
annualized standard deviation over a designated time period.
Over the last 10 years, Royce Value Trust 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*
- --------------------------------------------------------------------------------
[line chart]
Adjusted Actual
Market Market
Date Price Price
Nov-86 10.00 10.00
Dec-86 9.88 9.88
Jan-87 10.75 10.75
Feb-87 9.75 9.75
Mar-87 9.63 9.63
Apr-87 8.63 8.63
May-87 9.50 9.50
Jun-87 9.37 9.38
Jul-87 9.12 9.13
Aug-87 9.50 9.5.
Sep-87 9.25 9.25
Oct-87 7.30 7.00
Nov-87 6.91 6.63
Dec-87 7.26 6.75
Jan-88 7.53 7.00
Feb-88 8.60 8.00
Mar-88 8.73 8.13
Apr-88 8.60 8.00
May-88 8.46 7.88
Jun-88 9.27 8.63
Jul-88 9.14 8.50
Aug-88 9.00 8.38
Sep-88 9.54 8.88
Oct-88 9.27 8.63
Nov-88 8.87 8.25
Dec-88 9.25 8.13
Jan-89 9.96 8.75
Feb-89 9.68 8.50
Mar-89 10.10 8.88
Apr-89 10.39 9.13
May-89 10.67 9.38
Jun-89 10.53 9.25
Jul-89 10.96 9.63
Aug-89 11.10 9.75
Sep-89 10.99 9.63
Oct-89 10.84 9.50
Nov-89 10.84 9.50
Dec-89 11.46 9.50
Jan-90 10.71 8.88
Feb-90 10.56 8.75
Mar-90 11.16 9.25
Apr-90 11.16 9.25
May-90 11.46 9.5
Jun-90 11.61 9.63
Jul-90 11.31 9.5
Aug-90 10.26 8.25
Sep-90 9.53 7.88
Oct-90 8.78 7.25
Nov-90 9.38 7.75
Dec-90 10.23 8.13
Jan-91 10.85 8.75
Feb-91 12.43 9.88
Mar-91 13.05 10.38
Apr-91 13.53 10.75
May-91 12.90 10.25
Jun-91 12.58 10.00
Jul-91 12.74 10.13
Aug-91 12.42 9.88
Sep-91 12.46 9.88
Oct-91 12.93 10.25
Nov-91 12.61 10.00
Dec-91 13.83 10.38
Jan-92 14.67 11.00
Feb-92 15.67 11.75
Mar-92 15.33 11.50
Apr-92 15.50 11.63
May-92 15.33 11.38
Jun-92 15.00 11.25
Jul-92 15.00 11.25
Aug-92 14.83 11.13
Sep-92 15.19 11.38
Oct-92 15.36 11.50
Nov-92 16.86 12.63
Dec-92 17.54 12.25
Jan-93 18.25 12.75
Feb-93 18.25 12.88
Mar-93 18.61 13.00
Apr-93 18.43 12.88
May-93 18.43 12.88
Jun-93 18.79 13.13
Jul-93 19.33 13.38
Aug-93 19.50 13.63
Sep-93 19.75 13.75
Oct-93 20.47 14.25
Nov-93 19.94 13.88
Dec-93 20.13 12.88
Jan-94 20.72 13.25
Feb-94 20.33 13.00
Mar-94 19.16 12.25
Apr-94 19.55 12.50
May-94 19.35 12.38
Jun-94 19.16 12.25
Jul-94 19.35 12.38
Aug-94 19.74 12.63
Sep-94 18.76 12.00
Oct-94 18.18 11.63
Nov-94 19.18 12.13
Dec-94 19.00 11.00
Jan-95 20.08 11.63
Feb-95 20.30 11.75
Mar-95 19.65 11.38
Apr-95 20.52 11.88
May-95 20.73 12.13
Jun-95 20.73 12.00
Jul-95 21.81 12.63
Aug-95 22.68 13.13
Sep-95 23.33 13.50
Oct-95 22.25 12.88
Nov-95 23.10 13.25
Dec-95 22.91 11.88
Jan-96 23.87 12.38
Feb-96 23.39 12.13
Mar-96 23.63 12.25
Apr-96 23.63 12.25
May-96 24.35 12.63
Jun-96 23.87 12.38
Jul-96 22.42 11.63
Aug-96 23.63 12.25
Sep-96 24.35 12.63
Oct-96 23.87 12.38
Nov-96 24.84 12.88
Dec-96 26.64 12.63
Jan-97 26.11 12.38
Feb-97 26.37 12.50
Mar-97 24.79 11.75
Apr-97 25.06 11.88
May-97 26.90 12.75
Jun-97 29.01 13.75
Jul-97 30.07 14.25
Aug-97 32.31 15.31
Sep-97 35.01 16.25
Oct-97 33.39 15.50
Nov-97 35.41 16.44
Dec-97 34.32 15.06
Jan-98 34.03 14.94
Feb-98 36.74 16.13
Mar-98 39.88 17.13
Apr-98 39.45 16.94
May-98 39.01 16.75
Jun-98 39.35 16.50
Jul-98 36.07 15.13
Aug-98 28.02 11.75
Sep-98 31.68 12.88
Oct-98 33.68 13.69
Nov-98 34.45 14.00
Dec-98 34.82 13.75
Jan-99 34.03 13.44
Feb-99 31.97 12.63
Mar-99 29.54 11.31
Apr-99 33.95 13.00
May-99 34.76 13.31
Jun-99 35.48 13.25
- ---------------------------
Market Price Total Returns
- ---------------------------
Since Inception = 254.9%
- ---------------------------
10 Years = 237.0
- ---------------------------
5 Years = 85.2
- ---------------------------
3 Years = 48.7
- ---------------------------
1 Year = -9.8
- ---------------------------
- ---------------------------------------
Annual distribution totals as indicated
- ---------------------------------------
Adjusted Market Price
Actual Market Price
[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 1999
<PAGE>
PERFORMANCE AND PORTFOLIO REVIEW
- --------------------------------------------------------------------------------
[Bar Chart]
<TABLE>
<CAPTION>
DOWN MARKET PERFORMANCE COMPARISON
All Down Periods of 7.5% or Greater, in Percentages (%)
- --------------------------------------------------------------------------------
RVT (NAV) Russell 2000
- --------------------------------------------------------------------------------
<S> <C> <C>
8/25/87 -
10/28/87 -26.4 -38.9
- --------------------------------------------------------------------------------
10/9/89 -
10/31/90 -22.1 -32.5
- --------------------------------------------------------------------------------
2/12/92 -
7/8/92 -2.1 -12.0
- --------------------------------------------------------------------------------
3/18/94 -
12/9/94 -5.3 -12.3
- --------------------------------------------------------------------------------
5/22/96 -
7/24/96 -6.3 -15.4
- --------------------------------------------------------------------------------
1/22/97 -
4/25/97 -3.1 -9.0
- --------------------------------------------------------------------------------
10/13/97-
1/12/98 -8.1 -11.3
- --------------------------------------------------------------------------------
4/21/98 -
10/8/98 -31.3 -36.5
- --------------------------------------------------------------------------------
</TABLE>
[End Bar Chart]
Royce Value Trust outperformed the Russell 2000 during all eight major downturns
since its inception.
<TABLE>
<CAPTION>
PORTFOLIO DIAGNOSTICS TOP 10 POSITIONS % of Net Assets
- ------------------------------------------------------ --------------------------------------------------
<S> <C> <S> <C>
Median Market Cap $375 million Charming Shoppes 1.3%
- ------------------------------------------------------ --------------------------------------------------
Weighted Average P/E Ratio 15.4x Unitrode 1.1
- ------------------------------------------------------ --------------------------------------------------
Weighted Average P/B Ratio 1.7x Barrett Resources 1.0
- ------------------------------------------------------ --------------------------------------------------
Weighted Average Yield 1.6% National Computer Systems 1.0
- ------------------------------------------------------ --------------------------------------------------
Net Assets $688 million Florida Rock Industries 1.0
- ------------------------------------------------------ --------------------------------------------------
Turnover Rate 21% Velcro Industries 0.9
- ------------------------------------------------------ --------------------------------------------------
Net Leverage+ 13% Simpson Manufacturing 0.9
- ------------------------------------------------------ --------------------------------------------------
Symbol-- Market Price RVT Marshall Industries 0.9
-- NAV XRVTX --------------------------------------------------
- ------------------------------------------------------ Circle International Group 0.8
--------------------------------------------------
Crawford & Co. 0.8
--------------------------------------------------
</TABLE>
+Net leverage is the percentage, in excess of 100%, of the total value of
equity type investments divided by net assets, excluding preferred stock.
<TABLE>
<CAPTION>
PORTFOLIO SECTOR BREAKDOWN With Examples % of Net Assets
- -------------------------------------------------------------------------------------------------------------
<S> <C>
Technology Components and Systems, Software/Services, Semiconductors and Equipment 16.4%
- -------------------------------------------------------------------------------------------------------------
Industrial Products Building Systems and Components, Construction Materials,
Specialty Chemicals and Materials 15.0
- -------------------------------------------------------------------------------------------------------------
Industrial Services Transportation and Logistics, Printing, Engineering and Construction 12.8
- -------------------------------------------------------------------------------------------------------------
Consumer Products Home Furnishing/Appliances, Apparel and Shoes, Publishing 9.6
- -------------------------------------------------------------------------------------------------------------
Financial Intermediaries Insurance, Banking, Closed-End Funds, Securities Brokers 7.8
- -------------------------------------------------------------------------------------------------------------
Financial Services Insurance Brokers, Investment Management, Information and Processing 7.2
- -------------------------------------------------------------------------------------------------------------
Natural Resources Oil and Gas, Energy Services, Real Estate 5.0
- -------------------------------------------------------------------------------------------------------------
Consumer Services Retail Stores, Restaurants/Lodgings, Leisure/Entertainment 3.2
- -------------------------------------------------------------------------------------------------------------
Health Surgical Products and Devices, Drugs and Biotech, Health Services 2.6
- -------------------------------------------------------------------------------------------------------------
Utilities 0.1
- -------------------------------------------------------------------------------------------------------------
Miscellaneous 4.9
- -------------------------------------------------------------------------------------------------------------
Bonds & Preferred Stocks 2.3
- -------------------------------------------------------------------------------------------------------------
Treasuries, Net Cash & Cash Equivalents 13.1
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GOOD IDEAS THAT WORKED
Realized and Unrealized Gain
Year-to-Date Through 6/30/99
- -----------------------------------------------------------
<S> <C>
K-Swiss Cl. A $ 5,488,444
- -----------------------------------------------------------
Unitrode 3,315,917
- -----------------------------------------------------------
Sunglass Hut International* 2,661,685
- -----------------------------------------------------------
Barrett Resources 2,604,773
- -----------------------------------------------------------
Florida Rock Industries 2,173,515
- -----------------------------------------------------------
Combined Gain $16,244,334
- -----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GOOD IDEAS AT THE TIME
Realized and Unrealized Loss
Year-to-Date Through 6/30/99
- -----------------------------------------------------------
<S> <C>
VideoServer $1,474,137
- -----------------------------------------------------------
RockShox 1,432,997
- -----------------------------------------------------------
Velcro Industries 1,352,022
- -----------------------------------------------------------
PXRE 1,239,800
- -----------------------------------------------------------
Axiohm Transaction Solutions 1,100,187
- -----------------------------------------------------------
Combined Loss $6,599,143
- -----------------------------------------------------------
</TABLE>
K-Swiss -- Sometimes it's better to be lucky than good. That was certainly the
case with K-Swiss, a manufacturer of tennis and sailing sneakers for people 40
and over, which we purchased because it was trading just above net working
capital. Soon after a prominent appearance on an episode of Buffy the Vampire
Slayer, the stock price quadrupled, and we're still shaking our heads.
Unitrode -- We began to build a position in this analog semiconductor
manufacturer during 1998's third-quarter downdraft, when its stock became cheap.
The business cycle for semiconductors turned around, and investors soon
followed, moving the stock price higher.
VideoServer -- Although a leader in the high-growth video-conferencing area,
profits have been thus far disappointing, with an expected effect on the stock
price. The company's prospects for future growth remain a question mark.
RockShox -- We were initially attracted by the solid balance sheet and prospects
for this bicycle shock absorber manufacturer. Once thinking that we had bought a
good company too soon, we are left wondering if we should have bought at all, as
performance disappointment continues to grow.
*Common Stock Only.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 13
<PAGE>
[sidebar]
WHAT WE DO
Royce Micro-Cap Trust (OTCM) is a closed-end fund that seeks long-term growth of
capital. The Fund uses a value approach to invest in a broadly diversified
portfolio of micro-cap stocks, companies with market caps less than $300
million. We believe that the more volatile micro-cap sector, while often higher
in risk, offers greater potential for higher returns than any other sector of
the domestic equity marketplace.
HOW WE DID
Royce Micro-Cap Trust's broadly diversified portfolio came back strong in 1999's
second quarter rally, up 16.5% on an NAV basis and 13.5% on a market price
basis. This compares to a gain of 15.6% for the Fund's small-cap benchmark, the
Russell 2000. The solid second-quarter rebound for micro-cap stocks was as
impressive as the first quarter was dismal. The difficult first-quarter start
left the Fund behind its benchmark year-to-date through June 30, 1999 on both an
NAV and a market price basis.
In the first half of 1999, the Fund benefited from solid performance from
companies in the natural resources and technology sectors, where we increased
our exposure during 1998's third-quarter downturn. Portfolio companies in the
consumer services and industrial services also contributed to the Fund's gains
through June 30, 1999.
While micro-cap stocks have endured some short-term performance disappointments,
our confidence in the long-term performance potential of this volatile, but
opportunity-laden, sector of the small-cap universe is undiminished. OTCM now
has more than five years of performance history and is the only closed-end
micro-cap fund available. The Fund's officers, employees and their families
currently own more than $8.5 million, or 7.5%, of the Fund's outstanding Common
Stock.
[end sidebar]
ROYCE MICRO-CAP TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAV AVERAGE ANNUAL TOTAL RETURNS Through 6/30/99
- --------------------------------------------------------------------------------
<S> <C>
Second Quarter 1999* 16.5%
- --------------------------------------------------------------------------------
Jan-June 1999* 2.4
- --------------------------------------------------------------------------------
1-Year -9.4
- --------------------------------------------------------------------------------
3-Year 9.5
- --------------------------------------------------------------------------------
5-Year 13.4
- --------------------------------------------------------------------------------
Since Inception (12/14/93) 12.3
- --------------------------------------------------------------------------------
</TABLE>
*Not annualized.
