UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM N-CSR
 
CERTIFIED SHAREHOLDER REPORT
OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
 
Investment Company Act file number: 811-04875
 
Name of Registrant: Royce Value Trust, Inc.
 
Address of Registrant: 1414 Avenue of the Americas
New York, NY 10019
 
Name and address of agent for service:   John E. Denneen, Esquire
    1414 Avenue of the Americas
    New York, NY 10019
 
Registrant’s telephone number, including area code: (212) 486-1445
Date of fiscal year end: December 31
Date of reporting period: July 1, 2004 – December 31, 2004
 
Item 1: Reports to Shareholders









 


A N N U A L R E P O R T
2004  
  Royce Value Trust


Royce Micro-Cap Trust


Royce Focus Trust





www.roycefunds.com





























   
   


 
TheRoyceFund
   








 
VALUE INVESTING IN SMALL COMPANIES FOR MORE THAN 30 YEARS



A FEW WORDS ON CLOSED-END FUNDS


 

Royce & Associates, LLC manages three closed-end funds: Royce Value Trust, the first small-cap value closed-end fund offering; Royce Micro-Cap Trust, the only micro-cap closed-end fund; and Royce Focus Trust, a closed-end fund that invests primarily in a limited number of small-cap companies.

A closed-end fund is an investment company whose shares are listed on a stock exchange or are traded in the over-the-counter market. Like all investment companies, including open-end mutual funds, the assets of a closed-end fund are professionally managed in accordance with the investment objectives and policies approved by the fund’s Board of Directors. A closed-end fund raises cash for investment by issuing a fixed number of shares through initial and other public offerings that may include periodic rights offerings. Proceeds from the offerings are invested in an actively managed portfolio of securities. Investors wanting to buy or sell shares of a publicly traded closed-end fund after the offerings must do so on a stock exchange or the Nasdaq market, as with any publicly traded stock. This is in contrast to open-end mutual funds, in which the fund sells and redeems its shares on a continuous basis.

 
     A CLOSED-END FUND OFFERS SEVERAL DISTINCT ADVANTAGES
     NOT AVAILABLE FROM AN OPEN-END FUND STRUCTURE
 
 
Since a closed-end fund does not issue redeemable securities or offer its securities on a continuous basis, it does not need to liquidate securities or hold uninvested assets to meet investor demands for cash redemptions, as an open-end fund must.
 
 
 
In a closed-end fund, not having to meet investor redemption requests or invest at inopportune times is ideal for value managers who attempt to buy stocks when prices are depressed and sell securities when prices are high.
 
 
 
A closed-end fund may invest more freely in less liquid portfolio securities because it is not subject to potential stockholder redemption demands. This is particularly beneficial for Royce-managed closed-end funds, which invest in small- and microcap 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. Each of the Funds has adopted a quarterly distribution policy for its common stock.
 
 
 

We believe that the closed-end fund structure is very suitable for the long-term investor who understands the benefits of a stable pool of capital.

 
     WHY DIVIDEND REINVESTMENT IS IMPORTANT
 
 
A very important component of an investor’s total return comes from the reinvestment of distributions. By reinvesting distributions, our investors can maintain an undiluted investment in a Fund. For additional information on the Funds’ Distribution Reinvestment and Cash Purchase Options and the benefits for stockholders, see page 46.

 




TABLE OF CONTENTS    


Performance Table
  2  

Letter to Our Stockholders   3  

Performance and Portfolio Reviews:
Royce Value Trust, Royce Micro-Cap Trust and Royce Focus Trust
  4  

History Since Inception   7  

Schedules of Investments and Other Financial Statements:
        Royce Value Trust

  8  

        Royce Micro-Cap Trust
  23  

        Royce Focus Trust
  37  

Distribution Reinvestment and Cash Purchase Options
  46  

Directors and Officers
  47  

Other Important Information
  48  

Stockholder Meeting Results
  Inside Back Cover  

 
   






       
       
       
    PERFORMANCE TABLE   
   
 
 
       
   
      NAV AVERAGE ANNUAL TOTAL RETURNS  Through December 31, 2004
 
   
      
 
Royce
Value Trust
 
Royce
Micro-Cap Trust
 
Royce
Focus Trust
 
Russell
2000
 
          Fourth Quarter 2004*
 
13.18 %   12.90 %   12.65 %
 
14.09 %  
   


 
          July-December 2004*
 
10.81     9.53     16.83  
 
10.83    
   


 
          1-Year
 
21.42     18.69     29.21  
 
18.33    
   


 
          3-Year
 
12.99     16.75     20.39  
 
11.48    
   


 
          5-Year
 
14.15     16.84     18.35  
 
6.61    
   


 
          10-Year
 
14.84     15.67     n/a     
 
11.54  
   


 
          Since Inception
 
12.85     14.61     14.22  
 
     
   


 
          Inception Date
 
11/26/86        12/14/93           11/1/96**        
 
     
                               
   

   *  Not annualized.

 
     
   

 **   Date Royce & Associates, LLC assumed investment management responsibility.

 
   
 
    Royce Value Trust’s 15-year NAV average annual total return for the period ended 12/31/04 was 13.47%.  
       
          IMPORTANT PERFORMANCE, RISK AND OTHER INFORMATION  
   

All performance information in this Report reflects past performance, is presented on a total return basis and reflects the reinvestment of distributions. Past performance is no guarantee of future results. Performance information does not reflect the deduction of taxes that a shareholder would pay on distributions or on the sale of Fund shares. Investment return and principal value of an investment will fluctuate, so that shares may be worth more or less than their original cost when sold. Current performance may be higher or lower than performance quoted. Current month-end performance may be obtained at www.roycefunds.com. The Royce Funds invest primarily in securities of small-cap and/or micro-cap companies, which may involve considerably more risk than investments in securities of larger-cap companies.
    The thoughts expressed in this Report concerning recent market movements and future prospects for small company stocks are solely the opinion of Royce at December 31, 2004, and, of course, historical market trends are not necessarily indicative of future market movements. Statements regarding the future prospects for particular securities held in the Funds’ portfolios and Royce’s investment intentions with respect to those securities reflect Royce’s opinions as of December 31, 2004 and are subject to change at any time without notice. There can be no assurance that securities mentioned in this Report will be included in any Royce-managed portfolio in the future. The Funds invest primarily in securities of small and micro-cap companies that may involve considerably more risk than investments of larger-cap companies. All publicly released material information is always disclosed by the Funds on the website at www.roycefunds.com.
    The Russell 2000, Russell 2000 Value, Russell 2000 Growth, Nasdaq Composite, S&P 500 and S&P 600 are unmanaged indices of domestic common stocks. Returns for the market indices used in this report were based on information supplied to Royce by Frank Russell and Morningstar. Royce has not independently verified the above described information. The Royce Funds is a service mark of The Royce Funds.
 
                               
                               
                               
                               
2 | THE ROYCE FUNDS ANNUAL REPORT 2004                              



LETTER TO OUR STOCKHOLDERS
  

Dear Stockholder,

     We have redesigned and reformatted our Annual Report for 2004 to focus on the information required by SEC regulations. It now includes Managers’ Discussions of Fund Performance and Financial Statements for all three of our closed-end mutual funds. We have also created a new publication, the Annual Review, which features more wide-ranging commentary on the stock market as a whole and the Funds’ portfolios. We hope that you find the material in each book useful and informative.
     2004 was generally a positive one for the stock market as a whole, with small-cap securities enjoying a performance advantage over their large-cap counterparts. The small-cap oriented Russell 2000 index rose 18.3% in 2004, compared to respective gains of 10.9% and 8.6% for the S&P 500 and the Nasdaq Composite. For the sixth consecutive year, the Russell 2000 index outperformed the S&P 500. This past year also marked the fourth out of the last five calendar years in which the Russell 2000 outpaced the Nasdaq Composite. Small-cap value stocks also enjoyed a strong year in 2004, which can be seen in the calendar-year performances of our Funds. In contrast to 2003, a year in which micro-cap and Technology companies reigned supreme, 2004 was in general kinder to the upper tier of small-cap, as well as to individual companies in diverse sectors such as Natural Resources, Finance and Industrial Products (to name just a few strong-performing areas). The trend toward larger, arguably higher-quality, small-cap stocks dominating performance within the asset class was established early in the year, an unsurprising development given the red-hot performance of many micro-cap and Tech stocks in 2003.
     We believe that The Royce Funds’ performances generally were strong on an absolute basis in 2004 as well as over market cycles and long-term periods. While we would love to beat each Fund’s respective benchmark during any particular performance period, we want to be clear that it remains our goal to achieve strong absolute returns over full market cycle and other long-term performance periods.
     We appreciate your continued support.

Sincerely,


Charles M. Royce
     President


January 31, 2005
 

For more than 30 years, we have used various value approaches to invest in smaller-cap securities. We focus primarily on the quality of a company’s balance sheet, its ability to generate free cash flow and other measures of profitability or sound financial condition. At times, we may also look at other factors, such as a company’s unrecognized asset values, its future growth prospects or its turnaround potential following an earnings disappointment or other business difficulties. We then use these factors to assess the company’s current worth, basing the assessment on either what we believe a knowledgeable buyer might pay to acquire the entire company, or what we think the value of the company should be in the stock market.

 
THE ROYCE FUNDS ANNUAL REPORT  2004  |  3



ROYCE VALUE TRUST
 
 
NAV AVERAGE ANNUAL TOTAL RETURNS
Through 12/31/04
 
Manager’s Discussion
Royce Value Trust’s (RVT) broadly diversified portfolio of small- and micro-cap stocks reaped the benefits of a strong year for small-cap value stocks. In 2004, the Fund was up 21.4% on a net asset value (NAV) basis and 29.6% on a market price basis. RVT’s calendar-year NAV performance was ahead of the small-cap oriented Russell 2000, which gained 18.3%, but trailed the small-cap S&P 600 index, which was up 22.7% for the same period. The Fund’s strong absolute results were achieved in spite of slightly lagging one of its benchmarks on an NAV basis (+13.2%) in the robust fourth-quarter rally. For this period, the Fund was up 16.6% on a market price basis, while the Russell 2000 was up 14.1% and the S&P 600 gained 13.0%. RVT’s NAV performances over market cycle and long-term periods were similarly strong on an absolute and a relative basis. The Fund was up 78.6% from the previous small-cap market peak on 3/9/00 through 12/31/04 versus respective gains of 14.5% and 53.2% for the Russell 2000 and S&P 600. RVT gained 103.4% from the small-cap market trough on 10/9/02 through 12/31/04 versus respective gains of 104.8% and 96.5% for the Russell 2000 and the S&P 600. On an NAV basis, RVT outpaced the S&P 600 for the five-, 10-, 15-year and since inception (11/26/86) periods ended 12/31/04, while the Fund was ahead of the Russell 2000 for each of these periods as well as for the one-year and three-year periods. On a market price basis, RVT outperformed both benchmarks for the one-, three-, five-, 10-, 15-year and since inception (11/26/86) periods ended 12/31/04. The Fund’s average annual NAV total return since inception was 12.9%.
     The Fund enjoyed net gains on a dollar basis in virtually all of its sectors, particularly in Industrial Products, Natural Resources and Industrial Services. Several industrial companies had slumping prices in 2003, which gave us the opportunity to build existing positions. Although these businesses did not post the same heady gains as energy and financial stocks in 2004, they generally enjoyed strong returns. After hitting lows in their business cycle around the spring of 2003, many industrial companies began to recover, benefitting from increases in capital spending, the ability to pass on higher costs that came from increased raw materials prices and a robust rise in international economic growth. This led to earnings acceleration and correspondingly higher stock prices beginning late in 2003 and in general lasting through 2004.









All performance information in this Report reflects past performance, is presented on a total return basis and reflects the reinvestment of distributions. Past performance is no guarantee of future results. Performance information does not reflect the deduction of taxes that a stockholder would pay on distributions or on the sale of shares. Investment return and principal value of an investment will fluctuate, so that shares may be worth more or less than their original cost when sold. Current performance may be higher or lower than performance quoted. Current month-end performance may be obtained at www.roycefunds.com.


 
Fourth Quarter 2004*
13.18 %  

 
  July-December 2004* 10.81    

 
  1-Year 21.42    

 
  3-Year 12.99    

 
  5-Year 14.15    

 
  10-Year 14.84    

 
  15-Year 13.47    

 
  Since Inception (11/26/86) 12.85    
 
* Not annualized.
 
 
CALENDAR YEAR NAV TOTAL RETURNS
 
 
Year
RVT
 
 
 
Year
RVT
 
 
  2004 21.4 %
 
  1996 15.5 %  


 
  2003 40.8  
 
  1995 21.1    


 
  2002 -15.6  
 
  1994 0.1    


 
  2001 15.2  
 
  1993 17.3    


 
  2000 16.6  
 
  1992 19.3    


 
  1999 11.7  
 
  1991 38.4    


 
  1998 3.3  
 
  1990 -13.8    


 
  1997 27.5  
 
  1989 18.3    
 
 
TOP 10 POSITIONS
% of Net Assets Applicable
to Common Stockholders
 
 
Apollo Investment
1.2 %  

 
  Ritchie Bros. Auctioneers 1.0    

 
  Arrow International 0.9    

 
  Lincoln Electric Holdings 0.9    

 
  Simpson Manufacturing 0.9    

 
  Sotheby’s Holdings Cl. A 0.9    

 
  MacDermid 0.9    

 
  SEACOR Holdings 0.9    

 
  Gabelli Asset Management Cl. A 0.8    

 
  MPS Group 0.8    
 
 
PORTFOLIO SECTOR BREAKDOWN
% of Net Assets Applicable
to Common Stockholders
 
 
Technology
21.5 %  

 
  Industrial Products 18.4    

 
  Industrial Services 14.4    

 
  Financial Intermediaries 10.0    

 
  Natural Resources 9.2    

 
  Consumer Products 9.1    

 
  Health 9.0    

 
  Financial Services 8.7    

 
  Consumer Services 6.2    

 
  Utilities 0.2    

 
  Miscellaneous 5.0    

 
  Bonds & Preferred Stock 0.2    

 
  Treasuries, Cash and
Cash Equivalents
10.3    

 
4  |  THE ROYCE FUNDS ANNUAL REPORT 2004    



ROYCE MICRO-CAP TRUST

                         
Manager’s Discussion
The performance of micro-cap stocks may have cooled down a bit in 2004 following their red-hot 2003, but that did little to dampen the performance of Royce Micro-Cap Trust (RMT). For the calendar year, the Fund gained 18.7% on a net asset value (NAV) basis and an impressive 33.4% on a market value basis, both results ahead of its small-cap benchmark, the Russell 2000, which was up 18.3% for the same period. The Fund accomplished this in spite of underperforming the small-cap index on an NAV basis in the dynamic fourth-quarter rally (+12.9% versus +14.1%). Over market cycle and long-term performance periods, RMT also posted strong absolute and relative returns. On both an NAV and market price basis for the periods ended 12/31/04, RMT dramatically outperformed the Russell 2000 from both the previous small-cap market peak on 3/9/00 (+89.1% and +141.0% versus +14.5%) and the small-cap market trough on 10/9/02 (+118.9% and +156.2% versus +104.8%). The Fund also outperformed its benchmark for the three-, five-, 10-year and since inception (12/14/93) periods ended 12/31/04 on an NAV and market price basis. RMT’s average annual NAV total return since inception was 14.6%.
     Each of the Fund’s 10 sectors posted net gains in 2004, with companies from several industries contributing to the year’s terrific results. Losses came at the individual stock level, with specialty retailer The Wet Seal and IT consultant iGATE Corporation posting the largest losses on a dollar basis. Holdings in the Natural Resources sector led in terms of overall net dollar gains in the portfolio, which was consistent with the impressive performance of stocks in the energy industry within small-cap as a whole. A supply squeeze first drove commodity prices higher which in turn helped to boost stock prices. The energy services and oil and gas industry groups posted the largest net gains in the sector, with the share prices of oil and gas exploration and production company Toreador Resources, geophysical data services business Veritas DGC and energy-related construction and engineering firm Willbros Group all posting large net gains on a dollar basis. Holdings in the Industrial Products sector generally enjoyed strong returns in 2004. The prices of many industrial companies began to slowly recover in 2003, benefiting from increases in capital spending, the ability to pass on higher costs that came from increased raw materials prices and a robust rise in international economic growth. This led to earnings acceleration and correspondingly higher stock prices that in general lasted through 2004.









All performance information in this Report reflects past performance, is presented on a total return basis and reflects the reinvestment of distributions. Past performance is no guarantee of future results. Performance information does not reflect the deduction of taxes that a stockholder would pay on distributions or on the sale of shares. Investment return and principal value of an investment will fluctuate, so that shares may be worth more or less than their original cost when sold. Current performance may be higher or lower than performance quoted. Current month-end performance may be obtained at www.roycefunds.com.
 
 
NAV AVERAGE ANNUAL TOTAL RETURNS
Through 12/31/04
   
Fourth Quarter 2004*
12.90%
 
    July-December 2004* 9.53   
 
    1-Year 18.69   
 
    3-Year 16.75   
 
    5-Year 16.84   
 
    10-Year 15.67   
 
    Since Inception (12/14/93) 14.61   
  * Not annualized.
     
