<PAGE>
2000 SEMI-ANNUAL REPORT
=====================================
THE
ROYCE
FUNDS
VALUE INVESTING IN SMALL COMPANIES
FOR MORE THAN 25 YEARS
ROYCE VALUE TRUST
ROYCE MICRO-CAP TRUST
ROYCE FOCUS TRUST
=====================================
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 FOCUS TRUST, A CLOSED-END FUND THAT INVESTS
IN A LIMITED NUMBER OF DOMESTIC AND FOREIGN COMPANIES.
A closed-end fund is an investment company whose shares are listed on a stock
exchange or are traded in the over-the-counter market. Like all investment
companies, including open-end mutual funds, the assets of a closed-end fund are
professionally managed in accordance with the investment objectives and policies
approved by the fund's Board of Directors. A closed-end fund raises cash for
investment by issuing a fixed number of shares through initial and other public
offerings which may include periodic rights offerings. Proceeds from the
offerings are invested in an actively managed portfolio of securities. Investors
wanting to buy or sell shares of a publicly traded closed-end fund after the
offerings must do so on a stock exchange or the Nasdaq market, as with any
publicly traded stock. This is in contrast to open-end mutual funds where the
fund sells and redeems its shares on a continuous basis.
A CLOSED-END FUND OFFERS SEVERAL DISTINCT ADVANTAGES NOT AVAILABLE FROM AN
OPEN-END FUND STRUCTURE
- 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.
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 13, 15 and 17. For
additional information on the Funds' Distribution Reinvestment and Cash Purchase
Options and the benefits for stockholders, see page 18.
<PAGE>
THE ROYCE FUNDS
-------------------------------------------------------------------------------
SEMI-ANNUAL REPORT REFERENCE GUIDE
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[GRAPHIC: Looking through magnifying glass at The Royce Funds newspaper listing]
FOR MORE THAN 25 YEARS, OUR APPROACH HAS FOCUSED ON EVALUATING A COMPANY'S
CURRENT WORTH -- OUR ASSESSMENT OF WHAT WE BELIEVE A KNOWLEDGEABLE BUYER MIGHT
PAY TO ACQUIRE THE ENTIRE COMPANY, OR WHAT WE THINK THE VALUE OF THE COMPANY
SHOULD BE IN THE STOCK MARKET. THIS ANALYSIS TAKES INTO CONSIDERATION A NUMBER
OF RELEVANT FACTORS, INCLUDING THE COMPANY'S FUTURE PROSPECTS. WE SELECT THESE
SECURITIES USING A RISK-AVERSE VALUE APPROACH, WITH THE EXPECTATION THAT THEIR
MARKET PRICES SHOULD INCREASE TOWARD OUR ESTIMATE OF THEIR CURRENT WORTH,
RESULTING IN CAPITAL APPRECIATION FOR FUND INVESTORS.
<TABLE>
<S> <C>
LETTER TO OUR STOCKHOLDERS:
WHO WANTS TO BE A MILLIONAIRE...WHO WANTS TO BE A SURVIVOR? 2
THROUGH THEIR EYES: PROFILES OF TWO ROYCE EMPLOYEES 8
SMALL-CAP MARKET CYCLE PERFORMANCE 10
HISTORY SINCE INCEPTION 11
PERFORMANCE AND PORTFOLIO REVIEW:
ROYCE VALUE TRUST, ROYCE MICRO-CAP TRUST, ROYCE FOCUS TRUST 12
DISTRIBUTION REINVESTMENT AND CASH PURCHASE OPTIONS 18
UPDATES AND NOTES: WHAT'S NEW AT www.roycefunds.com 19
SCHEDULES OF INVESTMENTS AND OTHER FINANCIAL STATEMENTS 20
POSTSCRIPT: REMEMBER Y2K? INSIDE BACK COVER
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
NAV AVERAGE ANNUAL TOTAL RETURNS Through June 30, 2000
-------------------------------------------------------------------------------
2ND QUARTER JAN-JUNE FROM INCEPTION
FUND 2000* 2000* 1-YEAR 3-YEAR 5-YEAR INCEPTION DATE
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ROYCE VALUE TRUST 1.82% 7.77% 14.75% 11.94% 14.74% 12.97% 11/26/86
ROYCE MICRO-CAP TRUST 2.09 11.18 22.39 10.93 14.21 13.75 12/14/93
ROYCE FOCUS TRUST -0.83 0.84 -0.44 2.23 n/a 7.13 11/1/96**
Russell 2000 -3.78 3.04 14.33 10.57 14.27 n/a
</TABLE>
Royce Value Trust's 10-year NAV average annual total return for the period
ended 6/30/00 was 14.17%.
* Not annualized.
** Date Royce & Associates, Inc. assumed investment management responsibility.
<PAGE>
LETTER TO OUR STOCKHOLDERS
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[GRAPHIC: The Royce Funds portfolio managers on desert island Blaustein 2000]
SURVIVORS ON VALUE ISLAND
WHO WANTS TO BE A MILLIONAIRE...
WHO WANTS TO BE A SURVIVOR?
What a difference the turn of a century makes! Just six months ago, the
world seemed like a very different place, dominated by large-cap companies,
Internet IPOs (Initial Public Offerings) and growth-stock investing. Market
savvy was the province of those who ignored traditional valuation yardsticks and
breezily asserted, "This time it's different." For one brief, heady moment, it
seemed as if anyone who wanted to be a millionaire could be, and it did not
require sweating it out with Regis Philbin. All it took was a hot stock tip or
two and the click of a mouse. Today, thanks to a once unthinkable bear market in
the Nasdaq Composite and a bursting bubble in Internet (particularly e-commerce)
stock performance, we are in a market in which the discarded investment ideas of
the past -- small-cap companies, energy stocks and value investing -- now look
like great finds at an eBay auction. In fact, swashbuckling, multi-millionaire
hedge fund managers, once the toast of the investment world, now look like the
exiled participants on the hit series, SURVIVOR. Whoever said life imitates art
(or at least television) must have known something about the stock market.
The changes involve not just a shift in market psychology, but perhaps in
market leadership as well. Small-cap stocks arrived late to the high-return
party, finally showing up in 2000's opening quarter, just before the Federal
Reserve helped break up the celebration by once again raising interest rates.
THE ARRIVAL OF SMALL-CAPS WAS WELCOME NEWS FOR THOSE OF US WHO WATCHED THE
SMALL-CAP RUSSELL 2000 FINISH THIRD IN A THREE-INDEX RACE BEHIND THE NASDAQ
COMPOSITE AND S&P 500 FOR MUCH OF THE LATE `90S. Yet, after starting the new
year in fine fashion -
[SIDEBAR]
[PHOTO]
CHARLES M. ROYCE, PRESIDENT
WHILE MOST INVESTORS KNOW THAT THE RUSSELL 2000 IS AN INDEX OF SMALL-CAP
COMPANIES, VERY FEW KNOW MUCH ABOUT WHAT COMPRISES THE INDEX OR ITS HISTORY.
FRANK RUSSELL CO., A PENSION-CONSULTING FIRM BASED IN TACOMA, WASHINGTON,
CREATED THE INDEX ON JANUARY 1, 1979. IT ACTUALLY REPRESENTS THE 2000 SMALLEST
COMPANIES IN THE RUSSELL 3000 INDEX, WHICH IS MADE UP OF THE LARGEST 3000
PUBLICLY TRADED DOMESTIC COMPANIES. THE RUSSELL 1000 COMPRISES THE LARGEST 1000
COMPANIES. ALTHOUGH THE SMALL-CAP RUSSELL 2000 INCLUDES TWICE AS MANY COMPANIES
AS THE RUSSELL 1000, IT ACCOUNTS FOR LESS THAN 10% OF THE TOTAL MARKET
CAPITALIZATION OF THE RUSSELL 3000.
UNLIKE THE S&P INDICES, WHICH ARE REBALANCED AS MEMBERSHIP CRITERIA
DICTATE, THE RUSSELL INDICES ARE REBALANCED ANNUALLY IN JUNE. THIS ONCE-A-YEAR
EXERCISE CAN OFTEN MEAN HUGE SWINGS IN INDIVIDUAL SECURITIES' PRICES AS NAMES
ENTER OR FALL OUT OF THE REBALANCED INDEX. RUMORS OF PROSPECTIVE INCLUSION (OR
EXCLUSION) PRIOR TO THE
(cont'd on page 4)
2 |THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
all three indices were up in the first quarter -- the trio
posted negative second-quarter returns. As befits latecomers, small-caps endured
the post-boom hangover with more grace than their large-cap counterparts. The
Russell 2000 (+3.0% year-to-date) was the only one of the three indices to
finish the six months in positive territory (S&P 500: -0.4% YTD; Nasdaq
Composite: -2.5% YTD).
The Russell 2000 managed to outperform the other indices year-to-date
despite suffering a 25% decline from March 9, 2000 through April 14, 2000. This
took place against a backdrop of rising interest rates, lower overall equity
returns (the S&P 500's one-year trailing total return dropped to 7.3% from 21.1%
at 12/31/99) and higher market volatility. According to THE NEW YORK TIMES, the
Nasdaq Composite rose or fell 3% or more in a single trading session on only 40
occasions from 1971 to 1997. Between 1998 and 1999, there were 35 such
occasions. Through the first six months of 2000, there were 41, or roughly one
out of every three trading sessions year-to-date. HISTORICALLY, A MORE VOLATILE,
LOWER RETURN ENVIRONMENT HAS GENERALLY BEEN POSITIVE FOR SMALL-CAP VALUE
INVESTING, YET IT'S STILL TOO EARLY TO GAUGE WHETHER SMALL-CAPS CAN DEVELOP AND
EXTEND MARKET LEADERSHIP.
IT'S A SMALL WORLD
Although small-caps had a strong opening quarter, they actually began to
show some life late in 1999, with the Russell 2000 edging past the S&P 500 for
the calendar year (21.3% versus 21.1%). Nevertheless, expectations for our asset
class were low entering the current year, and the considerable downturn from
3/9/00 - 4/14/00 probably did little to raise many investors' hopes.
INTERMEDIATE-TERM PERFORMANCE, HOWEVER, HAS BEEN STRONG. AS SHOWN BELOW, THE
RUSSELL 2000 HELD A ONE-YEAR TRAILING RETURN ADVANTAGE AT 6/30/00 VERSUS THE S&P
500 AND AN EDGE FROM THE 10/8/98 SMALL-CAP MARKET TROUGH. In addition, the
Russell 2000 held a slight advantage from the S&P 500's market cycle low on
8/31/98 through 6/30/00 (+56.7% versus +55.6%).
[BARCHART]
RUSSELL 2000 VS. S&P 500: CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
Russell 2000 S&P 500
<S> <C> <C>
2000 YTD 3.0% -0.4%
1-YR ENDED 6/30/00 14.3% 7.3%
10/8/98 - 6/30/00 70.3% 54.9%
</TABLE>
[SIDENOTE]
Today, thanks to a once unthinkable bear market in the Nasdaq Composite and a
bursting bubble in Internet (particularly e-commerce) stock performance, we are
in a market in which the discarded investment ideas of the past -- small-cap
companies, energy stocks and value investing -- now look like great finds at an
eBay auction.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 3
<PAGE>
LETTER TO OUR STOCKHOLDERS
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After dominating performance within small-cap in late 1998, all of 1999
and early 2000, Technology stocks tumbled, losing 16% in the second quarter and
down 1% year-to-date. Timely first-quarter selling enabled all three portfolios
to avoid losing much of what we had gained in Technology before the small-cap
correction hit. In fact, the correction led us to re-purchase several Technology
issues in April and May after we had sold them earlier in the year. Energy and
Healthcare stepped in to take the lead as the Russell 2000's best-performing
sectors through 6/30/00. Energy stocks rallied following a mostly disappointing
1999 and Healthcare drew most of its performance from red-hot biotechnology
stocks in this year's first quarter. Depressed energy stock prices during 1999's
first quarter gave us the opportunity to increase our exposure to this sector in
each Fund's portfolio.
VALUE ADDED
Value began the year looking like the losing tribe on SURVIVOR, unable to
catch a fish or even start a fire. BUT AFTER FALLING BEHIND IN JANUARY AND
FEBRUARY, VALUE PROVED THAT IT COULD SURVIVE SOME PRETTY TOUGH CONDITIONS, AS
THE RUSSELL 2000 VALUE INDEX OUTPERFORMED THE RUSSELL 2000 GROWTH INDEX IN
MARCH, APRIL AND MAY, AND FOR THE YEAR-TO-DATE PERIOD AS WELL. As we would
expect, the performance edge from March through May occurred during an overall
small-cap decline of 17.3% (as measured by the Russell 2000). The Russell 2000
Value index was down 0.5% versus a loss of 26.6% for the Russell 2000 Growth
index. While the virtues of GROWTH may be alluring, inside small-cap, we think
that VALUE'S virtues are more lasting, and better suited for a long-term
investment horizon.
[LINE GRAPH]
<TABLE>
<CAPTION>
VALUE LED DURING THE DECLINE, OUTPERFORMING GROWTH
FROM 3/9/00 PEAK AND YEAR-TO-DATE
Russell 2000 Russell 2000
Value Growth
<S> <C> <C>
12/31/99 0.00% 0.00%
1/3/00 -1.83% -1.18%
1/4/00 -3.93% -6.07%
1/5/00 -3.45% -6.24%
1/6/00 -2.98% -7.72%
1/7/00 -1.11% -4.64%
1/10/00 -0.10% -0.84%
1/11/00 -1.06% -3.27%
1/12/00 -1.30% -3.96%
1/13/00 0.06% -1.15%
1/14/00 0.78% 0.49%
1/18/00 1.08% 2.21%
1/19/00 1.52% 4.09%
1/20/00 1.82% 6.31%
1/21/00 2.31% 8.18%
1/24/00 0.74% 5.66%
1/25/00 0.29% 5.47%
1/26/00 0.17% 5.39%
1/27/00 -0.57% 4.54%
1/28/00 -1.85% 1.31%
1/31/00 -2.62% -0.93%
2/1/00 -1.55% 0.86%
2/2/00 -0.96% 2.49%
2/3/00 0.21% 5.56%
2/4/00 0.22% 6.85%
2/7/00 0.68% 8.81%
2/8/00 0.59% 10.55%
2/9/00 0.10% 10.39%
2/10/00 0.15% 12.43%
2/11/00 -0.81% 11.41%
2/14/00 -0.71% 12.27%
2/15/00 -0.11% 11.97%
2/16/00 0.23% 14.24%
2/17/00 1.07% 17.20%
2/18/00 -0.60% 14.13%
2/22/00 -0.87% 12.77%
2/23/00 -0.40% 15.37%
2/24/00 -0.15% 16.61%
2/25/00 0.13% 17.29%
2/28/00 0.17% 17.58%
2/29/00 3.34% 22.12%
3/1/00 3.75% 25.35%
3/2/00 3.48% 24.11%
3/3/00 4.81% 27.91%
3/6/00 5.14% 28.86%
3/7/00 3.65% 27.72%
3/8/00 3.30% 27.77%
3/9/00 4.62% 30.65%
3/10/00 3.92% 30.36%
3/13/00 2.50% 26.81%
3/14/00 0.32% 22.56%
3/15/00 0.45% 17.97%
3/16/00 4.23% 20.44%
3/17/00 4.26% 20.61%
3/20/00 2.57% 13.31%
3/21/00 3.12% 14.17%
3/22/00 4.94% 19.08%
3/23/00 5.04% 19.84%
3/24/00 5.03% 19.96%
3/27/00 4.67% 20.03%
3/28/00 3.03% 16.31%
3/29/00 2.71% 11.28%
3/30/00 2.36% 7.78%
3/31/00 3.82% 9.28%
4/3/00 2.17% 2.82%
4/4/00 0.85% 0.40%
4/5/00 2.39% 3.33%
4/6/00 4.12% 7.03%
4/7/00 5.30% 9.65%
4/10/00 2.64% 3.44%
4/11/00 2.58% 0.69%
4/12/00 1.93% -4.37%
4/13/00 1.59% -5.51%
4/14/00 -2.66% -14.36%
4/17/00 -2.02% -13.03%
4/18/00 0.62% -5.92%
4/19/00 0.60% -5.82%
4/20/00 0.68% -7.35%
4/24/00 -0.69% -10.80%
4/25/00 2.27% -6.00%
4/26/00 2.05% -7.41%
4/27/00 3.07% -4.70%
4/28/00 4.44% -1.75%
5/1/00 5.87% 1.49%
5/2/00 4.21% -1.90%
5/3/00 2.56% -4.00%
5/4/00 3.63% -2.62%
5/5/00 5.19% -0.04%
5/8/00 4.05% -3.46%
5/9/00 3.12% -5.88%
5/10/00 1.29% -10.07%
5/11/00 3.79% -6.72%
5/12/00 4.10% -6.43%
5/15/00 5.33% -5.00%
5/16/00 6.15% -2.84%
5/17/00 5.04% -4.17%
5/18/00 3.96% -6.31%
5/19/00 2.51% -9.07%
5/22/00 1.64% -11.13%
5/23/00 0.50% -14.52%
5/24/00 1.04% -13.91%
5/25/00 0.18% -15.22%
5/26/00 0.67% -15.12%
5/30/00 2.71% -10.12%
5/31/00 2.84% -10.35%
6/1/00 4.51% -6.10%
6/2/00 6.25% -0.57%
6/5/00 5.57% -0.01%
6/6/00 5.64% -0.60%
6/7/00 6.08% 0.73%
6/8/00 5.53% 0.45%
6/9/00 6.33% 2.73%
6/12/00 5.23% -1.28%
6/13/00 6.40% -0.30%
6/14/00 6.13% -1.37%
6/15/00 6.34% -0.65%
6/16/00 6.02% 0.01%
6/19/00 7.20% 2.23%
6/20/00 7.02% 3.30%
6/21/00 6.95% 3.99%
6/22/00 4.76% 1.32%
6/23/00 4.52% -0.06%
6/26/00 5.20% 1.44%
6/27/00 4.65% -0.87%
6/28/00 6.40% 2.24%
6/29/00 5.52% 0.08%
6/30/00 5.85% 1.23%
</TABLE>
Prior to the current period, it had been more than two years since anyone
used the words "value" and "outperformance" together in the same sentence.
INTERESTINGLY, VALUE HAD OUTPERFORMED GROWTH IN EVERY RUSSELL 2000 FULL-MARKET
CYCLE SINCE THE INDEX'S INCEPTION IN 1979 EXCEPT THE MOST RECENT ONE THAT RAN
FROM 4/21/98 THROUGH 3/9/00. NOT ONLY DID VALUE
[SIDEBAR (continued)]
ANNUAL REBALANCING, AND THE SUBSEQUENT EFFECT ON A STOCK'S PRICE, FREQUENTLY
LEAD TO A FLURRY OF TRADING. INVESTORS SEEK TO ANTICIPATE THE NEW COMPOSITION,
KNOWING THAT MUTUAL FUNDS THAT MIMIC THE INDEX WILL NEED TO BUY LARGE AMOUNTS OF
THE NEW MEMBERS AND SELL OFF SHARES OF THE DISPLACED.
THE LARGEST COMPANY IN THE RUSSELL 2000 PRIOR TO THE JUNE 30 REBALANCING WAS
BROADVISION, WHICH SPORTED A MARKET CAPITALIZATION OF APPROXIMATELY $10 BILLION
- HARDLY A SMALL-CAP COMPANY. IN CONTRAST, THE LARGEST COMPANY IN THE NEW,
REBALANCED INDEX HAS A MARKET CAP OF APPROXIMATELY $3.9 BILLION. THE SMALLEST
COMPANY'S MARKET CAP IS APPROXIMATELY $80 MILLION.
THERE ARE PLENTY OF NEW NAMES IN THE REBALANCED RUSSELL 2000. APPROXIMATELY 500
COMPANIES, ABOUT 26% OF THE INDEX, WERE ADDED TO REPLACE THOSE THAT DROPPED OUT
DUE TO CAPITALIZATION CUTOFFS OR MERGERS. IN TERMS OF INDUSTRY SECTORS,
TECHNOLOGY REMAINS THE LARGEST, BUT ITS WEIGHTING HAS BEEN REDUCED FROM
APPROXIMATELY 23% TO 20%. INSIDE THE TECHNOLOGY SECTOR, THE NUMBER OF INTERNET
COMPANIES INCREASED FROM 65 TO APPROXIMATELY 160 AND THEIR TOTAL WEIGHTING MORE
THAN DOUBLED FROM 4.0% TO 8.5%.
(cont'd on page 6)
4 |THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
UNDERPERFORM IN THAT CYCLE, BUT IT ALSO POSTED A NEGATIVE RETURN OVER A FULL
CYCLE, FOR THE FIRST TIME SINCE THE INDEX'S INCEPTION. In the current cycle that
began on March 9, 2000, value has performed more in line with its historical
norm, providing substantially better down market performance. As value managers,
maybe we should be careful what we wish for -- better performance from small-cap
value may correspond with more difficult equity market conditions overall.
THE ENVELOPE, PLEASE
In the more dynamic first quarter, Royce Micro-Cap Trust outperformed the
Russell 2000 on a net asset value (NAV) basis, while the more conservatively
managed Royce Value Trust and Royce Focus Trust lagged in what was the best
first-quarter start for small-cap companies since 1991. In the more difficult
second quarter, however, all three closed-end offerings outperformed the
small-cap index on an NAV basis. In addition, both Royce Value Trust and Royce
Micro-Cap Trust were ahead of the Russell 2000 on an NAV basis year-to-date
through June 30, 2000.
[BAR CHART]
2000 YEAR-TO-DATE NAV RESULTS FOR THE ROYCE FUNDS VS. RUSSELL 2000
<TABLE>
<CAPTION>
Royce Value Royce Micro-Cap Royce Focus Russell
Trust Trust Trust 2000
<S> <C> <C> <C>
7.77% 11.18% 0.84% 3.04%
</TABLE>
Performance in the new small-cap market cycle that began on March 9
struck a relatively more encouraging note -- all three funds were ahead of the
small-cap benchmark, with Royce Value Trust and Royce Focus Trust off less than
1%. In contrast, the Russell 2000 was off 14.4% from the March 9, 2000 peak
through June 30. Noteworthy performance was turned in by Royce Micro-Cap Trust,
our best closed-end year-to-date performer, +11.2% year-to-date through 6/30/00.
While we are pleased with recent relative performance, we know that we have to
maintain some perspective on what has so far been a near-term recovery for
small-cap value (for more complete performance information, see pages 10-17).
[SIDENOTE]
Prior to the current period, it had been more than two years since anyone used
the words "value" and "outperformance" together in the same sentence.
5 |THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
LETTER TO OUR STOCKHOLDERS
-------------------------------------------------------------------------------
[GRAPHIC: The Royce Funds baseball team Blaustein 2000]
CYCLICAL MARKETS, EMOTIONAL INVESTORS
Many investors simply go where the action is, or where they think it is.
Media stories focusing on the return to traditional measures of valuation may
not represent anything more than the fact that value is what seems to be working
right now. Unless they are avowed value investors like ourselves, most people
are not terribly philosophical about investing, they simply want the best
returns. If better returns seem to be coming from stocks with attractive
valuations, then that is where the money will flow. While this may appear to be
cynicism on our part, it actually represents our ongoing faith both in cyclical
markets and emotional investors.
While momentum and emotion will remain potent motivators, most investors
now seem to realize that millions are not easily made by answering trivial
questions on a one-hour game show or by investing in every stock whose name
begins with a small "e" or "i." Throughout the euphoria of the previous cycle,
we resisted the siren song of what looked like easy, short-term gains. Instead,
we chose to concentrate on a
[SIDENOTE]
Throughout the euphoria of the previous cycle, we resisted the siren song of
what looked like easy, short-term gains. Instead, we chose to concentrate on a
long-term time frame and continued to select securities using the same criteria
that we always have, even though our methods looked antiquated to some observers
at the time.
[SIDEBAR]
Financial Services remains the second largest sector, followed by Consumer
Services, Healthcare and Capital Goods.
The new, rebalanced Russell 2000 contains more companies with no expected
earnings - according to data from First Call and I/B/E/S, approximately 20% are
expected to lose money, versus 14% from the previously constructed small-cap
index. The newly constructed Russell 2000 is cheaper in terms of valuation as
measured by both P/E (Price Earnings) and PEG (P/E-to-Growth) ratios.
