----------------------------------------------
THE
ROYCE
FUNDS
Value Investing in Small Companies
for More Than 25 Years
ROYCE VALUE TRUST
ROYCE MICRO-CAP TRUST
ROYCE GLOBAL TRUST
----------------------------------------------
1998 Annual Report
www.roycefunds.com
<PAGE>
A FEW WORDS ON CLOSED-END FUNDS
- --------------------------------------------------------------------------------
Royce & Associates, Inc. manages three closed-end funds: Royce Value Trust, the
first small-cap value closed-end fund offering; Royce Micro-Cap Trust, the only
micro-cap closed-end fund; and Royce Global Trust, a closed-end fund that
focuses on a limited number of domestic and foreign small-cap 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. 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 in 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
- - 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.
- - 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.
- - 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.
- - The fixed capital structure allows permanent leverage to be employed as a
means to enhance capital appreciation potential.
- - Unlike open-end funds, our closed-end funds are able to distribute capital
gains on a quarterly basis. Royce Value Trust has adopted a quarterly
distribution policy.
We believe that the closed-end fund structure is very suitable for the long-term
investor who understands the benefits of a stable pool of capital.
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WHY DIVIDEND REINVESTMENT IS IMPORTANT
A very important component of an investor's total return comes from the
reinvestment of distributions. By reinvesting distributions, our investors can
maintain an undiluted investment in a Fund. To get a fair idea of the impact of
reinvested distributions, please see the charts on pages 10, 12 and 14. For
additional information on the Funds' Distribution Reinvestment and Cash Purchase
Options and the benefits for stockholders, see page 17.
<PAGE>
THE ROYCE FUNDS
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ANNUAL REPORT REFERENCE GUIDE
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<TABLE>
<S> <C>
Jump, Jive An' Wail: 1998's stock market provided more than its share 2
of swinging moments.
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It Don't Mean a Thing (If It Ain't Got That Swing): Recent changes to small-cap 5
stock definitions have little impact on our own small- and micro-cap work.
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Royce Value Trust outperformed both small-cap benchmark indices, 10
the Russell 2000 and S&P 600, for the one-, three-, five- and 10-year periods
on an NAV basis.
- -------------------------------------------------------------------------------------------------------------------
Royce Micro-Cap Trust outperformed the Russell 2000 for the three-year, 12
five-year and since inception (12/14/93) periods on an NAV basis, in spite of a
difficult year for both micro-cap securities and for the Fund.
- -------------------------------------------------------------------------------------------------------------------
Royce Global Trust's more concentrated approach produced disappointing returns 14
relative to its small-cap benchmark index for the fourth quarter and for the year.
- -------------------------------------------------------------------------------------------------------------------
Updates and Notes: What's New on Our Website (www.roycefunds.com) 18
and a Y2K Update.
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Schedules of Investments and Other Financial Statements. 19
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Postscript: Furby-Mania. Inside back cover
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
For more than 25 years, our value approach has focused on evaluating a company's
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 worth.
[MAGNIFING GLASS PHOTO]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NAV AVERAGE ANNUAL TOTAL RETURNS Through December 31, 1998
- --------------------------------------------------------------------------------
SINCE
FUND (INCEPTION) 1-YEAR 3-YEAR 5-YEAR INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Royce Value Trust (11/26/86) 3.3% 15.0% 13.5% 13.0%
- --------------------------------------------------------------------------------
Royce Micro-Cap Trust (12/14/93) -4.1 12.4 13.1 13.0
- --------------------------------------------------------------------------------
Royce Global Trust (11/1/96)* -6.8 N/A N/A 7.7
</TABLE>
*Date Royce & Associates assumed investment management.
<PAGE>
[START SIDEBAR]
[Photo of Charles M. Royce]
Charles M. Royce, President
I feel very strongly that the new market cycle will be shorter, with more
historically typical annualized returns. The last cycle began in 1990. By any
traditional measurement, that was a very long period. I think that the new cycle
will last no more than a couple of years and could well be a very low return
period.
[END SIDEBAR]
LETTER TO OUR STOCKHOLDERS
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[Cartoon graphic: dancers "jiving" to a swing band at the "Wall Street Hop"]
- -c- Blaustein '99
JUMP, JIVE AN' WAIL
Although the stock market took a brief but dramatic downturn during the third
quarter, it was not enough to keep its swinging participants off the dance
floor. In three out of four quarters in 1998, large-cap stocks provided
investors with jazzed-up returns. In contrast, small-cap securities grooved in
quarters one and four, but sang the blues in quarters two and three.
This year's stock market soiree also produced swing in abundance. According
to Tim Hayes of Ned Davis Research, the average daily swing of the Dow Jones
Industrial Average ("Dow") in 1998 from the low to the high was 2.6% on an intra
day basis or about 225 points a day. On an intra-year basis, the large-cap S&P
500 was off 19.2% from its peak on July 17, 1998 to its trough on August 31,
1998, while the small-cap Russell 2000 was off 36.5% from its April 21, 1998
peak to its October 8 trough. Although both large- and small-cap securities
rallied in 1998's fourth quarter, the calendar-year performance disparity
between the two indices was the widest since the inception of the Russell 2000
Index in 1979.
THE JOINT IS JUMPIN'
Large-cap and technology stocks were at the top of the charts in 1998. Both the
Dow and S&P 500 reached record highs despite third quarter setbacks. The Dow
(+18.1%) generated its fourth consecutive year of double digit gains, and the
S&P 500 (+28.6%) posted an unprecedented fourth consecutive year of 20%+
returns.
If this were not amazing enough, consider the results of the Nasdaq
Composite, which was up 39.6% for the year. How much of a difference did
technology make? The tech-heavy Nasdaq 100 finished 1998 up 85.5% versus only
6.8% for the Nasdaq Industrials. Wow!
2 | THE ROYCE FUNDS ANNUAL REPORT 1998
<PAGE>
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I GOT IT BAD (AND THAT AIN'T GOOD)
While large-cap enjoyed cheers and applause in 1998, small-cap endured cat
calls. However, even though the small-cap oriented Russell 2000 did hit some
sour notes -- the index was down 2.6% for the full year -- it was not entirely
off key, considering it was down 23.9% for the combined second and third
quarters. Just how tough was it for small-cap mutual fund investors? According
to fund rating service Morningstar, out of 2,802 open-end domestic equity funds
overall, only 12 of the 398 small-cap objective funds with a three-year history
garnered four or five star ratings as of December 31, 1998. This means that out
of the 910 funds that received four or five star ratings, only 1.3% were
small-cap portfolios.
Fortunately for those of us in the small-cap business, there were some
smooth sounds to soothe the second and third quarter blues as small-caps staged
a short but impressive rally at year-end. From its bottom on October 8 through
December 31, the Russell 2000 was up 36.3%, comfortably ahead of the S&P 500,
which was up 28.1%. A little more of this in 1999 would be music to our ears.
[START CALLOUT]
[O]ut of the 910 funds that received
four or five star [Morningstar]
ratings, only 1.3% [12 funds] were
small-cap portfolios.
[END CALLOUT]
EVERY PICTURE TELLS A STORY
While calendar-year periods are often used in performance comparisons, we find
that peak-to-peak periods, or full market cycles, are generally more revealing,
especially when discussing relative performance. Although small-cap
underperformance was evident throughout most of 1998, we believe that the
small-cap downturn began much earlier. Prior to the high established on April
21, the last major peak for the Russell 2000 occurred on May 22, 1996, led by
technology and a flood of IPO offerings. From that previous peak to the Russell
2000 trough on October 8, 1998, small-cap stocks were not on investors' hit
parade.
Many investors forget that small-caps were the market leaders for the
almost six-year period prior to the peak on May 22, 1996, which began with the
small-cap trough in October, 1990. Perhaps the recent period of prolonged
underperformance has made memories fuzzy.
These distinctly different periods demonstrate the ebb and flow between
large- and small-cap performance and how unrealistic it is to expect small-cap
companies to always lag or large-cap companies to permanently lead. With this in
mind, we thought that it would be interesting to examine the April - October
small-cap decline in the context of previous downturns. Since the Russell 2000's
inception in 1979, there have been five major small-cap declines of 20% or more,
including 1998's. Each of the four previous declines was followed by one- to
two-year periods of substantial upside performance (70%+).
<TABLE>
<CAPTION>
- ----------------------------------------
LATE '90s: SMALL CAPS LANGUISH
- ----------------------------------------
5/22/96 - 10/8/98
- ----------------------------------------
<S> <C>
Russell 2000 -12.0%
- ----------------------------------------
S&P 500 47.6%
- ----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------
EARLY '90S: A COMPLETELY DIFFERENT PICTURE
- -------------------------------------------
10/31/90 - 5/22/96
- -------------------------------------------
<S> <C>
Russell 2000 236.2%
- -------------------------------------------
S&P 500 162.1%
- -------------------------------------------
</TABLE>
THE ROYCE FUNDS ANNUAL REPORT 1998 | 3
<PAGE>
[START SIDEBAR]
There has certainly been a change in market leadership, one that so far has had
its greatest effect within large-cap. Global multinationals and financial
services have relinquished leadership to technology, which continues to be a
market-leading sector within both large- and small-cap. This is the beginning, I
think, of a substantial shift in overall market leadership, which signals the
beginning of a new market cycle.
[END SIDEBAR]
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With the Russell 2000 up 36.3% from its October low, have potential
small-cap investors missed the boat? If history is any indication, we don't
think so. While the past is not a blueprint for the future, historical precedent
might suggest that the small-cap rally has both time and distance on its side.
RUSSELL 2000 PEAK-TO-TROUGH-TO-PEAK PERFORMANCE PERIODS
[bar chart]
<TABLE>
<CAPTION>
Decline From Peak Subsequent Rise
--------------------- -------------------------
<S> <C> <C> <C>
6/15/81- -26.2% 8/12/82- 115.5%
8/12/82 6/24/83
6/24/83- -24.1% 7/25/84- 72.5%
7/25/84 7/3/86
8/25/87- -38.9% 10/28/87- 76.8%
10/28/87 10/9/89
10/9/89- -32.5% 10/31/90- 83.1%
10/31/90 2/12/92
4/21/98- -36.5% 10/8/98- 36.3%
10/8/98 12/31/98
</TABLE>
Historical market trends are not necessarily indicative of future market
movements.
[END BAR CHART]
WE WALK THE LINE
Twice each year, we provide details and offer commentary on our Funds' recent
performance. This exercise, while important in many ways, always gives us pause.
As long-term investors, it feels odd to spend time commenting on short-term
performance. Yet the investment world is captivated by the short term, with far
too much attention devoted to who has this year's -- or even this quarter's --
best returns. In contrast, we believe that investors should be neither too
encouraged nor too dismayed by short-term relative results.
We are less concerned about near-term performance -- even when, as in 1998,
we are pleased with the results -- because valuation and performance are rarely
in sync in the short run. In other words, we do not expect today's undervalued
stock to immediately reach what we think is its full value.
Take The "A" Train
During a holiday season vacation, the intrepid advisor hopped on the New York
City subway and took the "A" train to the Columbus Circle stop. After joining in
on a jam session with the Duke Ellington Orchestra, he made his way to our
office and chatted with Chuck Royce about the relevance of the terms "growth"
and "value" in today's small-cap market.
With all the changes that have taken place in the small-cap world over the last
decade, do you think that the definitions of value and growth have changed as
well?
The definitions have not changed as much as their usefulness has. At some
level, we think that describing the way that we manage money exclusively as
"value" is incomplete. Although it's common practice within the investment
community to do so, we don't divide the equity world into growth and value
stocks. We spend our time thinking about how to limit risk without sacrificing
return. If we find a stock that we believe has terrific growth prospects, we
want to buy it with the least risk possible, i.e., at an attractive price -- we
don't worry about whether or not the stock is considered a value or a growth
stock.
4 | THE ROYCE FUNDS ANNUAL REPORT 1998
<PAGE>
- --------------------------------------------------------------------------------
Our investment horizon for portfolio selection is three to five years; in
general we try to find stocks with the potential to at least double in value
during that time period. What happens in the short term is a function of market
direction and luck. We can control neither. While, on an NAV basis, Royce Value
Trust did provide a short-term performance advantage over the Russell 2000, we
are most pleased that on an NAV basis, Royce Value Trust and Royce Micro-Cap
Trust have provided a long-term performance edge. While we are disappointed with
Royce Global Trust's performance since assuming management on November 1, 1996,
we remain confident about the Fund's long-term prospects. For a complete review
and discussion of our results and our risk profiles, please see pages 10-15.
[START CALLOUT]
Our investment horizon for portfolio
selection is three to five years; in general
we try to find stocks with the potential
to at least double in value during that
time period.
[END CALLOUT]
IT DON'T MEAN A THING
(IF IT AIN'T GOT THAT SWING)
Several years ago, Billboard magazine made changes in the criteria of its famous
chart system to more effectively track the changing music scene. In a similar
move, Morningstar, Inc. and Lipper Analytical, the fund industry's preeminent
ranking and analysis services, recently announced that they would be altering
their capitalization and style criteria to more accurately reflect the realities
of today's equity market. For instance, rather than use pre-established
market-cap cutoffs, with small-cap being defined as less than $1 billion,
Morningstar has now divided the equity universe based on
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
RUSSELL 2000'S EXPANDING MARKET CAPITALIZATION
- --------------------------------------------------------------------------------
12/31/89 12/31/94 12/31/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted Average $190 $400 $880
- --------------------------------------------------------------------------------
Median $ 70 $210 $430
- --------------------------------------------------------------------------------
Russell 2000 weighted average and median market capitalization in millions.
Source: Frank Russell Company
- --------------------------------------------------------------------------------
</TABLE>
If value and growth have become less useful terms, what has been the effect on
the firm's selection process?
There really hasn't been an appreciable effect on our selection process. We
have always looked at our mission in life, so to speak, as wanting to be very
good small-cap investors who pay equal attention to risk and reward. We've never
been anti-growth, we just don't want to overpay for growth, so we try to be
conscious of all the risk elements when selecting securities. These elements may
include evaluating growth prospects relative to the stock price, as well as
trading strategy, ownership issues, business risk and liquidity risk.
Frankly, in most instances, we can't buy high-growth companies at
attractive prices, i.e., at "lower risk," because the world frequently tends to
overprice these securities. But it's important to remember that this has nothing
to do with how the outside world is classifying these stocks -- we are value
investors, but we don't confine ourselves to "value" stocks.
THE ROYCE FUNDS ANNUAL REPORT 1998 | 5
<PAGE>
[START SIDEBAR]
Relative valuations for small-cap stocks remain very strong in our view, even
after the recent run of solid performance in the fourth quarter. Although
valuation and performance do not correlate in the short term, we certainly
expect that over most full market cycles they should
[END SIDEBAR]
- --------------------------------------------------------------------------------
the following percentages: Large-cap will constitute the top 5% of the 5,000
largest U.S. stocks in their database, mid-cap will be the next 15% of the 5,000
and small-cap will comprise the remaining 80%. The net effect is a more liberal
definition of small-cap stocks and by extension small-cap funds -- as of
December 31, 1998, the highest median market cap among funds in the small-cap
category was $1.2 billion.
[START CALLOUT]
[T]he difference between the
small- and micro-cap sectors
is critical to us because we
believe that they behave dif-
ferently and require different
investment strategies.
[END CALLOUT]
The small-cap expansion has affected small-cap indices as well. The Russell
2000, which measures the 2,000 smallest U.S. companies out of the largest 3,000
U.S. companies (as tracked by the Russell 3000), has undergone considerable
capitalization drift during the decade. As of December 31, 1998, the largest
stock in the Russell 2000 had a market cap of $3.2 billion. The median market
cap for the index was $430 million and the weighted-average market cap was $880
million, squarely in the upper end of the small-cap sector. It may not be long
until the weighted-average market cap exceeds $1 billion.
Regardless of how others are defining and redefining small-cap, there has
been no effect on our daily work. We concern ourselves primarily with the same
financial characteristics that have been central to our work for more than 25
years. However, the difference between the small- and micro-cap sectors is
critical to us because we believe that they behave differently and require
different investment strategies. In making our case, we are happy to risk
sounding like the fan who doggedly insists that major differences exist between
country and western music, or soul and rhythm and blues (this may be the only
risk we don't mind taking).
Under what business or market conditions would you buy the stock of a company
conventionally regarded as "small-cap growth"?
Although we are usually not interested in the high-priced, "super growth"
type of company, there are four conditions that bring traditional growth
companies into our price range. One would be companies with the flu, as opposed
to pneumonia, i.e., ones that have experienced a temporary earnings shortfall.
This often scares investors, which leads them to sell. The result is usually a
lower price, one that we are willing to pay if the company's underlying
financial condition remains stable. A second type would be companies whose
growth rates are shifting to more real-world levels, i.e., 10% - 15% cyclically
from 20% sequentially, and whose stock price has been penalized by the market.
Over the years, we've bought securities with these characteristics trading at
attractive prices. Another would be companies in high-growth industries whose
specific year-over-year results vary. The last case is the least common. Adverse
market conditions can simply drive prices down to the point where growth becomes
cheap. This generally occurs only in more serious market downturns, maybe once
or
6 | THE ROYCE FUNDS ANNUAL REPORT 1998
<PAGE>
- --------------------------------------------------------------------------------
The more efficient upper tier of small-cap receives considerable
institutional attention and research coverage. This is why we use a concentrated
approach in this sector. We rely not only on our standard criteria -- looking
for companies with unusually strong returns on assets, cash flows and balance
sheets, as well as solid growth prospects -- but on non-quantitative research,
such as competitive and strategic analysis.
[START CALLOUT]
Investing in micro-caps more closely
resembles the way we have chosen
stocks historically, with close atten-
tion to quantitive factors such as
balance sheets and cash flows.