 
 
CALENDAR YEAR NAV TOTAL RETURNS
 
Year
RMT
 
Year
RMT
  2004    18.7%
 
1998     -4.1%
 

  2003 55.6
 
1997  27.1
 

  2002 -13.8 
 
1996  16.6
 

  2001 23.4
 
1995   22.9
 

  2000 10.9
 
1994  5.0
 

  1999 12.7
 
   
     
 


 
TOP 10 POSITIONS
% of Net Assets Applicable
to Common Stockholders
    Sapient Corporation 1.4%  
 
    Juno Lighting 1.3     
 
    Stein Mart 1.3     
 
    Delta Apparel 1.2     
 
    Convansys Corporation 1.2     
 
    HomeFed Corporation 1.2     
 
    Aceto 1.2     
 
    ASA Bermuda 1.1     
 
    Seneca Foods 1.1     
 
    PICO Holdings 1.0     
     
 
 
PORTFOLIO SECTOR BREAKDOWN
% of Net Assets Applicable
to Common Stockholders
    Technology 26.5%  
 
    Industrial Products 15.0     
 
    Industrial Services 13.5     
 
    Health 11.9     
 
    Natural Resources 10.9     
 
    Financial Intermediaries 5.7     
 
    Consumer Products 5.4     
 
    Consumer Services 5.2     
 
    Diversified Investment Companies 1.6     
 
    Financial Services 1.5     
 
    Miscellaneous 5.0     
 
    Preferred Stocks 0.5     
 
    Cash & Cash Equivalents 17.9     
     

  THE ROYCE FUNDS ANNUAL REPORT 2004  |  5



ROYCE FOCUS TRUST
 
 
NAV AVERAGE ANNUAL TOTAL RETURNS
Through 12/31/04
 
Manager’s Discussion
The focus was on strong performance for several holdings in Royce Focus Trust’s (FUND) limited portfolio of small-cap stocks in 2004, which helped to provide its strong return on both an absolute and relative basis. For the calendar year, the Fund gained 29.2% on a net asset value (NAV) basis and 47.3% on a market price basis, both results well ahead of the 18.3% return of its small-cap benchmark, the Russell 2000, for the same period. In the dynamic fourth-quarter rally, the Fund lagged its benchmark on an NAV basis (+12.7% versus +14.1%), while impressively outpacing the Russell 2000 on a market price basis (+27.5%). Although stock prices in general fell during 2004’s second and third quarters, FUND posted positive returns in all four quarters of the calendar year on an NAV basis, which was critical both to its absolute return and its outperformance of the small-cap index. Over long-term and market cycle periods, FUND’s results were equally impressive. For the periods ended 12/31/04, on both an NAV and market price basis, the Fund dramatically outgained the Russell 2000 from the previous small-cap market peak on 3/9/00 (+128.0% and +192.6% versus +14.5%) and the small-cap market trough on 10/9/02 (+139.7% and +172.8% versus +104.8%). FUND was also ahead of the small-cap index for the three-year, five-year and since inception of our management (11/01/96) periods ended 12/31/04. The Fund’s average annual NAV total return since inception was 14.2%.
     The Fund’s two largest sectors at year end—Industrial Products and Natural Resources—also made the most significant contributions to performance on a dollar basis in 2004. This was mostly consistent with a vigorous small-cap market in which companies from the energy, finance and industrial areas led the way. Within Natural Resources, net dollar gains from the energy services group, including piping and oil drilling equipment maker Trican Well Service and seismic acquisition imaging technology company Input/Output, were larger than those of seven of the Fund’s nine equity sectors (all of which posted net gains). Improved business and consequent earnings acceleration proved a winning combination for many holdings in the Industrial Products sector, such as steel company IPSCO and construction aggregates company Florida Rock Industries. Portfolio losses were scattered across each sector, including life science medical products maker Bruker BioSciences, which we sold in October, and precious metals mining business Hecla Mining Company, a position we built as its share price declined.









All performance information in this Report reflects past performance, is presented on a total return basis and reflects the reinvestment of distributions. Past performance is no guarantee of future results. Performance information does not reflect the deduction of taxes that a stockholder would pay on distributions or on the sale of shares. Investment return and principal value of an investment will fluctuate, so that shares may be worth more or less than their original cost when sold. Current performance may be higher or lower than performance quoted. Current month-end performance may be obtained at www.roycefunds.com.


 
Fourth Quarter 2004*
12.65 %  

 
  July-December 2004* 16.83    

 
  1-Year 29.21    

 
  3-Year 20.39    

 
  5-Year 18.35    

 
  Since Inception (11/1/96) 14.22    
 
* Not annualized.
 
Royce & Associates assumed investment management responsibility for the Fund on 11/1/96.
 
 
 
CALENDAR YEAR NAV TOTAL RETURNS
 
 
Year
 
 
 
 
 
FUND
 
 
  2004           29.2 %  

 
  2003           54.3    

 
  2002           -12.5    

 
  2001           10.0    

 
  2000           20.9    

 
  1999           8.7    

 
  1998           -6.8    

 
  1997           20.5    
 
 
TOP 10 POSITIONS
% of Net Assets Applicable
to Common Stockholders
 
 
New Zealand
Government 6.5% Bond
6.8 %  

 
  Canadian Government 3% Bond 4.8    

 
  Trican Well Service 4.2    

 
  Simpson Manufacturing 4.0    

 
  Nu Skin Enterprises Cl. A 3.8    

 
  IPSCO 3.6    

 
  eFunds Corporation 3.4    

 
  Alleghany Corporation 3.4    

 
  Florida Rock Industries 3.4    

 
  Schnitzer Steel Industries Cl. A 3.2    
 
 
PORTFOLIO SECTOR BREAKDOWN
% of Net Assets Applicable
to Common Stockholders
 
 
Industrial Products
23.1 %  

 
  Natural Resources 21.9    

 
  Technology 9.8    

 
  Health 9.6    

 
  Financial Intermediaries 8.9    

 
  Industrial Services 8.4    

 
  Financial Services 6.4    

 
  Consumer Products 5.8    

 
  Consumer Services 5.4    

 
  Bonds 13.0    

 
  Treasuries, Cash and
Cash Equivalents
11.3    

 
6  |  THE ROYCE FUNDS ANNUAL REPORT 2004    



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 can maximize the returns available to a long-term investor. This table should be read in conjunction with the Performance and Portfolio Reviews of the Funds.


History   Amount
Invested
  Purchase
Price*
  Shares   NAV
Value**
  Market
Value**

Royce Value Trust                                        

11/26/86

  Initial Purchase   $ 10,000     $ 10.000       1,000     $ 9,280     $ 10,000  

10/15/87

  Distribution $0.30             7.000       42                  

12/31/87

  Distribution $0.22             7.125       32       8,578       7,250  

12/27/88

  Distribution $0.51             8.625       63       10,529       9,238  

9/22/89

  Rights Offering     405       9.000       45                  

12/29/89

  Distribution $0.52             9.125       67       12,942       11,866  

9/24/90

  Rights Offering     457       7.375       62                  

12/31/90

  Distribution $0.32             8.000       52       11,713       11,074  

9/23/91

  Rights Offering     638       9.375       68                  

12/31/91

  Distribution $0.61             10.625       82       17,919       15,697  

9/25/92

  Rights Offering     825       11.000       75                  

12/31/92

  Distribution $0.90             12.500       114       21,999       20,874  

9/27/93

  Rights Offering     1,469       13.000       113                  

12/31/93

  Distribution $1.15             13.000       160       26,603       25,428  

10/28/94

  Rights Offering     1,103       11.250       98                  

12/19/94

  Distribution $1.05             11.375       191       27,939       24,905  

11/3/95

  Rights Offering     1,425       12.500       114                  

12/7/95

  Distribution $1.29             12.125       253       35,676       31,243  

12/6/96

  Distribution $1.15             12.250       247       41,213       36,335  

1997

  Annual distribution total $1.21             15.374       230       52,556       46,814  

1998

  Annual distribution total $1.54             14.311       347       54,313       47,506  

1999

  Annual distribution total $1.37             12.616       391       60,653       50,239  

2000

  Annual distribution total $1.48             13.972       424       70,711       61,648  

2001

  Annual distribution total $1.49             15.072       437       81,478       73,994  

2002

  Annual distribution total $1.51             14.903       494       68,770       68,927  

1/28/03

  Rights Offering     5,600       10.770       520                  

2003

  Annual distribution total $1.30             14.582       516       106,216       107,339  

2004

  Annual distribution total $1.55             17.604       568                  

12/31/04

      $ 21,922               6,805     $ 128,955     $ 139,094  

Royce Micro-Cap Trust                                        

12/14/93

  Initial Purchase   $ 7,500     $ 7.500       1,000     $ 7,250     $ 7,500  

10/28/94

  Rights Offering     1,400       7.000       200                  

12/19/94

  Distribution $0.05             6.750       9       9,163       8,462  

12/7/95

  Distribution $0.36             7.500       58       11,264       10,136  

12/6/96

  Distribution $0.80             7.625       133       13,132       11,550  

12/5/97

  Distribution $1.00             10.000       140       16,694       15,593  

12/7/98

  Distribution $0.29             8.625       52       16,016       14,129  

12/6/99

  Distribution $0.27             8.781       49       18,051       14,769  

12/6/00

  Distribution $1.72             8.469       333       20,016       17,026  

12/6/01

  Distribution $0.57             9.880       114       24,701       21,924  

2002

  Annual distribution total $0.80             9.518       180       21,297       19,142  

2003

  Annual distribution total $0.92             10.004       217       33,125       31,311  

2004

  Annual distribution total $1.33             13.350       257                  

12/31/04

      $ 8,900               2,742     $ 39,320     $ 41,788  

Royce Focus Trust                                        

10/31/96

  Initial Purchase   $ 4,375     $ 4.375       1,000     $ 5,280     $ 4,375  

12/31/96

                                5,520       4,594  

12/5/97

  Distribution $0.53             5.250       101       6,650       5,574  

12/31/98

                                6,199       5,367  

12/6/99

  Distribution $0.145             4.750       34       6,742       5,356  

12/6/00

  Distribution $0.34             5.563       69       8,151       6,848  

12/6/01

  Distribution $0.14             6.010       28       8,969       8,193  

12/6/02

  Distribution $0.09             5.640       19       7,844       6,956  

12/8/03

  Distribution $0.62             8.250       94       12,105       11,406  

2004

  Annual distribution total $1.74             9.325       259                  

12/31/04

      $ 4,375               1,604     $ 15,639     $ 16,794  

*  

Beginning with the 1997 (RVT), 2002 (RMT) and 2004 (FUND) distribution, the purchase price of distributions is a weighted average of the distribution reinvestment prices for the year.

**   Other than for initial purchase, values are stated as of December 31 of the year indicated, after reinvestment of distributions.
  THE ROYCE FUNDS ANNUAL REPORT 2004  |  7
 




ROYCE VALUE TRUST



Schedule of Investments

                           

                               
                         
    SHARES     VALUE       SHARES      VALUE
COMMON STOCKS – 111.7%             Consumer Services – 6.2%          
Consumer Products – 9.1%             Direct Marketing - 0.2%          
Apparel and Shoes - 3.1%            

Sportsman’s Guide (The) a

  107,000   $ 2,407,500

Jones Apparel Group

  81,500   $ 2,980,455          

K-Swiss Cl. A

  220,400     6,418,048   Leisure and Entertainment - 0.3%          

Steven Madden a,d

  74,000     1,395,640  

Carmike Cinemas

  21,000     766,500

Oshkosh B’Gosh Cl. A

  104,300     2,232,020  

4Kids Entertainment a,d

  21,000     441,420

Polo Ralph Lauren Cl. A

  150,000     6,390,000  

Gemstar-TV Guide International a,d

  201,100     1,190,512

Timberland Company Cl. A a

  30,000     1,880,100  

Hasbro

  50,000     969,000

Tommy Hilfiger a

  156,000     1,759,680          

Warnaco Group (The) a

  42,000     907,200             3,367,432

Weyco Group

  153,996     6,820,483          
       
  Restaurants and Lodgings - 0.9%          
          30,783,626  

Benihana Cl. A a

  6,600     107,250
       
 

CEC Entertainment a,d

  45,000     1,798,650
Collectibles - 0.9%            

IHOP Corporation

  145,100     6,078,239

Action Performance Companies

  195,000     2,143,050  

Jack in the Box a

  2,000     73,740

The Boyds Collection a,d

  524,200     2,306,480  

Ryan’s Restaurant Group a,d

  60,900     939,078

Enesco Group a

  47,200     381,376          

Topps Company (The)

  410,500     4,002,375             8,996,957
       
         
          8,833,281   Retail Stores - 3.3%          
       
 

AnnTaylor Stores a

  22,500     484,425
Food/Beverage/Tobacco - 0.3%            

BJ’s Wholesale Club a

  32,000     932,160

Hain Celestial Group a,d

  37,800     781,326  

Big Lots a

  255,300     3,096,789

Hershey Creamery Company

  709     1,701,600  

Cabela’s Cl. A a,d

  10,000     227,400

Lancaster Colony

  16,900     724,503  

CarMax a,d

  111,000     3,446,550
       
 

Charming Shoppes a

  484,400     4,538,828
          3,207,429  

Claire’s Stores

  167,200     3,553,000
       
 

Dress Barn (The) a,d

  100,000     1,760,000
Home Furnishing and Appliances - 0.5%            

GameStop Corporation Cl. A a,d

  38,000     849,680

Ethan Allen Interiors

  15,000     600,300  

Krispy Kreme Doughnuts a,d

  17,000     214,200

Falcon Products a,c

  941,600     197,736  

Linens ’n Things a

  40,000     992,000

La-Z-Boy

  128,200     1,970,434  

Movie Gallery

  35,000     667,450

Natuzzi ADR b

  213,100     2,312,135  

Neiman Marcus Group (The) Cl. A

  30,800     2,203,432

Select Comfort a,d

  100     1,794  

Payless ShoeSource a,d

  209,600     2,578,080
       
 

Stein Mart a

  172,800     2,947,968
          5,082,399  

Urban Outfitters a,d

  65,200     2,894,880
       
 

Wet Seal (The) Cl. A a,d

  202,000     458,540
Publishing - 0.7%            

Wild Oats Markets a,d

  81,000     713,610

Journal Communications Cl. A

  100,200     1,810,614          

Scholastic Corporation a,d

  130,000     4,804,800             32,558,992
       
         
          6,615,414   Other Consumer Services - 1.5%          
       
 

Coinstar a,d

  17,000     456,110
Sports and Recreation - 1.4%            

Corinthian Colleges a,d

  39,500     744,377

Callaway Golf Company

  275,800     3,723,300  

MoneyGram International

  217,100     4,589,494

Coachmen Industries

  47,700     828,072  

Sotheby’s Holdings Cl. A a,d

  485,200     8,811,232

Monaco Coach

  161,050     3,312,798          

Oakley

  325,000     4,143,750             14,601,213

Sturm, Ruger & Company

  30,000     270,900          

Thor Industries

  43,100     1,596,855   Total (Cost $44,964,636)         61,932,094
       
         
          13,875,675   Financial Intermediaries – 10.0%          
       
  Banking - 3.0%          
Other Consumer Products - 2.2%            

BOK Financial a

  129,327     6,305,985

Blyth

  14,700     434,532  

Farmers & Merchants Bank of Long Beach

  1,266     7,190,880

Burnham Corporation Cl. B a

  36,000     936,000  

First National Bank Alaska

  2,130     5,016,150

Dorel Industries Cl. B a

  34,500     1,178,865  

Mechanics Bank a

  200     3,910,000

Fossil a,d

  117,800     3,020,392  

Mercantile Bankshares

  20,000     1,044,000

Lazare Kaplan International a

  103,600     985,236  

NetBank

  70,000     728,700

Leapfrog Enterprises a,d

  234,700     3,191,920  

Ocwen Financial a,d

  47,000     449,320

Matthews International Cl. A

  166,000     6,108,800  

Oriental Financial Group

  54,147     1,532,916

RC2 Corporation a

  190,400     6,207,040  

Partners Trust Financial Group

  130,000     1,514,500
       
             
          22,062,785              
       
             
Total (Cost $65,762,887)         90,460,609              
       
             
                         

8  |  THE  ROYCE  FUNDS  ANNUAL  REPORT  2004
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
 
 




DECEMBER 31, 2004



                             

                               
                         
    SHARES     VALUE       SHARES      VALUE
Financial Intermediaries (continued)            

BKF Capital Group

  7,500   $ 284,250
Banking (continued)            

Eaton Vance

  70,200     3,660,930

Whitney Holding

  27,000   $ 1,214,730  

Federated Investors Cl. B

  101,900     3,097,760

Wilmington Trust

  31,000     1,120,650  

Gabelli Asset Management Cl. A

  168,600     8,180,472
       
 

MVC Capital

  174,800     1,587,184
          30,027,831  

Nuveen Investments Cl. A

  138,600     5,470,542
       
         
Insurance - 6.0%                       41,541,030

Alleghany Corporation a

  7,700     2,196,425          

Argonaut Group a

  187,000     3,951,310   Other Financial Services - 0.4%          

Aspen Insurance Holdings

  58,000     1,422,160  

CharterMac

  59,600     1,456,624

Baldwin & Lyons Cl. B

  22,200     594,738  

PRG-Schultz International a,d

  467,000     2,349,010

Commerce Group

  49,500     3,021,480  

Van der Moolen Holding ADR a,b

  21,000     159,390

Erie Indemnity Company Cl. A

  139,900     7,354,543  

World Acceptance a,d

  21,700     596,967

HCC Insurance Holdings

  24,000     794,880          

Leucadia National

  51,500     3,578,220             4,561,991

Markel Corporation a,d

  4,200     1,528,800          

Montpelier Re Holdings

  77,000     2,960,650   Total (Cost $61,909,042)         86,744,731

NYMAGIC

  85,200     2,155,560          

Navigators Group a

  83,200     2,505,152   Health – 9.0%          

Ohio Casualty a,d

  187,000     4,340,270   Commercial Services - 1.9%          

PXRE Group

  166,551     4,198,751  

Covance a,d

  52,700     2,042,125

Philadelphia Consolidated Holding a

  35,000     2,314,900  

First Consulting Group a

  520,900     3,182,699

Phoenix Companies (The) d

  81,900     1,023,750  

IDEXX Laboratories a

  94,300     5,147,837

ProAssurance Corporation a,d

  76,070     2,975,098  

PAREXEL International a

  277,700     5,637,310

RLI

  99,724     4,145,527  

Pharmaceutical Product Development a

  12,000     495,480

Reinsurance Group of America

  30,000     1,453,500  

TriZetto Group (The) a

  215,200     2,044,400

21st Century Insurance Group

  62,000     843,200          

USI Holdings a,d

  20,000     231,400             18,549,851

Wesco Financial

  7,750     3,045,750          

Zenith National Insurance

  64,300     3,204,712   Drugs and Biotech - 3.1%          
       
 