Despite a rebalancing policy that generally results in substantial annual
changes, as well as significant competition from other vendors (S&P, Wilshire,
Callan, Lipper and soon, Dow Jones), Russell remains the oldest and probably the
most recognizable small-cap index.
Reconstituted Index data provided by Frank Russell Co. and Morgan Stanley Dean
Witter.
6 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
[PHOTO]
(L-R) CHARLIE DREIFUS, JACK FOCKLER, BUZZ ZAINO,
WHITNEY GEORGE, CHUCK ROYCE
long-term time frame and continued to select securities using the same criteria
that we always have, even though our methods looked antiquated to some
observers at the time. Today, this same approach may look like the next big
thing to some of those same people. REGARDLESS OF WHAT'S TRENDY, WE STILL
BELIEVE THAT PORTFOLIO DIVERSIFICATION, ATTRACTIVE VALUATIONS AND LONG-TERM
INVESTING CAN CONTINUE TO HELP PEOPLE MEET THEIR FINANCIAL GOALS, REGARDLESS
OF WHETHER THEY WANT TO BE "MILLIONAIRES" OR JUST "SURVIVORS."
LOWER OVERALL RETURNS, BETTER SMALL-CAP VALUE PERFORMANCE?
We have been claiming that the market's high returns were too good to
last (our own take on "irrational exuberance") since 1997. However poor or
premature our forecasting has been, our guess is that equity returns going
forward will be closer to their historical norms than they were through the late
`90s, and that this would be a positive development for small-cap value
investors. More historically typical equity returns do not necessarily mean
lower, or negative, small-cap returns. WHILE HISTORICAL MARKET PERFORMANCE IS
NOT NECESSARILY INDICATIVE OF FUTURE RESULTS, OUR RESEARCH INDICATES THAT WHEN
THE S&P 500 HAS PROVIDED WHAT WE VIEW AS A MORE NORMAL LEVEL OF RETURN (13.8% OR
LOWER ON A ROLLING 10-YEAR BASIS), SMALL-CAPS TENDED TO OUTPERFORM LARGE-CAPS ON
AVERAGE ABOUT 80% OF THE TIME.*
We believe that small-caps are finally reversing the significant
performance divergence that previously plagued the asset class. IN FACT, WE
THINK THAT THE MAJOR MARKET PEAKS IN MARCH COINCIDED WITH A LEADERSHIP SHIFT
FAVORING SMALL-CAPS IN GENERAL AND SMALL-CAP VALUE IN PARTICULAR. At a minimum,
we think we are in the early innings of a new game, prepared as always to play
every inning with the same consistent approach.
Finally, we invite you to visit our continually evolving website at
www.roycefunds.com and to meet on page 8 of this report two of our valued team
members, Espie Spaulding and Dan O'Byrne, who make it a pleasure to work at
Royce & Associates.
Sincerely,
/s/ Charles M. Royce /s/ W. Whitney George /s/ Jack E. Fockler, Jr.
Charles M. Royce W. Whitney George Jack E. Fockler, Jr.
PRESIDENT VICE PRESIDENT VICE PRESIDENT
July 31, 2000
* Our examination of 10-year rolling return periods from 1936 - 1999, including
what we designated as above-average, average and below-average returns, showed
that small-cap stocks outperformed large-cap stocks in 82% of the average and
below-average S&P 500 10-year return periods and underperformed in 75% of the
above-average S&P 500 10-year return periods. For small-cap stocks, we used
the Center for Research in Security Prices 6-10 index, an unmanaged composite
of the bottom five deciles of stocks listed on the New York Stock Exchange,
the American Stock Exchange and the Nasdaq National Market. For large-cap
stocks, we used the S&P 500, an unmanaged index of domestic large-cap
stocks.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 7
<PAGE>
THROUGH THEIR EYES
-------------------------------------------------------------------------------
IN A BUSINESS CHARACTERIZED BY HIGH EMPLOYEE TURNOVER IN A CITY WHERE PEOPLE
COME AND GO WITH ALARMING SPEED, WE ARE PROUD TO COUNT MANY LONG-TERM STAFF
MEMBERS. IN FACT, AS OF JUNE 30, 2000, 44% OF ROYCE EMPLOYEES HAVE BEEN WITH THE
FIRM MORE THAN FIVE YEARS. THE EVOLUTION OF THE FIRM IS CHARTED BELOW THROUGH
THE EYES OF TWO PEOPLE WHO CONTINUE TO MAKE SIGNIFICANT CONTRIBUTIONS, AND WHO
MAKE WORKING AT ROYCE THE SPECIAL EXPERIENCE THAT IT IS.
[PHOTO]
ESPIE SPAULDING
ESPIE IS CHUCK ROYCE'S ADMINISTRATIVE ASSISTANT.
How did a chance meeting at a Manhattan jeweler result in one of our
longest-term employees getting her job in 1984? The answer takes us back to
1969, when Chuck Royce was providing outside research information to the manager
of Pennsylvania Mutual Fund. Esperanza Spaulding was working as a Client Service
Representative for the Fund. In June 1973, Chuck became the portfolio manager of
the Fund and President and Chief Investment Officer of Quest Advisory Corp.
Earlier that year, however, Espie had left her job on maternity leave, devoting
most of the next 11 years to being a full-time mother to her son.
Fast-forward to 1984, when a small-cap value fund manager strolls into a
well-known Manhattan jeweler looking for a gift and chats with a salesman
named Tommy Spaulding (Espie's husband). Soon into their conversation, their
connection dawned on them. Chuck asked Tommy to have Espie call him if she
were interested in working in the mutual fund business again. So in September
1984, Espie found herself working directly for Chuck. Espie's proximity to
the reception area and her excellent interpersonal skills soon led to
increased receptionist and administrative responsibilities as well.
She remembers the fall of 1986 as perhaps the most memorable of these
times. The firm was preparing to go public with the first small-cap value
closed-end fund, Royce Value Trust. "To this day, I've never seen anything quite
like Chuck, Tom Ebright and Joanne Newgard working day and night for two
straight weeks, trying to raise the money for the $100 million offering." While
the three of them were out on the road, Espie played a crucial part in keeping
business running smoothly at the firm's office. She even saved RVT's first order
ticket as a souvenir.
Espie enjoys her work at Royce and the opportunity to continue learning.
She says that she feels more like "Chuck's time management consultant" than his
assistant, as she organizes his schedule, offers regular reminders as to what's
happening next and keeps the rest of us apprised of his agenda. Espie also
believes that her 20-plus years at Royce have given her the chance to grow and
mature personally and professionally.
[SIDENOTE]
How did a chance meeting at a Manhattan jeweler result in one of our
longest-term employees getting her job in 1984? The answer takes us back to
1969.
8 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
-------------------------------------------------------------------------------
[PHOTO]
DAN O'BYRNE
DAN IS CURRENTLY VICE PRESIDENT AND A PRINCIPAL OF ROYCE & ASSOCIATES (THE ROYCE
FUNDS' INVESTMENT ADVISER) AND VICE PRESIDENT AND ASSISTANT SECRETARY OF THE
ROYCE FUNDS. HE PLAYS AN IMPORTANT ROLE IN OFFICE MANAGEMENT AND TRADING.
In 1986, Dan O'Byrne was tending bar at one of the many Irish pubs that populate
Manhattan's East Side. Having graduated from University College, Dublin in 1983,
he had tried his hand at various far-flung sales jobs in his native Ireland,
selling everything from insurance to hardware to men's clothing. Wanting a
change, he had come to New York City in 1985. Tending bar was lucrative, but the
nights were long and the work was often draining. Too many shifts ended with Dan
"arriving home at 6 a.m. just in time to see my wife off to work at 7." Dan's
wife, Mary, then herself a Royce employee, told him that a part-time position
was available as a mutual fund Client Service Representative for Pennsylvania
Mutual Fund, our sole offering at the time. Dan accepted the job, but also hung
on to a few shifts at the bar. "A wise move," he says, "since taking the
position at Royce initially meant a 75% pay cut. But the opportunity was too
good to turn down."
His first important assignment at Royce was researching series funds and
multiple class funds, a new trend in the mutual fund business back in 1986. In
1988, he moved from the mutual fund area to a position with the investment
adviser. He continued to work in multiple capacities, including helping to set
up appointments for company visits, answering the phone, and doing some "back
office" work settling trades. As it happened, his desk in the reception area was
next to the trading area. Soon, he was helping out as a trader, virtually full
time.
"I really enjoyed trading. I loved the quick, instant gratification you
get from doing a trade. What I didn't like about it," Dan says, "was that you
couldn't get away from the desk during the trading day and leave the phone. So
there was little time for other projects." By 1994, Dan's contributions to
several other projects, including the design of our internal Portfolio
Management System software, resulted in less time at the trading desk and more
attention to managerial and administrative duties. These changes coincided with
the expansion of Royce & Associates, as we added more funds, services and
employees throughout the `90s.
Dan credits his skills as a bartender in helping him become an effective
trader. He developed the ability to listen to several people at once while still
working and remaining "effective amidst the chaos." He sees the advent of
electronic trading systems and the attendant technological innovations that have
followed as critical developments for the industry, resulting in "a more
transparent market, which has been good for everyone." Having Dan around has
certainly been good for us.
[SIDENOTE]
Dan credits his ability to listen to several people at once in helping him
become an effective trader.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 |9
<PAGE>
SMALL-CAP MARKET CYCLE PERFORMANCE
-------------------------------------------------------------------------------
The last full market cycle for small-caps included a long up phase, punctuated
by a recent downturn. This cycle, which ended with a peak on March 9, 2000,
marked the first time that VALUE underperformed GROWTH over a full market cycle
since the Russell 2000's 1979 inception. It was also the first time that VALUE
posted a negative return for a full market cycle. Since then, the small-cap
index has endured a major correction, losing 25.1% through its recent trough on
April 14, 2000. Although the index has rallied 14.2% from this trough through
6/30/00, it remains almost 15% below its historical peak.
[LINE CHART]
<TABLE>
<CAPTION>
1998 - 2000 SMALL-CAP MARKET CYCLE:
RUSSELL 2000 INDICES TOTAL RETURNS
Russell Russell 2000 Russell 2000
2000 Value Growth
<S> <C> <C> <C>
Dec-97 0.00% 0.00% 0.00%
-0.13% 0.04% -0.30%
-0.01% -0.09% 0.07%
-0.91% -0.95% -0.87%
-1.65% -1.70% -1.60%
-2.57% -2.49% -2.66%
-5.47% -4.87% -6.12%
-5.95% -5.08% -6.88%
-4.21% -4.06% -4.37%
-3.41% -3.21% -3.62%
-3.44% -3.29% -3.60%
-2.39% -2.26% -2.53%
-1.25% -1.46% -1.02%
-1.59% -1.92% -1.25%
-2.43% -2.50% -2.35%
-2.76% -2.92% -2.59%
-3.64% -3.39% -3.89%
-3.29% -3.05% -3.55%
-1.92% -1.99% -1.84%
-1.14% -1.51% -0.74%
-1.58% -1.81% -1.33%
-1.58% -1.81% -1.33%
-0.60% -1.12% -0.04%
0.15% -0.63% 0.99%
1.10% -0.04% 2.32%
1.61% 0.42% 2.88%
1.95% 0.79% 3.19%
2.37% 1.03% 3.79%
3.26% 1.83% 4.78%
3.47% 2.02% 5.01%
3.56% 2.16% 5.05%
4.00% 2.42% 5.69%
3.71% 2.36% 5.14%
4.06% 2.65% 5.56%
3.96% 2.43% 5.59%
3.91% 2.44% 5.48%
4.43% 2.99% 5.97%
3.98% 2.86% 5.18%
4.94% 3.60% 6.37%
5.65% 4.13% 7.27%
5.70% 4.13% 7.38%
5.70% 4.13% 7.38%
5.62% 4.19% 7.14%
5.84% 4.63% 7.13%
5.77% 4.41% 7.22%
4.55% 3.40% 5.78%
6.12% 4.63% 7.70%
5.51% 4.42% 6.68%
6.30% 4.97% 7.72%
6.88% 5.48% 8.38%
7.04% 5.53% 8.66%
7.27% 5.64% 9.01%
7.95% 6.19% 9.82%
7.78% 6.47% 9.19%
8.07% 6.64% 9.59%
8.56% 6.93% 10.31%
8.56% 7.05% 10.17%
8.51% 6.86% 10.26%
9.04% 7.38% 10.81%
9.20% 7.55% 10.96%
9.37% 7.73% 11.12%
9.25% 7.57% 11.04%
9.06% 7.38% 10.85%
10.06% 8.35% 11.88%
11.04% 9.07% 13.13%
11.36% 9.48% 13.36%
11.22% 9.45% 13.11%
10.33% 8.93% 11.83%
8.83% 7.97% 9.76%
8.87% 7.69% 10.13%
9.95% 8.55% 11.44%
9.84% 8.66% 11.09%
11.04% 9.61% 12.58%
11.59% 9.90% 13.39%
10.96% 9.12% 12.92%
11.56% 9.80% 13.44%
11.95% 9.96% 14.08%
12.55% 10.43% 14.81%
12.50% 10.71% 14.41%
11.09% 9.65% 12.64%
10.03% 8.65% 11.50%
7.35% 6.30% 8.48%
8.27% 6.84% 9.79%
9.30% 7.52% 11.20%
10.67% 8.89% 12.57%
11.15% 9.49% 12.92%
11.26% 9.64% 12.98%
10.42% 8.89% 12.04%
9.90% 8.46% 11.44%
9.14% 7.91% 10.45%
9.94% 8.43% 11.55%
9.35% 8.16% 10.63%
9.17% 7.98% 10.43%
9.48% 8.23% 10.81%
9.03% 7.90% 10.23%
8.31% 7.33% 9.37%
7.19% 6.59% 7.85%
7.94% 7.24% 8.70%
7.41% 6.92% 7.95%
7.11% 6.76% 7.50%
6.15% 5.99% 6.35%
4.35% 4.64% 4.07%
3.26% 3.53% 2.99%
4.55% 4.63% 4.49%
4.71% 5.03% 4.39%
4.71% 5.03% 4.39%
3.47% 4.41% 2.50%
3.15% 4.15% 2.13%
3.03% 4.17% 1.86%
3.63% 4.57% 2.66%
4.20% 4.98% 3.41%
4.68% 5.30% 4.04%
4.75% 5.21% 4.29%
3.47% 4.33% 2.60%
1.94% 2.96% 0.89%
1.35% 2.25% 0.42%
-0.42% 0.79% -1.66%
0.62% 1.31% -0.09%
1.93% 2.40% 1.46%
0.92% 1.39% 0.45%
0.61% 0.96% 0.26%
1.34% 1.52% 1.17%
2.66% 2.38% 2.97%
3.61% 3.07% 4.19%
3.31% 2.85% 3.81%
3.37% 3.09% 3.68%
4.14% 3.74% 4.58%
Jun-98 4.93% 4.44% 5.46%
5.50% 5.25% 5.80%
5.16% 5.13% 5.23%
5.56% 5.36% 5.80%
5.35% 5.40% 5.35%
5.55% 5.40% 5.75%
5.56% 5.48% 5.70%
5.21% 5.01% 5.45%
5.29% 4.84% 5.78%
5.44% 4.98% 5.93%
6.04% 5.24% 6.87%
6.43% 5.45% 7.43%
6.14% 5.20% 7.10%
6.05% 4.79% 7.34%
4.75% 3.68% 5.85%
3.55% 2.57% 4.54%
1.58% 1.00% 2.19%
0.71% 0.13% 1.31%
-0.54% -1.00% -0.05%
-1.84% -2.19% -1.46%
-2.15% -2.34% -1.92%
-1.37% -1.77% -0.93%
-3.57% -3.74% -3.35%
-5.04% -4.71% -5.33%
-7.73% -7.14% -8.27%
-8.40% -7.56% -9.19%
-6.58% -6.05% -7.05%
-4.47% -4.30% -4.58%
-5.43% -5.24% -5.56%
-7.96% -7.50% -8.37%
-6.11% -5.87% -6.31%
-7.19% -6.68% -7.66%
-7.45% -6.69% -8.14%
-7.18% -6.52% -7.79%
-5.50% -5.09% -5.86%
-6.74% -6.16% -7.27%
-7.67% -6.91% -8.37%
-9.05% -8.08% -9.96%
-9.51% -8.37% -10.57%
-10.42% -9.22% -11.55%
-12.55% -11.06% -13.97%
-15.86% -13.93% -17.70%
-17.58% -15.17% -19.89%
-22.29% -18.82% -25.66%
-19.96% -17.23% -22.59%
-18.91% -16.46% -21.28%
-20.38% -17.83% -22.86%
-20.20% -17.62% -22.71%
-16.77% -15.07% -18.40%
-18.89% -16.83% -20.89%
-20.67% -18.44% -22.82%
-18.67% -16.77% -20.51%
-17.71% -16.05% -19.31%
-17.70% -15.76% -19.59%
-17.17% -15.47% -18.82%
-18.23% -16.29% -20.09%
-16.40% -14.41% -18.32%
-16.54% -14.51% -18.50%
-15.25% -13.43% -17.01%
-13.44% -12.01% -14.83%
-14.77% -13.12% -16.36%
-15.04% -13.54% -16.50%
-15.22% -13.57% -16.82%
-15.73% -13.90% -17.50%
-16.21% -14.23% -18.12%
-19.31% -16.52% -22.01%
-19.36% -16.15% -22.46%
-22.34% -18.39% -26.16%
-23.33% -19.25% -27.28%
-25.71% -21.01% -30.25%
-28.48% -23.56% -33.25%
-26.62% -22.48% -30.63%
-24.95% -21.65% -28.15%
-26.15% -22.64% -29.53%
-25.07% -21.85% -28.19%
-22.79% -20.21% -25.28%
-20.91% -18.50% -23.23%
-18.71% -16.59% -20.75%
-17.37% -15.13% -19.54%
-16.99% -14.84% -19.06%
-15.50% -13.61% -17.32%
-15.36% -13.63% -17.03%
-14.22% -12.61% -15.77%
-14.36% -12.95% -15.72%
-14.35% -13.01% -15.64%
-13.66% -12.41% -14.86%
-12.79% -11.69% -13.85%
-10.82% -10.14% -11.47%
-10.66% -9.96% -11.32%
-9.40% -8.84% -9.92%
-8.51% -7.87% -9.12%
-7.70% -7.27% -8.11%
-8.15% -8.01% -8.27%
-8.49% -8.44% -8.53%
-9.26% -9.15% -9.36%
-9.55% -9.45% -9.63%
-10.19% -9.91% -10.45%
-9.93% -10.02% -9.83%
-10.17% -10.38% -9.95%
-9.56% -10.13% -9.00%
-9.04% -9.74% -8.35%
-9.04% -9.78% -8.30%
-8.16% -9.46% -6.89%
-8.51% -9.53% -7.50%
-7.88% -9.05% -6.72%
-7.25% -8.89% -5.65%
-8.22% -9.30% -7.17%
-8.00% -9.04% -6.97%
-8.27% -9.36% -7.20%
-8.85% -9.80% -7.91%
-8.07% -9.23% -6.93%
-7.41% -8.68% -6.16%
-7.33% -8.92% -5.79%
-7.21% -9.03% -5.43%
-8.47% -10.04% -6.94%
-8.73% -10.34% -7.16%
-10.45% -11.56% -9.36%
-10.07% -11.40% -8.77%
-10.00% -11.42% -8.61%
-9.08% -10.90% -7.31%
-8.24% -10.51% -6.04%
-7.25% -9.98% -4.61%
-7.62% -10.36% -4.97%
-6.57% -9.71% -3.53%
-6.39% -9.64% -3.24%
-5.78% -9.45% -2.22%
-5.24% -8.99% -1.61%
-4.87% -8.42% -1.44%
Dec-98 -2.55% -6.45% 1.23%
-2.69% -6.07% 0.57%
-2.50% -5.85% 0.75%
-1.18% -5.14% 2.65%
-1.14% -5.59% 3.17%
-0.35% -5.22% 4.35%
0.13% -5.77% 5.80%
-1.20% -6.85% 4.23%
-1.79% -7.09% 3.31%
-2.90% -8.19% 2.19%
-1.32% -6.97% 4.11%
-0.40% -6.86% 5.81%
-0.47% -6.99% 5.80%
-1.99% -7.98% 3.77%
-2.36% -8.16% 3.22%
-2.45% -8.19% 3.07%
-1.71% -7.86% 4.20%
-2.68% -9.06% 3.46%
-2.01% -9.03% 4.74%
-1.25% -8.57% 5.78%
-1.51% -9.04% 5.72%
-2.50% -9.74% 4.45%
-2.04% -9.68% 5.29%
-3.40% -10.68% 3.59%
-4.54% -11.34% 1.98%
-4.88% -11.27% 1.26%
-6.78% -12.09% -1.67%
-7.94% -13.17% -2.91%
-6.05% -12.53% 0.17%
-7.86% -13.94% -2.02%
-8.29% -14.24% -2.58%
-9.86% -15.20% -4.73%
-9.52% -14.62% -4.61%
-9.23% -14.56% -4.10%
-7.97% -13.70% -2.45%
-7.70% -13.74% -1.89%
-8.57% -14.55% -2.83%
-9.14% -14.94% -3.57%
-9.25% -14.82% -3.89%
-8.76% -14.50% -3.23%
-8.75% -14.76% -2.97%
-9.31% -15.03% -3.81%
-8.82% -14.66% -3.21%
-7.90% -14.08% -1.98%
-7.43% -14.35% -0.81%
-7.61% -14.58% -0.92%
-7.15% -14.25% -0.34%
-7.14% -14.19% -0.39%
-7.76% -14.41% -1.38%
-7.19% -14.15% -0.52%
-7.58% -14.79% -0.66%
-7.74% -14.90% -0.88%
-7.48% -14.92% -0.35%
-8.17% -15.43% -1.21%
-8.96% -15.99% -2.21%
-11.22% -17.37% -5.31%
-10.96% -17.19% -4.98%
-8.97% -16.05% -2.18%
-8.75% -15.93% -1.87%
-7.36% -15.04% 0.00%
-7.57% -15.22% -0.25%
-7.83% -15.52% -0.47%
-7.57% -15.36% -0.12%
-6.75% -14.99% 1.12%
-7.03% -15.56% 1.11%
-7.79% -16.09% 0.15%
-7.29% -15.85% 0.89%
-5.91% -14.82% 2.60%
-4.41% -13.97% 4.70%
-3.26% -13.63% 6.62%
-3.21% -12.21% 5.38%
-3.14% -11.50% 4.87%
-2.23% -10.00% 5.22%
-4.35% -9.39% 0.55%
-3.67% -9.90% 2.34%
-1.07% -8.75% 6.29%
-0.55% -8.65% 7.21%
0.13% -8.30% 8.19%
0.88% -8.72% 10.05%
0.93% -8.33% 9.77%
0.57% -7.64% 8.44%
0.45% -7.41% 7.98%
0.43% -7.81% 8.32%
0.54% -7.26% 8.02%
0.38% -6.92% 7.39%
0.78% -6.91% 8.15%
0.57% -6.47% 7.34%
1.21% -6.11% 8.24%
2.55% -5.07% 9.87%
3.70% -4.46% 11.53%
4.28% -4.44% 12.64%
4.67% -3.85% 12.83%
2.88% -5.09% 10.53%
2.46% -5.75% 10.33%
2.74% -5.69% 10.81%
3.60% -5.05% 11.89%
4.04% -4.39% 12.12%
4.29% -3.76% 12.01%
2.27% -4.87% 9.11%
0.89% -5.40% 6.93%
1.11% -5.47% 7.43%
0.55% -5.83% 6.68%
1.89% -4.97% 8.49%
1.61% -4.69% 7.67%
