THE
ROYCE
FUNDS
Value Investing in Small Companies For Over 20 Years
Royce Value Trust
Royce Micro-Cap Trust
Royce Global Trust
1997 Annual Report
<PAGE>
A FEW WORDS ON CLOSED-END FUNDS
- --------------------------------------------------------------------------------
Royce & Associates, Inc. ("Royce") manages three closed-end funds:
Royce Value Trust, the first small-cap value closed-end fund offering;
Royce Micro-Cap Trust, the only micro-cap closed-end fund; and Royce
Global Trust, a closed-end fund we began managing on November 1, 1996.
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 determined by the fund's Board of
Directors and approved by its stockholders. A closed-end fund raises
cash for investment by issuing a fixed number of shares through
initial and other public offerings and periodic rights offerings.
Investors wanting to buy or sell shares of a publicly traded
closed-end fund after the offerings must do so on a stock exchange or
the Nasdaq market, as with any publicly traded stock. This is in
contrast to open-end mutual funds where the fund sells and redeems its
shares on a continuous basis.
[triangle] 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.
/ / Not having to meet investor redemption requests or invest at
inopportune times is ideal for value managers who tend 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. It is especially appropriate for the sophisticated 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 the Fund. To get a fair idea of the impact
of reinvested distributions, please see the chart on page 10, which reflects
Royce Value Trust's Common Stockholder returns. For additional information on
the Funds' Distribution Reinvestment and Cash Purchase Options and the benefits
for stockholders, see page 17.
<PAGE>
ANNUAL REPORT REFERENCE GUIDE
- --------------------------------------------------------------------------------
"Bring In 'Da Noise, Bring In 'Da Funk," another 2
tip-top, hip-hop year for equities.
Find out how small-cap value went from 4
Off-Broadway to the Great White Way!
Royce Value Trust outperformed both of its 10
small-cap benchmarks, the Russell 2000 and the
S&P 600, for the quarter, the second half and
the full year on both a NAV and market price
basis.
For 1997, Royce Micro-Cap Trust provided a 27.1% 12
NAV return and a 35.0% market price return, the
best market price return among our closed-end
funds.
Royce Global Trust has provided a 21.9% NAV 14
average annual total return since we assumed the
Fund's management on November 1, 1996.
New Developments on our Website. 18
Schedules of Investments and Other
Financial Statements. 20
Postscript: El Nino, Micro-Mutt & The Year That Inside back cover
Wasn't.
Noteworthy Developments
On December 15, 1997, Royce Value Trust called all of its outstanding 5-3/4%
Investment Company Convertible Notes ("ICONS") for redemption on February 5,
1998.
On July 2, 1997, Royce Micro-Cap Trust issued $40 million of 7.75% Cumulative
Preferred Stock at $25 per share, and on November 21, 1997, Royce Global Trust
issued $20 million of 7.45% Cumulative Preferred Stock at $25 per share. The
issuance of preferred stock for all three of our closed-end funds allows us to
invest the capital in stocks as opportunities emerge.
Royce will waive the portion of its investment advisory fee attributable to a
Fund's preferred stock for any month when the Fund's average annual total return
from the date of original issue fails to exceed the preferred stock dividend
rate.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NAV PERFORMANCE RESULTS
4th Qtr Since
Fund (Inception) 1997 1997 Inception*
- ---------------- ------------------------------------------
<S> <C> <C> <C>
Royce Value Trust (11/26/86) -1.9% 27.5% 13.9%
- --------------------------------------------------------------------------------
Royce Micro-Cap Trust (12/14/93) -1.6% 27.1% 17.7%
- --------------------------------------------------------------------------------
Royce Global Trust (11/1/96)** -5.0% 20.5% 21.9%
- --------------------------------------------------------------------------------
* Average annual total return
** Date Royce & Assoc. assumed investment management
</TABLE>
<PAGE>
[PHOTO OF C.M. ROYCE]
Charles M. Royce, President
[SIDEBAR]
The turmoil in Southeast Asia should not be viewed as just the problem of the
moment. Obviously, large-cap global companies are feeling the greatest impact
currently. However, when you consider that Southeast Asia is made up of export
countries and that we are, in essence, an import nation, the implications are
far reaching. I believe it represents a once-in-a-decade kind of event and it's
wrong to assume that this is going to disappear in thirty days.
[END SIDEBAR]
LETTER TO OUR STOCKHOLDERS
- --------------------------------------------------------------------------------
[Drawing of three men in a meeting]
Drawing by Hank Blaustein; Copyright 1998
BRING IN 'DA NOISE, BRING IN 'DA FUNK
"Bring In 'Da Noise, Bring In 'Da Funk," one of Broadway's most
successful current productions, played equally well on Wall Street in 1997.
The year was both full of noise with the market trumpeting record highs,
record returns and near record IPOs (initial public offerings), and full of
funk with higher market volatility - including a one-day price plummet of
over 500 points on the Dow Jones Industrial Average ("Dow"). As with the
show, once the beat was established in the market, there was virtually no
slowing down.
The Dow finished the year up over 20% for an unprecedented
third year in a row, turning in its best 10-year performance period ever! The
other major large-cap index, the S&P 500, was even more impressive, up 33.4%
in 1997. Small-cap stocks, by comparison, were left waiting in the wings,
underperforming their large company counterparts for a fourth straight year.
The year's performance differential is primarily attributable to the first
and fourth quarters, when small-cap indices were in the red versus positive
gains for their large-cap brethren. Small-cap investors (ourselves included)
could be disappointed, but when you consider that the Russell 2000 index of
small-cap issues was up 22.4% for the year, it's only a matter of degree.
After all, why should one feel sorry for "Fiddler On the Roof" because its
string of 3,242 performances trails "A Chorus Line's" record of 6,137 shows?
Despite its record-setting performance, the stock market had
its anxious moments, namely the single biggest one-day decline ever of 554
points in the Dow on October 27, the vicious
2 | THE ROYCE FUNDS ANNUAL REPORT 1997
<PAGE>
downturn in technology stocks and the significant increase in overall market
volatility. The Dow recorded 52 days in which the index closed either up or down
more than 100 points. This compares to only 6 days in 1996 and 1 day in 1995.
S&P 500 volatility, as measured by standard deviation, was 50% higher in the
second half of the year than in the first six months. While higher market
volatility can be frustrating for investors, it does allow active managers to
take center stage.
A FUNNY THING HAPPENED
ON THE WAY TO THE FORUM [Drawing of Roman man]
Conventional wisdom would suggest that the smaller the entity, the
greater the volatility. Inside the two-tiered small-cap universe, however, a
funny thing happened: micro-cap companies (those under $300 million in market
cap) appeared to be less volatile than their upper-tier counterparts in 1997.
Meanwhile, in the small-cap sector, as measured by both Russell
and Wilshire indices, value continued its winning ways over growth,
outperforming in the fourth quarter, the second half, the full year and the
period since the May '96 small-cap peak. We believe that this peak represents a
major small-cap inflection point, a shift to value away from growth within the
sector. The evidence suggests that the trend has momentum, as reflected in the
following charts.
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON: RUSSELL 2000
VALUE (45.1%) VS. RUSSELL 2000 GROWTH (3.9%)
(May 22, 1996 through December 31, 1997)
- --------------------------------------------------------------------------------
[LINE CHART--PLOT POINTS]
Russell 2000
------------------
Value Growth
----- ------
May-96 -0.30% -0.99%
Jun-96 -1.48% -7.43%
Jul-96 -6.72% -18.73%
Aug-96 -2.67% -12.71%
Sep-96 -0.01% -8.22%
Oct-96 1.15% -12.18%
Nov-96 6.59% -9.73%
Dec-96 10.05% -7.97%
Jan-97 11.75% -5.67%
Feb-97 12.81% -11.37%
Mar-97 9.79% -17.63%
Apr-97 11.40% -18.58%
May-97 20.27% -6.35%
Jun-97 26.35% -3.17%
Jul-97 31.66% 1.79%
Aug-97 33.75% 4.84%
Sep-97 42.65% 13.21%
Oct-97 38.77% 6.41%
Nov-97 40.29% 3.87%
Dec-97 45.05% 3.93%
PERFORMANCE COMPARISON: RUSSELL 2000
VALUE (14.8%) VS. S&P 500 (10.4%)
(July '97 through December '97))
- --------------------------------------------------------------------------------
[LINE CHART--PLOT POINTS]
Russell
2000
Value S&P 500
----- -------
Jun-97 0.00% 0.00%
Jul-97 4.20% 7.96%
Aug-97 5.86% 1.91%
Sep-97 12.90% 7.50%
Oct-97 9.83% 3.91%
Nov-97 11.03% 8.66%
Dec-97 14.79% 10.37%
Small-cap value packed a punch vs. small-cap growth and even the S&P 500.
- --------------------------------------------------------------------------------
BEAUTY AND THE BEAST
While we have stated our expectation of lower equity returns in
the last several shareholder reports, we take solace that neither our careers
nor your hard earned money are dependent on our accurately predicting the
direction of, or specific performance prospects for, the overall stock market.
THE ROYCE FUNDS ANNUAL REPORT 1997 | 3
<PAGE>
[SIDEBAR]
I believe that cyclicality will be the norm for large-cap global multinationals
just as it will be for the rest of the equity universe. I think that small-caps
will be net beneficiaries because they are generally less influenced by world
events. Relative performance over the next year or so should reflect this.
I think that the pick-up in volatility is significant regardless of how you
measure it and will probably be sustained into the foreseeable future. I believe
that higher volatility is a precursor to lower equity returns.
[END SIDEBAR]
[BEGIN PULL QUOTE]
We take solace that
neither our careers
nor your hard
earned money are
dependent on our
accurately predicting
the direction of, or
specific performance
prospects for, the
overall stock market.
[END PULL QUOTE]
We learned a long time ago that the best thing we can do for our
shareholders is to stay invested, even during times of uncertainty, and not lose
sight of the real goal - COMPOUNDING WEALTH. We are as mindful of this goal as
we are of the risk necessary for its achievement.
We were pleased with our absolute returns in 1997, especially
since they exceeded the level of return we strive for when selecting companies
for the portfolios (please see pages 10-15 for a summary of each Fund's
performance results). So while it's easy to get caught up in the relative game,
the beast - with comparisons against certain indices or relevant peer groups -
ultimately, it's the compounding of absolute returns, the beauty, that can send
your children to college, provide for your retirement and buy the second home at
the beach.
FROM OFF BROADWAY TO BROADWAY
Trying to compound wealth has always been important to us, going
back to the days when small-cap investing, like an attraction to computers, was
not especially popular. In fact, during the '60s and '70s, anyone who showed too
strong an interest in computers was likely to be branded a nerd by his or her
friends and colleagues. From today's software-dependent vantage point, those
days feel like the technological Stone Age. It was in 1968 that the film 2001: A
Space Odyssey featured a formidably smart and heartless piece of artificial
intelligence as its ostensible villain. A bit later, in 1977, Digital Equipment
Corp. Founder and Chairman Ken Olson was predicting with astounding inaccuracy
that there was no reason why anyone would want a home computer. Few people
grasped the enormous potential of machines that seemed to be the exclusive
province of geeks and mad scientists.
Small company investing, with all its nerdy implications,
resembles the computer business in this respect. When we began managing money in
1973 at Quest Advisory Corp., now known as Royce & Associates, Inc., small-cap
investing was in its infancy. There were few, if any, institutions that devoted
substantial time to small company stocks.
[Drawing of cars on Broadway]
4 | THE ROYCE FUNDS ANNUAL REPORT 1997
<PAGE>
[BEGIN PULL QUOTE]
What had
been obvious to
us and a handful
of others from the
start [was] that
a conservative
risk-averse approach
could be profitably
used in the
small-cap market.
[END PULL QUOTE]
Those that did were on the prowl for aggressive start-up firms, not the quietly
successful wallflowers that drew our attention. The sector was not remotely
trendy, and doubts persisted as to how effectively a value style could be
applied to the volatile world of small-cap stocks. Few others were willing to do
the kind of "heavy lifting" of annual reports and balance sheets that came so
naturally to us. In fact, we became accidental pioneers because it was not until
the last ten years that the investment community as a whole began to realize
what had been obvious to us and a handful of others from the start: that a
conservative risk-averse approach could be profitably used in the small-cap
market.
While we were not naive enough to believe that small-cap value
stocks would remain as relatively neglected as they were when we began, nothing
could have prepared us (or anyone else for that matter) for the explosion of
interest in small-cap value investing during recent years. Perhaps the growing
popularity of "our" style might be seen as a cause for alarm. Wasn't it easier
to locate attractive stocks when others were not looking for them, too?
Definitely! Don't all small-cap value managers own basically the same set of
stocks? Absolutely not!
Small-cap has always been an extraordinarily broad and diverse
universe, and is likely to remain that way - the sector is home to approximately
8,000 names. With that many companies to choose from, it's quite probable that
multiple managers with the same style will still choose different stocks.
Hard to believe? If you look at the top ten positions in the ten
largest actively managed equity funds in Morningstar's small-cap value category
as of December 31, 1997, you will find 95 different stocks held in the ten funds
with only five common positions among them, meaning minimal duplication among
all of these portfolios. UNLIKE THE HOME COMPUTER INDUSTRY, WHERE MOST
SUCCESSFUL MANUFACTURERS HAVE SIMILAR COMPONENTS INSIDE, SMALL-CAP VALUE FUNDS
GENERALLY HAVE DISSIMILAR MOVING PARTS.
These days, value encompasses a broad array of meanings. We focus
on absolute valuations as we seek to minimize risk while building returns over
the long term. Other managers may share our general outlook, but that does not
mean that we're all looking at the same companies or even that our value
approaches are ultimately very similar. Like the computer industry, small-cap
value investing has come into its own. Unlike the computer industry, there is
ample room for multiple perspectives.
COMPANIES BY MARKET CAPITALIZATION
[triangle graph]
$1 billion + 1,550
$500 mil to $1 bil 845
$300 mil to $500 mil 753
$5 mil to $300 mil MICRO-CAP SECTOR
6,400 Companies
THE ROYCE FUNDS ANNUAL REPORT 1997 | 5
<PAGE>
[SIDEBAR]
I think that May '96 was a major inflection point, a shift to value away from
growth inside of small-cap. Since then, value has dominated, especially during
the down months. Small-cap value further benefits due to its limited
international exposure and its ability to use volatility to its advantage by
buying stocks as they go down and selling them as they go up.
[END SIDEBAR]
[BEGIN PULL QUOTE]
The challenge
for all investors
is going to be
dealing with
a lower-return
environment.
[END PULL QUOTE]
WEST SIDE STORY
As many of you know, we are located in midtown Manhattan, smack in
the middle of New York City's prime shopping and hotel area, just a stone's
throw from Broadway. Recently, an investment advisor friend of ours brought his
wife to town for a typical New York City weekend of dinner, a Broadway show and
a visit to our office. The intrepid advisor sat down with us for the following
exchange.
HOW DO YOU VIEW YOUR PERFORMANCE IN 1997?
We were pleased with our results, especially considering our
approach to risk. While recognizing that both our investment approach and our
picking universe will influence returns, ultimately we should be judged in terms
of our ability to produce a successful, and hopefully consistent, record of
long-term returns.
DO YOU ANTICIPATE CHANGING YOUR APPROACH TO RISK TO TAKE ADVANTAGE OF THE
MARKET'S HIGH RETURNS?
No. We remain committed to evaluating both risk and reward
equally, especially given the current environment. We believe one of the primary
tasks of a good money manager is to understand and respect risk, regardless of
how euphoric market conditions may be.
WHAT ROLE WILL HIGHER MARKET VOLATILITY PLAY IN EQUITY INVESTING?
It is our belief that active managers typically perform better
during these volatile periods. Interestingly, small-cap value can frequently be
a market leader in this environment.
WHAT CHALLENGES DO YOU SEE IN '98 AND BEYOND?
The challenge for all investors is going to be dealing with a
lower-return environment. We know that we have been crying wolf on this issue,
but we continue to believe that the extraordinary market returns of the last
several years are not sustainable. The Dow just concluded its best 10-year
performance period and the S&P 500 its best period of overall performance ever.
We think this is indicative of a peak moment and that lower returns are a given.
That said, we will continue as we always have to invest in small companies with
a risk-averse approach with the goal of above average absolute returns.
[BEGIN PULL QUOTE]
We strongly
believe that our
capital should
be invested
alongside
that of our
stockholders.
[END PULL QUOTE]
6 | THE ROYCE FUNDS ANNUAL REPORT 1997
<PAGE>
WHY SHOULD INVESTORS CONSIDER INVESTING IN CLOSED-END FUNDS GIVEN THE POPULARITY
OF OPEN-END MUTUAL FUNDS?
Closed-end funds offer investors the advantage of a fixed capital
structure, which means that the fund manager can invest without the worry of
either redemptions or money flows, which typically happen at inopportune moments
in open-end funds.
IS THERE ANYTHING NEW GOING ON IN THE CLOSED-END WORLD THAT YOU THINK WILL
CHANGE THE MARKETPLACE?
Closed-end funds have some unique features that have not been
fully advanced by the industry. One in particular is the potential long-term
benefits of leverage. We have taken advantage of the low interest rate
environment to issue perpetual preferred stock in each of our three closed-end
funds over the past eighteen months.
DO YOU INVEST IN YOUR CLOSED-END FUNDS?
Our officers are substantial investors in our closed-end funds. As
a group, we currently own over $18 million worth of shares. We strongly believe
that our capital should be invested alongside that of our stockholders.
THE GRAPES OF "WRISK"
[Drawing of a bunch of grapes]
For many years, we have described our investment style as
"risk-averse," and characterized our work as "risk management." In fact, we have
consistently presented risk information alongside performance returns to
demonstrate our belief that both are equally important. When we examine
companies for potential investment, we consider both risk and reward, and we
think that when an investor considers a closed-end fund investment, he or she
should consider these factors, too. The idea of giving emphasis to risk remains
central to our style of investment management, but it occurs to us that the time
may be right to clarify exactly what we mean by risk. What, after all, are we
talking about when we talk about risk?
Regardless of the context we choose, risk is a complicated word.
This may be why one writer recently defined it as "the art and science of
choice." However rationally we behave in the face of uncertainty, however
realistically we define the potential pitfalls and profits, unanswerable
questions always linger.
[BEGIN PULL QUOTE]
Our
commitment
to lowering
risk requires
an educated
understanding,
not an
avoidance,
of risk.
[END PULL QUOTE]
THE ROYCE FUNDS ANNUAL REPORT 1997 | 7
<PAGE>
[SIDEBAR]
I think that it is both appropriate and conservative for investors to consider
doubling or tripling their current small-cap value allocation to 20% - 30%.
[END SIDEBAR]
[BEGIN PULL QUOTE]
Wall Street
and Main Street
do not always
walk hand
in hand.
Therefore,
our approach
must be multi-dimensional.
[END PULL QUOTE]
The science of risk involves a great deal of reliance on the future resembling
the past. The past forms a picture from which we make guesses, however
well-educated, about the future. The art of risk lies in the ability to see what
many others cannot.