[END CALLOUT]
With micro-cap stocks, institutional competition is the least of our
worries. Liquidity issues and trading constraints are of much greater concern to
us in this sector, where institutional interest is thin and research coverage is
often nonexistent. Due to the breadth and diversity of the micro-cap sector, the
research and security selection process is both time-consuming and
labor-intensive. We look at dozens to find a handful. Investing in micro-caps
more closely resembles the way we have chosen stocks historically, with close
attention to quantitative factors such as balance sheets and cash flows. It also
requires an understanding of what makes micro-cap companies distinctive. Unlike
upper-tier small-cap companies, which have corporate cultures similar to larger
companies, micro-cap companies are usually dominated by the personalities of
their CEOs, who are often the founders and majority owners of the business.
So even as the equity market continues the natural process of change and
expansion, we will stay with what has worked for us in the past, and what we
believe continues to work for us today. We have adjusted as the times have
demanded without sacrificing the essence of who we are -- uncompromising and
risk-conscious money managers.
twice in a decade. This past year's market downturn is the most recent instance,
but prior to that, we'd have to go back to 1990.
Do you think that more attractive valuations and risk factors still exist in the
less glamorous kind of company that traditionally draws attention from value
investors?
This may surprise people, but many of these companies -- those that the
industry would regard as "value" -- are not as attractively priced relative to
many small-cap stocks that might be considered growth. The reason is that within
small-cap, value has generally outperformed growth over the last two-and-a-half
years. These "value" stocks are therefore not quite the bargains that they were
a few years ago, which is another reason why we see less usefulness in terms
such as value and growth. Regardless of how the industry classifies them, we
have a strong preference for a company that has proven it can weather storms,
but whose stock price, for whatever reason, has been knocked off balance.
THE ROYCE FUNDS ANNUAL REPORT 1998 | 7
<PAGE>
[START SIDEBAR]
What sometimes happens in a period preceding an upswing such as we experienced
recently is that small-caps become extraordinarily cheap across the board. The
market creates conditions that enable us to buy stocks that typically don't
trade at the kind of attractive discounts that we have been seeing. This
summer's downturn enabled us to purchase higher growth rates at a cheaper price
than we have been able to do in a very long time.
[END SIDEBAR]
- --------------------------------------------------------------------------------
[Cartoon graphic: 2 optimistic guys walking down the street with sign "The
Future for Small-Caps." They are flanked by three cautious-looking guards.
Caption: "Guarded Optimism"] -c- Hank Blaustein 1999
THE TIMES THEY ARE A-CHANGING
If nothing else, this summer's decline served as a reminder that cycles remain a
reality in the equity markets and that returns go up and down. This is true
whether we are talking about individual stocks or stock markets. The dominant
theme in 1998 was change, as declining prices produced significant investment
opportunities and a shift in market leadership.
This summer's decline gave us a rare investment opportunity, as virtually
all small-cap securities were repriced regardless of an individual company's
circumstances. According to a Salomon Smith Barney report published in July in
The Wall Street Journal, the average stock with a market value of $250 million
or less fell more than 40% from its 52-week high. The last time such a
substantial small-cap sector repricing occurred was 1990. If one believes (as we
do) that long-term outperformance is directly related to exploiting valuation
discrepancies, then this summer's downturn provided us with substantial future
performance potential.
In addition to creating numerous investment opportunities, the October
trough may have signaled the completion of the 1990's bull market. From October
31, 1990 through its trough on August 31, 1998, the S&P 500 compounded at an
18.8% average annual rate of return, well above its long-term norm of 10.5%
(Source: Ibbotson and Associates). Although it is difficult to say with any
certainty, we believe that the new cycle will be different, with chart toppers
coming from both large- and small-cap securities.
[START CALLOUT]
If one believes (as we do) that long-
term outperformance is directly
related to exploiting valuation
discrepancies, then this summer's
downturn provided us with substan-
tial future performance potential.
[END CALLOUT]
8 | THE ROYCE FUNDS ANNUAL REPORT 1998
<PAGE>
- --------------------------------------------------------------------------------
[PHOTO]
(l-r) Jack Fockler, Whitney George, Chuck Royce,
Charlie Dreifus, Buzz Zaino
Signs of change were already present in the fourth quarter. Market
leadership shifted away from the trio of global multinationals, large financials
and technology, leaving technology as a solo act -- more exciting, but much less
stable. According to Goldman Sachs, the average internet stock -- a dominant
force inside the technology sector -- was up 225% in 1998. Internet frenzy has
recently consumed the market landscape. It seems a fitting coda to this decade's
bull market, an outsized, speculative phase to an outsized market cycle.
However, when this sector corrects, a subsequent correction to the market as a
whole seems likely, and a new cycle will be under way for certain. It is in this
new cycle that we believe our "guarded optimism" for small-caps will be
substantiated. We are also confident that in this low-return environment, there
will be great value in "value."
We appreciate your continued support and invite your questions and
comments.
Sincerely,
/s/ Charles M. Royce /s/ W. Whitney George /s/ Jack E. Fockler, Jr.
- ------------------------ ------------------------- ------------------------
Charles M. Royce W. Whitney George Jack E. Fockler, Jr.
President Vice President Vice President
- --------------------------------------------------------------------------------
Fans of all musical genres may be interested to know that...
"Jump, Jive An' Wail" is a swing standard originally made famous by Louis
Prima that jumped back on the charts in 1998 thanks to a new version by the
Brian Setzer Orchestra, with a little help from a popular TV commercial for
The Gap.
"The Joint Is Jumpin'" also enjoyed a second life when the music of Fats
Waller became the subject of the Broadway show Ain't Misbehavin' in the '80s.
"I Got It Bad (And That Ain't Good)," a swing classic, was one of the
centerpieces of the Duke Ellington Orchestra's repertoire through the '40s and
'50s.
"Every Picture Tells a Story" is the title track from Rod Stewart's
groundbreaking 1971 album, one of the first rock and roll records to emphasize
acoustic instruments.
"Take the 'A' Train," another in a long list of Duke Ellington classics, is
indeed one of the trains that stops just minutes from our midtown Manhattan
offices.
When it comes to small-cap stocks and a long-term investment horizon, like
country music legend Johnny Cash, "We Walk The Line."
"It Don't Mean A Thing (If It Ain't Got That Swing)," yet another Ellington
gem, is one of the best-known songs of the swing era, and says it all about
the music that once again has the country hopping.
"The Times They Are A-Changin," the title song from an early Bob Dylan record,
comes from what is probably the most famous protest album of all time.
- --------------------------------------------------------------------------------
THE ROYCE FUNDS ANNUAL REPORT 1998 | 9
<PAGE>
[START SIDEBAR]
WHAT WE DO
Royce Value Trust ("RVT") is a closed-end fund that invests primarily in small-
and micro-cap companies using a disciplined value approach.
HOW WE DID
Royce Value Trust finished 1998 with a solid fourth-quarter showing, up 16.7% on
an NAV basis and 9.9% on a market price basis. This compares to 16.3% for the
Russell 2000 and 17.6% for the S&P 600, the two small-cap benchmark indices. For
the full year, RVT outperformed both indices, posting a 3.3% NAV total return
(+1.5% market price total return) versus respective returns of -2.6% and -1.3%
for the Russell 2000 and S&P 600. In addition, RVT's average annual NAV total
return bested both indices for the three-, five-, 10-year and since inception
(11/26/86) periods.
In 1998's second half, the Fund benefited from an increased exposure to
technology stocks, a market-leading sector within both large- and small-cap in
1998. Strong gains from portfolio securities in this market-leading sector made
important contributions to the Fund's 1998 performance. This increased exposure
to technology is not indicative of a change in our investment style, but instead
reflects the growing role technology plays in the economy, which includes a
vastly expanding universe of small-cap technology companies. We remain committed
to absolute valuation measures in our selection process.
RVT, which celebrated its twelfth year of performance, remains the oldest and
largest small-company closed-end fund available. The Fund's officers, employees
and affiliates currently own more than $4 million of the Fund's Common Stock.
[END SIDEBAR]
ROYCE VALUE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NAV AVERAGE ANNUAL TOTAL RETURNS Through 12/31/98
- --------------------------------------------------------------------------------
<S> <C>
4th Quarter 1998* 16.7%
- -------------------------------------------------------------------------------
July-Dec 1998* -4.8
- --------------------------------------------------------------------------------
1-Year 3.3
- --------------------------------------------------------------------------------
3-Year 15.0
- --------------------------------------------------------------------------------
5-Year 13.5
- --------------------------------------------------------------------------------
10-Year 14.4
- --------------------------------------------------------------------------------
Since Inception (11/26/86) 13.0
- --------------------------------------------------------------------------------
</TABLE>
*Not annualized.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
RISK/RETURN COMPARISON 10-Year Period Ended 12/31/98
- --------------------------------------------------------------------------------
Average Annual Standard
Total Return Deviation RUR
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
RVT (NAV) 14.4% 11.9 1.21
- --------------------------------------------------------------------------------
S&P 600 13.2 16.8 0.79
- --------------------------------------------------------------------------------
Russell 2000 12.9 16.6 0.78
Return per Unit of Risk (RUR) is the average annual total return divided by the
annualized standard deviation over a designated time period.
- --------------------------------------------------------------------------------
</TABLE>
Over the last 10 years, Royce Value Trust has outperformed the S&P 600 and the
Russell 2000 on BOTH an absolute and a risk-adjusted basis.
- --------------------------------------------------------------------------------
ROYCE VALUE TRUST MARKET PRICE -- ACTUAL vs. ADJUSTED*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------
Market Price Total Returns
- ---------------------------
<S> <C>
Since Inception = 248.2%
- ---------------------------
10 Years = 276.4
- ---------------------------
5 Years = 72.9
- ---------------------------
3 Years = 52.0
- ---------------------------
1 Year = 1.5
- ---------------------------
</TABLE>
Adjusted Market Price
Actual Market Price
[PLOT POINTS]
Royce Value Trust Actual vs. Adjusted Market Price Chart
<TABLE>
<CAPTION>
Actual Adjusted
Market Price Market Price
------------ ------------
<S> <C> <C>
11/26/86 10 10
12/31/86 9.88 9.88
1/31/87 10.75 10.75
2/28/87 9.75 9.75
3/31/87 9.63 9.63
4/30/87 8.63 8.63
5/31/87 9.5 9.5
6/30/87 9.38 9.37
7/31/87 9.13 9.12
8/31/87 9.5 9.5
9/30/87 9.25 9.25
10/31/87 7 7.3
11/30/87 6.63 6.91
12/31/87 6.75 7.26
1/31/88 7 7.53
2/29/88 8 8.6
3/31/88 8.13 8.73
4/30/88 8 8.6
5/31/88 7.88 8.46
6/30/88 8.63 9.27
7/31/88 8.5 9.14
8/31/88 8.38 9
9/30/88 8.88 9.54
10/31/88 8.63 9.27
11/30/88 8.25 8.87
12/31/88 8.13 9.25
1/31/89 8.75 9.96
2/28/89 8.5 9.68
3/31/89 8.88 10.1
4/30/89 9.13 10.39
5/31/89 9.38 10.67
6/30/89 9.25 10.53
7/31/89 9.63 10.96
8/31/89 9.75 11.1
9/30/89 9.63 10.99
10/31/89 9.5 10.84
11/30/89 9.5 10.84
12/31/89 9.5 11.46
1/31/90 8.88 10.71
2/28/90 8.75 10.56
3/31/90 9.25 11.16
4/30/90 9.25 11.16
5/31/90 9.5 11.46
6/30/90 9.63 11.61
7/31/90 9.5 11.31
8/31/90 8.25 10.26
9/30/90 7.88 9.53
10/31/90 7.25 8.78
11/30/90 7.75 9.38
12/31/90 8.13 10.23
1/31/91 8.75 10.85
2/28/91 9.88 12.43
3/31/91 10.38 13.05
4/30/91 10.75 13.53
5/31/91 10.25 12.9
6/30/91 10 12.58
7/31/91 10.13 12.74
8/31/91 9.88 12.42
9/30/91 9.88 12.46
10/31/91 10.25 12.93
11/30/91 10 12.61
12/31/91 10.38 13.83
1/31/92 11 14.67
2/29/92 11.75 15.67
3/31/92 11.5 15.33
4/30/92 11.63 15.5
5/31/92 11.38 15.33
6/30/92 11.25 15
7/31/92 11.25 15
8/31/92 11.13 14.83
9/30/92 11.38 15.19
10/31/92 11.5 15.36
11/30/92 12.63 16.86
12/31/92 12.25 17.54
1/31/93 12.75 18.25
2/28/93 12.88 18.25
3/31/93 13 18.61
4/30/93 12.88 18.43
5/31/93 12.88 18.43
6/30/93 13.13 18.79
7/31/93 13.38 19.33
8/31/93 13.63 19.5
9/30/93 13.75 19.75
10/31/93 14.25 20.47
11/30/93 13.88 19.94
12/31/93 12.88 20.13
1/31/94 13.25 20.72
2/28/94 13 20.33
3/31/94 12.25 19.16
4/30/94 12.5 19.55
5/31/94 12.38 19.35
6/30/94 12.25 19.16
7/31/94 12.38 19.35
8/31/94 12.63 19.74
9/30/94 12 18.76
10/31/94 11.63 18.18
11/30/94 12.13 19.18
12/31/94 11 19
1/31/95 11.63 20.08
2/28/95 11.75 20.3
3/31/95 11.38 19.65
4/30/95 11.88 20.52
5/31/95 12.13 20.73
6/30/95 12 20.73
7/31/95 12.63 21.81
8/31/95 13.13 22.68
9/30/95 13.5 23.33
10/31/95 12.88 22.25
11/30/95 13.25 23.1
12/31/95 11.88 22.91
1/31/96 12.38 23.87
2/29/96 12.13 23.39
3/31/96 12.25 23.63
4/30/96 12.25 23.63
5/31/96 12.63 24.35
6/30/96 12.38 23.87
7/31/96 11.63 22.42
8/31/96 12.25 23.63
9/30/96 12.63 24.35
10/31/96 12.38 23.87
11/30/96 12.88 24.84
12/31/96 12.63 26.64
1/31/97 12.38 26.11
2/28/97 12.5 26.37
3/31/97 11.75 24.79
4/30/97 11.88 25.06
5/31/97 12.75 26.9
6/30/97 13.75 29.01
7/31/97 14.25 30.07
8/31/97 15.31 32.31
9/30/97 16.25 35.01
10/31/97 15.5 33.39
11/30/97 16.44 35.41
12/31/97 15.06 34.32
1/31/98 14.94 34.03
2/28/98 16.13 36.74
3/31/98 17.13 39.88
4/30/98 16.94 39.45
5/31/98 16.75 39.01
6/30/98 16.5 39.35
7/31/98 15.13 36.07
8/31/98 11.75 28.02
9/30/98 12.88 31.68
10/31/98 13.69 33.68
11/30/98 14 34.45
12/31/98 13.75 34.82
</TABLE>
----------------------------------------
Annual distribution totals as indicated
----------------------------------------
Adjusted Market Price
Actual Market Price
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.
10 | THE ROYCE FUNDS ANNUAL REPORT 1998
<PAGE>
PERFORMANCE AND PORTFOLIO REVIEW
[bar chart]
DOWN MARKET PERFORMANCE COMPARISON
All Down Periods of 7.5% or Greater, in Percentages (%)
<TABLE>
<CAPTION>
RVT (NAV) Russell 2000
--------------------- ---------------------
<S> <C> <C> <C>
8/25/87- -26.4% 8/25/87- -38.9%
10/28/87 10/28/87
10/9/89- -22.1% 10/9/89- -32.5%
10/31/90 10/31/90
2/12/92- -2.1% 2/12/92- -12.0%
7/8/92 7/8/92
3/18/94- -5.3% 3/18/94- -12.3%
12/9/94 12/9/94
5/22/96- -6.3% 5/22/96- -15.4%
7/24/96 7/24/96
1/22/97- -3.1% 1/22/97- -9.0%
4/25/97 4/25/97
10/31/97- -8.1% 10/31/97- -11.1%
1/12/98 1/12/98
4/21/98- -31.3% 4/21/98- -36.5%
10/8/98 10/8/98
</TABLE>
[END BAR CHART]
Royce Value Trust has outperformed the Russell 2000 during all eight major
downturns since its inception.
<TABLE>
<CAPTION>
- --------------------------------------- ----------------------------------
PORTFOLIO DIAGNOSTICS TOP 10 POSITIONS % of Net Assets
- --------------------------------------- ----------------------------------
<S> <C> <C> <C>
Median Market Cap. $355 million National Computer Systems 1.3%
- --------------------------------------- ----------------------------------
Weighted Average P/E Ratio 15.6x Velcro Industries 1.2
- --------------------------------------- ----------------------------------
Weighted Average P/B Ratio 1.7x Alliance Capital
- --------------------------------------- Management L.P. 1.1
Weighted Average Yield 1.5% ----------------------------------
- --------------------------------------- Charming Shoppes 1.0
Net Assets $677 million ----------------------------------
- --------------------------------------- Medical Assurance 0.9
Turnover Rate 43% ----------------------------------
- --------------------------------------- Dionex Corporation 0.8
Net Leverage+ 15% ----------------------------------
- --------------------------------------- Farmer Bros. 0.8
Symbol -- Market Price RVT ----------------------------------
-- NAV XRVTX Crawford & Company 0.8
- --------------------------------------- ----------------------------------
Unitrode Corporation 0.8
----------------------------------
Florida Rock Industries 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.