1.45% -4.82% 7.49%
1.28% -4.76% 7.10%
2.76% -4.10% 9.34%
3.81% -3.66% 10.98%
3.13% -4.04% 10.02%
3.44% -4.05% 10.62%
2.75% -4.54% 9.75%
1.79% -5.08% 8.39%
0.28% -5.46% 5.82%
0.83% -4.87% 6.33%
2.54% -4.04% 8.87%
3.05% -3.62% 9.47%
3.44% -3.38% 10.00%
4.46% -2.85% 11.49%
3.97% -2.93% 10.62%
3.92% -3.11% 10.67%
3.02% -3.71% 9.50%
3.02% -3.54% 9.33%
4.32% -2.49% 10.87%
5.61% -1.81% 12.73%
Jun-99 6.50% -1.53% 14.21%
5.74% -1.98% 13.10%
6.22% -1.81% 13.92%
6.22% -2.01% 14.15%
5.34% -2.60% 12.95%
5.82% -2.29% 13.62%
6.58% -1.68% 14.53%
6.89% -1.45% 14.92%
6.62% -1.67% 14.59%
7.41% -1.49% 16.04%
8.41% -0.89% 17.48%
8.28% -0.91% 17.23%
7.39% -1.38% 15.88%
5.57% -2.44% 13.25%
5.82% -2.25% 13.58%
5.10% -2.53% 12.37%
4.38% -3.18% 11.58%
3.10% -3.86% 9.67%
3.95% -3.48% 11.01%
3.98% -3.62% 11.24%
2.83% -4.47% 9.77%
3.58% -3.87% 10.67%
3.08% -4.00% 9.77%
1.61% -4.79% 7.58%
0.08% -5.70% 5.38%
0.09% -5.84% 5.57%
-0.29% -6.16% 5.11%
-0.79% -6.33% 4.27%
-1.50% -6.89% 3.39%
-0.23% -6.04% 5.12%
-0.08% -6.23% 5.62%
1.13% -5.68% 7.55%
1.09% -5.85% 7.66%
1.60% -5.51% 8.34%
0.94% -5.99% 7.49%
0.86% -5.81% 7.12%
1.24% -5.45% 7.53%
1.90% -5.15% 8.58%
1.88% -5.32% 8.72%
2.06% -5.47% 9.27%
1.63% -5.78% 8.71%
0.81% -6.42% 7.69%
-0.36% -7.42% 6.34%
-0.25% -7.38% 6.53%
0.50% -6.91% 7.58%
-0.33% -7.52% 6.53%
1.65% -6.24% 9.24%
2.19% -6.00% 10.11%
1.66% -6.45% 9.50%
2.09% -6.29% 10.22%
2.88% -5.96% 11.51%
2.55% -6.19% 11.06%
2.22% -6.74% 10.97%
1.79% -6.71% 10.04%
0.38% -7.91% 8.42%
1.36% -7.43% 9.93%
1.06% -7.86% 9.78%
-0.50% -9.02% 7.81%
-0.24% -9.24% 8.57%
-1.95% -10.48% 6.38%
-2.67% -10.98% 5.41%
-1.56% -10.20% 6.88%
-2.31% -10.79% 5.97%
-1.60% -10.35% 6.97%
-0.23% -9.24% 8.59%
-1.12% -9.90% 7.48%
-0.40% -9.50% 8.53%
-0.54% -9.74% 8.49%
0.36% -9.39% 9.97%
-0.03% -9.84% 9.66%
-0.12% -10.04% 9.68%
0.46% -9.84% 10.67%
-0.82% -10.96% 9.24%
-2.06% -11.60% 7.37%
-2.05% -11.93% 7.73%
-3.14% -12.45% 6.04%
-4.49% -13.19% 4.05%
-4.01% -13.39% 5.26%
-3.31% -13.43% 6.74%
-3.22% -13.61% 7.11%
-2.19% -12.54% 8.10%
-2.40% -12.70% 7.82%
-2.87% -13.09% 7.28%
-2.62% -12.67% 7.35%
-1.21% -11.69% 9.21%
0.17% -11.05% 11.37%
0.90% -10.67% 12.47%
1.04% -10.31% 12.36%
2.48% -9.65% 14.62%
2.82% -9.83% 15.50%
3.40% -9.72% 16.59%
4.03% -9.65% 17.80%
4.32% -9.68% 18.43%
4.91% -9.64% 19.59%
4.62% -10.01% 19.40%
5.13% -9.68% 20.09%
5.90% -9.19% 21.14%
6.82% -8.77% 22.60%
6.83% -8.97% 22.82%
7.99% -8.42% 24.61%
7.80% -8.83% 24.67%
7.69% -9.57% 25.23%
6.22% -10.54% 23.22%
6.57% -10.64% 24.05%
7.26% -10.37% 25.19%
6.83% -10.86% 24.82%
6.15% -10.59% 23.15%
6.07% -10.68% 23.06%
7.65% -10.23% 25.82%
8.62% -9.93% 27.50%
8.90% -10.43% 28.60%
8.90% -10.92% 29.11%
9.63% -11.33% 31.04%
8.71% -12.09% 29.97%
9.13% -12.09% 30.83%
10.02% -11.88% 32.42%
8.22% -12.56% 29.46%
7.93% -12.51% 28.80%
8.86% -12.22% 30.41%
9.09% -12.07% 30.70%
9.32% -12.09% 31.20%
11.32% -11.28% 34.46%
11.83% -11.17% 35.39%
12.88% -10.41% 36.72%
13.34% -10.41% 37.67%
14.31% -10.23% 39.46%
16.40% -8.85% 42.29%
16.26% -9.02% 42.19%
Dec-99 18.17% -7.84% 44.85%
16.47% -9.53% 43.15%
12.01% -11.47% 36.06%
12.11% -11.02% 35.81%
11.29% -10.59% 33.67%
14.36% -8.87% 38.13%
17.53% -7.93% 43.63%
15.35% -8.82% 40.11%
14.75% -9.04% 39.12%
17.38% -7.79% 43.18%
18.89% -7.12% 45.56%
20.25% -6.85% 48.06%
21.78% -6.44% 50.77%
23.50% -6.17% 53.99%
25.06% -5.72% 56.71%
22.53% -7.16% 53.05%
22.18% -7.58% 52.77%
22.07% -7.69% 52.66%
21.12% -8.37% 51.43%
18.22% -9.55% 46.75%
16.27% -10.25% 43.50%
18.05% -9.27% 46.09%
19.49% -8.73% 48.46%
22.22% -7.65% 52.90%
23.14% -7.64% 54.78%
24.76% -7.22% 57.61%
25.95% -7.30% 60.13%
25.61% -7.75% 59.90%
27.08% -7.70% 62.86%
25.91% -8.59% 61.38%
26.57% -8.50% 62.63%
26.63% -7.95% 62.19%
28.40% -7.63% 65.47%
30.91% -6.86% 69.76%
27.94% -8.40% 65.32%
26.84% -8.64% 63.35%
28.91% -8.22% 67.12%
29.92% -7.98% 68.91%
30.53% -7.73% 69.90%
30.76% -7.68% 70.32%
35.47% -4.77% 76.89%
37.96% -4.38% 81.57%
36.95% -4.64% 79.77%
40.29% -3.41% 85.28%
41.11% -3.11% 86.65%
39.60% -4.48% 85.00%
39.48% -4.80% 85.07%
42.15% -3.58% 89.25%
41.62% -4.23% 88.83%
38.42% -5.54% 83.69%
34.37% -7.55% 77.53%
31.16% -7.43% 70.89%
34.69% -3.94% 74.45%
34.82% -3.92% 74.70%
28.83% -5.47% 64.13%
29.70% -4.97% 65.38%
34.05% -3.30% 72.49%
34.64% -3.19% 73.59%
34.72% -3.21% 73.77%
34.61% -3.54% 73.87%
31.18% -5.05% 68.47%
27.45% -5.34% 61.19%
24.78% -5.67% 56.12%
26.54% -4.32% 58.30%
21.14% -5.85% 48.94%
18.79% -7.06% 45.43%
21.61% -5.64% 49.68%
25.06% -4.05% 55.04%
27.48% -2.96% 58.83%
21.81% -5.41% 49.84%
19.81% -5.47% 45.85%
15.89% -6.06% 38.53%
14.91% -6.38% 36.87%
6.59% -10.29% 24.05%
7.84% -9.71% 25.97%
14.16% -7.27% 36.27%
14.23% -7.29% 36.42%
13.17% -7.21% 34.20%
10.06% -8.48% 29.21%
14.88% -5.75% 36.16%
13.76% -5.95% 34.11%
16.18% -5.01% 38.04%
18.93% -3.76% 42.31%
21.92% -2.44% 47.01%
18.71% -3.97% 42.10%
16.44% -5.48% 39.06%
17.93% -4.50% 41.06%
20.50% -3.06% 44.79%
17.51% -4.11% 39.83%
15.35% -4.97% 36.34%
11.48% -6.66% 30.26%
15.05% -4.35% 35.12%
15.40% -4.07% 35.54%
17.00% -2.93% 37.62%
18.93% -2.18% 40.74%
17.46% -3.20% 38.81%
15.42% -4.20% 35.71%
12.77% -5.53% 31.71%
10.88% -6.33% 28.73%
7.91% -7.38% 23.82%
8.60% -6.89% 24.71%
7.26% -7.68% 22.80%
7.56% -7.22% 22.95%
12.10% -5.35% 30.19%
Jun-00 11.99% -5.22% 29.85%
15.84% -3.69% 36.01%
20.65% -2.08% 44.03%
20.74% -2.71% 44.83%
20.34% -2.65% 43.98%
21.51% -2.24% 45.92%
21.06% -2.75% 45.51%
23.07% -2.01% 48.80%
19.66% -3.03% 43.00%
20.91% -1.95% 44.42%
20.01% -2.20% 42.87%
20.63% -2.00% 43.91%
20.96% -2.30% 44.87%
23.10% -1.21% 48.07%
23.79% -1.38% 49.63%
24.26% -1.44% 50.63%
21.33% -3.46% 46.76%
20.22% -3.68% 44.76%
21.62% -3.05% 46.94%
</TABLE>
<TABLE>
<CAPTION>
PEAK TO PEAK PEAK TO TROUGH PEAK TO CURRENT
4/21/98 - 3/9/00 3/9/00 - 4/14/00 3/9/00 - 6/30/00
<S> <C> <C> <C>
Russell 2000 26.3% -25.1% -14.4%
Russell 2000 Value -12.7 -7.0 1.2
Russell 2000 Growth 64.8 -34.5 -22.5
NAV CUMULATIVE
TOTAL RETURN
Royce Value Trust 10.0 -8.8 -0.7
Royce Micro-Cap Trust 10.6 -13.4 -3.5
Royce Focus Trust -10.7 -4.1 -1.0
</TABLE>
1998 - 2000 SMALL-CAP MARKET CYCLE: GROWTH outperformed VALUE over the full
market cycle for the first time in the history of the Russell 2000. In fact,
VALUE generated a negative return for the period. ROYCE PERFORMANCE WAS MIXED --
ALL THREE FUNDS TRAILED THE RUSSELL 2000, BUT OUTPERFORMED THE RUSSELL 2000
VALUE INDEX.
2000 SMALL-CAP PEAK-TO-CURRENT PERIOD: Since the new small-cap peak, VALUE has
returned to form, providing a positive return while GROWTH and the general
small-cap index suffered double-digit declines. ALL THREE FUNDS HAVE
OUTPERFORMED THE RUSSELL 2000 OVER THIS PERIOD.
10 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<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>
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 54,313 47,506
3/8/99 Distribution $0.37 11.875 108
6/7/99 Distribution $0.34 13.313 91
9/7/99 Distribution $0.33 12.688 95
12/6/99 Distribution $0.33 12.750 97 60,653 50,239
3/6/00 Distribution $0.33 13.750 92
6/6/00 Distribution $0.35 13.250 104
-----------------------------------------------------------------------------------------------------------------------------------
6/30/00 $ 16,322 4,042 $ 65,359 $ 55,072
-----------------------------------------------------------------------------------------------------------------------------------
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 8.625 52 16,016 14,129
12/6/99 Distribution $0.27 8.781 49 18,051 14,769
-----------------------------------------------------------------------------------------------------------------------------------
6/30/00 $ 8,900 1,641 $ 20,069 $ 16,513
-----------------------------------------------------------------------------------------------------------------------------------
ROYCE FOCUS TRUST
10/31/96 Initial Purchase $ 4,375 $ 4.375 1,000 $ 5,280 $ 4,375
12/31/96 5,520 4,594
12/5/97 Distribution $0.53 5.250 101 6,650 5,574
12/31/98 6,199 5,367
12/6/99 Distribution $0.145 4.750 34 6,742 5,356
-----------------------------------------------------------------------------------------------------------------------------------
6/30/00 $ 4,375 1,135 $ 6,799 $ 5,569
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Other than for initial purchase, values are stated as of December 31 of the
year indicated, after reinvestment of distributions.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 11
<PAGE>
ROYCE VALUE TRUST
-------------------------------------------------------------------------------
MANAGER'S DISCUSSION
There was good news all around for ROYCE VALUE TRUST (RVT) in the first half, as
the Fund's diversified portfolio of small- and micro-cap stocks outperformed
both of its small-cap benchmarks, the Russell 2000 and the S&P 600, year-to-date
through June 30. RVT was up 7.77% on a net asset value (NAV) basis versus 3.04%
for the Russell 2000 and 6.86% for the S&P 600. In addition, the Fund was up
1.82% on an NAV basis in the more difficult second quarter, compared to a loss
of 3.78% for the Russell 2000, and a gain of 1.00% for the S&P 600. THE FUND'S
AVERAGE ANNUAL NAV TOTAL RETURN SINCE INCEPTION (11/26/86) WAS 12.97%.
Holding back first-half performance were stocks in the Industrial Services,
Consumer Products and Consumer Services sectors. Some losses occurred in
companies that we like, but whose apparent merits have so far not impressed
other investors. For example, Interim Services (now Spherion) is a workforce
management company with an expanding business in technology consulting that
suffered a post-Y2K slowdown as companies cut back on technology and computer
staffing.
The prices of retail stocks were generally depressed in the first half, due
to rising interest rates, increased energy prices and rumors of an economic
slowdown. We are holding on to what we think are strong companies that are
enduring a cyclical slump. For example, Charming Shoppes operates women's
specialty apparel stores under names such as Fashion Bug and Catherine's Stores.
The company made acquisitions in 1999 and posted robust sales in April and May,
2000, but experienced skittish stock performance in the first half. While we
first began to buy Urban Outfitters in 1998, its backsliding price throughout
2000 has led us to more than double our position. We believe that, in spite of
some recent earnings woes, the company is a disciplined franchiser with terrific
upside.
Portfolio gains came from companies in several sectors. The price of
Coherent, a designer and manufacturer of laser systems and precision optics,
soared in the first quarter, then cooled in the second, before rising again in
late June. We retain a good-sized position, but sold shares at a profit in
February, March and April. Exar, a manufacturer of analog semiconductors,
avoided some of the extremes of the second-quarter Technology sell-off. Natural
Resources companies, especially those in energy services and oil and gas
industries, made a significant positive impact. Helmerich & Payne, a contract
driller for oil and gas, and Carbo Ceramics, a manufacturer of proppants, an
important ingredient in the hydraulic fracturing of natural gas and oil wells,
both took off in the second quarter. Oil and gas producers, such as Tom Brown,
Denbury Resources and Devon Energy, also came back strongly.
Looking ahead, we are excited about the Fund's long-term growth potential.
We would view the beginning of a new stock market cycle characterized by
increased volatility and more historically typical rates of return as good news
for our investment approach.
<TABLE>
<CAPTION>
-------------------------------------------------------
NAV AVERAGE ANNUAL TOTAL RETURNS
Through 6/30/00
-------------------------------------------------------
<S> <C>
Second Quarter 2000* 1.82%
Jan-June 2000* 7.77
1-Year 14.75
3-Year 11.94
5-Year 14.74
10-year 14.17
Since Inception (11/26/86) 12.97
* Not annualized.
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------
RISK/RETURN COMPARISON
3-Year Period ended 6/30/00
-------------------------------------------------------
AVERAGE ANNUAL STANDARD
TOTAL RETURN DEVIATION RUR*
-------------------------------------------------------
<S> <C> <C> <C>
ROYCE VALUE
TRUST (NAV) 11.9 17.7 0.67
S&P 600 10.1 21.0 0.48
Russell 2000 10.6 23.2 0.46
</TABLE>
*Return per Unit of Risk (RUR) is the average annual total return divided by the
annualized standard deviation over a designated time period.
OVER THE LAST THREE YEARS, ROYCE VALUE TRUST HAS OUTPERFORMED THE S&P 600 AND
THE RUSSELL 2000 ON BOTH AN ABSOLUTE AND A RISK-ADJUSTED BASIS.
[BAR CHART]
<TABLE>
<CAPTION>
-------------------------------------------------------
DOWN MARKET PERFORMANCE COMPARISON
All Down Periods of 7.5% or Greater
in Percentages (%)
-------------------------------------------------------
8/25/87- 10/9/89- 2/12/92- 3/18/94- 5/22/96- 1/22/97- 10/13/97- 4/21/98- 3/9/00-
10/28/87 10/31/90 7/8/92 12/9/94 7/24/96 4/25/97 1/12/98 10/8/98 4/14/00
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RVT (NAV) -26.4 -22.1 -2.1 -5.3 -6.3 -3.1 -8.1 -31.3 -8.8
RUSSELL 2000 -38.9 -32.5 -12.0 -12.3 -15.4 -9.0 -11.3 -36.5 -25.1
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------
CALENDAR YEAR NAV TOTAL RETURNS
---------------------------------------
YEAR RVT YEAR RVT
---------------------------------------
<C> <C> <C> <C>
1999 11.7% 1992 19.9%
1998 3.3 1991 39.5
1997 27.5 1990 -13.1
1996 15.5 1989 19.2
1995 22.6 1988 22.8
1994 1.1 1987 -7.7
1993 17.9
</TABLE>
12 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
PERFORMANCE AND PORTFOLIO REVIEW
-------------------------------------------------------------------------------
LILLY INDUSTRIES -- A classic value scenario played out for this manufacturer of
industrial coatings and other chemical products. Its strong business seemed
unable to help its market performance until a larger company offered a
substantial premium for the business in June. The buyout prompted the sale of a
large number of shares at a considerable premium.
NVEST LP -- A long-time holding, shares of this investment advisory firm
sky-rocketed on news of a takeover by a large French money management company in
early June. A classic case of market value finally (and quickly) catching up
with business value.
STONE & WEBSTER -- Any hopes that we had for this engineering and construction
firm were dashed by bankruptcy. We thought that the new management that came
aboard in 1999 might steady a declining business, but the sudden disclosure of
massive overruns on existing projects sounded the death knell.
INTEGRAL SYSTEMS -- The price of this builder of satellite ground systems
crashed in May when the announcement of lower-than-expected earnings due to
contract award delays drove institutional investors away. We like the company's
potential to get back on track based on its solid core business.
<TABLE>
<CAPTION>
------------------------------------------
GOOD IDEAS THAT WORKED
Net Realized and Unrealized Gain
Year-to-Date Through 6/30/00
------------------------------------------
<S> <C>
Lilly Industries Cl. A $6,886,989
Nvest LP 4,577,525
Coherent 3,669,704
Exar 3,116,445
Pioneer Group (The) 2,758,350
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------
GOOD IDEAS AT THE TIME
Net Realized and Unrealized Loss
Year-to-Date Through 6/30/00
------------------------------------------
<S> <C>
Stone & Webster $3,514,568
Integral Systems 2,738,612
Blanch (E.W.) Holdings 2,376,014
Urban Outfitters 1,986,083
Medical Assurance 1,794,645
</TABLE>
[LINE CHART]
----------------------------------------------------------
ROYCE VALUE TRUST MARKET PRICE -- ACTUAL VS. ADJUSTED*
----------------------------------------------------------
<TABLE>
<CAPTION>
MARKET PRICE TOTAL RETURNS
<S> <C>
Since Inception = 303.7%
10 Years = 247.7
5 Years = 94.7
3 Years = 39.2
1 Year = 13.8
</TABLE>
<TABLE>
<CAPTION>
ADJUSTED ACTUAL
MARKET MARKET
PRICE PRICE
----- -----
<S> <C> <C>
10.00 10.00
1986 9.88 9.88
10.75 10.75
9.75 9.75
9.63 9.63
8.63 8.63
9.50 9.50
9.37 9.38
9.12 9.13
9.50 9.50
9.25 9.25
7.30 7.00
6.91 6.63
1987 7.26 6.75
7.53 7.00
8.60 8.00
8.73 8.13
8.60 8.00
8.46 7.88
9.27 8.63
9.14 8.50
9.00 8.38
9.54 8.88
9.27 8.63
8.87 8.25
1988 9.25 8.13
9.96 8.75
9.68 8.50
10.10 8.88
10.39 9.13
10.67 9.38
10.53 9.25
10.96 9.63
11.10 9.75
10.99 9.63
10.84 9.50
10.84 9.50
1989 11.46 9.50
10.71 8.88
10.56 8.75
11.16 9.25
11.16 9.25
11.46 9.50
11.61 9.63
11.31 9.50
10.26 8.25
9.53 7.88
8.78 7.25
9.38 7.75
1990 10.23 8.13
10.85 8.75
12.43 9.88
13.05 10.38
13.53 10.75
12.90 10.25
12.58 10.00
12.74 10.13
12.42 9.88
12.46 9.88
12.93 10.25
12.61 10.00
1991 13.83 10.38
14.67 11.00
15.67 11.75
15.33 11.50
15.50 11.63
15.33 11.38
15.00 11.25
15.00 11.25
14.83 11.13
15.19 11.38
15.36 11.50
16.86 12.63
1992 17.54 12.25
18.25 12.75
18.25 12.88
18.61 13.00
18.43 12.88
18.43 12.88
18.79 13.13
19.33 13.38
19.50 13.63
19.75 13.75
20.47 14.25
19.94 13.88
1993 20.13 12.88
20.72 13.25
20.33 13.00
19.16 12.25
19.55 12.50
19.35 12.38
19.16 12.25
19.35 12.38
19.74 12.63
18.76 12.00
18.18 11.63
19.18 12.13
1994 19.00 11.00
20.08 11.63
20.30 11.75
19.65 11.38
20.52 11.88
20.73 12.13
20.73 12.00
21.81 12.63
22.68 13.13
23.33 13.50
22.25 12.88
23.10 13.25
1995 22.91 11.88
23.87 12.38
23.39 12.13
23.63 12.25
23.63 12.25
24.35 12.63
23.87 12.38
22.42 11.63
23.63 12.25
24.35 12.63
23.87 12.38
24.84 12.88
1996 26.64 12.63
26.11 12.38
26.37 12.50
24.79 11.75
25.06 11.88
26.90 12.75
29.01 13.75
30.07 14.25
32.31 15.31
35.01 16.25
33.39 15.50
35.41 16.44
1997 34.32 15.06
34.03 14.94
36.74 16.13
39.88 17.13
39.45 16.94
39.01 16.75
39.35 16.50
36.07 15.13
28.02 11.75
31.68 12.88
33.68 13.69
34.45 14.00
1998 34.82 13.75
34.03 13.44
31.97 12.63
29.54 11.31
33.95 13.00
34.76 13.31
35.48 13.25
35.15 13.13
34.48 12.88
34.00 12.38
33.31 12.13
35.54 12.94
1999 36.82 13.06
39.29 13.94
38.93 13.81
39.87 13.81
38.07 13.19
38.07 13.19
2000 40.37 13.63
</TABLE>
Annual distribution totals as indicated
* 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.