Abgenix a,d

  38,000     392,920
          59,840,776  

Affymetrix a,d

  90,800     3,318,740
       
 

Antigenics a,d

  99,300     1,004,916
Real Estate Investment Trusts - 0.1%            

Applera Corporation-

         

Sun Communities

  20,400     821,100  

Celera Genomics Group a

  139,200     1,914,000
       
 

Cephalon a,d

  4,900     249,312
Securities Brokers - 0.9%            

Cerus Corporation a,d

  21,700     64,232

E*TRADE Financial a

  498,700     7,455,565  

Chiron Corporation a,d

  21,800     726,594

Knight Trading Group a

  129,700     1,420,215  

DUSA Pharmaceuticals a,d

  79,700     1,139,710
       
 

Endo Pharmaceuticals Holdings a

  318,200     6,688,564
          8,875,780  

Eon Labs a,d

  31,000     837,000
       
 

Gene Logic a,d

  365,000     1,343,200
Total (Cost $55,454,445)         99,565,487  

Hi-Tech Pharmacal a,d

  79,000     1,456,760
       
 

Human Genome Sciences a,d

  90,000     1,081,800
Financial Services – 8.7%            

Lexicon Genetics a

  463,300     3,592,892
Information and Processing - 2.9%            

Millennium Pharmaceuticals a

  50,000     606,000

Advent Software a,d

  151,100     3,094,528  

Par Pharmaceutical Companies a,d

  33,000     1,365,540

eFunds Corporation a

  204,275     4,904,643  

Perrigo Company

  171,750     2,966,122

FactSet Research Systems

  78,500     4,587,540  

Priority Healthcare Cl. B a,d

  47,500     1,034,075

Fair Isaac

  67,300     2,468,564  

Shire Pharmaceuticals Group ADR b

  20,853     666,253

Global Payments

  68,500     4,009,990          

Interactive Data a

  134,300     2,919,682             30,448,630

SEI Investments

  165,700     6,947,801          
       
  Health Services - 0.7%          
          28,932,748  

Accredo Health a

  8,705     241,303
       
 

Albany Molecular Research a,d

  85,000     946,900
Insurance Brokers - 1.2%            

Eclipsys Corporation a,d

  20,000     408,600

Crawford & Company Cl. A

  289,100     2,023,700  

Gentiva Health Services a

  30,150     504,108

Crawford & Company Cl. B

  60,300     452,250  

Health Management Associates Cl. A

  27,400     622,528

Gallagher (Arthur J.) & Company

  111,200     3,614,000  

Lincare Holdings a

  34,600     1,475,690

Hilb Rogal & Hobbs Company

  155,050     5,619,012  

MedQuist a

  73,893     1,093,616
       
 

On Assignment a

  425,200     2,206,788
          11,708,962  

Quovadx a

  3,000     7,170
       
         
Investment Management - 4.2%                       7,506,703

Alliance Capital Management

                   

Holding L.P.

  180,200     7,568,400              

Apollo Investment

  774,271     11,691,492              
                         
                         
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE  ROYCE  FUNDS  ANNUAL  REPORT  2004  |  9
 
 




ROYCE VALUE TRUST



Schedule of Investments

                           

                               
                         
    SHARES     VALUE       SHARES      VALUE
Health (continued)             Machinery - 4.9%          
Medical Products and Devices - 3.1%            

Coherent a

  228,500   $ 6,955,540

Allied Healthcare Products a

  62,000   $ 406,100  

Federal Signal

  58,600     1,034,876

Arrow International

  297,602     9,222,686  

GSI Lumonics a,d

  69,500     797,860

ArthroCare Corporation a,d

  10,000     320,600  

Global Power Equipment Group a,d

  45,000     442,800

Bruker BioSciences a

  390,200     1,572,506  

Graco

  96,825     3,616,414

CONMED Corporation a

  81,500     2,316,230  

IDEX Corporation

  36,000     1,458,000

Datascope

  12,000     476,280  

Lincoln Electric Holdings

  265,880     9,183,495

Diagnostic Products

  25,000     1,376,250  

National Instruments

  71,400     1,945,650

Invacare Corporation

  88,000     4,070,880  

Nordson Corporation

  172,200     6,900,054

Novoste Corporation a

  66,500     113,715  

PAXAR Corporation a

  253,100     5,611,227

Orthofix International a,d

  20,000     789,580  

Pason Systems

  79,000     2,429,557

STERIS Corporation a,d

  173,100     4,105,932  

T-3 Energy Services a,d

  346,710     2,472,042

Sybron Dental Specialties a,d

  19,000     672,220  

UNOVA a,d

  41,000     1,036,890

Thoratec Corporation a,d

  2,000     20,840  

Woodward Governor Company

  73,600     5,270,496

Varian Medical Systems a

  61,600     2,663,584            

Young Innovations

  62,550     2,109,812             49,154,901

Zoll Medical a

  20,200     694,880            
         
  Metal Fabrication and Distribution - 2.5%          
          30,932,095  

CompX International Cl. A

  302,300     4,997,019
         
 

Kaydon Corporation

  208,700     6,891,274
Personal Care - 0.2%            

Metal Management

  65,100     1,749,237

Regis

  37,200     1,716,780  

NN

  127,100     1,678,991
         
 

Oregon Steel Mills a,d

  177,900     3,609,591
Total (Cost $65,402,809)         89,154,059  

Penn Engineering & Manufacturing

  251,600     4,553,960
         
 

Penn Engineering & Manufacturing

       
Industrial Products – 18.4%            

Cl. A

  77,600     1,164,000
Automotive - 1.0%                      

Adesa

  126,900     2,692,818             24,644,072

CLARCOR

  22,000     1,204,940            

Gentex Corporation

  60,300     2,232,306   Paper and Packaging - 0.2%          

IMPCO Technologies a,d

  15,500     117,025  

Peak International a

  408,400     1,671,990

LKQ Corporation a,d

  188,000     3,773,160            

Quantam Fuel Systems Technologies

            Pumps, Valves and Bearings - 0.5%          

Worldwide a,d

  15,500     93,310  

Baldor Electric

  62,900     1,731,637
         
 

Conbraco Industries

  7,630     1,274,210
          10,113,559  

Franklin Electric

  47,200     1,994,672
         
           
Building Systems and Components - 1.2%                       5,000,519

Decker Manufacturing

  6,022     210,770            

Preformed Line Products Company

  91,600     2,654,568   Specialty Chemicals and Materials - 2.0%          

Simpson Manufacturing

  260,800     9,101,920  

Aceto

  41,100     782,544
         
 

Albemarle Corporation

  34,000     1,316,140
          11,967,258  

Balchem Corporation

  31,200     1,082,328
         
 

CFC International a

  123,500     1,936,480
Construction Materials - 2.1%            

Cabot Corporation

  56,500     2,185,420

Ash Grove Cement Company Cl. B a

  50,518     7,224,074  

Hawkins

  206,878     2,449,436

ElkCorp

  43,000     1,471,460  

Lydall a,d

  50,000     593,000

Florida Rock Industries

  123,000     7,322,190  

MacDermid

  236,631     8,542,379

Heywood Williams Group a

  838,837     1,518,695  

Material Sciences a

  29,000     521,710

Synalloy Corporation a,c

  345,000     3,415,500            
         
            19,409,437
          20,951,919            
         
  Textiles - 0.2%          
Industrial Components - 1.3%            

Tag-It Pacific a,d

  118,500     533,250

AMETEK

  86,000     3,067,620  

Unifi a

  315,100     1,206,833

Bel Fuse Cl. A

  26,200     767,660            

C & D Technologies

  50,000     852,000             1,740,083

Donaldson Company

  52,000     1,694,160            

Intermagnetics General a,d

  26,450     672,094   Other Industrial Products - 2.5%          

PerkinElmer

  135,000     3,036,150  

Albany International Cl. A

  45,500     1,599,780

Planar Systems a,d

  46,900     526,687  

Brady Corporation Cl. A

  114,400     7,158,008

Powell Industries a

  92,400     1,708,476  

Diebold

  85,000     4,737,050

Woodhead Industries

  45,400     727,762  

Imagistics International a

  19,000     639,540
         
 

Kimball International Cl. B

  428,380     6,344,308
          13,052,609  

Maxwell Technologies a

  21,500     218,010
         
 

Myers Industries

  30,499     390,387
                         

10  |  THE  ROYCE  FUNDS  ANNUAL  REPORT  2004
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
 
 




DECEMBER 31, 2004



                               

                               
                           
    SHARES     VALUE       SHARES         VALUE
Industrial Products (continued)            

McDermott International a

  71,000     $ 1,303,560
Other Industrial Products (continued)            

Washington Group International a,d

  140,000       5,775,000

Peerless Manufacturing a,c

  158,600   $ 2,299,700              

Quixote Corporation

  12,000     243,960               20,825,484

Steelcase Cl. A

  50,000     692,000              

Trinity Industries

  8,000     272,640   Food and Tobacco Processors - 0.6%            
         
 

Farmer Bros.

  150,000       3,636,000
          24,595,383  

MGP Ingredients

  216,400       1,869,696
         
 

Seneca Foods Cl. B a

  6,500       118,631
Total (Cost $103,656,776)         182,301,730  

Sunopta a,d

  41,000       294,380
         
             
Industrial Services - 14.4%                         5,918,707
Advertising and Publishing - 0.3%                        

Interpublic Group of Companies a,d

  230,000     3,082,000   Industrial Distribution - 1.4%            

ValueClick a,d

  20,000     266,600  

Central Steel & Wire

  3,799       1,994,475
         
 

Ritchie Bros. Auctioneers

  310,400       10,261,824
          3,348,600  

Strategic Distribution a

  115,000       1,535,250
         
             
Commercial Services - 5.7%                         13,791,549

ABM Industries

  134,800     2,658,256              

Aaron Rents

  4,500     112,500   Printing - 0.2%            

Administaff a

  60,200     759,122  

Bowne & Co.

  68,100       1,107,306

Allied Waste Industries a,d

  188,800     1,752,064  

Ennis

  62,700       1,206,975

Brink’s Company (The)

  107,278     4,239,627              

Carlisle Holdings

  194,900     1,411,076               2,314,281

Central Parking

  83,800     1,269,570              

Collectors Universe a,d

  15,500     316,045   Transportation and Logistics - 3.6%            

Convergys Corporation a

  121,000     1,813,790  

AirNet Systems a,d

  219,000       764,310

Copart a,d

  138,100     3,634,792  

Alexander & Baldwin

  60,000       2,545,200

Digital Theater Systems a,d

  18,600     374,418  

Atlas Air Worldwide Holdings a,e

  60,500       1,424,775

Harsco Corporation

  12,000     668,880  

C. H. Robinson Worldwide

  40,000       2,220,800

Hewitt Associates Cl. A a,d

  59,000     1,888,590  

Continental Airlines Cl. B a,d

  100,000       1,354,000

Hudson Highland Group a,d

  30,549     879,811  

EGL a,d

  153,125       4,576,906

Iron Mountain a

  191,175     5,828,926  

Forward Air a,d

  156,500       6,995,550

Kelly Services Cl. A

  25,000     754,500  

Frozen Food Express Industries a

  286,635       3,697,591

Learning Tree International a

  53,400     715,560  

Hub Group Cl. A a

  77,000       4,020,940

MPS Group a

  643,500     7,889,310  

Landstar System a

  5,600       412,384

Manpower

  65,800     3,178,140  

Patriot Transportation Holding a

  101,300       4,557,386

Monster Worldwide a,d

  79,000     2,657,560  

Swift Transportation Company a,d

  31,000       665,880

New Horizons Worldwide a

  96,600     541,926  

UTI Worldwide

  35,000       2,380,700

Pemstar a,d

  381,900     691,239              

RemedyTemp Cl. A a

  77,500     794,375               35,616,422

Renaissance Learning

  15,000     278,400              

Reynolds & Reynolds Company Cl. A

  27,000     715,770   Other Industrial Services - 0.5%            

Rollins

  87,000     2,289,840  

Landauer

  117,900       5,388,030

Spherion Corporation a,d

  3,000     25,200              

TRC Companies a

  42,000     714,000   Total (Cost $87,827,562)           143,216,859

Viad Corporation

  87,550     2,494,299              

Watson Wyatt & Company Holdings

  81,000     2,182,950   Natural Resources – 9.2%            

West Corporation a

  75,000     2,483,250   Energy Services - 4.2%            
         
 

Atwood Oceanics a

  19,700       1,026,370
          56,013,786  

Carbo Ceramics

  105,600       7,286,400
         
 

Core Laboratories a

  10,000       233,500
Engineering and Construction - 2.1%            

ENSCO International

  6,443       204,501

Champion Enterprises a,d

  120,000     1,418,400  

Global Industries a,d

  119,500       990,655

EMCOR Group a

  51,900     2,344,842  

Hanover Compressor Company a,d

  160,000       2,260,800

Fleetwood Enterprises a,d

  234,300     3,153,678  

Helmerich & Payne

  197,400       6,719,496

Insituform Technologies Cl. A a

  202,200     4,583,874  

Input/Output a,d

  669,100       5,914,844

Jacobs Engineering Group a

  47,000     2,246,130  

Key Energy Services a,d

  10,000       118,000
             

Precision Drilling a

  29,500       1,852,600
             

TETRA Technologies a

  42,750       1,209,825
             

Tidewater

  55,600       1,979,916
             

Universal Compression Holdings a

  115,000       4,014,650
             

Veritas DGC a

  38,700       867,267
             

Willbros Group a,d

  289,600       6,675,280
                         
                          41,354,104
                         
                           
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE  ROYCE  FUNDS  ANNUAL  REPORT  2004  |  11
 
 



ROYCE VALUE TRUST

 

   Schedule of Investments

    SHARES   VALUE       SHARES   VALUE
Natural Resources (continued)            

KEMET Corporation a,d

  173,000   $ 1,548,350
Oil and Gas - 2.7%            

Kronos a

  38,775     1,982,566

Chesapeake Energy

  60,000   $ 990,000  

Mercury Computer Systems a,d

  22,000     652,960

Cimarex Energy a

  127,041     4,814,854  

Methode Electronics

  50,000     642,500

Delta Petroleum a,d

  39,000     611,520  

Metrologic Instruments a,d

  15,000     318,750

EOG Resources

  5,000     356,800  

Nam Tai Electronics

  43,000     827,750

Holly Corporation

  10,000     278,700  

Newport Corporation a,d

  152,900     2,155,890

Houston Exploration Company (The) a

  50,000     2,815,500  

Perceptron a

  397,400     2,901,020

Penn Virginia

  35,000     1,419,950  

Plexus Corporation a

  398,700     5,187,087

Pioneer Drilling Company a,d

  128,800     1,299,592  

Radiant Systems a

  32,500     211,575

Plains Exploration &

           

REMEC a,d

  189,200     1,364,132

Production Company a,d

  76,500     1,989,000  

SafeNet a,d

  36,240     1,331,458

Remington Oil & Gas a,d

  78,500     2,139,125  

SanDisk Corporation a,d

  11,000     274,670

SEACOR Holdings a

  159,500     8,517,300  

Symbol Technologies

  165,400     2,861,420

Toreador Resources a,d

  90,300     2,003,757  

TTM Technologies a

  253,600     2,992,480
       
 

Technitrol a

  368,900     6,713,980
          27,236,098  

Tektronix

  77,480     2,340,671
       
 

Vishay Intertechnology a

  316,000     4,746,320
Precious Metals and Mining - 1.2%            

Zebra Technologies Cl. A a

  76,525     4,306,827

Bema Gold a,d

  300,000     918,000          

Glamis Gold a

  195,000     3,346,200             61,449,977

Hecla Mining Company a,d

  648,000     3,777,840          

MK Resources Company a

  431,700     884,985   Distribution - 1.4%          

Meridian Gold a,d

  124,500     2,361,765  

Agilysys

  185,125     3,173,042

Metallica Resources a,d

  50,000     62,000  

Anixter International a

  41,900     1,507,981

Miramar Mining a

  245,000     281,750  

Arrow Electronics a

  145,700     3,540,510

Stillwater Mining Company a

  10,780     121,383  

Avnet a

  52,355     954,955
       
 

Benchmark Electronics a,d

  13,000     443,300
          11,753,923  

Tech Data a

  101,500     4,608,100
       
         
Real Estate - 0.6%                       14,227,888

Alico a

  27,000     1,580,040          

CB Richard Ellis Group Cl. A a

  95,000     3,187,250   Internet Software and Services - 1.1%          

Consolidated-Tomoka Land

  13,564     583,252  

CNET Networks a

  155,400     1,745,142

Trammell Crow Company a

  46,500     842,115  

CryptoLogic

  202,000     5,039,900
       
 

CyberSource Corporation a

  10,000     71,500
          6,192,657  

DoubleClick a

  181,700     1,413,626
       
 

Lionbridge Technologies a,d

  37,500     252,000
Other Natural Resources - 0.5%            

Openwave Systems a,d

  32,000     494,720

PICO Holdings a

  218,200     4,532,014  

RealNetworks a,d

  85,400     565,348
       
 