In our money management work, we stick almost exclusively to
equity investing. Our primary emphasis is to determine the margin of safety for
a given stock or, in other words, assessing how much risk we are taking to
achieve a certain reward. Our method is both quantitative and historical,
concentrating on two primary factors, business risk and price risk.
When we analyze a company's business fundamentals, we ask
ourselves several important questions that relate directly to business risk. One
significant measure of a company's financial good health lies in our estimate of
its ability to withstand economic adversity. WE WANT TO KNOW WHAT THE POTENTIAL
RISK IS OF "PERMANENT CAPITAL IMPAIRMENT," I.E., THE LIKELIHOOD OF A BUSINESS
NOT BEING ABLE TO GENERATE SUSTAINABLE RETURNS ON ASSETS OR, EVEN WORSE,
BECOMING INSOLVENT.
Wall Street and Main Street do not always walk hand in hand.
Therefore, our approach must be multi-dimensional. This is where price risk
becomes important. We attempt to reduce this type of risk by buying stocks that
are trading at what we believe are bargain prices; we believe that the price one
pays for an investment makes a significant difference in long-term returns.
Our commitment to lowering risk requires an educated
understanding, not an avoidance, of risk. It is a reality to be lived with, not
escaped from. For us, understanding a company's business risk through the
examination of 10Qs, 10Ks and other documents forms the science of risk
management. The art of risk, and the fun of all this work, comes from
interpreting the subjective and seeking to convert these assessments into
attractive long-term returns. WE GET A KICK OUT OF PROVING WRONG THOSE ACADEMICS
WHO ASSERT THAT HIGH ABSOLUTE RETURNS ARE SOLELY THE PRODUCT OF HIGH RISK.
We are the first to admit that our focus on risk has somewhat
hindered our relative returns over the last several years, but we do not intend
to abandon our approach, especially given the higher levels of volatility in
today's market.
PRELUDE TO A . . .
While we have no idea where the Dow Jones Industrial Average will
end in 1998, we do believe that the current backdrop of higher market
volatility, overseas vulnerability, and potential interest rate uncertainty may
result in a favorable investment environment for small-cap value. Higher
volatility usually translates into lower returns - the standard deviation for
the S&P 500 for the six months ended 12/31/97 was 50% higher than the first half
of the year, while total return was approximately half that of the first six
months - and an edge for value because the discipline demands buying stocks as
they
8 | THE ROYCE FUNDS ANNUAL REPORT 1997
<PAGE>
decline and selling them as they go up. By its very nature, small-cap value
generally has limited foreign exposure, an advantage given the current turmoil
in Southeast Asia. In our judgment, it is unlikely that a 25% decline in
long-term interest rates and a 125% rise in the S&P 500 will be repeated in the
next three years.
We look forward to taking a curtain call for what we hope will be
a "successful run" in 1998 and remain confident about the long-term prospects of
our risk-averse approach.
[Photo of Royce, George, Fockler]
(c) Gloria Baker
Chuck Royce, Whitney George, Jack Fockler
Sincerely,
[signatures]
Charles M. Royce W. Whitney George Jack E. Fockler, Jr.
President Vice President Vice President
January 26, 1998
PS: Broadway trivia fans will be interested to know that . . .
Bring In 'Da Noise, Bring In 'Da Funk made it to Broadway in April 1996 after a
successful Off Broadway run. Savion Glover's rhythmic tribute to tap took home a
Tony in '96 for Best Musical.
Fiddler On The Roof was one of Broadway's all-time winners with 3,242
performances between 1964 and 1972. The play was also made into a successful
film featuring future "Starsky & Hutch" star Paul Michael Glaser in a supporting
role.
A Chorus Line is still the all-time performance leader (what mutual fund manager
wouldn't love to be able to say that) with a record 6,137 performances. "One
Singular Sensation" indeed!
A Funny Thing Happened On The Way To The Forum was one of Broadway's most
successful reruns. The most recent production (April 1996 - January 1998) drew
raves with three different actors in the leading role, Nathan Lane, Whoopi
Goldberg and David Alan Grier.
Beauty And The Beast proved that cartoons can make great plays with one of the
most successful runs of the '90s!
West Side Story showed that Shakespeare could swing on the streets of New York
and remains one of the country's most popular musicals.
The Grapes Of Wrath offered unfortunate evidence that great novels don't always
translate into great dramas - this production endured a brief six-month run from
March through September of 1990.
Prelude To a Kiss, originally featuring Timothy Hutton, did not become a prelude
to box office success when it was made into a film.
THE ROYCE FUNDS ANNUAL REPORT 1997 | 9
<PAGE>
ROYCE VALUE TRUST
- --------------------------------------------------------------------------------
[SIDE BAR]
WHAT WE DO Royce Value Trust ("RVT") is a closed-end fund that invests primarily
in small and micro-cap companies using a disciplined value approach.
HOW WE DID In what was a difficult quarter for small-cap stocks, Royce Value
Trust, with its value orientation, held its own versus the small-cap oriented
Russell 2000 and S&P 600 indices. RVT's NAV return for the 4th quarter was -1.9%
versus -3.4% and -3.1% for the Russell and S&P 600, respectively. The Fund also
provided a performance edge versus both indices during the second half and the
full year. In even better news, RVT's market price performance exceeded its NAV
performance during both periods. The Fund's market price returns for these
periods were 18.3% and 28.8%, respectively, versus NAV returns of 12.8% and
27.5%.
The Fund, which invests in both small & micro-cap companies, now has eleven
years of performance history and a since inception (11/26/86) NAV average annual
total return which exceeds both small-cap indices. RVT also enjoys the
distinction of being the oldest & largest small-cap closed-end fund available.
The Fund's officers, employees and their affiliates currently own over $4
million of the Fund's Common Stock.
[END SIDE BAR]
NAV TOTAL RETURNS
THROUGH 12/31/97
- -----------------------------------------
4th Qtr 1997 -1.9%
1-Year 27.5%
3-Year Average Annual 21.8%
5-Year Average Annual 16.6%
10-Year Average Annual 16.4%
Since Inception (11/26/86) 13.9%
Average Annual
- -----------------------------------------
- ----------------------------------------------------------------------
RISK/RETURN COMPARISON
TEN-YEAR PERIOD ENDED 12/31/97
Over the last ten years,
Royce Value Trust has
outperformed the
S&P 600 and Russell 2000
on BOTH an absolute and
a risk-adjusted basis.
Average Annual Standard
Total Return Deviation RUR
- -------------------------------------------------------------------------------
RVT (NAV) 16.4% 10.2 1.61
S&P 600 15.4% 15.1 1.02
Russell 2000 15.8% 15.0 1.05
- -------------------------------------------------------------------------------
RUR = Return Per Unit of Risk: Average annual total return divided by the
annualized standard deviation over a designated time period.
- ----------------------------------------------------------------------
RVT MARKET PRICE - ACTUAL VS. ADJUSTED*
- --------------------------------------------------------------------------------
Mkt. Price Total Returns
From Incept. = 243.2%
10 Years = 372.9%
5 Years = 95.7%
3 Years = 80.6%
1 Year = 28.8%
[LINE CHART--PLOT POINTS]
Date Actual Adjusted
---- ------ --------
11/26/86 10.00 10.00
12/31/86 9.88 9.88
1/31/87 10.75 10.75
2/28/87 9.75 9.75
3/31/87 9.63 9.63
4/30/87 8.63 8.63
5/31/87 9.50 9.50
6/30/87 9.38 9.37
7/31/87 9.13 9.12
8/31/87 9.50 9.50
9/30/87 9.25 9.25
10/31/87 7.00 7.30
11/30/87 6.63 6.91
12/31/87 6.75 7.26
1/31/88 7.00 7.53
2/29/88 8.00 8.60
3/31/88 8.13 8.73
4/30/88 8.00 8.60
5/31/88 7.88 8.46
6/30/88 8.63 9.27
7/31/88 8.50 9.14
8/31/88 8.38 9.00
9/30/88 8.88 9.54
10/31/88 8.63 9.27
11/30/88 8.25 8.87
12/31/88 8.13 9.25
1/31/89 8.75 9.96
2/28/89 8.50 9.68
3/31/89 8.88 10.10
4/30/89 9.13 10.39
5/31/89 9.38 10.67
6/30/89 9.25 10.53
7/31/89 9.63 10.96
8/31/89 9.75 11.10
9/30/89 9.63 10.99
10/31/89 9.50 10.84
11/30/89 9.50 10.84
12/31/89 9.50 11.46
1/31/90 8.88 10.71
2/28/90 8.75 10.56
3/31/90 9.25 11.16
4/30/90 9.25 11.16
5/31/90 9.50 11.46
6/30/90 9.63 11.61
7/31/90 9.50 11.31
8/31/90 8.25 10.26
9/30/90 7.88 9.53
10/31/90 7.25 8.78
11/30/90 7.75 9.38
12/31/90 8.13 10.23
1/31/91 8.75 10.85
2/28/91 9.88 12.43
3/31/91 10.38 13.05
4/30/91 10.75 13.53
5/31/91 10.25 12.90
6/30/91 10.00 12.58
7/31/91 10.13 12.74
8/31/91 9.88 12.42
9/30/91 9.88 12.46
10/31/91 10.25 12.93
11/30/91 10.00 12.61
12/31/91 10.38 13.83
1/31/92 11.00 14.67
2/29/92 11.75 15.67
3/31/92 11.50 15.33
4/30/92 11.63 15.50
5/31/92 11.38 15.33
6/30/92 11.25 15.00
7/31/92 11.25 15.00
8/31/92 11.13 14.83
9/30/92 11.38 15.19
10/31/92 11.50 15.36
11/30/92 12.63 16.86
12/31/92 12.25 17.54
1/31/93 12.75 18.25
2/28/93 12.88 18.25
3/31/93 13.00 18.61
4/30/93 12.88 18.43
5/31/93 12.88 18.43
6/30/93 13.13 18.79
7/31/93 13.38 19.33
8/31/93 13.63 19.50
9/30/93 13.75 19.75
10/31/93 14.25 20.47
11/30/93 13.88 19.94
12/31/93 12.88 20.13
1/31/94 13.25 20.72
2/28/94 13.00 20.33
3/31/94 12.25 19.16
4/30/94 12.50 19.55
5/31/94 12.38 19.35
6/30/94 12.25 19.16
7/31/94 12.38 19.35
8/31/94 12.63 19.74
9/30/94 12.00 18.76
10/31/94 11.63 18.18
11/30/94 12.13 19.18
12/31/94 11.00 19.00
1/31/95 11.63 20.08
2/28/95 11.75 20.30
3/31/95 11.38 19.65
4/30/95 11.88 20.52
5/31/95 12.13 20.73
6/30/95 12.00 20.73
7/31/95 12.63 21.81
8/31/95 13.13 22.68
9/30/95 13.50 23.33
10/31/95 12.88 22.25
11/30/95 13.25 23.10
12/31/95 11.88 22.91
1/31/96 12.38 23.87
2/29/96 12.13 23.39
3/31/96 12.25 23.63
4/30/96 12.25 23.63
5/31/96 12.63 24.35
6/30/96 12.38 23.87
7/31/96 11.63 22.42
8/31/96 12.25 23.63
9/30/96 12.63 24.35
10/31/96 12.38 23.87
11/30/96 12.88 24.84
12/31/96 12.63 26.64
1/31/97 12.38 26.11
2/28/97 12.50 26.37
3/31/97 11.75 24.79
4/30/97 11.88 25.06
5/31/97 12.75 26.90
6/30/97 13.75 29.01
7/31/97 30.070 14.250
8/31/97 32.310 15.375
9/30/87 35.010 16.250
10/31/97 33.390 15.500
11/30/97 35.410 16.438
12/31/97 34.320 15.063
The regular reinvestment of distributions makes a difference!
- --------------------------------------------------------------------------------
*Reflects market price total return experience of a continuous stockholder who
reinvested all distributions and fully participated in primary rights
offerings. This graph illustrates the market price change from IPO of $10 per
share on 11/26/86.
10 | THE ROYCE FUNDS ANNUAL REPORT 1997
<PAGE>
PERFORMANCE & PORTFOLIO REVIEW
- --------------------------------------------------------------------------------
DOWN MARKET PERFORMANCE COMPARISON
(ALL DOWN PERIODS OF 7.5% OR GREATER) IN PERCENTAGES (%)
- -----------------------------------------------------------
[BAR CHART]
RVT (NAV) Russell 2000
8/25/87-10/28/87 -26.6 -39.1
10/9/89-10/30/90 -22.0 -32.7
2/12/92-7/8/92 -2.1 -11.9
3/18/94-12/9/94 -5.3 -12.4
5/22/96-7/24/96 -6.6 -15.5
1/22/97-4/25/97 -3.1 -9.2
10/13/97-10/27/97 -6.3 -9.7
Royce Value Trust's risk-averse investment orientation
has resulted in strong relative returns in down markets.
- ------------------------------------------------------------
GOOD IDEAS THAT WORKED
- ---------------------------------------------------------
1997 REALIZED AND UNREALIZED GAIN
- ---------------------------------------------------------
MacDermid, Incorporated $6,299,186
Wesco Financial Corporation 2,296,702
Merrill Corporation 2,133,004
Ethan Allen Interiors 2,024,725
National Bancorp of Alaska 1,937,283
- ---------------------------------------------------------
Combined Gain $14,690,900
- ---------------------------------------------------------
GOOD IDEAS AT THE TIME
- ---------------------------------------------------------
1997 REALIZED AND UNREALIZED LOSS
- ---------------------------------------------------------
International Semi-Tech $1,514,290
The Topps Company 1,048,053
Haemonetics Corporation 984,018
Midwest Grain Products 875,350
The Rival Company 868,005
- ---------------------------------------------------------
Combined Loss $5,289,716
- ---------------------------------------------------------
PORTFOLIO DIAGNOSTICS
- ------------------------------------------------------
Median Market Cap $376 million
Weighted Average P/E Ratio 16.8x
Weighted Average P/B Ratio 1.8x
Weighted Average Yield 1.5%
Net Assets $554 million
Turnover Rate 29%
Net Leverage* 13%
Symbol RVT
- ------------------------------------------------------
*Net Leverage is the percentage, in excess of 100%,
of the total value of equity type investments,
divided by net assets, excluding preferred stock.
TOP TEN POSITIONS
% OF NET ASSETS
- ----------------------------------------
1. MacDermid, Incorporated 1.6
2. Alleghany Corporation 1.2
3. PXRE Corporation 1.1
4. Alliance Capital
Management L.P. 1.0
5. CalMat 1.0
6. Ash Grove Cement
Company Cl. B 1.0
7. Wesco Financial Corporation 1.0
8. Stanhome 0.9
9. Puerto Rican Cement
Company 0.9
10. Velcro Industries 0.9
- ----------------------------------------
PORTFOLIO SECTOR BREAKDOWN (WITH EXAMPLES) % OF NET ASSETS*
- --------------------------------------------------------------------------------
Industrial Products Textiles, building construction materials, steel, paper. 22
Financial Intermediaries Banks, insurance, stockbrokers. 18
Industrial Services Engineering, trucking, printing, advertising. 14
Consumer Products Apparel, home furnishings, mobile homes. 13
Technology Electronics, software, distributors. 8
Financial Services Investment management,
insurance brokers, credit rating. 9
Miscellaneous 5
Natural Resources Energy, real estate, aggregates. 4
Retail Apparel stores, discount stores,
direct marketing. 3
Consumer Services Restaurants, airlines. 2
Health Pharmaceuticals, medical equipment,
health care, biotech. 2
- --------------------------------------------------------------------------------
*excludes cash and cash equivalents.
During 1997, the companies listed above made the largest positive and
negative contributions in dollar terms to our overall performance. While we are
quite pleased with this year's successes, we have learned over the years that
there is often more wisdom to be drawn from failures. An examination of past
years' winners and losers has taught us that this year's beast can easily be
transformed into next year's beauty. Certain securities whose fundamentals are
intact, but whose recent performance is out of sync, provide us with the
opportunity to buy additional shares at discounted prices. The end result is
that we would not be surprised to find that one of this year's underperformers
becomes a future year's major portfolio success story.
MacDermid is an aggressively managed specialty chemical company. Strategic
acquisitions and a high level of stock repurchases have helped to produce
rapidly-growing earnings and corresponding increases in the stock price.
International Semi-Tech notes are collateralized by a controlling interest
in Singer Corp. As a global distributor of consumer products, this issue was
especially sensitive to the volatility in Southeast Asia.
THE ROYCE FUNDS ANNUAL REPORT 1997 | 11
<PAGE>
ROYCE MICRO-CAP TRUST
- --------------------------------------------------------------------------------
[SIDEBAR]
WHAT WE DO Royce Micro-Cap Trust ("OTCM") is a closed-end fund that uses a
disciplined value approach to invest primarily in companies with market
capitalizations below $300 million. We believe that the buying opportunities in
this sector have more potential for higher returns than any other in the
domestic equity market due to limited institutional attention and research
coverage.
HOW WE DID Royce Micro-Cap Trust outperformed its benchmark, the small-cap
oriented Russell 2000 index, for the 4th quarter, the last six months and the
full year on BOTH an NAV and market basis. The Fund finished the 4th quarter
with NAV and market price returns of -1.6% and -0.5%, respectively, versus a
return of -3.4% for the Russell. For the full year, the Fund's NAV was up 27.1%.
This compares to a return of 22.4% for the Russell.
After a sluggish start, micro-cap stocks emerged in 1997's second half. In
fact, micro-caps were our best performers for the third quarter, with OTCM
posting impressive returns in this period. With $182 million in total net assets
on 12/31/97, the Fund remains the only micro-cap closed-end fund available.
On July 2, 1997, the Fund took advantage of the low interest rate
environment and issued $40 million of 7.75% Cumulative Preferred Stock at $25
per share. We have invested, and will continue to invest, this capital as buying
opportunities emerge in accordance with the Fund's investment policies and
objectives. These shares, now listed on the American Stock Exchange, have been
trading since July 10, 1997.
We remain enthused about the long-term opportunities that the micro-cap
sector and our enhanced capital structure affords. Fund officers, employees and
their affiliates currently own over $10 million of the Fund's Common Stock.
[END SIDEBAR]
NAV TOTAL RETURNS
THROUGH 12/31/97
- ------------------------------------------------------------------
4th Qtr 1997 -1.6%
1-Year 27.1%
3-Year Average Annual 22.1%
Since Inception (12/14/93) 17.7%
Average Annual
- ------------------------------------------------------------------
- --------------------------------------------------------------------------------
RISK/RETURN COMPARISON
FROM INCEPTION (12/14/93) THROUGH 12/31/97
Since its inception,
Royce Micro-Cap Trust
has outperformed the
Russell 2000 on BOTH
an absolute and a risk-
adjusted basis.
Average Annual Standard
Total Return Deviation RUR
- -----------------------------------------------------
OTCM (NAV) 17.7% 9.0 1.96
Russell 2000 16.6% 13.1 1.26
- -----------------------------------------------------
RUR = Return Per Unit of Risk: Average annual total return divided by the
annualized standard deviation over a designated time period.