<TABLE>
<CAPTION>
-------------------------------------------------------
PORTFOLIO DIAGNOSTICS
-------------------------------------------------------
<S> <C>
Median Market Cap. $548 million
Weighted Average P/E Ratio 14.2x
Weighted Average P/B Ratio 1.6x
Weighted Average Yield 1.5%
Fund Net Assets $748 million
Turnover Rate 22%
Net Leverage+ 18%
Symbol - Market Price RVT
- NAV XRVTX
</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>
Lilly Industries Cl. A 1.4%
Gallagher (Arthur J.) & Company 1.2
Nvest LP 1.1
Charming Shoppes 1.0
Buffets 0.9
Circle International Group 0.9
Penn Engineering & Manufacturing 0.9
Avnet 0.8
Simpson Manufacturing 0.8
Denbury Resources 0.8
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------
PORTFOLIO SECTOR BREAKDOWN
% of Net Assets
-------------------------------------------------------
<S> <C>
Technology 17.1%
Industrial Products 14.7
Industrial Services 11.9
Financial Intermediaries 10.1
Financial Services 8.1
Consumer Products 7.5
Natural Resources 7.1
Health 6.7
Consumer Services 3.1
Miscellaneous 4.8
Bonds & Preferred Stocks 1.9
Treasuries, Cash & Cash Equivalents 7.0
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------
CAPITAL STRUCTURE
Publicly Traded Securities Outstanding
at 6/30/00 at NAV or Liquidation Value
-------------------------------------------------------
<S> <C>
36.3 million shares
of Common Stock $588 million
2.4 million shares of 7.80%
Cumulative Preferred Stock $60 million
4.0 million shares of
7.30% Tax-Advantaged
Cumulative Preferred Stock $100 million
</TABLE>
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 13
<PAGE>
ROYCE MICRO-CAP TRUST
-------------------------------------------------------------------------------
MANAGER'S DISCUSSION
Nothing was micro-sized about ROYCE MICRO-CAP TRUST'S (OTCM) first-half
performance, as it led our three closed-end offerings on both a net asset value
(NAV) and market price basis. More importantly, the Fund's strong year-to-date
NAV return of 11.18% more than doubled that of its small-cap benchmark, the
Russell 2000, which was up 3.04% for the same period. In addition, OTCM
performed well in the bearish second quarter, up 2.09% on an NAV basis. The
Fund's average annual NAV total return since inception (12/14/93) was 13.75%.
The Health sector, a relatively small part of the Fund's portfolio, made
the largest positive impact on performance. This was largely the result of a
generous weighting within the biotechnology industry, one of the market's
hottest industries during the first quarter. Companies in which we sold some
shares at hefty gains in the first half include Biosource International, a
biomedical research firm specializing in new drug therapies and medical
diagnostics, and Lexicon Genetics, a designer of gene trapping and mutagenesis
technologies. We continue to see growth potential in biotechnology companies.
Continuing the torrid pace that began in 1998's fourth quarter,
Technology, like biotechnology, burst out of the gate as the year began, and
then also suffered in the second-quarter downturn. Impressive performances came
from Exar, an analog semiconductor manufacturer whose price dipped, then
rebounded, in the second quarter. The price of Rainbow Technologies, a provider
of computer network and Internet security products, soared in the first quarter
-- prompting us to sell -- then crashed in the second, leading us to purchase
again. We sold off our position in Coherent, a manufacturer of laser-based
systems and precision optics, in March. The proceeds from these sales helped to
fund purchases in stocks that were trading at what we think were attractive
prices.
The comeback of energy services and oil and natural gas stocks boosted
performance in the Natural Resources sector. This was welcome news, as we had
bought many of these companies when prices were low, hoping for a turnaround. We
are holding large positions in the energy services companies Carbo Ceramics,
Input/Output and GulfMark Offshore. Oil and natural gas exploration companies,
including Denbury Resources, Bonavista Petroleum and 3TEC Energy, inspire a
similar level of our confidence.
Owners of insurance stocks have needed Job-like patience recently. We
have been waiting for a turnaround for more than a year, but see rising premium
costs and the strong performance of insurance brokerage stocks (as opposed to
those firms that underwrite policies) as positive signs that may point to a
long-awaited recovery for the industry. We are holding large stakes in property
and casualty insurers such as NYMAGIC and in medical liability insurance
providers such as Medical Assurance and MIIX Group.
Although recognition is growing, micro-caps are still struggling towards
official institutional acceptance, which suits us just fine. Investor
indifference often creates the kinds of conditions where we believe our approach
works best.
<TABLE>
<CAPTION>
-------------------------------------------------------
NAV AVERAGE ANNUAL TOTAL RETURNS
Through 6/30/00
-------------------------------------------------------
<S> <C>
Second Quarter 2000* 2.09%
Jan-June 2000* 11.18
1-Year 22.39
3-Year 10.93
5-Year 14.21
Since Inception (12/14/93) 13.75
</TABLE>
*Not annualized.
-------------------------------------------------------
RISK/RETURN COMPARISON
3-Year Period ended 6/30/00
-------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL STANDARD
TOTAL RETURN DEVIATION RUR*
<S> <C> <C> <C>
ROYCE MICRO-CAP
TRUST (NAV) 10.9 17.7 0.62
Russell 2000 10.6 23.2 0.46
</TABLE>
*Return per Unit of Risk (RUR) is the average annual total return divided by the
annualized standard deviation over a designated time period.
OVER THE LAST THREE YEARS, ROYCE MICRO-CAP TRUST HAS OUTPERFORMED THE RUSSELL
2000 ON A BOTH AN ABSOLUTE AND A RISK-ADJUSTED BASIS.
[BAR CHART]
<TABLE>
<CAPTION>
-------------------------------------------------------
DOWN MARKET PERFORMANCE COMPARISON
All Down Periods of 7.5% or Greater, in Percentages (%)
-------------------------------------------------------
3/18/94- 5/22/96- 1/22/97- 10/13/97- 4/21/98- 3/9/00-
12/9/94 7/24/96 4/25/97 1/12/98 10/8/98 4/14/00
<S> <C> <C> <C> <C> <C> <C>
OTCM (NAV) -0.4 -6.8 -3.4 -7.4 -29.9 -13.4
RUSSELL 2000 -12.3 -15.4 -9.0 -11.3 -36.5 -25.1
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------
CALANDAR YEAR NAV TOTAL RETURNS
-------------------------------------------------------
YEAR OTCM
<S> <C>
1999 12.7%
1998 -4.1
1997 27.1
1996 16.6
1995 22.9
1994 6.0
</TABLE>
14 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
PERFORMANCE AND PORTFOLIO REVIEW
-------------------------------------------------------------------------------
MYRIAD GENETICS -- We purchased this genomics
company, focused on the development of therapeutic and diagnostic products, as a
small research and-development position in 1998. Its price then more than
quadrupled in the first quarter's white-hot biotechnology run-up.
AURORA BIOSCIENCES -- We began to sell shares of this developer of systems for
drug discovery and enhancement in late 1999 when its price nearly tripled. In
the first quarter, it climbed even higher, which led to more selling, although
we still retain a small position.
KRONOS -- Once a stellar performer, this provider of workforce management,
payroll and timecard software saw its business slump after the non-event of Y2K,
and its stock price plummet after an earnings disappointment. We trimmed our
position earlier this year.
STONE & WEBSTER -- Any hopes that we had for this engineering and construction
firm were dashed by bankruptcy. We thought that the new management that came
aboard in 1999 might steady a declining business, but the sudden disclosure of
massive overruns on existing projects sounded the death knell.
<TABLE>
<CAPTION>
-----------------------------------
GOOD IDEAS THAT WORKED
Net Realized and Unrealized Gain
Year-to-Date Through 6/30/00
-----------------------------------
<S> <C>
Myriad Genetics $2,031,672
Aurora Biosciences 1,756,782
Richardson Electronics 1,357,156
Rainbow Technologies 1,140,249
Coherent 1,076,954
</TABLE>
------------------------------------
GOOD IDEAS AT THE TIME
Net Realized and Unrealized Loss
Year-to-Date Through 6/30/00
------------------------------------
Kronos $1,374,769
Stone & Webster 1,369,557
Urban Outfitters 947,048
RCM Technologies 904,181
Reliance Group Holdings 788,528
[LINE CHART]
-----------------------------------------------------------
ROYCE MICRO-CAP TRUST MARKET PRICE -- ACTUAL VS. ADJUSTED*
-----------------------------------------------------------
MARKET PRICE TOTAL RETURNS
<TABLE>
<S> <S>
Since Inception = 85.0%
5 Years = 91.7
3 Years = 47.4
1 Year = 22.9
</TABLE>
<TABLE>
<CAPTION>
ADJUSTED ACTUAL
MARKET MARKET
PRICE PRICE
----- -----
<S> <C> <C>
1993 7.50 7.50
7.75 7.75
7.50 7.50
6.50 6.50
6.63 6.63
7.13 7.13
6.75 6.75
7.00 7.00
7.13 7.13
7.00 7.00
7.38 7.38
7.19 7.13
1994 7.11 7.00
6.86 6.75
7.24 7.13
6.98 6.88
6.98 6.88
7.11 7.00
7.49 7.38
7.87 7.75
8.13 8.00
8.51 8.38
7.87 7.75
7.75 7.63
1995 8.52 8.00
8.25 7.75
8.25 7.75
8.25 7.75
8.92 8.38
8.92 8.38
9.18 8.63
8.25 7.75
8.45 7.94
8.52 8.00
8.52 8.00
9.05 8.50
1996 9.71 8.25
9.30 7.88
9.41 8.00
8.97 7.63
9.56 8.13
10.15 8.63
10.57 8.98
10.66 9.06
11.32 9.63
13.16 11.19
12.79 10.88
12.72 10.81
1997 13.10 10.13
12.62 9.75
13.43 10.38
13.64 11.31
14.40 11.13
13.91 10.75
13.35 10.31
12.62 9.75
10.11 7.81
10.43 8.06
10.67 8.25
11.56 8.94
1998 11.87 8.88
11.03 8.25
10.70 8.00
9.95 7.44
11.12 8.31
11.29 8.44
11.29 8.44
11.33 8.47
11.29 8.44
11.37 8.50
11.04 8.25
11.95 8.94
1999 12.41 9.13
13.19 9.56
13.88 10.06
14.31 10.38
13.28 9.63
13.23 9.59
2000 13.88 10.06
</TABLE>
Adjusted Market Price
Actual Market Price
Annual distribution totals as indicated
* 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.
<TABLE>
<CAPTION>
-------------------------------------------------------
PORTFOLIO DIAGNOSTICS
-------------------------------------------------------
<S> <C>
Median Market Cap. $215 million
Weighted Average P/E Ratio 12.3x*
Weighted Average P/B Ratio 1.4x
Weighted Average Yield 1.2%
Fund Net Assets $208 million
Turnover Rate 29%
Net Leverage+ 10%
Symbol - Market Price OTCM
- NAV XOTCX
</TABLE>
* Excludes 17% of portfolio holdings with zero or negative earnings as of
6/30/00.
+ 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>
BARRA 1.4%
Richardson Electronics 1.2
Pure Resources 1.2
Matthews International Cl. A 1.1
Myriad Genetics 1.1
Simpson Manufacturing 1.1
Forward Air 1.1
Denbury Resources 1.0
New Horizons Worldwide 1.0
Ash Grove Cement Company 1.0
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------
PORTFOLIO SECTOR BREAKDOWN
% of Net Assets
-------------------------------------------------------
<S> <C>
Industrial Services 14.3%
Technology 14.2
Industrial Products 13.4
Consumer Products 10.2
Natural Resources 8.6
Financial Intermediaries 7.9
Health 7.0
Consumer Services 3.8
Financial Services 3.6
Utilities 0.3
Miscellaneous 5.0
Bond & Preferred Stock 0.6
Treasuries, Cash & Cash Equivalents 11.1
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------
CAPITAL STRUCTURE
Publicly Traded Securities Outstanding
at 6/30/00 at NAV or Liquidation Value
-------------------------------------------------------
<S> <C>
13.8 million shares
of Common Stock $168 million
1.6 million shares of 7.75%
Cumulative Preferred Stock $40 million
</TABLE>
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 15
<PAGE>
ROYCE FOCUS TRUST
-------------------------------------------------------------------------------
MANAGER'S DISCUSSION
As someone once said of the Godfather trilogy, one of the films had
to finish third. This reasoning makes ROYCE FOCUS TRUST (FUND) the first half's
GODFATHER PART III of our closed-end funds. The Fund was up 0.84% on a net asset
value (NAV) basis, behind its small-cap benchmark, the Russell 2000, which was
up 3.04%. The Fund's average annual NAV total return since the inception of our
management (11/1/96) was 7.13%.
The Fund struggled in the dynamic first quarter, up 1.68%. Its
concentrated portfolio of what we think are high-quality small-cap stocks may
have hindered performance, as companies with poor showings had a proportionately
greater effect on performance. While the Fund's second-quarter return was also
unspectacular -- it was down 0.83% -- the portfolio lost less than the Russell
2000, which was down 3.78% for the same period.
One reason for our underperformance was the Fund's relatively low
weighting in Technology stocks, a sector that we significantly reduced our
exposure to in the first half. We sold off small positions in Avnet and National
Computer Systems at a profit. Low exposure to Technology, of course, also helped
the Fund to hold its value in the second quarter, although its comparative
absence was admittedly a more critical factor in the first quarter.
Some of the Fund's more disappointing performances came from stocks in
which we still have a lot of confidence. For example, the price of Lincoln
Electric Holdings, a manufacturer of welding and cutting products and a
long-time Fund holding, was underwater in the first half. In April, the company
announced a large acquisition, but followed that news with a report that it
would need to borrow funds to complete the deal, which sent its price into a
tailspin. We believe in the company's long-term prospects based on its previous
business success and on the growth potential that the acquisition offers, so we
have increased our position. We are also hopeful about the prospects for
Morrison Knudsen, a large-scale construction and engineering firm with what we
think is terrific management.
After almost a year of sluggish performance, energy stocks bounced back
in the first half. We had built positions in what we think are high-quality
companies in this industry throughout 1999. The price of top-ten holding
Input/Output, a designer and manufacturer of seismic data acquisition products
used on land and water, climbed steadily through the first half. Tom Brown, an
oil and natural gas exploration company, also performed very well. We think that
the industry as a whole still has strong growth potential, which led us to
initiate a position in 3TEC Energy, a regional natural gas exploration company,
in late June.
While we were not pleased with the Fund's recent performance, we see the
makings of a turnaround. In fact, the Fund was up 10.02% in July on an NAV basis
(up 10.94% year-to-date through 7/31/00). We are confident that the Fund's
concentrated value approach can provide above-average long-term return
potential.
<TABLE>
<CAPTION>
-------------------------------------------------------
NAV AVERAGE ANNUAL TOTAL RETURNS
Through 6/30/00
-------------------------------------------------------
<S> <C>
Second Quarter 2000* -0.83%
Jan-June 2000* 0.84
1-Year -0.44
3-Year 2.23
Since Inception (11/1/96)(1) 7.13
</TABLE>
* Not annualized.
(1) Date Royce & Associates, Inc. assumed investment management responsibility.
<TABLE>
<CAPTION>
-------------------------------------------------------
RISK/RETURN COMPARISON
3-Year Period ended 6/30/00
-------------------------------------------------------
AVERAGE ANNUAL STANDARD
TOTAL RETURN DEVIATION RUR*
<S> <C> <C> <C>
ROYCE FOCUS
TRUST (NAV) 2.2 19.9 0.11
Russell 2000 10.6 23.2 0.48
</TABLE>
*Return per Unit of Risk (RUR) is the average annual total return divided by
the annualized standard deviation over a designated time period.
OVER THE LAST THREE YEARS, ROYCE FOCUS TRUST HAS HAD LOWER VOLATILITY RELATIVE
TO THE RUSSELL 2000, BUT HAS UNDERPERFORMED ON AN ABSOLUTE AND RELATIVE BASIS.
[BAR CHART]
<TABLE>
<CAPTION>
-------------------------------------------------------
DOWN MARKET PERFORMANCE COMPARISON
All Down Periods of 7.5% or Greater, in Percentages (%)
-------------------------------------------------------
1/22/97- 10/13/97- 4/21/98- 3/9/00-
4/25/97 1/12/98 10/8/98 4/14/00
<S> <C> <C> <C> <C>
FUND (NAV) -1.1 -10.3 -35.2 -4.1
Russell 2000 -9.0 -11.3 -36.5 -25.1
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------
CALENDAR YEAR NAV TOTAL RETURNS
-------------------------------------------------------
YEAR FUND
<S> <C>
1999 8.7%
1998 -6.8
1997 20.5
</TABLE>
16 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
PERFORMANCE AND PORTFOLIO REVIEW
-------------------------------------------------------------------------------
OAKLEY -- After spending much of the last
two years wandering in the single-digit wilderness, this leading designer,
manufacturer and distributor of high-performance eyewear, footwear, watches and
apparel finally came back as new products were more effectively integrated and
institutional interest returned.
RICHARDSON ELECTRONICS -- Wall Street finally noticed this distributor of
electronic components and equipment for industrial, communications, medical, and
scientific applications. The company first got our attention back in 1998's
third-quarter correction. Unlike many technology stocks, its price kept climbing
throughout the second quarter.
BLANCH (E.W.) HOLDINGS -- After
we touted the virtues of this reinsurance and insurance risk management company
in 1999's Semi-Annual Report, a combination of missed earnings estimates and
management defections led to a more than 50% loss in 2000's first quarter.
Nonetheless, we are still believers in the high value of the firm's core
business.
NEW ENGLAND BUSINESS SERVICE -- Although this business product marketer has met
earnings estimates and realized its recent business goals, we suspect that a
profound lack of investor interest in its core business continues to impede
stock performance.
<TABLE>
<CAPTION>
--------------------------------------------
GOOD IDEAS THAT WORKED
Net Realized and Unrealized Gain
Year-to-Date Through 6/30/00
--------------------------------------------
<S> <C>
Oakley $2,294,794
Richardson Electronics 1,387,079
Input/Output 1,149,854
Tom Brown 817,154
White Mountains Insurance Group 643,850
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------
GOOD IDEAS AT THE TIME
Net Realized and Unrealized Loss
Year-to-Date Through 6/30/00
--------------------------------------------
<S> <C>
Blanch (E.W.) Holdings $1,858,279
New England Business Service 1,100,280
Lincoln Electric Holdings 1,016,727
Charming Shoppes 941,007
Medical Assurance 916,482
</TABLE>
[LINE CHART]
--------------------------------------------------------
ROYCE FOCUS TRUST MARKET PRICE -- ACTUAL VS. ADJUSTED(2)
--------------------------------------------------------
<TABLE>
<CAPTION>
MARKET PRICE TOTAL RETURNS
<S> <C>
Since 11/1/96 = 27.2%
3 Years = 11.3
1 Year = 2.4
</TABLE>
<TABLE>
<CAPTION>
ADJUSTED ACTUAL
MARKET MARKET
PRICE PRICE
----- -----
<S> <C> <C>
4.38 4.38
4.66 4.66
1996 4.59 4.59
4.75 4.75
4.56 4.56
4.88 4.88
4.72 4.72
4.81 4.81
5.00 5.00
5.28 5.28
5.44 5.44
6.06 6.06
5.69 5.69
5.69 5.69
1997 5.57 5.06
5.64 5.13
5.78 5.25
6.23 5.66
6.54 5.94
6.23 5.66
6.05 5.50
6.12 5.56
4.82 4.38
5.30 4.81
5.09 4.63
5.30 4.81
1998 5.37 4.88
4.82 4.38
4.54 4.13
4.41 4.00
4.54 4.13
5.37 4.88
5.44 4.94
5.54 5.03
5.58 5.06
5.37 4.88
5.34 4.84
5.30 4.81
1999 5.36 4.72
5.40 4.75
5.47 4.81
5.79 5.09
5.61 4.94
5.75 5.06
5.58 4.91
</TABLE>
Adjusted Market Price
Actual Market Price
Annual distribution totals as indicated
(2) Reflects market price total return experience of a continuous stockholder
who reinvested all distributions. This graph illustrates the market price
change from $4.375 on 11/1/96, the date Royce & Associates, Inc. assumed
investment management responsibility.
<TABLE>
<CAPTION>
-------------------------------------------------------
PORTFOLIO DIAGNOSTICS
-------------------------------------------------------
<S> <C>
Median Market Cap. $706 million
Weighted Average P/E Ratio 12.1x*
Weighted Average P/B Ratio 1.6x
Weighted Average Yield 1.2%
Fund Net Assets $71 million
Turnover Rate 42%
Net Leverage+ 9%
Symbol - Market Price FUND
- NAV XFUNX
</TABLE>
* Excludes 27% of portfolio holdings with zero or negative earnings as of
6/30/00.
+ 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>
Florida Rock Industries 5.0%
Charming Shoppes 4.9
Oakley 4.6
Morrison Knudsen 4.6
Arrow International 4.3
Input/Output 4.2
Blanch (E.W.) Holdings 4.1
Simpson Manufacturing 3.7
Interim Services 3.6
White Mountains Insurance Group 3.6
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------
PORTFOLIO SECTOR BREAKDOWN
% of Net Assets
-------------------------------------------------------
<S> <C>
Industrial Services 15.7%
Industrial Products 15.6
Natural Resources 12.1
Financial Intermediaries 8.7
Financial Services 6.8
Consumer Services 5.7
Technology 4.7
Consumer Products 4.7
Health 4.4
Treasuries, Cash & Cash Equivalents 21.6
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------
CAPITAL STRUCTURE
Publicly Traded Securities Outstanding
at 6/30/00 at NAV or Liquidation Value
-------------------------------------------------------
<S> <C>
8.6 million shares
of Common Stock $51 million
800,000 shares
of 7.45% Cumulative
Preferred Stock $20 million
</TABLE>
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 17
<PAGE>
DISTRIBUTION REINVESTMENT AND CASH PURCHASE OPTIONS FOR COMMON STOCKHOLDERS
--------------------------------------------------------------------------------
WHY SHOULD I REINVEST MY DISTRIBUTIONS?
By reinvesting distributions, a stockholder can maintain an undiluted
investment in the Fund. The regular reinvestment of distributions has a
significant impact on stockholder returns. In contrast, the stockholder who
takes distributions in cash is penalized when shares are issued below net asset
value to other stockholders.
HOW DOES THE REINVESTMENT OF DISTRIBUTIONS FROM THE ROYCE CLOSED-END FUNDS WORK?
The Funds automatically issue shares in payment of distributions unless you
indicate otherwise. The shares are issued at the lower of the market price or
net asset value on the valuation date.
HOW DOES THIS APPLY TO REGISTERED STOCKHOLDERS?
If your shares are registered directly with a Fund, your distributions are
automatically reinvested unless you have otherwise instructed the Funds'
custodian, State Street Bank and Trust Company, in writing. A registered
stockholder also has the option to receive the distribution in the form of a
stock certificate or in cash if State Street is properly notified.
WHAT IF MY SHARES ARE HELD BY A BROKERAGE FIRM OR A BANK?
If your shares are held by a brokerage firm, bank, or other intermediary as
the stockholder of record, you should contact your brokerage firm or bank to be
certain that it is automatically reinvesting distributions on your behalf. If
they are unable to reinvest distributions on your behalf, you should have your
shares registered in your name in order to participate.
WHAT OTHER FEATURES ARE AVAILABLE FOR REGISTERED STOCKHOLDERS?
The Distribution Reinvestment and Cash Purchase Plans also allow registered
stockholders to make optional cash purchases of shares of a Fund's common stock
directly through State Street on a monthly basis, and to deposit certificates
representing your Fund shares with State Street for safekeeping. The Funds'
investment adviser is absorbing all commissions on optional cash purchases under
the Plans through December 31, 2000.
HOW DO THE PLANS WORK FOR REGISTERED STOCKHOLDERS?
State Street maintains the accounts for registered stockholders in the
Plans and sends written confirmation of all transactions in the account. Shares
in the account of each participant will be held by State Street in
non-certificated form in the name of the participant, and each participant will
be able to vote those shares at a stockholder meeting or by proxy. A participant
may also send other stock certificates held by them to State Street to be held
in non-certificated form. There is no service fee charged to participants for
reinvesting distributions. If a participant elects to sell shares from a Plan
account, State Street will deduct a $2.50 fee plus brokerage commissions from
the sale transaction. If a nominee is the registered owner of your shares, the
nominee will maintain the accounts on your behalf.
HOW CAN I GET MORE INFORMATION ON THE PLANS?
You can call an Investor Services Representative at (800) 221-4268 or you
can request a copy of the Plan for your Fund from State Street. All
correspondence (including notifications) should be directed to: [Name of Fund]
Distribution Reinvestment and Cash Purchase Plan, c/o State Street Bank and
Trust Company, PO Box 8200, Boston, MA 02110, telephone (800) 426-5523.
18 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
[GRAPHIC: Computer and Keyboard with "The Royce Funds" displayed on monitor]
UPDATES AND NOTES TO PERFORMANCE AND RISK INFORMATION
--------------------------------------------------------------------------------
NEW @ www.roycefunds.com
The process of keeping our website fresh is ongoing. We are currently
focusing on enriching our content, improving navigation and architecture, and
developing greater interactivity for our clients.