[START BAR CHART]
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
PORTFOLIO SECTOR BREAKDOWN With Examples % of Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------|
Industrial Products Building Systems and Components, Construction Materials, Specialty Chemicals and Materials 17.2% |
- ------------------------------------------------------------------------------------------------------------------------------|
- ----------------------------------------------------------------------------------------------------------------------------|
Technology Components and Systems, Software/Services, Semiconductors and Equipment 14.5 |
- ----------------------------------------------------------------------------------------------------------------------------|
- --------------------------------------------------------------------------------------------------------------------------|
Industrial Services Transportation and Logistics, Printing, Engineering and Construction 11.8 |
- --------------------------------------------------------------------------------------------------------------------------|
- ------------------------------------------------------------------------------------------------------------------------|
Consumer Products Home Furnishings/Appliances, Apparel and Shoes, Publishing 10.5 |
- ------------------------------------------------------------------------------------------------------------------------|
- ----------------------------------------------------------------------------------------------------------------------|
Financial Intermediaries Insurance, Banking, Closed-end Funds, Securities Brokers 9.3 |
- ----------------------------------------------------------------------------------------------------------------------|
- --------------------------------------------------------------------------------------------------------------------|
Financial Services Insurance Brokers, Investment Management, Information and Processing 7.8 |
- --------------------------------------------------------------------------------------------------------------------|
- ------------------------------------------------------------------------------------------------------------------|
Natural Resources Oil and Gas, Energy Services, Real Estate 3.7 |
- ------------------------------------------------------------------------------------------------------------------|
- ----------------------------------------------------------------------------------------------------------------|
Consumer Services Retail Stores, Restaurants/Lodging, Leisure/Entertainment 3.0 |
- ----------------------------------------------------------------------------------------------------------------|
- --------------------------------------------------------------------------------------------------------------|
Health Surgical Products and Devices, Drugs and Biotech, Health Services 2.8 |
- --------------------------------------------------------------------------------------------------------------|
- ----------------------------------------------------------------------------------------------------------|
Utilities 0.5 |
- ----------------------------------------------------------------------------------------------------------|
- --------------------------------------------------------------------------------------------------------------|
Miscellaneous 4.8 |
- --------------------------------------------------------------------------------------------------------------|
- ------------------------------------------------------------------------------------------------------------|
Bonds & Preferred Stocks 2.1 |
- ------------------------------------------------------------------------------------------------------------|
- --------------------------------------------------------------------------------------------------------------------------|
Treasuries, Cash & Cash Equivalents 12.0 |
- --------------------------------------------------------------------------------------------------------------------------|
</TABLE>
[END BAR CHART]
<TABLE>
<CAPTION>
- -------------------------------------------
GOOD IDEAS THAT WORKED
1998 Realized and Unrealized Gain
- -------------------------------------------
<S> <C>
Level 3 Communications $ 5,271,475
- -------------------------------------------
National Computer Systems 5,019,005
- -------------------------------------------
Velcro Industries 2,968,297
- -------------------------------------------
LandAmerica Financial Group 2,574,274
- -------------------------------------------
MacDermid Incorporated 2,430,193
- -------------------------------------------
Combined Gain $18,263,244
- -------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------
GOOD IDEAS AT THE TIME
1998 Realized and Unrealized Loss
- -------------------------------------------
<S> <C>
Denbury Resources $ 6,429,892
- -------------------------------------------
DIMON Incorporated 3,331,181
- -------------------------------------------
Standard Commercial Corporation 2,216,392
- -------------------------------------------
Special Metals Corporation 1,657,084
- -------------------------------------------
Willbros Group 1,622,789
- -------------------------------------------
Combined Loss $15,257,338
- -------------------------------------------
</TABLE>
Level 3 Communications -- Our strongest performer at mid-year, Level 3
Communications continued to be recognized in the market. We bought this Internet
pipeline builder in the pink sheets when it was not yet a Nasdaq company, saw
its price triple, and took our profits.
National Computer Systems -- Dominant in the educational testing business for
many years, this company has emerged as a true leader in technology solutions
for both educational and large corporate customers. A long-term core holding in
the Fund, the combination of solid results and market recognition improved not
only the company's business, but also its valuations.
Denbury Resources -- The senior managers of this small energy company have
significant experience at successfully building energy enterprises. Having
suffered from the general collapse in energy prices, we believe that the
talented management team will help this stock to turn around when energy prices
recover.
DIMON Incorporated -- The world's second largest tobacco leaf processor has
suffered from a downturn in its cyclical business, the turmoil in emerging
markets like Brazil and Southeast Asia from which it procures tobacco and the
difficult circumstances surrounding a cautious U.S. customer base that is being
sued by the government. We continue to hold the stock under hopeful assumptions
that cycles turn, emerging markets recover and governments don't put tobacco
companies out of business.
THE ROYCE FUNDS ANNUAL REPORT 1998 | 11
<PAGE>
ROYCE MICRO-CAP TRUST
- --------------------------------------------------------------------------------
[START SIDEBAR]
WHAT WE DO
Royce Micro-Cap Trust ("OTCM") is a closed-end fund that uses a value approach
to invest primarily in a broadly diversified portfolio of companies with market
capitalizations of 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 results reflect the performance difficulties of its
investment universe. 1998 was an especially turbulent year for micro-cap stocks,
marked by increased volatility and underperformance relative to the equity
market as a whole. Investors' preference for larger, more liquid stocks kept
micro-cap companies out of the investment spotlight. For the quarter, the Fund
was up 9.8% on an NAV basis and 13.8% on a market price basis versus 16.3% for
the Russell 2000, the Fund's small-cap benchmark index. For the full year, both
NAV and market price performance (-4.1% and -9.4%) trailed the index (-2.6%). On
an NAV basis, however, OTCM outperformed the Russell 2000 for the three-year,
five-year and since inception (12/14/93) periods.
Although OTCM did not perform as we would have liked in 1998, we remain excited
about the long-term investment opportunities in micro-cap stocks. OTCM now has
five years of performance history and is the only closed-end micro-cap fund
available. The Fund's officers, employees and their affiliates currently own
more than $8 million, or 7.5% of the Fund's Common Stock.
Royce Micro-Cap Trust is now featured in the mutual funds section of
MicroCap1000.com (www.microcap1000.com), a web-site dedicated to the micro-cap
investment universe.
[END SIDEBAR]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NAV AVERAGE ANNUAL TOTAL RETURNS Through 12/31/98
- --------------------------------------------------------------------------------
<S> <C>
4th Quarter 1998* 9.8%
- --------------------------------------------------------------------------------
Jul-Dec 1998* -11.5
- --------------------------------------------------------------------------------
1-Year -4.1
- --------------------------------------------------------------------------------
3-Year 12.4
- --------------------------------------------------------------------------------
5-Year 13.1
- --------------------------------------------------------------------------------
Since Inception (12/14/93) 13.0
- --------------------------------------------------------------------------------
</TABLE>
*Not annualized.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
RISK/RETURN COMPARISON From Inception (12/14/93) Through 12/31/98
- --------------------------------------------------------------------------------
Average Annual Standard
Total Return Deviation RUR
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
OTCM (NAV) 13.0% 12.2 1.07
- --------------------------------------------------------------------------------
Russell 2000 12.5% 16.7 0.75
- --------------------------------------------------------------------------------
Return per Unit of Risk (RUR) is the average annual total return divided by the
annualized standard deviation over a designated time period.
- --------------------------------------------------------------------------------
</TABLE>
Since its inception, Royce Micro-Cap Trust has outperformed the Russell 2000 on
BOTH an absolute and a risk-adjusted basis.
- --------------------------------------------------------------------------------
ROYCE MICRO-CAP TRUST MARKET PRICE -- ACTUAL vs. ADJUSTED*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------
Market Price Total Returns
- --------------------------
<S> <C>
Since Inception = 58.3%
- --------------------------
5 Years = 58.3
- --------------------------
3 Years = 39.3
- --------------------------
1 Year = -9.4
- --------------------------
</TABLE>
Adjusted Market Price
Actual Market Price
[PLOT POINTS]
Royce Micro-Cap Trust Actual vs. Adjusted Market Price Chart
<TABLE>
<CAPTION>
Actual Adjusted
Market Price Market Price
------------ ------------
<S> <C> <C>
12/15/93 7.5 7.5
1/31/94 7.75 7.75
2/28/94 7.5 7.5
3/31/94 6.5 6.5
4/30/94 6.63 6.63
5/31/94 7.13 7.13
6/30/94 6.75 6.75
7/31/94 7 7
8/31/94 7.13 7.13
9/30/94 7 7
10/31/94 7.38 7.38
11/30/94 7.13 7.19
12/31/94 7 7.11
1/31/95 6.75 6.86
2/28/95 7.13 7.24
3/31/95 6.88 6.98
4/30/95 6.88 6.98
5/31/95 7 7.11
6/30/95 7.38 7.49
7/31/95 7.75 7.87
8/31/95 8 8.13
9/30/95 8.38 8.51
10/31/95 7.75 7.87
11/30/95 7.63 7.75
12/31/95 8 8.52
1/31/96 7.75 8.25
2/29/96 7.75 8.25
3/31/96 7.75 8.25
4/30/96 8.38 8.92
5/31/96 8.38 8.92
6/30/96 8.63 9.18
7/31/96 7.75 8.25
8/31/96 7.94 8.45
9/30/96 8 8.52
10/31/96 8 8.52
11/30/96 8.5 9.05
12/31/96 8.25 9.71
1/31/97 7.88 9.3
2/28/97 8 9.41
3/31/97 7.63 8.97
4/30/97 8.13 9.56
5/31/97 8.63 10.15
6/30/97 8.98 10.57
7/31/97 9.06 10.66
8/31/97 9.63 11.32
9/30/97 11.19 13.16
10/31/97 10.88 12.79
11/30/97 10.81 12.72
12/31/97 10.13 13.1
1/31/98 9.75 12.62
2/28/98 10.38 13.43
3/31/98 11.31 13.64
4/30/98 11.13 14.4
5/31/98 10.75 13.91
6/30/98 10.31 13.35
7/31/98 9.75 12.62
8/31/98 7.81 10.11
9/30/98 8.06 10.43
10/31/98 8.25 10.67
11/30/98 8.94 11.56
12/31/98 8.88 11.87
</TABLE>
---------------------------------------
Annual distribution totals as indicated
---------------------------------------
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.
12 | THE ROYCE FUNDS ANNUAL REPORT 1998
<PAGE>
PERFORMANCE AND PORTFOLIO REVIEW
- --------------------------------------------------------------------------------
[bar chart]
DOWN MARKET PERFORMANCE COMPARISON
All Down Periods of 7.5% or Greater, in Percentages (%)
<TABLE>
<CAPTION>
OTCM (NAV) Russell 2000
--------------------- ---------------------
<S> <C> <C> <C>
3/18/94- -0.4% 3/18/94- -12.3%
12/9/94 12/9/94
5/22/96- -6.8% 5/22/96- -15.4%
7/24/96 7/24/96
1/22/97- -3.4% 1/22/97- -9.0%
4/25/97 4/25/97
10/31/97- -7.4% 10/31/97- -11.3%
1/12/98 1/12/98
4/21/98- -29.9% 4/21/98- -36.5%
10/8/98 10/8/98
</TABLE>
[END BAR CHART]
Royce Micro-Cap Trust has outperformed the Russell 2000 during all five major
downturns since its inception.
<TABLE>
<CAPTION>
- --------------------------------------- ---------------------------------
PORTFOLIO DIAGNOSTICS TOP 10 POSITIONS % of Net Assets
- --------------------------------------- ---------------------------------
<S> <C> <C> <C>
Median Market Cap. $166 million Midwest Grain Products 1.5%
- --------------------------------------- ---------------------------------
Weighted Average P/E Ratio 13.7x Matthews International
- --------------------------------------- Corporation Cl.A 1.5
Weighted Average P/B Ratio 1.5x ---------------------------------
- --------------------------------------- 800-JR CIGAR 1.3
Weighted Average Yield 1.3% ---------------------------------
- --------------------------------------- REMEC 1.2
Net Assets $175 million ---------------------------------
- --------------------------------------- Duff & Phelps Credit Rating 1.1
Turnover Rate 44% ---------------------------------
- --------------------------------------- Advanced Energy Industries 1.1
Net Leverage+ 5% ---------------------------------
- --------------------------------------- Oshkosh B'Gosh Cl. A 1.1
Symbol -- Market Price OTCM ---------------------------------
-- NAV XOTCX Velcro Industries 1.0
- --------------------------------------- ---------------------------------
Ash Grove Cement Company 1.0
---------------------------------
New England Business Service 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.
[START BAR GRAPH]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PORTFOLIO SECTOR BREAKDOWN With Examples % of Net Assets
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
- --------------------------------------------------------------------------------------------------------------------------|
Industrial Products Building Systems and Components, Construction Materials, Specialty Chemicals and Materials 19.2% |
- --------------------------------------------------------------------------------------------------------------------------|
- --------------------------------------------------------------------------------------------------------------------|
Technology Components and Systems, Software/Services, Semiconductors and Equipment 14.9 |
- --------------------------------------------------------------------------------------------------------------------|
- ---------------------------------------------------------------------------------------------------------------|
Consumer Products Home Furnishings/Appliances, Apparel and Shoes, Publishing 13.4 |
- ---------------------------------------------------------------------------------------------------------------|
- -----------------------------------------------------------------------------------------------------------|
Industrial Services Transportation and Logistics, Printing, Engineering and Construction 10.9 |
- -----------------------------------------------------------------------------------------------------------|
- -------------------------------------------------------------------------------------------------------|
Financial Intermediaries Insurance, Banking, Closed-end Funds, Securities Brokers 6.3 |
- -------------------------------------------------------------------------------------------------------|
- -------------------------------------------------------------------------------------------------|
Consumer Services Retail Stores, Restaurants/Lodging, Leisure/Entertainment 3.4 |
- -------------------------------------------------------------------------------------------------|
- ------------------------------------------------------------------------------------------------|
Health Surgical Products and Devices, Drugs and Biotech, Health Services 3.3 |
- ------------------------------------------------------------------------------------------------|
- ----------------------------------------------------------------------------------------------|
Natural Resources Oil and Gas, Energy Services, Real Estate 3.0 |
- ----------------------------------------------------------------------------------------------|
- ---------------------------------------------------------------------------------------------|
Financial Services Insurance Brokers, Investment Management, Information and Processing 1.5 |
- ---------------------------------------------------------------------------------------------|
- ------------------------------------------------------------------------------------------------------|
Miscellaneous 4.6 |
- ------------------------------------------------------------------------------------------------------|
- ----------------------------------------------------------------------|
Preferred Stock 0.4 |
- ----------------------------------------------------------------------|
- --------------------------------------------------------------------------------------------------------------------------|
Treasuries, Cash & Cash Equivalents 19.1 |
- --------------------------------------------------------------------------------------------------------------------------|
</TABLE>
[END BAR GRAPH]
<TABLE>
<CAPTION>
- -----------------------------------------
GOOD IDEAS THAT WORKED
1998 Realized and Unrealized Gain
- -----------------------------------------
<S> <C>
REMEC $1,153,691
- -----------------------------------------
Advanced Energy Industries 1,132,298
- -----------------------------------------
MovieFone Cl. A 1,103,528
- -----------------------------------------
800-JR CIGAR 1,007,575
- -----------------------------------------
International Isotopes 964,328
- -----------------------------------------
Combined Gain $5,361,420
- -----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------
GOOD IDEAS AT THE TIME
1998 Realized and Unrealized Loss
- -----------------------------------------
<S> <C>
Denbury Resources $1,085,985
- -----------------------------------------
RockShox 987,388
- -----------------------------------------
Perceptron 966,934
- -----------------------------------------
Willbros Group 917,378
- -----------------------------------------
Axiohm Transaction Solutions 720,428
- -----------------------------------------
Combined Loss $4,678,113
- -----------------------------------------
</TABLE>
REMEC -- This small microwave component manufacturer suffered from declining
orders as a result of problems in Southeast Asia and as a result we were able to
buy this stock at a very attractive price. They have a solid business with the
military and it now appears as if their commercial business is recovering, which
has caused a dramatic reversal in share price performance.
MovieFone Cl. A -- Patience paid off in 1998 as this company was discovered by
investors looking for promising Internet plays. MovieFone, which provides
information for moviegoers, successfully migrated to the web with a business
model that may actually be profitable -- unlike many Internet companies.
Denbury Resources -- The senior managers of this small energy company have
significant experience at successfully building energy enterprises. Having
suffered from the general collapse in energy prices, we believe that the
talented management team will help this stock to turn around when energy prices
recover.
Perceptron -- This leading manufacturer of three-dimensional image units for
automobile-inspections robots continued to suffer from difficult product
transition cycles. That drove this stock from a high of $30 all the way down to
$6. We have increased our position due to our confidence in this company's
ability to develop new products and technology.
THE ROYCE FUNDS ANNUAL REPORT 1998 | 13
<PAGE>
ROYCE GLOBAL TRUST
- --------------------------------------------------------------------------------
[START SIDEBAR]
WHAT WE DO
Royce Global Trust ("FUND") is a closed-end fund that invests primarily in a
limited number of domestic and foreign companies, selected using a value
approach. While it is not restricted as to stock market capitalization, Royce
focuses the Fund's investments primarily in small-cap companies with significant
business activities in the United States. Normally, at least 65% of the assets
will be invested in the securities of companies of at least three countries,
including the United States.
HOW WE DID
Royce Global Trust's more concentrated approach produced out-of-sync returns
relative to its small-cap benchmark index for the fourth quarter and for the
year. In the fourth quarter, the Fund generated NAV and market price total
returns of 5.4% and 1.3% and for the full year returns of -6.8% and -3.7%,
respectively. The Russell 2000's returns for these periods were 16.3% and -2.6%,
respectively.
Several sectors, including natural resources, consumer products and industrial
products were mired in performance difficulties. Although we were disappointed
with the performance of the domestic small-cap sector in general and FUND in
particular, we are excited about the long-term prospects for both. The
significant small-cap downturn from April 21, 1998 through October 8, 1998
created numerous investment opportunities for the Fund, which we believe can
potentially translate into future performance.
The Fund's officers, employees and their affiliates increased their commitment
during the quarter and now own more than $4 million, or 10%, of the Fund's
Common Stock.
[END SIDEBAR]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NAV AVERAGE ANNUAL TOTAL RETURNS Through 12/31/98
- --------------------------------------------------------------------------------
<S> <C>
4th Quarter 1998* 5.4%
- --------------------------------------------------------------------------------
Jul-Dec 1998* -12.4
- --------------------------------------------------------------------------------
1-Year -6.8
- --------------------------------------------------------------------------------
Since Inception** (11/1/96) 7.7
- --------------------------------------------------------------------------------
</TABLE>
*Not annualized.
**Royce & Associates assumed investment management responsibility for the Fund
on 11/1/96.