Satyam Computer Services ADR b

  20,000     482,600
Total (Cost $55,423,877)         91,068,796  

Vastera a

  140,000     368,200
       
         
Technology – 21.5%                       10,433,036
Aerospace and Defense - 0.7%                    

Allied Defense Group (The) a

  67,600     1,504,100   IT Services - 4.8%          

Armor Holdings a

  27,000     1,269,540  

answerthink a

  655,000     3,052,300

Astronics Corporation a

  52,400     266,192  

BearingPoint a

  524,000     4,207,720

Ducommun a

  117,200     2,443,620  

Black Box

  47,000     2,256,940

Herley Industries a

  2,000     40,680  

CACI International Cl. A a,d

  10,000     681,300

Integral Systems

  49,800     968,610  

CGI Group Cl. A a,d

  106,700     709,555
       
 

CIBER a

  10,000     96,400
          6,492,742  

Computer Task Group a

  101,100     566,160
       
 

Covansys Corporation a

  251,600     3,849,480
Components and Systems - 6.2%            

DiamondCluster International a

  80,400     1,152,132

American Power Conversion

  151,200     3,235,680  

Forrester Research a

  95,300     1,709,682

Analogic Corporation

  21,000     940,590  

Gartner Cl. A a

  316,000     3,937,360

Belden CDT

  57,800     1,340,960  

Keane a

  480,000     7,056,000

Checkpoint Systems a

  103,000     1,859,150  

MAXIMUS a

  145,900     4,540,408

Dionex Corporation a,d

  81,000     4,590,270  

Perot Systems Cl. A a

  165,100     2,646,553

Excel Technology a,d

  168,500     4,381,000  

Sapient Corporation a,d

  719,400     5,690,454

Hutchinson Technology a,d

  15,000     518,550  

Syntel

  148,500     2,604,690

Imation Corporation

  15,700     499,731  

Unisys Corporation a

  325,000     3,308,500

InFocus Corporation a

  79,000     723,640          
                        48,065,634
                     

12  |  THE  ROYCE  FUNDS  ANNUAL  REPORT  2004
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
 
 



DECEMBER 31, 2004

 

 

    SHARES   VALUE       SHARES   VALUE
Technology (continued)            

Powerwave Technologies a,d

  105,000   $ 890,400
Semiconductors and Equipment - 3.2%            

Scientific-Atlanta

  140,300     4,631,303

BE Semiconductor Industries a

  58,000   $ 324,220  

Time Warner Telecom Cl. A a,d

  179,000     780,440

Cabot Microelectronics a,d

  170,800     6,840,540  

Tollgrade Communications a

  20,000     244,800

CEVA a,d

  31,666     288,382          

Cognex Corporation

  118,400     3,303,360             17,392,155

Conexant Systems a,d

  11,980     23,840          

Credence Systems a,d

  53,600     490,440   Total (Cost $157,815,599)         213,256,828

Cymer a,d

  14,500     428,330            

DSP Group a,d

  115,000     2,567,950   Utilities - 0.2%          

DuPont Photomasks a

  35,000     924,350  

CH Energy Group

  44,500     2,138,225

Exar Corporation a

  245,700     3,486,483  

Southern Union a

  11,025     264,380

Fairchild Semiconductor

                   

International Cl. A a,d

  51,200     832,512   Total (Cost $2,127,416)         2,402,605

Helix Technology

  36,900     641,691          

Integrated Circuit Systems a

  75,000     1,569,000   Miscellaneous - 5.0%          

Intevac a,d

  100,550     760,158   Total (Cost $43,411,236)         49,571,124

Kulicke & Soffa Industries a,d

  105,800     911,996          

Lattice Semiconductor a,d

  254,000     1,447,800   TOTAL COMMON STOCKS          

Mentor Graphics a,d

  225,700     3,450,953  

(Cost $743,756,285)

        1,109,674,922

National Semiconductor

  76,400     1,371,380          

Novellus Systems a

  12,000     334,680   PREFERRED STOCK - 0.1%          

Semitool a,d

  50,000     464,000  

Aristotle Corporation 11.00% Conv.

  4,800     39,120

Silicon Storage Technology a,d

  76,000     452,200          

Veeco Instruments a,d

  65,000     1,369,550   TOTAL PREFERRED STOCK          
       
 

(Cost $31,005)

        39,120
          32,283,815          
       
      PRINCIPAL      
Software - 2.3%                 AMOUNT      

ANSYS a,d

  20,000     641,200   CORPORATE BONDS - 0.1%          

Aspen Technology a

  27,100     168,291   Dixie Group 7.00%          

Autodesk

  122,000     4,629,900  

Conv. Sub. Deb. due 5/15/12

  $    490,000     470,400

Business Objects ADR a,b,d

  20,500     519,470   Richardson Electronics 7.25%          

JDA Software Group a,d

  99,900     1,360,638  

Conv. Sub. Deb. due 12/15/06

  1,157,000     1,157,000

MRO Software a

  46,000     598,920          

Macromedia a

  51,600     1,605,792   TOTAL CORPORATE BONDS          

ManTech International Cl. A a

  135,000     3,204,900  

(Cost $1,450,159)

        1,627,400

Manugistics Group a

  49,200     141,204          

Novell a,d

  95,000     641,250   U.S. TREASURY OBLIGATIONS - 2.6%          

Progress Software a

  30,500     712,175   U. S. Treasury Notes          

SPSS a

  179,600     2,808,944  

5.625% due 2/15/06

  25,000,000     25,773,450

Sybase a

  82,600     1,647,870          

Transaction Systems Architects Cl. A a

  213,150     4,231,027   TOTAL U.S. TREASURY OBLIGATIONS          
       
 

(Cost $25,987,715)

        25,773,450
          22,911,581          
       
  REPURCHASE AGREEMENT - 6.7%          
Telecommunications - 1.8%             State Street Bank & Trust Company,          

Broadwing Corporation a

  1,000     9,110  

1.80% dated 12/31/04, due 1/3/05,

         

Catapult Communications a

  75,100     1,814,416  

maturity value $66,829,023

         

Covad Communications Group a,d

  35,000     75,250  

(collateralized by Federal Home Loan

         

Globecomm Systems a,d

  233,700     1,486,332  

Mortgage Corp., 2.875% due 9/15/05 and

         

IDT Corporation a

  25,000     367,000  

Federal National Mortgage Association,

         

IDT Corporation Cl. B a,d

  40,000     619,200  

3.25% due 8/15/08, valued at $68,163,003)

         

ITT Educational Services a

  113,000     5,373,150  

(Cost $66,819,000)

        66,819,000

Level 3 Communications a,d

  280,400     950,556          

Metro One Telecommunications a,d

  25,000     39,750              

PECO II a

  93,600     110,448              
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE  ROYCE  FUNDS  ANNUAL  REPORT  2004  |  13
 
 



ROYCE VALUE TRUST DECEMBER 31, 2004

 

   Schedule of Investments

    VALUE
COLLATERAL RECEIVED FOR SECURITIES LOANED – 7.3%        
U.S. Treasury Bonds        

8.125%-12.00% due 8/15/13-5/15/21

  $ 39,733  
U.S. Treasury Notes        

3.375% due 11/15/08

    28,684  
Money Market Funds        

State Street Navigator Securities Lending

       

Prime Portfolio

    72,121,380  
   
 

(Cost $72,189,797)

    72,189,797  
   
 
         
TOTAL INVESTMENTS – 128.5%        

(Cost $910,233,961)

    1,276,123,689  
         
LIABILITIES LESS CASH        

AND OTHER ASSETS – (6.3)%

    (62,819,260 )
         
PREFERRED STOCK – (22.2)%     (220,000,000 )
   
 
         
NET ASSETS APPLICABLE TO        

COMMON STOCKHOLDERS – 100.0%

  $ 993,304,429  
   
 

a   Non-income producing.
b   American Depository Receipt.
c  

At December 31, 2004, the Fund owned 5% or more of the Company’s outstanding voting securities thereby making the Company an Affiliated Company as that term is defined in the Investment Company Act of 1940.

d  

A portion of these securities were on loan at December 31, 2004. Total market value of loaned securities at December 31, 2004, was $70,152,378.

e   When Issued.
  New additions in 2004.
    Bold indicates the Fund’s largest 20 equity holdings in terms of December 31, 2004, market value.
     
INCOME TAX INFORMATION:The cost of total investments for Federal income tax purposes was $912,095,358. At December 31, 2004, net unrealized appreciation for all securities was $364,028,331, consisting of aggregate gross unrealized appreciation of $400,021,845 and aggregate gross unrealized depreciation of $35,993,514. The primary differences in book and tax basis cost is the timing of the recognition of losses on securities sold and amortization of discount for book and tax purposes.


14  |  THE  ROYCE  FUNDS  ANNUAL  REPORT  2004
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
 
 



ROYCE VALUE TRUST DECEMBER 31, 2004

 

   Statement of Assets and Liabilities

ASSETS:        
Investments at value (including collateral on loaned securities)*        

Non-Affiliates (cost $835,378,422)

  $ 1,203,391,753  

Affiliated Companies (cost $8,036,539)

    5,912,936  

Total investments at value     1,209,304,689  
Repurchase agreement (at cost and value)     66,819,000  
Cash     227,027  
Receivable for investments sold     12,524,033  
Receivable for dividends and interest     1,404,388  

Total Assets

    1,290,279,137  

LIABILITIES:        
Payable for collateral on loaned securities     72,189,797  
Payable for investments purchased     3,123,651  
Payable for investment advisory fee     1,092,809  
Preferred dividends accrued but not yet declared     288,449  
Accrued expenses     280,002  

Total Liabilities

    76,974,708  

PREFERRED STOCK:        
5.90% Cumulative Preferred Stock – $0.001 par value, $25 liquidation value per share; 8,800,000 shares outstanding     220,000,000  

Total Preferred Stock

    220,000,000  

NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS   $ 993,304,429  

ANALYSIS OF NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:        
Common Stock paid-in capital – $0.001 par value per share; 52,415,890 shares outstanding (150,000,000 shares authorized)   $ 621,085,067  
Accumulated net realized gain (loss) on investments     6,618,083  
Net unrealized appreciation (depreciation) on investments     365,889,728  
Preferred dividends accrued but not yet declared     (288,449 )

Net Assets applicable to Common Stockholders (net asset value per share – $18.95)

  $ 993,304,429  

*Investments at identified cost (including $72,189,797 of collateral on loaned securities)   $ 843,414,961  

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE  ROYCE  FUNDS  ANNUAL  REPORT  2004  |  15
 
 



ROYCE VALUE TRUST YEAR ENDED DECEMBER 31, 2004

 

   Statement of Operations

INVESTMENT INCOME:        
Income:        

Dividends

       

Non-Affiliates

  $ 7,523,733  

Affiliated Companies

    80,748  

Interest

    1,345,616  

Securities lending

    129,238  

Total income     9,079,335  

Expenses:        

Investment advisory fees

    12,476,948  

Stockholder reports

    388,775  

Custody and transfer agent fees

    258,635  

Directors’ fees

    122,268  

Administrative and office facilities expenses

    108,546  

Professional fees

    54,676  

Other expenses

    119,494  

Total expenses     13,529,342  

Net investment income (loss)     (4,450,007 )

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:        
Net realized gain (loss) on investments        

Non-Affiliates

    100,856,818  

Affiliated Companies

    7,224,129  
Net change in unrealized appreciation (depreciation) on investments     87,658,900  

Net realized and unrealized gain (loss) on investments     195,739,847  

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM INVESTMENT OPERATIONS     191,289,840  

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS     (12,980,000 )

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS RESULTING FROM INVESTMENT OPERATIONS

  $ 178,309,840  


16  |  THE  ROYCE  FUNDS  ANNUAL  REPORT  2004
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
 
 



ROYCE VALUE TRUST  

 

   Statement of Changes in Net Assets


    Year ended
12/31/04
  Year ended
12/31/03

INVESTMENT OPERATIONS:

               

Net investment income (loss)

  $ (4,450,007 )   $ (2,493,169 )

Net realized gain (loss) on investments

    108,080,947       74,989,675  

Net change in unrealized appreciation (depreciation) on investments

    87,658,900       208,275,790  

Net increase (decrease) in net assets resulting from investment operations

    191,289,840       280,772,296  

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:

               

Net realized gain on investments

    (12,980,000 )     (12,252,107 )

Quarterly distributions accrued but not yet declared

          (22,225 )

Total distributions to Preferred Stockholders

    (12,980,000 )     (12,274,332 )

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS

               

RESULTING FROM INVESTMENT OPERATIONS

    178,309,840       268,497,964  

DISTRIBUTIONS TO COMMON STOCKHOLDERS:

               

Net realized gain on investments

    (78,920,089 )     (61,293,595 )

Total distributions to Common Stockholders

    (78,920,089 )     (61,293,595 )

CAPITAL STOCK TRANSACTIONS:

               

Net proceeds from rights offering

          54,487,617  

Offering costs from issuance of Preferred Stock

          (7,261,800 )

Reinvestment of distributions to Common Stockholders

    43,141,563       35,567,306  

Total capital stock transactions

    43,141,563       82,793,123  

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS

    142,531,314       289,997,492  

NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:

               

Beginning of year

    850,773,115       560,775,623  

End of year

  $ 993,304,429     $ 850,773,115  

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE  ROYCE  FUNDS  ANNUAL  REPORT  2004  |  17
 
 



ROYCE VALUE TRUST

 

   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.
    Years ended December 31,
   
    2004     2003     2002     2001     2000  

NET ASSET VALUE, BEGINNING OF PERIOD   $17.03     $13.22     $17.31     $16.56     $15.77  

INVESTMENT OPERATIONS:                              

Net investment income (loss)

  (0.08 )   (0.05 )   (0.02 )   0.05     0.18  

Net realized and unrealized gain (loss) on investments

  3.81     5.64     (2.25 )   2.58     2.58  

Total investment operations

  3.73     5.59     (2.27 )   2.63     2.76  

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:                              

Net investment income

          (0.01 )   (0.01 )   (0.03 )

Net realized gain on investments

  (0.26 )   (0.26 )   (0.28 )   (0.30 )   (0.30 )

Total distributions to Preferred Stockholders

  (0.26 )   (0.26 )   (0.29 )   (0.31 )   (0.33 )

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON                              

STOCKHOLDERS RESULTING FROM INVESTMENT OPERATIONS

  3.47     5.33     (2.56 )   2.32     2.43  

DISTRIBUTIONS TO COMMON STOCKHOLDERS:                              

Net investment income

          (0.07 )   (0.05 )   (0.13 )

Net realized gain on investments

  (1.55 )   (1.30 )   (1.44 )   (1.44 )   (1.35 )

Total distributions to Common Stockholders

  (1.55 )   (1.30 )   (1.51 )   (1.49 )   (1.48 )

CAPITAL STOCK TRANSACTIONS:                              

Effect of reinvestment of distributions by Common Stockholders

  0.00     (0.00 )   (0.02 )   (0.08 )   (0.16 )

Effect of rights offering and Preferred Stock offering

      (0.22 )            

Total capital stock transactions

  0.00     (0.22 )   (0.02 )   (0.08 )   (0.16 )

NET ASSET VALUE, END OF PERIOD   $18.95     $17.03     $13.22     $17.31     $ 16.56  

MARKET VALUE, END OF PERIOD   $20.44     $17.21     $13.25     $15.72     $14.438  

TOTAL RETURN (a):                              
Market Value   29.6 %   42.0 %   (6.9 )%   20.0 %   22.7 %
Net Asset Value   21.4 %   40.8 %   (15.6 )%   15.2 %   16.6 %
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO                              

COMMON STOCKHOLDERS:

                             
Total expenses (b,c)   1.51 %   1.49 %   1.72 %   1.61 %   1.43 %

Management fee expense

  1.39 %   1.34 %   1.56 %   1.45 %   1.25 %

Other operating expenses

  0.12 %   0.15 %   0.16 %   0.16 %   0.18 %
Net investment income (loss)   (0.50 )%   (0.36 )%   (0.09 )%   0.35 %   1.18 %
SUPPLEMENTAL DATA:                              
Net Assets Applicable to Common Stockholders,                              

End of Period (in thousands)

  $993,304     $850,773     $560,776     $689,141     $623,262  
Liquidation Value of Preferred Stock,                              

End of Period (in thousands)

  $220,000     $220,000     $160,000     $160,000     $160,000  
Portfolio Turnover Rate   30 %   23 %   35 %   30 %   36 %
PREFERRED STOCK:                              
Total shares outstanding   8,800,000     8,800,000     6,400,000     6,400,000     6,400,000  
Asset coverage per share   $137.88     $121.68     $112.62     $132.68     $122.38  
Liquidation preference per share   $25.00     $25.00     $25.00     $25.00     $25.00  
Average market value per share (d):                              

5.90% Cumulative

  $24.50     $25.04              

7.80% Cumulative

      $25.87     $26.37     $25.70     $23.44  

7.30% Tax-Advantaged Cumulative

      $25.53     $25.82     $25.37     $22.35  

(a)

The Market Value Total Return is calculated assuming a purchase of Common Stock on the opening of the first business day and a sale on the closing of the last business day of each period reported. Dividends and distributions, if any, are assumed for the purposes of this calculation, to be reinvested at prices obtained under the Fund’s Distribution Reinvestment and Cash Purchase Plan. Net Asset Value Total Return is calculated on the same basis, except that the Fund’s net asset value is used on the purchase and sale dates instead of market value.

(b)

Expense ratios based on total average net assets including liquidation value of Preferred Stock were 1.21%, 1.19%, 1.38%, 1.30% and 1.12% for the periods ended December 31, 2004, 2003, 2002, 2001 and 2000, respectively.

(c)

Expense ratios based on average net assets applicable to Common Stockholders before waiver of fees by the investment adviser would have been 1.62%, 1.82%, 1.65% and 1.51% for the periods ended December 31, 2003, 2002, 2001 and 2000, respectively.

(d)

The average of month-end market values during the period that the preferred stock was outstanding.