In the past couple of months, we have added and/or enhanced the following:
SEARCH-BY-FUND - Homepage pull-down menu to improve navigation.
E-NHANCEMENTS FOR SHAREHOLDERS - Open-end fund shareholders can establish online
account access, alter account PINs and request electronic delivery of
shareholder reports and prospectuses directly and immediately.
DISTRIBUTIONS: 1999 AND 2000 - Centralized distribution information. Go to
Open-End Funds or Closed-End Funds sections.
WHAT'S NEW - More performance commentary at month- and quarter-ends, and
features such as What's New on the Site and a What's New Archive.
IN THE NEWS - More in-depth treatment of press mentions. Go to What's New or
Bulletin Board sections.
ILLUSTRATION BANK - "While we are serious in our approach to value investing,
`serious' is not our standard approach to ourselves..." Go to Just for Fun.
What would you like to see on www.roycefunds.com? We want your feedback. Please
e-mail any suggestions or comments to Heather MacLeod at [email protected].
NOTES TO PERFORMANCE AND RISK INFORMATION
All performance information is presented on a total return basis and reflects
the reinvestment of distributions. Past performance is no guarantee of future
results. Share prices will fluctuate, so that shares may be worth more or less
than their original cost when sold. The Royce Funds invest primarily in
securities of small-cap and/or micro-cap companies that may involve considerably
more risk than investments in securities of larger-cap companies. The thoughts
expressed in this report concerning recent market movements and future prospects
for small-cap company stocks are solely those of Royce, and, of course,
historical market trends are not necessarily indicative of future market
movements. Statements regarding the future prospects for particular securities
held in the Funds' portfolios and Royce's investment intentions with respect to
those securities reflect Royce's opinions as of June 30, 2000 and are subject to
change at any time without notice.There can be no assurance that securities
mentioned in this report will be included in any Royce-managed portfolio in the
future.
Standard deviation is a statistical measure within which a fund's total
returns have varied over time. The greater the standard deviation, the greater a
fund's volatility.
The Russell 2000, Russell 2000 Value, Russell 2000 Growth, Nasdaq Composite,
S&P 500 and S&P 600 SmallCap are unmanaged indices of domestic common stocks.
The Royce Funds is a service mark of The Royce Funds.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 19
<PAGE>
ROYCE VALUE TRUST, INC.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCKS - 91.1%
SHARES VALUE
------ -----
<S> <C> <C>
CONSUMER PRODUCTS - 7.5%
Apparel and Shoes - 1.7%
Garan 96,900 $ 2,192,363
K-Swiss Cl. A 107,500 1,713,281
Oshkosh B'Gosh Cl. A 114,300 1,871,662
+Polo Ralph Lauren Cl. A(a) 151,100 2,153,175
Weyco Group 167,664 4,275,432
Wolverine World Wide 59,900 591,513
-------------
12,797,426
-------------
Collectibles - 0.3%
Action Performance(a) 2,000 14,500
Department 56(a) 68,200 750,200
Enesco Group 176,700 839,325
Russ Berrie and Company 9,500 182,875
Sotheby's Holdings Cl. A(a) 31,600 553,000
-------------
2,339,900
-------------
Food/Beverage/Tobacco - 0.7%
800 JR Cigar(a) 172,400 1,702,450
Hain Celestial Group(a) 50,600 1,856,387
Hershey Creamery 583 932,800
J & J Snack Foods(a) 5,000 89,375
Tootsie Roll Industries 13,390 468,650
-------------
5,049,662
-------------
Home Furnishing/Appliances - 1.5%
Bassett Furniture Industries 194,187 2,451,611
Burnham Corporation Cl. A 46,956 1,737,372
Burnham Corporation Cl. B 18,000 666,000
Ethan Allen Interiors 10,000 240,000
La-Z-Boy 68,200 954,800
Lifetime Hoan 361,727 2,893,816
Mikasa 172,900 1,901,900
-------------
10,845,499
-------------
Publishing - 0.3%
Marvel Enterprises(a) 398,200 2,488,750
Scholastic Corporation(a) 1,200 73,350
-------------
2,562,100
-------------
Sports and Recreation - 1.4%
Johnson Outdoors Cl. A(a) 251,800 1,778,338
Lund International Holdings(a) 153,600 729,600
Oakley(a) 366,700 4,217,050
RockShox(a),(c) 1,060,400 894,712
Sturm, Ruger & Co. 298,800 2,651,850
Winnebago Industries 3,200 41,800
-------------
10,313,350
-------------
Other Consumer Products - 1.6%
Lazare Kaplan International(a) 190,100 1,544,563
Matthews International Cl. A 115,200 3,340,800
Starrett (L. S.) Company Cl. A 75,400 1,319,500
VELCRO INDUSTRIES 525,800 5,948,112
-------------
12,152,975
-------------
TOTAL (Cost $53,067,556) 56,060,912
=============
CONSUMER SERVICES - 3.1%
Leisure/Entertainment - 0.2%
Anchor Gaming(a) 1,000 47,938
Aztar(a) 4,600 71,300
Cheap Tickets(a) 20,000 240,000
Coachmen Industries 85,500 983,250
-------------
1,342,488
-------------
Restaurants/Lodgings - 0.9%
BUFFETS(a) 535,135 6,789,525
Diedrich Coffee(a) 57,900 119,419
Papa John's International(a) 5,000 122,500
-------------
7,031,444
-------------
Retail Stores - 2.0%
Abercrombie & Fitch Cl. A(a) 25,000 304,687
CHARMING SHOPPES(a) 861,800 4,389,794
Claire's Stores 144,300 2,777,775
Consolidated Stores(a) 149,100 1,789,200
Family Dollar Stores 4,700 91,944
Michaels Stores(a) 5,000 229,063
Pep Boys-Manny, Moe & Jack (The) 5,000 30,000
Pier 1 Imports 57,500 560,625
Sunglass Hut International(a) 226,800 1,864,012
Suzy Shier 248,000 586,486
Urban Outfitters(a) 224,800 1,981,050
Whitehall Jewellers(a) 3,100 57,738
-------------
14,662,374
-------------
TOTAL (Cost $21,559,727) 23,036,306
=============
FINANCIAL INTERMEDIARIES - 10.1%
Banking - 1.3%
BOK Financial(a) 41,509 729,002
Boston Private Financial Holdings 10,000 100,625
+Farmers & Merchants Bank of
Long Beach(a) 1,266 2,342,100
Federal Realty Investment Trust 5,400 108,000
First American (The) 47,100 674,119
First National Bank of Anchorage 2,100 1,900,500
Fulton Financial 18,003 318,428
HSB Group 30,000 933,750
Hudson City Bancorp 20,000 341,250
Mechanics Bank 200 2,080,000
Oriental Financial Group 58,000 837,375
-------------
10,365,149
-------------
Insurance - 8.7%
Argonaut Group 161,600 2,767,400
Baldwin & Lyons Cl. B 126,000 2,149,875
Berkley (W.R.) 84,200 1,578,750
CNA Surety 15,000 179,063
Capitol Transamerica 108,415 1,280,652
Commerce Group 54,318 1,602,381
Erie Indemnity Company Cl. A 23,100 727,650
+Everest Re Group 107,300 3,527,488
Fidelity National Financial 140,800 2,578,400
Frontier Insurance Group(a) 56,000 42,000
HCC Insurance Holdings 113,200 2,136,650
Highlands Insurance Group(a) 242,800 2,276,250
Horace Mann Educators 74,300 1,114,500
</TABLE>
20 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
ROYCE VALUE TRUST, INC.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
FINANCIAL INTERMEDIARIES (CONTINUED)
Insurance (continued)
Independence Holding 58,164 $ 712,509
LaSalle Re Holdings(a) 79,900 1,133,581
Leucadia National 59,300 1,352,781
Liberty Financial Companies 5,000 109,687
Markel(a) 2,200 311,575
Medical Assurance(a) 230,371 2,591,674
+Mercury General 85,000 2,008,125
Mutual Risk Management 250,500 4,336,781
NYMAGIC 47,700 679,725
Nobel Insurance(a) 121,500 30,375
Old Republic International 188,100 3,103,650
PMA Capital Cl. A 219,700 4,174,300
PXRE Group 298,151 4,025,039
RLI 66,362 2,306,079
RenaissanceRe Holdings 15,000 653,438
Trenwick Group 245,950 3,581,647
Wesco Financial 11,990 2,457,950
White Mountains Insurance Group 30,400 4,864,000
Zenith National Insurance 226,700 4,817,375
-------------
65,211,350
-------------
Securities Brokers - 0.1%
Raymond James Financial 7,500 168,750
-------------
TOTAL (Cost $66,137,631) 75,745,249
=============
FINANCIAL SERVICES - 8.1%
Information and Processing - 1.0%
BARRA(a) 60,100 2,978,706
Fair, Isaac and Co. 78,500 3,454,000
Sungard Data Systems(a) 24,600 762,600
-------------
7,195,306
-------------
Insurance Brokers - 3.5%
+Aon 127,700 3,966,681
Blanch (E.W.) Holdings 175,800 3,570,937
Clark/Bardes Holdings(a) 80,900 1,334,850
Crawford & Co. Cl. A 327,350 3,539,472
Crawford & Co. Cl. B 75,300 828,300
GALLAGHER (ARTHUR J.) & COMPANY 209,800 8,811,600
Hilb, Rogal & Hamilton 112,675 3,908,414
-------------
25,960,254
-------------
Investment Management - 3.6%
Affiliated Managers Group(a) 87,800 3,994,900
BKF Capital Group(a) 17,500 277,812
BlackRock Cl. A(a) 55,000 1,595,000
Eaton Vance 65,100 3,010,875
Federated Investors Cl. B 10,000 350,625
John Nuveen Company Cl. A 51,400 2,155,588
Lexington Global Asset Managers(a) 16,100 167,037
NVEST LP 208,300 7,889,363
Phoenix Investment Partners 243,700 2,558,850
Pioneer Group (The)(a) 103,600 4,390,050
SEI Investments 6,000 238,875
U.S. Global Investors Cl. A(a) 249,205 459,472
-------------
27,088,447
-------------
TOTAL (Cost $35,844,970) 60,244,007
=============
HEALTH - 6.7%
Commercial Services - 2.0%
ChiRex(a) 60,000 1,200,000
IDEXX Laboratories(a) 35,100 802,913
+MedQuist(a) 55,000 1,870,000
PAREXEL International(a) 320,200 3,061,912
Quintiles Transnational(a) 127,000 1,793,875
SCHEIN (HENRY)(a) 292,900 5,052,525
Young Innovations(a) 51,700 924,138
-------------
14,705,363
-------------
Drugs and Biotech - 2.4%
Affymetrix(a) 20,000 3,302,500
Biogen(a) 4,000 258,000
BioReliance(a) 66,000 321,750
Cerus Corporation(a) 26,800 1,371,825
Chiron(a) 42,300 2,009,250
Dura Pharmaceuticals(a) 77,600 1,115,500
+Gene Logic(a) 51,000 1,820,062
Genzyme Corporation -
General Division(a) 50,000 2,971,875
Genzyme Corporation -
Tissue Repair(a) 15,300 80,325
Genzyme Corporation -
Molecular Oncology(a) 4,322 59,968
Genzyme Corporation -
Surgical Products(a) 7,160 71,153
IDEC Pharmaceuticals(a) 15,000 1,759,687
Incyte Genomics(a) 7,000 575,313
Millennium Pharmaceuticals(a) 12,000 1,342,500
Shire Pharmaceuticals Group ADR(a),(b) 20,853 1,081,749
-------------
18,141,457
-------------
Health Services - 0.2%
Capital Senior Living(a) 500 1,469
Shared Medical Systems 21,900 1,597,331
-------------
1,598,800
-------------
Personal Care - 0.3%
Chattem(a) 20,000 273,750
Nu Skin Enterprises Cl. A(a) 20,100 115,575
Regis 115,600 1,445,000
-------------
1,834,325
-------------
Surgical Products and Devices - 1.8%
Arrow International 148,700 4,981,450
Biomet 5,000 192,187
Haemonetics(a) 215,200 4,519,200
Invacare 17,000 446,250
NMT Medical(a) 150,600 451,800
PE Corporation-PE Biosystems Group 2,000 131,750
PE Corporation-Celera Genomics
Group(a) 1,000 93,500
STERIS(a) 43,600 386,950
Varian Medical Systems(a) 60,000 2,347,500
-------------
13,550,587
-------------
TOTAL (Cost $36,286,134) 49,830,532
=============
</TABLE>
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 21
<PAGE>
ROYCE VALUE TRUST, INC.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
INDUSTRIAL PRODUCTS - 14.7%
Building Systems and Components - 3.5%
Decker Manufacturing 6,022 $ 283,034
Falcon Products 349,400 3,319,300
Fleetwood Enterprises 65,900 939,075
International Aluminum 56,700 978,075
KIMBALL INTERNATIONAL CL. B 386,380 5,699,105
Mueller (Paul) 53,200 1,330,000
Preformed Line Products Company 127,600 1,850,200
SIMPSON MANUFACTURING(a) 126,700 6,057,844
Skyline 123,400 2,653,100
Thor Industries 159,950 3,358,950
-------------
26,468,683
-------------
Construction Materials - 1.9%
Ameron International 13,000 464,750
ASH GROVE CEMENT COMPANY CL. B 50,518 5,102,318
FLORIDA ROCK INDUSTRIES 148,000 5,272,500
Moore (Benjamin) & Co. 34,000 820,250
Puerto Rican Cement Company 100,400 2,792,375
-------------
14,452,193
-------------
Industrial Components - 1.0%
PENN ENGINEERING & MANUFACTURING 153,600 5,414,400
PENN ENGINEERING &
MANUFACTURING CL. A 39,800 1,283,550
PerkinElmer 1,000 66,125
Woodhead Industries 45,400 828,550
-------------
7,592,625
-------------
Industrial OEM - 0.1%
Ionics(a) 5,000 153,125
-------------
Machinery - 1.5%
Astec(a) 5,000 126,875
Atchison Casting(a) 58,600 336,950
Federal Signal 114,900 1,895,850
Hurco Companies(a) 5,000 20,000
Lincoln Electric Holdings 253,580 3,613,515
Nordson Corporation 60,300 3,052,687
PAXAR(a) 165,100 1,970,881
Tecumseh Products Company Cl. A 3,300 126,019
-------------
11,142,777
-------------
Paper and Packaging - 0.4%
CLARCOR 4,550 90,431
Liqui-Box 59,978 2,968,911
-------------
3,059,342
-------------
Pumps, Valves and Bearings - 1.3%
ConBraCo Industries 7,630 3,891,300
Denison International ADR(a),(b) 88,400 1,116,050
Kaydon Corporation 158,500 3,328,500
NN 127,100 1,334,550
Robroy Industries Cl. A 40,523 263,400
-------------
9,933,800
-------------
Specialty Chemicals and Materials - 3.4%
Aceto 60,010 660,110
Arch Chemicals 24,000 525,000
Brady (W.H.) Cl. A 121,100 3,935,750
Calgon Carbon 50,000 387,500
Chemfab(a) 133,219 1,581,976
Donaldson Company 26,000 513,500
Hauser(a) 6,000 10,500
Hawkins Chemical 301,278 2,372,564
LILLY INDUSTRIES CL. A 339,283 10,199,695
MacDermid 204,131 4,797,078
Valspar 10,000 337,500
-------------
25,321,173
-------------
Textiles - 0.9%
Delta Woodside Industries(a) 125,400 274,313
Fab Industries 175,500 1,864,687
Thomaston Mills Cl. A(a),(c) 327,800 358,531
Unifi(a) 319,800 3,957,525
Wellman 15,000 242,813
-------------
6,697,869
-------------
Other Industrial Products - 0.7%
BHA Group Holdings 123,209 1,201,288
Baldor Electric 62,900 1,171,512
Landauer 112,900 1,757,006
Myers Industries 34,862 374,767
Scott Technologies(a) 1,000 17,187
Steelcase Cl. A 50,000 850,000
-------------
5,371,760
-------------
TOTAL (Cost $84,571,130) 110,193,347
=============
INDUSTRIAL SERVICES - 11.9%
Advertising/Publishing - 0.6%
Grey Advertising 4,717 2,452,840
True North Communications 48,000 2,112,000
-------------
4,564,840
-------------
Commercial Services - 3.2%
ABM Industries 77,500 1,782,500
Analytical Surveys(a) 5,000 15,469
CDI(a) 196,600 4,005,725
Carlisle Holdings(a) 251,100 1,844,016
Catalina Marketing(a) 10,000 1,020,000
Comdisco 78,700 1,755,994
Cornell Companies(a) 80,400 643,200
Fisher Companies 16,096 1,142,816
Hall Kinion & Associates(a) 5,000 166,563
Hardinge 106,600 1,112,637
INTERIM SERVICES(a) 292,900 5,198,975
Kelly Services Cl. A 5,000 115,625
Korn/Ferry International(a) 53,700 1,701,619
Manpower 30,800 985,600
Marketing Specialists(a) 124,900 218,575
MAXIMUS(a) 5,000 110,625
Modis Professional Services(a) 142,700 1,266,463
Open Plan Systems(a),(c) 392,600 748,394
Volt Information Sciences(a) 3,200 105,400
-------------
23,940,196
-------------
Engineering and Construction - 1.0%
Insituform Technologies Cl. A(a) 1,700 46,112
McDermott International 11,000 96,938
Morrison Knudsen(a) 510,100 3,698,225
Sevenson Environmental Services 265,720 2,972,742
Stone & Webster(a) 212,700 152,931
Todd Shipyards(a) 39,200 308,700
-------------
7,275,648
-------------
</TABLE>
22 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
ROYCE VALUE TRUST, INC.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
INDUSTRIAL SERVICES (CONTINUED)
Food/Tobacco Processors - 1.0%
DIMON 253,600 $ 538,900
Farmer Bros. 26,000 4,550,000
Midwest Grain Products(a) 231,800 1,926,838
Seaboard 3,750 645,000
-------------
7,660,738
-------------
Industrial Distribution - 0.9%
Central Steel & Wire 3,699 1,856,898
Ritchie Bros. Auctioneers(a) 197,200 4,720,475
TBC(a) 21,300 98,512
-------------
6,675,885
-------------
Printing - 1.7%
Bowne & Co. 383,100 3,854,944
Ennis Business Forms 302,100 2,416,800
New England Business Service 224,200 3,643,250
Standard Register (The) 163,200 2,325,600
-------------
12,240,594
-------------
Transportation and Logistics - 3.5%
Airborne Freight 27,400 518,888
AirNet Systems(a) 325,900 1,486,919
Arnold Industries 418,348 5,046,323
C. H. Robinson Worldwide 25,000 1,237,500
CIRCLE INTERNATIONAL GROUP 266,725 6,701,466
EGL(a) 18,500 568,875
Fritz Companies(a) 343,600 3,543,375
Frozen Food Express Industries(a) 220,670 662,010
Hub Group Cl. A(a) 107,000 1,598,312
Kenan Transport 63,300 1,305,563
Landstar System(a) 5,000 297,812
Ocean Group 13,000 214,406
Pittston Brink's Group 236,213 3,233,165
-------------
26,414,614
-------------
TOTAL (Cost $100,387,597) 88,772,515
=============
NATURAL RESOURCES - 7.1%
Energy Services - 3.0%
CARBO CERAMICS 149,100 5,237,138
Global Industries(a) 119,500 2,255,562
HELMERICH & PAYNE 135,200 5,053,100
Input/Output(a) 345,100 2,911,781
Nabors Industries(a) 29,600 1,230,250
Peerless Mfg.(c) 79,300 1,338,188
Tidewater 28,000 1,008,000
Valley National Gases(a) 30,100 146,737
Willbros Group(a) 483,700 3,325,437
-------------
22,506,193
-------------
Gold - 0.1%
MK Gold(a) 517,900 509,808
-------------
Oil and Gas - 3.2%
Alberta Energy Company 20,000 810,000
BARRETT RESOURCES(a) 185,600 5,649,200
Tom Brown(a) 103,000 2,375,438
DENBURY RESOURCES(a) 1,154,700 5,990,006
Devon Energy 32,100 1,803,619
EOG Resources 10,000 335,000
PetroCorp(a) 124,400 870,800
PURE RESOURCES(a) 290,632 5,195,047
Renaissance Energy(a) 36,400 352,932
Toreador Resources 97,100 509,775
-------------
23,891,817
-------------
Real Estate - 0.8%
Alico 52,000 825,500
+Chelsea GCA Realty 87,000 3,006,938
Consolidated-Tomoka Land 13,564 164,463
Patriot Transportation Holding(a) 119,900 2,060,781
Vornado Realty Trust 10,000 347,500
-------------
6,405,182
-------------
TOTAL (Cost $45,273,803) 53,313,000
=============
TECHNOLOGY - 17.1%
Aerospace/Defense - 1.4%
Curtiss-Wright 121,900 4,533,156
Special Metals(a) 676,300 1,775,288
Woodward Governor 138,600 3,924,112
-------------
10,232,556
-------------
Components and Systems - 2.8%
Cognex(a) 54,500 2,820,375
Dionex(a) 101,000 2,701,750
Echelon Corporation(a) 5,000 289,688
Ezenia!(a) 166,100 737,069
IFR Systems(a) 9,133 45,665
Imation Corporation(a) 52,000 1,527,500
Kronos(a) 19,600 509,600
Logitech International ADR (a),(b) 1,000 73,000
National Computer Systems 91,000 4,481,750
Newport 1,500 161,062
Perceptron(a) 242,100 824,653
Printronix(a) 2,800 36,750
Radiant Systems(a) 22,500 540,000
Rainbow Technologies(a) 32,800 1,594,900
SAES Getters ADR(b) 5,000 36,875
Scitex(a) 307,100 3,397,294
Vicor(a) 5,000 174,063
Zebra Technologies Cl.A(a) 25,000 1,107,812
-------------
21,059,806
-------------
Distribution - 1.7%
Arrow Electronics(a) 54,100 1,677,100
AVNET 105,926 6,276,116
Daisytek International(a) 65,300 616,269
Pioneer-Standard Electronics 118,925 1,754,144
Richardson Electronics 180,300 2,896,069
-------------
13,219,698
-------------
IT Services - 1.6%
American Management Systems(a) 46,800 1,536,356
AnswerThink(a) 50,000 831,250
Cambridge Technology Partners(a) 51,900 452,503
CIBER(a) 203,800 2,700,350
Complete Business Solutions(a) 23,200 407,450
Computer Horizons(a) 5,000 67,187
Concord Communications(a) 5,000 199,375
Gartner Group Cl.A(a) 70,000 840,000
</TABLE>
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 23
<PAGE>
ROYCE VALUE TRUST, INC.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
TECHNOLOGY (CONTINUED)
IT Services (continued)
IMRglobal Corporation(a) 212,300 $ 2,773,169
Keane(a) 30,000 648,750
MarchFirst(a) 63,700 1,162,525
QRS Corporation(a) 7,500 184,219
Renaissance Worldwide(a) 50,000 78,125
Syntel(a) 24,400 244,000
-------------
12,125,259
-------------
Internet Services - 0.1%
FirstWorld Communications (Warrants) 1,054 68,510
NaviSite(a) 5,000 209,063
Online Resources & Communications(a) 72,500 466,719
-------------
744,292
-------------
Semiconductors and Equipment - 4.4%
BE Semiconductor Industries(a) 59,500 892,500
Benchmark Electronics(a) 20,900 764,156
Coherent(a) 38,300 3,212,413
Credence Systems(a) 20,600 1,136,862
Cymer(a) 14,500 692,375
Dallas Semiconductor 92,200 3,757,150
DuPont Photomasks(a) 35,000 2,397,500
ESS Technology(a) 14,800 214,600
Electroglas(a) 128,000 2,752,000
Exar(a) 46,150 4,023,703
Helix Technology 40,100 1,563,900
Intevac(a) 191,850 731,428
Kulicke & Soffa Industries(a) 30,400 1,805,000
Lam Research(a) 24,000 900,000
Micrel(a) 20,000 868,750
National Semiconductor(a) 1,000 56,750
Novellus Systems(a) 12,000 678,750
PCD(a) 124,600 967,597
QuickLogic Corporation(a) 2,500 55,625
Read-Rite(a) 5,000 11,094
Varian(a) 55,000 2,536,875
Varian Semiconductor
Equipment Associates(a) 37,000 2,324,063
Veeco Instruments(a) 5,400 395,550
-------------
32,738,641
-------------
Software - 4.1%
ANSYS(a) 95,100 1,081,762
Aspen Technology(a) 39,400 1,516,900
Autodesk 72,100 2,500,969
Avant!(a) 51,000 955,453
BSQUARE Corporation(a) 200 4,487
Business Objects ADR (a),(b) 17,000 1,498,125
COMARCO(a) 1,400 45,500
+Covance(a) 246,900 2,175,806
Documentum(a) 5,000 446,875
J. D. Edwards & Company(a) 20,000 301,250
FileNet(a) 10,000 183,750
HNC Software(a) 10,000 617,500
Igate Capital(a) 12,200 167,750
Informix(a) 350,500 2,606,844
Integral Systems(a) 102,800 1,721,900
JDA Software Group(a) 194,500 3,731,969
MSC.Software(a) 128,800 1,199,450
Macromedia(a) 3,000 290,062
Manugistics Group(a) 12,000 561,000
National Instruments(a) 72,600 3,167,175
Pegasystems(a) 45,000 225,000
Peregrine Systems(a) 25,275 876,727
Phoenix Technologies(a) 3,800 61,988
Progress Software(a) 10,000 179,375
Project Software & Development(a) 7,000 126,000
Remedy(a) 10,600 590,950
SPSS(a) 27,000 786,375
+Salient 3 Communications Cl. A(a) 4,200 50,662
Structural Dynamics Research(a) 141,200 2,126,825
Tecnomatix Technologies(a) 10,000 136,250
West Teleservices(a) 5,000 126,563
Wind River Systems(a) 12,100 458,287
-------------
30,519,529
-------------
Telecommunication - 1.0%
AVT Corporation(a) 30,000 221,250
MCK Communications(a) 5,000 115,625
Plantronics(a) 28,100 3,245,550
REMEC(a) 46,600 1,951,375
Technical Communications(a),(c) 106,700 353,444
Technitrol 16,400 1,588,750
Visual Networks(a) 1,000 28,500
-------------
7,504,494
-------------
TOTAL (Cost $79,171,455) 128,144,275
=============
MISCELLANEOUS - 4.8%
TOTAL (Cost $31,999,160) 36,047,151
=============
TOTAL COMMON STOCKS
(Cost $554,299,163) 681,387,294
=============
PREFERRED STOCKS - 0.6%
Pioneer-Standard Electronics
6.75% Conv. 80,000 4,120,000
SVB Capital I 8.25% 20,000 400,000
-------------
TOTAL PREFERRED STOCKS
(Cost $4,315,000) 4,520,000
=============
</TABLE>
24 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
ROYCE VALUE TRUST, INC.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------- -----
<S> <C> <C>
CORPORATE BONDS - 1.3%
CHARMING SHOPPES 7.50% Conv.