<TABLE>
<CAPTION>
RISK/RETURN COMPARISON From Inception (12/14/93) Through 6/30/99
- --------------------------------------------------------------------------------
Average Annual Standard
Total Return Deviation RUR
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
OTCM (NAV) 12.3% 12.7 0.97
- --------------------------------------------------------------------------------
Russell 2000 13.1 16.8 0.78
- --------------------------------------------------------------------------------
</TABLE>
Return per Unit of Risk (RUR) is the average annual total return divided by the
annualized standard deviation over a designated time period.
Since its inception, Royce Micro-Cap Trust outperformed the Russell 2000 on a
risk-adjusted basis.
ROYCE MICRO-CAP TRUST MARKET PRICE -- ACTUAL vs. ADJUSTED*
Adjusted Market Price
Actual Market Price
[line chart]
Adjusted Actual
Market Market
Date Price Price
Dec-93 7.50 7.50
Jan-94 7.75 7.75
Feb-94 7.50 7.50
Mar-94 6.50 6.50
Apr-94 6.63 6.63
May-94 7.13 7.13
Jun-94 6.75 6.75
Jul-94 7.00 7.00
Aug-94 7.13 7.13
Sep-94 7.00 7.00
Oct-94 7.38 7.38
Nov-94 7.19 7.13
Dec-94 7.11 7.00
Jan-95 6.86 6.75
Feb-95 7.24 7.13
Mar-95 6.98 6.88
Apr-95 6.98 6.88
May-95 7.11 7.00
Jun-95 7.49 7.38
Jul-95 7.87 7.75
Aug-95 8.13 8.00
Sep-95 8.51 8.38
Oct-95 7.87 7.75
Nov-95 7.75 7.63
Dec-95 8.52 8.00
Jan-96 8.25 7.75
Feb-96 8.25 7.75
Mar-96 8.25 7.75
Apr-96 8.92 8.38
May-96 8.92 8.38
Jun-96 9.18 8.63
Jul-96 8.25 7.75
Aug-96 8.45 7.94
Sep-96 8.52 8.00
Oct-96 8.52 8.00
Nov-96 9.05 8.50
Dec-96 9.71 8.25
Jan-97 9.30 7.88
Feb-97 9.41 8.00
Mar-97 8.97 7.63
Apr-97 9.56 8.13
May-97 10.15 8.63
Jun-97 10.57 8.98
Jul-97 10.66 9.06
Aug-97 11.32 9.63
Sep-97 13.16 11.19
Oct-97 12.79 10.88
Nov-97 12.72 10.81
Dec-97 13.10 10.13
Jan-98 12.62 9.75
Feb-98 13.43 10.38
Mar-98 13.64 11.31
Apr-98 14.40 11.13
May-98 13.91 10.75
Jun-98 13.35 10.31
Jul-98 12.62 9.75
Aug-98 10.11 7.81
Sep-98 10.43 8.06
Oct-98 10.67 8.25
Nov-98 11.56 8.94
Dec-98 11.87 8.88
Jan-99 11.03 8.25
Feb-99 10.70 8.00
Mar-99 9.95 7.44
Apr-99 11.12 8.31
May-99 11.29 8.44
Jun-99 11.29 8.44
- ------------------------------
Market Price Total Returns
- ------------------------------
Since Inception = 50.5%
- ------------------------------
5 Years = 67.2
- ------------------------------
3 Years = 22.9
- ------------------------------
1 Year = -15.4
- ------------------------------
- ---------------------------------------
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 1999
<PAGE>
PERFORMANCE AND PORTFOLIO REVIEW
- --------------------------------------------------------------------------------
[Bar Chart]
<TABLE>
<CAPTION>
DOWN MARKET PERFORMANCE COMPARISON
All Down Periods of 7.5% or Greater, in Percentages (%)
- --------------------------------------------------------------------------------
OTCM (NAV) Russell 2000
- --------------------------------------------------------------------------------
<S> <C> <C>
3/18/94 -
12/9/94 -0.4 -12.3
- --------------------------------------------------------------------------------
5/22/96 -
7/24/96 -6.8 -15.4
- --------------------------------------------------------------------------------
1/22/97 -
4/25/97 -3.4 -9.0
- --------------------------------------------------------------------------------
10/13/97 -
1/12/98 -7.4 -11.3
- --------------------------------------------------------------------------------
4/21/98 -
10/8/98 -29.9 -36.5
- --------------------------------------------------------------------------------
</TABLE>
[End Bar Chart]
Royce Micro-Cap Trust outperformed the Russell 2000 during all five major
downturns since its inception.
<TABLE>
<CAPTION>
PORTFOLIO DIAGNOSTICS TOP 10 POSITIONS % of Net Assets
- ------------------------------------------------------ -----------------------------------------------
<S> <C> <S> <C>
Median Market Cap. $171 million Florida Rock Industries 1.4%
- ------------------------------------------------------ -----------------------------------------------
Weighted Average P/E Ratio 14.0x Matthews International Cl. A 1.3
- ------------------------------------------------------ -----------------------------------------------
Weighted Average P/B Ratio 1.5x Duff & Phelps Credit Rating 1.3
- ------------------------------------------------------ -----------------------------------------------
Weighted Average Yield 1.3% Kronos 1.3
- ------------------------------------------------------ -----------------------------------------------
Net Assets $179 million Simpson Manufacturing 1.2
- ------------------------------------------------------ -----------------------------------------------
Turnover Rate 19% Midwest Grain Products 1.2
- ------------------------------------------------------ -----------------------------------------------
Net Leverage+ 2% Ash Grove Cement Company 1.1
- ------------------------------------------------------ -----------------------------------------------
Symbol-- Market Price OTCM Carlisle Holdings 1.0
-- NAV XOTCX -----------------------------------------------
- ------------------------------------------------------ Topps Company (The) 1.0
-----------------------------------------------
AirNet Systems 1.0
-----------------------------------------------
</TABLE>
+Net leverage is the percentage, in excess of 100%, of the total value of equity
type investments divided by net assets, excluding preferred stock.
<TABLE>
<CAPTION>
PORTFOLIO SECTOR BREAKDOWN With Examples % of Net Assets
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
Industrial Products Building Systems and Components, Construction Materials, Specialty
Chemicals and Materials 17.0%
- ---------------------------------------------------------------------------------------------------------------
Technology Components and Systems, Software/Services, Semiconductors and Equipment 15.0
- ---------------------------------------------------------------------------------------------------------------
Consumer Products Home Furnishing/Appliances, Apparel and Shoes, Publishing 12.0
- ---------------------------------------------------------------------------------------------------------------
Industrial Services Transportation and Logistics, Printing, Engineering and Construction 10.8
- ---------------------------------------------------------------------------------------------------------------
Natural Resources Oil and Gas, Energy Services, Real Estate 5.5
- ---------------------------------------------------------------------------------------------------------------
Financial Intermediaries Insurance, Banking, Closed-End Funds, Securities Brokers 4.4
- ---------------------------------------------------------------------------------------------------------------
Health Surgical Products and Devices, Drugs and Biotech, Health Services 4.0
- ---------------------------------------------------------------------------------------------------------------
Financial Services Insurance Brokers, Investment Management, Information and Processing 2.7
- ---------------------------------------------------------------------------------------------------------------
Consumer Services Retail Stores, Restaurants/Lodging, Leisure/Entertainment 2.0
- ---------------------------------------------------------------------------------------------------------------
Miscellaneous 5.0
- ---------------------------------------------------------------------------------------------------------------
Preferred Stock 0.4
- ---------------------------------------------------------------------------------------------------------------
Treasuries, Cash & Cash Equivalents 21.2
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GOOD IDEAS THAT WORKED
Realized and Unrealized Gain
Year-to-Date Through 6/30/99
- -------------------------------------------------
<S> <C>
Kronos $ 803,705
- -------------------------------------------------
Florida Rock Industries 797,500
- -------------------------------------------------
K-Swiss Cl. A 734,293
- -------------------------------------------------
Carbo Ceramics 692,711
- -------------------------------------------------
Trex Company 674,420
- -------------------------------------------------
Combined Gain $3,702,629
- -------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GOOD IDEAS AT THE TIME
Realized and Unrealized Loss
Year-to-Date Through 6/30/99
- -------------------------------------------------
<S> <C>
800 JR Cigar $ 832,505
- -------------------------------------------------
BHA Group Holdings 539,803
- -------------------------------------------------
International Isotopes 522,450
- -------------------------------------------------
Midwest Grain Products 482,305
- -------------------------------------------------
Hauser 473,350
- -------------------------------------------------
Combined Loss $2,850,413
- -------------------------------------------------
</TABLE>
Kronos -- The company began as a timecard machine manufacturer and has developed
into a leading provider of work-planning, payroll and timecard software. We
began to buy the stock when the price was low due to an earnings growth slowdown
and product transitions. It's a good example of a growth stock that we purchased
when its stock price became low enough to fit our value criteria.
Florida Rock Industries -- A dominant producer of building aggregates in the
Southeast, the company has experienced healthy earnings growth due to a strong
economy. We believe that its future prospects are bright due to the recent
passage of legislation providing additional government spending on the country's
infrastructure.
800 JR Cigar -- A leading retail marketer selling premium cigars at a discount,
the company, one of our top gainers in 1998, has been caught in a glut that has
reduced cigar and stock prices alike. We are confident that its clever
management -- who own the majority of the stock -- can get the company smoking
again.
BHA Group Holdings -- This manufacturer of air-pollution filtration systems for
smokestacks was plagued by a slowdown in global manufacturing, particularly in
southeast Asia, at a time when they were expanding into the apparel business.
Although somewhat skeptical about the new venture, we believe that the core
business is strong enough to help the stock price recover.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 15
<PAGE>
[sidebar]
WHAT WE DO
Royce Focus Trust (FUND), formerly named Royce Global Trust, seeks long-term
growth of capital. Not restricted as to market capitalization, the Fund
typically uses a value approach to invest in a limited number of domestic and
foreign small-cap companies. Royce generally looks to invest in companies that
have excellent business strengths, high internal rates of return and low
leverage, and that are trading significantly below our estimate of their
"current worth."
HOW WE DID
Royce Focus Trust's concentrated portfolio emerged from the first-quarter
doldrums to reap the benefits of small-cap's second quarter comeback. FUND was
up 29.4% on an NAV basis and up 23.4% on a market price basis versus 15.6% for
its small-cap benchmark, the Russell 2000. Year-to-date through June 30, 1999,
the Fund's NAV was ahead of the Russell 2000 (+10.1% versus +9.3%), while its
market price performance trailed (+1.3%).
Through June 30, 1999, the Fund benefited from its more concentrated approach,
with its top-five performers accounting for nearly all of the Fund's net
realized and unrealized gain year-to-date. Solid performance came from companies
in a variety of sectors, including technology, industrial services and natural
resources, giving the Fund broad participation in the small-cap rebound.
At their Annual Meeting on May 7, 1999, stockholders of the Fund approved an
amendment to the Fund's Articles of Incorporation permitting a name change from
Royce Global Trust. There was no change to the Fund's ticker symbol or Cusip
number. The name change better reflects the Fund's evolved strategy of investing
in a limited number of domestic and foreign companies. The Fund's officers,
employees and their families currently own more than $4.5 million, or more than
10%, of the Fund's outstanding Common Stock.
[end sidebar]
ROYCE FOCUS TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAV AVERAGE ANNUAL TOTAL RETURNS Through 6/30/99
- ------------------------------------------------------
<S> <C>
Second Quarter 1999* 29.4%
- ------------------------------------------------------
Jan-June 1999* 10.1
- ------------------------------------------------------
1-Year -3.6
- ------------------------------------------------------
Since Inception (11/1/96)(1) 10.1
- ------------------------------------------------------
</TABLE>
*Not annualized.
(1) Date Royce & Associates assumed investment management responsibility for
the Fund.
ROYCE FOCUS TRUST MARKET PRICE -- ACTUAL vs. ADJUSTED(2)
- --------------------------------------------------------------------------------
[line chart]
Adjusted Actual
Market Market
Date Price Price
Nov-96 4.38 4.38
Nov-96 4.66 4.66
Dec-96 4.59 4.59
Jan-97 4.75 4.75
Feb-97 4.56 4.56
Mar-97 4.88 4.88
Apr-97 4.72 4.72
May-97 4.81 4.81
Jun-97 5.00 5.00
Jul-97 5.28 5.28
Aug-97 5.44 5.44
Sep-97 6.06 6.06
Oct-97 5.69 5.69
Nov-97 5.69 5.69
Dec-97 5.57 5.06
Jan-98 5.64 5.13
Feb-98 5.78 5.25
Mar-98 6.23 5.66
Apr-98 6.54 5.94
May-98 6.23 5.66
Jun-98 6.05 5.50
Jul-98 6.12 5.56
Aug-98 4.82 4.38
Sep-98 5.30 4.81
Oct-98 5.09 4.63
Nov-98 5.30 4.81
Dec-98 5.37 4.88
Jan-99 4.82 4.38
Feb-99 4.54 4.13
Mar-99 4.41 4.00
Apr-99 4.54 4.13
May-99 5.37 4.88
Jun-99 5.44 4.94
- --------------------------
Market Price Total Returns
- --------------------------
Since 11/1/96 (2) = 24.3
- --------------------------
1 Year = -10.2
- --------------------------
Adjusted Market Price
Actual Market Price
- ---------------------------------------
Annual distribution totals as indicated
- ---------------------------------------
[end line chart]
(2) Reflects market price total return experience of a continuous stockholder
who reinvested all distributions. This graph illustrates the market price
change from $4.3875 on 11/1/96, the date Royce & Associates assumed
investment management responsibility for the Fund.
MARKET CAPITALIZATION BREAKDOWN* As of 6/30/99
- --------------------------------------------------------------------------------
[bar chart]
<TABLE>
<S> <C>
> $1,000 15.0%
- ---------------------------------------
$500-$1,000 40.6%
- ---------------------------------------
$300-$500 30.1%
- ---------------------------------------
< $300 14.3%
- ---------------------------------------
% of Portfolio
</TABLE>
[end bar chart]
*in millions
16 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
PERFORMANCE AND PORTFOLIO REVIEW
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PORTFOLIO DIAGNOSTICS
- --------------------------------------------------------
<S> <C>
Median Market Cap. $585 million
- --------------------------------------------------------
Weighted Average P/E Ratio 16.3x
- --------------------------------------------------------
Weighted Average P/B Ratio 1.7x
- --------------------------------------------------------
Weighted Average Yield 1.6%
- --------------------------------------------------------
Net Assets $72 million
- --------------------------------------------------------
Turnover Rate 25%
- --------------------------------------------------------
Net Leverage+ 12%
- --------------------------------------------------------
Symbol -- Market Price FUND
-- NAV XFUNX
- --------------------------------------------------------
</TABLE>
+ Net leverage is the percentage, in excess of 100%, of the total value of
equity type investments divided by net assets, excluding preferred stock.