- --------------------------------------------------------------------------------
OTCM MARKET PRICE - ACTUAL VS. ADJUSTED*
- --------------------------------------------------------------------------------
Mkt. Price Total Returns
From Incept. = 74.7%
3 Years = 84.3%
1 Year = 35.0%
[LINE CHART--PLOT POINTS]
Date Actual Adjusted
---- ------ --------
12/14/93 7.500 7.50
12/31/93 7.500 7.50
1/31/94 7.750 7.75
2/28/94 7.500 7.50
3/31/94 6.500 6.50
4/30/94 6.625 6.63
5/31/94 7.125 7.13
6/30/94 6.750 6.75
7/31/94 7.000 7.00
8/31/94 7.125 7.13
9/30/94 7.000 7.00
10/31/94 7.375 7.38
11/30/94 7.185 7.13
12/31/94 7.111 7.00
1/31/95 6.857 6.75
2/28/95 7.238 7.13
3/31/95 6.984 6.88
4/30/95 6.984 6.88
5/31/95 7.111 7.00
6/30/95 7.492 7.38
7/31/95 7.873 7.75
8/31/95 8.127 8.00
9/30/95 8.508 8.38
10/31/95 7.873 7.75
11/30/95 7.746 7.63
12/31/95 8.517 8.00
1/31/96 8.250 7.75
2/29/96 8.250 7.75
3/31/96 8.250 7.75
4/30/96 8.915 8.38
5/31/96 8.915 8.38
6/30/96 9.182 8.63
7/31/96 8.251 7.75
8/31/96 8.451 7.94
9/30/96 8.518 8.00
10/31/96 8.518 8.00
11/30/96 9.050 8.50
12/31/96 9.705 8.25
1/31/97 9.300 7.88
2/28/97 9.411 8.00
3/31/97 8.970 7.63
4/30/97 9.558 8.13
5/31/97 10.150 8.63
6/30/97 10.590 8.98
7/31/97 10.660 9.06
8/31/97 11.320 9.63
9/30/97 13.160 11.19
10/31/97 12.790 10.88
11/30/97 12.720 10.81
12/31/97 13.100 10.13
The regular reinvestment of distributions makes a difference!
- --------------------------------------------------------------------------------
*Reflects market price total return experience of a continuous stockholder who
reinvested all distributions and fully participated in the 1994 rights
offering. This graph illustrates the market price change from IPO of $7.50 per
share on 12/14/93.
12 | THE ROYCE FUNDS ANNUAL REPORT 1997
<PAGE>
PERFORMANCE & PORTFOLIO REVIEW
- --------------------------------------------------------------------------------
DOWN MARKET PERFORMANCE COMPARISON
(ALL DOWN PERIODS OF 7.5% OR GREATER) IN PERCENTAGES (%)
- --------------------------------------------------------------------------------
[BAR CHART]
OTCM (NAV) Russell 2000
3/18/94-12/9/94 -0.4 -12.4
5/22/96-7/24/96 -6.8 -15.5
1/22/97-4/25/97 -3.4 -9.2
10/13/97-10/27/97 -5.5 -9.7
Royce Micro-Cap's risk-averse investment orientation
has resulted in strong relative returns in down markets.
- --------------------------------------------------------------------------------
GOOD IDEAS THAT WORKED
- ------------------------------------------------------------
1997 REALIZED AND UNREALIZED GAIN
- ------------------------------------------------------------
Oshkosh B'Gosh Cl. A $1,173,190
Duff & Phelps Credit Rating Co. 906,890
Matthews International Corporation Cl. A 834,750
New England Business Service 811,830
Puerto Rican Cement Company 708,397
- ------------------------------------------------------------
Combined Gain $4,435,057
- ------------------------------------------------------------
GOOD IDEAS AT THE TIME
- ------------------------------------------------------------
1997 REALIZED AND UNREALIZED LOSS
- ------------------------------------------------------------
Guy F. Atkinson Company $1,102,822
Resurgence Properties 379,588
The Topps Company 339,371
Nitinol Medical Technologies 322,176
Midwest Grain Products 309,916
- ------------------------------------------------------------
Combined Loss $2,454,873
- ------------------------------------------------------------
PORTFOLIO DIAGNOSTICS
- ------------------------------------------------------
Median Market Cap $176 million
Weighted Average P/E Ratio 15.4x
Weighted Average P/B Ratio 1.7x
Weighted Average Yield 1.0%
Net Assets $182 million
Turnover Rate 34%
Net Leverage 2%
Symbol OTCM
- ------------------------------------------------------
*Net Leverage is the percentage, in excess of 100%,
of the total value of equity type investments,
divided by net assets, excluding preferred stock.
TOP TEN POSITIONS
% OF NET ASSETS
- -----------------------------------------
1. Matthews International
Corporation Cl. A 1.3
2. Duff & Phelps
Credit Rating Co. 1.2
3. Oshkosh B'Gosh 1.2
4. PXRE Corporation 1.1
5. New England
Business Service 1.1
6. Velcro Industries 1.0
7. Puerto Rican Cement
Company 0.9
8. Simpson Manufacturing 0.9
9. Chemfab Corporation 0.9
10. Penn Engineering and
Manufacturing 0.9
- -----------------------------------------
PORTFOLIO SECTOR BREAKDOWN (WITH EXAMPLES) % OF NET ASSETS*
- --------------------------------------------------------------------------------
Industrial Products Textiles, building construction materials, steel, paper. 23
Consumer Products Apparel, home furnishings, mobile homes. 17
Technology Electronics, software, distributors. 14
Industrial Services Engineering, trucking, printing, advertising. 13
Financial Intermediaries Banks, insurance, stockbrokers. 12
Miscellaneous 6
Financial Services Investment management, insurance
brokers, credit rating. 5
Retail Apparel stores, discount stores, direct
marketing. 4
Natural Resources Energy, real estate, aggregates. 3
Consumer Services Restaurants, airlines. 2
Health Pharmaceuticals, medical equipment,
health care, biotech. 1
- --------------------------------------------------------------------------------
*excludes cash and cash equivalents.
During 1997, the companies listed above made the largest positive and
negative contributions in dollar terms to our overall performance. While we are
quite pleased with this year's successes, we have learned over the years that
there is often more wisdom to be drawn from failures. An examination of past
years' winners and losers has taught us that this year's beast can easily be
transformed into next year's beauty. Certain securities whose fundamentals are
intact, but whose recent performance is out of sync, provide us with the
opportunity to buy additional shares at discounted prices. The end result is
that we would not be surprised to find that one of this year's underperformers
becomes a future year's major portfolio success story.
Oshkosh B'Gosh, in our opinion, remains a very solid company whose
management has begun to concentrate more closely on their core business of
clothing manufacturing, has shed non-core operations and has applied excess
capital to stock repurchases. All of these activities led to growth in earnings
and stock price.
Guy F. Atkinson Company was a case of our badly misjudging management as
the stock of this heavy construction contractor went from a $10 per share book
value to bankruptcy virtually overnight in spite of a solid balance sheet. This
provides a good example of the importance of portfolio diversification.
THE ROYCE FUNDS ANNUAL REPORT 1997 | 13
<PAGE>
ROYCE GLOBAL TRUST
- --------------------------------------------------------------------------------
[SIDEBAR]
WHAT WE DO Royce Global Trust ("FUND") is a closed-end fund that invests
primarily in a limited number of domestic and foreign companies, selected using
a value approach. While it is not restricted as to stock market capitalization,
Royce focuses the Fund's investments primarily in small-cap companies with
significant business activities in the United States. Normally, at least 65% of
the assets will be invested in the securities of companies of at least three
countries, including the United States.
HOW WE DID Royce Global Trust's fourth quarter performance was hindered by
the increased volatility in global markets and in domestic small-cap stocks.
These small-cap securities were particularly volatile during the fourth quarter.
For the quarter, the Fund's NAV return was -5.0% versus -3.4% for the small-cap
oriented Russell 2000 index and -2.5% for the Morgan Stanley World Index
("MSWI"). The Fund finished the full year up 20.5%, slightly below the Russell
2000's return of 22.4%, but above the MSWI's return of 15.8%.
Although our management tenure with the Fund has been short, we are
nevertheless pleased with its 21.9% average annual NAV total return since we
assumed the Fund's management on November 1, 1996. Since that time, we have
focused primarily on smaller companies that are domiciled in the United States
and we have added a change to the Fund's capital structure. On November 21,
1997, the Fund took advantage of the low interest rate environment and issued
$20,000,000 of 7.45% Cumulative Preferred Stock at $25 per share. These shares
are listed on the American Stock Exchange and began trading on November 28. We
look forward to investing this capital in accordance with the Fund's investment
policies and objectives as buying opportunities emerge.
As part of our ongoing commitment, the Fund's officers, employees and their
affiliates currently own over $3.5 million of the Fund's Common Stock.
[END SIDEBAR]
NAV TOTAL RETURNS
THROUGH 12/31/97
- --------------------------------------------------
4th Qtr 1997 -5.0%
1997 20.5%
Since Inception* Average Annual 21.9%
- --------------------------------------------------
*Royce & Associates assumed investment management responsibility for the Fund
on 11/1/96.
TOTAL RETURN COMPARISON:
ROYCE GLOBAL TRUST MARKET PRICE AND NAV VS.
MORGAN STANLEY WORLD INDEX (11/1/96 - 12/31/97)
- --------------------------------------------------------------------------------
Cumulative Total Returns
(11/1/96 - 12/31/97)
Fund Mkt. Pr. = 27.4%
Fund NAV = 25.9%
MS World Index = 20.3%
[LINE CHART--PLOT POINTS]
Date RGT Mkt. RGT NAV MSCI Wor
---- -------- -------- --------
Oct 96 0 0 0
Nov 96 6.43% 3.22% 5.58%
Dec 96 5.00% 4.54% 3.87%
Jan 97 8.57% 4.54% 5.11%
Feb 97 4.29% 5.87% 6.30%
Mar 97 11.43% 4.92% 4.17%
Apr 97 7.86% 6.25% 7.56%
May 97 10.00% 14.58% 14.18%
Jun 97 14.29% 20.45% 19.85%
Jul 97 20.72% 24.05% 25.35%
Aug 97 24.29% 24.81% 16.95%
Sep 97 38.57% 32.57% 23.28%
Oct 97 30.00% 27.08% 16.77%
Nov 97 30.00% 24.24% 18.82%
Dec 97 27.40% 25.94% 20.25%
- --------------------------------------------------------------------------------
Returns reflect reinvestment of all distributions since Royce & Associates
assumed management responsibility for the Fund on 11/1/96.
It is important that we share a common financial goal with our stockholders.
[bullet] The Fund's officers, employees and their affiliates have more
than $3.5 million invested in the Fund's Common Stock.
[bullet] The Fund's officers currently own more than 728,000 shares of
Common Stock, or 8.6% of the outstanding shares.
[bullet] The Fund's officers purchased over 70,000 shares of Common Stock
in the fourth quarter.
14 | THE ROYCE FUNDS ANNUAL REPORT 1997
<PAGE>
PERFORMANCE & PORTFOLIO REVIEW
- --------------------------------------------------------------------------------
PORTFOLIO DIAGNOSTICS
- ------------------------------------------------------
Median Market Cap $662 million
Weighted Average P/E Ratio 18.0x
Weighted Average P/B Ratio 1.9x
Weighted Average Yield 0.9%
Turnover Rate 74%
Top 3 Countries:
US (77%), Canada (4%), Netherlands Antilles (4%)
Net Assets $71 million
Symbol FUND
- ------------------------------------------------------
GOOD IDEAS THAT WORKED
- ------------------------------------------------------
1997 REALIZED AND UNREALIZED GAIN
- ------------------------------------------------------
Velcro Industries $563,700
MacKenzie Financial Corporation 478,664
BHI Corporation 464,068
Stone & Webster 417,964
Puerto Rican Cement Company 405,975
- ------------------------------------------------------
Combined Gain $2,330,371
- ------------------------------------------------------
GOOD IDEAS AT THE TIME
- ------------------------------------------------------
1997 REALIZED AND UNREALIZED LOSS
- ------------------------------------------------------
Groupe AB $359,253
The Topps Company 241,124
Standard Commercial Corporation 228,638
Semi-Tech 210,781
Haemonetics Corporation 195,084
- ------------------------------------------------------
Combined Loss 1,234,880
- ------------------------------------------------------
TOP TEN POSITIONS
% OF NET ASSETS
- ------------------------------------------------------
1. Leucadia National
Corporation 2.6
2. Velcro Industries 2.6
3. Ryanair Holdings ADR 2.0
4. Gibson Greetings 2.0
5. The Pioneer Group 1.9
6. BHI Corporation 1.8
7. Willbros Group 1.8
8. International Dairy Queen Cl. A 1.7
9. Unifi 1.7
10. PXRE Corporation 1.7
- ------------------------------------------------------
PORTFOLIO SECTOR BREAKDOWN (WITH EXAMPLES) % OF NET ASSETS*
- --------------------------------------------------------------------------------
Industrial Services Engineering, trucking, printing, advertising. 17
Financial Services Investment management, insurance brokers, credit rating. 16
Industrial Products Textiles, building construction materials, steel,
paper. 16
Consumer Products Apparel, home furnishings, mobile homes. 14
Financial Intermediaries Banks, insurance, stockbrokers. 11
Consumer Services Restaurants, airlines. 6
Natural Resources Energy, real estate, aggregates. 6
Technology Electronics, software, distributors. 6
Health Pharmaceuticals, medical equipment,
health care, biotech. 4
Retail Apparel stores, discount stores, direct
marketing. 4
- --------------------------------------------------------------------------------
*excludes cash and cash equivalents.
During 1997, the companies listed above made the largest positive and
negative contributions in dollar terms to our overall performance. While we are
quite pleased with this year's successes, we have learned over the years that
there is often more wisdom to be drawn from failures. An examination of past
years' winners and losers has taught us that this year's beast can easily be
transformed into next year's beauty. Certain securities whose fundamentals are
intact, but whose recent performance is out of sync, provide us with the
opportunity to buy additional shares at discounted prices. The end result is
that we would not be surprised to find that one of this year's underperformers
becomes a future year's major portfolio success story.
Velcro is a recently resurgent old favorite whose multiple new applications
for velcro fasteners such as baby diapers helped it to attain new highs in both
earnings and stock price.
Group AB, a French satellite communications programming firm, simply never
performed to expectations. This stock provided a valuable lesson about
exercising caution in the European IPO market.
THE ROYCE FUNDS ANNUAL REPORT 1997 | 15
<PAGE>
HISTORY SINCE INCEPTION
- --------------------------------------------------------------------------------
THE FOLLOWING TABLE DETAILS THE SHARE ACCUMULATIONS BY AN INITIAL INVESTOR IN
THE FUNDS WHO REINVESTED ALL DISTRIBUTIONS (INCLUDING FRACTIONAL SHARES) AND
PARTICIPATED FULLY IN PRIMARY SUBSCRIPTIONS FOR EACH OF THE RIGHTS OFFERINGS.
FULL PARTICIPATION IN DISTRIBUTION REINVESTMENTS AND RIGHTS OFFERINGS MAXIMIZES
THE RETURNS AVAILABLE TO AN INVESTOR. THIS TABLE SHOULD BE READ IN CONJUNCTION
WITH THE PERFORMANCE REVIEWS OF THE FUNDS.
<TABLE>
<CAPTION>
AMOUNT PURCHASE NAV MKT
HISTORY INVESTED PRICE SHARES VALUE* VALUE*
------- -------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
ROYCE VALUE TRUST
11/28/86 Initial Purchase $10,000 $10.000 1,000 $ 9,280 $10,000
10/15/87 Distribution $.30 7.000 42
12/31/87 Distribution $.22 7.125 32 8,578 7,250
12/27/88 Distribution $.51 8.625 63 10,529 9,238
9/22/89 Rights Offering 405 9.000 45
12/29/89 Distribution $.52 9.125 67 12,942 11,866
9/24/90 Rights Offering 457 7.375 62
12/31/90 Distribution $.32 8.000 52 11,713 11,074
9/23/91 Rights Offering 638 9.375 68
12/31/91 Distribution $.61 10.625 82 17,919 15,697
9/25/92 Rights Offering 825 11.000 75
12/31/92 Distribution $.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
- -------------------------------------------------------------------------------------------
12/31/97 $16,322 3,108 $52,556 $46,814
- -------------------------------------------------------------------------------------------
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 $.05 6.750 9 9,163 8,462
12/7/95 Distribution $.36 7.500 58 11,264 10,136
12/6/96 Distribution $.80 7.625 133 13,132 11,550
12/5/97 Distribution $1.00 10.000 140
- ------------------------------------------------------------------------------------------------------
12/31/97 $ 8,900 1,540 $16,694 $15,593
- ------------------------------------------------------------------------------------------------------
ROYCE GLOBAL TRUST
10/31/96 Initial Purchase $ 4,375 $ 4.375 1,000 $ 5,280 $ 4,375
12/31/96 5,520 4,594
12/5/97 Distribution $0.53 5.250 101
- ------------------------------------------------------------------------------------------------------
12/31/97 $ 4,375 1,101 $ 6,650 $ 5,574
- ------------------------------------------------------------------------------------------------------
</TABLE>
* OTHER THAN FOR INITIAL PURCHASE, VALUES ARE STATED AS OF DECEMBER 31 OF THE
YEAR INDICATED, AFTER REINVESTMENT OF DISTRIBUTIONS.
16 | THE ROYCE FUNDS ANNUAL REPORT 1997
<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 because his interest is diluted through
the issuance of new shares to other stockholders.
HOW DOES THE REINVESTMENT OF DISTRIBUTIONS FROM THE ROYCE CLOSED-END FUNDS
WORK?
Simply put, it works by the Funds automatically issuing shares in
payment of distributions unless you indicate to the contrary.
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 Fund's
custodian, State Street Bank and Trust Company, in writing. A registered
stockholder also has the option to receive the distribution in the form of a
stock certificate or in cash if State Street is properly notified.
WHAT IF MY SHARES ARE HELD BY A BROKERAGE FIRM OR A BANK?
If your shares are held in the name of a brokerage firm, bank, or other
intermediary, as the stockholder of record, you should contact your brokerage
firm or bank to be certain that it is automatically reinvesting 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, 1998.
HOW DO THE PLANS WORK FOR REGISTERED STOCKHOLDERS?
State Street maintains the accounts for registered stockholders in the
Plans and sends written confirmation of all transactions in the account. Shares
in the account of each participant will be held by State Street in
non-certificated form in the name of the participant, and each participant will
be able to vote those shares at a stockholder meeting or by proxy. A participant
may also send other stock certificates held by them to State Street to be held
in non-certificated form. There is no service fee charged to participants for
reinvesting distributions. If a participant elects to sell shares from a Plan
account, State Street will deduct a $2.50 fee plus brokerage commissions from
the sale transaction. If a nominee is the registered owner of your shares, the
nominee will maintain the accounts on your behalf.
HOW CAN I GET MORE INFORMATION ON THE PLANS?
You can call Investor Services Representatives at (800) 221-4268 or you
can request a copy of the Plan for your Fund from State Street. All
correspondence (including notifications) should be directed to: [Name of Fund]
Distribution Reinvestment and Cash Purchase Plan, c/o State Street Bank and
Trust Company, PO Box 8200, Boston, MA 02266-8200, telephone (800) 426-5523.