- --------------------------------------------------------------------------------
ROYCE GLOBAL TRUST MARKET PRICE -- ACTUAL vs. ADJUSTED*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------
Market Price Total Returns
- ---------------------------
<S> <C>
Since 6/25/96 = 28.2%
- ---------------------------
Since 11/1/96 = 22.7
- ---------------------------
1 Year = -3.7
- ---------------------------
</TABLE>
Adjusted Market Price
Actual Market Price
[PLOT POINTS]
Royce Global Trust Actual vs. Adjusted Market Price Chart
<TABLE>
<CAPTION>
Actual Adjusted
Market Price Market Price
------------ ------------
<S> <C> <C>
6/15/96 4.19 4.19
7/31/96 4.19 4.19
8/31/96 4.13 4.13
9/30/96 4.13 4.13
10/31/96 4.38 4.38
11/30/96 4.66 4.66
12/31/96 4.59 4.59
1/31/97 4.75 4.75
2/28/97 4.56 4.56
3/31/97 4.88 4.88
4/30/97 4.72 4.72
5/31/97 4.81 4.81
6/30/97 5 5
7/31/97 5.28 5.28
8/31/97 5.44 5.44
9/30/97 6.06 6.06
10/31/97 5.69 5.69
11/30/97 5.69 5.69
12/31/97 5.06 5.57
1/31/98 5.13 5.64
2/28/98 5.25 5.78
3/31/98 5.66 6.23
4/30/98 5.94 6.54
5/31/98 5.66 6.23
6/30/98 5.5 6.05
7/31/98 5.56 6.12
8/31/98 4.38 4.82
9/30/98 4.81 5.3
10/31/98 4.63 5.09
11/30/98 4.81 5.3
12/31/98 4.88 5.37
</TABLE>
---------------------------------------
Annual distribution totals as indicated
---------------------------------------
* Reflects market price total return experience of a continuous stockholder who
reinvested all distributions. This graph illustrates the market price change
from $4.1875 on 6/25/96, the date the Fund's Board announced its
recommendation that stockholders approve the assumption by Royce & Associates
of investment management responsibility for the Fund.
- --------------------------------------------------------------------------------
ROYCE GLOBAL TRUST MARKET CAPITALIZATION BREAKDOWN* As of December 31, 1998
- --------------------------------------------------------------------------------
[START BAR GRAPH]
-------------------------------|
[more than sign]$1,000 - 25%|
-------------------------------|
----------------------------------|
$500-$1,000 - 28%|
----------------------------------|
-------------------------------------------|
$300-$500 - 32%|
-------------------------------------------|
----------------------|
[less than sign]$300 - 18%|
----------------------|
--------------------------------------------------------
0% 10% 20% 30% 40%
% of Portfolio
- --------------------------------------------------------------------------------
*in millions
[END BAR GRAPH]
14 | THE ROYCE FUNDS ANNUAL REPORT 1998
<PAGE>
PERFORMANCE AND PORTFOLIO REVIEW
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------
PORTFOLIO DIAGNOSTICS
- ------------------------------------------
<S> <C>
Median Market Cap. $654 million
- ------------------------------------------
Weighted Average P/E Ratio 15.7x
- ------------------------------------------
Weighted Average P/B Ratio 1.6x
- ------------------------------------------
Weighted Average Yield 1.9%
- ------------------------------------------
Top 3 Countries:
U.S. (79%), Canada (4%), Belize (2%)
- ------------------------------------------
Net Assets $67 million
- ------------------------------------------
Turnover Rate 90%
- ------------------------------------------
Net Leverage+ 10%
- ------------------------------------------
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 5.3%
- ------------------------------------------
Enesco Group 4.5
- ------------------------------------------
Morrison Knudsen Corporation 4.1
- ------------------------------------------
Kaydon Corporation 3.9
- ------------------------------------------
Medical Assurance 3.6
- ------------------------------------------
Gibson Greetings 3.5
- ------------------------------------------
Oakley 3.5
- ------------------------------------------
Trenwick Group 3.0
- ------------------------------------------
E.W. Blanch Holdings 2.7
- ------------------------------------------
New England Business Service 2.7
- ------------------------------------------
</TABLE>
[START BAR GRAPH]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PORTFOLIO SECTOR BREAKDOWN With Examples % of Net Assets
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------|
Industrial Products Building Systems and Components, Construction Materials, Specialty Chemicals and Materials 13.8% |
- -----------------------------------------------------------------------------------------------------------------------|
- -----------------------------------------------------------------------------------------------------------|
Industrial Services Transportation and Logistics, Printing, Engineering and Construction 11.9 |
- -----------------------------------------------------------------------------------------------------------|
- --------------------------------------------------------------------------------------------------------|
Consumer Products Home Furnishings/Appliances, Apparel and Shoes, Publishing 11.5 |
- --------------------------------------------------------------------------------------------------------|
- ----------------------------------------------------------------------------------------------------|
Financial Intermediaries Insurance, Banking, Closed-end Funds, Securities Brokers 8.3 |
- ----------------------------------------------------------------------------------------------------|
- -------------------------------------------------------------------------------------------------|
Financial Services Insurance Brokers, Investment Management, Information and Processing 8.1 |
- -------------------------------------------------------------------------------------------------|
- -----------------------------------------------------------------------------------------------|
Technology Components and Systems, Software/Services, Semiconductors and Equipment 7.9 |
- -----------------------------------------------------------------------------------------------|
- --------------------------------------------------------------------------------------------|
Natural Resources Oil and Gas, Energy Services, Real Estate 7.1 |
- --------------------------------------------------------------------------------------------|
- -----------------------------------------------------------------------------------------|
Consumer Services Retail Stores, Restaurants/Lodging, Leisure/Entertainment 6.6 |
- -----------------------------------------------------------------------------------------|
- -------------------------------------------------------------------------------------|
Health Surgical Products and Devices, Drugs and Biotech, Health Services 2.2 |
- -------------------------------------------------------------------------------------|
- -----------------------------------------------------------------------------------------------------------------------------|
Treasuries, Cash & Cash Equivalents 22.6 |
- -----------------------------------------------------------------------------------------------------------------------------|
</TABLE>
[END BAR GRAPH]
<TABLE>
<CAPTION>
- ------------------------------------------
GOOD IDEAS THAT WORKED
1998 Realized and Unrealized Gain
- ------------------------------------------
<S> <C>
Level 3 Communications $1,231,056
- ------------------------------------------
National Computer Systems 1,031,803
- ------------------------------------------
EarthWeb 1,017,858
- ------------------------------------------
Ryanair Holdings ADR 662,566
- ------------------------------------------
Kaydon Corporation 630,352
- ------------------------------------------
Combined Gain $4,573,635
- ------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------
GOOD IDEAS AT THE TIME
1998 Realized and Unrealized Loss
- ------------------------------------------
<S> <C>
Gibson Greetings $1,511,525
- ------------------------------------------
Denbury Resources 804,997
- ------------------------------------------
The Pioneer Group 798,763
- ------------------------------------------
Willbros Group 793,141
- ------------------------------------------
Input Output 691,829
- ------------------------------------------
Combined Loss $4,600,255
- ------------------------------------------
</TABLE>
Level 3 Communications -- Our strongest performer at mid-year, Level 3
Communications continued to be recognized in the market. We bought this Internet
pipeline builder in the pink sheets when it was not yet a Nasdaq company, saw
its price triple, and took our profits.
National Computer Systems -- Dominant in the educational testing business for
many years, this company has emerged as a true leader in technology solutions
for both educational and large corporate customers. A long-term core holding in
the Fund, the combination of solid results and market recognition improved not
only the company's business, but also its valuations.
Gibson Greetings -- A multiple of new products and new ventures in 1998 were not
enough to overcome a difficult competitive landscape in the greeting-card
industry, while near-term earnings disappointments caused the stock to trade at
a fraction of its book value. Although a losing proposition so far, we remain
encouraged by the company's strong balance sheet, large cash position and highly
motivated and very creative management team.
Denbury Resources -- The senior managers of this small energy company have
significant experience at successfully building energy enterprises. We sold our
position to realize the tax loss, not due to a lack of confidence in the
company, whose valuations may become attractive again in the future.
THE ROYCE FUNDS ANNUAL REPORT 1998 | 15
<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
11/26/86 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
- ----------------------------------------------------------------------------------------------------------------
12/31/98 $16,322 3,455 $54,313 $47,506
- ----------------------------------------------------------------------------------------------------------------
Royce Micro-Cap Trust
12/14/93 Initial Purchase $ 7,500 $ 7.500 1,000 $ 7,250 $ 7,500
10/28/94 Rights Offering 1,400 7.000 200
12/19/94 Distribution $0.05 6.750 9 9,163 8,462
12/7/95 Distribution $0.36 7.500 58 11,264 10,136
12/6/96 Distribution $0.80 7.625 133 13,132 11,550
12/5/97 Distribution $1.00 10.000 140 16,694 15,593
12/7/98 Distribution $0.29 52
- ----------------------------------------------------------------------------------------------------------------
12/31/98 $ 8,900 1,592 $16,016 $14,129
- ----------------------------------------------------------------------------------------------------------------
Royce Global Trust
10/31/96 Initial Purchase $ 4,375 $ 4.375 1,000 $ 5,280 $ 4,375
12/31/96 5,520 4,594
12/5/97 Distribution $0.53 5.250 101 6,650 5,574
- ----------------------------------------------------------------------------------------------------------------
12/31/98 $ 4,375 1,101 $ 6,199 $ 5,367
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
* Other than for initial purchase, values are stated as of December 31 of
the year indicated, after reinvestment of distributions.
16 | THE ROYCE FUNDS ANNUAL REPORT 1998
<PAGE>
DISTRIBUTION REINVESTMENT AND CASH PURCHASE OPTIONS FOR COMMON STOCKHOLDERS
- --------------------------------------------------------------------------------
WHY SHOULD I REINVEST MY DISTRIBUTIONS?
By reinvesting distributions, a stockholder can maintain an undiluted
investment in the Fund. The regular reinvestment of distributions has a
significant impact on stockholder returns. In contrast, the stockholder who
takes distributions in cash is penalized when shares are issued below net asset
value to other stockholders.
HOW DOES THE REINVESTMENT OF DISTRIBUTIONS FROM THE ROYCE CLOSED-END FUNDS WORK?
Simply put, the Funds automatically issue shares in payment of
distributions unless you indicate otherwise. The shares are issued at the lower
of the market price or net asset value on the valuation date.
HOW DOES THIS APPLY TO REGISTERED STOCKHOLDERS?
If your shares are registered directly with a Fund, your distributions are
automatically reinvested unless you have otherwise instructed the Funds'
custodian, State Street Bank and Trust Company, in writing. A registered
stockholder also has the option to receive the distribution in the form of a
stock certificate or in cash if State Street is properly notified.
WHAT IF MY SHARES ARE HELD BY A BROKERAGE FIRM OR A BANK?
If your shares are held 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 Investor Services Representatives at (800) 221-4268 or you can
request a copy of the Plan for your Fund from State Street. All correspondence
(including notifications) should be directed to: [Name of Fund] Distribution
Reinvestment and Cash Purchase Plan, c/o State Street Bank and Trust Company, PO
Box 8200, Boston, MA 02266-8200, telephone (800) 426-5523.
THE ROYCE FUNDS ANNUAL REPORT 1998 | 17
<PAGE>
UPDATES AND NOTES TO PERFORMANCE AND RISK INFORMATION
- --------------------------------------------------------------------------------
[Graphic of Computer and Keyboard with "The Royce Funds" on monitor]
NEW @ www.roycefunds.com
New this quarter on our website is the addition of Fund prices for our
open- and closed-end funds. Fund prices are updated daily on the site and can be
found in the Performance/Diagnostics/Prices section. Our What's New column
continues to be popular. What's New is updated each week on Mondays and features
fund updates, market commentary and Chuck Royce's latest thoughts.
Y2K UPDATE
Royce & Associates recently filed its report on Year 2000 (Y2K) readiness
(Form ADV-Y2K), as required by the U.S. Securities and Exchange Commission. Form
ADV-Y2K -- which is available on our website in Up-to-the-Minute's Recent
Developments section -- 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 the Y2K readiness of third parties upon which Royce and its
clients may be relying to perform mission critical services. Royce and the Funds
are working to ensure that our systems and those of our service providers are
Y2K compliant, and we do not anticipate that any Y2K 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 and participation in primary
subscriptions of any rights offerings. Past performance is no guarantee of
future results. Share prices will fluctuate, so that shares may be worth more or
less than their original cost when sold. There can be no assurance that
securities mentioned in this report will be included in any Royce-managed
portfolio in the future.
Morningstar proprietary risk ratio measures a fund's downside volatility
relative to all equity funds, which have an average score of 1.00. The average
score for the 37 funds in the closed-end domestic equity objective category with
a three-year history was 1.09 for the three years ended 12/31/98. The lower the
risk ratio, the lower a fund's downside volatility has been. The risk scores for
Royce Value Trust and Royce Micro-Cap Trust for this period were 0.98 and 1.02,
respectively. Standard deviation is a statistical measure within which a fund's
total returns have varied over time. The greater the standard deviation, the
greater a fund's volatility. The Russell 2000, Nasdaq Composite, Nasdaq 100,
Nasdaq Industrials, S&P 500, S&P 600 and Dow Jones Industrial Average are
unmanaged indices of domestic common stocks. The Royce Funds is a service mark
of The Royce Funds.
The Boards of Directors have given Royce Value Trust's, Royce Micro-Cap
Trust's and Royce Global 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
Global Trust are authorized to offer stockholders an opportunity to subscribe
for additional shares of common stock of the Fund through rights offerings at a
price per share that may be less than the then current net asset value of the
Fund's common stock. The timing and terms of any such offering are left to the
Board's discretion.