<TABLE>
<CAPTION>
TOP 10 POSITIONS % of Net Assets
- --------------------------------------------------------
<S> <C>
Charming Shoppes 6.9%
- --------------------------------------------------------
Marshall Industries 6.3
- --------------------------------------------------------
Morrison Knudsen 5.1
- --------------------------------------------------------
Florida Rock Industries 4.7
- --------------------------------------------------------
Enesco Group 4.5
- --------------------------------------------------------
Gallagher (Arthur J.) & Co. 3.6
- --------------------------------------------------------
New England Business Service 3.2
- --------------------------------------------------------
Blanch (E.W.) Holdings 3.1
- --------------------------------------------------------
Oakley 3.0
- --------------------------------------------------------
Lincoln Electric Holdings 2.9
- --------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO SECTOR BREAKDOWN With Examples % of Net Assets
- ------------------------------------------------------------------------------------------------------------
<S> <C>
Industrial Services Transportation and Logistics, Printing, Engineering and Construction 15.0%
- ------------------------------------------------------------------------------------------------------------
Industrial Products Building Systems and Components, Construction Materials,
Specialty Chemicals and Materials 13.0
- ------------------------------------------------------------------------------------------------------------
Technology Components and Systems, Software/Services, Semiconductors and Equipment 12.8
- ------------------------------------------------------------------------------------------------------------
Natural Resources Oil and Gas, Energy Services, Real Estate 9.6
- ------------------------------------------------------------------------------------------------------------
Financial Services Insurance Brokers, Investment Management, Information and Processing 9.5
- ------------------------------------------------------------------------------------------------------------
Consumer Products Home Furnishing/Appliances, Apparel and Shoes, Publishing 9.3
- ------------------------------------------------------------------------------------------------------------
Consumer Services Retail Stores, Restaurants/Lodgings, Leisure/Entertainment 6.9
- ------------------------------------------------------------------------------------------------------------
Financial Intermediaries Insurance, Banking, Closed-End Funds, Securities Brokers 3.6
- ------------------------------------------------------------------------------------------------------------
Health Surgical Products and Devices, Drugs and Biotech, Health Services 1.4
- ------------------------------------------------------------------------------------------------------------
Treasuries, Net Cash &Cash Equivalents 18.9
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GOOD IDEAS THAT WORKED
Realized and Unrealized Gain
Year-to-Date Through 6/30/99
- --------------------------------------------------------
<S> <C>
Marshall Industries $2,464,235
- --------------------------------------------------------
Charming Shoppes 1,467,351
- --------------------------------------------------------
Florida Rock Industries 1,173,437
- --------------------------------------------------------
Blanch (E.W.) Holdings 808,034
- --------------------------------------------------------
Tom Brown 594,652
- --------------------------------------------------------
Combined Gain $6,507,709
- --------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GOOD IDEAS AT THE TIME
Realized and Unrealized Loss
Year-to-Date Through 6/30/99
- --------------------------------------------------------
<S> <C>
Gibson Greetings $1,171,953
- --------------------------------------------------------
Oakley 590,887
- --------------------------------------------------------
Trenwick Group 406,628
- --------------------------------------------------------
Kaydon Corporation 384,027
- --------------------------------------------------------
Medical Assurance 305,519
- --------------------------------------------------------
Combined Loss $2,859,014
- --------------------------------------------------------
</TABLE>
Marshall Industries -- A long time holding, this electronics distribution firm
was battling against outdated industry practices that hindered its development
and was coming off a disappointing earnings cycle when a larger company, Avnet,
bought them out. Our years of patience with the company and our belief in its
innovative CEO paid off as Marshall was recognized for its superb value by an
industry leader.
Charming Shoppes -- Sometimes we feel like shouting "Finally!" Our patience has
finally paid off for this women's clothing retailer, a company whose CEO and
balance sheet we have liked for some time. Customers have been coming back in
droves, with investors not far behind.
Gibson Greetings -- Warren Buffet once remarked that when a great manager meets
a tough business, the business wins every time. So far, this investment has
proven him right, and we've reduced our position firm-wide.
Oakley -- A modest decline in stock price appeared to be the result of
skepticism about this eyewear expert's ability to manufacture and market
footwear. With or without a shoe business, we think that the company is worth
far more than its current valuations and wouldn't be surprised to see it on a
future "winner's" list.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 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 a long-term 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 1,103 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
9/8/98 Distribution $0.40 12.563 104
12/7/98 Distribution $0.38 13.000 98 54,313 47,506
3/8/99 Distribution $0.37 11.875 108
6/7/99 Distribution $0.34 13.313 91
=======================================================================================================================
6/30/99 $16,322 3,654 $56,966 $48,416
=======================================================================================================================
Royce Micro-CapTrust
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
12/7/98 Distribution $0.29 8.625 52 16,016 14,129
=======================================================================================================================
6/30/99 $ 8,900 1,592 $16,398 $13,433
=======================================================================================================================
Royce Focus 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
12/31/98 6,199 5,367
=======================================================================================================================
6/30/99 $ 4,375 1,101 $ 6,826 $ 5,436
=======================================================================================================================
</TABLE>
* Other than for initial purchase and June 30, 1999, values are stated as of
December 31 of the year indicated, after reinvestment of distributions.
18 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<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?
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 by 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 distributions 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, 1999.
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 an Investor Services Representative 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 02110, telephone (800) 426-5523.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 19
<PAGE>
UPDATES AND NOTES TO PERFORMANCE AND RISK INFORMATION
- --------------------------------------------------------------------------------
[Graphic: Computer Monitor, "The Royce Funds" On Screen]
NEW @ www.roycefunds.com
We will soon be rolling out a new look for our website, designed for better
navigation and to make it easier than ever to stay connected to The Royce Funds.
What's New, our weekly feature, continues to be one of the site's most
popular spots. It gives you the latest from Royce, including market commentary
from Chuck Royce, performance highlights and updates on all of The Royce Funds.
Our inaugural plain-English Prospectus and Shareholder Guide for our
open-end Funds debuted in print and on our website in May. If you would like a
copy, please call Investors Services at (800) 221-4268.
Y2K UPDATE
On June 3, 1999, Royce & Associates filed its latest report on Year 2000
(Y2K) readiness -- Form ADV-Y2K (Part I, Part II, and Continuation Sheet for
Part I, Item 11) -- as required by the U.S. Securities and Exchange Commission
(SEC). Form ADV-Y2K asks for specific Y2K information, such as the existence and
progress of Y2K compliance plans and contingency plans, systems that may be
affected by Y2K and readiness of third parties. Royce and the Funds are working
to ensure that our systems and those of our service providers are Y2K compliant,
and currently we do not anticipate that any Y2K-related problems will have a
material impact on Royce's ability to provide services to the Funds at current
levels.
NOTES TO PERFORMANCE AND RISK INFORMATION
All performance information is presented on a total return basis and
reflects the reinvestment of distributions. Past performance is no guarantee of
future results. Investment return and principal value will fluctuate, so that
shares may be worth more or less than their original cost when sold. The Royce
Funds invest primarily in securities of small-cap and/or micro-cap companies
that may involve considerably more risk than investments in securities of
larger-cap companies. Historical market trends are not necessarily indicative of
future market movements. There can be no assurance that securities mentioned in
this report will be included in any Royce-managed portfolio in the future.
Standard deviation is a statistical measure within which a fund's total
returns have varied over time. The greater the standard deviation, the greater a
fund's volatility.
The Russell 2000, Russell 2000 Value, Russell 2000 Growth, Nasdaq
Composite, Nasdaq 100, Dow Jones Internet Commerce Index and S&P 500 are
unmanaged indices of domestic common stocks. The (Center for Research in
Security Prices) CRSP 9-10 is an unmanaged composite representing the bottom two
deciles of stocks listed on the New York Stock Exchange, the American Stock
Exchange and the Nasdaq National Market. The CRSP6-8 composite represents the
next largest three deciles of stocks listed on these exchanges.
The Boards of Directors have given Royce Value Trust's, Royce Micro-Cap
Trust's and Royce Focus Trust's management the discretionary authority to cause
each Fund to repurchase up to 300,000 shares of its common stock in the open
market and other transactions through December 31, 1999. 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 Focus 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.
20 | THE ROYCE FUNDS ANNUAL REPORT 1999
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
ROYCE VALUE TRUST, INC. JUNE 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 84.6%
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Consumer Products -- 9.6%
Apparel and Shoes - 2.1%
Garan 96,900 $ 3,112,913
K-Swiss Cl. A 82,700 3,845,550
Marisa Christina* 62,600 44,994
Oshkosh B'Gosh Cl. A 171,500 3,622,938
Weyco Group 159,400 3,666,200
------------
14,292,595
------------
Collectibles - 0.9%
Department 56* 60,700 1,631,312
Enesco Group 183,900 4,252,688
------------
5,884,000
------------
Food/Beverage/Tobacco - 0.6%
Celestial Seasonings* 40,000 860,000
800 JR Cigar* 126,400 1,564,200
Fleetwood Enterprises 20,000 528,750
Hershey Creamery 583 1,326,325
J & J Snack Foods* 5,000 120,000
------------
4,399,275
------------
Home Furnishing/Appliances - 1.4%
Bassett Furniture Industries 151,187 3,458,403
Burnham Corporation Cl. A 42,514 1,604,903
Burnham Corporation Cl. B 18,000 679,500
Conso International* 174,175 1,001,506
La-Z-Boy 30,600 703,800
Lifetime Hoan 238,992 2,180,802
Semi-Tech Corporation Cl. A* 260,600 19,467
------------
9,648,381
------------
Publishing - 1.1%
Gibson Greetings* 323,400 2,051,569
Reader's Digest Association (The)
Cl. A 5,000 198,750
Scholastic* 1,200 60,750
Topps Company (The)* 751,400 5,471,131
------------
7,782,200
------------
Sports and Recreation - 1.3%
Johnson Worldwide Associates Cl. A* 251,800 2,297,675
Oakley* 275,300 1,961,513
++RockShox* 1,060,400 1,325,500
Sturm, Ruger & Co. 298,800 3,193,425
------------
8,778,113
------------
Other Consumer Products - 2.2%
Lazare Kaplan International* 190,100 1,924,762
Marvel Enterprises* 274,100 2,021,488
Matthews International Cl. A 116,900 3,463,162
Starrett (L. S.) Company Cl. A 73,700 1,980,687
Velcro Industries 497,500 6,032,188
------------
15,422,287
------------
66,206,851
============
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Consumer Services -- 3.2%
Direct Marketing - 0.1%
Amway Japan ADR+ 154,500 $ 772,500
------------
Leisure/Entertainment - 0.2%
Anchor Gaming* 1,000 48,063
Linea Aerea Nacional Chile ADR+ 10,000 71,875
Seattle FilmWorks* 402,387 1,232,310
------------
1,352,248
------------
Restaurants/Lodgings - 0.3%
Buffets* 193,850 2,229,275
Papa John's International* 5,000 223,438
------------
2,452,713
------------
Retail Stores - 2.5%
Abercrombie & Fitch Cl. A* 2,000 96,000
Catherines Stores* 131,800 1,631,025
Charming Shoppes* 893,400 5,444,156
Claire's Stores 2,400 61,500
Consolidated Stores* 5,000 135,000
Family Dollar Stores 4,700 112,800
Jo-Ann Stores Cl. B* 10,000 130,000
Little Switzerland* 60,000 41,250
Mikasa 168,900 1,910,681
Pier 1 Imports 17,500 196,875
Sunglass Hut International* 226,800 3,898,125
Suzy Shier 248,000 1,667,368
Urban Outfitters* 83,700 2,102,962
Wet Seal (The) Cl. A* 1,100 31,488
------------
17,459,230
------------
Other Consumer Services - 0.1%
Groupe AB ADR+* 51,500 167,375
------------
22,204,066
============
Financial Intermediaries -- 7.8%
Banking - 1.3%
BOK Financial* 40,300 1,017,575
Boston Private Financial
Holdings* 10,000 75,000
First National Bank of Anchorage 2,100 2,156,700
Fulton Financial 17,146 354,708
Mechanics Bank 200 2,330,000
National Bancorp of Alaska 73,880 1,957,820
Oriental Financial Group 68,000 1,640,500
------------