THE ROYCE FUNDS ANNUAL REPORT 1997 | 17
<PAGE>
UPDATES & NOTES TO PERFORMANCE AND RISK INFORMATION
- --------------------------------------------------------------------------------
[graphic of a computer monitor displaying words THE ROYCE FUNDS]
[legend] THE
ROYCE
FUNDS
NEW ON OUR WEBSITE
A new section has been added exclusively dedicated to our three
closed-end funds.
In addition, recent press releases about the closed-end funds, including
monthly updates, are available online.
ROYCE PORTFOLIOS NOW IN A VARIABLE ANNUITY
Royce & Associates has contracted with IL Annuity and Insurance Company,
a wholly-owned subsidiary of the Indianapolis Life Group of Companies, rated A
(excellent) by A.M. Best, to offer our micro-cap approach in a variable annuity
format in the Indianapolis "Visionary Choice" Variable Annuity. To receive a
prospectus which includes fees and expenses, call IL Annuity and Insurance
Company toll-free at 1-888-232-6486. Please read the prospectus carefully before
investing.
We have also contracted with American General Life, one of the country's
largest distributors of insurance products, to offer our premier and total
return approaches in a variable annuity format in their newly-developed "Select
Reserve" Variable Annuity Insurance Contract in February 1998. To receive a
prospectus, which includes fees and expenses, call 1-800-829-5046. Please read
the prospectus carefully before investing.
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.
Morningstar proprietary risk ratio measures a fund's downside volatility
relative to all equity funds which have an average score of 1.00. The average
risk score for the 35 funds in the closed-end domestic equity objective category
was 1.12 for the three years ended 12/31/97. The lower the risk ratio, the lower
a fund's downside volatility has been. The risk scores for Royce Value Trust and
Royce Micro-Cap Trust for this period were 0.81 and 0.89, respectively. Standard
deviation is a statistical measure within which a fund's total returns have
varied over time. The greater the standard deviation, the greater a fund's
volatility. The Russell 2000, Russell 2000 Value, Russell 2000 Growth, S&P 500
and Dow Jones Industrial Average are unmanaged indices of domestic common
stocks. The Morgan Stanley World Index is an unmanaged index of global common
stocks. The Royce Funds is a service mark of The Royce Funds.
The Board of Directors has given RVT's and OTCM's management the
discretionary authority to cause the Fund to repurchase up to 300,000 shares of
its common stock in open market and other transactions through December 31,
1998. Such repurchases would be effected at a price per share which is less than
the then current net asset value, but not in excess of the then prevailing
market price.
The Board of Directors of RVT, OTCM and FUND are authorized to offer
stockholders an opportunity to subscribe for additional shares of common stock
of the Fund through rights offerings at a price per share that may be less than
the then current net asset value of the Fund's common stock. The timing and
terms of any such offerings are left to the Board's discretion.
18 | THE ROYCE FUNDS ANNUAL REPORT 1997
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
ROYCE VALUE TRUST, INC. 20-30
ROYCE MICRO-CAP TRUST, INC. 31-39
ROYCE GLOBAL TRUST, INC. 40-47
<PAGE>
ROYCE VALUE TRUST, INC.
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS DECEMBER 31, 1997
- --------------------------------------------------------------------------------
COMMON STOCKS -- 99.2%
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Consumer Products -- 13.1%
Bassett Furniture Industries 120,087 $ 3,602,610
Burnham Corporation Cl. A 32,600 1,483,300
Burnham Corporation Cl. B 18,000 819,000
Conso Products* 132,375 1,009,359
800-JR CIGAR* 48,800 1,220,000
Ethan Allen Interiors 68,000 2,622,250
Flexsteel Industries 91,400 1,291,025
Garan Incorporated 102,600 2,641,950
Gibson Greetings* 175,700 3,843,438
Hershey Creamery Company 643 1,093,100
J & J Snack Foods* 52,200 854,775
Johnson Worldwide Associates Cl. A* 193,300 3,406,913
Juno Lighting 132,200 2,313,500
[dbldag]K-Swiss Cl. A 177,900 2,890,875
La-Z-Boy 9,400 405,375
Lazare Kaplan International* 135,200 1,825,200
Lifetime Hoan Corporation 212,669 2,100,106
Marisa Christina, Incorporated* 112,600 464,475
Matthews International
Corporation Cl. A 54,700 2,406,800
Oakley* 152,100 1,378,406
Oshkosh B'Gosh Cl. A 85,100 2,808,300
The Rival Company 128,500 1,686,563
Seattle Filmworks* 146,787 1,633,005
Skyline Corporation 133,400 3,668,500
Stanhome 204,200 5,245,387
The L. S. Starrett Company Cl. A 73,700 2,694,656
Steck-Vaughn Publishing
Corporation* 55,919 824,805
Sturm, Ruger & Company 130,500 2,406,094
Thor Industries 133,300 4,573,856
The Topps Company* 696,800 1,546,025
Velcro Industries 52,600 5,049,600
WLR Foods 106,577 919,227
Weyco Group 90,600 2,049,825
------------
72,778,300
------------
Consumer Services -- 2.1%
Bowl America Incorporated Cl. A 55,100 464,906
Buffets* 224,550 2,105,156
Comair Holdings 65,650 1,583,806
Jenny Craig* 161,600 1,222,100
International Dairy Queen Cl. A* 101,200 2,710,262
MovieFone Cl. A* 17,000 114,750
Plenum Publishing Corporation 77,600 3,589,000
------------
11,789,980
------------
Financial Intermediaries -- 17.5%
Alleghany Corporation* 23,505 6,693,049
ALLIED Group 141,187 4,041,478
ALLIED Life Financial Corporation 94,000 2,056,250
BHI Corporation 60,600 1,863,450
Baker, Fentress & Company 74,436 1,358,457
Baldwin & Lyons Cl. B 126,000 3,039,750
Capitol Transamerica Corporation 106,550 2,270,847
The Commerce Group 151,718 4,949,800
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
The First National Bank of
Anchorage 1,050 $ 2,698,500
Fremont General Corporation 54,750 2,997,562
Fund American Enterprises
Holdings 18,400 2,226,400
Gryphon Holdings* 90,800 1,520,900
Highlands Insurance Group* 128,000 3,632,000
Independence Holding Company 56,664 679,968
Intercargo Corporation 143,100 1,896,075
Keystone Heritage Group 6,815 374,825
Lawyers Title Corporation 120,300 3,781,931
Legg Mason 13,333 745,815
Leucadia National Corporation 130,400 4,498,800
Markel Corporation* 4,200 655,725
The Mechanics Bank * 200 1,980,000
Medical Assurance* 147,692 4,153,838
NYMAGIC 57,100 1,573,819
National Bancorp of Alaska 24,270 3,070,155
Nobel Insurance Limited 119,500 1,568,438
Old Guard Group 148,000 2,830,500
Oriental Financial Group 68,400 2,022,075
Orion Capital Corporation 80,074 3,718,436
PXRE Corporation 178,710 5,930,938
Pennsylvania Manufacturers
Corporation Cl. A 197,400 3,158,400
RLI 19,250 958,891
Raymond James Financial 5,000 198,437
Trenwick Group 125,850 4,735,106
Wesco Financial Corporation 17,800 5,340,000
Zenith National Insurance 153,500 3,952,625
------------
97,173,240
------------
Financial Services -- 8.0%
Affiliated Managers Group* 60,700 1,760,300
Alliance Capital Management L.P. 141,200 5,621,525
E.W. Blanch Holdings 95,900 3,302,556
Crawford & Company Cl. A 155,250 2,949,750
Crawford & Company Cl. B 75,300 1,538,944
Duff & Phelps Credit Rating Co. 23,800 966,875
Eaton Vance 101,800 3,842,950
Erie Indemnity Company Cl. A 6,500 191,750
Arthur J. Gallagher & Co. 86,900 2,992,619
Hilb, Rogal & Hamilton Company 166,075 3,207,323
Investors Financial Services
Corporation 39,059 1,796,714
The John Nuveen Company Cl. A 21,400 749,000
New England Investment
Companies, L.P. 93,500 2,676,437
Oppenheimer Capital* 120,240 3,637,260
Phoenix Duff & Phelps
Corporation 157,900 1,263,200
The Pioneer Group 133,600 3,757,500
SEI Investments Company 2,000 84,000
U.S. Global Investors Cl. A* 249,205 467,259
Willis Corroon Group ADR+ 289,500 3,564,469
------------
44,370,431
------------
</TABLE>
20 | THE ROYCE FUNDS ANNUAL REPORT 1997
<PAGE>
ROYCE VALUE TRUST, INC.
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Health -- 1.5%
Diagnostic Products Corporation 33,200 $ 921,300
Haemonetics Corporation* 218,000 3,052,000
Life Technologies 65,450 2,176,213
Marquette Medical Systems Cl. A* 37,500 998,437
Nitinol Medical Technologies* 114,600 916,800
Spacelabs Medical* 27,200 516,800
------------
8,581,550
------------
Industrial Products -- 22.1%
Ameron International Corporation 18,000 1,138,500
Ash Grove Cement Company Cl. B 77,518 5,348,742
Atchison Casting Corporation* 58,600 952,250
BHA Group Holdings 56,909 1,109,725
Baldor Electric Company 22,000 477,125
Blessings Corporation* 159,400 2,351,150
W. H. Brady Cl. A 83,100 2,576,100
Carbo Ceramics 66,000 2,112,000
Cascade 47,000 799,000
Central Steel & Wire Company 3,699 2,811,240
Chemfab Corporation* 132,219 2,710,489
CLARCOR 19,700 583,613
ConBraCo Industries* 7,630 3,776,850
Curtiss-Wright Corporation 112,600 4,088,788
Decker Manufacturing Corporation 6,022 270,990
Delta Woodside Industries 125,400 611,325
Fab Industries 98,000 3,050,250
Falcon Products 124,200 1,762,088
Federal Signal Corporation 9,000 194,625
Franklin Electric 3,800 244,150
[dbldag]General Builders Corporation* 73,645 55,234
P. H. Glatfelter Company 93,700 1,745,163
Hawkins Chemical 133,117 1,539,165
International Aluminum
Corporation 68,600 2,143,750
Kaydon Corporation 141,800 4,626,225
Kimball International Cl. B 165,580 3,052,881
Knape & Vogt Manufacturing
Company 79,750 1,734,563
LeaRonal 89,475 2,102,662
Lilly Industries Cl. A 210,983 4,351,524
The Lincoln Electric Company 11,990 467,610
The Lincoln Electric Company Cl. A 70,300 2,530,800
Liqui-Box Corporation 72,378 2,913,214
MacDermid, Incorporated 105,777 8,977,823
Midwest Grain Products* 222,650 2,783,125
Paul Mueller Company 53,200 2,048,200
NN Ball and Roller 132,500 1,175,938
Nordson Corporation 24,500 1,123,937
Oregon Steel Mills 88,200 1,879,763
Oshkosh Truck Corporation Cl. B 154,500 2,790,656
[dbldag]Peerless Mfg. 79,300 862,387
Penn Engineering and
Manufacturing 132,600 3,182,400
Penn Engineering and
Manufacturing Cl. A 34,800 865,650
Preformed Line Products Company 41,300 1,982,400
Puerto Rican Cement Company 100,700 5,053,881
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Quaker Chemical Corporation 82,450 $ 1,561,397
Robroy Industries Cl. A 51,270 910,042
Roper Industries 5,000 141,250
Seaboard Corporation 3,750 1,650,000
Shorewood Packaging Corporation* 82,600 2,209,550
Simpson Manufacturing* 126,700 4,220,694
The Standard Register Company 126,200 4,385,450
Tecumseh Products Company Cl. A 33,300 1,623,375
**Thermal Industries* 42,586 638,790
Todd Shipyards Corporation* 39,200 164,150
Unifi 47,800 1,944,863
Wellman 5,000 97,500
Woodward Governor Company 126,800 4,105,150
Zero Corporation 70,800 2,097,450
------------
122,707,612
------------
Industrial Services -- 13.9%
Aceto Corporation 33,340 683,470
Air Express International
Corporation 97,068 2,960,574
AirNet Systems* 90,500 1,945,750
Arnold Industries 233,648 4,030,428
Bowne & Co. 43,600 1,738,550
Circle International Group 125,825 2,886,111
Cornell Corrections* 64,600 1,340,450
Dames & Moore 32,800 434,600
Devon Group* 5,000 230,000
DIMON Incorporated 103,200 2,709,000
Ennis Business Forms 191,900 1,775,075
FCA International* 194,500 396,064
Farmer Bros. 24,100 4,506,700
Fisher Companies 8,048 957,712
Frozen Food Express Industries 265,135 2,386,215
Grey Advertising 13,417 4,400,776
Insituform Technologies Cl. A* 182,100 1,411,275
Kenan Transport Company 40,500 1,483,312
Peter Kiewit Sons' Cl. D* 28,500 4,132,500
Lufkin Industries 49,200 1,758,900
Merrill Corporation 143,000 3,324,750
Nabors Industries* 5,000 157,188
New England Business Service 95,000 3,206,250
Nichols Research Corporation* 15,950 398,750
The Olsten Corporation 153,600 2,304,000
Peak International Limited* 92,300 1,926,763
Perini Corporation* 44,200 397,800
Pittston Burlington Group 57,100 1,498,875
Rush Enterprises* 165,600 1,324,800
[dbldag]Sevenson Environmental Services 220,520 2,701,370
Standard Commercial Corporation* 181,072 2,999,005
Stone & Webster 70,300 3,295,312
TBC Corporation* 98,000 937,125
Treadco 67,100 679,387
True North Communications 58,000 1,435,500
The Turner Corporation* 92,300 2,434,412
Vallen Corporation* 199,329 4,136,077
Willbros Group* 103,900 1,558,500
------------
76,883,326
------------
</TABLE>
THE ROYCE FUNDS ANNUAL REPORT 1997 | 21
<PAGE>
ROYCE VALUE TRUST, INC.
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Natural Resources -- 4.4%
Alico 72,700 $ 1,690,275
Tom Brown* 165,100 3,178,175
CalMat 194,900 5,432,837
Consolidated-Tomoka Land 7,800 141,375
Denbury Resources* 82,200 1,530,975
Devon Energy Corporation 10,000 385,000
FRP Properties* 119,900 3,761,863
Florida Rock Industries 213,000 4,845,750
PetroCorp Incorporated* 115,900 956,175
Toreador Royalty Corporation* 97,100 430,881
Vornado Realty Trust 37,900 1,778,931
------------
24,132,237
------------
Retail -- 3.0%
The Buckle* 34,600 1,185,050
Catherines Stores Corporation* 212,400 1,486,800
Cato Corporation Cl. A 133,700 1,186,588
Charming Shoppes* 529,500 2,482,031
Claire's Stores 38,900 756,119
Deb Shops 127,400 708,662
Family Dollar Stores 12,350 362,009
Little Switzerland* 60,000 423,750
Mikasa 104,500 1,521,781
Pier 1 Imports 5,000 113,125
Sotheby's Holdings Cl. A 155,100 2,869,350
Sunglass Hut International* 216,600 1,367,288
Suzy Shier 10,000 73,475
The Talbots 102,900 1,865,063
------------
16,401,091
------------
Technology -- 8.4%
Adobe Systems Incorporated 24,500 1,010,625
Axiohm Transaction Solutions* 97,100 1,650,700
BGS Systems 33,900 1,186,500
Communications Systems 32,000 568,000
Credence Systems Corporation* 53,000 1,570,125
Dionex Corporation* 42,400 2,130,600
Electroglas* 13,500 208,406
Exar Corporation* 96,900 1,598,850
Fair Isaac and Company,
Incorporated 44,100 1,469,081
Giga-tronics Incorporated* 57,100 556,725
Hach Company 32,150 405,894
Hach Company Cl. A 32,150 301,406
IFR Systems 14,133 219,061
ILC Technology* 79,200 1,150,875
Integral Systems* 78,900 1,075,013
Integrated Systems* 5,000 68,750
Landauer 117,900 3,301,200
MacNeal-Schwendler Corporation* 71,800 691,075
Marshall Industries* 124,000 3,720,000
Mosaix* 40,000 352,500
National Computer Systems 134,000 4,723,500
National Instruments* 7,500 217,500
Newport Corporation 50,900 715,781
PRI Automation* 43,000 1,241,625
Phoenix Technologies* 61,200 742,050
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Pioneer-Standard Electronics 56,025 $ 854,381
Richardson Electronics 173,500 1,930,188
[dbldag]Sage Laboratories 108,000 1,377,000
Scitex Corporation Limited* 136,400 1,645,325
Sterling Commerce* 25,000 960,937
TCI Satellite Entertainment Cl. A* 143,900 989,313
Technical Communications
Corporation* 48,800 256,200
Unitrode Corporation* 155,000 3,332,500
VideoServer* 104,000 1,651,000
Woodhead Industries 39,300 736,875
Xylan Corporation* 118,000 1,784,750
------------
46,394,311
------------
Utilities -- 0.3%
Southern Union Company* 66,515 1,588,046
------------
Miscellaneous -- 4.9% 27,167,414
------------
TOTAL COMMON STOCKS
(Cost $369,677,188) 549,967,538
------------
PREFERRED STOCK -- 0.1%
Bird Corp. $1.85 Conv.
(Cost $371,659) 23,750 368,125
------------
PRINCIPAL
AMOUNT
CORPORATE BONDS -- 1.7%
Charming Shoppes 7.50% Conv.
Sub. Deb. due 7/15/06 $2,600,000 2,431,000
Dixie Group 7.00% Conv.
Sub. Deb. due 5/15/12 824,000 731,300
International Semi-Tech
0% Sr. Disc. Note due 8/15/03 6,158,000 2,432,410
Richardson Electronics 8.25%
Conv. Sub. Deb. due 6/15/06 2,049,000 1,885,080
Richardson Electronics 7.25%
Conv. Sub. Deb. due 12/15/06 419,000 351,960
Shoney's 0% Conv. Sub. Deb.
due 4/11/04 4,146,000 1,741,320
Thorn Apple Valley 9.00%
Conv. Sub. Deb. due 4/01/07 100,000 95,000
------------
TOTAL CORPORATE BONDS
(Cost $10,280,164) 9,668,070
------------
U.S. TREASURY OBLIGATION -- 3.7%
U.S. Treasury Notes, principal amount
$20,000,000, 6.25% due 8/31/02
(Cost $20,097,660) 20,409,400
------------
REPURCHASE AGREEMENT -- 0.4%
State Street Bank & Trust Company,
5.15% dated 12/31/97, due 1/02/98,
maturity value $2,200,629
(collaterized by U.S. Treasury Notes,
5.875% due 8/31/99, valued at $2,247,659)
(Cost $2,200,000) 2,200,000
------------
</TABLE>
22 | THE ROYCE FUNDS ANNUAL REPORT 1997
<PAGE>
ROYCE VALUE TRUST, INC.
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
<S> <C>
TOTAL INVESTMENTS -- 105.1%
(Cost $402,626,671) $ 582,613,133
LIABILITIES LESS CASH AND OTHER
ASSETS -- (5.1)% (28,382,209)
-------------
NET ASSETS -- 100.0% $ 554,230,924
-------------
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing.