Sub. Note due 7/15/06 $ 3,694,000 $ 3,176,840
Dixie Group 7.00% Conv. Sub.
Deb. due 5/15/12 681,000 435,840
FirstWorld Communications 0%
(Step)(d)
Sr. Note due 4/15/08 4,515,000 2,088,187
MSC.Software 7.875% Conv. Sub.
Deb. due 8/18/04 2,765,000 2,377,900
Richardson Electronics 7.25%
Conv. Sub. Deb. due 12/15/06 1,319,000 1,134,340
Sunglass Hut International
5.25% Conv. Sub. Note due
6/15/03 500,000 360,000
------------
TOTAL CORPORATE BONDS
(Cost $10,376,356) 9,573,107
============
U.S. TREASURY OBLIGATIONS - 6.0%
U. S. Treasury Note
4.875%, due 3/31/01
(Cost $44,922,656) 45,000,000 44,465,400
============
REPURCHASE AGREEMENT - 0.9%
State Street Bank & Trust Company,
5.50% dated 6/30/00, due 7/3/00, maturity value
$7,003,208 (collateralized by U.S. Treasury Notes,
5.125% due 8/31/00, valued at $7,140,525)
(Cost $7,000,000) $ 7,000,000
============
TOTAL INVESTMENTS - 99.9%
(Cost $620,913,175) 746,945,801
CASH AND OTHER ASSETS
LESS LIABILITIES - 0.1% 745,722
------------
NET ASSETS - 100.0% $747,691,523
============
</TABLE>
--------------------------------------------------------------------------------
(a) Non-income producing.
(b) American Depository Receipt.
(c) At June 30, 2000, the Fund owned 5% or more of the Company's outstanding
voting securities thereby making the Company an Affiliated Company as that
term is defined in the Investment Company Act of 1940.
(d) Coupon rate of 0% to 4/2003; thereafter 13%.
+ New Additions in 2000.
BOLD INDICATES THE FUND'S LARGEST 20 EQUITY HOLDINGS
IN TERMS OF JUNE 30, 2000 MARKET VALUE.
INCOME TAX INFORMATION: The cost of total investments for Federal income tax
purposes was $623,703,059. At June 30, 2000, net unrealized appreciation for all
securities was $123,242,742, consisting of aggregate gross unrealized
appreciation of $195,905,491 and aggregate gross unrealized depreciation of
$72,662,749.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 25
<PAGE>
ROYCE VALUE TRUST, INC.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 2000 (UNAUDITED)
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value (identified cost $613,913,175) $739,945,801
Repurchase agreement (at cost and value) 7,000,000
Cash 655,940
Receivable for investments sold 5,335,917
Receivable for dividends and interest 1,507,242
Prepaid expenses 75,365
-----------------------------------------------------------------------------------------------------------------------------------
Total Assets 754,520,265
-----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 5,777,739
Payable for investment advisory fee 565,125
Preferred dividends accrued but not yet declared 266,222
Accrued expenses 219,656
-----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 6,828,742
-----------------------------------------------------------------------------------------------------------------------------------
Net Assets $747,691,523
===================================================================================================================================
Net Assets applicable to Preferred Stock at(a)liquidation value of $25 per share $160,000,000
===================================================================================================================================
Net Assets applicable to Common Stock (net asset value per share - $16.17) $587,691,523
===================================================================================================================================
SUMMARY OF STOCKHOLDERS' EQUITY:
7.80% Cumulative Preferred Stock - par value $0.001 per share; 2,400,000 shares outstanding $ 2,400
7.30% Tax-Advantaged Cumulative Preferred Stock - par value $0.001 per share; 4,000,000 shares outstanding 4,000
Common Stock-par value $0.001 per share; 36,344,876 shares outstanding (150,000,000 shares authorized) 36,345
Additional paid-in capital 565,549,647
Undistributed net investment income 7,837,657
Accumulated net realized gain on investments 78,537,364
Net unrealized appreciation on investments 126,032,626
Quarterly and accrued distributions (30,308,516)
-----------------------------------------------------------------------------------------------------------------------------------
Net Assets $747,691,523
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
-----------------------------------------------------------------------------------------------------------------------------------
Six months ended Year ended
June 30, 2000 December 31,
(unaudited) 1999
------------------ ----------------
<S> <C> <C>
INVESTMENT OPERATIONS:
Net investment income $ 3,662,347 $ 7,312,087
Net realized gain on investments 63,322,728 61,397,109
Net change in unrealized appreciation on investments (19,338,893) (2,262,846)
-----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from investment operations 47,646,182 66,446,350
-----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income - (1,338,166)
Net realized gain on investments - (10,641,834)
Quarterly distributions* (5,990,000) -
-----------------------------------------------------------------------------------------------------------------------------------
Total distributions to Preferred Stockholders (5,990,000) (11,980,000)
-----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income - (5,152,339)
Net realized gain on investments - (40,974,216)
Quarterly distributions* (24,052,293) -
-----------------------------------------------------------------------------------------------------------------------------------
Total distributions to Common Stockholders (24,052,293) (46,126,555)
-----------------------------------------------------------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
Reinvestment of distributions to Common Stockholders 17,159,205 27,625,539
-----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 34,763,094 35,965,334
NET ASSETS:
Beginning of period 712,928,429 676,963,095
-----------------------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income of $7,837,657
and $4,175,310, respectively) $747,691,523 $712,928,429
===================================================================================================================================
</TABLE>
* To be allocated to net investment income and capital gains at year-end.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
26 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
ROYCE VALUE TRUST, INC.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
-------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Income:
Dividends $ 4,949,826
Interest 2,404,628
-------------------------------------------------------------------------------
Total income 7,354,454
-------------------------------------------------------------------------------
Expenses:
Investment advisory fees 3,435,746
Administrative and office facilities expenses 156,722
Stockholder reports 151,904
Custodian and transfer agent fees 115,024
Directors' fees 36,387
Professional fees 36,079
Other expenses 61,378
-------------------------------------------------------------------------------
Total expenses 3,993,240
Fees waived by investment adviser (301,133)
-------------------------------------------------------------------------------
Net expenses 3,692,107
-------------------------------------------------------------------------------
Net investment income 3,662,347
-------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 63,322,728
Net change in unrealized appreciation on investments (19,338,893)
-------------------------------------------------------------------------------
Net realized and unrealized gain on investments 43,983,835
-------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS $ 47,646,182
================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 27
<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>
Six months ended Years ended December 31,
June 30, 2000 -------------------------------------------------------
(unaudited) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $15.77 $15.72 $16.91 $14.32 $13.56 $12.34
-----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS(a):
Net investment income 0.10 0.26 0.17 0.21 0.26 0.04
Net realized and unrealized gain on investments 1.24 1.65 0.67 3.85 1.92 2.70
-----------------------------------------------------------------------------------------------------------------------------------
Total investment operations 1.34 1.91 0.84 4.06 2.18 2.74
-----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income -- (0.04) (0.03) (0.03) (0.01) --
Net realized gain on investments -- (0.32) (0.26) (0.15) (0.06) --
Quarterly distributions* (0.17) -- -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
Total distributions to Preferred Stockholders (0.17) (0.36) (0.29) (0.18) (0.07) --
-----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income -- (0.15) (0.16) (0.19) (0.15) (0.03)
Net realized gain on investments -- (1.22) (1.38) (1.02) (1.00) (1.26)
Quarterly distributions* (0.68) -- -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
Total distributions to Common Stockholders (0.68) (1.37) (1.54) (1.21) (1.15) (1.29)
-----------------------------------------------------------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
Effect of reinvestment of distributions
by Common Stockholders (0.09) (0.13) (0.09) (0.08) (0.11) (0.11)
Effect of Preferred Stock offerings
or rights offering -- -- (0.11) -- (0.09) (0.12)
-----------------------------------------------------------------------------------------------------------------------------------
Total capital stock transactions (0.09) (0.13) (0.20) (0.08) (0.20) (0.23)
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD(a) $16.17 $15.77 $15.72 $16.91 $14.32 $13.56
-----------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE, END OF PERIOD $13.625 $13.063 $13.750 $15.063 $12.625 $11.875
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (b):
Net Asset Value (a) 7.8%*** 11.7% 3.3% 27.5% 15.5% 22.6%
Market Value 9.6%*** 5.7% 1.5% 28.8% 16.3% 20.5%
RATIOS BASED ON AVERAGE NET ASSETS
APPLICABLE TO COMMON STOCKHOLDERS:
Total expenses (c,d) 1.31%** 1.39% 1.31% 1.12% 1.28% 2.01%
Management fee expense 1.11%** 1.18% 1.10% 0.39% 0.39% 0.97%
Interest expense -- -- -- 0.45% 0.64% 0.75%
Other operating expenses 0.20%** 0.21% 0.21% 0.28% 0.25% 0.29%
Net investment income 1.30%** 1.47% 1.11% 1.53% 1.27% 0.34%
SUPPLEMENTAL DATA:
Net Assets, End of Period (in thousands) $747,692 $712,928 $676,963 $554,231 $441,837 $338,970
Portfolio Turnover Rate 22%*** 41% 43% 29% 34% 32%
PREFERRED STOCK:
Total shares outstanding 6,400,000 6,400,000 6,400,000 2,400,000 2,400,000 --
Asset coverage per share $116.83 $111.40 $105.78 $165.51 $120.15 --
Liquidation preference per share $25.00 $25.00 $25.00 $25.00 $25.00 --
Average market value per share:
7.80% Cumulative (e) $22.70 $24.98 $25.91 $25.70 $25.20 --
7.30% Tax-Advantaged Cumulative (e) $21.70 $24.24 $25.43 -- -- --
NOTES:
Total amount outstanding (in thousands) -- -- -- $27,801 $40,000 $40,000
Asset coverage per note -- -- -- $2,090.89 $1,201.51 $943.93
Average market value per note (e) -- -- -- $107.69 $100.68 $96.92
</TABLE>
-------------------------------------------------------------------------------
(a) From June 21, 1995 through December 31, 1997, Net Asset Value per share,
Net Asset Value Total Returns and Income from Investment Operations were
calculated assuming that the then outstanding convertible notes had been
fully converted, except when the effect of doing so resulted in a higher
Net Asset Value per share than would have been calculated without such
assumption. If it were not assumed the Notes had been converted, the Net
Asset Value per share would have been increased by $0.31, $0.17, and $0.09
at December 31, 1997, 1996 and 1995, respectively.
(b) The Net Asset Value and Market Value Total Returns assume a continuous
Common Stockholder who reinvested all net investment income dividends and
capital gain distributions and fully participated in primary subscriptions
for rights offerings.
(c) Expense ratios based on total average net assets were 1.02%, 1.06%, 1.06%,
0.99%, 1.20% and 2.01% for the periods ended June 30, 2000, and December
31, 1999, 1998, 1997, 1996 and 1995, respectively.
(d) Expense ratios based on average net assets applicable to Common
Stockholders before waiver of fees by the investment adviser would have
been 1.42%, 1.48%, 1.34%, 1.14%, 1.31% and 2.04% for the periods ended June
30, 2000, and December 31, 1999, 1998, 1997, 1996 and 1995, respectively.
(e) The average of month-end market values during the period.
* To be allocated to net investment income and capital gains at year-end.
** Annualized.
*** Not annualized.
28 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
ROYCE VALUE TRUST, INC.
-------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
-------------------------------------------------------------------------------
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 the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
VALUATION OF INVESTMENTS:
Securities listed on an exchange or on the Nasdaq National Market System
(NMS) are valued on the basis of the last reported sale prior to the time the
valuation is made or, if no sale is reported for such day, at their bid price
for exchange-listed securities and at the average of their bid and asked prices
for Nasdaq NMS securities. Quotations are taken from the market where the
security is primarily traded. Other over-the-counter securities for which market
quotations are readily available are valued at their bid price. Securities for
which market quotations are not readily available are valued at their fair value
under procedures established by the Fund's Board of Directors. Bonds and other
fixed income securities may be valued by reference to other securities with
comparable ratings, interest rates and maturities, using established independent
pricing services.
INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME:
Investment transactions are accounted for on the trade date. Dividend
income is recorded on the ex-dividend date and any non-cash dividend income is
recorded at the fair market value of the securities received. Interest income is
recorded on the accrual basis. Realized gains and losses from investment
transactions are determined on the basis of identified cost for book and tax
purposes.
EXPENSES:
The Fund incurs direct and indirect expenses. Expenses directly
attributable to the Fund are charged to the Fund's operations, while expenses
applicable to more than one of the Royce Funds are allocated in an equitable
manner. Allocated personnel and occupancy costs related to The Royce Funds are
included in administrative and office facilities expenses. The Fund has
adopted a deferred fee agreement that allows the Fund's Directors to defer the
receipt of all or a portion of Directors Fees otherwise payable. The deferred
fees remain invested in certain Royce Funds until distributed in accordance with
the agreement.
TAXES:
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the extent
that it distributes substantially all of its taxable income for its fiscal year.
The Schedule of Investments includes information regarding income taxes under
the caption "Income Tax Information".
DISTRIBUTIONS:
The Fund currently has a policy of paying quarterly distributions on the
Fund's Common Stock. Distributions are currently being made at the annual rate
of 9% of the rolling average of the prior four calendar quarter-end NAVs of the
Fund's Common Stock, with the fourth quarter distribution being the greater of
2.25% of the rolling average or the distribution required by IRS regulations.
Distributions to Preferred Stockholders are recorded on an accrual basis and
paid quarterly. Distributions are determined in accordance with income tax
regulations that may differ from generally accepted accounting principles.
Permanent book and tax basis differences relating to stockholder distributions
will result in reclassifications within the capital accounts. Undistributed net
investment income may include temporary book and tax basis differences, which
will reverse in a subsequent period. Any taxable income or gain remaining
undistributed at fiscal year end is distributed in the following year.
REPURCHASE AGREEMENTS:
The Fund enters into repurchase agreements with respect to its portfolio
securities solely with State Street Bank and Trust Company ("SSB&T"), the
custodian of its assets. The Fund restricts repurchase agreements to maturities
of no more than seven days. Securities pledged as collateral for repurchase
agreements, which are held by SSB&T until maturity of the repurchase agreements,
are marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued interest).
Repurchase agreements could involve certain risks in the event of default or
insolvency of SSB&T, including possible delays or restrictions upon the ability
of the Fund to dispose of the underlying securities.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 29
<PAGE>
ROYCE VALUE TRUST, INC.
-------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
-------------------------------------------------------------------------------
CAPITAL STOCK:
The Fund currently has two issues of Preferred Stock outstanding: 7.80%
Cumulative Preferred Stock and 7.30% Tax-Advantaged Cumulative Preferred Stock.
Both issues of Preferred Stock have a liquidation preference of $25.00 per
share.
Under the Investment Company Act of 1940, the Fund is required to maintain
an asset coverage of at least 200% for the Preferred Stock. In addition,
pursuant to the Rating Agency Guidelines established by Moody's, the Fund is
required to maintain a certain discounted asset coverage. The Fund has met these
requirements since issuing Preferred Stock.
The Fund is required to allocate long-term capital gain distributions and
other types of income proportionately to distributions made to holders of shares
of Common Stock and Preferred Stock. To the extent that dividends are not paid
from long-term capital gains, net investment income or net short-term capital
gains, they will represent a return of capital.
The Fund issued 1,273,095 and 2,191,520 shares of Common Stock as
reinvestment of distributions by Common Stockholders for the periods ended June
30, 2000 and December 31, 1999, 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 is increased or decreased at the rate of 1/12
of .05% for each percentage point that the investment performance of the Fund
exceeds, or is exceeded by, the percentage change in the investment record of
the S&P 600 for the performance period by more than two percentage points. The
maximum increase or decrease in the Basic Fee for any month may not exceed 1/12
of .5%. Accordingly, for each month, the maximum monthly fee rate as adjusted
for performance is 1/12 of 1.5% and is payable if the investment performance of
the Fund exceeds the percentage change in the investment record of the S&P 600
by 12 or more percentage points for the performance period, and the minimum
monthly fee rate as adjusted for performance is 1/12 of .5% and is payable if
the percentage change in the investment record of the S&P 600 exceeds the
investment performance of the Fund by 12 or more percentage points for the
performance period.
Notwithstanding the foregoing, Royce is not entitled to receive any fee for
any month when the investment performance of the Fund for the rolling 36-month
period ending with such month is negative. In the event that the Fund's
investment performance for such a performance period is less than zero, Royce
will not be required to refund to the Fund any fee earned in respect of any
prior performance period.
Royce has voluntarily committed to waive the portion of its investment
advisory fee attributable to an issue of the Fund's Preferred Stock for any
month in which the Fund's average annual NAV total return since issuance of the
Preferred Stock fails to exceed the applicable Preferred Stock dividend rate.
For the period ended June 30, 2000, the Fund accrued and paid Royce
advisory fees totaling $3,134,613, which is net of $301,133 voluntarily waived
by Royce.
PURCHASES AND SALES OF INVESTMENT SECURITIES:
For the period ended June 30, 2000, the cost of purchases and proceeds from
sales of investment securities, other than short-term securities, amounted to
$154,956,209 and $161,534,560, respectively.
30 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
ROYCE VALUE TRUST, INC.