9,532,303
------------
Closed End Funds - 0.1%
Baker, Fentress & Co. 45,000 855,000
------------
</TABLE>
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 21
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
ROYCE VALUE TRUST, INC. JUNE 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Financial Intermediaries (continued)
Insurance - 6.3%
Baldwin & Lyons Cl. B 126,000 $ 2,984,625
CNA Surety 20,000 306,250
Capitol Transamerica 125,415 1,661,749
Chartwell Re 5,600 104,300
Chicago Title 55,215 1,970,485
Commerce Group 54,318 1,324,001
Erie Indemnity Company Cl. A 17,000 484,500
Fremont General 76,700 1,447,712
Highlands Insurance Group* 102,500 1,076,250
Independence Holding 58,164 683,427
LandAmerica Financial Group 10,000 287,500
Leucadia National* 4,500 114,188
Markel* 2,200 411,400
Medical Assurance* 188,068 5,312,921
NYMAGIC 59,400 928,125
Nobel Insurance* 121,500 91,125
Orion Capital 32,274 1,157,830
PMA Capital Cl. A 205,600 4,227,650
PXRE 178,710 3,239,119
Philadelphia Consolidated
Holding* 22,200 543,900
RLI 41,162 1,595,027
Trenwick Group 111,850 2,757,802
Wesco Financial 11,490 3,561,900
White Mountains Insurance
Group 17,400 2,453,400
Zenith National Insurance 185,300 4,563,013
------------
43,288,199
------------
Securities Brokers - 0.1%
Raymond James Financial 7,500 179,531
------------
53,855,033
============
Financial Services -- 7.2%
Information and Processing - 1.1%
BARRA* 58,800 1,484,700
Duff & Phelps Credit Rating 59,600 3,985,750
Fair, Isaac and Co. 71,600 2,510,475
------------
7,980,925
------------
Insurance Brokers - 2.7%
Blanch (E.W.) Holdings 42,600 2,904,787
Clark/Bardes Holdings* 80,900 1,537,100
Crawford & Co. Cl. A 327,350 4,419,225
Crawford & Co. Cl. B 75,300 1,223,625
Gallagher (Arthur J.) & Co. 101,900 5,044,050
Hilb, Rogal & Hamilton 146,075 3,268,428
------------
18,397,215
------------
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Investment Management - 3.4%
Affiliated Managers Group* 77,100 $ 2,327,456
Alliance Capital Management L.P. 107,200 3,463,900
Eaton Vance 145,600 5,014,100
Federated Investors Cl. B 10,000 179,375
John Nuveen Company Cl. A 41,400 1,767,263
Lexington Global Asset
Managers* 21,100 75,169
Nvest LP 198,300 4,883,137
PIMCO Advisors Holdings LP 52,740 1,569,015
Phoenix Investment Partners 202,700 1,748,288
Pioneer Group (The)* 103,600 1,787,100
SEI Investments 2,000 176,500
U.S. Global Investors Cl. A* 249,205 319,294
------------
23,310,597
------------
49,688,737
============
Health -- 2.6%
Commercial Services - 0.6%
IDEXX Laboratories* 55,000 1,282,187
PAREXEL International* 181,400 2,414,888
Schein (Henry)* 15,000 475,312
------------
4,172,387
------------
Drugs and Biotech - 1.1%
Biogen* 4,000 257,250
BioReliance* 61,000 396,500
Centocor* 45,000 2,098,125
Cerus Corporation* 26,800 589,600
Genzyme Corporation--General
Division* 40,000 1,940,000
Genzyme Corporation--Molecular
Oncology* 4,322 11,886
Genzyme Corporation--Surgical
Products 7,160 31,549
Genzyme Corporation--Tissue
Repair* 15,300 31,078
Guilford Pharmaceuticals* 20,000 255,000
IDEC Pharmaceuticals* 20,000 1,541,250
Incyte Pharmaceuticals* 3,000 79,312
Millennium Pharmaceuticals* 5,000 180,000
Roberts Pharmaceutical* 20,000 485,000
U.S. Bioscience* 10,000 97,500
------------
7,994,050
------------
Health Services - 0.1%
Invacare 17,000 454,750
------------
Personal Care - 0.1%
Chattem* 5,000 159,063
Rexall Sundown* 10,000 121,875
------------
280,938
------------
</TABLE>
22 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
ROYCE VALUE TRUST, INC. JUNE 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Health (continued)
Surgical Products and Devices - 0.7%
Biomet 5,000 $ 198,750
Haemonetics* 202,200 4,056,638
NMT Medical* 265,600 780,200
VI Technologies* 20,000 100,000
------------
5,135,588
------------
18,037,713
============
Industrial Products -- 15.0%
Building Systems and Components - 4.0%
Decker Manufacturing 6,022 316,155
Falcon Products 214,800 2,188,275
International Aluminum 58,700 1,617,919
Juno Lighting 131,300 3,220,953
Juno Lighting-WI 4,646 88,274
Kimball International Cl. B 168,580 2,844,787
Mueller (Paul) 53,200 1,655,850
Preformed Line Products
Company 82,600 1,538,425
Simpson Manufacturing* 126,700 6,018,250
Skyline 131,600 3,857,525
Thor Industries 154,950 4,396,706
------------
27,743,119
------------
Construction Materials - 2.2%
Ameron International 13,000 573,625
Ash Grove Cement Company Cl. B 50,518 4,862,358
Florida Rock Industries 146,000 6,643,000
Puerto Rican Cement 98,300 3,262,331
------------
15,341,314
------------
Industrial Components - 0.1%
Woodhead Industries 45,400 556,150
------------
Industrial OEM - 0.1%
Ionics* 5,000 182,500
------------
Machinery - 2.0%
Atchison Casting* 58,600 604,312
Federal Signal 9,000 190,688
Lincoln Electric Holdings 227,980 4,673,590
Lund International Holdings* 136,100 850,625
Nordson 41,100 2,517,375
Oshkosh Truck 92,400 4,648,875
Tecumseh Products Company Cl. A 3,300 199,856
------------
13,685,321
------------
Paper and Packaging - 1.2%
CLARCOR 4,550 87,303
Liqui-Box 59,978 3,223,818
Mercer International 13,000 78,000
PalEx* 250,800 1,520,475
Peak International* 140,300 951,409
Shorewood Packaging* 134,850 2,486,297
------------
8,347,302
------------
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Pumps, Valves and Bearings - 1.2%
ConBraCo Industries 7,630 $ 4,120,200
Denison International ADR+* 10,000 153,750
Kaydon Corporation 104,800 3,523,900
Robroy Industries Cl. A 14,249 169,207
Sun Hydraulics 25,000 223,438
------------
8,190,495
------------
Specialty Chemicals and Materials - 2.3%
Aceto 50,010 575,115
Brady (W.H.) Cl. A 121,100 3,935,750
Chemfab* 133,219 2,422,921
Hawkins Chemical 301,278 2,447,884
Lilly Industries Cl. A 152,983 2,839,747
MacDermid 72,331 3,363,391
------------
15,584,808
------------
Textiles - 1.1%
Delta Woodside Industries 125,400 752,400
Fab Industries 132,800 2,025,200
++Thomaston Mills Cl. A 327,800 686,331
Unifi* 188,800 4,012,000
Wellman 15,000 239,063
------------
7,714,994
------------
Other Industrial Products - 0.8%
BHA Group Holdings 143,209 1,181,474
Baldor Electric 22,000 437,250
Landauer 112,900 3,330,550
Myers Industries 31,693 633,860
------------
5,583,134
------------
102,929,137
============
Industrial Services -- 12.8%
Advertising/Publishing - 0.6%
Grey Advertising 6,817 2,270,061
True North Communications 63,000 1,890,000
------------
4,160,061
------------
Commercial Services - 1.9%
Analysts International 20,000 287,500
CDI* 63,000 2,145,938
Carlisle Holdings* 251,100 3,640,950
Catalina Marketing* 5,000 460,000
Cornell Corrections* 80,400 1,321,575
Fisher Companies 16,096 997,952
Olsten 301,600 1,903,850
++Open Plan Systems* 278,600 626,850
Shared Medical Systems 21,900 1,428,975
------------
12,813,590
------------
</TABLE>
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 23
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
ROYCE VALUE TRUST, INC. JUNE 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Industrial Services (continued)
Engineering and Construction - 2.7%
Insituform Technologies Cl. A* 2,400 $ 51,900
McDermott International 1,000 28,250
Morrison Knudsen* 391,900 4,041,469
Sevenson Environmental Services 265,720 3,088,995
Stone & Webster 185,500 4,938,937
Todd Shipyards* 39,200 269,500
Turner Corporation (The)* 110,700 1,951,088
Willbros Group* 465,200 3,954,200
------------
18,324,339
------------
Food/Tobacco Processors - 1.4%
DIMON 217,900 1,130,356
Farmer Bros. 26,000 5,265,000
Midwest Grain Products* 52,200 580,725
Seaboard 3,750 1,275,000
Standard Commercial 282,501 1,659,693
------------
9,910,774
------------
Industrial Distribution - 1.0%
Central Steel & Wire 3,699 2,589,300
Ritchie Bros. Auctioneers* 26,100 995,062
TBC* 21,300 150,431
Vallen* 202,929 3,246,864
------------
6,981,657
------------
Printing - 1.8%
Bowne & Co. 97,200 1,263,600
Ennis Business Forms 302,100 2,586,731
Merrill Corporation 200,000 2,900,000
New England Business Service 86,000 2,655,250
Standard Register (The) 92,700 2,850,525
------------
12,256,106
------------
Transportation and Logistics - 3.4%
Air Express International 158,468 4,021,126
AirNet Systems* 262,200 3,539,700
Arnold Industries 233,648 3,606,941
Circle International Group 266,725 5,834,609
Hub Group Cl. A* 30,000 673,125
Kenan Transport 63,300 1,946,475
Pittston Company BAX Group 285,300 2,710,350
Ryanair Holdings ADR+* 22,000 1,166,000
------------
23,498,326
------------
87,944,853
============
Natural Resources -- 5.0%
Energy Services - 1.5%
Carbo Ceramics 145,100 4,416,481
Global Industries* 98,100 1,256,906
Helmerich & Payne 130,300 3,102,769
Lufkin Industries 22,000 440,000
Nabors Industries* 10,000 244,375
++Peerless Mfg. 79,300 849,997
------------
10,310,528
------------
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Metals and Mining - 0.1%
MK Gold* 517,900 $ 253,771
------------
Oil and Gas - 2.9%
Barrett Resources* 185,700 7,126,238
Denbury Resources* 954,000 4,173,750
Devon Energy 104,800 3,746,600
PetroCorp* 121,900 746,637
Renaissance Energy* 46,000 618,540
Tidewater 28,000 854,000
Titan Exploration* 437,500 2,187,500
Toreador Royalty* 97,100 291,300
Valley National Gases* 30,100 129,806
------------
19,874,371
------------
Real Estate - 0.5%
Alico 52,000 806,000
Consolidated-Tomoka Land 7,800 113,588
FRP Properties* 119,900 3,087,425
------------
4,007,013
------------
34,445,683
============
Technology -- 16.4%
Aerospace/Defense - 1.4%
Curtiss-Wright 121,900 4,738,862
Special Metals* 255,700 1,486,256
Woodward Governor 138,600 3,603,600
------------
9,828,718
------------
Components and Systems - 3.4%
++Axiohm Transaction Solutions* 445,575 1,782,300
CTS 900 63,000
Coherent* 80,900 1,506,763
Credence Systems* 15,300 568,012
Dionex* 102,100 4,135,050
EG&G 1,000 35,625
Giga-tronics Incorporated* 57,100 107,062
Hach 22,650 410,531
Hach Cl. A 25,550 450,319
IFR Systems* 9,133 43,382
Itron* 5,000 42,813
Logitech International ADR+* 1,000 14,750
National Instruments* 48,400 1,954,150
Newport 83,900 1,300,450
PCD* 17,000 187,000
PE Corporation- PE Biosystems Group 1,000 114,750
PE Corporation- Celera Genomics Group 500 8,094
Penn Engineering & Manufacturing 153,600 3,456,000
Penn Engineering & Manufacturing
Cl. A 39,800 810,925
Perceptron* 242,100 1,104,581
SAES Getters ADR+ 5,000 26,250
Scitex* 287,100 2,871,000
</TABLE>
24 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
ROYCE VALUE TRUST, INC. JUNE 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Technology (continued)
Components and Systems (continued)
Symbol Technologies 1,500 $ 55,313
Vicor* 5,000 105,937
VideoServer* 166,100 1,577,950
Visual Networks* 1,000 32,000
Zebra Technologies Cl. A* 25,000 960,938
------------
23,724,945
------------
Distribution - 1.7%
American Power Conversion* 10,000 201,250
Avnet 36,700 1,706,550
Daisytek International* 69,200 1,128,825
Marshall Industries* 165,600 5,951,250
Pioneer-Standard Electronics 118,525 1,422,300
Richardson Electronics 195,600 1,332,525
------------
11,742,700
------------
Semiconductors and Equipment - 4.7%
Analog Devices* 54,300 2,725,181
Brooks Automation* 5,000 135,312
Cymer* 33,500 837,500
Dallas Semiconductor 66,100 3,338,050
DuPont Photomasks* 55,000 2,633,125
8x8* 11,600 48,213
Electroglas* 212,200 4,244,000
Etec Systems* 10,000 332,500
Exar* 220,800 5,464,800
Helix Technology 60,700 1,453,006
Intevac* 86,600 476,300
Kulicke & Soffa Industries* 35,400 949,162
Lam Research* 13,000 606,938
Micrel* 15,000 1,110,000
Novellus Systems* 4,000 273,000
Ultratech Stepper* 5,000 75,312
Unitrode* 254,200 7,292,363
Veeco Instruments* 5,400 183,600
------------
32,178,362
------------
Software/Services - 4.7%
ANSYS* 85,200 846,675
Aspect Development* 6,000 111,000
Aspen Technology* 81,200 954,100
Autodesk 51,000 1,507,687
Avant!* 46,000 580,750
Benchmark Electronics* 21,000 754,688
Business Objects ADR+* 20,000 730,000
Check Point Software
Technologies* 33,800 1,812,525
Cognex* 93,700 2,957,406
Documentum* 5,000 65,313
FileNet* 10,000 114,375
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Harbinger* 33,700 $ 421,250
IMRglobal Corporation* 3,000 57,750
Industri-Matematik
International* 4,000 9,750
Inprise Corporation* 70,000 341,250
Integral Systems* 157,800 3,589,950
Integrated Systems* 5,000 58,750
International Network Services* 7,500 302,813
i2 Technologies* 10,000 430,000
JDA Software Group* 194,500 1,811,281
Kronos* 19,600 891,800
MSC.Software* 128,800 748,650
Macromedia* 3,000 105,750
Manugistics Group* 35,000 507,500
MetaCreations* 5,000 28,750
National Computer Systems 209,000 7,053,750
Nichols Research* 15,950 348,906
Pegasystems* 55,000 563,750
Phoenix Technologies* 1,000 17,875
QRS Corporation* 5,000 390,000
Radiant Systems* 15,000 213,750
Remedy* 10,600 284,875
Siebel Systems* 2,000 132,750
Structural Dynamics Research* 35,000 649,688
Sybase* 132,100 1,453,100
++Technical Communications* 106,700 266,750
Visio* 26,000 989,625
Wind River Systems* 7,500 120,469
------------
32,225,051
------------
Telecommunication - 0.5%
Excel Switching* 78,000 2,335,125
Level 3 Communications* 2,200 132,137
Plantronics* 15,000 976,875
------------
3,444,137
------------
113,143,913
============
Utilities -- 0.1%
Southern Union* 32,440 705,570
============
Miscellaneous -- 4.9% 33,341,409
============
TOTAL COMMON STOCKS
(Cost $435,039,568) 582,502,965
============
PREFERRED STOCKS -- 0.6%
Pioneer-Standard Electronics (Conv.) 80,000 3,840,000
SVB Capital 20,000 441,250
------------
TOTAL PREFERRED STOCKS
(Cost $4,315,000) 4,281,250
============
</TABLE>
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 25
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
ROYCE VALUE TRUST, INC. JUNE 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------ -----
<S> <C> <C>
CORPORATE BONDS -- 1.7%
Charming Shoppes 7.50% Conv.
Sub. Note due 7/15/06 $ 3,694,000 $ 3,583,180
Dixie Group 7.00% Conv. Sub.
Deb. due 5/15/12 728,000 586,950
FirstWorld Communications 0%
(Step) Sr. Note due 4/15/08 6,950,000 3,961,500
International Semi-Tech 0%
(Step) Sr. Disc. Note
due 8/15/03 105,000 15,750
Richardson Electronics 8.25%
Conv. Sub. Deb. due 6/15/06 2,049,000 1,598,220
Richardson Electronics 7.25%
Conv. Sub. Deb. due 12/15/06 1,319,000 949,680
Sunglass Hut International
5.25% Conv. Sub. Note
due 6/15/03 500,000 427,500
Thorn Apple Valley 9.00% Conv.