18  |  THE  ROYCE  FUNDS  ANNUAL  REPORT  2004
 
 



ROYCE VALUE TRUST DECEMBER 31, 2004

 

   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 accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

Valuation of Investments:
        Securities are valued as of the close of trading on the New York Stock Exchange (generally 4:00 p.m. Eastern time) on the valuation date. Securities that trade on an exchange or Nasdaq are valued at their last reported sales price taken from the primary market in which each security trades or, if no sale is reported for such day, at their bid price. Other over-the-counter securities for which market quotations are readily available are valued at their bid price. Securities for which market quotations are not readily available are valued at their fair value under procedures established by the Fund’s Board of Directors. Bonds and other fixed income securities may be valued by reference to other securities with comparable ratings, interest rates and maturities, using established independent pricing services.

Investment Transactions and Related Investment Income:
        Investment transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date and any non-cash dividend income is recorded at the fair market value of the securities received. Interest income is recorded on an accrual basis. Realized gains and losses from investment transactions are determined on the basis of identified cost for book and tax purposes.

Expenses:
        The Fund incurs direct and indirect expenses. Expenses directly attributable to the Fund are charged to the Fund’s operations, while expenses applicable to more than one of the Royce Funds are allocated in an equitable manner. Allocated personnel and occupancy costs related to The Royce Funds are included in administrative and office facilities expenses. The Fund has adopted a deferred fee agreement that allows the Fund’s Directors to defer the receipt of all or a portion of Directors’ Fees otherwise payable. The deferred fees are invested in certain Royce Funds until distributed in accordance with the agreement.

Taxes:
        As a qualified regulated investment company under Subchapter M of the Internal Revenue Code, the Fund is not subject to income taxes to the extent that it distributes substantially all of its taxable income for its
 

fiscal year. The Schedule of Investments includes information regarding income taxes under the caption “Income Tax Information”.

Distributions:
        The Fund currently has a policy of paying quarterly distributions on the Fund’s Common Stock. Distributions are currently being made at the annual rate of 9% of the rolling average of the prior four calendar quarter-end NAVs of the Fund’s Common Stock, with the fourth quarter distribution being the greater of 2.25% of the rolling average or the distribution required by IRS regulations. Distributions to Preferred Stockholders are recorded on an accrual basis and paid quarterly. The Fund is required to allocate long-term capital gain distributions and other types of income proportionately to distributions made to holders of shares of Common Stock and Preferred Stock. To the extent that distributions are not paid from long-term capital gains, net investment income or net short-term capital gains, they will represent a return of capital. Distributions are determined in accordance with income tax regulations that may differ from accounting principles generally accepted in the United States of America. Permanent book and tax basis differences relating to stockholder distributions will result in reclassifications within the capital accounts. Undistributed net investment income may include temporary book and tax basis differences, which will reverse in a subsequent period. Any taxable income or gain remaining undistributed at fiscal year end is distributed in the following year.

Repurchase Agreements:
        The Fund entered into repurchase agreements with respect to its portfolio securities solely with State Street Bank and Trust Company (“SSB&T”), the custodian of its assets. The Fund restricts repurchase agreements to maturities of no more than seven days. Securities pledged as collateral for repurchase agreements, which are held by SSB&T until maturity of the repurchase agreements, are marked-to-market daily and maintained at a value at least equal to the principal amount of the repurchase agreement (including accrued interest). Repurchase agreements could involve certain risks in the event of default or insolvency of SSB&T, including possible delays or restrictions upon the ability of the Fund to dispose of the underlying securities.

Securities Lending:
        The Fund loans securities to qualified institutional investors for the purpose of realizing additional income. Collateral on all securities loaned for the Fund is accepted in cash and is invested temporarily by the custodian. The collateral is equal to at least 100% of the current market value of the loaned securities.

Capital Stock:
        The Fund issued 2,459,541 and 2,448,904 shares of Common Stock as reinvestment of distributions by Common Stockholders for the years ended December 31, 2004 and 2003, respectively.
        On March 10, 2003, the Fund completed a rights offering of Common Stock to its stockholders at the rate of one common share for each 10

THE  ROYCE  FUNDS  ANNUAL  REPORT  2004  |  19
 
 



ROYCE VALUE TRUST

 

   Notes to Financial Statements (continued)


rights held by stockholders of record on January 28, 2003. The rights offering was fully subscribed, resulting in the issuance of 5,090,083 common shares at a price of $10.77, and proceeds of $54,820,194 to the Fund prior to the deduction of estimated expenses of $332,577. The net asset value per share of the Fund’s Common Stock was reduced by approximately $0.07 per share as a result of the issuance.
        On October 10, 2003, the Fund redeemed all (2,400,000 shares) of its then outstanding 7.80% Cumulative Preferred Stock at the redemption price of $25.00 per share, plus accumulated and unpaid dividends through the redemption date of $0.0975 per share, and all (4,000,000 shares) of its outstanding 7.30% Tax-Advantaged Cumulative Preferred Stock at the redemption price of $25.00 per share, plus accumulated and unpaid dividends through the redemption date of $0.09125 per share. On October 9, 2003, the Fund received net proceeds of $213,070,000 (after underwriting discounts of $6,930,000 and before estimated offering expenses of $331,800) from the public offering of 8,800,000 shares of 5.90% Cumulative Preferred Stock. Commencing October 9, 2008 and thereafter, the Fund, at its option, may redeem the 5.90% Cumulative Preferred Stock, in whole or in part, at the redemption price.
        At December 31, 2004, 8,800,000 shares of 5.90% Cumulative Preferred Stock were outstanding. The Fund’s Cumulative Preferred Stock is classified outside of permanent equity (net assets applicable to Common Stockholders) in the accompanying financial statements in accordance with Emerging Issues Task Force (EITF) Topic D-98, Classification and Measurement of Redeemable Securities, that requires preferred securities that are redeemable for cash or other assets to be classified outside of permanent equity to the extent that the redemption is at a fixed or determinable price and at the option of the holder or upon the occurrence of an event that is not solely within the control of the issuer.
        The Fund is required to meet certain asset coverage tests with respect to the Cumulative Preferred Stock as required by the 1940 Act. In addition, pursuant to the Rating Agency Guidelines established by Moody’s, the Fund is required to maintain a certain discounted asset coverage. If the Fund fails to meet these requirements and does not correct such failure, the Fund may be required to redeem, in part or in full, the Cumulative Preferred Stock at a redemption price of $25.00 per share, plus an amount equal to the accumulated and unpaid dividends, whether or not declared on such shares, in order to meet these requirements. Additionally, failure to meet the foregoing asset coverage requirements could restrict the Fund’s ability to pay dividends to Common Shareholders and could lead to sales of portfolio securities at inopportune times. The Fund has met these requirements since issuing the Preferred Stock.
 

Investment Advisory Agreement:
        
As compensation for its services under the Investment Advisory Agreement, Royce & Associates, LLC (“Royce”) receives a fee comprised of a Basic Fee (“Basic Fee”) and an adjustment to the Basic Fee based on the investment performance of the Fund in relation to the investment record of the S&P 600 SmallCap Index (“S&P 600”).
        The Basic Fee is a monthly fee equal to 1/12 of 1% (1% on an annualized basis) of the average of the Fund’s month-end net assets applicable to Common Stockholders, plus the liquidation value of Preferred Stock, for the rolling 60-month period ending with such month (the “performance period”). The Basic Fee for each month is increased or decreased at the rate of 1/12 of .05% for each percentage point that the investment performance of the Fund exceeds, or is exceeded by, the percentage change in the investment record of the S&P 600 for the performance period by more than two percentage points. The maximum increase or decrease in the Basic Fee for any month may not exceed 1/12 of .5%. Accordingly, for each month, the maximum monthly fee rate as adjusted for performance is 1/12 of 1.5% and is payable if the investment performance of the Fund exceeds the percentage change in the investment record of the S&P 600 by 12 or more percentage points for the performance period, and the minimum monthly fee rate as adjusted for performance is 1/12 of .5% and is payable if the percentage change in the investment record of the S&P 600 exceeds the investment performance of the Fund by 12 or more percentage points for the performance period.
        Notwithstanding the foregoing, Royce is not entitled to receive any fee for any month when the investment performance of the Fund for the rolling 36-month period ending with such month is negative. In the event that the Fund’s investment performance for such a performance period is less than zero, Royce will not be required to refund to the Fund any fee earned in respect of any prior performance period.
        Royce has voluntarily committed to waive the portion of its investment advisory fee attributable to an issue of the Fund’s Preferred Stock for any month in which the Fund’s average annual NAV total return since issuance of the Preferred Stock fails to exceed the applicable Preferred Stock’s dividend rate.
        For the year ended December 31, 2004, the Fund accrued and paid Royce advisory fees totaling $12,476,948.

20  |  THE  ROYCE  FUNDS  ANNUAL  REPORT  2004
 
 



DECEMBER 31, 2004

 

 

Distributions to Stockholders:
     The tax character of distributions paid to stockholders during 2004 and 2003 was as follows:


Distributions paid from:

    2004       2003

Ordinary income

  $     $ 1,416,811

Long-term capital gain

    91,900,089       72,128,891
   
    $ 91,900,089     $ 73,545,702

     As of December 31, 2004, the tax basis components of distributable earnings included in stockholder’s equity were as follows:


Undistributed net investment income   $ 2,209,226  
Undistributed long-term capital gain     6,270,254  
Unrealized appreciation     364,028,331  
Accrued preferred distributions     (288,449 )
   
    $ 372,219,362  

     For financial reporting purposes, capital accounts and distributions to shareholders are adjusted to reflect the tax character of permanent book / tax differences. For the year ended December 31, 2004, the Fund recorded the following permanent reclassifications, which relate primarily to the current net operating losses. Results of operations and net assets were not affected by these reclassifications.


  Undistributed     Accumulated    
  Net Investment     Net Realized   Paid-in
  Income     Gain (Loss)   Capital
 
   
 
  $4,450,007     $(4,700,432)   $250,425

Purchases and Sales of Investment Securities:
     For the year ended December 31, 2004, the cost of purchases and proceeds from sales of investment securities, other than short-term securities and collateral received for securities loaned, amounted to $335,554,494 and $303,014,891, respectively.

Transactions in Shares of Affiliated Companies:
     An “Affiliated Company”, as defined in the Investment Company Act of 1940, is a company in which a Fund owns 5% or more of the company’s outstanding voting securities. The Fund effected the following transactions in shares of such companies during the year ended December 31, 2004:

    Shares   Market Value   Cost of   Cost of   Realized   Dividend   Shares   Market Value
Affiliated Company   12/31/03   12/31/03   Purchases   Sales   Gain (Loss)   Income   12/31/04   12/31/04

CompX International*     482,200     $ 3,086,080     $     $ 944,475     $ 1,856,279     $ 37,788                  
Falcon Products     761,600       3,351,040       368,250                         941,600     $ 197,736  
MGP Ingredients*     417,322       6,572,822             2,990,704       5,346,015       42,960                  
Peerless Manufacturing     158,600       2,045,940                               158,600       2,299,700  
Richardson Electronics*                                                                

7.25% Conv. due 12/15/06

    1,319,000       1,213,480             140,165       21,835                        
Synalloy Corporation     345,000       2,387,400                                 345,000       3,415,500  

            $ 18,656,762                     $ 7,224,129     $ 80,748             $ 5,912,936  

*Not an Affiliated Company at December 31, 2004.


THE  ROYCE  FUNDS  ANNUAL  REPORT  2004  |  21
 
 



ROYCE VALUE TRUST

 

   Report of Independent Registered Public Accounting Firm

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, 2004, and the related statement of operations for the year then ended, and the statement of changes in net assets for the two years in the period then ended and the financial highlights for each of the five 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.
      We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (U.S.). 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, 2004, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
      In our opinion, the financial statements and financial highlights referred to above and audited by us present fairly, in all material respects, the financial position of Royce Value Trust, Inc. at December 31, 2004, 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 five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.


TAIT, WELLER & BAKER

Philadelphia, PA
January 21, 2005


22  |  THE  ROYCE  FUNDS  ANNUAL  REPORT  2004
 
 




ROYCE MICRO-CAP TRUST
 
DECEMBER 31, 2004

                               
                               

      Schedule of Investments

                               
    SHARES   VALUE       SHARES   VALUE
COMMON STOCKS – 102.2%             Retail Stores - 4.0%          
             

America’s Car-Mart a,c

  7,000   $ 266,000
Consumer Products – 5.4%            

Brookstone a,c

  51,750     1,011,712
Apparel and Shoes - 2.6%            

Buckle (The)

  36,500     1,076,750

Ashworth a

  3,100   $ 33,759  

Cato Corporation Cl. A

  58,000     1,671,560

Delta Apparel

  146,500     3,552,625  

Conn’s a,c

  23,000     386,860

Kleinert’s a,d

  14,200      

Deb Shops

  19,900     498,296

Steven Madden a,c

  14,500     273,470  

Dress Barn (The) a

  53,660     944,416

Marisa Christina a

  76,600     79,664  

La Senza Corporation

  99,900     996,426

Oshkosh B’Gosh Cl. A

  37,000     791,800  

Party City a,c

  43,500     562,455

Skechers U.S.A. Cl. A a,c

  10,000     129,600  

REX Stores a

  8,200     124,558

Weyco Group

  60,000     2,657,400  

Shoe Carnival a,c

  11,000     143,000
       
 

Stein Mart a

  213,900     3,649,134
          7,518,318  

United Retail Group a

  60,600     262,398
       
         
Collectibles - 0.6%                       11,593,565

Enesco Group a,c

  37,400     302,192          

Topps Company (The)

  148,500     1,447,875   Other Consumer Services - 0.4%          
       
 

Ambassadors Group

  7,500     267,075
          1,750,067  

Ambassadors International

  6,100     95,953
       
 

Autobytel a,c

  20,000     120,800
Food/Beverage/Tobacco - 0.2%            

EZCORP Cl. A a,c

  15,000     231,150

Green Mountain Coffee Roasters a,c

  26,600     667,660  

Rent-Way a,c

  68,000     544,680
       
         
Home Furnishing and Appliances - 0.4%                       1,259,658

Lifetime Hoan

  65,554     1,042,309          

Stanley Furniture Company

  2,500     112,375   Total (Cost $8,431,877)         15,269,182
       
         
          1,154,684   Diversified Investment Companies – 1.6%          
       
  Closed-End Mutual Funds - 1.6%          
Sports and Recreation - 0.6%            

ASA Bermuda

  81,500     3,296,675

Monaco Coach

  73,900     1,520,123  

Central Fund of Canada Cl. A

  237,000     1,296,390

National R.V. Holdings a

  31,800     306,234          
       
  Total (Cost $4,055,600)         4,593,065
          1,826,357          
       
  Financial Intermediaries – 5.7%          
Other Consumer Products - 1.0%            

Banking - 2.0%

         

Burnham Holdings Cl. A

  1,000     26,000  

Arrow Financial

  13,905     431,055

Cobra Electronics a

  10,000     81,100  

First Midwest Financial

  64,800     1,503,360

Cross (A. T.) Company Cl. A a

  100,000     495,000  

First National Lincoln

  40,200     701,530

JAKKS Pacific a

  30,000     663,300  

FirstBank NW

  4,930     140,061

Lazare Kaplan International a

  151,700     1,442,667  

Lakeland Financial

  22,500     893,250
       
 

Pacific Mercantile Bancorp a,c

  43,200     755,136
          2,708,067  

Queen City Investments

  948     583,020
       
 

Sterling Bancorp

  21,780     615,285
Total (Cost $7,542,995)         15,625,153          
       
            5,622,697
Consumer Services – 5.2%                    
Direct Marketing - 0.2%             Insurance - 3.5%          

J. Jill Group a

  3,100     46,159  

American Safety Insurance Holdings a

  5,000     81,700

Sportsman’s Guide (The) a

  25,000     562,500  

Argonaut Group a

  30,900     652,917

ValueVision Media Cl. A a,c

  5,000     69,550  

First Acceptance a

  258,405     2,315,309
       
 

Independence Holding

  33,534     618,702
          678,209  

NYMAGIC

  65,400     1,654,620
       
 

Navigators Group a,c

  37,200     1,120,092
Leisure and Entertainment - 0.2%            

PXRE Group

  73,164     1,844,464

IMAX Corporation a,c

  25,000     206,225  

ProAssurance Corporation a,c

  29,300     1,145,923

Multimedia Games a,c

  5,000     78,800  

Wellington Underwriting

  444,712     760,410

Singing Machine Company (The) a,c

  5,000     3,500          

TiVo a,c

  20,000     117,400             10,194,137
       
         
          405,925   Securities Brokers - 0.2%          
       
 

Sanders Morris Harris Group

  21,000     374,010
Media and Broadcasting - 0.3%            

Stifel Financial a

  11,733     245,806

Outdoor Channel Holdings a

  69,750     969,525          
       
            619,816
Restaurants and Lodgings - 0.1%                    

Angelo and Maxie’s a

  3,333     2,500   Total (Cost $9,620,913)         16,436,650

Benihana Cl. A a

  800     13,000          

BUCA a,c

  30,000     208,800              

California Pizza Kitchen a,c

  6,000     138,000              
       
             
          362,300              
       
             

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE  ROYCE  FUNDS  ANNUAL  REPORT  2004  |  23
 
 




ROYCE MICRO-CAP TRUST
 
 

                               
                               

      Schedule of Investments

                               
    SHARES   VALUE       SHARES   VALUE
Financial Services – 1.5%            

On Assignment a

  26,100   $ 135,459
Investment Management - 0.6%            

Quovadx a

  5,000     11,950

MVC Capital

  207,300   $ 1,882,284  

RehabCare Group a,c

  22,000     615,780
       
 