** A security for which market quotations are no longer readily available
represents 0.12% of net assets. This security has been valued in good faith
by the Board of Directors.
+ American Depository Receipt.
[dbldag] At December 31, 1997, the Fund owned 5% or more of the Company's
outstanding shares thereby making the Company an Affiliated Company as that
term is defined in the Investment Company Act of 1940.
Income Tax Information: The cost of total investments for federal income tax
purposes was $402,626,671. At December 31, 1997, net unrealized appreciation
for all securities was $179,986,462, consisting of aggregate gross unrealized
appreciation of $194,162,230 and aggregate gross unrealized depreciation of
$14,175,768.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
THE ROYCE FUNDS ANNUAL REPORT 1997 | 23
<PAGE>
ROYCE VALUE TRUST, INC.
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments at value (identified cost $400,426,671) $580,413,133
Repurchase agreement (at cost and value) 2,200,000
Cash 1,330,229
Receivable for dividends and interest 1,338,591
Receivable for investments sold 236,792
Prepaid expenses and other assets 16,775
- -----------------------------------------------------------------------------------------------------------
Total Assets 585,535,520
- -----------------------------------------------------------------------------------------------------------
LIABILITIES:
Notes payable 27,058,153
Payable for investments purchased 3,814,136
Payable for investment advisory fee 165,475
Preferred dividend accrued but not yet declared 106,667
Accrued expenses 160,165
- -----------------------------------------------------------------------------------------------------------
Total Liabilities 31,304,596
- -----------------------------------------------------------------------------------------------------------
Net Assets $554,230,924
- -----------------------------------------------------------------------------------------------------------
Net Assets applicable to Preferred Stock at a liquidation
value of $25 per share $ 60,000,000
- -----------------------------------------------------------------------------------------------------------
Net Assets applicable to Common Stock (net asset value per
share which assumes conversion of Notes -- $16.91) $494,230,924
- -----------------------------------------------------------------------------------------------------------
SUMMARY OF STOCKHOLDERS' EQUITY:
8% Cumulative Preferred Stock -- par value $0.001 per share;
2,400,000 shares outstanding $ 2,400
Common Stock -- par value $0.001 per share; 28,708,598 shares
outstanding (150,000,000 shares authorized) 28,709
Additional paid-in capital 366,156,774
Undistributed net investment income 2,136,325
Accumulated net realized gain on investments 6,026,921
Preferred dividend accrued but not yet declared (106,667)
Net unrealized appreciation on investments 179,986,462
- -----------------------------------------------------------------------------------------------------------
Net Assets $554,230,924
- -----------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
INVESTMENT OPERATIONS: DECEMBER 31, 1997 DECEMBER 31, 1996
<S> <C> <C>
Net investment income $ 6,702,922 $ 4,559,614
Net realized gain on investments 29,196,786 33,673,949
Net change in unrealized appreciation on investments 80,620,819 18,650,893
- -----------------------------------------------------------------------------------------------------------
Net increase in net assets from investment operations 116,520,527 56,884,456
- -----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income (736,536) (218,400)
Net realized gain on investments (4,063,464) ( 1,504,800)
Preferred dividend accrued but not yet declared (106,667) --
- -----------------------------------------------------------------------------------------------------------
Total distributions to Preferred Stockholders (4,906,667) (1,723,200)
- -----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income (5,058,567) (3,626,059)
Net realized gain on investments (27,907,269) (24,935,360)
- -----------------------------------------------------------------------------------------------------------
Total distributions to Common Stockholders (32,965,836) (28,561,419)
- -----------------------------------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
Conversion of Notes to Common Stock 11,874,610 --
Reinvestment of distributions to Common Stockholders 21,871,618 18,526,484
Net proceeds from issuance of Preferred Stock -- 57,740,000
- -----------------------------------------------------------------------------------------------------------
Total capital stock transactions 33,746,228 76,266,484
- -----------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 112,394,252 102,866,321
NET ASSETS:
Beginning of year 441,836,672 338,970,351
- -----------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income
of $2,136,325 and $1,292,408, respectively) $554,230,924 $441,836,672
- -----------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
24 | THE ROYCE FUNDS ANNUAL REPORT 1997
<PAGE>
ROYCE VALUE TRUST, INC.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends $ 7,908,289
Interest 3,711,074
- -----------------------------------------------------------------------------------------------------------
Total Income 11,619,363
- -----------------------------------------------------------------------------------------------------------
Expenses:
Interest expense 1,974,665
Investment advisory fees 1,790,874
Administrative and office facilities expenses 250,877
Custodian and transfer agent fees 158,726
Amortization of underwriting discount and offering costs 152,372
Professional fees 132,358
Directors' fees 52,452
Other expenses 480,303
- -----------------------------------------------------------------------------------------------------------
Total Expenses 4,992,627
Fees Waived by Investment Adviser (76,186)
- -----------------------------------------------------------------------------------------------------------
Net Expenses 4,916,441
- -----------------------------------------------------------------------------------------------------------
Net Investment Income 6,702,922
- -----------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 29,196,786
Net change in unrealized appreciation on investments 80,620,819
- -----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 109,817,605
- -----------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS $116,520,527
- -----------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Investment income received $ 11,038,967
Interest paid on Notes (1,974,665)
Payment of operating expenses (2,721,123)
Purchases of investments (207,544,374)
Proceeds from sales and maturities of investments 218,425,820
- -----------------------------------------------------------------------------------------------------------
Cash provided from operating activities 17,224,625
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS USED FOR FINANCING ACTIVITIES:
Cash dividends and distributions paid (net of reinvestment) (15,894,396)
- -----------------------------------------------------------------------------------------------------------
Cash used for financing activities (15,894,396)
- -----------------------------------------------------------------------------------------------------------
Increase in Cash 1,330,229
- -----------------------------------------------------------------------------------------------------------
Cash at beginning of year --
- -----------------------------------------------------------------------------------------------------------
Cash at end of year $ 1,330,229
- -----------------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCREASE IN NET ASSETS FROM INVESTMENT
OPERATIONS TO CASH PROVIDED FROM OPERATING ACTIVITIES:
Net increase in net assets from investment operations $116,520,527
Net increase in investments (22,654,616)
Net increase in unrealized appreciation on investments (80,620,819)
Increase in dividends and interest receivable (580,396)
Decrease in receivable for investments sold 840,416
Accretion of offering costs on Notes 152,372
Increase in payable for investments purchased 3,436,213
Increase in accrued expenses and other assets 130,928
- -----------------------------------------------------------------------------------------------------------
Cash provided from operating activities $ 17,224,625
- -----------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
THE ROYCE FUNDS ANNUAL REPORT 1997 | 25
<PAGE>
ROYCE VALUE TRUST, INC.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
This table is presented to show selected data for a share of Common Stock
outstanding throughout each period, and to assist stockholders in evaluating
the Fund's performance for the periods presented.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1997 1996
--------------- -----------
<S> <C> <C>
Net Asset Value, Beginning of Period $14.32 $13.56
- ---------------------------------------------------------------------------------------------
Investment Operations (a):
Net investment income 0.21 0.26
Net realized and unrealized gain on investments 3.85 1.92
- ---------------------------------------------------------------------------------------------
Total from investment operations 4.06 2.18
- ---------------------------------------------------------------------------------------------
Dividends and Distributions to Preferred Stockholders:
Net investment income (0.03) (0.01)
Net realized gain on investments (0.15) (0.06)
- ---------------------------------------------------------------------------------------------
Total dividends and distributions to Preferred Stockholders (0.18) (0.07)
- ---------------------------------------------------------------------------------------------
Dividends and Distributions to Common Stockholders:
Net investment income (0.19) (0.15)
Net realized gain on investments (1.02) (1.00)
- ---------------------------------------------------------------------------------------------
Total dividends and distributions to Common Stockholders (1.21) (1.15)
- ---------------------------------------------------------------------------------------------
Capital Stock Transactions:
Effect of rights offerings or Preferred Stock offering -- (0.09)
Effect of reinvestment of distributions by Common Stockholders (0.08) (0.11)
- ---------------------------------------------------------------------------------------------
Total from capital stock transactions (0.08) (0.20)
- ---------------------------------------------------------------------------------------------
Net Asset Value, End of Period (a) $16.91 $14.32
- ---------------------------------------------------------------------------------------------
Market Value, End of Period $15.063 $12.625
- ---------------------------------------------------------------------------------------------
Total Return (b):
Net Asset Value (a) 27.5% 15.5%
Market Value 28.8% 16.3%
Ratios Based on Average Net Assets:
Total expenses 0.99% 1.20%
Net investment income 1.35% 1.19%
Ratios Based on Average Net Assets Applicable to Common Stockholders:
Total expenses (c) 1.12% 1.28%
Management fee expense 0.39% 0.39%
Interest expense 0.45% 0.64%
Other operating expenses 0.28% 0.25%
Net investment income 1.53% 1.27%
Supplemental Data:
Net Assets, End of Year (in thousands) $554,231 $441,837
Portfolio Turnover Rate 29% 34%
Average Commission Rate Paid+ $0.0605 $0.0574
Notes:
Total amount outstanding (in thousands) $27,801 $40,000
Asset coverage per note 2,091% 1,202%
Average market value per note (d) $107.69 $100.68
Preferred Stock:
Total shares outstanding 2,400,000 2,400,000
Asset coverage per share 662% 481%
Liquidation preference per share $25.00 $25.00
Average market value per share (d) $25.70 $25.20
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
------------- --------------- -----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $12.34 $13.47 $12.50
- -----------------------------------------------------------------------------------------------------------
Investment Operations (a):
Net investment income 0.04 0.04 0.09
Net realized and unrealized gain on investments 2.70 0.09 2.12
- -----------------------------------------------------------------------------------------------------------
Total from investment operations 2.74 0.13 2.21
- -----------------------------------------------------------------------------------------------------------
Dividends and Distributions to Preferred Stockholders:
Net investment income -- -- --
Net realized gain on investments -- -- --
- -----------------------------------------------------------------------------------------------------------
Total dividends and distributions to Preferred Stockholders -- -- --
- -----------------------------------------------------------------------------------------------------------
Dividends and Distributions to Common Stockholders:
Net investment income (0.03) (0.01) (0.09)
Net realized gain on investments (1.26) (1.04) (1.06)
- -----------------------------------------------------------------------------------------------------------
Total dividends and distributions to Common Stockholders (1.29) (1.05) (1.15)
- -----------------------------------------------------------------------------------------------------------
Capital Stock Transactions:
Effect of rights offerings or Preferred Stock offering (0.12) (0.14) (0.08)
Effect of reinvestment of distributions by Common Stockholders (0.11) (0.07)* (0.01)
- -----------------------------------------------------------------------------------------------------------
Total from capital stock transactions (0.23) (0.21) (0.09)
- -----------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year (a) $13.56 $12.34 $13.47
- -----------------------------------------------------------------------------------------------------------
Market Value, End of Year $11.875 $11.000 $12.875
- -----------------------------------------------------------------------------------------------------------
Total Return (b):
Net Asset Value (a) 22.6% 1.1% 17.9%
Market Value 20.5% (5.6)% 14.8%
Ratios Based on Average Net Assets:
Total expenses 2.01% 2.01% 1.33%
Net investment income 0.34% 0.31% 0.74%
Ratios Based on Average Net Assets Applicable to Common Stockholders:
Total expenses (c) 2.01% 2.01% 1.33%
Management fee expense 0.97% 1.21% 1.09%
Interest expense 0.75% 0.46% --
Other operating expenses 0.29% 0.34% 0.24%
Net investment income 0.34% 0.31% 0.74%
Supplemental Data:
Net Assets, End of Year (in thousands) $338,970 $269,032 $246,558
Portfolio Turnover Rate 32% 35% 33%
Average Commission Rate Paid+ -- -- --
Notes:
Total amount outstanding (in thousands) $40,000 $40,000 --
Asset coverage per note 944% 769% --
Average market value per note (d) $96.92 $95.62 --
Preferred Stock:
Total shares outstanding -- -- --
Asset coverage per share -- -- --
Liquidation preference per share -- -- --
Average market value per share (d) -- -- --
</TABLE>
- --------------------------------------------------------------------------------
(a) Commencing June 21, 1995, Net Asset Value per share, Net Asset Value Total
Returns and Income from Investment Operations are calculated assuming the
Notes are fully converted except when the effect of doing so results in a
higher Net Asset Value per share than would be 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 rights
offerings.
(c) Expense ratios based on average net assets applicable to Common Stockholders
before waiver of fees by the investment adviser would have been 1.14%,
1.31%, 2.04% and 2.02% for the years ended December 31, 1997, 1996, 1995 and
1994, respectively.
(d) The average of all month-end market values during the period.
* Includes distributions paid January 31, 1994 and distributions paid
December 30, 1994.
+ Beginning in 1996, the Fund is required to disclose its average commission
rate paid per share for purchases and sales of investments.
26 | THE ROYCE FUNDS ANNUAL REPORT 1997
<PAGE>
ROYCE VALUE TRUST, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Summary of Significant Accounting Policies:
Royce Value Trust, Inc. (the "Fund") was incorporated under the laws of
the State of Maryland on July 1, 1986 as a diversified closed-end investment
company. The Fund commenced operations on November 26, 1986.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the
reporting period. Actual results could differ from those estimates.
Valuation of investments:
Securities listed on an exchange or on the Nasdaq National Market System
are valued on the basis of the last reported sale prior to the time the
valuation is made or, if no sale is reported for such day, at their bid price
for exchange-listed securities and at the average of their bid and asked
prices for Nasdaq securities. Quotations are taken from the market where the
security is primarily traded. Other over-the-counter securities for which
market quotations are readily available are valued at their bid price.
Securities for which market quotations are not readily available are valued at
their fair value under procedures established and supervised by the Fund's
Board of Directors. Bonds and other fixed income securities may be valued by
reference to other securities with comparable ratings, interest rates and
maturities, using established independent pricing services.
Investment transactions and related investment income:
Investment transactions are accounted for on the trade date and dividend
income is recorded on the ex-dividend date. Interest income is recorded on the
accrual basis. Realized gains and losses from investment transactions and
unrealized appreciation and depreciation of investments are determined on the
basis of identified cost for book and tax purposes.
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 will be made at the annual rate of 9% of
the rolling average of the prior four calendar quarter-end NAVs of the Fund's
Common Stock, with the fourth quarter distribution being the greater of 2.25%
of the rolling average or the distribution required by IRS regulations.
Distributions paid to Preferred Stockholders are recorded on an accrual basis
and paid annually. Distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
Permanent book and tax basis differences relating to stockholder distributions
will result in reclassifications within the capital accounts. Undistributed
net investment income may include temporary book and tax basis differences
which will reverse in a subsequent period. Any taxable income or gain
remaining at fiscal year end is 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 are held by SSB&T until maturity of the repurchase
agreements. Repurchase agreements could involve certain risks in the event of
default or insolvency of SSB&T, including possible delays or restrictions upon
the ability of the Fund to dispose of the underlying securities.
Investment Company Convertible Notes:
The Fund issued $40,000,000 aggregate principal amount of Investment
Company Convertible Notes ("Notes") on June 22, 1994 and received proceeds of
$38,350,000 after the deduction of the underwriting discount and offering
costs incurred by the Fund ($1,200,000 and $450,000, respectively), which are
being accreted on a straight line basis over the term of the Notes.
The Notes, which are unsecured obligations of the Fund, were scheduled to
mature on June 30, 2004 and bear interest payable on June 30 and December 31
of each year at the rate of 5-3/4% per annum. On December 15, 1997, the Fund
called the Notes for redemption on February 5, 1998 (the "Redemption Date") at
a redemption price equal to 100% of the principal amount of each Note plus
accrued unpaid interest to the Redemption Date.
The Notes are convertible into shares of Common Stock of the Fund, at the
option of the holder, at any time prior to the Redemption Date. The conversion
price at December 31, 1997 was $13.17 per share.
THE ROYCE FUNDS ANNUAL REPORT 1997 | 27
<PAGE>
ROYCE VALUE TRUST, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Under the Investment Company Act of 1940, the Fund is required to maintain
an asset coverage of at least 300% for the Notes. In addition, the Indenture
governing the Notes requires the Fund to maintain a certain discounted asset
coverage for its portfolio that equals or exceeds the Basic Maintenance Amount
under the guidelines established by Moody's. The Fund has met these
requirements since the issuance of the Notes.
Capital Stock:
On August 23, 1996, the Fund issued and sold 2,400,000 shares of its 8%
Cumulative Preferred Stock. The stock has a liquidation preference of $25.00
per share plus an amount equal to accumulated and unpaid dividends to the date
of distribution.
Dividends on the Cumulative Preferred Stock are payable when, as and if
declared by the Board of Directors of the Fund, out of funds legally
available, annually on December 23 in each year to the holders of record on
the preceding December 6.
The Fund is required to allocate long-term capital gain distributions and
other types of income proportionately among holders of shares of Common Stock,
Preferred Stock and Noteholders (to the extent they receive constructive
distributions). To the extent that dividends on the shares of Preferred Stock
are not paid from long-term capital gains, they will be paid from ordinary
income or net short-term capital gains or will represent a return of capital.
Under the Investment Company Act of 1940, the Fund is required to maintain
an asset coverage of at least 200% for the Preferred Stock. In addition,
pursuant to the Rating Agency Guidelines, the Fund is required to maintain a
certain discounted asset coverage for its portfolio that equals or exceeds the
Basic Maintenance Amount under the guidelines established by Moody's. The Fund
has met these requirements since the issuance of the Preferred Stock.
The Fund issued 1,422,952 and 1,512,360 shares of Common Stock as
reinvestment of dividends and distributions by Common Stockholders for the
years ended December 31, 1997 and 1996, respectively. During 1997, the Fund
issued 937,268 shares of Common Stock upon conversion of Notes.
Investment Advisory Agreement:
As compensation for its services under the Investment Advisory Agreement,
Royce & Associates, Inc. ("Royce") (formerly Quest Advisory Corp.) receives a
fee comprised of a Basic Fee (the "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 Stock Price Index ("S&P 600"). Prior
to July 1, 1996, the Fund's investment performance was measured against the
record of the S&P 500 index over a rolling period of 36 months. The Investment
Advisory Agreement provides that, for the 18 month period from July 1, 1996 to
December 31, 1997, the monthly fee payable to Royce was the lower of the fee
calculated under it or the fee that would have been payable to Royce for the
month involved under the prior investment advisory agreement.
The Basic Fee is a monthly fee equal to 1/12 of 1% (1% on an annualized
basis) of the average of the net assets of the Fund at the end of each month
included in the applicable performance period. The performance period for each
such month is from July 1, 1996 to the most recent month-end, until the
Investment Advisory Agreement has been in effect for 60 full calendar months,
when it will become a rolling 60 month period ending with the most recent
calendar month.