Sub. Deb. due 4/01/07 100,000 10,000
Tops Appliance City 6.50% Conv.
Sub. Deb. due 11/30/03 1,000,000 585,000
------------
TOTAL CORPORATE BONDS
(Cost $10,767,826) 11,717,780
============
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------ -----
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 12.6%
U. S. Treasury Notes
4.875%, due 3/31/01 $55,000,000 $ 54,441,200
6.25%, due 8/31/02 10,000,000 10,167,200
4.75%, due 2/15/04 23,000,000 22,123,010
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $87,601,717) 86,731,410
============
REPURCHASE AGREEMENT -- 0.6%
State Street Bank and Trust Company,
4.25% dated 6/30/99, due 7/01/99,
maturity value $4,000,472
(collateralized by U.S. Treasury Bonds,
6.00% due 2/15/26,
valued at $4,082,958)
(Cost $4,000,000) 4,000,000
============
TOTAL INVESTMENTS -- 100.1%
(Cost $541,724,111) 689,233,405
LIABILITIES LESS CASH
AND OTHER ASSETS -- (0.1%) (990,053)
------------
NET ASSETS -- 100.0% $688,243,352
============
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing.
+ American Depository Receipt.
++ At June 30, 1999, the Fund owned 5% or more of the Company's outstanding
voting securities thereby making the Company an Affiliated Company as that
term is defined in the Investment Company Act of 1940.
INCOME TAX INFORMATION: The cost of total investments for Federal income tax
purposes was $541,724,111. At June 30, 1999, net unrealized appreciation for
all securities was $147,509,294, consisting of aggregate gross unrealized
appreciation of $188,037,017 and aggregate gross unrealized depreciation of
$40,527,723.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
26 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
ROYCE VALUE TRUST, INC. JUNE 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments at value (identified cost $537,724,111) $ 685,233,405
Repurchase agreement (at cost and value) 4,000,000
Cash 534,258
Receivable for investments sold 3,779,959
Receivable for dividends and interest 2,130,657
Prepaid expenses 77,511
- -----------------------------------------------------------------------------------------------------
Total Assets 695,755,790
- -----------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 6,535,137
Payable for investment advisory fee 500,364
Preferred dividends accrued but not yet declared 266,222
Accrued expenses 210,715
- -----------------------------------------------------------------------------------------------------
Total Liabilities 7,512,438
- -----------------------------------------------------------------------------------------------------
Net Assets $ 688,243,352
- -----------------------------------------------------------------------------------------------------
Net Assets applicable to Preferred Stock at a liquidation value of $25 per share $ 160,000,000
- -----------------------------------------------------------------------------------------------------
Net Assets applicable to Common Stock (net asset value per share - $15.59) $ 528,243,352
- -----------------------------------------------------------------------------------------------------
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; 33,890,558 shares outstanding (150,000,000 33,891
shares authorized)
Additional paid-in capital 533,310,765
Undistributed net investment income 5,235,630
Accumulated net realized gain on investments 31,962,814
Quarterly and accrued distributions (29,815,442)
Net unrealized appreciation on investments 147,509,294
- -----------------------------------------------------------------------------------------------------
Net Assets $ 688,243,352
=====================================================================================================
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months ended Year ended
June 30, 1999 December 31,
(unaudited) 1998
---------------- ------------
INVESTMENT OPERATIONS:
<S> <C> <C>
Net investment income $ 3,389,617 $ 5,725,999
Net realized gain on investments 25,467,507 53,554,124
Net change in unrealized appreciation on investments (571,055) (31,906,113)
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets from investment operations 28,286,069 27,374,010
- ----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income -- (944,176)
Net realized gain on investments -- (8,134,436)
Quarterly and accrued distributions* (5,990,000) (159,555)
- ----------------------------------------------------------------------------------------------------------------------
Total distributions to Preferred Stockholders (5,990,000) (9,238,167)
- ----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income -- (5,045,674)
Net realized gain on investments -- (43,475,552)
Quarterly distributions* (23,559,220) --
- ----------------------------------------------------------------------------------------------------------------------
Total distributions to Common Stockholders (23,559,220) (48,521,226)
- ----------------------------------------------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
Conversion of Notes to Common Stock -- 26,814,113
Reinvestment of distributions to Common Stockholders 12,543,408 29,819,441
Net proceeds from issuance of Preferred Stock -- 96,484,000
- ----------------------------------------------------------------------------------------------------------------------
Total capital stock transactions 12,543,408 153,117,554
- ----------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 11,280,257 122,732,171
NET ASSETS:
Beginning of period 676,963,095 554,230,924
- ----------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income of $5,235,630 and
$1,846,013, respectively) $688,243,352 $676,963,095
- -=====================================================================================================================
</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 1999 | 27
<PAGE>
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
ROYCE VALUE TRUST, INC. SIX MONTHS ENDED JUNE 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Income:
Dividends $ 3,863,741
Interest 2,876,158
- --------------------------------------------------------------------------------
Total Income 6,739,899
- --------------------------------------------------------------------------------
Expenses:
Investment advisory fees 3,021,841
Administrative and office facilities expenses 162,767
Shareholder reports 122,780
Custodian and transfer agent fees 96,212
Directors' fees 33,951
Professional fees 33,000
Other expenses 66,102
- --------------------------------------------------------------------------------
Total Expenses 3,536,653
Fees Waived by Investment Adviser (186,371)
- --------------------------------------------------------------------------------
Net Expenses 3,350,282
- --------------------------------------------------------------------------------
Net Investment Income 3,389,617
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 25,467,507
Net change in unrealized appreciation on investments (571,055)
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investments 24,896,452
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS $28,286,069
================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
28 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<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, 1999
(unaudited)
- -------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $15.72
- -------------------------------------------------------------------------------------
INVESTMENT OPERATIONS(a):
Net investment income 0.10
Net realized and unrealized gain on investments 0.71
- -------------------------------------------------------------------------------------
Total investment operations 0.81
- -------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income --
Net realized gain on investments --
Quarterly and accrued distributions* (0.18)
- -------------------------------------------------------------------------------------
Total distributions to Preferred Stockholders (0.18)
- -------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income --
Net realized gain on investments --
Quarterly distributions* (0.71)
- -------------------------------------------------------------------------------------
Total distributions to Common Stockholders (0.71)
- -------------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
Effect of Preferred Stock offerings or rights offerings --
Effect of reinvestment of distributions by Common Stockholders (0.05)
- -------------------------------------------------------------------------------------
Total capital stock transactions (0.05)
- -------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD(a) $15.59
- -------------------------------------------------------------------------------------
MARKET VALUE, END OF PERIOD $13.250
- -------------------------------------------------------------------------------------
TOTAL RETURN(b):
Net Asset Value(a) 4.9%
Market Value 1.9%
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:
Total expenses (c,d) 1.39%***
Management fee expense 1.18%***
Interest expense --
Other operating expenses 0.21%***
Net investment income 1.41%***
SUPPLEMENTAL DATA:
Net Assets, End of Period (in thousands) $688,243
Portfolio Turnover Rate 21%
PREFERRED STOCK:
Total shares outstanding 6,400,000
Asset coverage per share 430%
Liquidation preference per share $25.00
Average market value per share:
7.80% Cumulative (e) $25.82
7.30% Tax-Advantaged Cumulative (e) $25.46
NOTES:
Total amount outstanding (in thousands) --
Asset coverage per note --
Average market value per note (e) --
=====================================================================================
<CAPTION>
Years ended December 31,
--------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $16.91 $14.32 $13.56 $12.34 $13.47
- ----------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS(a):
Net investment income 0.17 0.21 0.26 0.04 0.04
Net realized and unrealized gain on investments 0.67 3.85 1.92 2.70 0.09
- ----------------------------------------------------------------------------------------------------------------------------
Total investment operations 0.84 4.06 2.18 2.74 0.13
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income (0.03) (0.03) (0.01) -- --
Net realized gain on investments (0.26) (0.15) (0.06) -- --
Quarterly and accrued distributions* -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions to Preferred Stockholders (0.29) (0.18) (0.07) -- --
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income (0.16) (0.19) (0.15) (0.03) (0.01)
Net realized gain on investments (1.38) (1.02) (1.00) (1.26) (1.04)
Quarterly distributions* -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions to Common Stockholders (1.54) (1.21) (1.15) (1.29) (1.05)
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
Effect of Preferred Stock offerings or
rights offerings (0.11) -- (0.09) (0.12) (0.14)
Effect of reinvestment of distributions
by Common Stockholders (0.09) (0.08) (0.11) (0.11) (0.07)**
- ----------------------------------------------------------------------------------------------------------------------------
Total capital stock transactions (0.20) (0.08) (0.20) (0.23) (0.21)
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD(a) $15.72 $16.91 $14.32 $13.56 $12.34
- ----------------------------------------------------------------------------------------------------------------------------
MARKET VALUE, END OF PERIOD $13.750 $15.063 $12.625 $11.875 $11.000
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(b):
Net Asset Value(a) 3.3% 27.5% 15.5% 22.6% 1.1%
Market Value 1.5% 28.8% 16.3% 20.5% (5.6)%
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:
Total expenses (c,d) 1.31% 1.12% 1.28% 2.01% 2.01%
Management fee expense 1.10% 0.39% 0.39% 0.97% 1.21%
Interest expense -- 0.45% 0.64% 0.75% 0.46%
Other operating expenses 0.21% 0.28% 0.25% 0.29% 0.34%
Net investment income 1.11% 1.53% 1.27% 0.34% 0.31%
SUPPLEMENTAL DATA:
Net Assets, End of Period (in thousands) $676,963 $554,231 $441,837 $338,970 $269,032
Portfolio Turnover Rate 43% 29% 34% 32% 35%
PREFERRED STOCK:
Total shares outstanding 6,400,000 2,400,000 2,400,000 -- --
Asset coverage per share 423% 662% 481% -- --
Liquidation preference per share $25.00 $25.00 $25.00 -- --
Average market value per share:
7.80% Cumulative (e) $25.91 $25.70 $25.20 -- --
7.30% Tax-Advantaged Cumulative (e) $25.43 -- -- -- --
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
============================================================================================================================
</TABLE>
(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 that the then outstanding convertible 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 primary subscriptions
for rights offerings.
(c) Expense ratios based on total average net assets were 1.05%, 1.06%, 0.99%,
1.20%, 2.01% and 2.01% for the periods ended June 30, 1999 and December 31,
1998, 1997, 1996, 1995 and 1994, respectively.
(d) Expense ratios based on average net assets applicable to Common Stockholders
before waiver of fees by the investment adviser would have been 1.47%,
1.34%, 1.14%, 1.31%, 2.04% and 2.02% for the periods ended June 30, 1999 and
December 31, 1998, 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.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 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 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 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 more than one of the Royce Funds are allocated in an equitable
manner. Allocated personnel and occupancy costs related to The Royce Funds are
included in administrative and office facilities expenses.
Taxes:
As 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 to Preferred Stockholders are recorded on an
accrual basis and paid quarterly. Distributions are determined in accordance
with income tax regulations that may differ from generally accepted accounting
principles. Permanent book and tax basis differences relating to 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 undistributed at fiscal year end is distributed 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 shares of Common Stock upon conversion of Notes for the period ended
December 31, 1998.
30 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
- --------------------------------------------------------------------------------
ROYCE VALUE TRUST, INC.
- --------------------------------------------------------------------------------
Capital Stock:
The Fund currently has two issues of Preferred Stock outstanding: 7.80%
Cumulative Preferred Stock and 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 established by Moody's, the Fund is
required to maintain a certain discounted asset coverage. 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 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 1,010,297 and 2,080,238 shares of Common Stock as
reinvestment of distributions by Common Stockholders for the periods ended June
30, 1999 and December 31, 1998, 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").
The Basic Fee is a monthly fee equal to 1/12 of 1% (1% on an annualized
basis) of the average of the month-end net assets of the Fund for the
applicable performance period. The performance period for each 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 month will be increased or decreased at the rate of
1/12 of .05% for each percentage point that the investment performance of the
Fund exceeds, or is exceeded by, the percentage change in the investment record
of the S&P 600 by more than two percentage points 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. 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 in which the Fund's average annual NAV total return since issuance of the
Preferred Stock fails to exceed the applicable Preferred Stock dividend rate.
For the period ended June 30, 1999, the Fund accrued and paid Royce
advisory fees totaling $2,835,470, which is net of $186,371 voluntarily waived
by Royce.
Purchases and Sales of Investment Securities:
For the period ended June 30, 1999, the cost of purchases and proceeds
from sales of investment securities, other than short-term securities,
amounted to $179,485,390 and $125,294,850, respectively.
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 period ended June 30, 1999.