Sierra Health Services a,c

  40,000     2,204,400
Other Financial Services - 0.9%            

Sun Healthcare Group a,c

  10,000     92,110

Clark a

  20,900     324,368  

Superior Consultant Holdings a

  10,000     84,400

E-LOAN a,c

  90,500     305,890  

U.S. Physical Therapy a

  10,000     154,200

MicroFinancial a

  10,000     37,500          

PRG-Schultz International a,c

  365,000     1,835,950             5,431,568
       
         
          2,503,708              
       
  Medical Products and Devices - 4.0%          
Total (Cost $4,177,536)         4,385,992  

Allied Healthcare Products a

  253,500     1,660,425
       
 

Candela Corporation a,c

  54,000     613,440
Health – 11.9%            

CONMED Corporation a,c

  3,900     110,838
Commercial Services - 2.0%            

Del Global Technologies a

  168,279     429,111

First Consulting Group a,c

  274,700     1,678,417  

Exactech a,c

  60,200     1,101,058

ICON ADR a,b

  800     30,920  

Medical Action Industries a

  58,500     1,152,450

PAREXEL International a,c

  121,400     2,464,420  

Molecular Devices a,c

  25,500     512,550

TriZetto Group (The) a

  192,000     1,824,000  

NMT Medical a

  202,000     999,900
       
 

OrthoLogic Corporation a

  20,000     125,000
          5,997,757  

Orthofix International a

  28,000     1,105,412
       
 

PLC Systems a

  105,200     83,108
Drugs and Biotech - 2.9%            

Schick Technologies a,c

  25,000     393,750

AXM Pharma a,c

  107,000     356,310  

Synovis Life Technologies a,c

  25,000     270,250

Able Laboratories a,c

  2,200     50,050  

Utah Medical Products

  42,300     950,481

Arena Pharmaceuticals a,c

  9,500     63,555  

Young Innovations

  61,450     2,072,708

BioSource International a,c

  187,900     1,296,510          

CancerVax Corporation a,c

  15,000     162,750             11,580,481

Cell Genesys a,c

  10,000     81,000          

Cerus Corporation a

  20,000     59,200   Personal Care - 1.1%          

Durect Corporation a,c

  44,100     144,648  

CCA Industries

  55,140     630,802

DUSA Pharmaceuticals a

  7,400     105,820  

Helen of Troy a,c

  20,000     672,200

Emisphere Technologies a,c

  169,700     687,285  

Inter Parfums

  40,500     643,950

Gene Logic a

  224,900     827,632  

Lifeline Systems a

  20,900     538,384

Geron Corporation a,c

  6,000     47,820  

Nature’s Sunshine Products

  24,000     488,640

Hi-Tech Pharmacal a,c

  41,300     761,572  

Nutraceutical International a

  20,000     308,200

Hollis-Eden Pharmaceuticals a,c

  8,000     75,360          

Life Sciences Research a,c

  30,000     339,000             3,282,176

Matrixx Initiatives a,c

  23,000     266,570          

Maxim Pharmaceuticals a,c

  6,200     18,724   Total (Cost $22,681,131)         34,645,153

Maxygen a,c

  5,000     63,950          

Momenta Pharmaceuticals a,c

  5,000     35,300   Industrial Products – 15.0%          

Myriad Genetics a,c

  26,500     596,515   Automotive - 0.8%          

Nabi Biopharmaceuticals a,c

  5,000     73,250  

Commerical Vehicle Group a,c

  18,000     392,940

Orchid BioSciences a,c

  50,000     575,000  

LKQ Corporation a,c

  32,000     642,240

Regeneration Technologies a,c

  17,000     178,160  

Spartan Motors

  2,800     33,404

SFBC International a,c

  15,000     592,500  

Strattec Security a

  3,300     206,646

Sangamo BioSciences a

  10,000     60,000  

Wescast Industries Cl. A

  37,900     964,593

Theragenics Corporation a

  30,000     121,800          

VIVUS a,c

  160,200     712,890             2,239,823
       
         
          8,353,171   Building Systems and Components - 2.1%          
       
 

Aaon a

  47,500     763,325
Health Services - 1.9%            

Juno Lighting

  92,200     3,872,400

ATC Healthcare Cl. A a

  35,000     13,650  

LSI Industries

  67,812     776,447

Albany Molecular Research a,c

  50,000     557,000  

Modtech Holdings a,c

  74,700     587,889

Bio-Imaging Technologies a,c

  79,800     437,304          

Covalent Group a

  25,000     63,750             6,000,061

Gentiva Health Services a

  13,000     217,360          

MIM Corporation a,c

  63,100     400,685   Construction Materials - 1.4%          

MedCath Corporation a,c

  18,000     443,520  

Ash Grove Cement Company

  8,000     1,144,000
             

Monarch Cement

  50,410     1,119,102
             

Synalloy Corporation a

  171,000     1,692,900
                     
                        3,956,002
                     
              Industrial Components - 1.2%          
             

Bel Fuse Cl. A

  52,600     1,541,180
             

Plug Power a,c

  1,370     8,371


24  |  THE  ROYCE  FUNDS  ANNUAL  REPORT  2004
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
 
 




 
 
DECEMBER 31, 2004

                               
                               

       

                               
  SHARES   VALUE       SHARES   VALUE
Industrial Products (continued)           Industrial Services – 13.5%          

Industrial Components (continued)

          Advertising and Publishing - 0.7%          

Powell Industries a

50,300   $ 930,047  

MDC Partners Cl. A a

  111,600   $ 1,204,164

Scientific Technologies a

10,700     45,154  

NetRatings a

  50,000     958,500

Tech/Ops Sevcon

76,200     480,822          

II-VI

10,000     424,900             2,162,664

Woodhead Industries

10,000     160,300          
     
  Commercial Services - 5.4%          
        3,590,774  

Administaff a

  10,000     126,100
     
 

American Bank Note Holographics a

  267,200     841,680
Machinery - 2.0%          

Bennett Environmental a,c

  20,900     73,777

Astec Industries a,c

40,200     691,842  

Carlisle Holdings

  390,000     2,823,600

Cascade Corporation

10,400     415,480  

Collectors Universe a,c

  500     10,195

Danka Business Systems ADR a,b,c

60,000     189,600  

CorVel Corporation a

  28,750     769,925

Hardinge

77,000     1,039,500  

Edgewater Technology a

  18,339     89,861

Hurco Companies a

16,100     265,650  

Exponent a,c

  68,300     1,877,567

Keithley Instruments

14,000     275,800  

Geo Group (The) a

  51,200     1,360,896

Lindsay Manufacturing

10,000     258,800  

iGATE Corporation a

  235,100     952,155

MTS Systems

10,000     338,100  

Kforce a,c

  55,000     610,500

Mueller (Paul) Company

13,650     410,961  

NCO Group a,c

  20,000     517,000

Pason Systems

62,100     1,909,816  

New Horizons Worldwide a

  132,000     740,520
     
 

Pegasus Solutions a,c

  59,700     752,220
        5,795,549  

Pemstar a,c

  197,900     358,199
     
 

RemedyTemp Cl. A a,c

  83,200     852,800
Metal Fabrication and Distribution - 2.1%          

SM&A a,c

  2,500     21,328

Aleris International a,c

47,270     799,808  

TRC Companies a

  29,000     493,000

Encore Wire a,c

15,000     199,950  

Volt Information Sciences a

  36,600     1,075,674

Haynes International a,c

10,000     150,000  

Westaff a

  362,500     1,366,263

Metals USA a

70,000     1,298,500          

NN

148,300     1,959,043             15,713,260

Penn Engineering & Manufacturing

56,600     1,024,460          

Penn Engineering & Manufacturing Cl. A

30,800     462,000   Engineering and Construction - 1.4%          

Universal Stainless & Alloy Products a

7,700     114,360  

Comfort Systems USA a

  55,000     422,400
     
 

Devcon International a

  21,700     323,547
        6,008,121  

Insituform Technologies Cl. A a,c

  80,300     1,820,401
     
 

Keith Companies a

  10,000     173,900
Paper and Packaging - 0.1%          

Skyline Corporation

  32,100     1,309,680

Mod-Pac Corporation a,c

23,200     296,032          
     
            4,049,928

Pumps, Valves and Bearings - 0.8%

                 

Gorman-Rupp Company

3,375     77,625              

Sun Hydraulics

145,550     2,324,434   Food and Tobacco Processors - 1.1%          
     
 

ML Macadamia Orchards L.P.

  120,200     670,716
        2,402,059  

Seneca Foods Cl. A a

  62,500     1,125,000
     
 

Seneca Foods Cl. B a

  42,500     775,668
Specialty Chemicals and Materials - 3.0%          

Star Scientific a,c

  58,500     297,473

Aceto

178,446     3,397,612  

Sunopta a,c

  60,000     430,800

American Pacific

36,000     306,360          

Balchem Corporation

10,000     346,900             3,299,657

CFC International a,c

134,100     2,102,688          

Hawkins

122,667     1,452,377   Industrial Distribution - 0.9%          

NuCo2 a,c

20,000     443,800  

Central Steel & Wire

  1,200     630,000

Park Electrochemical

10,000     216,800  

Elamex a

  70,200     162,162

Titanium Metals a,c

21,000     506,940  

Lawson Products

  19,500     983,385
     
 

Strategic Distribution a

  59,690     796,862
        8,773,477          
     
            2,572,409
Textiles - 0.1%                  

Fab Industries a

56,400     221,088              
     
  Printing - 1.0%          

Other Industrial Products - 1.4%

         

Bowne & Co.

  66,500     1,081,290

Color Kinetics a,c

50,000     879,000  

Courier Corporation

  15,300     794,376

Eastern Company (The)

26,500     530,000  

Ennis

  9,700     186,725

Maxwell Technologies a

15,300     155,142  

Schawk

  40,500     736,290

Myers Industries

32,276     413,133          

Peerless Manufacturing a

42,200     611,900             2,798,681

Quixote Corporation

34,500     701,385          

Raven Industries

40,000     852,400   Transportation and Logistics - 2.5%          
     
 

AirNet Systems a,c

  196,000     684,040
        4,142,960  

Forward Air a

  43,800     1,957,860
     
 

Frozen Food Express Industries a

  141,000     1,818,900
Total (Cost $25,577,014)       43,425,946              
     
             

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE  ROYCE  FUNDS  ANNUAL  REPORT  2004  |  25
 
 




ROYCE MICRO-CAP TRUST
 
 

                               
                               

      Schedule of Investments

                               
    SHARES   VALUE       SHARES   VALUE
Industrial Services (continued)             Other Natural Resources - 1.3%          
Transportation and Logistics (continued)            

PICO Holdings a

  145,100   $ 3,013,727

Hub Group Cl. A a

  6,500   $ 339,430  

Pope Resources L.P.

  33,000     825,000

Knight Transportationc

  34,487     855,278          

MAIR Holdings a,c

  8,600     79,120             3,838,727

Marten Transport a,c

  4,000     90,920          

Patriot Transportation Holding a

  28,400     1,277,688   Total (Cost $14,971,456)         31,794,448

Vitran Corporation Cl. A a

  5,500     94,050          
       
  Technology – 26.5%          
          7,197,286   Aerospace and Defense - 2.2%          
       
 

Astronics Corporation a

  26,400     134,112
Other Industrial Services - 0.5%            

CPI Aerostructures a

  51,000     583,950

Landauer

  21,300     973,410  

Ducommun a

  84,500     1,761,825

Team a

  23,500     365,425  

HEICO Corporation

  41,600     939,744
       
 

HEICO Corporation Cl. A

  4,160     71,926
          1,338,835  

Herley Industries a,c

  81,000     1,647,540
       
 

Integral Systems

  58,500     1,137,825
Total (Cost $22,594,469)         39,132,720  

SIFCO Industries a

  45,800     262,892
       
         
Natural Resources – 10.9%                       6,539,814

Energy Services - 4.3%

                   

Carbo Ceramics

  12,500     862,500              

Conrad Industries a

  154,000     357,434   Components and Systems - 7.0%          

Dril-Quip a,c

  66,500     1,613,290  

Advanced Photonix Cl. A a,c

  267,900     487,578

Gulf Island Fabrication

  59,500     1,298,885  

AlphaSmart a

  16,200     47,774

GulfMark Offshore a,c

  70,200     1,563,354  

Belden CDT

  15,000     348,000

Input/Output a,c

  168,500     1,489,540  

Bonso Electronics International

  31,300     165,546

Lufkin Industries

  36,000     1,436,688  

CSP a

  122,581     1,273,494

NATCO Group Cl. A a

  75,400     663,520  

Celestica a,c

  25,875     365,096

Trican Well Service a

  5,000     276,369  

Dot Hill Systems a,c

  69,000     540,960

Valley National Gases

  30,100     541,800  

Excel Technology a,c

  97,900     2,545,400

Veritas DGC a,c

  37,700     844,857  

Fargo Electronics a,c

  35,100     526,114

Willbros Group a,c

  66,900     1,542,045  

Giga-tronics a

  3,200     6,944
       
 

InFocus Corporation a

  10,000     91,600
          12,490,282  

International DisplayWorks a,c

  43,000     393,450
       
 

Kronos a,c

  17,375     888,384
Oil and Gas - 2.6%            

Lowrance Electronics

  91,000     2,866,409

Bonavista Energy Trust

  132,000     2,973,319  

Mobility Electronics a

  1,000     8,580

Contango Oil & Gas Company a,c

  30,000     217,200  

MOCON

  22,600     221,231

Delta Petroleum a,c

  23,000     360,640  

Neoware Systems a

  2,600     24,203

Gulfport Energy a,c

  362,176     1,195,181  

OSI Systems a,c

  25,000     567,750

Nuvista Energy a

  121,000     1,066,079  

Performance Technologies a,c

  56,050     521,265

Petrohawk Energy a,c

  18,500     158,360  

Plexus Corporation a

  21,500     279,715

Pioneer Drilling Company a,c

  84,800     855,632  

Printronix a,c

  25,000     447,750

Plains Exploration &

           

Radiant Systems a

  64,200     417,942

Production Company a

  24,140     627,640  

REMEC a,c

  231,500     1,669,115

Toreador Resources a,c

  300     6,657  

Richardson Electronics

  202,100     2,144,281
       
 

SafeNet a,c

  11,781     432,834
          7,460,708  

TTM Technologies a,c

  100,000     1,180,000
       
 

TransAct Technologies a

  78,600     1,678,896
Precious Metals and Mining - 1.5%            

Zomax a

  20,000     82,200

Apex Silver Mines a,c

  76,100     1,307,398          

Brush Engineered Materials a,c

  15,500     286,750             20,222,511

Etruscan Resources a

  575,900     885,558          

Gammon Lake Resources a,c

  28,000     149,520   Distribution - 1.0%          

MK Resources Company a

  513,800     1,053,290  

Agilysys

  90,000     1,542,600

Metallica Resources a,c

  170,000     210,800  

Bell Industries a

  85,700     279,382

Northern Orion Resources a

  164,500     478,695  

Jaco Electronics a

  31,400     125,600
       
 

Nu Horizons Electronics a,c

  40,000     319,200
          4,372,011  

PC Mall a,c

  20,000     447,600
       
 

Pomeroy IT Solutions a

  6,900     104,949
Real Estate - 1.2%                    

HomeFed Corporation a

  69,352     3,467,600             2,819,331

Kennedy-Wilson a,c

  21,500     165,120          
       
             
          3,632,720              
       
             


26  |  THE  ROYCE  FUNDS  ANNUAL  REPORT  2004
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
 
 




 
 
DECEMBER 31, 2004

                               
                               

 

                               
    SHARES   VALUE       SHARES   VALUE
Technology (continued)            

Pegasystems a,c

  211,600   $ 1,804,948

Internet Software and Services - 1.0%

           

PLATO Learning a,c

  121,142     902,508

Digitas a,c

  98,840   $ 943,922  

SPSS a

  19,800     309,672

EDGAR Online a,c

  10,000     15,400  

Synplicity a,c

  4,000     23,680

FindWhat.com a,c

  10,000     177,300  

Transaction Systems Architects Cl. A a,c

  140,100     2,780,985

Inforte Corporation a

  68,300     538,204  

Verity a

  95,000     1,246,400

LookSmart a

  20,000     43,800          

NIC a,c

  26,800     136,144             10,848,521

RealNetworks a,c

  65,700     434,934          

Register.com a

  41,857     265,792   Telecommunications - 3.7%          

Stamps.com a

  21,200     335,808  

Anaren a

  94,800     1,228,608
       
 

Brooktrout a

  27,500     330,275
          2,891,304  

C-COR.net a

  5,000     46,500
       
 

Captaris a

  88,000     454,080
IT Services - 5.8%            

Centillium Communications a,c

  11,000     26,730

Bulldog Technologies a,c

  25,000     42,500  

Communications Systems

  214,600     2,577,346

CIBER a,c

  182,662     1,760,862  

Computer Network Technology a,c

  14,000     99,400

Computer Task Group a

  381,100     2,134,160  

Comtech Telecommunications a,c

  2,000     75,220

Covansys Corporation a

  227,500     3,480,750  

KVH Industries a,c

  5,000     49,000

DiamondCluster International a,c

  158,100     2,265,573  

MetaSolv a

  5,800     15,370

Forrester Research a

  105,500     1,892,670  

Netopia a,c

  93,000     293,880

Infocrossing a,c

  20,000     338,600  

North Pittsburgh Systems

  15,700     388,261

Rainmaker Systems a,c

  10,000     12,400  

Optical Communication Products a

  45,000     112,500

Sapient Corporation a,c

  500,000     3,955,000  

PC-Tel a,c

  48,100     381,433

Syntel

  54,300     952,422  

Radyne ComStream a

  96,400     720,108

Tier Technologies Cl. B a

  6,800     62,900  

SpectraLink Corporation

  57,000     808,260
       
 

ViaSat a,c

  94,200     2,286,234
          16,897,837  

Yak Communications a,c

  115,700     893,204
       
         
Semiconductors and Equipment - 2.1%                       10,786,409

August Technology a,c

  57,500     605,475          

Camtek a,c

  20,500     91,840   Total (Cost $45,412,470)         77,046,405

ESS Technology a,c

  25,000     177,750          

Electroglas a,c

  281,700     1,338,075   Miscellaneous – 5.0%          

Exar Corporation a

  68,500     972,015   Total (Cost $10,937,621)         14,383,828

Helix Technology

  9,500     165,205          

Inficon Holding ADRa,b

  10,000     73,000   TOTAL COMMON STOCKS          

Integrated Silicon Solution a,c

  60,000     492,000  

(Cost $176,003,082)

        296,738,542

Intevac a,c

  40,550     306,558          

Monolithic System Technology a

  5,000     31,150   PREFERRED STOCKS – 0.5%          

PDF Solutions a,c

  30,000     483,300  

Angelo and Maxie’s 10.00% Conv.