The Basic Fee for each such month may be increased or decreased at the
rate of 1/12 of .05% per percentage point, depending on the extent, if any, by
which the investment performance of the Fund exceeds by more than two
percentage points, or is exceeded by more than two percentage points by, the
percentage change in the investment record of the S&P 600 for the performance
period. The maximum increase or decrease in the Basic Fee for any month may
not exceed 1/12 of .5%. Accordingly, for each month, the maximum monthly fee
rate as adjusted for performance is 1/12 of 1.5% and is payable if the
investment performance of the Fund exceeds the percentage change in the
investment record of the S&P 600 by 12 or more percentage points for the
performance period, and the minimum monthly fee rate as adjusted for
performance is 1/12 of .5% and is payable if the percentage change in the
investment record of the S&P 600 exceeds the investment performance of the
Fund by 12 or more percentage points for the performance period.
Notwithstanding the foregoing, Royce is not entitled to receive any fee
for any month when the investment performance of the Fund for the rolling 36
month period ending with such month is negative on an absolute basis. In the
event that the Fund's investment performance for such a performance period is
less than zero, Royce will not be required to refund to the Fund any fee
earned in respect of any prior performance period.
Royce has committed to voluntarily waive the portion of its investment
advisory fee attributable to the Fund's Preferred Stock for any month when the
Fund's average annual NAV total return from the date of the Preferred Stock's
original issue fails to exceed the Preferred Stock dividend rate during that
period.
For the year ended December 31, 1997, the Fund accrued and paid Royce
advisory fees totaling $1,714,688, which is net of $76,186 voluntarily waived
by Royce.
28 | THE ROYCE FUNDS ANNUAL REPORT 1997
<PAGE>
ROYCE VALUE TRUST, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Purchases and Sales of Investment Securities:
For the year ended December 31, 1997, the cost of purchases and proceeds
from sales of investment securities, other than short-term securities, amounted
to $208,780,587 and $142,822,757, respectively.
Transactions in Shares of Affiliated Companies:
An "Affiliated Company", as defined in the Investment Company Act of 1940,
is a company in which the Fund owns at least 5% of the company's outstanding
voting securities. The Fund effected the following transactions in shares of
such companies during the year ended December 31, 1997.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
PURCHASES SALES
---------------------- ---------------------
REALIZED DIVIDEND
AFFILIATED COMPANY SHARES COST SHARES COST GAIN/LOSS INCOME
- --------------------------------- -------- ----------- -------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Allen Organ Company Cl. B -- -- 79,169 $2,849,891 $231,976 $22,167
General Builders Corporation -- -- -- -- -- --
K-Swiss Cl. A -- -- -- -- -- $14,232
Peerless Mfg. 21,500 $215,000 -- -- -- $34,275
Sage Laboratories 5,000 $ 65,625 1,000 $ 13,125 $ (375) $10,400
Sevenson Environmental Services 57,400 $909,724 -- -- -- $27,654
- --------------------------------------------------------------------------------------------------------------
</TABLE>
THE ROYCE FUNDS ANNUAL REPORT 1997 | 29
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Board of Directors and Stockholders of Royce Value Trust, Inc.
We have audited the accompanying statement of assets and liabilities of
Royce Value Trust, Inc., including the schedule of investments, as of December
31, 1997, and the related statement of operations and cash flows for the year
then ended, the statement of changes in net assets for each of the two years in
the period then ended and the financial highlights for each of the three years
in the period then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits. The financial highlights for the two years in the period ended
December 31, 1994 were audited by other auditors whose report dated February
13, 1995 expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1997, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above and audited by us present fairly, in all material respects, the
financial position of Royce Value Trust, Inc. at December 31, 1997, the results
of its operations and its cash flows for the year then ended, the changes in
its net assets for each of the two years in the period then ended and the
financial highlights for each of the three years in the period then ended, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
February 10, 1998
30 | THE ROYCE FUNDS ANNUAL REPORT 1997
<PAGE>
ROYCE MICRO-CAP TRUST, INC.
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS DECEMBER 31, 1997
- --------------------------------------------------------------------------------
COMMON STOCKS -- 79.4%
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Consumer Products -- 13.6%
Baldwin Piano & Organ Company* 42,300 $ 660,937
Bassett Furniture Industries,
Incorporated 52,800 1,584,000
Conso Products* 62,000 472,750
Garan Incorporated 53,200 1,369,900
Gibson Greetings* 37,000 809,375
Golden Enterprises 70,600 476,550
Haggar 20,000 315,000
Johnson Worldwide Associates Cl. A* 67,100 1,182,638
Juno Lighting 57,500 1,006,250
K-Swiss Cl. A 27,800 451,750
Kit Manufacturing* 32,000 218,000
**Kleinert's* 14,200 243,175
Lazare Kaplan International* 37,500 506,250
Lifetime Hoan Corporation 120,054 1,185,533
Matthews International
Corporation Cl. A 53,000 2,332,000
Mity-Lite* 14,200 287,550
Oshkosh B'Gosh Cl. A 63,600 2,098,800
The Rival Company 34,000 446,250
Skyline Corporation 32,100 882,750
The Smithfield Companies 40,400 477,225
Steck-Vaughn Publishing
Corporation* 42,881 632,495
Thomaston Mills Cl. A 100,000 925,000
Thor Industries 36,800 1,262,700
The Topps Company* 227,300 504,322
Toy Biz* 102,400 793,600
Velcro Industries 18,300 1,756,800
Wellco Enterprises 25,500 350,625
Weyco Group 68,400 1,547,550
------------
24,779,775
------------
Consumer Services -- 1.9%
Apple Orthodontix Cl. A* 47,900 568,812
IHOP* 10,000 325,000
Jenny Craig* 57,000 431,062
MovieFone Cl. A* 160,100 1,080,675
Plenum Publishing Corporation 22,100 1,022,125
------------
3,427,674
------------
Financial Intermediaries -- 10.8%
ALLIED Life Financial Corporation 45,000 984,375
BHI Corporation 48,400 1,488,300
Baldwin & Lyons Cl. B 28,024 676,079
Capitol Transamerica Corporation 32,265 687,648
Desert Community Bank 11,300 337,587
Gryphon Holdings* 38,200 639,850
Hanmi Bank* 5,209 93,762
Independence Holding Company 35,800 429,600
Intercargo Corporation 77,500 1,026,875
Iron and Glass Bancorp 17,000 756,500
Lawyers Title Corporation 47,500 1,493,281
Medical Assurance* 31,698 891,506
NYMAGIC 40,400 1,113,525
Nobel Insurance Limited 87,700 1,151,062
Old Guard Group 66,300 1,267,988
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Oriental Financial Group 33,050 $ 977,041
PXRE Corporation 62,364 2,069,705
Pennsylvania Manufacturers
Corporation Cl. A 56,609 905,744
Piper Jaffray Companies 14,400 524,700
Queen City Investments* 948 348,864
Trenwick Group 16,650 626,456
Wellington Underwriting 515,770 1,253,785
------------
19,744,233
------------
Financial Services -- 3.7%
E.W. Blanch Holdings 28,200 971,138
Duff & Phelps Credit Rating Co. 55,000 2,234,375
Eaton Vance 27,200 1,026,800
Hilb, Rogal & Hamilton Company 50,300 971,419
Investors Financial Services
Corporation 8,045 370,070
Phoenix Duff & Phelps
Corporation 156,000 1,248,000
------------
6,821,802
------------
Health -- 1.0%
Hauser* 29,500 177,000
International Isotopes* 95,900 839,125
Nitinol Medical Technologies* 92,400 739,200
------------
1,755,325
------------
Industrial Products -- 18.3%
AFC Cable Systems* 19,750 587,563
Alamo Group 12,800 277,600
Aldila* 213,200 932,750
American Buildings Company* 35,700 901,425
[dbldag]Art's-Way Manufacturing* 94,000 893,000
Ash Grove Cement Company 20,000 1,380,000
Atchison Casting Corporation* 40,000 650,000
BHA Group Holdings 71,921 1,402,460
Blessings Corporation* 47,800 705,050
CFC International* 78,200 918,850
Carbo Ceramics 36,700 1,174,400
Chemfab Corporation* 80,700 1,654,350
Curtiss-Wright Corporation 35,000 1,270,937
DeVlieg-Bullard* 94,000 358,375
Fab Industries 42,500 1,322,812
Falcon Products 71,700 1,017,244
Hawkins Chemical 112,067 1,295,775
C. H. Heist* 42,000 288,750
International Aluminum
Corporation 19,300 603,125
LSI Industries 25,900 472,675
Liqui-Box Corporation 15,000 603,750
Midwest Grain Products* 89,322 1,116,525
The Monarch Cement Company 30,210 626,858
Paul Mueller Company 16,650 641,025
Myers Industries 52,690 899,023
NN Ball and Roller 55,400 491,675
Northwest Pipe Company* 23,900 573,600
Oshkosh Truck Corporation Cl. B 47,100 850,744
Peerless Mfg. 21,600 234,900
Penn Engineering and
Manufacturing 54,700 1,312,800
</TABLE>
THE ROYCE FUNDS ANNUAL REPORT 1997 | 31
<PAGE>
ROYCE MICRO-CAP TRUST, INC.
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Industrial Products -- (continued)
Penn Engineering and
Manufacturing Cl. A 11,900 $ 296,012
Pioneer Metals* 1,570 416,050
Puerto Rican Cement Company 34,300 1,721,431
Simpson Manufacturing* 51,100 1,702,269
Special Metals Corporation* 58,000 1,044,000
Sun Hydraulics Corporation 53,000 636,000
Synalloy Corporation 56,800 837,800
**Thermal Industries* 58,700 880,500
Todd Shipyards Corporation* 26,400 110,550
Vertex Communications* 10,000 241,250
------------
33,343,903
------------
Industrial Services -- 10.3%
Aceto Corporation 34,250 702,125
AirNet Systems* 60,600 1,302,900
Guy F. Atkinson Company* 212,400 292,050
Circle International Group 18,500 424,344
Cornell Corrections* 61,200 1,269,900
Dailey International* 48,400 526,350
Devcon International* 1,000 4,875
Devon Group* 7,500 345,000
Ennis Business Forms 77,900 720,575
The Failure Group* 58,200 611,100
Farmer Bros. 5,000 935,000
Frozen Food Express Industries 138,500 1,246,500
Insituform Technologies Cl. A* 87,400 677,350
Kenan Transport Company 26,400 966,900
Merrill Corporation 40,800 948,600
New England Business Service 60,300 2,035,125
Rush Enterprises* 15,900 127,200
Sevenson Environmental Services 125,120 1,532,720
Standard Commercial Corporation* 62,022 1,027,239
Tyler Corporation* 93,600 514,800
Vallen Corporation* 55,500 1,151,625
Willbros Group* 92,900 1,393,500
------------
18,755,778
------------
Natural Resources -- 2.2%
FRP Properties* 27,700 869,087
Florida Rock Industries 55,000 1,251,250
MK Gold Company* 291,600 437,400
PetroCorp Incorporated* 119,200 983,400
Titan Exploration* 60,000 570,000
------------
4,111,137
------------
Retail -- 3.0%
Brookstone* 33,000 412,500
Catherines Stores Corporation* 136,700 956,900
Cato Corporation Cl. A 103,700 920,338
Lillian Vernon Corporation 24,900 413,962
Sterling Electronics Corporation* 22,800 475,950
Suzy Shier 156,800 1,152,094
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Urban Outfitters* 60,000 $ 1,095,000
------------
5,426,744
------------
Technology -- 9.7%
Axiohm Transaction Solutions* 73,890 1,256,130
BGS Systems 43,000 1,505,000
CEM Corporation* 75,700 830,334
CSP* 88,400 707,200
Cerprobe Corporation* 18,500 321,438
Control Devices* 66,666 1,066,656
Electroglas* 40,200 620,588
Giga-tronics Incorporated* 22,982 224,074
ILC Technology* 89,200 1,296,188
Integral Systems* 46,200 629,475
Kronos Incorporated* 37,300 1,149,306
Landauer 32,300 904,400
MacNeal-Schwendler Corporation* 125,500 1,207,938
Modern Controls 36,900 405,900
Newport Corporation 60,300 847,969
Printronix* 10,000 169,375
Rainbow Technologies* 43,200 1,252,800
Richardson Electronics 124,500 1,385,062
Sage Laboratories 9,500 121,125
Watkins-Johnson Company 20,000 518,750
Woodhead Industries 67,900 1,273,125
------------
17,692,833
------------
Miscellaneous -- 4.9% 8,991,888
------------
TOTAL COMMON STOCKS
(Cost $102,711,404) 144,851,092
------------
U.S. TREASURY PRINCIPAL
OBLIGATIONS -- 5.6% AMOUNT
U.S. Treasury Notes
6.25%, due 8/31/00 $5,000,000 5,067,200
6.25%, due 8/31/02 5,000,000 5,102,350
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $10,015,235) 10,169,550
------------
REPURCHASE AGREEMENT -- 15.1%
State Street Bank & Trust Company,
5.15% dated 12/31/97, due 1/02/98,
maturity value $27,507,868
(collaterized by U.S. Treasury Notes,
5.875% due 8/31/99, valued at $28,054,866)
(Cost $27,500,000) 27,500,000
------------
TOTAL INVESTMENTS -- 100.1%
(Cost $140,226,639) 182,520,642
LIABILITIES LESS CASH AND
OTHER ASSETS -- (0.1)% (158,997)
------------
NET ASSETS -- 100.0% $182,361,645
------------
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing.
** Two securities for which market quotations are no longer readily available
represent 0.62% of net assets. These securities have been valued in good
faith by the Board of Directors.
[dbldag] At December 31, 1997, The Fund owned 5% or more of the Company's
outstanding shares thereby making the Company an Affiliated Company as that
term is defined in the Investment Company Act of 1940.
Income Tax Information: The cost of total investments for federal income tax
purposes was $140,226,639. At December 31, 1997, net unrealized appreciation
for all securities was $42,294,003, consisting of aggregate gross unrealized
appreciation of $44,622,257 and aggregate gross unrealized depreciation of
$2,328,254.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
32 | THE ROYCE FUNDS ANNUAL REPORT 1997
<PAGE>
ROYCE MICRO-CAP TRUST, INC.
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments at value (identified cost $112,726,639) $155,020,642
Repurchase agreement (at cost and value) 27,500,000
Cash 31,898
Receivable for dividends and interest 366,738
Receivable for investments sold 150,108
Prepaid expenses and other assets 12,665
- ---------------------------------------------------------------------------------------------------------
Total Assets 183,082,051
- ---------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 458,580
Preferred dividend accrued but not yet declared 68,889
Payable for investment advisory fee 50,114
Payable for administration fee 10,791
Accrued expenses 132,032
- ---------------------------------------------------------------------------------------------------------
Total Liabilities 720,406
- ---------------------------------------------------------------------------------------------------------
Net Assets $182,361,645
- ---------------------------------------------------------------------------------------------------------
Net Assets applicable to Preferred Stock at a liquidation value of $25 per share $ 40,000,000
- ---------------------------------------------------------------------------------------------------------
Net Assets applicable to Common Stock (net asset value per share -- $10.84) $142,361,645
- ---------------------------------------------------------------------------------------------------------
SUMMARY OF STOCKHOLDERS' EQUITY:
7.75% Cumulative Preferred Stock -- par value $0.001 per share; 1,600,000 shares $ 1,600
outstanding
Common Stock -- par value $0.001 per share; 13,129,779 shares outstanding (150,000,000 13,130
shares authorized)
Additional paid-in capital 136,302,534
Undistributed net investment income 180,733
Accumulated net realized gain on investments and foreign currency 3,638,519
Preferred dividend accrued but not yet declared (68,889)
Net unrealized appreciation on investments and foreign currency 42,294,018
- ---------------------------------------------------------------------------------------------------------
Net Assets $182,361,645
- ---------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
INVESTMENT OPERATIONS: ------------------- ------------------
<S> <C> <C>
Net investment income $ 2,268,785 $ 947,752
Net realized gain on investments and foreign currency 10,619,371 12,128,883
Net change in unrealized appreciation on investments and
foreign currency 21,021,456 2,989,227
- ---------------------------------------------------------------------------------------------------------
Net increase in net assets from investment operations 33,909,612 16,065,862
- ---------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income (242,787) --
Net realized gain on investments and foreign currency (1,298,601) --
Preferred dividend accrued but not yet declared (68,889) --
- ---------------------------------------------------------------------------------------------------------
Total distributions to Preferred Stockholders (1,610,277) --
- ---------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS
Net investment income (1,914,145) (1,125,801)
Net realized gain on investments and foreign currency (10,239,254) (7,880,607)
- ---------------------------------------------------------------------------------------------------------
Total distributions to Common Stockholders (12,153,399) (9,006,408)
- ---------------------------------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
Reinvestment of distributions to Common Stockholders 9,762,687 6,828,202
Net proceeds from issuance of Preferred Stock 38,500,000 --
- ---------------------------------------------------------------------------------------------------------
Total capital stock transactions 48,262,687 6,828,202
- ---------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 68,408,623 13,887,656
NET ASSETS:
Beginning of year 113,953,022 100,065,366
- ---------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income of
$180,733 in 1997 and dividends in excess of net investment
income of $152,608 in 1996.) $182,361,645 $113,953,022
- ---------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
THE ROYCE FUNDS ANNUAL REPORT 1997 | 33
<PAGE>
ROYCE MICRO-CAP TRUST, INC.