<TABLE>
<CAPTION>
===========================================================================================================================
Purchases Sales
-------------------- ------------------
Affiliated Company Shares Cost Shares Cost Realized Gain/Loss Dividend Income
------------------ ------ ---- ------ ---- ------------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Axiohm Transaction Solutions 5,000 $ 18,750 -- -- -- --
Open Plan Systems 133,600 $344,500 -- -- -- --
Peerless Mfg. -- -- -- -- -- $19,825
RockShox -- -- 40,600 $215,500 $(152,684) --
Technical Communications -- -- -- -- -- --
Thomaston Mills Cl. A -- -- -- -- -- --
===========================================================================================================================
</TABLE>
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999| 31
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
ROYCE MICRO-CAP TRUST, INC. JUNE 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 78.4%
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Consumer Products -- 12.0%
Apparel and Shoes - 2.8%
Garan 46,700 $ 1,500,238
**Kleinert's* 14,200 142,000
North Face (The)* 84,400 833,450
Oshkosh B'Gosh Cl. A 41,600 878,800
Weyco Group 68,400 1,573,200
------------
4,927,688
------------
Collectibles - 0.4%
Enesco Group 33,000 763,125
------------
Food/Beverage/Tobacco - 1.3%
800 JR Cigar* 83,300 1,030,837
Piercing Pagoda* 3,000 37,875
Sirena Apparel Group* 5,000 10,000
++Smithfield Companies (The) 148,400 1,159,375
------------
2,238,087
------------
Home Furnishing/Appliances - 2.1%
Bassett Furniture Industries 52,800 1,207,800
Conso International* 197,800 1,137,350
Lifetime Hoan 105,054 958,618
Mity-Lite* 14,200 269,800
Neutral Posture Ergonomics* 107,000 227,375
------------
3,800,943
------------
Publishing - 1.3%
Gibson Greetings* 81,600 517,650
Topps Company (The)* 249,300 1,815,216
------------
2,332,866
------------
Sports and Recreation - 1.0%
Aldila* 348,500 642,547
Baldwin Piano & Organ* 42,300 348,975
Johnson Worldwide Associates Cl. A* 87,100 794,787
------------
1,786,309
------------
Other Consumer Products - 3.1%
Koala Corporation 40,000 1,070,000
Lazare Kaplan International* 110,100 1,114,762
Matthews International Cl. A 81,000 2,399,625
Velcro Industries 81,500 988,188
------------
5,572,575
------------
21,421,593
============
Consumer Services -- 2.0%
Leisure/Entertainment - 0.1%
Seattle FilmWorks* 20,000 61,250
------------
Restaurants/Lodgings - 0.3%
Pizza Inn 145,700 487,184
------------
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Retail Stores - 1.6%
Bombay Company (The)* 46,600 $ 358,238
Brookstone* 13,000 201,500
Cato Cl. A 47,500 552,187
Lechters* 93,400 233,500
Suzy Shier 156,800 1,054,207
Urban Outfitters* 24,600 618,075
------------
3,017,707
------------
3,566,141
============
Financial Intermediaries -- 4.4%
Banking - 0.3%
Iron & Glass Bancorp 8,580 193,050
Queen City Investments* 948 394,368
------------
587,418
------------
Insurance - 4.1%
Capitol Transamerica 55,965 741,536
Chartwell Re 28,500 530,813
Highlands Insurance Group* 77,000 808,500
Independence Holding 33,300 391,275
NYMAGIC 40,400 631,250
Navigators Group* 41,000 615,000
Nobel Insurance* 183,000 137,250
PICO Holdings* 16,900 427,781
PMA Capital Cl. A 56,609 1,164,023
PXRE 40,664 737,035
Wellington Underwriting 444,712 1,156,613
------------
7,341,076
------------
7,928,494
============
Financial Services -- 2.7%
Information and Processing - 2.2%
BARRA* 58,250 1,470,812
Duff & Phelps Credit Rating 35,600 2,380,750
------------
3,851,562
------------
Insurance Brokers - 0.5%
CorVel* 10,000 215,000
Hilb, Rogal & Hamilton 30,300 677,963
------------
892,963
------------
4,744,525
============
Health -- 4.0%
Commercial Services - 1.0%
ChiRex* 16,800 539,700
Healthworld Corporation* 40,000 450,000
ICON ADR+* 1,000 19,625
Young Innovations* 59,400 868,725
------------
1,878,050
------------
</TABLE>
32 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
ROYCE MICRO-CAP TRUST, INC. JUNE 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Health (continued)
Drugs and Biotech - 2.3%
Aurora Biosciences* 100,000 $ 725,000
BioReliance* 145,800 947,700
Cephalon* 50,000 868,750
International Isotopes* 77,400 715,950
Scotia Holdings* 120,000 209,956
ViroPharma* 55,900 429,731
Visible Genetics* 10,000 161,250
------------
4,058,337
------------
Surgical Products and Devices - 0.7%
Cardiac Pathways* 30,000 28,125
Empi* 38,900 948,188
NMT Medical* 35,300 103,694
Orthofix International* 12,000 178,500
Urologix* 40,000 98,750
------------
1,357,257
------------
7,293,644
============
Industrial Products -- 17.0%
Building Systems and Components - 4.5%
Falcon Products 115,600 1,177,675
KIT Manufacturing* 38,800 237,650
LSI Industries 25,900 624,837
Mueller (Paul) 16,650 518,231
Preformed Line Products
Company 45,000 838,125
Simpson Manufacturing* 46,100 2,189,750
Skyline 32,100 940,931
Thor Industries 55,200 1,566,300
------------
8,093,499
------------
Construction Materials - 4.2%
Ash Grove Cement Company 20,000 1,925,000
Florida Rock Industries 55,000 2,502,500
Monarch Cement 50,410 970,393
Puerto Rican Cement 38,200 1,267,762
Trex Company 30,800 781,550
------------
7,447,205
------------
Industrial Components - 0.1%
Woodhead Industries 10,000 122,500
------------
Machinery - 1.4%
Alamo Group 10,800 94,500
++Art's-Way Manufacturing* 124,000 558,000
DeVlieg-Bullard* 601,900 210,665
Lund International Holdings* 109,700 685,625
Oshkosh Truck 19,800 996,187
------------
2,544,977
------------
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Paper and Packaging - 0.9%
Liqui-Box 13,100 $ 704,125
PalEx* 140,100 849,356
------------
1,553,481
------------
Pumps, Valves and Bearings - 1.0%
Denison International ADR+* 55,500 853,313
NN Ball & Roller 57,700 331,775
Sun Hydraulics 78,400 700,700
------------
1,885,788
------------
Specialty Chemicals and Materials - 2.7%
Aceto 43,875 504,562
CFC International* 116,500 1,252,375
Chemfab* 80,700 1,467,731
Hauser* 42,525 233,888
Hawkins Chemical 122,667 996,669
Tuscarora 22,000 298,375
------------
4,753,600
------------
Textiles - 0.4%
Fab Industries 45,100 687,775
------------
Other Industrial Products - 1.8%
BHA Group Holdings 95,965 791,711
Landauer 32,300 952,850
Myers Industries 47,690 953,800
Pioneer Metals* 1,570 518,100
------------
3,216,461
------------
30,305,286
============
Industrial Services -- 10.8%
Commercial Services - 1.8%
Carlisle Holdings* 128,400 1,861,800
Cornell Corrections* 52,200 858,038
Exponent* 58,200 407,400
------------
3,127,238
------------
Engineering and Construction - 1.5%
Sevenson Environmental Services 125,120 1,454,520
Willbros Group* 139,400 1,184,900
------------
2,639,420
------------
Food/Tobacco Processors - 1.6%
Farmer Bros. 4,000 810,000
Midwest Grain Products* 192,922 2,146,257
------------
2,956,257
------------
Industrial Distribution - 0.7%
Vallen* 76,800 1,228,800
------------
Printing - 2.0%
Ennis Business Forms 132,700 1,136,244
Merrill Corporation 50,800 736,600
New England Business Service 45,300 1,398,637
Schawk 26,300 235,056
------------
3,506,537
------------
</TABLE>
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 33
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
ROYCE MICRO-CAP TRUST, INC. JUNE 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Industrial Services (continued)
Transportation and Logistics - 3.2%
AirNet Systems* 133,100 $ 1,796,850
Circle International Group 79,700 1,743,438
Frozen Food Express Industries 143,500 1,094,188
Kenan Transport 34,800 1,070,100
Knight Transportation* 2,500 53,438
------------
5,758,014
------------
19,216,266
============
Natural Resources -- 5.5%
Energy Services - 1.9%
Carbo Ceramics 52,600 1,601,012
Dril-Quip* 30,600 701,888
GulfMark Offshore* 44,600 847,400
Peerless Mfg. 21,600 231,525
------------
3,381,825
------------
Metals and Mining - 0.2%
MK Gold* 603,700 295,813
------------
Oil and Gas - 2.7%
Bonavista Petroleum* 105,000 1,112,394
Denbury Resources* 327,600 1,433,250
Evergreen Resources* 20,000 503,750
MarkWest Hydrocarbon* 32,600 285,250
PetroCorp* 50,100 306,863
Titan Exploration* 256,600 1,283,000
------------
4,924,507
------------
Real Estate - 0.7%
FRP Properties* 33,700 867,775
Liberte Investors 103,300 355,094
------------
1,222,869
------------
9,825,014
============
Technology -- 15.0%
Aerospace/Defense - 1.1%
Curtiss-Wright 35,000 1,360,625
Special Metals* 113,000 656,812
------------
2,017,437
------------
Components and Systems - 5.6%
Advanced Energy Industries* 19,600 795,025
Aladdin Knowledge Systems* 28,300 231,706
CEM* 75,700 567,750
Coherent* 45,000 838,125
Elamex* 86,600 292,275
Innovex 42,400 593,600
MOCON 50,200 294,925
Newport 75,300 1,167,150
PCD* 60,000 660,000
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Penn Engineering &
Manufacturing 39,700 $ 893,250
Penn Engineering &
Manufacturing Cl. A 15,400 313,775
Perceptron* 152,100 693,956
Performance Technologies* 37,500 754,688
Printronix* 10,000 140,000
Rainbow Technologies* 68,700 811,519
Spectra-Physics Lasers* 2,500 20,625
TSI 30,000 348,750
TransAct Technologies* 101,700 673,763
------------
10,090,882
------------
Distribution - 0.9%
Kent Electronics* 30,100 596,356
Richardson Electronics 153,500 1,045,719
------------
1,642,075
------------
Semiconductors and Equipment - 2.5%
Aetrium* 10,000 91,250
Align-Rite International* 40,000 555,000
Electroglas* 75,000 1,500,000
Exar* 69,900 1,730,025
Helix Technology 20,800 497,900
------------
4,374,175
------------
Software/Services - 3.9%
CSP* 48,581 321,849
Integral Systems* 42,600 969,150
JDA Software Group* 93,600 871,650
Kronos* 51,000 2,320,500
MSC.Software* 174,600 1,014,863
Nichols Research* 30,000 656,250
Tyler Technologies* 122,300 840,812
------------
6,995,074
------------
Telecommunication - 1.0%
REMEC* 72,400 1,167,450
Vertex Communications* 30,000 410,625
Wireless Telecom Group* 90,000 208,125
------------
1,786,200
------------
26,905,843
============
Miscellaneous -- 5.0% 8,931,649
============
TOTAL COMMON STOCKS
(Cost $115,205,362) 140,138,455
============
PREFERRED STOCK -- 0.4%
Seneca Foods*
(Cost $623,500) 51,250 691,875
============
</TABLE>
34 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
ROYCE MICRO-CAP TRUST, INC. JUNE 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------ -----
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 17.2%
U.S. Treasury Notes
6.25%, due 8/31/00 $ 5,000,000 $ 5,049,200
4.875%, due 3/31/01 14,000,000 13,857,760
6.25%, due 8/31/02 5,000,000 5,083,600
4.75%, due 2/15/04 7,000,000 6,733,090
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $30,900,391) 30,723,650
============
</TABLE>
<TABLE>
<CAPTION>
VALUE
-----
<S> <C>
REPURCHASE AGREEMENT -- 3.4%
State Street Bank & Trust Company,
4.25% dated 6/30/99, due 7/01/99
maturity value $6,000,708
(collateralized by U.S. Treasury
Bonds, 12.75% due 11/15/10,
valued at $6,126,720)
(Cost $6,000,000) $ 6,000,000
============
TOTAL INVESTMENTS -- 99.4%
(Cost $152,729,253) 177,553,980
CASH AND OTHER ASSETS
LESS LIABILITIES -- 0.6% 1,147,177
------------
NET ASSETS--100.0% $178,701,157
============
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing.
** A security for which market quotations are no longer readily available
represents 0.08% of net assets. This security has been valued in good faith
by the Board of Directors.
+ American Depository Receipt.
++ At June 30, 1999, the Fund owned 5% or more of the Company's outstanding
voting securities thereby making the Company an Affiliated Company as 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 $152,729,253. At June 30, 1999, net unrealized appreciation for
all securities was $24,824,727, consisting of aggregate gross unrealized
appreciation of $39,041,457 and aggregate gross unrealized depreciation of
$14,216,730.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 35
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
ROYCE MICRO-CAP TRUST, INC. JUNE 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments at value (identified cost $146,729,253) $171,553,980
Repurchase agreement (at cost and value) 6,000,000
Cash 66,486
Receivable for investments sold 797,370
Receivable for dividends and interest 619,833
Prepaid expenses 29,113
- ------------------------------------------------------------------------------------------------------------
Total Assets 179,066,782
- ------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 122,760
Payable for investment advisory fee 92,333
Preferred dividends accrued but not yet declared 68,889
Payable for administration fee 9,492
Accrued expenses 72,151
- ------------------------------------------------------------------------------------------------------------
Total Liabilities 365,625
- ------------------------------------------------------------------------------------------------------------
Net Assets $178,701,157
- ------------------------------------------------------------------------------------------------------------
Net assets applicable to Preferred Stock at a liquidation value of $25 per share $ 40,000,000
- ------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Stock (net asset value per share--$10.30) $138,701,157
- ------------------------------------------------------------------------------------------------------------
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; 13,464,559 shares outstanding (150,000,000
shares authorized) 13,465
Additional paid-in capital 139,209,608
Undistributed net investment income 957,375
Accumulated net realized gain on investments and foreign currency 15,313,699
Quarterly and accrued distributions (1,618,889)
Net unrealized appreciation on investments and foreign currency 24,824,299
- ------------------------------------------------------------------------------------------------------------
Net Assets $178,701,157
============================================================================================================
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months ended Year ended
June 30, 1999 December 31,
(unaudited) 1998
---------------- -------------
INVESTMENT OPERATIONS:
<S> <C> <C>
Net investment income $ 747,520 $ 1,720,215
Net realized gain on investments and foreign currency 11,359,208 5,532,509
Net change in unrealized appreciation on investments and foreign currency (7,350,772) (10,118,947)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from investment operations 4,755,956 (2,866,223)
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income -- (758,880)
Net realized gain on investments and foreign currency -- (2,341,120)
Quarterly distributions* (1,550,000) --
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions to Preferred Stockholders (1,550,000) (3,100,000)
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income -- (932,213)
Net realized gain on investments and foreign currency -- (2,875,417)
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions to Common Stockholders -- (3,807,630)
- ------------------------------------------------------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
Reinvestment of distributions to Common Stockholders -- 2,907,409
- ------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 3,205,956 (6,866,444)
NET ASSETS:
Beginning of period 175,495,201 182,361,645
- ------------------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income of $957,375 and $209,855,
respectively) $178,701,157 $175,495,201
==============================================================================================================================
</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.