  6,991     16,289

PLX Technology a,c

  15,000     156,000  

Seneca Foods Conv. a

  75,409     1,368,673

Photronics a

  29,750     490,875          

QuickLogic Corporation a

  20,000     56,820   TOTAL PREFERRED STOCKS          

Semitool a,c

  25,500     236,640  

(Cost $957,998)

        1,384,962

White Electronic Designs a

  57,500     363,975          
       
  REPURCHASE AGREEMENT – 16.9%          
          6,040,678  

State Street Bank & Trust Company, 1.80%

         
       
 

dated 12/31/04, due 1/3/05, maturity

         
Software - 3.7%            

value $49,166,374 (collateralized by Federal

         

Aladdin Knowledge Systems a

  27,300     675,675  

National Mortgage Association, 1.875%-

         

ANSYS a

  30,800     987,448  

2.875% due 2/15/05-10/15/05, valued

         

Applix a

  20,000     102,000  

at $50,149,838) (Cost $49,159,000)

        49,159,000

ILOG ADRa,b,c

  35,000     430,500          

Indus International a

  19,200     41,069              

Intellisync Corporation a,c

  125,000     255,000              

InterVideo a,c

  24,500     324,135              

JDA Software Group a,c

  59,500     810,390              

Kongzhong Corporation ADRa,b,c

  2,200     21,142              

MSC.Software a,c

  12,700     132,969              

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE  ROYCE  FUNDS  ANNUAL  REPORT  2004  |  27
 
 




ROYCE MICRO-CAP TRUST
 
DECEMBER 31, 2004

                               
                               

      Schedule of Investments

                               
    VALUE
COLLATERAL RECEIVED FOR SECURITIES LOANED – 11.7%        
U.S. Treasury Bonds        

6.00%-8.75% due 8/15/19-2/15/27

  $ 6,007  
Money Market Funds        

State Street Navigator Securities Lending

       

Prime Portfolio

    34,064,689  
   
 

(Cost $34,070,696)

    34,070,696  
   
 
TOTAL INVESTMENTS – 131.3%        

(Cost $260,190,776)

    381,353,200  
         
LIABILITES LESS CASH        

AND OTHER ASSETS – (10.7)%

    (30,989,562 )
         
PREFERRED STOCK – (20.6)%     (60,000,000 )
   
 
         
NET ASSETS APPLICABLE TO        

COMMON STOCKHOLDERS – 100.0%

  $ 290,363,638  
   
 


a   Non-income producing.    
b   American Depository Receipt.    
c   A portion of these securities were on loan at December 31, 2004. Total market value of loaned securities at December 31, 2004 was $32,907,834.
d   A security for which market quotations are no longer readily available represents 0% of net assets. This security has been valued at its fair value under procedures established by the Fund’s Board of Directors.
  New additions in 2004.    
    Bold indicates the Fund’s largest 20 equity holdings in terms of December 31, 2004 market value.    
         
INCOME TAX INFORMATION: The cost of total investments for Federal income tax purposes was $262,274,289. At December 31, 2004, net unrealized appreciation for all securities was $119,078,911, consisting of aggregate gross unrealized appreciation of $122,516,330 and aggregate gross unrealized depreciation of $3,437,419. The primary differences in book and tax basis cost is the timing of the recognition of losses on securities sold and amortization of discount for book and tax purposes.



28  |  THE  ROYCE  FUNDS  ANNUAL  REPORT  2004
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
 
 




ROYCE MICRO-CAP TRUST
 
DECEMBER 31, 2004

                               
                               

      Statement of Assets and Liabilities

                               
ASSETS:        
Investments at value (including collateral on loaned securities)*   $ 332,194,200  
Repurchase agreement (at cost and value)     49,159,000  
Cash     319,166  
Receivable for investments sold     4,244,480  
Receivable for dividends and interest     176,814  

Total Assets

    386,093,660  

LIABILITIES:        
Payable for collateral on loaned securities     34,070,696  
Payable for investments purchased     1,119,915  
Payable for investment advisory fee     336,603  
Preferred dividends accrued but not yet declared     80,000  
Accrued expenses     122,808  

Total Liabilities

    35,730,022  

PREFERRED STOCK:        

6.00% Cumulative Preferred Stock – $0.001 par value, $25 liquidation value per share; 2,400,000 shares outstanding

    60,000,000  

Total Preferred Stock

    60,000,000  

NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS   $ 290,363,638  

ANALYSIS OF NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:        
Common Stock paid-in capital – $0.001 par value per share; 20,243,386 shares outstanding (150,000,000 shares authorized)   $ 162,091,331  
Accumulated net realized gain (loss) on investments     7,189,883  
Net unrealized appreciation (depreciation) on investments     121,162,424  
Preferred dividends accrued but not yet declared     (80,000 )

Net Assets applicable to Common Stockholders (net asset value per share – $14.34)

  $ 290,363,638  

*Investments at identified cost (including $34,070,696 of collateral on loaned securities)   $ 211,031,776  


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE  ROYCE  FUNDS  ANNUAL  REPORT  2004  |  29
 
 




ROYCE MICRO-CAP TRUST
 
YEAR ENDED DECEMBER 31, 2004

                               
                               

      Statement of Operations

                               
INVESTMENT INCOME:        
Income:        

Dividends

  $ 2,314,568  

Interest

    421,694  

Securities lending

    76,320  

Total income     2,812,582  

Expenses:        

Investment advisory fees

    3,803,971  

Custody and transfer agent fees

    157,777  

Stockholder reports

    126,464  

Directors’ fees

    58,148  

Professional fees

    34,881  

Administrative and office facilities expenses

    31,740  

Other expenses

    85,683  

Total expenses     4,298,664  

Net investment income (loss)     (1,486,082 )

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:        
Net realized gain (loss) on investments     25,396,860  
Net change in unrealized appreciation (depreciation) on investments     26,164,677  

Net realized and unrealized gain (loss) on investments     51,561,537  

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM INVESTMENT OPERATIONS     50,075,455  

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS     (3,600,000 )

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS        

RESULTING FROM INVESTMENT OPERATIONS

  $ 46,475,455  



30  |  THE  ROYCE  FUNDS  ANNUAL  REPORT  2004
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
 
 




ROYCE MICRO-CAP TRUST
 
 

                               
                               

      Statement of Changes in Net Assets

                               

    Year Ended   Year Ended
    12/31/04   12/31/03

                 
INVESTMENT OPERATIONS:                
Net investment income (loss)   $ (1,486,082 )   $ (1,643,163 )
Net realized gain (loss) on investments     25,396,860       30,865,842  
Net change in unrealized appreciation (depreciation) on investments     26,164,677       67,143,086  

Net increase (decrease) in net assets resulting from investment operations     50,075,455       96,365,765  

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:                
Net realized gain on investments     (3,600,000 )     (3,236,104 )
Quarterly distributions accrued but not yet declared           (11,111 )

Total distributions to Preferred Stockholders     (3,600,000 )     (3,247,215 )

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS                

RESULTING FROM INVESTMENT OPERATIONS

    46,475,455       93,118,550  

DISTRIBUTIONS TO COMMON STOCKHOLDERS:                
Net realized gain on investments     (25,919,005 )     (16,874,985 )

Total distributions to Common Stockholders     (25,919,005 )     (16,874,985 )

CAPITAL STOCK TRANSACTIONS:                
Offering costs from issuance of Preferred Stock           (2,097,350 )
Reinvestment of distributions to Common Stockholders     16,382,136       11,707,658  

Total capital stock transactions     16,382,136       9,610,308  

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS     36,938,586       85,853,873  

NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:                

Beginning of year

    253,425,052       167,571,179  

End of year (including undistributed net investment income of $3,449,948 in 2003)

  $ 290,363,638     $ 253,425,052  


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE  ROYCE  FUNDS  ANNUAL  REPORT  2004  |  31
 
 




ROYCE MICRO-CAP TRUST
 
 

                               
                               

      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.
                               
  Years ended December 31,
 
      2004       2003       2002       2001       2000  

NET ASSET VALUE, BEGINNING OF PERIOD     $13.33       $9.39       $11.83       $10.14       $11.00  

INVESTMENT OPERATIONS:                                        

Net investment income (loss)

    (0.08 )     (0.09 )     (0.13 )     (0.05 )     0.09  

Net realized and unrealized gain (loss) on investments

    2.62       5.28       (1.29 )     2.57       1.23  

Total investment operations

    2.54       5.19       (1.42 )     2.52       1.32  

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:                                        

Net investment income

                            (0.01 )

Net realized gain on investments

    (0.19 )     (0.18 )     (0.18 )     (0.19 )     (0.22 )

Total distributions to Preferred Stockholders

    (0.19 )     (0.18 )     (0.18 )     (0.19 )     (0.23 )

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON                                        

STOCKHOLDERS RESULTING FROM INVESTMENT OPERATIONS

    2.35       5.01       (1.60 )     2.33       1.09  

DISTRIBUTIONS TO COMMON STOCKHOLDERS:                                        

Net investment income

                            (0.09 )

Net realized gain on investments

    (1.33 )     (0.92 )     (0.80 )     (0.57 )     (1.63 )

Total distributions to Common Stockholders

    (1.33 )     (0.92 )     (0.80 )     (0.57 )     (1.72 )

CAPITAL STOCK TRANSACTIONS:                                        

Effect of Preferred Stock Offering

          (0.11 )                  

Effect of reinvestment of distributions by Common Stockholders

    (0.01 )     (0.04 )     (0.04 )     (0.07 )     (0.23 )

Total capital stock transactions

    (0.01 )     (0.15 )     (0.04 )     (0.07 )     (0.23 )

NET ASSET VALUE, END OF PERIOD     $14.34       $13.33       $9.39       $11.83       $10.14  

MARKET VALUE, END OF PERIOD     $15.24       $12.60       $8.44       $10.50       $8.625  

TOTAL RETURN (a):                                        
Market Value     33.4 %     63.6 %     (12.7 )%     28.8 %     15.3 %
Net Asset Value     18.7 %     55.6 %     (13.8 )%     23.4 %     10.9 %
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO                                        

COMMON STOCKHOLDERS:

                                       
Total expenses (b,c)     1.62 %     1.82 %     1.96 %     1.78 %     1.32 %

Management fee expense

    1.43 %     1.59 %     1.59 %     1.57 %     1.08 %

Other operating expenses

    0.19 %     0.23 %     0.37 %     0.21 %     0.24 %
Net investment income (loss)     (0.56 )%     (0.82 )%     (1.23 )%     (0.43 )%     0.74 %
SUPPLEMENTAL DATA:                                        
Net Assets Applicable to Common Stockholders,                                        

End of Period (in thousands)

    $290,364       $253,425       $167,571       $200,443       $163,820  
Liquidation Value of Preferred Stock,                                        

End of Period (in thousands)

    $60,000       $60,000       $40,000       $40,000       $40,000  
Portfolio Turnover Rate     32 %     26 %     39 %     27 %     49 %
PREFERRED STOCK:                                        
Total shares outstanding     2,400,000       2,400,000       1,600,000       1,600,000       1,600,000  
Asset coverage per share     $145.98       $130.59       $129.73       $150.28       $127.39  
Liquidation preference per share     $25.00       $25.00       $25.00       $25.00       $25.00  
Average market value per share (d):                                        

6.00% Cumulative

    $24.66       $25.37                    

7.75% Cumulative

          $25.70       $25.91       $25.30       $23.08  

(a) The Market Value Total Return is calculated assuming a purchase of Common Stock on the opening of the first business day and a sale on the closing of the last business day of each period reported. Dividends and distributions, if any, are assumed for the purposes of this calculation, to be reinvested at prices obtained under the Fund’s Distribution Reinvestment and Cash Purchase Plan. Net Asset Value Total Return is calculated on the same basis, except that the Fund’s net asset value is used on the purchase and sale dates instead of market value.
(b) Expense ratios based on total average net assets including liquidation value of Preferred Stock were 1.32%, 1.49%, 1.62%, 1.46% and 1.06% for the periods ended December 31, 2004, 2003, 2002, 2001 and 2000, respectively.
(c) Expense ratios based on average net assets applicable to Common Stockholders before waiver of fees by the investment adviser would have been 1.92%, 2.04% and 1.81% for the periods ended December 31, 2003, 2002 and 2001, respectively.
(d) The average of month-end market values during the period that the preferred stock was outstanding.


32  |  THE ROYCE FUNDS ANNUAL REPORT 2004
 




ROYCE MICRO-CAP TRUST
 
DECEMBER 31, 2004

                               
                               

      Notes to Financial Statements

                               

Summary of Significant Accounting Policies:
     Royce Micro-Cap Trust, Inc. (“the Fund”) was incorporated under the laws of the State of Maryland on September 9, 1993 as a diversified closed-end investment company. The Fund commenced operations on December 14, 1993.
     The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.


Valuation of Investments:
     Securities are valued as of the close of trading on the New York Stock Exchange (generally 4:00 p.m. Eastern time) on the valuation date. Securities that trade on an exchange or Nasdaq are valued at their last reported sales price taken from the primary market in which each security trades or, if no sale is reported for such day, at their bid price. Other over-the-counter securities for which market quotations are readily available are valued at their bid price. Securities for which market quotations are not readily available are valued at their fair value under procedures established by the Fund’s Board of Directors. Bonds and other fixed income securities may be valued by reference to other securities with comparable ratings, interest rates and maturities, using established independent pricing services.

Investment Transactions and Related Investment Income:
      Investment transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date and any non-cash dividend income is recorded at the fair market value of the securities received. Interest income is recorded on an accrual basis. Realized gains and losses from investment transactions are determined on the basis of identified cost for book and tax purposes.

Expenses:
     The Fund incurs direct and indirect expenses. Expenses directly attributable to the Fund are charged to the Fund’s operations, while expenses applicable to more than one of the Royce Funds are allocated in an equitable manner. Allocated personnel and occupancy costs related to The Royce Funds are included in administrative and office facilities expenses. The Fund has adopted a deferred fee agreement that allows the Fund’s Directors to defer the receipt of all or a portion of Directors’ Fees otherwise payable. The deferred fees are invested in certain Royce Funds until distributed in accordance with the agreement.

Taxes:
     As a qualified regulated investment company under Subchapter M of the Internal Revenue Code, the Fund is not subject to income taxes to the extent that it distributes substantially all of its taxable income for its

 

fiscal year. The Schedule of Investments includes information regarding income taxes under the caption “Income Tax Information”.

Distributions:
     The Fund currently has a policy of paying quarterly distributions on the Fund’s Common Stock. Distributions are currently being made at the annual rate of 9% of the rolling average of the prior four calendar quarter-end NAVs of the Fund’s Common Stock, with the fourth quarter distribution being the greater of 2.25% of the rolling average or the distribution required by IRS regulations. Distributions to Preferred Stockholders are recorded on an accrual basis and paid quarterly. The Fund is required to allocate long-term capital gain distributions and other types of income proportionately to distributions made to holders of shares of Common Stock and Preferred Stock. To the extent that distributions are not paid from long-term capital gains, net investment income or net short-term capital gains, they will represent a return of capital. Distributions are determined in accordance with income tax regulations that may differ from accounting principles generally accepted in the United States of America. Permanent book and tax basis differences relating to stockholder distributions will result in reclassifications within the capital accounts. Undistributed net investment income may include temporary book and tax basis differences, which will reverse in a subsequent period. Any taxable income or gain remaining undistributed at fiscal year end is distributed in the following year.

Repurchase Agreements:
      The Fund entered into repurchase agreements with respect to its portfolio securities solely with State Street Bank and Trust Company (“SSB&T”), the custodian of its assets. The Fund restricts repurchase agreements to maturities of no more than seven days. Securities pledged as collateral for repurchase agreements, which are held by SSB&T until maturity of the repurchase agreements, are marked-to-market daily and maintained at a value at least equal to the principal amount of the repurchase agreement (including accrued interest). Repurchase agreements could involve certain risks in the event of default or insolvency of SSB&T, including possible delays or restrictions upon the ability of the Fund to dispose of the underlying securities.

Securities Lending:
     The Fund loans securities to qualified institutional investors for the purpose of realizing additional income. Collateral on all securities loaned for the Fund is accepted in cash and is invested temporarily by the custodian. The collateral is equal to at least 100% of the current market value of the loaned securities.