-------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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 5% or more of the company's outstanding voting
securities. The Fund effected the following transactions in shares of such
companies during the period ended June 30, 2000:
<TABLE>
<CAPTION>
==================================================================================================================================
Purchases Sales
------------------- -----------------
Affiliated Company Shares Cost Shares Cost Realized Gain (Loss) Dividend Income
------------------ ---------- -------- ------ ----- -------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Open Plan Systems 38,300 $81,234 -- -- -- --
Peerless Mfg. -- -- -- -- -- $19,825
Rockshox -- -- -- -- -- --
Technical Communications -- -- -- -- -- --
Thomaston Mills Cl. A -- -- -- -- -- --
==================================================================================================================================
</TABLE>
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 31
<PAGE>
<TABLE>
<CAPTION>
ROYCE MICRO-CAP TRUST, INC.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 88.3%
SHARES VALUE
------ -----
CONSUMER PRODUCTS - 10.2%
Apparel and Shoes - 2.0%
Garan 46,700 $ 1,056,588
Kleinert's (a,c) 14,200 170,400
Oshkosh B'Gosh Cl. A 75,800 1,241,225
WEYCO GROUP 68,400 1,744,200
--------------
4,212,413
--------------
Collectibles - 0.8%
Action Performance (a) 20,000 145,000
+The Boyds Collection (a) 137,000 1,164,500
Enesco Group 93,500 444,125
--------------
1,753,625
--------------
Food/Beverage/Tobacco - 1.3%
800 JR Cigar (a) 173,500 1,713,312
Smithfield Companies (The) (d) 148,400 973,875
--------------
2,687,187
--------------
Home Furnishing/Appliances - 1.7%
Bassett Furniture Industries 92,600 1,169,075
Lifetime Hoan 120,054 960,432
Mikasa 99,400 1,093,400
Mity-Lite (a) 21,300 282,225
--------------
3,505,132
--------------
Publishing - 1.1%
MARVEL ENTERPRISES (a) 288,600 1,803,750
Topps Company (The) (a) 42,000 483,000
--------------
2,286,750
--------------
Sports and Recreation - 0.7%
Allen Organ Cl. B 5,600 326,900
Johnson Outdoors Cl. A (a) 60,000 423,750
Lund International Holdings (a) 146,700 696,825
--------------
1,447,475
--------------
Other Consumer Products - 2.6%
Koala Corporation (a) 80,000 1,130,000
Lazare Kaplan International (a) 110,100 894,563
MATTHEWS INTERNATIONAL CL. A 81,000 2,349,000
Velcro Industries 81,500 921,969
--------------
5,295,532
--------------
TOTAL (Cost $16,909,530) 21,188,114
==============
CONSUMER SERVICES - 3.8%
Leisure/Entertainment - 0.6%
+Coachmen Industries 117,900 1,355,850
--------------
Restaurants/Lodgings - 0.5%
Chart House Enterprises (a) 20,000 110,000
Diedrich Coffee (a) 93,600 193,050
Pizza Inn 202,800 722,475
--------------
1,025,525
--------------
Retail Stores - 2.7%
Bombay Company (The) (a) 46,600 136,887
Brookstone (a) 13,000 124,719
Buckle (The) (a) 66,200 777,850
Cato Cl. A 100,000 1,162,500
Dress Barn (The) (a) 21,700 480,113
Noodle Kidoodle (a) 22,500 67,500
Piercing Pagoda (a) 3,000 43,500
Restoration Hardware (a) 60,300 331,650
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Stein Mart (a) 76,400 $ 783,100
Suzy Shier 156,800 370,811
Urban Outfitters (a) 153,500 1,352,719
--------------
5,631,349
--------------
TOTAL (Cost $8,809,558) 8,012,724
==============
FINANCIAL INTERMEDIARIES - 7.9%
Banking - 0.6%
First Midwest Financial 1,000 9,594
HomeFed (a) 1,108,521 742,709
Iron & Glass Bancorp 8,580 157,657
Queen City Investments (a) 948 331,800
--------------
1,241,760
--------------
Closed End Funds - 0.2%
Central Fund of Canada Cl. A 140,000 498,750
--------------
Insurance - 7.1%
Capitol Transamerica 107,865 1,274,155
Highlands Insurance Group (a) 88,700 831,563
+IPC Holdings (a) 80,600 1,128,400
Independence Holding 33,300 407,925
Medical Assurance (a) 139,500 1,569,375
MIIX Group 124,900 1,498,800
NYMAGIC 125,200 1,784,100
Navigators Group (a) 153,400 1,380,600
Nobel Insurance (a) 183,000 45,750
PICO Holdings (a) 16,900 237,656
PMA Capital Cl. A 57,109 1,085,071
PXRE Group 75,164 1,014,714
Philadelphia Consolidated
Holding (a) 54,200 911,237
Trenwick Group 56,500 822,781
Wellington Underwriting 444,712 672,894
--------------
14,665,021
--------------
TOTAL (Cost $16,563,735) 16,405,531
==============
FINANCIAL SERVICES - 3.6%
Information and Processing - 1.6%
BARRA (a) 58,250 2,887,016
CCC Information Services
Group (a) 40,400 429,250
--------------
3,316,266
--------------
Insurance Brokers - 1.9%
BLANCH (E.W.) HOLDINGS 93,200 1,893,125
Clark/Bardes Holdings (a) 55,500 915,750
CorVel (a) 10,000 246,875
Hilb, Rogal & Hamilton 30,300 1,051,031
--------------
4,106,781
--------------
Investment Management - 0.1%
GAINSCO 25,000 125,000
--------------
TOTAL (Cost $5,120,187) 7,548,047
==============
HEALTH - 7.0%
Commercial Services - 1.8%
ChiRex (a) 56,500 1,130,000
ICON ADR (a,b) 1,000 16,625
PAREXEL International (a) 144,400 1,380,825
Young Innovations (a) 65,900 1,177,963
--------------
3,705,413
--------------
32 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
<CAPTION>
ROYCE MICRO-CAP TRUST, INC.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SHARES VALUE
------ -----
<S> <C> <C>
HEALTH (CONTINUED)
Drugs and Biotech - 4.3%
Aurora Biosciences (a) 4,800 $ 327,300
BioReliance (a) 135,800 662,025
CEPHALON (a) 32,000 1,916,000
Geron (a) 6,000 192,000
+Lexicon Genetics (a) 28,500 979,687
MYRIAD GENETICS (a) 15,000 2,221,172
+Organogenesis (a) 71,200 814,350
Scotia Holdings (a) 80,000 155,547
ViroPharma (a) 21,000 328,125
Visible Genetics (a) 29,500 1,331,188
--------------
8,927,394
--------------
Personal Care - 0.4%
+Chattem (a) 62,400 854,100
--------------
Surgical Products and
Devices - 0.5%
Allied Healthcare Products (a) 97,200 328,050
Biopure Corporation Cl. A (a) 10,000 188,125
NMT Medical (a) 126,900 380,700
Orthofix International (a) 12,000 214,500
--------------
1,111,375
--------------
TOTAL (Cost $8,801,924) 14,598,282
==============
INDUSTRIAL PRODUCTS - 13.4%
Building Systems and
Components - 2.7%
Falcon Products 72,000 684,000
LSI Industries 25,900 393,356
Mueller (Paul) 16,650 416,250
SIMPSON MANUFACTURING (a) 46,100 2,204,156
Skyline 32,100 690,150
Thor Industries 55,200 1,159,200
--------------
5,547,112
--------------
Construction Materials - 3.1%
ASH GROVE CEMENT COMPANY 20,000 2,020,000
FLORIDA ROCK INDUSTRIES 55,000 1,959,375
Monarch Cement 50,410 882,175
Puerto Rican Cement Company 58,200 1,618,687
--------------
6,480,237
--------------
Industrial Components - 1.5%
Herley Industries (a) 50,000 943,750
PENN ENGINEERING &
MANUFACTURING 39,700 1,399,425
PENN ENGINEERING &
MANUFACTURING CL. A 15,400 496,650
Scientific Technologies 10,700 60,856
Woodhead Industries 10,000 182,500
--------------
3,083,181
--------------
Machinery - 0.2%
Oshkosh Truck 10,500 375,375
--------------
Paper and Packaging - 0.5%
Liqui-Box 13,100 648,450
Tuscarora 32,500 507,813
--------------
1,156,263
--------------
Pumps, Valves and Bearings - 1.5%
Denison International ADR (a,b) 113,500 1,432,937
NN 80,500 845,250
Sun Hydraulics 90,450 757,519
--------------
3,035,706
--------------
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Specialty Chemicals and
Materials - 2.2%
Aceto 58,421 $ 642,631
Balchem 10,000 112,500
CFC International (a) 144,700 1,121,425
Chemfab (a) 88,100 1,046,187
Hauser (a) 45,400 79,450
Hawkins Chemical 122,667 966,003
Synalloy Corporation 95,700 680,367
--------------
4,648,563
--------------
Other Industrial Products - 1.7%
BHA Group Holdings 126,915 1,237,421
CompX International Cl. A 42,700 867,344
FLIR Systems (a) 46,700 303,550
Landauer 32,300 502,669
Myers Industries 52,459 563,934
--------------
3,474,918
--------------
TOTAL (Cost $20,552,822) 27,801,355
==============
INDUSTRIAL SERVICES - 14.3%
Commercial Services - 5.9%
Applied Analytical
Industries (a) 103,400 991,994
Business Resource Group (a) 190,000 1,211,250
Carlisle Holdings (a) 128,400 942,937
Cordiant Communications Group
ADR (b) 7,000 194,250
Cornell Companies (a) 111,800 894,400
Exponent (a) 63,200 529,300
Hagler Bailly (a) 20,000 100,000
Marketing Specialists (a) 30,100 52,675
NEW HORIZONS WORLDWIDE (a) 92,600 2,151,503
On Assignment (a) 30,000 915,000
RCM Technologies (a) 94,800 699,150
RemedyTemp Cl. A (a) 102,300 1,253,175
StaffMark (a) 55,000 367,813
Tyler Technologies (a) 272,300 697,769
+Wackenhut Corrections (a) 157,300 1,179,750
--------------
12,180,966
--------------
Engineering and Construction - 0.7%
Sevenson Environmental Services 125,120 1,399,780
Stone & Webster (a) 85,100 61,187
--------------
1,460,967
--------------
Food/Tobacco Processors - 1.5%
Farmer Bros. 4,000 700,000
Midwest Grain Products (a) 121,122 1,006,827
Seneca Foods Cl. A (a) 13,000 151,125
Seneca Foods Cl. B (a) 39,200 467,950
Standard Commercial 166,755 760,820
--------------
3,086,722
--------------
Industrial Distribution - 0.1%
Lawson Products 10,000 246,250
--------------
Printing - 1.8%
+Bowne & Co. 110,000 1,106,875
Ennis Business Forms 163,900 1,311,200
New England Business Service 71,500 1,161,875
Schawk Cl. A 26,300 246,563
--------------
3,826,513
--------------
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 33
<PAGE>
<CAPTION>
ROYCE MICRO-CAP TRUST, INC.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SHARES VALUE
------ -----
<S> <C> <C>
INDUSTRIAL SERVICES (CONTINUED)
Transportation and
Logistics - 4.3%
AirNet Systems (a) 252,800 $ 1,153,400
Aramex International (a) 68,600 686,000
Circle International Group 62,100 1,560,262
FORWARD AIR (a) 54,900 2,196,000
+Fritz Companies (a) 135,500 1,397,344
Kenan Transport 34,800 717,750
Knight Transportation (a) 48,700 709,194
Pittston Brink's Group 39,365 538,808
--------------
8,958,758
--------------
TOTAL (Cost $29,983,936) 29,760,176
==============
NATURAL RESOURCES - 8.6%
Energy Services - 3.8%
CARBO CERAMICS 52,600 1,847,575
Dril-Quip (a) 23,800 1,112,650
GulfMark Offshore (a) 49,600 1,215,200
Input/Output (a) 200,600 1,692,562
Lufkin Industries 25,000 396,875
MarkWest Hydrocarbon (a) 15,200 128,250
National-Oilwell (a) 3,385 111,282
Peerless Mfg. 21,600 364,500
Willbros Group (a) 150,000 1,031,250
--------------
7,900,144
--------------
Gold - 0.3%
MK Gold (a) 603,700 594,267
--------------
Oil and Gas - 4.1%
BONAVISTA PETROLEUM (a) 105,000 1,844,595
DENBURY RESOURCES (a) 418,300 2,169,931
Evergreen Resources (a) 20,000 592,500
PetroCorp (a) 203,200 1,422,400
PURE RESOURCES (a) 140,724 2,515,441
--------------
8,544,867
--------------
Real Estate - 0.4%
Liberte Investors 134,300 428,081
Patriot Transportation
Holding (a) 27,700 476,094
--------------
904,175
--------------
TOTAL (Cost $11,740,682) 17,943,453
==============
TECHNOLOGY 14.2%
Aerospace/Defense - 2.5%
Curtiss-Wright 35,000 1,301,563
DUCOMMUN (a) 165,200 1,972,075
+HEICO 75,000 1,068,750
Special Metals (a) 154,300 405,037
Woodward Governor 14,000 396,375
--------------
5,143,800
--------------
Components and Systems - 2.8%
CSP (a) 63,581 508,648
Kronos (a) 42,500 1,105,000
MOCON 50,200 282,375
Perceptron (a) 152,100 518,091
Performance Technologies (a) 24,750 210,375
Printronix (a) 20,000 262,500
Rainbow Technologies (a) 15,300 743,963
SBS Technologies (a) 26,600 982,537
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
SIPEX Corporation (a) 20,000 $ 553,750
TransAct Technologies (a) 68,200 741,675
--------------
5,908,914
--------------
Distribution - 1.7%
Kent Electronics (a) 7,800 232,538
+Pioneer-Standard Electronics 57,000 840,750
RICHARDSON ELECTRONICS 158,500 2,545,906
--------------
3,619,194
--------------
IT Services - 0.5%
Alternative Resources (a) 25,000 46,875
Analysts International 15,000 139,687
CACI International (a) 5,000 97,500
Computer Task Group 55,000 278,438
Intelligroup (a) 5,000 60,000
Metro Information Services (a) 10,000 100,000
SCB Computer Technology (a) 6,600 3,894
Syntel (a) 42,200 422,000
--------------
1,148,394
--------------
Internet Services - 0.8%
+internet.com (a) 77,500 1,525,781
Online Resources &
Communications (a) 24,000 154,500
--------------
1,680,281
--------------
Semiconductors and
Equipment - 2.3%
Aetrium (a) 10,000 57,500
Elamex (a) 70,200 210,600
Electroglas (a) 20,800 447,200
Exar (a) 8,500 741,094
Helix Technology 9,500 370,500
Intevac (a) 111,450 424,903
PCD (a) 143,800 1,116,697
Photronics (a) 29,750 844,156
Robotic Vision Systems (a) 20,000 360,000
Xicor (a) 25,000 167,187
--------------
4,739,837
--------------
Software - 3.2%
Aladdin Knowledge Systems (a) 37,300 589,806
ANSYS (a) 94,500 1,074,938
Applix (a) 20,000 155,000
Igate Capital (a) 15,200 209,000
Integral Systems (a) 58,300 976,525
JDA Software Group (a) 86,200 1,653,962
MSC.Software (a) 99,700 928,456
SPSS (a) 30,700 894,138
Sapiens International (a) 10,000 63,125
--------------
6,544,950
--------------
Telecommunication - 0.4%
Globecomm Systems (a) 29,000 398,750
REMEC (a) 11,600 485,750
--------------
884,500
--------------
TOTAL (Cost $21,913,394) 29,669,870
==============
UTILITIES 0.3%
EnergySouth 30,200 570,025
--------------
TOTAL (Cost $592,891) 570,025
==============
34 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
<CAPTION>
ROYCE MICRO-CAP TRUST, INC.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
SHARES VALUE
------ -----
<S> <C> <C>
MISCELLANEOUS - 5.0%
TOTAL (Cost $10,269,201) $ 10,398,681
==============
TOTAL COMMON STOCKS
(Cost $151,257,860) 183,896,258
==============
PREFERRED STOCK - 0.3%
Seneca Foods Conv. (a)
(Cost $623,500) 51,250 582,969
==============
<CAPTION>
PRINCIPAL
AMOUNT
------
CORPORATE BOND - 0.3%
MSC.Software 7.875% Conv.
Sub. Deb. due 8/18/04
(Cost $593,250) $ 700,000 602,000
==============
U.S. TREASURY OBLIGATIONS - 9.1%
U.S. Treasury Notes
6.25%, due 8/31/00 5,000,000 5,001,550
4.875%, due 3/31/01 9,000,000 8,893,080
6.25%, due 8/31/02 5,000,000 4,982,800
--------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $18,999,766) 18,877,430
==============
<CAPTION>
VALUE
-----
<S> <C> <C>
REPURCHASE AGREEMENT - 0.9%
State Street Bank & Trust Company,
5.50% dated 6/30/00, due
7/3/00, maturity value
$2,000,917 (collateralized by U.S. Treasury
Bonds, 8.125% due 8/15/21,
valued at $2,041,575)
(Cost $2,000,000) $ 2,000,000
==============
TOTAL INVESTMENTS - 98.9%
(Cost $173,474,376) 205,958,657
CASH AND OTHER ASSETS
LESS LIABILITIES - 1.1% 2,236,498
--------------
NET ASSETS - 100.0% $208,195,155
==============
</TABLE>
--------------------------------------------------------------------------------
(a) Non-income producing.
(b) American Depository Receipt.
(c) A security for which market quotations are no longer readily available
represents 0.08% of net assets. This security has been valued at its fair
value under procedures established by the Fund's Board of Directors.
(d) At June 30, 2000, the Fund owned 5% or more of the Company's outstanding
voting securities thereby making the Company an Affiliated Company as the
term is defined in the Investment Company Act of 1940.
+ New Additions in 2000.
BOLD INDICATES THE FUND'S LARGEST 20 EQUITY HOLDINGS IN TERMS OF JUNE 30,
2000 MARKET VALUE.
INCOME TAX INFORMATION: The cost of total investments for Federal income tax
purposes was $173,731,332. At June 30, 2000, net unrealized appreciation for
all securities was $32,227,325, consisting of aggregate gross unrealized
appreciation of $47,120,279 and aggregate gross unrealized depreciation of
$14,892,954.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 35
<PAGE>
ROYCE MICRO-CAP TRUST, INC.
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $171,474,376) $203,958,657
Repurchase agreement (at cost and value) 2,000,000
Cash 224,296
Receivable for investments sold 2,961,815
Receivable for dividends and interest 436,130
Prepaid expenses 29,851
------------------------------------------------------------------------------------------------------------------------------------
Total Assets 209,610,749
------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 1,103,886
Payable for investment advisory fee 152,101
Preferred dividends accrued but not yet declared 68,889
Accrued expenses 90,718
------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 1,415,594
------------------------------------------------------------------------------------------------------------------------------------
Net Assets $208,195,155
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
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 - $12.23) $168,195,155
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
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; 13,755,988 shares outstanding (150,000,000 shares authorized) 13,756
Additional paid-in capital 141,768,425
Undistributed net investment income 1,100,675
Accumulated net realized gain on investments 34,445,307
Net unrealized appreciation on investments 32,484,281
Quarterly and accrued distributions (1,618,889)
------------------------------------------------------------------------------------------------------------------------------------
Net Assets $208,195,155
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------------------------------------------------------------
Six months ended Year ended
June 30, 2000 December 31,
(unaudited) 1999
----------------- --------------
<S> <C> <C>
INVESTMENT OPERATIONS:
Net investment income $ 840,080 $ 1,592,653
Net realized gain on investments 25,418,582 10,265,741
Net change in unrealized appreciation on investments (7,782,378) 8,091,588
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from investment operations 18,476,284 19,949,982
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income - (707,110)
Net realized gain on investments - (2,392,890)
Quarterly distributions* (1,550,000) -
------------------------------------------------------------------------------------------------------------------------------------
Total distributions to Preferred Stockholders (1,550,000) (3,100,000)
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income - (834,803)
Net realized gain on investments - (2,800,617)
------------------------------------------------------------------------------------------------------------------------------------
Total distributions to Common Stockholders - (3,635,420)
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
Reinvestment of distributions to Common Stockholders - 2,559,108
------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 16,926,284 15,773,670
NET ASSETS:
Beginning of period 191,268,871 175,495,201
------------------------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income of $1,100,675
and $260,595, respectively) $208,195,155 $191,268,871
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* To be allocated to net investment income and capital gains at year-end.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
36 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
ROYCE MICRO-CAP TRUST, INC.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
<S> <C>
Income:
Dividends $ 725,740
Interest 1,039,189
------------------------------------------------------------------------------------------------------------------------------------
Total income 1,764,929
------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Investment advisory fees 709,573
Custodian and transfer agent fees 61,646
Administrative and office facilities expenses 42,609
Stockholder reports 39,956
Professional fees 18,297
Directors' fees 17,246
Other expenses 35,522
------------------------------------------------------------------------------------------------------------------------------------
Total expenses 924,849
------------------------------------------------------------------------------------------------------------------------------------
Net investment income 840,080
------------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 25,418,582
Net change in unrealized appreciation on investments (7,782,378)
------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 17,636,204
------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS $18,476,284
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 37
<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>
Six months ended Years ended December 31,
June 30, 2000 --------------------------------------------------------
(unaudited) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.00 $10.06 $10.84 $9.38 $8.89 $7.58
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS:
Net investment income 0.06 0.12 0.13 0.17 0.09 0.02
Net realized and unrealized gain (loss) on
investments and foreign currency 1.28 1.35 (0.36) 2.61 1.32 1.69
------------------------------------------------------------------------------------------------------------------------------------
Total investment operations 1.34 1.47 (0.23) 2.78 1.41 1.71
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income -- (0.05) (0.06) (0.02) -- --
Net realized gain on investments and foreign currency -- (0.18) (0.18) (0.12) -- --
Quarterly distributions* (0.11) -- -- -- -- --
------------------------------------------------------------------------------------------------------------------------------------
Total distributions to Preferred Stockholders (0.11) (0.23) (0.24) (0.14) -- --
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income -- (0.06) (0.07) (0.16) (0.10) (0.02)
Net realized gain on investments and foreign currency -- (0.21) (0.22) (0.84) (0.70) (0.34)
------------------------------------------------------------------------------------------------------------------------------------
Total distributions to Common Stockholders -- (0.27) (0.29) (1.00) (0.80) (0.36)
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
Effect of reinvestment of distributions by Common
Stockholders -- (0.03) (0.02) (0.06) (0.12) (0.04)
Effect of Preferred Stock offering -- -- -- (0.12) -- --
------------------------------------------------------------------------------------------------------------------------------------
Total capital stock transactions -- (0.03) (0.02) (0.18) (0.12) (0.04)
------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $12.23 $11.00 $10.06 $10.84 $9.38 $8.89
------------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE, END OF PERIOD $10.063 $9.00 $8.875 $10.125 $8.25 $8.00
------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (a):
Net Asset Value 11.2%*** 12.7% (4.1)% 27.1% 16.6% 22.9%
Market Value 11.8%*** 4.5% (9.4)% 35.0% 13.9% 19.8%
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO
COMMON STOCKHOLDERS:
Total expenses (b,c) 1.16%** 1.27% 1.18% 0.83% 0.85% 1.36%
Management fee expense 0.89%** 0.91% 0.80% 0.40% 0.47% 0.77%
Other operating expenses 0.27%** 0.36% 0.38% 0.43% 0.38% 0.59%
Net investment income 1.05%** 1.20% 1.21% 1.77% 0.88% 0.26%
SUPPLEMENTAL DATA:
Net Assets, End of Period (in thousands) $208,195 $ 191,269 $ 175,495 $ 182,362 $ 113,953 $ 100,065
Portfolio Turnover Rate 29%*** 49% 44% 34% 51% 51%
PREFERRED STOCK:
Total shares outstanding 1,600,000 1,600,000 1,600,000 1,600,000 -- --
Asset coverage per share $130.12 $119.54 $109.68 $113.98 -- --
Liquidation preference per share $25.00 $25.00 $25.00 $25.00 -- --
Average market value per share (d) $22.41 $24.67 $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.
(b) Expense ratios based on total average net assets were 0.93%, 0.98%, 0.92%,
0.72% , 0.85% and 1.36% for the periods ended June 30, 2000, and December
31, 1999, 1998, 1997, 1996 and 1995, respectively.
(c) Expense ratios based on average net assets applicable to Common
Stockholders before waiver of fees by the investment adviser would have
been 1.44% and 1.24% for the years ended December 31, 1999 and 1998,
respectively.
(d) The average of month-end market values during the period.
* To be allocated to net investment income and capital gains at year-end.
** Annualized.
*** Not annualized.
38 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
ROYCE MICRO-CAP TRUST, INC.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
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
the disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of income and expenses during
the reporting period. Actual results could differ from those estimates.
VALUATION OF INVESTMENTS:
Securities listed on an exchange or on the Nasdaq National Market System
(NMS) are valued on the basis of the last reported sale prior to the time the
valuation is made or, if no sale is reported for such day, at their bid price
for exchange-listed securities and at the average of their bid and asked
prices for Nasdaq NMS securities. Quotations are taken from the market where
the security is primarily traded. Other over-the-counter securities for which
market quotations are readily available are valued at their bid price.
Securities for which market quotations are not readily available are valued
at their fair value under procedures established by the Fund's Board of
Directors. Bonds and other fixed income securities may be valued by reference
to other securities with comparable ratings, interest rates and maturities,
using established independent pricing services.
INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME:
Investment transactions are accounted for on the trade date. Dividend
income is recorded on the ex-dividend date and any non-cash dividend income
is recorded at the fair market value of the securities received. Interest
income is recorded on the accrual basis. Realized gains and losses from
investment transactions are determined on the basis of identified cost for
book and tax purposes.
EXPENSES:
The Fund incurs direct and indirect expenses. Expenses directly
attributable to the Fund are charged to the Fund's operations, while expenses
applicable to more than one of the Royce Funds are allocated in an equitable
manner. Allocated personnel and occupancy costs related to The Royce Funds
are included in administrative and office facilities expenses. The Fund has
adopted a deferred fee agreement that allows the Fund's Directors to defer
the receipt of all or a portion of Directors Fees otherwise payable. The
deferred fees remain invested in certain Royce Funds until distributed in
accordance with the agreement.
TAXES:
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the extent
that it distributes substantially all of its taxable income for its fiscal
year. The Schedule of Investments includes information regarding income taxes
under the caption "Income Tax Information".
DISTRIBUTIONS:
Distributions to Common Stockholders are recorded on the ex-dividend date
and paid annually in December. Distributions to Preferred Stockholders are
recorded on an accrual basis and paid quarterly. Distributions are determined
in accordance with income tax regulations that may differ from generally
accepted accounting principles. Permanent book and tax basis differences
relating to stockholder distributions will result in reclassifications within
the capital accounts. Undistributed net investment income may include
temporary book and tax basis differences, which will reverse in a subsequent
period. Any taxable income or gain remaining undistributed at fiscal year end
is distributed in the following year.
REPURCHASE AGREEMENTS:
The Fund enters into repurchase agreements with respect to its portfolio
securities solely with State Street Bank and Trust Company ("SSB&T"), the
custodian of its assets. The Fund restricts repurchase agreements to
maturities of no more than seven days. Securities pledged as collateral for
repurchase agreements, which are held by SSB&T until maturity of the
repurchase agreements, are marked-to-market daily and maintained at a value
at least equal to the principal amount of the repurchase agreement (including
accrued interest). Repurchase agreements could involve certain risks in the
event of default or insolvency of SSB&T, including possible delays or
restrictions upon the ability of the Fund to dispose of the underlying
securities.
CAPITAL STOCK:
The Fund currently has 1,600,000 shares of 7.75% Cumulative Preferred
Stock outstanding. The stock has a liquidation preference of $25.00 per
share.
Under the Investment Company Act of 1940, the Fund is required to maintain
an asset coverage of at least 200% for the Preferred Stock. In addition,
pursuant to the Rating Agency Guidelines established by Moody's, the Fund is
required to maintain a certain discounted asset coverage. The Fund has met
these requirements since issuing the Preferred Stock.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 39
<PAGE>
ROYCE MICRO-CAP TRUST, INC.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
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 291,429 shares of Common Stock as reinvestment of
distributions by Common Stockholders for the year ended December 31, 1999.
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.