36 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
ROYCE MICRO-CAP TRUST, INC. SIX MONTHS ENDED JUNE 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Income:
Interest $ 926,253
Dividends 628,951
- ------------------------------------------------------------------------------------------
Total Income 1,555,204
- ------------------------------------------------------------------------------------------
Expenses:
Investment advisory fees 660,861
Administration fees 56,404
Custodian and transfer agent fees 47,883
Administrative and office facilities expenses 43,365
Shareholder reports 38,332
Professional fees 17,982
Directors' fees 16,461
Other expenses 29,267
- ------------------------------------------------------------------------------------------
Total Expenses 910,555
Fees Waived by Investment Adviser (102,871)
- ------------------------------------------------------------------------------------------
Net Expenses 807,684
- ------------------------------------------------------------------------------------------
Net Investment Income 747,520
- ------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain on investments and foreign currency 11,359,208
Net change in unrealized appreciation on investments and foreign currency (7,350,772)
- ------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign currency 4,008,436
- ------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS $ 4,755,956
==========================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 37
<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, 1999
(unaudited)
- ------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.06
- ------------------------------------------------------------------------------------
INVESTMENT OPERATIONS:
Net investment income 0.06
Net realized and unrealized gain (loss) on investments and
foreign currency 0.30
- ------------------------------------------------------------------------------------
Total investment operations 0.36
- ------------------------------------------------------------------------------------
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 Preferred Stock offering or rights offering --
Effect of reinvestment of distributions by Common Stockholders --
- ------------------------------------------------------------------------------------
Total capital stock transactions --
- ------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.30
- ------------------------------------------------------------------------------------
MARKET VALUE, END OF PERIOD $8.4375
- ------------------------------------------------------------------------------------
TOTAL RETURN (a):
Net Asset Value 2.4%
Market Value (4.9)%
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:
Total expenses (b,c) 1.27%**
Management fee expense 0.88%**
Other operating expenses 0.39%**
Net investment income 1.17%**
SUPPLEMENTAL DATA:
Net Assets, End of Period (in thousands) $178,701
Portfolio Turnover Rate 19%
PREFERRED STOCK:
Total shares outstanding 1,600,000
Asset coverage per share 447%
Liquidation preference per share $25.00
Average market value per share (d) $25.24
====================================================================================
<CAPTION>
Years ended December 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.84 $9.38 $8.89 $7.58 $7.27
- ----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS:
Net investment income 0.13 0.17 0.09 0.02 0.01
Net realized and unrealized gain (loss) on investments and
foreign currency (0.36) 2.61 1.32 1.69 0.41
- ----------------------------------------------------------------------------------------------------------------------------------
Total investment operations (0.23) 2.78 1.41 1.71 0.42
- ----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income (0.06) (0.02) -- -- --
Net realized gain on investments and foreign currency (0.18) (0.12) -- -- --
Quarterly and accrued distributions* -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions to Preferred Stockholders (0.24) (0.14) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income (0.07) (0.16) (0.10) (0.02) (0.02)
Net realized gain on investments and foreign currency (0.22) (0.84) (0.70) (0.34) (0.03)
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions to Common Stockholders (0.29) (1.00) (0.80) (0.36) (0.05)
- ----------------------------------------------------------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
Effect of Preferred Stock offering or rights offering -- (0.12) -- -- (0.06)
Effect of reinvestment of distributions by Common Stockholders (0.02) (0.06) (0.12) (0.04) --
- ----------------------------------------------------------------------------------------------------------------------------------
Total capital stock transactions (0.02) (0.18) (0.12) (0.04) (0.06)
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.06 $10.84 $9.38 $8.89 $7.58
- ----------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE, END OF PERIOD $8.875 $10.125 $8.25 $8.00 $7.00
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (a):
Net Asset Value (4.1)% 27.1% 16.6% 22.9% 6.0%
Market Value (9.4)% 35.0% 13.9% 19.8% (5.1)%
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:
Total expenses (b,c) 1.18% 0.83% 0.85% 1.36% 1.88%
Management fee expense 0.80% 0.40% 0.47% 0.77% 1.20%
Other operating expenses 0.38% 0.43% 0.38% 0.59% 0.68%
Net investment income 1.21% 1.77% 0.88% 0.26% 0.21%
SUPPLEMENTAL DATA:
Net Assets, End of Period (in thousands) $175,495 $182,362 $113,953 $100,065 $82,534
Portfolio Turnover Rate 44% 34% 51% 51% 23%
PREFERRED STOCK:
Total shares outstanding 1,600,000 1,600,000 -- -- --
Asset coverage per share 439% 456% -- -- --
Liquidation preference per share $25.00 $25.00 -- -- --
Average market value per share (d) $25.40 $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 the primary
subscription for the 1994 rights offering.
(b) Expense ratios based on total average net assets were 0.97%, 0.92%, 0.72%,
0.85%, 1.36% and 1.88% for the periods ended June 30, 1999 and December 31,
1998, 1997, 1996, 1995 and 1994, respectively.
(c) Expense ratios based on average net assets applicable to Common Stockholders
before waiver of fees by the investment adviser would have been 1.43% and
1.24% for the periods ended June 30, 1999 and December 31, 1998,
respectively.
(d) The average of month-end market values during the period.
* To be allocated to net investment income and capital gains at year-end.
** Annualized.
38 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<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 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 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 more than one of the Royce Funds are allocated in an equitable
manner. Allocated personnel and occupancy costs related to The Royce Funds are
included in administrative and office facilities expenses.
Taxes:
As 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 to Common Stockholders are recorded on the ex-dividend date
and paid annually in December. Distributions to Preferred Stockholders are
recorded on an accrual basis and paid quarterly. Distributions are determined
in accordance with income tax regulations that may differ from generally
accepted accounting principles. Permanent book and tax basis differences
relating to 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 undistributed at fiscal year end is
distributed 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 1999 | 39
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
- --------------------------------------------------------------------------------
ROYCE MICRO-CAP TRUST, INC.
- --------------------------------------------------------------------------------
Capital Stock:
The Fund currently has 1,600,000 shares of 7.75% Cumulative Preferred Stock
outstanding. 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 established by Moody's, the Fund is
required to maintain a certain discounted asset coverage. 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 334,780 shares of Common Stock as reinvestment of
distributions by Common Stockholders for the year ended December 31, 1998.
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 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 month-end net assets of the Fund for the rolling
36-month period ending with such month.
The Basic Fee for each month will be increased or decreased at the rate of
1/12 of .05% for each percentage point that the investment performance of the
Fund exceeds, or is exceeded by, the percentage change in the investment
record of the Russell 2000 by more than two percentage points for the
performance period. 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 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 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 exceeded the investment performance of the Fund by 12 or more
percentage points for the performance period.
Royce has voluntarily committed to waive the portion of its investment
advisory fee attributable to the Fund's Preferred Stock for any month in which
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.
For the period ended June 30, 1999, the Fund accrued and paid Royce
advisory fees totaling $557,990, which is net of $102,871 voluntarily waived
by Royce.
Administration Agreement:
Under the 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 period ended June 30, 1999, the cost of purchases and the proceeds
from sales of investment securities, other than short-term securities, amounted
to $44,466,632 and $29,323,637, respectively.
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, 1999.
<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 -- -- -- -- -- --
Smithfield Companies (The) -- -- -- -- -- $17,808
</TABLE>
40 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
ROYCE FOCUS TRUST, INC. JUNE 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 81.1%
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Consumer Products -- 9.3%
Collectibles - 4.5%
Enesco Group 141,100 $ 3,262,938
-----------
Publishing - 1.8%
Gibson Greetings* 206,300 1,308,716
-----------
Sports and Recreation - 3.0%
Oakley* 307,800 2,193,075
-----------
6,764,729
===========
Consumer Services -- 6.9%
Retail Stores - 6.9%
Charming Shoppes* 815,000 4,966,406
===========
Financial Intermediaries - 3.6%
Insurance - 3.6%
Medical Assurance* 50,351 1,422,416
Zenith National Insurance 49,800 1,226,325
-----------
2,648,741
===========
Financial Services -- 9.5%
Information and Processing - 2.8%
Duff & Phelps Credit Rating 30,500 2,039,687
-----------
Insurance Brokers - 6.7%
Blanch (E.W.) Holdings 32,400 2,209,275
Gallagher (Arthur J.) & Co. 52,800 2,613,600
-----------
4,822,875
-----------
6,862,562
===========
Health -- 1.4%
Health Services - 1.4%
Arrow International 38,300 991,012
===========
Industrial Products -- 13.0%
Building Systems and Components - 2.8%
Simpson Manufacturing* 41,600 1,976,000
-----------
Construction Materials - 4.7%
Florida Rock Industries 75,000 3,412,500
-----------
Machinery - 2.9%
Lincoln Electric Holdings 103,400 2,119,700
-----------
Pumps, Valves and Bearings - 2.6%
Kaydon Corporation 55,100 1,852,738
-----------
9,360,938
===========
Industrial Services -- 15.0%
Commercial Services - 2.6%
Carlisle Holdings* 128,400 1,861,800
-----------
Engineering and Construction - 5.1%
Morrison Knudsen* 357,100 3,682,594
-----------
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Industrial Distribution - 1.8%
Ritchie Bros. Auctioneers* 35,000 $ 1,260,000
-----------
Printing - 3.2%
New England Business Service 75,000 2,315,625
-----------
Transportation and Logistics - 2.3%
Circle International Group 65,000 1,421,875
Ryanair Holdings ADR+* 5,000 265,000
-----------
1,686,875
-----------
10,806,894
===========
Natural Resources -- 9.6%
Energy Services - 3.8%
Input/Output* 120,000 907,500
Nabors Industries* 75,000 1,832,813
-----------
2,740,313
-----------
Gold - 2.2%
Anglogold ADR+ 74,100 1,593,150
-----------
Oil and Gas - 3.6%
Tom Brown* 92,000 1,431,750
Renaissance Energy* 87,500 1,176,570
-----------
2,608,320
-----------
6,941,783
===========
Technology -- 12.8%
Aerospace/Defense - 1.5%
Curtiss-Wright 27,300 1,061,287
-----------
Distribution - 7.7%
Marshall Industries* 127,500 4,582,031
Richardson Electronics 143,000 974,187
-----------
5,556,218
-----------
Software/Services - 3.6%
Comdisco 50,000 1,281,250
National Computer Systems 40,000 1,350,000
-----------
2,631,250
-----------
9,248,755
===========
TOTAL COMMON STOCKS
(Cost $48,605,645) 58,591,820
===========
<CAPTION>
PRINCIPAL
AMOUNT
------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 13.7%
U.S. Treasury Notes
7.125%, due 9/30/99 $2,000,000 2,010,940
5.75%, due 10/31/02 5,000,000 5,014,050
4.25%, due 11/15/03 3,000,000 2,832,660
-----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $10,029,531) 9,857,650
===========
</TABLE>
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 41
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
ROYCE FOCUS TRUST, INC. JUNE 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
-----
<S> <C>
REPURCHASE AGREEMENT -- 5.5%
State Street Bank & Trust Company,
4.25% dated 6/30/99, due 7/01/99,
maturity value $4,000,472 (collateralized
by U.S. Treasury Notes, 3.375%
due 1/15/07, valued at $4,084,888)
(Cost $4,000,000) $ 4,000,000
===========
<CAPTION>
VALUE
-----
<S> <C>
TOTAL INVESTMENTS -- 100.3%
(Cost $62,635,176) $72,449,470
LIABILITIES LESS CASH AND
OTHER ASSETS -- (0.3)% (241,508)
-----------
NET ASSETS -- 100.0% $72,207,962
===========
</TABLE>
- --------------------------------------------------------------------------------
* Non income producing.
+ American Depository Receipt.
INCOME TAX INFORMATION: The cost of total investments for Federal income tax
purposes was $62,635,176. At June 30, 1999, net unrealized appreciation for all
securities was $9,814,294, consisting of aggregate gross unrealized
appreciation of $13,359,239 and aggregate gross unrealized depreciation of
$3,544,945.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
42 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
ROYCE FOCUS TRUST, INC. JUNE 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments at value (identified cost $58,635,176) $68,449,470
Repurchase agreement (at cost and value) 4,000,000
Cash 584,833
Receivable for investments sold 1,875,251
Receivable for dividends and interest 185,527
Prepaid expenses 16,531
- ---------------------------------------------------------------------------------------------------------
Total Assets 75,111,612
- ---------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 2,797,589
Payable for investment advisory fee 39,020
Preferred dividends accrued but not yet declared 33,112
Accrued expenses 33,929
- ---------------------------------------------------------------------------------------------------------
Total Liabilities 2,903,650
- ---------------------------------------------------------------------------------------------------------
Net Assets $72,207,962
=========================================================================================================
Net Assets applicable to Preferred Stock at a liquidation value of $25 per share $20,000,000
=========================================================================================================
Net Assets applicable to Common Stock (net asset value per share - $6.20) $52,207,962
=========================================================================================================
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 8,423
shares authorized)
Additional paid-in capital 61,385,724
Undistributed net investment income 496,106
Accumulated net realized gain on investments 1,280,727
Quarterly and accrued distributions (778,112)
Net unrealized appreciation on investments 9,814,294
- ---------------------------------------------------------------------------------------------------------
Net Assets $72,207,962
=========================================================================================================
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months ended Year ended
June 30, 1999 December 31,
(unaudited) 1998
---------------- ------------
INVESTMENT OPERATIONS:
<S> <C> <C>
Net investment income $ 359,526 $ 991,047
Net realized gain (loss) on investments (1,286,710) 1,937,257
Net change in unrealized appreciation on investments 6,422,775 (4,873,694)
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from investment operations 5,495,591 (1,945,390)
- ---------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income -- (1,343,086)
Net realized gain on investments -- (146,914)
Quarterly distributions* (745,000) --
- ---------------------------------------------------------------------------------------------------------
Total distributions to Preferred Stockholders (745,000) (1,490,000)
- ---------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income -- --
Net realized gain on investments -- --
- ---------------------------------------------------------------------------------------------------------
Total distributions to Common Stockholders -- --
- ---------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 4,750,591 (3,435,390)
NET ASSETS:
Beginning of period 67,457,371 70,892,761
- ---------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income
of $496,106 and $136,580, respectively) $72,207,962 $67,457,371
=========================================================================================================
</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 1999 | 43
<PAGE>
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
ROYCE FOCUS TRUST, INC. SIX MONTHS ENDED JUNE 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest $ 372,985
Dividends 316,638
- -------------------------------------------------------------------------------
Total Income 689,623
- -------------------------------------------------------------------------------
Expenses:
Investment advisory fees 317,829
Custodian and transfer agent fees 31,697
Shareholder reports 16,853
Administrative and office facilities expenses 16,468
Professional fees 15,219
Directors' fees 10,220
Other expenses 20,990
- -------------------------------------------------------------------------------
Total Expenses 429,276
Fees Waived by Investment Adviser (99,179)
- -------------------------------------------------------------------------------
Net Expenses 330,097
- -------------------------------------------------------------------------------
Net Investment Income 359,526
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (1,286,710)
Net change in unrealized appreciation on investments 6,422,775
- -------------------------------------------------------------------------------
Net realized and unrealized gain on investments 5,136,065
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS $ 5,495,591
===============================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
44 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
ROYCE FOCUS 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, 1999
(unaudited)
- -----------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $5.63
- -----------------------------------------------------------------------------------
INVESTMENT OPERATIONS:
Net investment income 0.04
Net realized and unrealized gain (loss) on investments and
foreign currency 0.62
- -----------------------------------------------------------------------------------
Total investment operations 0.66
- -----------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income --
Net realized gain on investments and foreign currency --
Quarterly and accrued distributions* (0.09)
- -----------------------------------------------------------------------------------
Total distributions to Preferred Stockholders (0.09)
- -----------------------------------------------------------------------------------
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 Preferred Stock offering --
Effect of reinvestment of distributions by Common Stockholders --
Other Sources --
- -----------------------------------------------------------------------------------
Total capital stock transactions --
- -----------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $6.20
- -----------------------------------------------------------------------------------
MARKET VALUE, END OF PERIOD $4.94
- -----------------------------------------------------------------------------------
TOTAL RETURN(a):
Net Asset Value (b) 10.1%
Market Value 1.3%
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:
Total expenses (c,d) 1.51%**
Management fee expense 1.00%**
Other operating expenses 0.51%**
Net investment income 1.64%**
SUPPLEMENTAL DATA:
Net Assets, End of Period (in thousands) $72,208
Portfolio Turnover Rate 25%
PREFERRED STOCK:
Total shares outstanding 800,000
Asset coverage per share 361%
Liquidation preference per share $25.00
Average market value per share (e) $24.81
===================================================================================
<CAPTION>
Years ended December 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $6.04 $5.52 $5.09 $4.70 $5.24
- ------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS:
Net investment income 0.12 0.08 0.06 0.13 0.19
Net realized and unrealized gain (loss) on investments and
foreign currency (0.35) 1.12 0.35 0.36 (0.62)
- ------------------------------------------------------------------------------------------------------------------------------
Total investment operations (0.23) 1.20 0.41 0.49 (0.43)
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income (0.16) -- -- -- --
Net realized gain on investments and foreign currency (0.02) (0.01) -- -- --
Quarterly and accrued distributions* -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions to Preferred Stockholders (0.18) (0.01) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income -- (0.12) -- (0.16) (0.11)
Net realized gain on investments and foreign currency -- (0.41) -- (0.01) --
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions to Common Stockholders -- (0.53) -- (0.17) (0.11)
- ------------------------------------------------------------------------------------------------------------------------------
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 $5.63 $6.04 $5.52 $5.09 $4.70
- ------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE, END OF PERIOD $4.88 $5.06 $4.59 $4.19 $3.56
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(a):
Net Asset Value (b) (6.8)% 20.5% -- -- --
Market Value (3.7)% 21.3% 9.6% 22.3% (17.4)%
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:
Total expenses (c,d) 1.62% 0.94% 1.91% 2.14% 2.27%
Management fee expense 1.14% 0.39% 0.83% 1.00% 1.00%
Other operating expenses 0.48% 0.55% 1.08% 1.14% 1.27%
Net investment income 1.95% 1.35% 1.80% 2.80% 3.81%
SUPPLEMENTAL DATA:
Net Assets, End of Period (in thousands) $67,457 $70,893 $44,154 $41,385 $41,106
Portfolio Turnover Rate 90% 74% 159% 76% 483%
PREFERRED STOCK:
Total shares outstanding 800,000 800,000 -- -- --
Asset coverage per share 337% 354% -- -- --
Liquidation preference per share $25.00 $25.00 -- -- --
Average market value per share (e) $25.16 $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) The Net Asset Value Total Return is not available for years prior to 1997.