- --------------------------------------------------------------------------------
18 | THE ROYCE FUNDS ANNUAL REPORT 1998
<PAGE>
ROYCE VALUE TRUST, INC. DECEMBER 31, 1998
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
COMMON STOCKS -- 85.9%
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Consumer Products -- 10.5%
Apparel and Shoes - 2.5%
Garan Incorporated 116,300 $3,270,938
K-Swiss Cl. A 135,200 3,633,500
Marisa Christina, Incorporated* 62,600 89,987
Oshkosh B'Gosh Cl. A 198,800 4,013,275
St. John Knits 85,600 2,225,600
Weyco Group 159,400 4,044,775
----------
17,278,075
----------
Collectibles - 0.5%
Enesco Group 137,100 3,187,575
----------
Food/Beverage/Tobacco - 0.7%
800-JR CIGAR* 86,000 1,999,500
Hershey Creamery Company 643 1,607,500
J & J Snack Foods* 5,000 111,875
WLR Foods* 106,577 959,193
----------
4,678,068
----------
Home Furnishings/Appliances - 1.8%
Bassett Furniture Industries 136,387 3,290,336
Burnham Corporation Cl. A 42,514 1,615,532
Burnham Corporation Cl. B 18,000 684,000
Conso International Corporation* 174,175 1,023,278
Ethan Allen Interiors 24,500 1,004,500
La-Z-Boy 28,200 502,313
Lifetime Hoan Corporation 221,069 2,155,423
The Rival Company 160,000 2,150,000
Semi-Tech Corporation Cl. A* 260,600 15,636
----------
12,441,018
----------
Publishing - 0.9%
Gibson Greetings* 111,700 1,326,437
The Reader's Digest Association Cl. A 5,000 125,938
Scholastic Corporation* 6,200 332,475
The Topps Company* 821,700 4,108,500
----------
5,893,350
----------
Sports and Recreation - 1.6%
Johnson Worldwide Associates Cl. A* 251,800 2,329,150
Oakley* 187,800 1,772,362
++RockShox* 1,101,000 2,821,313
Sturm, Ruger & Company 322,000 3,843,875
----------
10,766,700
----------
Other Consumer Products - 2.5%
Lazare Kaplan International* 190,100 1,330,700
Marvel Enterprises* 250,900 1,552,444
Matthews International
Corporation Cl. A 115,200 3,628,800
The L. S. Starrett Company Cl. A 73,700 2,528,831
Velcro Industries 54,200 8,075,800
----------
17,116,575
----------
71,361,361
==========
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Consumer Services -- 3.0%
Direct Marketing - 0.1%
Amway Japan ADR+ 154,500 $ 830,437
----------
Leisure/Entertainment - 0.3%
Linea Aerea Nacional Chile ADR*+ 10,000 47,500
Seattle Filmworks* 481,887 2,228,727
----------
2,276,227
----------
Restaurants/Lodging - 0.9%
Applebee's International 118,000 2,433,750
Buffets* 178,850 2,135,022
Lone Star Steakhouse & Saloon* 60,000 551,250
Papa John's International* 5,000 220,625
Sbarro* 24,200 633,738
----------
5,974,385
----------
Retail Stores - 1.6%
Abercrombie & Fitch Cl. A* 1,000 70,750
Catherines Stores Corporation* 214,300 2,330,512
Charming Shoppes* 801,000 3,454,313
Claire's Stores 2,400 49,200
Family Dollar Stores 4,700 103,400
Little Switzerland* 60,000 138,750
Mikasa 168,900 2,153,475
Pier 1 Imports 17,500 169,531
Sunglass Hut International* 325,400 2,277,800
Suzy Shier 10,000 62,152
----------
10,809,883
----------
Other Consumer Services - 0.1%
Groupe AB ADR*+ 51,500 99,781
----------
19,990,713
==========
Financial Intermediaries -- 9.3%
Banking - 1.4%
Boston Private Financial Holdings* 10,000 85,000
The First National Bank of
Anchorage 2,100 2,205,000
The Mechanics Bank* 200 2,620,000
National Bancorp of Alaska 73,880 2,493,450
Oriental Financial Group 68,000 2,129,250
----------
9,532,700
----------
Insurance - 7.8%
Alleghany Corporation* 13,705 2,574,827
Baldwin & Lyons Cl. B 126,000 3,118,500
CNA Surety Corporation* 20,000 315,000
Capitol Transamerica Corporation 118,415 2,212,880
Chicago Title Corporation 49,415 2,319,417
The Commerce Group 49,318 1,747,707
Erie Indemnity Company Cl. A 17,000 531,250
Fremont General Corporation 76,700 1,898,325
Fund American Enterprises
Holdings 18,400 2,577,150
</TABLE>
THE ROYCE FUNDS ANNUAL REPORT 1998 | 19
<PAGE>
ROYCE VALUE TRUST, INC. DECEMBER 31, 1998
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Financial Intermediaries (continued)
Insurance (continued)
Highlands Insurance Group* 147,500 $1,926,719
Independence Holding Company 56,664 793,296
Leucadia National Corporation 4,500 141,750
Markel Corporation* 2,200 398,200
Medical Assurance* 188,068 6,218,002
NYMAGIC 59,400 1,232,550
Nobel Insurance Limited 121,500 94,922
Old Guard Group 148,000 2,127,500
Orion Capital Corporation 50,874 2,025,421
PMA Capital Cl.A 193,400 3,783,387
PXRE Corporation 178,710 4,478,919
Philadelphia Consolidated
Holdings* 9,200 208,150
RLI 26,662 886,512
Trenwick Group 111,850 3,649,106
Wesco Financial Corporation 11,490 4,076,077
Zenith National Insurance 170,700 3,947,438
----------
53,283,005
----------
Securities Brokers - 0.1%
Legg Mason 8,666 273,521
Raymond James Financial 7,500 158,437
----------
431,958
----------
63,247,663
==========
Financial Services -- 7.8%
Information and Processing - 1.4%
BARRA* 55,000 1,299,375
Duff & Phelps Credit Rating 74,600 4,089,013
Fair Isaac and Company,
Incorporated 50,400 2,327,850
Investors Financial Services
Corporation 26,259 1,565,693
----------
9,281,931
----------
Insurance Brokers - 2.7%
E.W. Blanch Holdings 85,900 4,074,881
Clark/Bardes Holdings* 90,900 1,533,937
Crawford & Company Cl. A 327,350 4,378,306
Crawford & Company Cl. B 75,300 1,162,444
Arthur J. Gallagher & Co. 101,900 4,496,338
Hilb, Rogal & Hamilton Company 146,075 2,903,241
----------
18,549,147
----------
Investment Management - 3.7%
Affiliated Managers Group* 97,000 2,897,875
Alliance Capital Management L.P. 295,400 7,606,550
Eaton Vance 161,800 3,377,575
The John Nuveen Company Cl. A 26,400 980,100
Lexington Global Asset Managers* 21,100 81,762
NVEST L.P. 81,400 2,263,938
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
PIMCO Advisors Holdings L.P. 112,740 $3,509,032
Phoenix Investment Partners 202,700 1,710,281
The Pioneer Group 103,600 2,046,100
SEI Investments Company 2,000 198,750
U.S. Global Investors Cl. A* 249,205 389,383
----------
25,061,346
----------
52,892,424
==========
Health -- 2.8%
Commercial Services - 0.5%
IDEXX Laboratories* 35,000 941,719
PAREXEL International Corporation* 75,500 1,887,500
Henry Schein* 5,000 223,750
----------
3,052,969
----------
Drugs and Biotech - 1.0%
Biogen* 7,000 581,000
Centocor* 55,000 2,481,875
Cerus Corporation* 26,800 562,800
Genzyme (General Division)* 40,000 1,990,000
Genzyme Molecular Oncology 4,322 14,046
Genzyme (Tissue Repair)* 15,300 34,425
Guilford Pharmaceuticals* 20,000 285,000
IDEC Pharmaceuticals
Corporation* 20,000 940,000
U.S. Bioscience* 10,000 71,875
----------
6,961,021
----------
Health Services - 0.2%
Jenny Craig* 278,400 1,670,400
----------
Personal Care - 0.2%
Chattem* 10,000 478,750
Jean-Philippe Fragrances* 84,300 516,337
Rexall Sundown* 10,000 140,000
----------
1,135,087
----------
Surgical Products and Devices - 0.9%
Biomet 5,000 201,250
Haemonetics Corporation* 175,200 3,985,800
Nitinol Medical Technologies* 265,600 996,000
Spacelabs Medical* 39,400 906,200
----------
6,089,250
----------
18,908,727
==========
Industrial Products -- 17.2%
Building Systems and Components - 4.2%
Decker Manufacturing Corporation 6,022 313,144
Falcon Products 158,800 1,905,600
International Aluminum
Corporation 63,700 1,883,131
Juno Lighting 102,800 2,402,950
Kimball International Cl. B 168,580 3,203,020
Paul Mueller Company 53,200 2,147,950
</TABLE>
20 | THE ROYCE FUNDS ANNUAL REPORT 1998
<PAGE>
ROYCE VALUE TRUST, INC. DECEMBER 31, 1998
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Industrial Products (continued)
Building Systems and Components (continued)
Preformed Line Products Company 82,600 $ 2,312,800
Simpson Manufacturing Co.* 126,700 4,743,331
Skyline Corporation 142,700 4,637,750
**Thermal Industries* 42,586 638,790
Thor Industries 154,950 3,951,225
-----------
28,139,691
-----------
Construction Materials - 2.3%
Ameron International
Corporation 13,000 481,000
Ash Grove Cement Company Cl. B 50,518 4,622,397
CalMat 56,600 1,747,525
Florida Rock Industries 166,000 5,146,000
Puerto Rican Cement Company 96,300 3,364,481
-----------
15,361,403
-----------
Industrial Components - 0.1%
Woodhead Industries 45,400 590,200
-----------
Machinery - 2.2%
Atchison Casting Corporation* 58,600 542,050
Federal Signal Corporation 9,000 246,375
Lincoln Electric Holdings 227,980 5,072,555
Lund International Holdings* 136,100 1,156,850
Nordson Corporation 41,100 2,111,513
Oshkosh Truck Corporation Cl. B 141,500 4,687,187
Tecumseh Products Company Cl. A 28,300 1,319,488
-----------
15,136,018
-----------
Paper and Packaging - 1.9%
CLARCOR 14,550 291,000
P. H. Glatfelter Company 67,700 837,787
Liqui-Box Corporation 66,778 3,472,456
Mercer International 13,000 88,563
PalEx* 234,800 1,775,675
Peak International Limited* 122,300 1,024,262
Shorewood Packaging
Corporation* 250,950 5,144,475
-----------
12,634,218
-----------
Pumps, Valves and Bearings - 1.3%
ConBraCo Industries* 7,630 4,120,200
Denison International ADR*+ 10,000 125,000
Kaydon Corporation 104,800 4,198,550
Robroy Industries Cl. A 51,270 717,780
-----------
9,161,530
-----------
Specialty Chemicals and Materials - 2.9%
Aceto Corporation 50,010 662,632
Brady Corporation Cl. A 111,100 2,992,756
Chemfab Corporation* 133,219 2,755,968
Hawkins Chemical 301,278 3,012,780
LeaRonal 89,475 3,030,966
Lilly Industries Cl. A 152,983 3,050,099
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
MacDermid, Incorporated 72,331 $ 2,829,950
Quaker Chemical Corporation 66,950 1,205,100
-----------
19,540,251
-----------
Textiles - 1.3%
Delta Woodside Industries 125,400 752,400
Fab Industries 152,800 3,285,200
++Thomaston Mills Cl. A 327,800 1,044,863
Unifi 175,500 3,433,219
Wellman 15,000 152,813
-----------
8,668,495
-----------
Other Industrial Products - 1.0%
BHA Group Holdings 143,209 1,987,025
Baldor Electric Company 22,000 445,500
Landauer 112,900 3,655,137
Myers Industries 31,693 909,193
Quixote Corporation 1,900 23,394
-----------
7,020,249
-----------
116,252,055
===========
Industrial Services -- 11.8%
Advertising/Publishing - 0.8%
Grey Advertising 9,617 3,500,588
True North Communications 63,000 1,693,125
-----------
5,193,713
-----------
Commercial Services - 1.2%
BHI Corporation* 83,700 2,573,775
CDI* 39,800 803,463
Catalina Marketing Corporation* 5,000 341,875
Cornell Corrections* 85,400 1,622,600
Fisher Companies 16,096 1,062,336
The Olsten Corporation 153,600 1,132,800
Open Plan Systems* 145,000 326,250
-----------
7,863,099
-----------
Engineering and Construction - 2.3%
Dames & Moore 32,800 422,300
Insituform Technologies Cl. A* 177,100 2,567,950
Morrison Knudsen Corporation* 214,100 2,087,475
Sevenson Environmental Services 265,720 2,258,620
Stone & Webster 99,900 3,321,675
Todd Shipyards Corporation* 39,200 186,200
The Turner Corporation* 110,700 2,027,194
Willbros Group* 426,500 2,372,406
-----------
15,243,820
-----------
Food/Tobacco Processors - 1.6%
DIMON Incorporated 195,300 1,452,544
Farmer Bros. 26,000 5,564,000
Seaboard Corporation 3,750 1,582,500
Standard Commercial Corporation 282,501 2,418,915
-----------
11,017,959
-----------
</TABLE>
THE ROYCE FUNDS ANNUAL REPORT 1998 | 21
<PAGE>
ROYCE VALUE TRUST, INC. DECEMBER 31, 1998
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Industrial Services (continued)
Industrial Distribution - 1.2%
Central Steel & Wire Company 3,699 $2,633,688
TBC Corporation* 98,000 698,250
Treadco* 67,100 452,925
Vallen Corporation* 202,929 4,058,580
----------
7,843,443
----------
Printing - 1.9%
Bowne & Co. 97,200 1,737,450
Ennis Business Forms 199,100 1,978,556
Merrill Corporation 168,000 3,244,500
New England Business Service 86,000 3,364,750
The Standard Register Company 92,700 2,867,906
----------
13,193,162
----------
Transportation and Logistics - 2.8%
Air Express International
Corporation 140,268 3,050,829
AirNet Systems* 112,200 1,612,875
Arnold Industries 233,648 3,767,574
Circle International Group 238,125 4,881,563
Kenan Transport Company 47,000 1,574,500
The Pittston BAX Group 264,300 2,940,338
Ryanair Holdings ADR*+ 38,300 1,445,825
----------
19,273,504
----------
79,628,700
==========
Natural Resources -- 3.7%
Energy Services - 0.9%
Carbo Ceramics 129,400 2,264,500
Global Industries* 111,200 681,100
Helmerich & Payne 115,200 2,232,000
Lufkin Industries 22,000 407,000
Nabors Industries* 5,000 67,813
++Peerless Mfg. 79,300 882,212
----------
6,534,625
----------
Metals and Mining - 0.1%
MK Gold Company* 517,900 291,319
----------
Oil and Gas - 2.0%
Barrett Resources* 137,200 3,292,800
Denbury Resources* 876,500 3,560,781
Devon Energy Corporation 100,500 3,084,094
PetroCorp Incorporated* 121,900 700,925
Titan Exploration* 406,500 2,667,656
Toreador Royalty Corporation* 97,100 303,438
Valley National Gases* 30,100 169,312
----------
13,779,006
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Real Estate - 0.7%
Alico 72,700 $1,308,600
Consolidated-Tomoka Land 7,800 110,175
FRP Properties* 119,900 3,237,300
Resurgence Properties* 143,400 7,170
----------
4,663,245
----------
25,268,195
==========
Technology -- 14.5%
Aerospace/Defense - 1.4%
Curtiss-Wright Corporation 116,900 4,456,813
Special Metals Corporation* 255,700 2,285,319
Woodward Governor Company 130,600 2,889,525
----------
9,631,657
----------
Components and Systems - 3.8%
++Axiohm Transaction Solutions* 440,575 2,863,737
CTS Corporation 3,400 147,900
Credence Systems Corporation* 15,300 283,050
Dionex Corporation* 154,000 5,640,250
Giga-tronics Incorporated* 57,100 128,475
Hach Company 42,150 505,800
Hach Company Cl. A 50,650 519,163
IFR Systems* 9,133 42,240
Itron* 5,000 35,937
National Instruments* 48,400 1,651,650
Newport Corporation 50,900 858,938
Penn Engineering and
Manufacturing 153,600 3,436,800
Penn Engineering and
Manufacturing Cl. A 39,800 786,050
Perceptron* 242,100 1,603,912
SAES Getters ADR+ 5,000 27,812
Scitex Corporation Limited* 347,100 4,078,425
Vicor Corporation* 5,000 45,000
VideoServer* 166,100 3,052,087
----------
25,707,226
----------
Distribution - 1.3%
Daisytek International Corporation* 94,000 1,786,000
Marshall Industries* 167,200 4,096,400
Pioneer-Standard Electronics 73,525 689,297
Richardson Electronics 195,600 1,882,650
----------
8,454,347
----------
Semiconductors and Equipment - 3.5%
Analog Devices* 117,100 3,674,012
Brooks Automation* 5,000 73,125
Cymer* 33,500 489,938
Dallas Semiconductor Corporation 68,000 2,771,000
DuPont Photomasks* 45,000 1,909,687
Etec Systems* 5,000 200,000
8x8* 11,600 65,250
</TABLE>
22 | THE ROYCE FUNDS ANNUAL REPORT 1998
<PAGE>
ROYCE VALUE TRUST, INC. DECEMBER 31, 1998
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Technology (continued)
Semiconductors and Equipment (continued)
Electroglas* 212,200 $ 2,493,350
Exar Corporation* 200,900 3,239,512
Helix Technology Corporation 60,700 789,100
Kulicke and Soffa Industries* 30,000 532,500
Lam Research Corporation* 21,500 382,969
Micrel, Incorporated* 5,000 275,000
Novellus Systems* 4,000 198,000
Ultratech Stepper* 5,000 80,000
Uniphase Corporation* 15,000 1,040,625
Unitrode Corporation* 309,500 5,416,250
Veeco Instruments* 5,400 286,875
-----------
23,917,193
-----------
Software/Services - 4.2%
ABR Information Services* 30,000 588,750
ANSYS* 85,200 937,200
Aspect Development* 6,000 265,875
Aspen Technology* 46,800 678,600
Benchmark Electronics* 43,100 1,578,537
Check Point Software Technologies* 65,000 2,977,813
Cognex Corporation* 127,200 2,544,000
Comdisco 70,000 1,181,250
Documentum* 5,000 267,187
FileNet Corporation* 10,000 114,688
Harbinger Corporation* 33,700 269,600
IMR Global* 3,000 88,312
Industri-Matematik International* 4,000 20,000
Integral Systems* 157,800 3,067,238
Integrated Systems* 5,000 74,687
International Network Services* 5,000 332,500
i2 Technologies* 10,000 303,750
The Learning Company* 800 20,750
Lycos* 6,000 333,375
MacNeal-Schwendler Corporation* 83,300 583,100
Macromedia* 3,000 101,062
Manugistics Group* 15,000 187,500
MetaCreations Corporation* 5,000 26,875
National Computer Systems 244,000 9,028,000
Nichols Research Corporation* 15,950 332,956
Phoenix Technologies* 1,000 8,625
QRS Corporation* 5,000 240,000
Radiant Systems* 15,000 110,625
Remedy Corporation* 10,600 147,738
Siebel Systems* 10,140 344,126
Sybase* 145,600 1,078,350
++Technical Communications
Corporation* 106,700 480,150
Wind River Systems* 5,000 235,000
-----------
28,548,219
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Telecommunications - 0.3%
Level 3 Communications* 2,200 $ 94,875
Mosaix* 42,900 332,475
Plantronics* 15,000 1,290,000
Xylan Corporation* 17,800 322,625
-----------
2,039,975
-----------
98,298,617
===========
Utilities -- 0.5%
Southern Union Company* 127,440 3,106,350
===========
Miscellaneous -- 4.8% 32,642,342
===========
TOTAL COMMON STOCKS
(Cost $432,117,066) 581,597,147
===========
PREFERRED STOCKS -- 0.6%
Pioneer-Standard Electronics (Conv.) 80,000 3,320,000
SVB Capital 20,000 465,000
-----------
TOTAL PREFERRED STOCKS
(Cost $4,315,000) 3,785,000
===========
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
------
<S> <C> <C>
CORPORATE BONDS -- 1.5%
Charming Shoppes 7.50% Conv.
Sub. Note due 7/15/06 $3,694,000 3,324,600
Dixie Group 7.00% Conv. Sub.
Deb. due 5/15/12 775,000 577,375
FirstWorld Communications 0%
Sr. Note due 4/15/08 6,950,000 2,085,000
International Semi-Tech 0%
Sr. Disc. Note due 8/15/03 105,000 9,581
Richardson Electronics 8.25%
Conv. Sub. Deb. due 6/15/06 2,049,000 1,741,650
Richardson Electronics 7.25%
Conv. Sub. Deb. due 12/15/06 1,319,000 1,068,390
Shoney's 0% Conv. Sub. Deb.
due 4/11/04 2,146,000 525,770
Sunglass Hut International
5.25% Conv. Sub. Note due
6/15/03 500,000 345,000
Thorn Apple Valley 9.00% Conv.
Sub. Deb. due 4/01/07 100,000 30,000
Tops Appliance City 6.50% Conv.
Sub. Deb. due 11/30/03 1,000,000 600,000
-----------
TOTAL CORPORATE BONDS
(Cost $11,693,468) 10,307,366
===========
</TABLE>
THE ROYCE FUNDS ANNUAL REPORT 1998 | 23
<PAGE>
ROYCE VALUE TRUST, INC. DECEMBER 31, 1998
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
-----
<S> <C>
U.S. TREASURY OBLIGATION -- 1.5%
U. S. Treasury Notes, principal
amount $10,000,000, 6.25%
due 8/31/02
(Cost $ 9,994,530) $ 10,510,900
============
REPURCHASE AGREEMENT -- 9.8%
State Street Bank and Trust
Company, 4.25% dated 12/31/98,
due 1/04/99, maturity value
$66,131,214 (collateralized by
U.S. Treasury Bonds, 6.75% due
8/15/26, valued at $67,427,325)
(Cost $66,100,000) 66,100,000
============
</TABLE>
<TABLE>
<CAPTION>
VALUE
-----
<S> <C>
TOTAL INVESTMENTS -- 99.3%
(Cost $524,220,064) $672,300,413
CASH AND OTHER ASSETS LESS
LIABILITIES -- 0.7% 4,662,682
------------
NET ASSETS -- 100.0% $676,963,095
============
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing.