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends $ 1,960,444
Interest 1,379,473
- ---------------------------------------------------------------------------------------------
Total Income 3,339,917
- ---------------------------------------------------------------------------------------------
Expenses:
Investment advisory fees 514,246
Administration fees 118,696
Custodian and transfer agent fees 86,200
Administrative and office facilities expenses 73,871
Professional fees 55,739
Directors' fees 23,571
Other expenses 198,809
- ---------------------------------------------------------------------------------------------
Total Expenses 1,071,132
- ---------------------------------------------------------------------------------------------
Net Investment Income 2,268,785
- ---------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN
CURRENCY:
Net realized gain on investments and foreign currency 10,619,371
Net change in unrealized appreciation on investments and foreign currency 21,021,456
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign currency 31,640,827
- ---------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS $33,909,612
- ---------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
34 | THE ROYCE FUNDS ANNUAL REPORT 1997
<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>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995 1994
--------------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $9.38 $8.89 $7.58 $7.27
- ---------------------------------------------------------------------------------------------------------------------------
Investment Operations:
Net investment income 0.17 0.09 0.02 0.01
Net realized and unrealized gain on investments and
foreign currency 2.61 1.32 1.69 0.41
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.78 1.41 1.71 0.42
- ---------------------------------------------------------------------------------------------------------------------------
Dividends and Distributions to Preferred Stockholders:
Net investment income (0.02) -- -- --
Net realized gain on investments and foreign currency (0.12) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions to Preferred Stockholders (0.14) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Dividends and Distributions to Common Stockholders:
Net investment income (0.16) (0.10) (0.02) (0.02)
Net realized gain on investments and foreign currency (0.84) (0.70) (0.34) (0.03)
- ---------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions to Common Stockholders (1.00) (0.80) (0.36) (0.05)
- ---------------------------------------------------------------------------------------------------------------------------
Capital Stock Transactions:
Effect of rights offerings or Preferred Stock offering (0.12) -- -- (0.06)
Effect of reinvestment of distributions by Common Stockholders (0.06) (0.12) (0.04) --
- ---------------------------------------------------------------------------------------------------------------------------
Total from capital stock transactions (0.18) (0.12) (0.04) (0.06)
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $10.84 $9.38 $8.89 $7.58
- ---------------------------------------------------------------------------------------------------------------------------
Market Value, End of Period $10.125 $8.25 $8.00 $7.00
- ---------------------------------------------------------------------------------------------------------------------------
Total Return (a):
Net Asset Value 27.1% 16.6% 22.9% 6.0%
Market Value 35.0% 13.9% 19.8% (5.1)%
Ratios Based on Average Net Assets:
Total expenses 0.72% 0.85% 1.36% 1.88%
Net investment income (loss) 1.53% 0.88% 0.26% 0.21%
Ratios Based on Average Net Assets Applicable to Common Stockholders:
Total expenses (b) 0.83% 0.85% 1.36% 1.88%
Management fee expense 0.40% 0.47% 0.77% 1.20%
Other operating expenses 0.43% 0.38% 0.59% 0.68%
Net investment income (loss) 1.77% 0.88% 0.26% 0.21%
Supplemental Data:
Net Assets, End of Period (in thousands) $182,362 $113,953 $100,065 $82,534
Portfolio Turnover Rate 34% 51% 51% 23%
Average Commission Rate Paid+ $0.0549 $ 0.0485 -- --
Preferred Stock:
Total shares outstanding 1,600,000 -- -- --
Asset coverage per share 456% -- -- --
Liquidation preference per share $25.00 -- -- --
Average market value per share (c) $25.56 -- -- --
<CAPTION>
FOR THE PERIOD
DECEMBER 14, 1993*
THROUGH
DECEMBER 31, 1993
-------------------
<S> <C>
Net Asset Value, Beginning of Period $7.25
- --------------------------------------------------------------------------------
Investment Operations:
Net investment income --
Net realized and unrealized gain on investments 0.02
- --------------------------------------------------------------------------------
Total from investment operations 0.02
- --------------------------------------------------------------------------------
Dividends and Distributions to Preferred Stockholders:
Net investment income --
Net realized gain on investments --
- --------------------------------------------------------------------------------
Total dividends and distributions to Preferred Stockholders --
- --------------------------------------------------------------------------------
Dividends and Distributions to Common Stockholders:
Net investment income --
Net realized gain on investments --
- --------------------------------------------------------------------------------
Total dividends and distributions to Common Stockholders --
- --------------------------------------------------------------------------------
Capital Stock Transactions:
Effect of rights offerings or Preferred Stock offering --
Effect of reinvestment of distributions by Common Stockholders --
- --------------------------------------------------------------------------------
Total from capital stock transactions --
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $7.27
- --------------------------------------------------------------------------------
Market Value, End of Period $7.50
- --------------------------------------------------------------------------------
Total Return (a):
Net Asset Value 0.3%
Market Value 0.0%
Ratios Based on Average Net Assets:
Total expenses 1.92%**
Net investment income (loss) (0.06)%**
Ratios Based on Average Net Assets Applicable to Common Stockholders:
Total expenses (b) 1.92%**
Management fee expense 0.00%
Other operating expenses 1.92%**
Net investment income (loss) (0.06)%**
Supplemental Data:
Net Assets, End of Period (in thousands) $71,126
Portfolio Turnover Rate 0%
Average Commission Rate Paid+ --
Preferred Stock:
Total shares outstanding --
Asset coverage per share --
Liquidation preference per share --
Average market value per share (c) --
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations.
** Annualized.
(a) The Net Asset Value and Market Value Total Returns assume a
continuous Common Stockholder who reinvested all net investment
income dividends and capital gain distributions and fully
participated in primary rights offerings.
(b) Presented after waiver by the Investment Adviser and Administrator.
For the period ended December 31, 1993, the ratio of expenses to
average net assets would have been 2.12%, absent such waivers.
(c) The average of all month-end market values during the period.
+ Beginning in 1996, the Fund is required to disclose its average
commission rate paid per share for purchases and sales of investments.
THE ROYCE FUNDS ANNUAL REPORT 1997 | 35
<PAGE>
ROYCE MICRO-CAP TRUST, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Summary of Significant Accounting Policies:
Royce Micro-Cap Trust, Inc. ("Fund"), was incorporated under the laws of
the State of Maryland on September 9, 1993 as a diversified closed-end
investment company. The Fund commenced operations on December 14, 1993.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the
reporting period. Actual results could differ from those estimates.
Valuation of investments:
Securities listed on an exchange or on the Nasdaq National Market System
are valued on the basis of the last reported sale prior to the time the
valuation is made or, if no sale is reported for such day, at their bid price
for exchange-listed securities and at the average of their bid and asked
prices for Nasdaq securities. Quotations are taken from the market where the
security is primarily traded. Other over-the-counter securities for which
market quotations are readily available are valued at their bid price.
Securities for which market quotations are not readily available are valued at
their fair value under procedures established and supervised by the Fund's
Board of Directors. Bonds and other fixed income securities may be valued by
reference to other securities with comparable ratings, interest rates and
maturities, using established independent pricing services.
Foreign Currency:
The Fund does not isolate that portion of the results of operations which
result from changes in foreign exchange rates on investments from the portion
arising from changes in market prices of securities held. Such fluctuations
are included with net realized and unrealized gains and losses on investments.
Net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, expiration
of currency forward contracts, currency gains or losses realized between the
trade and settlement dates on securities transactions, the difference between
the amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books, and the U.S. dollar equivalent of the amounts actually
received or paid. Net unrealized foreign exchange gains and losses arise from
changes in the value of assets and liabilities, including investments in
securities at fiscal year end, as a result of changes in the exchange rates.
Investment transactions and related investment income:
Investment transactions are accounted for on the trade date and dividend
income is recorded on the ex-dividend date. Interest income is recorded on the
accrual basis. Realized gains and losses from investment transactions and
unrealized appreciation and depreciation of investments are determined on the
basis of identified cost for book and tax purposes.
Taxes:
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the extent
that it distributes substantially all of its taxable income for its fiscal
year. The Schedule of Investments includes information regarding income taxes
under the caption "Income Tax Information".
Distributions:
Distributions paid to Common Stockholders are recorded on the ex-dividend
date and paid annually in December. Distributions paid to Preferred
Stockholders are recorded on an accrual basis and paid quarterly.
Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. Permanent book and
tax basis differences relating to stockholder distributions will result in
reclassifications within the capital accounts. Undistributed net investment
income may include temporary book and tax basis differences which will reverse
in a subsequent period. Any taxable income or gain remaining at fiscal year
end is 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 are held by SSB&T until maturity of the repurchase
agreement. 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.
Organizational expenses:
Costs of $70,000 incurred by the Fund in connection with its organization
have been deferred and are being amortized on a straight line basis over a
five year period from the date the Fund commenced operations.
36 | THE ROYCE FUNDS ANNUAL REPORT 1997
<PAGE>
ROYCE MICRO-CAP TRUST, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Investment Advisory Agreement:
As compensation for its services under the Investment Advisory Agreement,
Royce & Associates, Inc. ("Royce") (formerly Quest Advisory Corp.) receives a
fee comprised of a basic fee ("Basic Fee") and an adjustment to the Basic Fee
based on the investment performance of the Fund in relation to the investment
record of the Russell 2000 index for certain prescribed performance periods,
as described below.
The Basic Fee is a monthly fee equal to 1/12 of 1% (1% on an annualized
basis) of the average of the net assets of the Fund at the end of each month
included in the applicable performance period. The performance period for each
such month is from January 1, 1997 to the most recent month-end, until the
Investment Advisory Agreement has been in effect for 36 full calendar months,
when the performance period will become a rolling 36 month period ending with
such month.
The Basic Fee for each such month may be increased or decreased at the
rate of 1/12 of .5% per percentage point, depending on the extent, if any, by
which the investment performance of the Fund exceeds by more than two
percentage points, or is exceeded by more than two percentage points by, the
percentage change in the investment record of the Russell 2000 index for the
performance period. The maximum increase or decrease in the Basic Fee for any
month may not exceed 1/12 of .5%. Accordingly, for each month, the maximum
monthly fee rate as adjusted for performance is 1/12 of 1.5% and would be
payable if the investment performance of the Fund exceeded the percentage
change in the investment record of the Russell 2000 index by 12 or more
percentage points for the performance period, and the minimum monthly fee rate
as adjusted for performance is 1/12 of .5% and would be payable if the
percentage change in the investment record of the Russell 2000 index exceeded
the investment performance of the Fund by 12 or more percentage points for the
performance period.
In order to avoid the impact of short-term differences between the
investment performance of the Fund and the record of the Russell 2000 Index,
Royce will not collect any accrued portion of the Basic Fee, as adjusted for
performance, in excess of .5% until January 1998.
The present Investment Advisory Agreement replaced a similar investment
advisory agreement between the Fund and Royce, under which the Fund's
investment performance was measured against the record of the Nasdaq Composite
over a rolling period of up to 36 months. The present Investment Advisory
Agreement provides that, for the 18 month period from January 1, 1997 to June
30, 1998, the monthly fee payable to Royce will be the lower of the fee
calculated under such Agreement or the fee that would have been payable to
Royce for the month involved under the prior agreement.
Royce has committed to voluntarily waive the portion of its investment
advisory fee attributable to the Fund's Preferred Stock for any month when the
Fund's average annual NAV total return from the date of the Preferred Stock's
original issue fails to exceed the Preferred Stock dividend rate during that
period.
For the year ended December 31, 1997, the Fund accrued and paid Royce
advisory fees totaling $514,246.
Administration Agreement:
Under an Administration Agreement with the Fund, Mitchell Hutchins Asset
Management Inc. (the "Administrator") serves as the Administrator, and
performs or assists in certain aspects of the Fund's operations. As
compensation for its services, the Administrator is paid an annual fee,
payable monthly, of $50,000 plus 0.05% on the first $125 million of the Fund's
average daily net assets, and 0.03% of average daily net assets exceeding $125
million.
Capital Stock:
On July 2, 1997, the Fund issued and sold 1,600,000 shares of its 7.75%
Cumulative Preferred Stock. The stock has a liquidation preference of $25.00
per share plus an amount equal to accumulated and unpaid dividends to the date
of distribution.
The Fund is required to allocate long-term capital gain distributions and
other types of income proportionately among 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, they will be paid from
ordinary income or net short-term capital gains or will represent a return of
capital.
Under the Investment Company Act of 1940, the Fund is required to maintain
an asset coverage of at least 200% for the Preferred Stock. In addition,
pursuant to the Rating Agency Guidelines, the Fund is required to maintain a
certain discounted asset coverage for its portfolio that equals or exceeds the
Basic Maintenance Amount under the guidelines established by Moody's. The Fund
has met these requirements since the issuance of the Preferred Stock.
The Fund issued 976,268 and 895,501 shares of Common Stock as reinvestment
of dividends and distributions by Common Stockholders for the years ended
December 31, 1997 and 1996, respectively.
THE ROYCE FUNDS ANNUAL REPORT 1997 | 37
<PAGE>
ROYCE MICRO-CAP TRUST, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Purchases and Sales of Investment Securities:
For the year ended December 31, 1997, the cost of purchases and proceeds
from sales of investment securities, other than short-term securities,
amounted to $63,625,104 and $43,498,118, respectively.
Transactions in Shares of Affiliated Companies:
An "Affiliated Company", as defined in the Investment Company Act of 1940
is a company in which the Fund owns at least 5% of the company's outstanding
voting securities. The Fund effected the following transactions in shares of
such companies during the year ended December 31, 1997.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
PURCHASES SALES
---------------------- -----------------
REALIZED
AFFILIATED COMPANY SHARES COST SHARES COST GAIN/LOSS DIVIDEND INCOME
- -------------------- -------- ----------- -------- ------ ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Art's Way
Manufacturing 70,000 $512,813 -- -- -- --
- -------------------------------------------------------------------------------------------------
</TABLE>
38 | THE ROYCE FUNDS ANNUAL REPORT 1997
<PAGE>
ROYCE MICRO-CAP TRUST, INC.
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Board of Directors and Stockholders of Royce Micro-Cap Trust, Inc.
We have audited the accompanying statement of assets and liabilities of
Royce Micro-Cap Trust, Inc. including the schedule of investments, as of
December 31, 1997, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the three years
ended December 31, 1997. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits. The financial highlights for the year ended December 31, 1994
and the period ended December 31, 1993, were audited by other auditors whose
report dated February 13, 1995, expressed an unqualified opinion on those
statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1997, by correspondence with custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above and audited by us present fairly, in all material respects, the
financial position of Royce Micro-Cap Trust, Inc. at December 31, 1997, the
results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended and the financial
highlights for each of the three years in the period then ended, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
February 10, 1998
THE ROYCE FUNDS ANNUAL REPORT 1997 | 39
<PAGE>
ROYCE GLOBAL TRUST, INC.
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS DECEMBER 31, 1997
- --------------------------------------------------------------------------------
COMMON STOCKS -- 67.4%
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Consumer Products -- 9.1%
Gibson Greetings* 63,500 $ 1,389,063
Johnson Worldwide Associates Cl. A* 43,700 770,212
Lazare Kaplan International* 52,800 712,800
Oakley* 77,100 698,719
Stanhome 40,200 1,032,638
Velcro Industries 19,200 1,843,200
-----------
6,446,632
-----------
Consumer Services -- 3.7%
International Dairy Queen Cl. A* 45,000 1,205,156
Ryanair Holdings ADR+ 56,000 1,407,000
-----------
2,612,156
-----------
Financial Intermediaries -- 7.7%
BHI Corporation 42,400 1,303,800
Leucadia National Corporation 54,200 1,869,900
PXRE Corporation 36,000 1,194,750
Trenwick Group 28,850 1,085,481
-----------
5,453,931
-----------
Financial Services -- 11.1%
Alliance Capital Management L.P. 25,000 995,312
E.W. Blanch Holdings 12,000 413,250
Duff & Phelps Credit Rating Co. 25,500 1,035,938
Arthur J. Gallagher & Co. 14,100 485,569
MacKenzie Financial Corporation 61,400 759,825
New England Investment
Companies, L.P. 15,000 429,375
Oppenheimer Capital, L.P.* 16,700 505,175
Pimco Advisors, L.P. Cl. A 25,000 754,687
The Pioneer Group 48,000 1,350,000
Willis Corroon Group ADR+ 89,700 1,104,431
-----------
7,833,562
-----------
Health -- 2.4%
Haemonetics Corporation* 53,800 753,200
Marquette Medical Systems* 22,500 599,062
Scotia Holdings* 75,000 335,070
-----------
1,687,332
-----------
Industrial Products -- 10.8%
BHA Group Holdings 4,730 92,235
Carbo Ceramics 22,000 704,000
Curtiss-Wright Corporation 15,000 544,688
Kaydon Corporation 20,000 652,500
The Lincoln Electric Company Cl. A 15,000 540,000
Nordson Corporation 9,800 449,575
Penn Engineering and
Manufacturing Cl. A 32,800 815,900
Puerto Rican Cement Company 21,400 1,074,012
Shorewood Packaging Corporation* 20,000 535,000
Simpson Manufacturing* 16,600 552,988
Unifi 29,500 1,200,281
Woodward Governor Company 16,000 518,000
-----------
7,679,179
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Industrial Services -- 11.7%
Air Express International
Corporation 5,500 $ 167,750
Circle International Group 19,600 449,575
DIMON Incorporated 23,600 619,500
Peter Kiewit Sons' Cl. D* 6,500 942,500
Morrison Knudsen Corporation* 88,200 859,950
The Olsten Corporation 30,000 450,000
Peak International Limited* 32,500 678,438
Pittston Burlington Group 32,500 853,125
Stone & Webster 25,200 1,181,250
Universal Corporation 20,000 822,500
Willbros Group* 86,400 1,296,000
-----------
8,320,588
-----------
Natural Resources -- 4.2%
CalMat 17,900 498,963
Denbury Resources* 44,800 834,400
MK Gold Company* 393,700 590,550
Vaal Reefs Explor. & Mining ADR + 135,000 518,906
Western Deep Levels ADR+ 30,000 558,750
-----------
3,001,569
-----------
Retail -- 2.7%
Sotheby's Holdings Cl. A 44,300 819,550
Suzy Shier 147,800 1,085,966
-----------
1,905,516
-----------
Technology -- 4.0%
MacNeal-Schwendler Corporation* 52,500 505,312
Marshall Industries* 39,300 1,179,000
National Computer Systems 32,100 1,131,525
-----------
2,815,837
-----------
TOTAL COMMON STOCKS
(Cost $39,496,021) 47,756,302
-----------
U.S. TREASURY PRINCIPAL
OBLIGATIONS -- 24.0% AMOUNT
U.S. Treasury Notes
7.125%, due 9/30/99 $2,000,000 2,047,500
5.75%, due 11/15/00 5,000,000 5,009,350
5.75%, due 10/31/02 5,000,000 5,004,700
5.625%, due 12/31/02 5,000,000 4,981,250
-----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $17,037,891) 17,042,800
-----------
REPURCHASE AGREEMENT -- 12.4%
State Street Bank & Trust Company,
5.15% dated 12/31/97, due 1/02/98,
maturity value $8,802,518
(collaterized by U.S. Treasury Notes,
5.875% due 8/31/99, valued at $8,980,418)
(Cost $8,800,000) 8,800,000
-----------
</TABLE>
40 | THE ROYCE FUNDS ANNUAL REPORT 1997
<PAGE>
ROYCE GLOBAL TRUST, INC.
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
<S> <C>
TOTAL INVESTMENTS -- 103.8%
(Cost $65,333,912) $ 73,599,102
LIABILITIES LESS CASH AND OTHER
ASSETS -- (3.8)% (2,706,341)
------------
NET ASSETS -- 100.0% $ 70,892,761
------------
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing.
+ American Depository Receipt.
Income Tax Information: The cost of total investments for federal income tax
purposes was $65,333,912. At December 31, 1997, net unrealized appreciation for
all securities was $8,265,190, consisting of aggregate gross unrealized
appreciation of $9,034,772 and aggregate gross unrealized depreciation of
$769,582.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
THE ROYCE FUNDS ANNUAL REPORT 1997 | 41
<PAGE>
ROYCE GLOBAL TRUST, INC.