(c) Expense ratios based on total average net assets were 1.04%, 1.16%, 0.90% ,
1.91%, 2.14% and 2.27% for the periods ended June 30, 1999 and December 31,
1998, 1997, 1996, 1995 and 1994, respectively.
(d) Expense ratios based on average net assets applicable to Common Stockholders
before waiver of fees by the investment adviser would have been 1.96%,
1.88%, 1.60% and 2.08% for the periods ended June 30, 1999 and December 31,
1998, 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.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 45
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
- --------------------------------------------------------------------------------
ROYCE FOCUS TRUST, INC.
- --------------------------------------------------------------------------------
Summary of Significant Accounting Policies:
Royce Focus Trust, Inc. (the "Fund") is a diversified closed-end
investment company. Effective May 7, 1999, Royce Global Trust, Inc., formerly
named All Seasons Global Fund, Inc., changed its name to Royce Focus Trust,
Inc. 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 quotations are not readily available are valued at
their fair value 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 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 more than one of the Royce Funds are allocated in an equitable
manner. Allocated personnel and occupancy costs related to The Royce Funds are
included in administrative and office facilities expenses.
Taxes:
As 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 to Common Stockholders are recorded on the ex-dividend date
and paid annually in December. Distributions to Preferred Stockholders are
recorded on an accrual basis and paid quarterly. Distributions are determined
in accordance with income tax regulations that may differ from generally
accepted accounting principles. Permanent book and tax basis differences
relating to 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 undistributed at fiscal year end
is distributed 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.
Capital Stock:
The Fund currently has 800,000 shares of 7.45% Cumulative Preferred Stock
outstanding. 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 established by Moody's, the Fund is
required to maintain a certain discounted asset coverage. The Fund has met
these requirements since issuing Preferred Stock.
46 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
- --------------------------------------------------------------------------------
ROYCE FOCUS TRUST, INC.
- --------------------------------------------------------------------------------
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.
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 to be paid at an annual
rate of 1.0% of the average daily net assets of the Fund.
Royce has voluntarily committed to waive the portion of its investment
advisory fee attributable to the Fund's Preferred Stock for any month in which
the Fund's average annual NAV total return since issuance of the Preferred
Stock fails to exceed the Preferred Stock dividend rate.
For the period ended June 30, 1999, the Fund accrued and paid Royce
advisory fees totaling $218,650, which is net of $99,179 voluntarily waived by
Royce.
Purchases and Sales of Investment Securities:
For the period ended June 30, 1999, the cost of purchases and proceeds
from sales of investment securities, other than short-term securities,
amounted to $15,949,948 and $15,064,953, respectively.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 1999 | 47
<PAGE>
STOCKHOLDER MEETING RESULTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ROYCE VALUE TRUST, INC.
- --------------------------------------------------------------------------------
At the 1999 Annual Meeting of Stockholders held on April 28, 1999, the Fund's
stockholders: (i) elected the board of directors, consisting of (a) Charles M.
Royce, (b) John D. Diederich, (c) Donald R. Dwight, (d) Richard M. Galkin, (e)
Stephen L. Isaacs and (f) 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
--------- ------------- --------------- --------- ------------- ---------------
(i)
<S> <C> <C> <C> <C> <C> <C>
(a) 34,067,797 N/A 331,472 N/A N/A N/A
(b) N/A N/A N/A 5,544,897 N/A 49,010
(c) 33,992,459 N/A 406,810 N/A N/A N/A
(d) 33,995,940 N/A 403,329 N/A N/A N/A
(e) 33,970,329 N/A 428,940 N/A N/A N/A
(f) N/A N/A N/A 5,538,931 N/A 54,976
(ii) 34,039,367 135,360 224,540 N/A N/A N/A
</TABLE>
- --------------------------------------------------------------------------------
ROYCE MICRO-CAP TRUST, INC.
- --------------------------------------------------------------------------------
At the 1999 Annual Meeting of Stockholders held on April 28, 1999, the Fund's
stockholders: (i) elected the board of directors, consisting of (a) Charles M.
Royce, (b) John D. Diederich, (c) Donald R. Dwight, (d) Richard M. Galkin, (e)
Stephen L. Isaacs and (f) David L. Meister and (ii) ratified the selection of
Tait, Weller & Baker as independent accountants.
<TABLE>
<CAPTION>
(i)
<S> <C> <C> <C> <C> <C> <C>
(a) 12,968,018 N/A 127,259 N/A N/A N/A
(b) N/A N/A N/A 1,501,073 N/A 560
(c) 12,949,261 N/A 146,015 N/A N/A N/A
(d) 12,946,648 N/A 148,629 N/A N/A N/A
(e) 12,936,498 N/A 164,778 N/A N/A N/A
(f) N/A N/A N/A 1,501,073 N/A 560
(ii) 12,965,166 82,167 47,942 N/A N/A N/A
</TABLE>
- --------------------------------------------------------------------------------
ROYCE FOCUS TRUST, INC.
- --------------------------------------------------------------------------------
At the 1999 Annual Meeting of Stockholders held on April 28, 1999, the Fund's
stockholders: (i) approved an amendment to the Fund's Articles of Incorporation
changing its name to Royce Focus Trust, Inc., (ii) elected the board of
directors, consisting of(a) Charles M. Royce, (b) Donald R. Dwight, (c) Richard
M. Galkin, (d) Steven L. Isaacs, (e) William M. Koke and (f) David L. Meister
and (iii) ratified the selection of Tait, Weller & Baker as independent
accountants.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
(i) 7,678,100 237,937 61,759 N/A N/A N/A
(ii)
(a) 7,896,246 N/A 81,550 N/A N/A N/A
(b) 7,876,911 N/A 100,885 N/A N/A N/A
(c) 7,877,415 N/A 100,381 N/A N/A N/A
(d) N/A N/A N/A 769,122 N/A 6,760
(e) 7,878,815 N/A 98,981 N/A N/A N/A
(f) N/A N/A N/A 768,922 N/A 6,960
(iii) 7,897,484 34,048 46,265 N/A N/A N/A
</TABLE>
48 | THE ROYCE FUNDS ANNUAL REPORT 1999
<PAGE>
POSTSCRIPT
- --------------------------------------------------------------------------------
FUNNY BUSINESS
A senior member of our investment staff related the following story to us.
Early this past March, my old college buddy Jerry had asked me to meet him at a
trendy downtown restaurant. I was looking forward to a pleasant night out with
an old friend to take some of the sting out of one of the worst periods for
small-cap stocks in recent memory. I arrived just in time to see Jerry's cab
roll up to the restaurant's door. He sprung out smiling from the back seat as he
chomped on a cigar about the size of a baseball bat. After getting our table and
informing me that dinner was on him, he looked at me shaking his head with a
pitying look in his eye. "And I always thought you were the smart one," he said,
"but man I've been making such a killing lately that I may just have to come by
your office and show you guys how it's done."
I was confused. Jerry couldn't be talking about investing. He thought hedge
funds invested in plant life. He wouldn't know Warren Buffet from Warren Beatty.
Jerry in the market? It just didn't seem possible.
"Oh, it's possible," he said with a laugh. "I opened up one of those
accounts where you pick your own stocks on your computer. I've been doing it for
a while now, and don't think I haven't learned anything from you -- I'm in it
all for the long haul, just like your company. I'll give you a good example. I
held my last Internet stock for almost three months before I sold it."
"Three months? Jerry, that's a lunchtime in this business" I said.
"Long-term usually means a minimum of three years to us."
He started shaking his head again, "You guys need to stop looking at all
that balance sheet and numbers stuff and watch a little TV or get on the net.
It's a whole new world out there. The money's practically falling out of the
sky, and you guys are sitting around looking at your reports and buying these
teeny little companies that make things." He laughed. "I mean, news flash,
buddy, the earth isn't flat!" With that he leaned back and handed the busboy $5
for refilling his water glass.
I left that night feeling worse than ever. Not only were small-cap stocks
struggling, but one of my oldest friends was getting rich in the stock market
almost because he didn't know what he was doing. Ignorance was turning into
Jerry's very profitable advantage. I knew investing could be a funny business,
but it wasn't supposed to be this funny.
Around mid-June, there was a lot of volatility in the market as a whole,
but small-caps were rebounding, and I was in a much better mood. Even when
everything couldn't have looked worse, our patience, consistency and long-term
outlook kept us from losing our composure. Over the years, depending on what was
hot in the stock market at the time, we've heard it all -- small-caps are out,
value investing is passe, the old ways of looking for financially solid,
well-run companies are obsolete. But through it all, we've just kept doing what
we do. I started wondering how Jerry was doing, since I hadn't heard from him in
a while. I dialed his number and after several rings he picked up.
"Hello?" He sounded kind of hoarse.
"Hey, how are you?" I asked. "How are your adventures in investing?"
"Um, well, not bad, I guess...but not great. I just bought this hot new
internet company, Sell-at-Any-Price.com, that gives free online investment
advice for a very reasonable monthly fee to people who make their own picks like
me. I didn't get in on the ground floor, but it still looked like they couldn't
lose. They had almost 30,000 customers and the market cap when I bought was only
$1 billion...I mean, it was like stealing, really. But now suddenly it's off 75%
from the high, and the high's where I bought in."
"Well at least you didn't put all your money into this company, did you?
What's it called again," I asked, "sucker's_bet.com? Jerry...Jerry...Jerry, are
you there?"
It's never fun to hear an old friend cry, but maybe Jerry will become a
small-cap value investor.
[background photos: hare chasing tortoise]
[sidebar]
Even when everything couldn't have looked worse, our patience, consistency and
long-term outlook kept us from losing our composure. Over the years, depending
on what was hot in the stock market at the time, we've heard it all - small-caps
are out, value investing is passe, the old ways of looking for financially
solid, well-run companies are obsolete. But through it all, we've just kept
doing what we do.
[end sidebar]
<PAGE>
[back cover]
THE
ROYCE
FUNDS
ONE OF THE INDUSTRY'S MOST EXPERIENCED AND
HIGHLY RESPECTED SMALL-COMPANY VALUE MANAGERS
Charles M. Royce, who has been our primary portfolio manager since 1973, enjoys
one of the longest tenures of any active mutual fund manager. Today, with $2.9
billion in total assets under management, Royce & Associates remains an
independent firm committed to the same principles that have served us well for
more than 25 years.
MULTIPLE FUNDS, COMMON FOCUS
Over the years, we have chosen to concentrate on small-company value investing.
Chuck Royce and his team provide market at the time, we've heard it all --
small-caps are out, value investing is passe, the old ways of looking to offer
both individual and institutional investors the best available small-cap value
portfolios by participating in the small-cap market's total returns with
below-average volatility.
CONSISTENT DISCIPLINE
We cultivated our approach by paying close attention to risk and by always
maintaining the same discipline, regardless of market movements and trends. The
price we pay for a security must be significantly below our appraisal of its
worth. This requires a thorough analysis of the financial and operating dynamics
of a business, as though we were purchasing the entire company.
CO-OWNERSHIP OF FUNDS
As part of this commitment, it is important that our employees and shareholders
share a common financial goal; our officers, employees and their families
currently have approximately $40 million invested in The Royce Funds.
THE ROYCE FUNDS
1414 AVENUE OF THE AMERICAS, NEW YORK NY10019
GENERAL INFORMATION BROKER/DEALER SERVICES
Additional Report Copies For Fund Materials and Performance Updates
(800) 221-4268 (800) 59-ROYCE (597-6923)
STATE STREET BANK AND TRUST COMPANY
Custodian, Transfer Agent and Registrar
(800) 426-5523
www.roycefunds.com
[email protected]