** A security for which market quotations are no longer readily available
represents 0.09% of net assets. This security has been valued in good faith
by the Board of Directors.
+ American Depository Receipt.
++ At December 31, 1998, the Fund owned 5% or more of the Company's outstanding
voting securities thereby making the Company an Affiliated Company as that
term is defined in the Investment Company Act of 1940.
INCOME TAX INFORMATION: The cost of total investments for Federal income tax
purposes was $526,364,573. At December 31, 1998, net unrealized appreciation
for all securities was $145,935,840, consisting of aggregate gross unrealized
appreciation of $182,941,350 and aggregate gross unrealized depreciation of
$37,005,510. The Fund designated $51,609,988 as a capital gain dividend for the
purpose of the dividend paid deduction.
- --------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
24 | THE ROYCE FUNDS ANNUAL REPORT 1998
<PAGE>
ROYCE VALUE TRUST, INC. DECEMBER 31, 1998
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments at value (identified cost $458,120,064) $ 606,200,413
Repurchase agreement (at cost and value) 66,100,000
Cash 63,744
Receivable for investments sold 6,884,822
Receivable for dividends and interest 1,101,306
Prepaid expenses 18,965
- ---------------------------------------------------------------------------------------------------------------------------
Total Assets 680,369,250
- ---------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 2,427,165
Payable for investment advisory fee 495,280
Preferred dividends accrued but not yet declared 266,222
Accrued expenses 217,488
- ---------------------------------------------------------------------------------------------------------------------------
Total Liabilities 3,406,155
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets $ 676,963,095
===========================================================================================================================
Net Assets applicable to Preferred Stock at a liquidation value of $25 per share $ 160,000,000
===========================================================================================================================
Assets applicable to Common Stock (net asset value per share -- $15.72) $ 516,963,095
===========================================================================================================================
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; 32,880,261 shares outstanding (150,000,000 32,880
shares authorized)
Additional paid-in capital 520,768,368
Undistributed net investment income 1,846,013
Accumulated net realized gain on investments 6,495,307
Preferred dividends accrued but not yet declared (266,222)
Net unrealized appreciation on investments 148,080,349
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets $ 676,963,095
===========================================================================================================================
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
INVESTMENT OPERATIONS:
Net investment income $ 5,725,999 $ 6,702,922
Net realized gain on investments 53,554,124 29,196,786
Net change in unrealized appreciation on investments (31,906,113) 80,620,819
- ----------------------------------------------------------------------------------------------------------------
Net increase in net assets from investment operations 27,374,010 116,520,527
- ----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income (944,176) (736,536)
Net realized gain on investments (8,134,436) (4,063,464)
Preferred dividends accrued but not yet declared (159,555) (106,667)
- ----------------------------------------------------------------------------------------------------------------
Total distributions to Preferred Stockholders (9,238,167) (4,906,667)
- ----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income (5,045,674) (5,058,567)
Net realized gain on investments (43,475,552) (27,907,269)
- ----------------------------------------------------------------------------------------------------------------
Total distributions to Common Stockholders (48,521,226) (32,965,836)
- ----------------------------------------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
Conversion of Notes to Common Stock 26,814,113 11,874,610
Reinvestment of distributions to Common Stockholders 29,819,441 21,871,618
Net proceeds from issuance of Preferred Stock 96,484,000 --
- ----------------------------------------------------------------------------------------------------------------
Total capital stock transactions 153,117,554 33,746,228
- ----------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 122,732,171 112,394,252
NET ASSETS:
Beginning of year 554,230,924 441,836,672
- ----------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income of
$1,846,013 and $2,136,325, respectively) $676,963,095 $554,230,924
================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS ANNUAL REPORT 1998 | 25
<PAGE>
ROYCE VALUE TRUST, INC. YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends $ 8,243,179
Interest 4,275,571
- --------------------------------------------------------------------------------------
Total Income 12,518,750
- --------------------------------------------------------------------------------------
Expenses:
Investment advisory fees 5,819,144
Administrative and office facilities expenses 281,364
Custodian and transfer agent fees 200,218
Shareholder reports 206,362
Proxy 128,686
Professional fees 87,325
Directors' fees 64,136
Amortization of underwriting discount and offering costs of Notes 13,004
Interest expense 1,390
Other expenses 128,436
- --------------------------------------------------------------------------------------
Total Expenses 6,930,065
Fees Waived by Investment Adviser (137,314)
- --------------------------------------------------------------------------------------
Net Expenses 6,792,751
- --------------------------------------------------------------------------------------
Net Investment Income 5,725,999
- --------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 53,554,124
Net change in unrealized appreciation on investments (31,906,113)
- --------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 21,648,011
- --------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS $ 27,374,010
======================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
26 | THE ROYCE FUNDS ANNUAL REPORT 1998
<PAGE>
ROYCE VALUE TRUST, INC.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
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>
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) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
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)
- ------------------------------------------------------------------------------------------------------------------------------------
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 $13.75 $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 the Notes had been fully converted, except when the
effect of doing so resulted in a higher Net Asset Value per share than would
have been calculated without such assumption. If it were not assumed the
Notes had been converted, the Net Asset Value per share would have been
increased by $0.31, $0.17, and $0.09 at December 31, 1997, 1996 and 1995,
respectively.
(b) The Net Asset Value and Market Value Total Returns assume a continuous
Common Stockholder who reinvested all net investment income dividends and
capital gain distributions and fully participated in primary subscriptions
for rights offerings.
(c) Expense ratios based on total average net assets were 1.06%, 0.99%, 1.20%,
2.01% and 2.01% for the periods ended 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 1.34%,
1.14%, 1.31%, 2.04% and 2.02% for the periods ended December 31, 1998, 1997,
1996, 1995 and 1994, respectively.
(e) The average of month-end market values during the period.
* Includes distributions paid January 31, 1994 and December 30, 1994.
THE ROYCE FUNDS ANNUAL REPORT 1998 | 27
<PAGE>
ROYCE VALUE TRUST, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 one or more Royce Funds are allocated in an equitable manner.
Allocated personnel costs of employees of The Royce Funds are included in
administrative and office facilities expenses.
Taxes:
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the extent
that it distributes substantially all of its taxable income for its fiscal
year. The Schedule of Investments includes information regarding income taxes
under the caption "Income Tax Information".
Distributions:
The Fund currently has a policy of paying quarterly distributions on the
Fund's Common Stock. Distributions are currently being made at the annual rate
of 9% of the rolling average of the prior four calendar quarter-end NAVs of
the Fund's Common Stock, with the fourth quarter distribution being the
greater of 2.25% of the rolling average or the distribution required by IRS
regulations. Distributions paid to Preferred Stockholders are recorded on an
accrual basis and paid quarterly. Distributions are determined in accordance
with income tax regulations 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 and 937,268 shares of Common Stock upon conversion of Notes for the
periods ended December 31, 1998 and 1997, respectively.
28 | THE ROYCE FUNDS ANNUAL REPORT 1998
<PAGE>
ROYCE VALUE TRUST, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
Capital Stock:
The Fund currently has two issues of Preferred Stock outstanding. At a
Special Meeting on March 2, 1998, Stockholders approved an increase in the
frequency of the dividend payments on the Cumulative Preferred Stock then
outstanding, from an annual payment at a rate of 8% to a quarterly payment at
an annual rate of 7.80%. Stockholders also approved an extension of the call
protection period on the 7.80% Cumulative Preferred Stock by two years to
August 15, 2003. In conjunction with the rate change, an extra $.05 per share
of Cumulative Preferred Stock was paid on March 23, 1998. On May 22, 1998, the
Fund issued and sold 4,000,000 shares of 7.30% Tax-Advantaged Cumulative
Preferred Stock. Both issues of Preferred Stock have a liquidation preference
of $25.00 per share.
Under the Investment Company Act of 1940, the Fund is required to
maintain an asset coverage of at least 200% for the Preferred Stock. In
addition, pursuant to the Rating Agency Guidelines 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 2,080,238 and 1,422,952 shares of Common Stock as
reinvestment by Common Stockholders of distributions for the years ended
December 31, 1998 and 1997, respectively.
Investment Advisory Agreement:
As compensation for its services under the Investment Advisory Agreement,
Royce & Associates, Inc. ("Royce") receives a fee comprised of a Basic Fee
("Basic Fee") and an adjustment to the Basic Fee based on the investment
performance of the Fund in relation to the investment record of the S&P 600
SmallCap Index ("S&P 600").
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 by more than two percentage points, or is exceeded by more
than two percentage points by, the percentage change in the investment record
of the S&P 600 for the performance period. The maximum increase or decrease in
the Basic Fee for any month may not exceed 1/12 of .5%. Accordingly, for each
month, the maximum monthly fee rate as adjusted for performance is 1/12 of
1.5% and is payable if the investment performance of the Fund exceeds the
percentage change in the investment record of the S&P 600 by 12 or more
percentage points for the performance period, and the minimum monthly fee rate
as adjusted for performance is 1/12 of .5% and is payable if the percentage
change in the investment record of the S&P 600 exceeds the investment
performance of the Fund by 12 or more percentage points for the performance
period.
Notwithstanding the foregoing, Royce is not entitled to receive any fee
for any month when the investment performance of the Fund for the rolling
36-month period ending with such month is negative. 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 during that period.
For the year ended December 31, 1998, the Fund accrued and paid Royce
advisory fees totaling $5,681,830, which is net of $137,314 voluntarily waived
by Royce.
Purchases and Sales of Investment Securities:
For the year ended December 31, 1998, the cost of purchases and proceeds
from sales of investment securities, other than short-term securities,
amounted to $256,135,977 and $251,996,708, respectively.
THE ROYCE FUNDS ANNUAL REPORT 1998 | 29
<PAGE>
ROYCE VALUE TRUST, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
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 year ended December 31, 1998.
<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 343,475 $1,915,946 -- -- -- --
General Builders Corporation -- -- 73,645 $131,141 $ 52,971 --
Peerless Mfg. -- -- -- -- -- $39,650
RockShox 1,103,500 $2,672,107 2,500 $ 8,125 $ (5,938) --
Sage Laboratories -- -- 108,000 $813,888 $1,036,427 --
Technical Communications 63,600 $ 270,300 5,700 $ 53,196 $ (28,259) --
Thomaston Mills Cl. A 327,800 $1,024,375 -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
30 | THE ROYCE FUNDS ANNUAL REPORT 1998
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Board of Directors and Stockholders of Royce Value Trust, Inc.
We have audited the accompanying statement of assets and liabilities of
Royce Value Trust, Inc., including the schedule of investments, as of December
31, 1998, and the related statement of operations, the statement of changes in
net assets and the financial highlights for the year then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. The financial
highlights for the four years in the period ended December 31, 1997 and the
statement of changes in net assets for the year ended December 31, 1997 were
audited by other auditors whose reports dated February 13, 1995 and February
10, 1998 expressed unqualified opinions on that statement and financial
highlights.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above and audited by us present fairly, in all material respects, the
financial position of Royce Value Trust, Inc. at December 31, 1998, the results
of its operations, the changes in its net assets and the financial highlights
for the year then ended, in conformity with generally accepted accounting
principles.
Tait, Weller & Baker
Philadelphia, PA
January 29, 1999
THE ROYCE FUNDS ANNUAL REPORT 1998 | 31
<PAGE>
ROYCE MICRO-CAP TRUST, INC. DECEMBER 31, 1998
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
COMMON STOCKS -- 80.5%
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Consumer Products -- 13.4%
Apparel and Shoes - 3.3%
Garan Incorporated 53,200 $1,496,250
K-Swiss Cl. A 22,800 612,750
**Kleinert's* 14,200 170,400
Oshkosh B'Gosh Cl. A 91,600 1,849,175
Weyco Group 68,400 1,735,650
----------
5,864,225
----------
Food/Beverage/Tobacco - 2.1%
800-JR CIGAR* 98,300 2,285,475
Golden Enterprises 47,500 255,313
Piercing Pagoda* 3,000 29,250
++The Smithfield Companies 148,400 1,205,750
----------
3,775,788
----------
Home Furnishings/Appliances - 2.7%
Bassett Furniture Industries 52,800 1,273,800
Conso International Corporation* 197,800 1,162,075
Lifetime Hoan Corporation 120,054 1,170,527
Meadowcraft* 79,800 892,762
Mity-Lite* 14,200 202,350
----------
4,701,514
----------
Publishing - 0.8%
The Topps Company* 277,300 1,386,500
----------
Sports and Recreation - 1.2%
Aldila* 348,500 871,250
Baldwin Piano & Organ Company* 42,300 407,138
Johnson Worldwide Associates Cl. A* 87,100 805,675
----------
2,084,063
----------
Other Consumer Products - 3.3%
Koala Corporation 40,000 695,000
Lazare Kaplan International* 91,600 641,200
Matthews International
Corporation Cl. A 81,000 2,551,500
Velcro Industries 12,300 1,832,700
----------
5,720,400
----------
23,532,490
==========
Consumer Services -- 3.4%
Leisure/Entertainment - 0.6%
MovieFone Cl. A* 67,600 1,106,950
----------
Restaurants/Lodging - 0.4%
Pizza Inn 145,700 646,544
----------
Retail Stores - 2.4%
The Bombay Company* 46,600 259,212
Brookstone* 33,000 565,125
Catherines Stores Corporation* 76,900 836,288
Cato Corporation Cl. A 47,500 467,578
Lechters* 93,400 230,581
Suzy Shier 156,800 974,550
Urban Outfitters* 56,900 960,187
----------
4,293,521
----------
6,047,015
==========
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Financial Intermediaries -- 6.3%
Banking - 0.9%
Iron and Glass Bancorp 33,200 $ 796,800
Oriental Financial Group 10,733 336,077
Queen City Investments* 948 380,148
----------
1,513,025
----------
Insurance - 5.4%
Capitol Transamerica Corporation 55,965 1,045,846
Chartwell Re Corporation 28,500 676,875
Highlands Insurance Group* 77,000 1,005,813
Independence Holding Company 33,300 466,200
NYMAGIC 40,400 838,300
The Navigators Group* 36,800 570,400
Nobel Insurance Limited 183,000 142,969
Old Guard Group 56,500 812,187
PMA Capital Cl. A 56,609 1,107,414
PXRE Corporation 40,664 1,019,142
Trenwick Group 11,950 389,869
Wellington Underwriting 444,712 1,418,586
----------
9,493,601
----------
11,006,626
==========
Financial Services -- 1.5%
Information and Processing - 1.1%
Duff & Phelps Credit Rating 35,600 1,951,325
----------
Insurance Brokers - 0.4%
CorVel Corporation* 5,000 176,250
Hilb, Rogal & Hamilton Company 30,300 602,212
----------
778,462
----------
2,729,787
==========
Health -- 3.3%
Commercial Services - 1.1%
ChiRex * 53,000 1,132,875
ICON ADR*+ 1,000 33,500
Young Innovations* 58,400 766,500
----------
1,932,875
----------
Drugs and Biotech - 1.8%
BioReliance Corporation* 145,800 1,166,400
International Isotopes* 77,400 1,238,400
Scotia Holdings* 120,000 127,596
ViroPharma Incorporated* 55,900 520,569
----------
3,052,965
----------
Health Services - 0.2%
Jenny Craig* 57,000 342,000
----------
Personal Care - 0.1%
Jean-Philippe Fragrances* 39,200 240,100
----------
Surgical Products and Devices - 0.1%
Nitinol Medical Technologies* 35,300 132,375
----------
5,700,315
==========
</TABLE>
32 | THE ROYCE FUNDS ANNUAL REPORT 1998
<PAGE>
ROYCE MICRO-CAP TRUST, INC . DECEMBER 31, 1998
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Industrial Products -- 19.2%
Building Systems and Components - 6.8%
AFC Cable Systems* 19,750 $ 664,094
American Buildings Company* 35,700 874,650
Falcon Products 115,600 1,387,200
International Aluminum
Corporation 12,100 357,706
Juno Lighting 35,600 832,150
Kit Manufacturing* 38,800 179,450
LSI Industries 25,900 581,131
Paul Mueller Company 16,650 672,244
Preformed Line Products Company 45,000 1,260,000
Simpson Manufacturing Co.* 46,100 1,725,869
Skyline Corporation 32,100 1,043,250
**Thermal Industries* 58,700 880,500
Thor Industries 55,200 1,407,600
----------
11,865,844
----------
Construction Materials - 3.4%
Ash Grove Cement Company 20,000 1,830,000
Florida Rock Industries 55,000 1,705,000
The Monarch Cement Company 50,410 1,121,623
Northwest Pipe Company* 7,200 116,100
Puerto Rican Cement Company 33,200 1,159,925
----------
5,932,648
----------
Machinery - 1.6%
++Art's-Way Manufacturing Co.* 124,000 620,000
DeVlieg-Bullard* 601,900 376,187
Lund International Holdings* 93,700 796,450
Oshkosh Truck Corporation Cl. B 32,100 1,063,313
----------
2,855,950
----------
Paper and Packaging - 1.0%
Liqui-Box Corporation 13,100 681,200
PalEx* 140,100 1,059,506
----------
1,740,706
----------
Pumps, Valves and Bearings - 0.6%
NN Ball and Roller 55,400 325,475
Sun Hydraulics Corporation 78,400 651,700
----------
977,175
----------
Specialty Chemicals and Materials - 2.8%
Aceto Corporation 43,875 581,344
CFC International* 113,800 910,400
Chemfab Corporation* 80,700 1,669,481
Hauser* 141,400 627,463
Hawkins Chemical 122,667 1,226,670
----------
5,015,358
----------
Textiles - 0.5%
Fab Industries 45,100 969,650
----------
Other Industrial Products - 2.5%
BHA Group Holdings 95,965 1,331,514
Landauer 32,300 1,045,712
Myers Industries 52,690 1,511,544
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Pioneer Metals* 1,570 $ 518,100
----------
4,406,870
----------
33,764,201
==========
Industrial Services -- 10.9%
Commercial Services - 1.7%
BHI Corporation* 42,800 1,316,100
Cornell Corrections* 67,500 1,282,500
Exponent* 58,200 349,200
----------
2,947,800
----------
Engineering and Construction - 1.7%
Insituform Technologies Cl. A* 69,000 1,000,500
Sevenson Environmental Services 125,120 1,063,520
Willbros Group* 152,900 850,506
----------
2,914,526
----------
Food/Tobacco Processors - 2.0%
Farmer Bros. 4,000 856,000
Midwest Grain Products* 192,922 2,628,562
----------
3,484,562
----------
Industrial Distribution - 0.9%
Vallen Corporation* 76,800 1,536,000
----------
Printing - 2.1%
Ennis Business Forms 112,400 1,116,975
Merrill Corporation 40,800 787,950
New England Business Service 45,300 1,772,363
Schawk 1,300 18,037
----------
3,695,325
----------
Transportation and Logistics - 2.5%
AirNet Systems* 28,800 414,000
Circle International Group 79,700 1,633,850
Frozen Food Express Industries 138,500 1,090,688
Kenan Transport Company 34,800 1,165,800
Knight Transportation* 7,500 200,156
----------
4,504,494
----------
19,082,707
==========
Natural Resources - 3.0%
Energy Services - 0.8%
Carbo Ceramics 44,200 773,500
Gulfmark Offshore* 26,000 409,500
Peerless Mfg. 21,600 240,300
----------
1,423,300
----------
Metals and Mining - 0.2%
MK Gold Company* 603,700 339,581
----------
Oil and Gas - 1.5%
Denbury Resources* 283,600 1,152,125
MarkWest Hydrocarbon* 15,200 136,800
Titan Exploration* 211,600 1,388,625
----------
2,677,550
----------
Real Estate - 0.5%
FRP Properties* 33,700 909,900
----------
5,350,331
==========
</TABLE>
THE ROYCE FUNDS ANNUAL REPORT 1998 | 33
<PAGE>
ROYCE MICRO-CAP TRUST, INC. DECEMBER 31, 1998
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Technology - 14.9%
Aerospace/Defense - 1.3%
Curtiss-Wright Corporation 35,000 $ 1,334,375
Special Metals Corporation* 113,000 1,009,937
------------
2,344,312
------------
Components and Systems - 6.7%
Advanced Energy Industries* 74,600 1,865,000
CEM Corporation* 75,700 742,806
Control Devices 83,332 1,333,312
Elamex, S.A. de C.V.* 86,600 313,925
Industrial Scientific Corporation 32,400 753,300
Innovex 27,400 375,894
Modern Controls 36,900 212,175
Newport Corporation 60,300 1,017,563
PCD* 30,000 390,000
Penn Engineering and
Manufacturing 39,700 888,288
Penn Engineering and
Manufacturing Cl. A 15,400 304,150
Perceptron* 152,100 1,007,662
Performance Technologies* 37,500 492,188
Printronix* 10,000 143,750
Rainbow Technologies* 73,700 1,386,481
TSI Incorporated 30,000 262,500
Transact Technologies
Incorporated* 101,700 336,881
------------
11,825,875
------------
Distribution - 0.8%
Richardson Electronics 153,500 1,477,438
------------
Semiconductors and Equipment - 1.4%
Aetrium Incorporated* 10,000 110,000
Align-Rite International* 30,000 348,750
Exar Corporation* 55,900 901,387
Helix Technology Corporation 36,800 478,400
Optek Technology* 29,300 553,037
------------
2,391,574
------------
Software/Services - 3.3%
CSP* 44,165 350,560
Integral Systems* 42,600 828,037
JDA Software Group* 93,600 906,750
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Kronos Incorporated* 39,000 $ 1,728,188
MacNeal-Schwendler Corporation* 159,600 1,117,200
Tyler Corporation* 122,300 749,087
------------
5,679,822
------------
Telecommunications - 1.4%
REMEC* 113,200 2,037,600
Vertex Communications
Corporation* 10,000 158,750
Wireless Telecom Group 90,000 168,750
------------
2,365,100
------------
26,084,121
============
Miscellaneous -- 4.6% 8,094,613
============
TOTAL COMMON STOCKS
(Cost $109,588,315) 141,392,206
============
PREFERRED STOCK -- 0.4%
Seneca Foods Corporation*
(Cost $623,500) 51,250 627,812
============
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 5.9%
U.S. Treasury Notes
6.25%, due 8/31/00 $5,000,000 5,126,550
6.25%, due 8/31/02 5,000,000 5,255,450
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $10,015,235) 10,382,000
============
REPURCHASE AGREEMENT -- 12.8%
State Street Bank & Trust Company,
4.25% dated 12/31/98, due 1/04/99
maturity value $22,410,578
(collateralized by U.S. Treasury Bonds,
10.625% due 8/15/15, valued at
$22,848,343)
(Cost $22,400,000) 22,400,000
============
TOTAL INVESTMENTS -- 99.6%
(Cost $142,627,050) 174,802,018
CASH AND OTHER ASSETS LESS
LIABILITIES -- 0.4% 693,183
------------
NET ASSETS -- 100.0% $175,495,201
============
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing.