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments at value (identified cost $56,533,912) $64,799,102
Repurchase agreement (at cost and value) 8,800,000
Cash 52,554
Receivable for dividends and interest 220,951
- --------------------------------------------------------------------------------------------------------
Total Assets 73,872,607
- --------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 2,718,424
Payable for investment advisory fee 61,396
Preferred dividend accrued but not yet declared 33,112
Accrued expenses 166,914
- --------------------------------------------------------------------------------------------------------
Total Liabilities 2,979,846
- --------------------------------------------------------------------------------------------------------
Net Assets $70,892,761
- --------------------------------------------------------------------------------------------------------
Net Assets applicable to Preferred Stock at a liquidation
value of $25 per share $20,000,000
- --------------------------------------------------------------------------------------------------------
Net Assets applicable to Common Stock (net asset value
per share -- $6.04) $50,892,761
- --------------------------------------------------------------------------------------------------------
SUMMARY OF STOCKHOLDERS' EQUITY:
7.45% Cumulative Preferred Stock -- par value $0.001 per
share; 800,000 shares outstanding $ 800
Common Stock -- par value $0.001 per share; 8,423,423
shares outstanding (100,000,000 shares authorized) 8,423
Additional paid-in capital 61,385,724
Undistributed net investment income 488,619
Accumulated net realized gain on investments and foreign currency 777,094
Preferred dividend accrued but not yet declared (33,112)
Net unrealized appreciation on investments and foreign currency 8,265,213
- --------------------------------------------------------------------------------------------------------
Net Assets $70,892,761
- --------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
INVESTMENT OPERATIONS: ------------------- ------------------
<S> <C> <C>
Net investment income $667,252 $ 760,943
Net realized gain on investments and foreign currency 2,063,873 3,733,788
Net change in unrealized appreciation on investments and
foreign currency 7,000,782 (1,218,086)
- --------------------------------------------------------------------------------------------------------
Net increase in net assets from investment operations 9,731,907 3,276,645
- --------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income (30,862) --
Net realized gain on investments and foreign currency (101,582) --
Preferred dividend accrued but not yet declared (33,112) --
- --------------------------------------------------------------------------------------------------------
Total distributions to Preferred Stockholders (165,556) --
- --------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income (987,805) --
Net realized gain on investments and foreign currency (3,251,357) --
- --------------------------------------------------------------------------------------------------------
Total distributions to Common Stockholders (4,239,162) --
- --------------------------------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
Common Stock repurchased -- (507,185)
Reinvestment of distributions to Common Stockholders 2,231,274 --
Net proceeds from issuance of Preferred Stock 19,180,000 --
- -------------------------------------------------------------------------------------------------------
Total capital stock transactions 21,411,274 (507,185)
- --------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 26,738,463 2,769,460
NET ASSETS:
Beginning of year 44,154,298 41,384,838
- --------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $488,619 and $833,775, respectively) $ 70,892,761 $44,154,298
- --------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
42 | THE ROYCE FUNDS ANNUAL REPORT 1997
<PAGE>
ROYCE GLOBAL TRUST, INC.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends $ 584,903
Interest 547,600
- --------------------------------------------------------------------------------------------------------------------
Total Income 1,132,503
- --------------------------------------------------------------------------------------------------------------------
Expenses:
Investment advisory fees 514,812
Professional fees 73,067
Custodian and transfer agent fees 52,078
Administrative and office facilities expenses 25,308
Directors' fees 16,723
Other expenses 104,943
- --------------------------------------------------------------------------------------------------------------------
Total Expenses 786,931
Fees Waived by Investment Adviser (321,680)
- --------------------------------------------------------------------------------------------------------------------
Net Expenses 465,251
- --------------------------------------------------------------------------------------------------------------------
Net Investment Income 667,252
- --------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN
CURRENCY:
Net realized gain on investments and foreign currency 2,063,873
Net change in unrealized appreciation on investments and foreign currency 7,000,782
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign currency 9,064,655
- --------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS $9,731,907
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
THE ROYCE FUNDS ANNUAL REPORT 1997 | 43
<PAGE>
ROYCE GLOBAL TRUST, INC.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
This table is presented to show selected data for a share of Common Stock
outstanding throughout each period, and to assist stockholders in evaluating
the Fund's performance for the periods presented.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1996
------------ ------------
<S> <C> <C>
Net Asset Value, Beginning of Period $5.52 $5.09
- ----------------------------------------------------------------------------------------------
Investment Operations:
Net investment income 0.08 0.06
Net realized and unrealized gain on investments and
foreign currency 1.12 0.35
- ----------------------------------------------------------------------------------------------
Total from investment operations 1.20 0.41
- ----------------------------------------------------------------------------------------------
Dividends and Distributions to Preferred Stockholders:
Net investment income -- --
Net realized gain on investments and foreign currency (0.01) --
- ----------------------------------------------------------------------------------------------
Total dividends and distributions to Preferred Stockholders (0.01) --
- ----------------------------------------------------------------------------------------------
Dividends and Distributions to Common Stockholders:
Net investment income (0.12) --
Net realized gain on investments and foreign currency (0.41) --
- ----------------------------------------------------------------------------------------------
Total from dividends and distributions to Common Stockholders (0.53) --
- ----------------------------------------------------------------------------------------------
Capital Stock Transactions:
Effect of reinvestment of distributions by Common Stockholders (0.04) --
Effect of Preferred Stock offering (0.10) --
Other Sources -- 0.02
- ----------------------------------------------------------------------------------------------
Total capital stock transactions (0.14) 0.02
- ----------------------------------------------------------------------------------------------
Net Asset Value, End of Period $6.04 $5.52
- ----------------------------------------------------------------------------------------------
Market Value, End of Period $5.06 $4.59
- ----------------------------------------------------------------------------------------------
Total Return (a):
Net Asset Value (b) 20.5% --
Market Value 21.3% 9.6%
Ratios Based on Average Net Assets:
Total expenses 0.90% 1.91%
Net investment income 1.30% 1.80%
Ratios Based on Average Net Assets Applicable to Common Stockholders:
Total expenses (c) 0.94% 1.91%
Management fee expense 0.39% 0.83%
Other operating expenses 0.55% 1.08%
Net investment income 1.35% 1.80%
Supplemental Data:
Net Assets, End of Period (in thousands) $70,893 $44,154
Portfolio Turnover Rate 74% 159%
Average Commission Rate Paid+ $0.0610 $0.0396
Preferred Stock:
Total shares outstanding 800,000 --
Asset coverage per share 354% --
Liquidation preference per share $25.00 --
Average market value per share (d) $25.25 --
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
------------ ------------ ---------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $4.70 $5.24 $4.99
- --------------------------------------------------------------------------------------------------------
Investment Operations:
Net investment income 0.13 0.19 0.04
Net realized and unrealized gain on investments and foreign currency 0.36 (0.62) 0.46
- --------------------------------------------------------------------------------------------------------
Total from investment operations 0.49 (0.43) 0.50
- --------------------------------------------------------------------------------------------------------
Dividends and Distributions to Preferred Stockholders:
Net investment income -- -- --
Net realized gain on investments and foreign currency -- -- --
- --------------------------------------------------------------------------------------------------------
Total dividends and distributions to Preferred Stockholders -- -- --
- --------------------------------------------------------------------------------------------------------
Dividends and Distributions to Common Stockholders:
Net investment income (0.16) (0.11) (0.03)
Net realized gain on investments and foreign currency (0.01) -- (0.22)
- --------------------------------------------------------------------------------------------------------
Total from dividends and distributions to Common Stockholders 0.17) (0.11) (0.25)
- --------------------------------------------------------------------------------------------------------
Capital Stock Transactions:
Effect of reinvestment of distributions by Common Stockholders -- -- --
Effect of Preferred Stock offering -- -- --
Other Sources 0.07 -- --
- --------------------------------------------------------------------------------------------------------
Total capital stock transactions 0.07 -- --
- --------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $5.09 $4.70 $5.24
- --------------------------------------------------------------------------------------------------------
Market Value, End of Period $4.19 $3.56 $4.31
- --------------------------------------------------------------------------------------------------------
Total Return (a):
Net Asset Value (b) -- -- --
Market Value 22.3% (17.4)% 9.3%
Ratios Based on Average Net Assets:
Total expenses 2.14% 2.27% 2.43%
Net investment income 2.80% 3.81% 0.74%
Ratios Based on Average Net Assets Applicable to Common Stockholders:
Total expenses (c) 2.14% 2.27% 2.43%
Management fee expense 1.00% 1.00% 1.00%
Other operating expenses 1.14% 1.27% 1.43%
Net investment income 2.80% 3.81% 0.74%
Supplemental Data:
Net Assets, End of Period (in thousands) $41,385 $41,106 $45,839
Portfolio Turnover Rate 76% 483% 445%
Average Commission Rate Paid+ -- -- --
Preferred Stock:
Total shares outstanding -- -- --
Asset coverage per share -- -- --
Liquidation preference per share -- -- --
Average market value per share (d) -- -- --
</TABLE>
- --------------------------------------------------------------------------------
(a) The Net Asset Value and Market Value Total Returns assume a
continuous Common Stockholder who reinvested all net investment
income dividends and capital gain distributions.
(b) For years prior to 1997, the Net Asset Value Total Return is not
available.
(c) Expense ratios based on average net assets applicable to Common
Stockholders before waiver of fees by the investment adviser would
have been 1.60% and 2.08% for the years ended December 31, 1997 and
1996, respectively.
(d) The average of all month-end market values during the period.
+ Beginning in 1996, the Fund is required to disclose its average
commission rate paid per share for purchases and sales of investments.
44 | THE ROYCE FUNDS ANNUAL REPORT 1997
<PAGE>
ROYCE GLOBAL TRUST, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Summary of Significant Accounting Policies:
Royce Global Trust, Inc. ("Fund"), formerly named All Seasons Global Fund,
Inc., is a diversified closed-end investment company. The Fund commenced
operations on March 2, 1988.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the
reporting period. Actual results could differ from those estimates.
Valuation of investments:
Securities listed on an exchange or on the Nasdaq National Market System
are valued on the basis of the last reported sale prior to the time the
valuation is made or, if no sale is reported for such day, at their bid price
for exchange-listed securities and at the average of their bid and asked
prices for Nasdaq securities. Quotations are taken from the market where the
security is primarily traded. Other over-the-counter securities for which
market quotations are readily available are valued at their bid price.
Securities for which market quotations are not readily available are valued at
their fair value under procedures established and supervised by the Fund's
Board of Directors. Bonds and other fixed income securities may be valued by
reference to other securities with comparable ratings, interest rates and
maturities, using established independent pricing services.
Foreign Currency:
The Fund does not isolate that portion of the results of operations which
result from changes in foreign exchange rates on investments from the portion
arising from changes in market prices of securities held. Such fluctuations
are included with net realized and unrealized gains and losses on investments.
Net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, expiration
of currency forward contracts, currency gains or losses realized between the
trade and settlement dates on securities transactions, the difference between
the amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books, and the U.S. dollar equivalent of the amounts actually
received or paid. Net unrealized foreign exchange gains and losses arise from
changes in the value of assets and liabilities, including investments in
securities at fiscal year end, as a result of changes in the exchange rates.
Investment transactions and related investment income:
Investment transactions are accounted for on the trade date and dividend
income is recorded on the ex-dividend date. Interest income is recorded on the
accrual basis. Realized gains and losses from investment transactions and
unrealized appreciation and depreciation of investments are determined on the
basis of identified cost for book and tax purposes.
Taxes:
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the extent
that it distributes substantially all of its taxable income for its fiscal
year. The Schedule of Investments includes information regarding income taxes
under the caption "Income Tax Information".
Distributions:
Distributions paid to Common Stockholders are recorded on the ex-dividend
date and paid annually in December. Distributions paid to Preferred
Stockholders are recorded on an accrual basis and paid quarterly.
Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. Permanent book and
tax basis differences relating to stockholder distributions will result in
reclassifications within the capital accounts. Undistributed net investment
income may include temporary book and tax basis differences which will reverse
in a subsequent period. Any taxable income or gain remaining at fiscal year
end is 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 are held by SSB&T until maturity of the repurchase
agreements. 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:
On November 21, 1997, the Fund issued and sold 800,000 shares of its 7.45%
Cumulative Preferred Stock. The stock has a liquidation preference of $25.00
per share plus an amount equal to accumulated and unpaid dividends to the date
of distribution.
THE ROYCE FUNDS ANNUAL REPORT 1997 | 45
<PAGE>
ROYCE GLOBAL TRUST, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
The Fund is required to allocate long-term capital gain distributions and
other types of income proportionately among 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, they will be paid from
ordinary income or net short-term capital gains or will represent a return of
capital.
Under the Investment Company Act of 1940, the Fund is required to maintain
an asset coverage of at least 200% for the Preferred Stock. In addition,
pursuant to the Rating Agency Guidelines, the Fund is required to maintain a
certain discounted asset coverage for its portfolio that equals or exceeds the
Basic Maintenance Amount under the guidelines established by Moody's. The Fund
has met these requirements since the issuance of the Preferred Stock.
The Fund issued 425,004 shares of Common Stock as reinvestment of
dividends and distributions by Common Stockholders for the year ended December
31, 1997. For the year ended December 31, 1996, the Fund repurchased 125,038
shares of Common Stock at an average market price per share of $4.02 and a
weighted average discount from net asset value of 22.5% per share. The cost of
the repurchased shares was $507,185.
Investment Advisory Agreement:
Royce & Associates, Inc. ("Royce") (formerly Quest Advisory Corp.) assumed
investment management responsibility for the Fund on November 1, 1996. The
Investment Advisory Agreement between Royce and the Fund provides for fees at
an annual rate of 1.0% of the average daily net assets of the Fund. In
conjunction with its assumption of investment management, Royce agreed to
voluntarily waive its fee until the Fund's market price had closed on the
Nasdaq National Market at or above $5.28, the Net Asset Value per share of the
Fund on October 31, 1996, for twenty consecutive trading days. On August 20,
1997, this condition was met and the fee waiver was discontinued.
Royce has committed to voluntarily waive the portion of its investment
advisory fee attributable to the Fund's Preferred Stock for any month when the
Fund's average annual NAV total return from the date of the Preferred Stock's
original issue fails to exceed the Preferred Stock dividend rate during that
period. Additionally, Royce has voluntarily committed to waive its fee to the
extent necessary to reduce the Fund's expenses, as a percentage of net assets,
to 1.375% from the date of Preferred Stock issuance to December 31, 1998.
For the year ended December 31, 1997, the Fund accrued and paid Royce
advisory fees totaling $193,132, which is net of $321,680 voluntarily waived
by Royce.
Purchases and Sales of Investment Securities:
For the year ended December 31, 1997, the cost of purchases and proceeds
from sales of investment securities, other than short-term securities, amounted
to $54,763,847 and $35,871,671, respectively.
46 | THE ROYCE FUNDS ANNUAL REPORT 1997
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Board of Directors and Stockholders of Royce Global Trust, Inc.
We have audited the accompanying statement of assets and liabilities of
Royce Global Trust, Inc., including the schedule of investments, as of December
31, 1997, and the related statement of operations for the year then ended, the
statement of changes in net assets and the financial highlights for each of the
two years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit. The financial highlights for each of the three years in the
period ended December 31, 1995 were audited by other auditors whose report
dated January 24, 1996 expressed an unqualified opinion on that statement and
financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1997, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above and audited by us present fairly, in all material respects, the
financial position of Royce Global Trust, Inc. at December 31, 1997, the
results of its operations for the year then ended, the changes in its net
assets and the financial highlights for each of the two years in the period
then ended, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
February 10, 1998
THE ROYCE FUNDS ANNUAL REPORT 1997 | 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 & OTCM)
Royce Fund Services, Inc., President
Richard M. Galkin
Richard M. Galkin Associates, Inc., President
Stephen L. Isaacs
Columbia University Development Law and
Policy Program, Director; 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
Ernst & Young LLP
CUSTODIAN, TRANSFER AGENT
AND REGISTRAR
State Street Bank and Trust Company
<PAGE>
POSTSCRIPT
- --------------------------------------------------------------------------------
[SIDEBAR]
Unlike the
Hale-Bopp comet,
El Nino or
George Soros,
we were not
held directly
responsible for
a single
global crisis,
economic or
otherwise.
[END SIDEBAR]
EL NINO, MICRO-MUTT & THE YEAR THAT WASN'T
It has become commonplace over the years for Wall Street to look back on the
past 365 days in order to say a few words about "How the Market Imitates Life."
1997 at first seems a natural choice for such a statement; it was a year full of
tumult and extremes both inside and outside of the world of mutual funds. Yet
rather than attempt labored analogies about the past or create optimistic
scenarios about the future, we have instead compiled a list of events that did
not take place in our corner of the world during this last year.
After nearly twenty-five years in the business, not a single employee or
shareholder has ever tried to choke a portfolio manager or bite one on the ear!
Of course, employees of the firm never have to worry about facing Michael Jordan
or Evander Holyfield.
In addition, none of us received offers to play a dashing secret agent in
one of those synergistic, multiple endorsement deals for BMW cars and
motorcycles, Breitling watches and Absolut vodka to go along with a new movie
(the last we heard, a similar deal did go to an obscure bureaucrat working for
the British government - good luck, "00"-whatever your name is).
Unlike the Hale-Bopp comet, El Nino or George Soros, we were not held
directly responsible for a single global crisis, economic or otherwise.
Certain officers of the firm acquired new pets this year, but somehow were
not hounded by the media as they struggled to come up with interesting names. Of
course, unlike someone who shall remain nameless, no one here would ever dream
of taking weeks to name a dog only to settle on "Buddy." We'd pick names like
"Micro-Mutt" or "Premier Pooch."
We have not yet had to deal with anyone in the firm giving birth to
septuplets and the ensuing paperwork necessary to open Royce GiftShares Fund
accounts.
Based on all this, we're dispensing with the metaphors and analogies, the
compare-and-contrasts, and all of the prognostications. Why set ourselves up to
be proved completely wrong, and then find that we have to hire Dick Morris to
help with spin control? After putting down the balance sheets, shutting off the
computers and taking a look at the year that was, we saw how little real life
resembled the humble happenings here at Royce & Associates. So we decided not to
play the philosopher or the prophet, remembering that predictions are for show
and portfolios are for dough.
<PAGE>
Why Closed-End Investors Rely on
THE ROYCE FUNDS
[triangle] ONE OF THE INDUSTRY'S MOST EXPERIENCED AND HIGHLY-RESPECTED SMALL
COMPANY VALUE MANAGERS--Charles M. Royce, who has been our primary
portfolio manager since 1973, enjoys one of the longest tenures of
any active mutual fund manager. Today, with over $2.5 billion in
total assets under management, Royce & Associates remains an
independent firm committed to the same principles that have served us
well for twenty-four years.
[triangle] MULTIPLE FUNDS, COMMON FOCUS--Over the years, we have chosen to
concentrate on small company value investing. Chuck Royce and his
team provide investors with a range of funds that take full advantage
of the large and diverse small-cap sector. Our goal is to offer both
individual and institutional investors the best available small-cap
value portfolios by providing above average full market cycle total
returns with below average risk.
[triangle] REALISTIC EXPECTATIONS & CONSISTENT DISCIPLINE--Royce Value Trust and
Royce Micro-Cap Trust have consistently been ranked among the "lowest
risk" domestic equity closed-end funds available. We cultivated our
approach by paying close attention to risk and by always maintaining
the same discipline, regardless of market movements and trends.
[triangle] CO-OWNERSHIP OF FUNDS--As part of this commitment, it is important
that we share a common financial goal with the Funds' stockholders.
The Funds' officers, employees and their affiliates currently have
more than $18 million invested in our closed-end Funds.
VALUE INVESTING IN SMALL COMPANIES FOR OVER 20 YEARS
General Information Advisor Services
Additional Report Copies For Fund Materials, Performance Updates,
(800) 221-4268 (800) 59-ROYCE (597-6923)
Stockholder Services
(800) 426-5523
State Street Bank and Trust Company E-mail: [email protected]
Custodian, Transfer Agent and Registrar Web address: www.roycefunds.com
(800) 426-5523
The Royce Funds 1414 Avenue of the Americas New York, NY 10019