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 is
increased or decreased at the rate of 1/12 of .05% for each percentage point
that the investment performance of the Fund exceeds, or is exceeded by, the
percentage change in the investment record of the Russell 2000 for the
performance period by more than two percentage points. The performance period
for each such month is 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 is payable if the investment
performance of the Fund exceeds 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 is payable if the percentage change in the
investment record of the Russell 2000 exceeds the investment performance of
the Fund by 12 or more percentage points for the performance period.
Royce has voluntarily committed to waive the portion of its investment
advisory fee attributable to the Fund's Preferred Stock for any month in
which the Fund's average annual NAV total return since issuance of the
Preferred Stock fails to exceed the Preferred Stock's dividend rate.
For the period ended June 30, 2000, the Fund accrued and paid Royce
advisory fees totaling $709,573.
PURCHASES AND SALES OF INVESTMENT SECURITIES:
For the period ended June 30, 2000, the cost of purchases and proceeds
from sales of investment securities, other than short-term securities,
amounted to $58,657,110 and $55,793,323, respectively.
TRANSACTIONS IN SHARES OF AFFILIATED COMPANIES:
An "Affiliated Company", as defined in the Investment Company Act of 1940,
is a company in which a Fund owns 5% or more of the company's outstanding
voting securities. The Fund effected the following transactions in shares of
such companies during the period ended June 30, 2000:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Purchases Sales
------------------ ------------------
Affiliated Company Shares Cost Shares Cost Realized Gain (Loss) Dividend Income
------------------ ------ ---- ------ ---- ------------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Smithfield Companies (The) -- -- -- -- -- $10,388
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
40 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
ROYCE FOCUS TRUST, INC.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCKS - 78.4%
SHARES VALUE
------- -----
<S> <C> <C>
CONSUMER PRODUCTS - 4.7%
Apparel and Shoes - 0.1%
+Polo Ralph Lauren Cl. A(a) 5,000 $ 71,250
-----------
Sports and Recreation - 4.6%
OAKLEY(a) 287,800 3,309,700
-----------
TOTAL (Cost $2,296,531) 3,380,950
==========
CONSUMER SERVICES - 5.7%
Retail Stores - 5.7%
CHARMING SHOPPES(a) 689,000 3,509,594
Claire's Stores 10,000 192,500
+Consolidated Stores(a) 30,000 360,000
-----------
TOTAL (Cost $3,742,531) 4,062,094
==========
FINANCIAL INTERMEDIARIES - 8.7%
Insurance - 8.7%
MEDICAL ASSURANCE(a) 186,555 2,098,744
WHITE MOUNTAINS INSURANCE GROUP 16,000 2,560,000
ZENITH NATIONAL INSURANCE 73,600 1,564,000
-----------
TOTAL (Cost $6,703,383) 6,222,744
==========
FINANCIAL SERVICES - 6.8%
Insurance Brokers - 6.5%
BLANCH (E.W.) HOLDINGS 143,000 2,904,688
GALLAGHER (ARTHUR J.) & COMPANY 41,000 1,722,000
-----------
4,626,688
-----------
Investment Management - 0.3%
Phoenix Investment Partners 20,000 210,000
-----------
TOTAL (Cost $4,015,581) 4,836,688
==========
HEALTH - 4.4%
Drugs and Biotech - 0.2%
+Dura Pharmaceuticals(a) 10,000 143,750
-----------
Surgical Products and Devices - 4.2%
ARROW INTERNATIONAL 90,700 3,038,450
-----------
TOTAL (Cost $2,583,784) 3,182,200
==========
INDUSTRIAL PRODUCTS - 15.6%
Building Systems and Components - 6.2%
SIMPSON MANUFACTURING(a) 55,000 2,629,687
+THOR INDUSTRIES 84,600 1,776,600
-----------
4,406,287
-----------
Construction Materials - 5.0%
FLORIDA ROCK INDUSTRIES 100,000 3,562,500
-----------
Machinery - 3.4%
LINCOLN ELECTRIC HOLDINGS 170,800 2,433,900
-----------
Pumps, Valves and Bearings - 1.0%
+Roper Industries 29,500 755,938
-----------
TOTAL (Cost $10,848,081) 11,158,625
==========
INDUSTRIAL SERVICES - 15.7%
Commercial Services - 6.5%
Carlisle Holdings(a) 132,700 $ 974,516
Comdisco 47,500 1,059,844
+INTERIM SERVICES(a) 146,000 2,591,500
-----------
4,625,860
-----------
Engineering and Construction - 4.6%
+Jacobs Engineering Group(a) 900 29,419
MORRISON KNUDSEN(a) 452,100 3,277,725
-----------
3,307,144
-----------
Industrial Distribution - 1.7%
RITCHIE BROS. AUCTIONEERS(a) 49,900 1,194,481
-----------
Printing - 2.9%
NEW ENGLAND BUSINESS SERVICE 127,700 2,075,125
-----------
TOTAL (Cost $13,956,030) 11,202,610
==========
NATURAL RESOURCES - 12.1%
Energy Services - 4.8%
INPUT/OUTPUT(a) 351,500 2,965,781
Nabors Industries(a) 10,000 415,625
-----------
3,381,406
-----------
Gold - 3.3%
ANGLOGOLD ADR(b) 115,000 2,364,687
-----------
Oil and Gas - 4.0%
+Barrett Resources(a) 10,000 304,375
TOM BROWN(a) 63,800 1,471,387
+3TEC Energy(a) 110,000 1,100,000
-----------
2,875,762
-----------
TOTAL (Cost $6,745,856) 8,621,855
==========
TECHNOLOGY - 4.7%
Aerospace/Defense - 1.6%
Curtiss-Wright 30,300 1,126,781
-----------
Components and Systems - 0.1%
+Kronos(a) 3,000 78,000
-----------
Distribution - 2.6%
RICHARDSON ELECTRONICS 114,600 1,840,762
-----------
Telecommunication - 0.4%
Plantronics(a) 2,500 288,750
-----------
TOTAL (Cost $1,960,263) 3,334,293
==========
TOTAL COMMON STOCKS
(Cost $52,852,040) 56,002,059
==========
</TABLE>
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 41
<PAGE>
ROYCE FOCUS TRUST, INC.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------- -----
<S> <C> <C>
U.S. TREASURY OBLIGATIONS 21.2%
U.S. Treasury Notes
7.75%, due 2/15/01 $5,000,000 $ 5,037,500
5.75%, due 10/31/02 5,000,000 4,928,900
7.25%, due 8/15/04 5,000,000 5,169,550
-----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $15,179,687) 15,135,950
===========
TOTAL INVESTMENTS 99.6%
(Cost $68,031,727) 71,138,009
CASH AND OTHER ASSETS
LESS LIABILITIES 0.4% 293,387
-----------
NET ASSETS - 100.0% $71,431,396
===========
</TABLE>
--------------------------------------------------------------------------------
(a) Non income producing.
(b) American Depository Receipt.
+ New Additions in 2000.
BOLD INDICATES THE FUND'S LARGEST 20 EQUITY HOLDINGS IN TERMS OF JUNE 30,
2000 MARKET VALUE.
INCOME TAX INFORMATION: The cost of total investments for Federal income tax
puposes was $68,078,968. At June 30, 2000 net unrealized appreciation for all
securities was $3,059,041, consisting of aggregate gross unrealized appreciation
of $8,700,920 and aggregate gross unrealized depreciation of $5,641,879.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
42 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
ROYCE FOCUS TRUST, INC.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 2000 (UNAUDITED)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value (identified cost $68,031,727) $71,138,009
Cash 342,673
Receivable for investments sold 1,157,604
Receivable for dividends and interest 377,233
Prepaid expenses 16,865
------------------------------------------------------------------------------------------------------------------------------------
Total Assets 73,032,384
------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 1,463,535
Payable for investment advisory fee 42,390
Preferred dividends accrued but not yet declared 33,112
Accrued expenses 61,951
------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 1,600,988
------------------------------------------------------------------------------------------------------------------------------------
Net Assets $71,431,396
------------------------------------------------------------------------------------------------------------------------------------
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 - $5.99) $51,431,396
------------------------------------------------------------------------------------------------------------------------------------
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; 8,584,506 shares outstanding (100,000,000 shares authorized) 8,585
Additional paid-in capital 62,139,076
Undistributed net investment income 1,169,998
Accumulated net realized gain on investments 5,784,767
Net unrealized appreciation on investments 3,106,282
Quarterly and accrued distributions (778,112)
------------------------------------------------------------------------------------------------------------------------------------
Net Assets $71,431,396
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------------------------------------------------------------
Six months ended Year ended
June 30, 2000 December 31,
(unaudited) 1999
----------- ----
<S> <C> <C>
INVESTMENT OPERATIONS:
Net investment income $ 479,632 $ 690,366
Net realized gain (loss) on investments 6,578,190 (786,044)
Net change in unrealized appreciation on investments (5,884,849) 5,599,612
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from investment operations 1,172,973 5,503,934
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income - (89,608)
Net realized gain on investments - (1,400,392)
Quarterly distributions* (745,000) -
------------------------------------------------------------------------------------------------------------------------------------
Total distributions to Preferred Stockholders (745,000) (1,490,000)
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income - (73,455)
Net realized gain on investments - (1,147,941)
------------------------------------------------------------------------------------------------------------------------------------
Total distributions to Common Stockholders - (1,221,396)
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
Reinvestment of distributions to Common Stockholders - 753,514
------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 427,973 3,546,052
NET ASSETS:
Beginning of period 71,003,423 67,457,371
------------------------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income
of $1,169,998 and $690,366, respectively) $71,431,396 $71,003,423
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*To be allocated to net investment income and capital gains at year-end.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 43
<PAGE>
ROYCE FOCUS TRUST, INC.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Income:
Dividends $ 356,642
Interest 512,148
------------------------------------------------------------------------------------------------------------------------------------
Total income 868,790
------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Investment advisory fees 355,017
Custodian and transfer agent fees 40,735
Stockholder reports 29,337
Administrative and office facilities expenses 15,524
Professional fees 14,088
Directors' fees 10,467
Other expenses 23,444
------------------------------------------------------------------------------------------------------------------------------------
Total expenses 488,612
Fees waived by investment adviser (99,454)
------------------------------------------------------------------------------------------------------------------------------------
Net expenses 389,158
------------------------------------------------------------------------------------------------------------------------------------
Net investment income 479,632
------------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 6,578,190
Net change in unrealized appreciation on investments (5,884,849)
------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 693,341
------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS $ 1,172,973
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
44 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
ROYCE FOCUS 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>
Six months ended
June 30, 2000 Years ended December 31,
-------------------------------------------------------
(unaudited) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $5.94 $5.63 $6.04 $5.52 $5.09 $4.70
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS:
Net investment income 0.06 0.08 0.12 0.08 0.06 0.13
Net realized and unrealized gain (loss) on investments and
foreign currency 0.08 0.58 (0.35) 1.12 0.35 0.36
------------------------------------------------------------------------------------------------------------------------------------
Total investment operations 0.14 0.66 (0.23) 1.20 0.41 0.49
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income - (0.01) (0.16) - - -
Net realized gain on investments and foreign currency - (0.17) (0.02) (0.01) - -
Quarterly distributions* (0.09) - - - - -
---------------------------------------------------------------------------------------------------------------------------------
Total distributions to Preferred Stockholders (0.09) (0.18) (0.18) (0.01) - -
---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income - (0.01) - (0.12) - (0.16)
Net realized gain on investments and foreign currency - (0.14) - (0.41) - (0.01)
------------------------------------------------------------------------------------------------------------------------------------
Total distributions to Common Stockholders - (0.15) - (0.53) - (0.17)
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
Effect of reinvestment of distributions by Common Stockholders - (0.02) - (0.04) - -
Effect of Preferred Stock offering - - - (0.10) - -
Other sources - - - - 0.02 0.07
------------------------------------------------------------------------------------------------------------------------------------
Total capital stock transactions - (0.02) - (0.14) 0.02 0.07
------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $5.99 $5.94 $5.63 $6.04 $5.52 $5.09
------------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE, END OF PERIOD $4.91 $4.72 $4.88 $5.06 $4.59 $4.19
------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (a):
Net Asset Value (b) 0.8%*** 8.7% (6.8)% 20.5% - -
Market Value 4.0%*** (0.3)% (3.7)% 21.3% 9.6% 22.3%
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO
COMMON STOCKHOLDERS:
Total expenses (c,d) 1.52%** 1.51% 1.62% 0.94% 1.91% 2.14%
Management fee expense 1.00%** 1.00% 1.14% 0.39% 0.83% 1.00%
Other operating expenses 0.52%** 0.51% 0.48% 0.55% 1.08% 1.14%
Net investment income 1.88%** 1.47% 1.95% 1.35% 1.80% 2.80%
SUPPLEMENTAL DATA:
Net Assets, End of Period (in thousands) $71,431 $71,003 $67,457 $70,893 $44,154 $41,385
Portfolio Turnover Rate 42%*** 60% 90% 74% 159% 76%
PREFERRED STOCK:
Total shares outstanding 800,000 800,000 800,000 800,000 - -
Asset coverage per share $89.29 $88.75 $84.32 $88.62 - -
Liquidation preference per share $25.00 $25.00 $25.00 $25.00 - -
Average market value per share (e) $21.61 $24.00 $25.16 $25.25 - -
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Net Asset Value and Market Value Total Returns assume a continuous
Common Stockholder who reinvested all net investment income dividends and
capital gain distributions.
(b) Net Asset Value Total Return is not available for years prior to 1997.
(c) Expense ratios based on total average net assets were 1.10%, 1.06%, 1.16%,
0.90%, 1.91% and 2.14% for the periods ended June 30, 2000, and December
31, 1999, 1998, 1997, 1996 and 1995, respectively.
(d) Expense ratios based on average net assets applicable to Common
Stockholders before waiver of fees by the investment adviser would have
been 1.91%, 1.93%, 1.88%, 1.60% and 2.08% for the periods ended June 30,
2000, and December 31, 1999, 1998, 1997 and 1996, respectively.
(e) The average of month-end market values during the period.
* To be allocated to net investment income and capital gains at year-end.
** Annualized.
*** Not annualized.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 45
<PAGE>
ROYCE FOCUS TRUST, INC.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
-------------------------------------------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Royce Focus Trust, Inc. (the "Fund") is a diversified closed-end
investment company. Effective May 7, 1999, Royce Global Trust, Inc. changed
its name to Royce Focus Trust, Inc. The Fund commenced operations on March 2,
1988. Royce & Associates, Inc. ("Royce") assumed investment management
responsibility for the Fund on November 1, 1996.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of income and expenses during
the reporting period. Actual results could differ from those estimates.
VALUATION OF INVESTMENTS:
Securities listed on an exchange or on the Nasdaq National Market System
(NMS) are valued on the basis of the last reported sale prior to the time the
valuation is made or, if no sale is reported for such day, at their bid price
for exchange-listed securities and at the average of their bid and asked
prices for Nasdaq NMS securities. Quotations are taken from the market where
the security is primarily traded. Other over-the-counter securities for which
market quotations are readily available are valued at their bid price.
Securities for which market quotations are not readily available are valued
at their fair value under procedures established by the Fund's Board of
Directors. Bonds and other fixed income securities may be valued by reference
to other securities with comparable ratings, interest rates and maturities,
using established independent pricing services.
INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME:
Investment transactions are accounted for on the trade date. Dividend
income is recorded on the ex-dividend date and any non-cash dividend income
is recorded at the fair market value of the securities received. Interest
income is recorded on the accrual basis. Realized gains and losses from
investment transactions are determined on the basis of identified cost for
book and tax purposes.
EXPENSES:
The Fund incurs direct and indirect expenses. Expenses directly
attributable to the Fund are charged to the Fund's operations, while expenses
applicable to more than one of the Royce Funds are allocated in an equitable
manner. Allocated personnel and occupancy costs related to The Royce Funds
are included in administrative and office facilities expenses. The Fund has
adopted a deferred fee agreement that allows the Fund's Directors to defer
the receipt of all or a portion of Directors Fees otherwise payable. The
deferred fees remain invested in certain Royce Funds until distributed in
accordance with the agreement.
TAXES:
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the extent
that it distributes substantially all of its taxable income for its fiscal
year. The Schedule of Investments includes information regarding income taxes
under the caption "Income Tax Information".
DISTRIBUTIONS:
Distributions to Common Stockholders are recorded on the ex-dividend date
and paid annually in December. Distributions to Preferred Stockholders are
recorded on an accrual basis and paid quarterly. Distributions are determined
in accordance with income tax regulations that may differ from generally
accepted accounting principles. Permanent book and tax basis differences
relating to stockholder distributions will result in reclassifications within
the capital accounts. Undistributed net investment income may include
temporary book and tax basis differences, which will reverse in a subsequent
period. Any taxable income or gain remaining undistributed at fiscal year end
is distributed in the following year.
REPURCHASE AGREEMENTS:
The Fund enters into repurchase agreements with respect to its portfolio
securities solely with State Street Bank and Trust Company ("SSB&T"), the
custodian of its assets. The Fund restricts repurchase agreements to
maturities of no more than seven days. Securities pledged as collateral for
repurchase agreements, which are held by SSB&T until maturity of the
repurchase agreements, are marked-to-market daily and maintained at a value
at least equal to the principal amount of the repurchase agreement (including
accrued interest). Repurchase agreements could involve certain risks in the
event of default or insolvency of SSB&T, including possible delays or
restrictions upon the ability of the Fund to dispose of the underlying
securities.
46 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
ROYCE FOCUS TRUST, INC.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (Continued)
--------------------------------------------------------------------------------
CAPITAL STOCK:
The Fund currently has 800,000 shares of 7.45% Cumulative Preferred Stock
outstanding. The stock has a liquidation preference of $25.00 per share.
Under the Investment Company Act of 1940, the Fund is required to maintain
an asset coverage of at least 200% for the Preferred Stock. In addition,
pursuant to the Rating Agency Guidelines established by Moody's, the Fund is
required to maintain a certain discounted asset coverage. The Fund has met
these requirements since issuing the 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 161,083 shares of Common Stock as reinvestment of
distributions by Common Stockholders for the year ended December 31, 1999.
INVESTMENT ADVISORY AGREEMENT:
The Investment Advisory Agreement between Royce and the Fund provides for
fees to be paid at an annual rate of 1.0% of the average daily net assets of
the Fund. Royce has voluntarily committed to waive the portion of its
investment advisory fee attributable to the Fund's Preferred Stock for any
month in which the Fund's average annual NAV total return since issuance of
the Preferred Stock fails to exceed the Preferred Stock's dividend rate.
For the period ended June 30, 2000, the Fund accrued and paid Royce
advisory fees totaling $255,563, which is net of $99,454 voluntarily waived
by Royce.
PURCHASES AND SALES OF INVESTMENT SECURITIES:
For the period ended June 30, 2000, the cost of purchases and proceeds
from sales of investment securities, other than short-term securities,
amounted to $29,515,107 and $29,233,309, respectively.
THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000 | 47
<PAGE>
--------------------------------------------------------------------------------
OFFICERS
Charles M. Royce, President and Treasurer
John D. Diederich, Vice President
Jack E. Fockler, Jr., Vice President
W. Whitney George, Vice President
Daniel A. O'Byrne, Vice President and Assistant Secretary
John E. Denneen, Secretary
DIRECTORS
John D. Diederich (RVT and OTCM)
Royce Fund Services, Inc., President
Donald R. Dwight
Dwight Partners, Inc., President
Richard M. Galkin
Richard M. Galkin Associates, Inc., President
Stephen L. Isaacs
The Center for Health and Social Policy,
President; Attorney
William L. Koke (FUND)
Shoreline Financial Consultants
Registered Investment Adviser
David L. Meister
Communications Industry, Consultant
Charles M. Royce
Royce & Associates, Inc., President
INDEPENDENT ACCOUNTANTS
Tait, Weller & Baker
CUSTODIAN AND TRANSFER AGENT AND REGISTRAR
State Street Bank and Trust Company
48 | THE ROYCE FUNDS SEMI-ANNUAL REPORT 2000
<PAGE>
POSTSCRIPT
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[GRAPHIC: Pair of eyeglasses reflecting "Value"]
REMEMBER Y2K?
Only a short time ago, the media was covering stories of people
digging fallout shelters, stocking up on canned food and gearing up for the
computer apocalypse known as Y2K. Even those of us not quite convinced that
the end of the world was at hand were at least a bit apprehensive. As
midnight approached on December 31, the world collectively held its breath
time zone by time zone. By the afternoon of January 1, however, it all
seemed like a joke, a major case of much ado about nothing. Many of us
bragged that we knew that all the hysteria wouldn't amount to much.
Everybody else may have been taken in, but we weren't fooled.
This is how perceptions often work, especially with the benefit of
20/20 hindsight. One minute we can be certain that something is true, only
to be convinced of the opposite moments later when new experience or
information comes into view. How do you keep an eye on `reality' when it
refuses to stand still?
As value investors, we confront this problem in various ways every
day. How do we size up a business when so many factors change, sometimes
radically, and often very quickly? The picture that we create of a company
is not a portrait or a photograph -- it more closely resembles a video,
with several inputs that cause the picture to shift over time. We walk a
fine line between remaining true to our convictions and acknowledging that
our perspective on a company can turn in a heartbeat.
Many of the companies that we look at as potential purchase candidates
are not high on other investors' hit lists. Often this relates to
perceptions. A couple of quarters' worth of missed earnings, a depressed
stock price and a difficult business cycle is a recipe for discouragement
for many investors, while to us it can smack of a potentially sweet
opportunity. The same company looks very different based on the multiple
perspectives of investors. Our eyes are always on the long term, so we can
afford to be patient while a company that we think is well-run rights
itself.
Sometimes a company falls out of favor, although its underlying
business strengths remain very attractive to us. We may take a position in
this kind of company and wait for Wall Street to catch on. After all, the
band Kiss, currently in the midst of a highly profitable farewell tour, was
for years derided by parents and critics alike for being dangerous on the
one hand and derivative on the other. Today, they are routinely cited as a
positive influence on younger musicians and seem as safe and familiar as
Donny and Marie. Shaquille O'Neal used to be the poster child for a whole
generation of slackers and underachievers; today he is the very model of a
champion. Kiss still sounds the same as they did when shag carpeting was in
style. Shaquille insists that all he ever wanted to do was win. So what
exactly changed, the players or the perceptions?
We see companies go through similar ups and downs all the time. Our
goal is to buy them when interest is low so that we can reap the potential
rewards when sentiments shift later on. By keeping our perspective on the
companies that we invest in -- the strength of a balance sheet, the ability
to generate free cash flow and the prospect of future growth -- we believe
that we can potentially provide our shareholders with strong absolute
returns over long-term periods.
<PAGE>
THE
ROYCE
FUNDS
WEALTH OF EXPERIENCE
With approximately $3.3 billion in total assets under management, Royce &
Associates is an independent firm committed to the same small-company investing
principles that have served us well for more than 25 years. Charles M. Royce,
who has been our primary portfolio manager since 1973, enjoys one of the longest
tenures of any active mutual fund manager. He is supported by a senior staff
that includes three Portfolio Managers and a Managing Director, as well as six
analysts and four traders.
MULTIPLE FUNDS, COMMON FOCUS
Our goal is to offer both individual and institutional investors the best
available small-cap value portfolios. Unlike a lot of mutual fund groups with
broad product offerings, we have chosen to concentrate on small-company value
investing by providing investors with a range of funds that take full advantage
of this large and diverse sector.
CONSISTENT DISCIPLINE
Our approach emphasizes paying close attention to risk and maintaining the same
discipline, regardless of market movements and trends. The price we pay for a
security must be significantly below our appraisal of its current worth. This
requires a thorough analysis of the financial and business dynamics of an
enterprise, as though we were purchasing the entire company.
CO-OWNERSHIP OF FUNDS
It is important that our employees and shareholders share a common financial
goal; our officers, employees and their affiliates currently have approximately
$45 MILLION invested in The Royce Funds.
THE ROYCE FUNDS
1414 AVENUE OF THE AMERICAS, NEW YORK NY 10019
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 ADVISOR SERVICES
AND TRUST COMPANY FOR FUND MATERIALS, PERFORMANCE UPDATES,
CUSTODIAN, TRANSFER AGENT TRANSACTIONS OR ACCOUNT INQUIRIES
AND REGISTRAR (800) 426-5523 (800) 33-ROYCE (337-6923)
www.roycefunds.com
[email protected]