** Two securities for which market quotations are no longer readily available
represent 0.60% of net assets. These securities have been valued in good
faith by the Board of Directors.
+ American Depository Receipt.
++ At December 31, 1998, the Fund owned 5% or more of the Company's outstanding
voting securities thereby making the Company an Affiliated Company as that
term is defined in the Investment Company Act of 1940.
INCOME TAX INFORMATION: The cost of total investments for Federal income tax
purposes was $142,816,118. At December 31, 1998, net unrealized appreciation
for all securities was $31,985,900, consisting of aggregate gross unrealized
appreciation of $41,628,445 and aggregate gross unrealized depreciation of
$9,642,545. The Fund designated $5,216,647 as a capital gain dividend for the
purpose of the dividend paid deduction.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
34 | THE ROYCE FUNDS ANNUAL REPORT 1998
<PAGE>
ROYCE MICRO-CAP TRUST, INC. DECEMBER 31, 1998
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments at value (identified cost $120,227,050) $ 152,402,018
Repurchase agreement (at cost and value) 22,400,000
Cash 103,402
Receivable for investments sold 506,931
Receivable for dividends and interest 344,848
Prepaid expenses 5,845
- --------------------------------------------------------------------------------------------------------------------------
Total Assets 175,763,044
- --------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for investment advisory fee 110,669
Preferred dividends accrued but not yet declared 68,889
Payable for administration fee 9,571
Accrued expenses 78,714
- --------------------------------------------------------------------------------------------------------------------------
Total Liabilities 267,843
- --------------------------------------------------------------------------------------------------------------------------
Net Assets $ 175,495,201
==========================================================================================================================
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 -- $10.06) $ 135,495,201
==========================================================================================================================
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 209,855
Accumulated net realized gain on investments and foreign currency 3,954,491
Preferred dividends accrued but not yet declared (68,889)
Net unrealized appreciation on investments and foreign currency 32,175,071
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets $175,495,201
==========================================================================================================================
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1998 1997
------------- -------------
<S> <C> <C>
INVESTMENT OPERATIONS:
Net investment income $1,720,215 $2,268,785
Net realized gain on investments and foreign currency 5,532,509 10,619,371
Net change in unrealized appreciation on investments and foreign currency (10,118,947) 21,021,456
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from investment operations (2,866,223) 33,909,612
- --------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income (758,880) (242,787)
Net realized gain on investments and foreign currency (2,341,120) (1,298,601)
Preferred dividends accrued but not yet declared -- (68,889)
- --------------------------------------------------------------------------------------------------------------------------
Total distributions to Preferred Stockholders (3,100,000) (1,610,277)
- --------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income (932,213) (1,914,145)
Net realized gain on investments and foreign currency (2,875,417) (10,239,254)
- --------------------------------------------------------------------------------------------------------------------------
Total distributions to Common Stockholders (3,807,630) (12,153,399)
- --------------------------------------------------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
Reinvestment of distributions to Common Stockholders 2,907,409 9,762,687
Net proceeds from issuance of Preferred Stock -- 38,500,000
- --------------------------------------------------------------------------------------------------------------------------
Total capital stock transactions 2,907,409 48,262,687
- --------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (6,866,444) 68,408,623
NET ASSETS:
Beginning of year 182,361,645 113,953,022
- --------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income of $209,855 and $180,733,
respectively) $ 175,495,201 $ 182,361,645
==========================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS ANNUAL REPORT 1998 | 35
<PAGE>
ROYCE MICRO-CAP TRUST, INC. YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Income:
Interest $ 1,859,902
Dividends 1,532,503
- ---------------------------------------------------------------------------------------------
Total Income 3,392,405
- ---------------------------------------------------------------------------------------------
Expenses:
Investment advisory fees 1,229,021
Administration fees 111,424
Custodian and transfer agent fees 104,279
Administrative and office facilities expenses 85,180
Shareholder reports 83,692
Professional fees 41,099
Directors' fees 28,369
Other expenses 81,487
- ---------------------------------------------------------------------------------------------
Total Expenses 1,764,551
Fees Waived by Investment Adviser (92,361)
- ---------------------------------------------------------------------------------------------
Net Expenses 1,672,190
- ---------------------------------------------------------------------------------------------
Net Investment Income 1,720,215
- ---------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain on investments and foreign currency 5,532,509
Net change in unrealized appreciation on investments and foreign currency (10,118,947)
- ---------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments and foreign currency (4,586,438)
- ---------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS FROM INVESTMENT OPERATIONS $ (2,866,223)
=============================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
36 | THE ROYCE FUNDS ANNUAL REPORT 1998
<PAGE>
ROYCE MICRO-CAP TRUST, INC.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
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>
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) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
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 rights offering.
(b) Expense ratios based on total average net assets were 0.92%, 0.72%, 0.85%,
1.36% and 1.88% for the periods ended December 31, 1998, 1997, 1996, 1995
and 1994, respectively.
(c) Expense ratio based on average net assets applicable to Common Stockholders
before waiver of fees by the investment adviser would have been 1.24% for
the period ended December 31, 1998.
(d) The average of month-end market values during the period.
THE ROYCE FUNDS ANNUAL REPORT 1998 | 37
<PAGE>
ROYCE MICRO-CAP TRUST, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 one or more Royce Funds are allocated in an equitable manner.
Allocated personnel costs of employees of The Royce Funds are included in
administrative and office facilities expenses.
Taxes:
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the extent
that it distributes substantially all of its taxable income for its fiscal
year. The Schedule of Investments includes information regarding income taxes
under the caption "Income Tax Information".
Distributions:
Distributions paid to Common Stockholders are recorded on the ex-dividend
date and paid annually in December. Distributions paid to Preferred
Stockholders are recorded on an accrual basis and paid quarterly.
Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. Permanent book and
tax basis differences relating to stockholder distributions will result in
reclassifications within the capital accounts. Undistributed net investment
income may include temporary book and tax basis differences, which will
reverse in a subsequent period. Any taxable income or gain remaining
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.
38 | THE ROYCE FUNDS ANNUAL REPORT 1998
<PAGE>
ROYCE MICRO-CAP TRUST, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
Capital Stock:
On July 2, 1997, the Fund issued and sold 1,600,000 shares of 7.75%
Cumulative Preferred Stock. The stock has a liquidation preference of $25.00
per share.
Under the Investment Company Act of 1940, the Fund is required to
maintain an asset coverage of at least 200% for the Preferred Stock. In
addition, pursuant to the Rating Agency Guidelines 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 and 976,268 shares of Common Stock as
reinvestment by Common Stockholders of distributions for the years ended
December 31, 1998 and 1997, respectively.
Investment Advisory Agreement:
As compensation for its services under the Investment Advisory Agreement,
Royce & Associates, Inc. ("Royce") receives a fee comprised of a basic fee
("Basic Fee") and an adjustment to the Basic Fee based on the investment
performance of the Fund in relation to the investment record of the 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 may be increased or decreased at the rate of
1/12 of .05% for each percentage point that the investment performance of the
Fund exceeds by more than two percentage points, or is exceeded by more than
two percentage points by, the percentage change in the investment record of
the Russell 2000 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.
The present Investment Advisory Agreement replaced a similar investment
advisory agreement between the Fund and Royce, under which the Fund's
investment performance was measured against the record of the Nasdaq
Composite over a rolling period of up to 36 months. The present Investment
Advisory Agreement provides that, for the 18-month period from January 1,
1997 to June 30, 1998, the monthly fee payable to Royce was the lower of the
fee calculated under such Agreement or the fee that would have been payable
to Royce for the month involved under the prior agreement.
Royce has voluntarily committed to waive the portion of its investment
advisory fee attributable to the Fund's Preferred Stock for any month 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 during that period.
For the year ended December 31, 1998, the Fund accrued and paid Royce
advisory fees totaling $1,136,660, which is net of $92,361 voluntarily waived
by Royce.
Administration Agreement:
Under an Administration Agreement with the Fund, Mitchell Hutchins Asset
Management Inc. (the "Administrator") serves as the Administrator, and
performs or assists in certain aspects of the Fund's operations. As
compensation for its services, the Administrator is paid an annual fee,
payable monthly, of $50,000 plus .05% on the first $125 million of the Fund's
average daily net assets, and .03% of average daily net assets exceeding $125
million.
Purchases and Sales of Investment Securities:
For the year ended December 31, 1998, the cost of purchases and proceeds
from sales of investment securities, other than short-term securities,
amounted to $71,507,847 and $69,540,929, respectively.
THE ROYCE FUNDS ANNUAL REPORT 1998 | 39
<PAGE>
ROYCE MICRO-CAP TRUST, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
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 year ended December 31, 1998.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Purchases Sales
------------------- --------------
Affiliated Company Shares Cost Shares Cost Realized Gain/Loss Dividend Income
------------------ ------ ---- ------ ---- ------------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Art's-Way Manufacturing Co. 30,000 $258,700 -- -- -- --
The Smithfield Companies 67,600 $473,200 -- -- -- $14,494
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
40 | THE ROYCE FUNDS ANNUAL REPORT 1998
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Board of Directors and Stockholders of Royce Micro-Cap Trust, Inc.
We have audited the accompanying statement of assets and liabilities of
Royce Micro-Cap Trust, Inc., including the schedule of investments, as of
December 31, 1998, and the related statement of operations, the statement of
changes in net assets and the financial highlights for the year then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. The financial
highlights for the four years in the period ended December 31, 1997 and the
statement of changes in net assets for the year ended December 31, 1997 were
audited by other auditors whose reports dated February 13, 1995 and February
10, 1998 expressed unqualified opinions on that statement and financial
highlights.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the custodian.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above and audited by us present fairly, in all material respects, the
financial position of Royce Micro-Cap Trust, Inc. at December 31, 1998, the
results of its operations, the changes in its net assets and the financial
highlights for the year then ended, in conformity with generally accepted
accounting principles.
Tait, Weller & Baker
Philadelphia, PA
January 29, 1999
THE ROYCE FUNDS ANNUAL REPORT 1998 | 41
<PAGE>
ROYCE GLOBAL TRUST, INC. DECEMBER 31, 1998
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
COMMON STOCKS -- 77.4%
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Consumer Products -- 11.5%
Collectibles - 4.5%
Enesco Group 131,000 $ 3,045,750
-----------
Publishing - 3.5%
Gibson Greetings* 200,000 2,375,000
-----------
Sports and Recreation - 3.5%
Oakley* 247,800 2,338,613
-----------
7,759,363
===========
Consumer Services -- 6.6%
Retail Stores - 6.6%
Charming Shoppes* 825,000 3,557,812
Suzy Shier 147,800 918,613
-----------
4,476,425
===========
Financial Intermediaries -- 8.3%
Insurance - 8.3%
Leucadia National Corporation 37,200 1,171,800
Medical Assurance* 74,351 2,458,237
Trenwick Group 61,050 1,991,756
-----------
5,621,793
===========
Financial Services -- 8.1%
Information and Processing - 2.1%
Duff & Phelps Credit Rating 25,500 1,397,719
-----------
Insurance Brokers - 4.4%
E.W. Blanch Holdings 38,400 1,821,600
Arthur J. Gallagher & Co. 25,800 1,138,425
-----------
2,960,025
-----------
Investment Management - 1.6%
NVEST L.P. 40,000 1,112,500
-----------
5,470,244
===========
Health -- 2.2%
Drugs and Biotech - 2.2%
Chiron Corporation* 55,000 1,440,312
===========
Industrial Products -- 13.8%
Building Systems and Components - 2.0%
Simpson Manufacturing Co.* 36,600 1,370,212
-----------
Construction Materials - 3.0%
Florida Rock Industries 40,000 1,240,000
Puerto Rican Cement Company 21,400 747,663
-----------
1,987,663
-----------
Machinery - 2.6%
Lincoln Electric Holdings 80,000 1,780,000
-----------
Pumps, Valves and Bearings - 3.9%
Kaydon Corporation 66,100 2,648,131
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Textiles - 2.3%
Unifi 77,600 $ 1,518,050
-----------
9,304,056
===========
Industrial Services -- 11.9%
Commercial Services - 2.1%
BHI Corporation* 45,300 1,392,975
-----------
Engineering and Construction - 5.2%
Morrison Knudsen Corporation* 287,100 2,799,225
Willbros Group* 131,850 733,416
-----------
3,532,641
-----------
Printing - 2.7%
New England Business Service 46,500 1,819,312
-----------
Transportation and Logistics - 1.9%
Circle International Group 5,000 102,500
Ryanair Holdings ADR*+ 32,000 1,208,000
-----------
1,310,500
-----------
8,055,428
===========
Natural Resources -- 7.1%
Energy Services - 1.7%
Input Output* 160,000 1,170,000
-----------
Gold - 2.0%
Anglogold Limited ADR+ 69,100 1,351,769
-----------
Oil and Gas - 3.4%
Tom Brown* 87,000 872,719
Renaissance Energy* 122,500 1,398,512
-----------
2,271,231
-----------
4,793,000
===========
Technology -- 7.9%
Aerospace/Defense - 1.3%
Curtiss-Wright Corporation 22,300 850,187
-----------
Distribution - 3.3%
Marshall Industries* 52,500 1,286,250
Richardson Electronics 100,000 962,500
-----------
2,248,750
-----------
Software/Services - 3.3%
MacNeal-Schwendler
Corporation* 127,500 892,500
National Computer Systems 36,200 1,339,400
-----------
2,231,900
-----------
5,330,837
===========
TOTAL COMMON STOCKS
(Cost $49,007,360) 52,251,458
===========
</TABLE>
42 THE ROYCE FUNDS ANNUAL REPORT 1998
<PAGE>
ROYCE GLOBAL TRUST, INC. DECEMBER 31, 1998
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 15.1%
U.S. Treasury Notes
7.125%, due 9/30/99 $2,000,000 $ 2,035,620
5.75%, due 10/31/02 5,000,000 5,179,700
4.25%, due 11/15/03 3,000,000 2,961,570
-----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $10,029,531) 10,176,890
===========
REPURCHASE AGREEMENT -- 6.1%
State Street Bank and Trust Company,
4.25% dated 12/31/98, due 1/04/99,
maturity value $4,101,936
(collateralized by U.S. Treasury
Notes, 7.125% due 2/29/00,
valued at $4,183,975)
(Cost $4,100,000) 4,100,000
===========
</TABLE>
<TABLE>
<CAPTION>
VALUE
<S> <C>
TOTAL INVESTMENTS--98.6%
(Cost $63,136,891) $66,528,348
CASH AND OTHER ASSETS LESS
LIABILITIES -- 1.4% 929,023
-----------
NET ASSETS -- 100.0% $67,457,371
===========
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing.
+ American Depository Receipt.
INCOME TAX INFORMATION: The cost of total investments for Federal income tax
purposes was $63,163,793. At December 31, 1998, net unrealized appreciation for
all securities was $3,364,555, consisting of aggregate gross unrealized
appreciation of $7,675,252 and aggregate gross unrealized depreciation of
$4,310,697. The Fund designated $146,914 as a capital gain dividend for the
purpose of the dividend paid deduction.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS ANNUAL REPORT 1998 | 43
<PAGE>
ROYCE GLOBAL TRUST, INC. DECEMBER 31, 1998
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments at value (identified cost $59,036,891) $ 62,428,348
Repurchase Agreement (at cost and value) 4,100,000
Cash 50,295
Receivable for investments sold 1,038,237
Receivable for dividends and interest 211,881
Prepaid expenses 2,286
- -----------------------------------------------------------------------------------------------------------------------
Total Assets 67,831,047
- -----------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 259,412
Payable for investment advisory fee 38,412
Preferred dividends accrued but not yet declared 33,112
Accrued expenses 42,740
- -----------------------------------------------------------------------------------------------------------------------
Total Liabilities 373,676
- -----------------------------------------------------------------------------------------------------------------------
Net Assets $ 67,457,371
=======================================================================================================================
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 -- $5.63) $ 47,457,371
=======================================================================================================================
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 136,580
Accumulated net realized gain on investments and foreign currency 2,567,437
Preferred dividends accrued but not yet declared (33,112)
Net unrealized appreciation on investments and foreign currency 3,391,519
- -----------------------------------------------------------------------------------------------------------------------
Net Assets $ 67,457,371
=======================================================================================================================
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
INVESTMENT OPERATIONS:
Net investment income $ 991,047 $ 667,252
Net realized gain on investments and foreign currency 1,937,257 2,063,873
Net change in unrealized appreciation on investments and foreign currency (4,873,694) 7,000,782
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from investment operations (1,945,390) 9,731,907
- -----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income (1,343,086) (30,862)
Net realized gain on investments and foreign currency (146,914) (101,582)
Preferred dividends accrued but not yet declared -- (33,112)
- -----------------------------------------------------------------------------------------------------------------------
Total distributions to Preferred Stockholders (1,490,000) (165,556)
- -----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income -- (987,805)
Net realized gain on investments and foreign currency -- (3,251,357)
- -----------------------------------------------------------------------------------------------------------------------
Total distributions to Common Stockholders -- (4,239,162)
- -----------------------------------------------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
Reinvestment of distributions to Common Stockholders -- 2,231,274
Net proceeds from issuance of Preferred Stock -- 19,180,000
- -----------------------------------------------------------------------------------------------------------------------
Total capital stock transactions -- 21,411,274
- -----------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (3,435,390) 26,738,463
NET ASSETS:
Beginning of year 70,892,761 44,154,298
- -----------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income of $136,580 and $488,619,
respectively) $ 67,457,371 $ 70,892,761
=======================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
44 | THE ROYCE FUNDS ANNUAL REPORT 1998
<PAGE>
ROYCE GLOBAL TRUST, INC. YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest $ 953,567
Dividends 860,974
- --------------------------------------------------------------------------------------------
Total Income 1,814,541
- --------------------------------------------------------------------------------------------
Expenses:
Investment advisory fees 708,420
Custodian and transfer agent fees 70,904
Shareholder reports 57,830
Professional fees 42,660
Administrative and office facilities expenses 32,744
Directors' fees 17,552
Other expenses 24,463
- --------------------------------------------------------------------------------------------
Total Expenses 954,573
Fees Waived by Investment Adviser (131,079)
- --------------------------------------------------------------------------------------------
Net Expenses 823,494
- --------------------------------------------------------------------------------------------
Net Investment Income 991,047
- --------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain on investments and foreign currency 1,937,257
Net change in unrealized appreciation on investments and foreign currency (4,873,694)
- --------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments and foreign currency (2,936,437)
- --------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS FROM INVESTMENT OPERATIONS $ (1,945,390)
============================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS ANNUAL REPORT 1998 | 45
<PAGE>
ROYCE GLOBAL TRUST, INC.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
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>
Years ended December 31,
------------------------
1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $6.04 $5.52
- ----------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS:
Net investment income 0.12 0.08
Net realized and unrealized gain (loss) on investments and foreign currency (0.35) 1.12
- ----------------------------------------------------------------------------------------------------------
Total investment operations (0.23) 1.20
- ----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income (0.16) --
Net realized gain on investments and foreign currency (0.02) (0.01)
- ----------------------------------------------------------------------------------------------------------
Total distributions to Preferred Stockholders (0.18) (0.01)
- ----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income -- (0.12)
Net realized gain on investments and foreign currency -- (0.41)
- ----------------------------------------------------------------------------------------------------------
Total distributions to Common Stockholders -- (0.53)
- ----------------------------------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
Effect of Preferred Stock offering -- (0.10)
Effect of reinvestment of distributions by Common Stockholders -- (0.04)
Other sources -- --
- ----------------------------------------------------------------------------------------------------------
Total capital stock transactions -- (0.14)
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $5.63 $6.04
- ----------------------------------------------------------------------------------------------------------
MARKET VALUE, END OF PERIOD $4.88 $5.06
- ----------------------------------------------------------------------------------------------------------
TOTAL RETURN (a):
Net Asset Value (b) (6.8)% 20.5%
Market Value (3.7)% 21.3%
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:
Total expenses (c, d) 1.62% 0.94%
Management fee expense 1.14% 0.39%
Other operating expenses 0.48% 0.55%
Net investment income 1.95% 1.35%
SUPPLEMENTAL DATA:
Net Assets, End of Period (in thousands) $67,457 $70,893
Portfolio Turnover Rate 90% 74%
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
<CAPTION>
Years ended December 31,
---------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $5.09 $4.70 $5.24
- --------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS:
Net investment income 0.06 0.13 0.19
Net realized and unrealized gain (loss) on investments and foreign currency 0.35 0.36 (0.62)
- --------------------------------------------------------------------------------------------------------------------------
Total investment operations 0.41 0.49 (0.43)
- --------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income -- -- --
Net realized gain on investments and foreign currency -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions to Preferred Stockholders -- -- --
- --------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income -- (0.16) (0.11)
Net realized gain on investments and foreign currency -- (0.01) --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions to Common Stockholders -- (0.17) (0.11)
- --------------------------------------------------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
Effect of Preferred Stock offering -- -- --
Effect of reinvestment of distributions by Common Stockholders -- -- --
Other sources 0.02 0.07 --
- --------------------------------------------------------------------------------------------------------------------------
Total capital stock transactions 0.02 0.07 --
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $5.52 $5.09 $4.70
- --------------------------------------------------------------------------------------------------------------------------
MARKET VALUE, END OF PERIOD $4.59 $4.19 $3.56
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (a):
Net Asset Value (b) -- -- --
Market Value 9.6% 22.3% (17.4)%
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:
Total expenses (c, d) 1.91% 2.14% 2.27%
Management fee expense 0.83% 1.00% 1.00%
Other operating expenses 1.08% 1.14% 1.27%
Net investment income 1.80% 2.80% 3.81%
SUPPLEMENTAL DATA:
Net Assets, End of Period (in thousands) $44,154 $41,385 $41,106
Portfolio Turnover Rate 159% 76% 483%
PREFERRED STOCK:
Total shares outstanding -- -- --
Asset coverage per share -- -- --
Liquidation preference per share -- -- --
Average market value per share (e) --
</TABLE>
- --------------------------------------------------------------------------------
(a) The Net Asset Value and Market Value Total Returns assume a continuous
Common Stockholder who reinvested all net investment income dividends and
capital gain distributions.
(b) For years prior to 1997, the Net Asset Value Total Return is not available.
(c) Expense ratios based on total average net assets were 1.16%, 0.90%, 1.91%,
2.14% and 2.27% for the periods ended 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 1.88%, 1.60%
and 2.08% for the periods ended December 31, 1998, 1997 and 1996,
respectively.
(e) The average of month-end market values during the period.
46 | THE ROYCE FUNDS ANNUAL REPORT 1998
<PAGE>
ROYCE GLOBAL TRUST, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Summary of Significant Accounting Policies:
Royce Global Trust, Inc. (the "Fund"), formerly named All Seasons Global
Fund, Inc., is a diversified closed-end investment company. The Fund
commenced operations on March 2, 1988.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the
reporting period. Actual results could differ from those estimates.
Valuation of Investments:
Securities listed on an exchange or on the Nasdaq National Market System
are valued on the basis of the last reported sale prior to the time the
valuation is made or, if no sale is reported for such day, at their bid price
for exchange-listed securities and at the average of their bid and asked
prices for Nasdaq securities. Quotations are taken from the market where the
security is primarily traded. Other over-the-counter securities for which
market quotations are readily available are valued at their bid price.
Securities for which market 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 one or more Royce Funds are allocated in an equitable manner.
Allocated personnel costs of employees of The Royce Funds are included in
administrative and office facilities expenses.
Taxes:
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the extent
that it distributes substantially all of its taxable income for its fiscal
year. The Schedule of Investments includes information regarding income taxes
under the caption "Income Tax Information".
Distributions:
Distributions paid to Common Stockholders are recorded on the ex-dividend
date and paid annually in December. Distributions paid to Preferred
Stockholders are recorded on an accrual basis and paid quarterly.
Distributions are determined in accordance with income tax regulations 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 ANNUAL REPORT 1998 | 47
<PAGE>
ROYCE GLOBAL TRUST, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
Capital Stock:
On November 21, 1997, the Fund issued and sold 800,000 shares of 7.45%
Cumulative Preferred Stock. The stock has a liquidation preference of $25.00
per share.
Under the Investment Company Act of 1940, the Fund is required to
maintain an asset coverage of at least 200% for the Preferred Stock. In
addition, pursuant to the Rating Agency Guidelines 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 425,004 shares of Common Stock as reinvestment by Common
Stockholders of distributions for the year ended December 31, 1997.
Investment Advisory Agreement:
Royce & Associates, Inc. ("Royce") assumed investment management
responsibility for the Fund on November 1, 1996. The Investment Advisory
Agreement between Royce and the Fund provides for fees at an annual rate of
1.0% of the average daily net assets of the Fund.
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 during that
period. Additionally, Royce had voluntarily committed to waive its fee to the
extent necessary to reduce the Fund's expenses, as a percentage of total
average net assets, to 1.375% from the date of Preferred Stock issuance to
December 31, 1998.
For the year ended December 31, 1998, the Fund accrued and paid Royce
advisory fees totaling $577,341, which is net of $131,079 voluntarily waived
by Royce.
Purchases and Sales of Investment Securities:
For the year ended December 31, 1998, the cost of purchases and proceeds
from sales of investment securities, other than short-term securities,
amounted to $60,728,397 and $60,164,783, respectively.
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Board of Directors and Stockholders of Royce Global Trust, Inc.
We have audited the accompanying statement of assets and liabilities of
Royce Global Trust, Inc., including the schedule of investments, as of December
31, 1998, and the related statement of operations, the statement of changes in
net assets and the financial highlights for the year then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. The financial
highlights for each of the four years in the period ended December 31, 1997 and
the statement of changes in net assets for the year ended December 31, 1997
were audited by other auditors whose reports dated January 24, 1996 and
February 10, 1998 expressed unqualified opinions on that statement and
financial highlights.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above and audited by us present fairly, in all material respects, the
financial position of Royce Global Trust, Inc. at December 31, 1998, the
results of its operations, changes in its net assets and the financial
highlights for the year then ended, in conformity with generally accepted
accounting principles.
Tait, Weller & Baker
Philadelphia, PA
January 29, 1999
48 | THE ROYCE FUNDS ANNUAL REPORT 1998
<PAGE>
POSTSCRIPT
- --------------------------------------------------------------------------------
[Graphic of a ball and jumping jacks]
"FURBY-MANIA"
A member of our senior investment staff told us this tale of holiday shopping
mania.
Like all dutiful Dads, I do my best to help my wife out with Christmas shopping.
Of course, having an office a block away from FAO Schwartz doesn't hurt. This
year we faced the same problem that every parent of young children faces every
Christmas. The names may change, but the dilemma is as old as St. Nick himself.
I can sum it up in one word -- Furby.
At first my wife and I, delusional, I guess, with terror at being unable to
locate one of these odd furry fellows, tried to convince our child that
something else -- a teddy bear or jigsaw puzzle -- might be a little easier on
Santa. With the curious combination of awe and greed that afflicts every
youngster at this time of year, our little darling sweetly replied,"Santa will
bring me a Furby because Santa can do anything."
We made a few more lame attempts to stem the tide. "If you don't stop pestering
your mother and me," I announced around the 18th, "you'll wind up with coal in
your stocking," a statement that produced a torrent of tears and a demand from
my wife that I limit my conversations with the children to the injustices of
trading spreads on micro-cap stocks until after Christmas. I was also put on
solo Furby procurement duty.
First I tried using one of those online bidding sites. Nothing in my years of
trading stocks on Wall Street prepared me for the brutality and ruthlessness of
desperate parents vying for Furbies. I realized as I bid $200 for a toy with as
much intrinsic value as a pair of sweat socks that I had forgotten everything I
had learned about value investing, but I didn't care -- I had to get a Furby or
risk sleeping in the reindeer stable. But I couldn't do it. My instincts as a
value investor were too strong, and a housewife from Des Moines bid the last
remaining one away from me for $220.
It was almost lunch time on the 23rd. No Furby. Suddenly, the phone rang. It was
an old college friend, "Fast" Eddie. Eddie is a buyer for FAO Schwartz. "Listen,
I could be fired for even thinking about telling you this, but a shipment of
Furbies is coming in today at 3:00, on the floor by 3:30. Remember, you never
spoke to me!" Before I could even muster a "And how are you, Eddie," he hung up.
Talk about insider information!
At 3:15 I was out the door and headed down West 58th Street toward the toy Mecca
of midtown Manhattan, casually elbowing tourists foolish enough to get in my
way. Just as I got through the door, I saw Eddie ducking into a stairwell and
out of sight. I recognized a young portfolio manager of a very aggressive growth
fund running toward the back of the store, scattering children in his wake. I
followed, knowing how these growth guys are always after the next big thing.
Were we too late? Through a maze of shouting kids and pushy parents, all I could
see was a Furby display and some empty shelves. My watch said 3:28! Suddenly, I
heard a scream and the sound of something falling. Apparently, my young
portfolio manager friend was reaching for the last Furby when he was hit with an
avalanche of discounted Tickle-Me-Elmos and Sing-and-Snore Ernies, the Furbies
of 1996 and 1997, now being hawked for a fraction of their original price as
part of a display called "Precious Memories of Christmas Past." I could just
make out his outstretched hand and the very top of his head, the rest of him
buried under a sea of red Elmo fur. As I bent down to see if he was all right, a
kindly old woman gently scooped the last Furby from the floor. "Buy, buy, I
don't care how high it goes, I need that stock," murmured my friend, obviously
dizzy from so many furry blows to the head.
Fortunately, he was fine, just a little shaken up. I returned to the office
disappointed, but grateful that my brush with Furby-mania had taught me an
important lesson about why we don't buy stocks the way consumers buy Furbies. If
anything, we stick to Barbies, footballs and board games, the predictable but
steady items that may never be this (or any) year's "gotta have it," but never
really go out of style, either.
Lost in my reflections, I barely noticed that my telephone message light was on.
It was from Eddie. "Sorry I didn't get to you at the store," his message said,
"but I was able to put one aside for you. Come by my office after work, and it's
all yours."
I guess it's a good thing Eddie chose toys over stocks.
[START SIDEBAR]
Furby-mania had taught me an important lesson about why we don't buy stocks the
way consumers buy Furbies. If anything, we stick to Barbies, footballs and board
games, the predictable but steady items that may never be this (or any) year's
"gotta have it," but never really go out of style, either.
[END SIDEBAR]
<PAGE>
- --------------------------------------------------------------------------------
THE
ROYCE
FUNDS
ONE OF THE INDUSTRY'S MOST EXPERIENCED AND
HIGHLY RESPECTED SMALL-COMPANY VALUE MANAGERS
Charles M. Royce, who has been our primary portfolio manager since 1973, enjoys
one of the longest tenures of any active mutual fund manager. Today, with $2.8
billion in total assets under management, Royce & Associates remains an
independent firm committed to the same principles that have served us well for
more than 25 years.
MULTIPLE FUNDS, COMMON FOCUS
Over the years, we have chosen to concentrate on small-company value investing.
Chuck Royce and his team provide investors with a range of funds that take full
advantage of the large and diverse small-cap sector. Our goal is to offer both
individual and institutional investors the best available small-cap value
portfolios by participating in the small-cap market's total returns with
below-average volatility.
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 affiliates
currently have approximately $35 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]