Capital Stock:
     The Fund issued 1,228,046 and 1,173,282 shares of Common Stock as reinvestment of distributions by Common Stockholders for the years ended December 31, 2004 and 2003, respectively.
     On October 20, 2003, the Fund redeemed all (1,600,000 shares) of its then outstanding 7.75% Cumulative Preferred Stock at the redemption


 
THE ROYCE FUNDS ANNUAL REPORT 2004  |  33




     ROYCE MICRO-CAP TRUST
 
      

                               
                               

      Notes to Financial Statements (continued)

                               

price of $25.00 per share, plus accumulated and unpaid dividends through the redemption date of $0.15069 per share. On October 16, 2003, the Fund received net proceeds of $58,110,000 (after underwriting discounts of $1,890,000 and before estimated offering expenses of $207,350) from the public offering of 2,400,000 shares of 6.00% Cumulative Preferred Stock. Commencing October 16, 2008 and thereafter, the Fund, at its option, may redeem the 6.00% Cumulative Preferred Stock, in whole or in part, at the redemption price.
     At December 31, 2004, 2,400,000 shares of 6.00% Cumulative Preferred Stock were outstanding. The Fund’s Cumulative Preferred Stock is classified outside of permanent equity (net assets applicable to Common Stockholders) in the accompanying financial statements in accordance with Emerging Issues Task Force (EITF) Topic D-98, Classification and Measurement of Redeemable Securities, that requires preferred securities that are redeemable for cash or other assets to be classified outside of permanent equity to the extent that the redemption is at a fixed or determinable price and at the option of the holder or upon the occurrence of an event that is not solely within the control of the issuer.
     The Fund is required to meet certain asset coverage tests with respect to the Cumulative Preferred Stock as required by the 1940 Act. In addition, pursuant to the Rating Agency Guidelines established by Moody’s, the Fund is required to maintain a certain discounted asset coverage. If the Fund fails to meet these requirements and does not correct such failure, the Fund may be required to redeem, in part or in full, the Cumulative Preferred Stock at a redemption price of $25.00 per share, plus an amount equal to the accumulated and unpaid dividends, whether or not declared on such shares, in order to meet these requirements. Additionally, failure to meet the foregoing asset coverage requirements could restrict the Fund’s ability to pay dividends to Common Shareholders and could lead to sales of portfolio securities at inopportune times. The Fund has met these requirements since issuing the Preferred Stock.

 

Investment Advisory Agreement:
     As compensation for its services under the Investment Advisory Agreement, Royce & Associates, LLC (“Royce”) receives a fee comprised of a Basic Fee (“Basic Fee”) and an adjustment to the Basic Fee based on the investment performance of the Fund in relation to the investment record of the Russell 2000.
     The Basic Fee is a monthly fee equal to 1/12 of 1% (1% on an annualized basis) of the average of the Fund’s month-end net assets applicable to Common Stockholders, plus the liquidation value of Preferred Stock, for the rolling 36-month period ending with such month (the “performance period”). The Basic Fee for each month is increased or decreased at the rate of 1/12 of .05% for each percentage point that the investment performance of the Fund exceeds, or is exceeded by, the percentage change in the investment record of the Russell 2000 for the performance period by more than two percentage points. The performance period for each such month is a rolling 36-month period ending with such month. The maximum increase or decrease in the Basic Fee for any month may not exceed 1/12 of .5%. Accordingly, for each month, the maximum monthly fee rate as adjusted for performance is 1/12 of 1.5% and is payable if the investment performance of the Fund exceeds the percentage change in the investment record of the Russell 2000 by 12 or more percentage points for the performance period, and the minimum monthly fee rate as adjusted for performance is 1/12 of .5% and is payable if the percentage change in the investment record of the Russell 2000 exceeds the investment performance of the Fund by 12 or more percentage points for the performance period.
     Royce has voluntarily committed to waive the portion of its investment advisory fee attributable to an issue of the Fund’s Preferred Stock for any month in which the Fund’s average annual NAV total return since issuance of the Preferred Stock fails to exceed the applicable Preferred Stock’s dividend rate.
     For the year ended December 31, 2004, the Fund accrued and paid Royce advisory fees totaling $3,803,971.



34  |  THE ROYCE FUNDS ANNUAL REPORT 2004
 




 
 
DECEMBER 31, 2004

                               
                               

      

                               

Distributions to Stockholders:
     The tax character of distributions paid to stockholders during 2004 and 2003 was as follows:


Distributions paid from:

    2004     2003

Ordinary income

  $ 3,410,255   $ 3,217,774

Long-term capital gain

    26,108,750     16,893,315
   
    $ 29,519,005   $ 20,111,089

     As of December 31, 2004, the tax basis components of distributable earnings included in stockholder’s equity were as follows:


Undistributed net investment income

  $ 2,446,218  

Undistributed long-term capital gain

    6,827,178  

Unrealized appreciation

    119,078,911  

Accrued preferred distributions

    (80,000 )
   
    $ 128,272,307  

     For financial reporting purposes, capital accounts and distributions to shareholders are adjusted to reflect the tax character of permanent book / tax differences. For the year ended December 31, 2004, the Fund recorded the following permanent reclassifications, which relate primarily to the current net operating losses. Results of operations and net assets were not affected by these reclassifications.


  Undistributed   Accumulated      
  Net Investment   Net Realized     Paid-in
  Income   Gain (Loss)     Capital
 
 
   
  $(1,963,866)   $1,955,209     $8,657

Purchases and Sales of Investment Securities:
     For the year ended December 31, 2004, the cost of purchases and proceeds from sales of investment securities, other than short-term securities and collateral received for securities loaned, amounted to $89,157,225 and $108,571,028, respectively.


 
THE ROYCE FUNDS ANNUAL REPORT 2004  |  35




ROYCE MICRO-CAP TRUST
 
 

                               
                               

      Report of Independent Registered Public Accounting Firm

                               

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, 2004, and the related statement of operations for the year then ended, and the statement of changes in net assets for the two years in the period then ended and the financial highlights for each of the five 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.
     We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (U.S.). 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, 2004, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
     In our opinion, the financial statements and financial highlights referred to above and audited by us present fairly, in all material respects, the financial position of Royce Micro-Cap Trust, Inc. at December 31, 2004, 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 five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.

TAIT, WELLER, & BAKER

Philadelphia, PA
January 21, 2005



36  |  THE ROYCE FUNDS ANNUAL REPORT 2004
 




ROYCE FOCUS TRUST
 
DECEMBER 31, 2004

                               
                               

      Schedule of Investments

                               
    SHARES     VALUE       SHARES     VALUE
COMMON STOCKS – 99.3%             Machinery - 7.0%          
             

Lincoln Electric Holdings

  75,000   $ 2,590,500
Consumer Products – 5.8%            

Pason Systems

  100,000     3,075,389
Sports and Recreation - 2.4%            

Woodward Governor Company

  24,400     1,747,284

Winnebago Industries

  65,000   $ 2,538,900          
       
            7,413,173
Other Consumer Products - 3.4%                    

Matthews International Cl. A

  42,500     1,564,000   Metal Fabrication and Distribution - 8.7%          

Yankee Candle Company a

  60,000     1,990,800  

IPSCO

  80,000     3,824,000
       
 

Metal Management

  75,000     2,015,250
          3,554,800  

Schnitzer Steel Industries Cl. A

  100,000     3,393,000
       
         
Total (Cost $3,224,509)         6,093,700             9,232,250
       
         
Consumer Services – 5.4%             Total (Cost $12,153,818)         24,405,223
Direct Marketing - 3.8%                    

Nu Skin Enterprises Cl. A

  159,900     4,058,262   Industrial Services – 8.4%          
       
  Commercial Services - 3.6%          
Retail Stores - 1.6%            

Carlisle Holdings b

  300,000     2,172,000

Big Lots a

  60,000     727,800  

West Corporation a

  50,000     1,655,500

Pier 1 Imports

  50,000     985,000          
       
            3,827,500
          1,712,800          
       
  Engineering and Construction - 1.7%          
Total (Cost $3,217,534)         5,771,062  

Dycom Industries a

  60,000     1,831,200
       
         
Financial Intermediaries – 8.9%             Industrial Distribution - 1.3%          
Insurance - 7.0%            

Ritchie Bros. Auctioneers

  40,000     1,322,400

Alleghany Corporation a

  12,546     3,578,746          

ProAssurance Corporation a

  47,155     1,844,232   Transportation and Logistics - 1.8%          

White Mountains Insurance Group

  3,000     1,938,000  

Nordic American Tanker Shipping

  50,000     1,952,500
       
         
          7,360,978   Total (Cost $4,843,551)         8,933,600
       
         
Other Financial Intermediaries - 1.9%             Natural Resources – 21.9%          

TSX Group

  45,000     2,008,187   Energy Services - 11.4%          
       
 

Ensign Resource Service Group

  150,000     3,128,169
Total (Cost $4,090,283)         9,369,165  

Input/Output a,b

  325,000     2,873,000
       
 

Tesco Corporation a

  150,000     1,635,000
Financial Services – 6.4%            

Trican Well Service a

  80,000     4,421,910
Information and Processing - 3.4%                    

eFunds Corporation a

  150,000     3,601,500             12,058,079
       
         
Investment Management - 3.0%             Precious Metals and Mining - 10.5%          

Gabelli Asset Management Cl. A

  41,500     2,013,580  

Glamis Gold a

  160,000     2,745,600

U.S. Global Investors Cl. A a,b

  295,605     1,211,981  

Goldcorp

  200,000     3,008,000
       
 

Hecla Mining Company a,b

  500,000     2,915,000
          3,225,561  

Meridian Gold a

  130,000     2,466,100
       
         
Total (Cost $4,309,131)         6,827,061             11,134,700
       
         
Health – 9.6%             Total (Cost $14,912,112)         23,192,779
Drugs and Biotech - 7.8%                    

Endo Pharmaceuticals Holdings a

  114,900     2,415,198   Technology – 9.8%          

Lexicon Genetics a

  300,000     2,326,500   Components and Systems - 2.9%          

Myriad Genetics a,b

  75,000     1,688,250  

Lowrance Electronics

  56,100     1,767,094

Orchid BioSciences a

  160,000     1,840,000  

Richardson Electronics

  120,000     1,273,200
       
         
          8,269,948             3,040,294
       
         
Medical Products and Devices - 1.8%             IT Services - 1.3%          

Arrow International

  60,000     1,859,400  

Syntel

  80,000     1,403,200
       
         
Total (Cost $7,253,935)         10,129,348   Semiconductors and Equipment - 1.8%          
       
 

CEVA a,b

  89,600     815,987
Industrial Products – 23.1%            

Exar Corporation a

  75,000     1,064,250
Building Systems and Components - 4.0%                    

Simpson Manufacturing

  120,000     4,188,000             1,880,237
       
         
Construction Materials - 3.4%                        

Florida Rock Industries

  60,000     3,571,800              
       
             

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS ANNUAL REPORT 2004  |  37




ROYCE FOCUS TRUST
 
DECEMBER 31, 2004

                               
                               

      Schedule of Investments

                               
      SHARES     VALUE         VALUE  
Technology (continued)               REPURCHASE AGREEMENT – 1.4%        
Software - 3.8%               State Street Bank & Trust Company        

ManTech International Cl. Aa

    75,000   $ 1,780,500  

1.80% dated 12/31/04, due 1/3/05,

       

PLATO Learning a,b

    35,000     260,750  

maturity value $1,443,216

       

Transaction Systems Architects Cl. Aa

    100,100     1,986,985  

(collateralized by Federal National

       
         
 

Mortgage Association, 3.875%

       
            4,028,235  

due 2/15/05, valued at $1,473,452)

       
         
 

(Cost $1,443,000)

  $ 1,443,000  
Total (Cost $7,426,264)           10,351,966      
 
         
  COLLATERAL RECEIVED FOR SECURITIES LOANED –3.9%        
TOTAL COMMON STOCKS               Money Market Funds        

(Cost $61,431,137)

          105,073,904  

State Street Navigator Securities Lending

       
         
 

Prime Portfolio

       
      PRINCIPAL        

(Cost $4,105,436)

    4,105,436  
      AMOUNT            
 
CORPORATE BONDS – 1.4%               TOTAL INVESTMENTS – 127.3%        

E*TRADE Financial 6.00%

             

(Cost $89,558,371)

    134,766,100  

Conv. Sub. Note due 2/1/07

  $ 1,500,000     1,531,875            
         
  LIABILITIES LESS CASH        
TOTAL CORPORATE BONDS              

AND OTHER ASSETS – (3.7)%

    (3,913,508 )

(Cost $1,250,459)

          1,531,875            
         
  PREFERRED STOCK – (23.6)%     (25,000,000 )
GOVERNMENT BONDS – 11.6%                  
 
(Principal Amount shown               NET ASSETS APPLICABLE TO        
in local currency.)              

COMMON STOCKHOLDERS – 100.0%

  $ 105,852,592  

Canadian Government Bond

                 
 

3.00% due 6/1/07

    6,150,000     5,096,970            

New Zealand Government Bond

                       

6.50% due 02/15/06

    10,000,000     7,197,725            
         
           
TOTAL GOVERNMENT BONDS                        

(Cost $10,869,061)

          12,294,695            
         
           
U.S. TREASURY OBLIGATIONS – 9.7%                        
U.S. Treasury Notes                        

Treasury Inflation Index Protection

                       

Security 2.0% due 7/15/14

    10,000,000     10,317,190            
         
           
TOTAL U.S. TREASURY OBLIGATIONS                        

(Cost $10,459,278)

          10,317,190            
         
           


a   Non-income producing.
b   A portion of these securities were on loan at December 31, 2004. Total market value of loaned securities at December 31, 2004, was $4,007,576.
  New additions in 2004.
    Bold indicates the Fund’s largest 20 equity holdings in terms of December 31, 2004, market value.
     
INCOME TAX INFORMATION: The cost of total investments for Federal income tax purposes was $89,863,427. At December 31, 2004, net unrealized appreciation for all securities was $44,902,673, consisting of aggregate gross unrealized appreciation of $45,044,761 and aggregate gross unrealized depreciation of $142,088. The primary differences in book and tax basis cost is the timing of the recognition of losses on securities sold and amortization of discount for book and tax purposes.


38  |  THE ROYCE FUNDS ANNUAL REPORT 2004 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.




ROYCE FOCUS TRUST
 
DECEMBER 31, 2004

                               
                               

      Statement of Assets and Liabilities

                               
ASSETS:        
Investments at value (including collateral on loaned securities)*   $ 133,323,100  
Repurchase agreement (at cost and value)     1,443,000  
Receivable for dividends and interest     394,178  

Total Assets

    135,160,278  

LIABILITIES:        
Payable for collateral on loaned securities     4,105,436  
Payable for investment advisory fee     109,129  
Preferred dividends accrued but not yet declared     33,333  
Accrued expenses     59,788  

Total Liabilities

    4,307,686  

PREFERRED STOCK:        
6.00% Cumulative Preferred Stock – $0.001 par value, $25 liquidation value per share; 1,000,000 shares outstanding     25,000,000  

Total Preferred Stock

    25,000,000  

NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS   $ 105,852,592  

ANALYSIS OF NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:        
Common Stock paid-in capital – $0.001 par value per share; 10,855,871 shares outstanding (100,000,000 shares authorized)   $ 59,319,123  
Undistributed net investment income (loss)     (15,000 )
Accumulated net realized gain (loss) on investments     1,374,073  
Net unrealized appreciation (depreciation) on investments     45,207,729  
Preferred dividends accrued but not yet declared     (33,333 )

Net Assets applicable to Common Stockholders (net asset value per share – $9.75)

  $ 105,852,592  

*Investments at identified cost (including $4,105,436 of collateral on loaned securities)   $ 88,115,371  


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. THE ROYCE FUNDS ANNUAL REPORT 2004  |  39




ROYCE FOCUS TRUST
 
YEAR ENDED DECEMBER 31, 2004

                               
                               

      Statement of Operations

                               
INVESTMENT INCOME:        
Income:        

Interest

  $ 1,011,895  

Dividends

    653,844  

Securities lending

    6,304  

Total income     1,672,043  

Expenses:        

Investment advisory fees

    1,197,732  

Custody and transfer agent fees

    84,136  

Stockholder reports

    53,143  

Professional fees

    29,543  

Directors’ fees

    21,062  

Administrative and office facilities expenses

    11,463  

Other expenses

    49,389  

Total expenses     1,446,468  

Net investment income (loss)     225,575  

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:        
Net realized gain (loss) on investments     16,972,445  
Net change in unrealized appreciation (depreciation) on investments     9,319,147  

Net realized and unrealized gain (loss) on investments     26,291,592  

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM INVESTMENT OPERATIONS     26,517,167  

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS     (1,500,000 )

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS RESULTING FROM INVESTMENT OPERATIONS   $ 25,017,167  


40  |  THE ROYCE FUNDS ANNUAL REPORT 2004 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.




ROYCE FOCUS TRUST
 
 

                               
                               

      Statement of Changes in Net Assets

                               

      Year Ended       Year Ended  
      12/31/04       12/31/03  

                 
INVESTMENT OPERATIONS:                
Net investment income (loss)   $ 225,575     $ 735,458  
Net realized gain (loss) on investments     16,972,445       8,288,351  
Net change in unrealized appreciation (depreciation) on investments     9,319,147       24,687,435  

Net increase (decrease) in net assets resulting from investment operations     26,517,167       33,711,244  

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:                
Net investment income     (21,150 )     (153,283 )
Net realized gain on investments     (1,478,850 )     (1,355,105 )
Quarterly distributions accrued but not yet declared           (221 )

Total distributions to Preferred Stockholders     (1,500,000 )     (1,508,609 )

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS RESULTING FROM INVESTMENT OPERATIONS     25,017,167       32,202,635  

DISTRIBUTIONS TO COMMON STOCKHOLDERS:                
Net investment income     (242,185 )     (582,175 )
Net realized gain on investments     (16,948,411 )     (5,147,260 )

Total distributions to Common Stockholders     (17,190,596 )     (5,729,435 )

CAPITAL STOCK TRANSACTIONS:                
Offering costs from issuance of Preferred Stock           (984,000 )
Reinvestment of distributions to Common Stockholders     11,013,943       3,566,912  

Total capital stock transactions     11,013,943       2,582,912  

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS     18,840,514       29,056,112  

NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:                

Beginning of year

    87,012,078       57,955,966  

End of year (including undistributed net investment income (loss) of ($15,000) in 2004.)

  $ 105,852,592     $ 87,012,078  


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE  ROYCE  FUNDS  ANNUAL  REPORT  2004  |  41
 
 




ROYCE FOCUS TRUST
 
 

                               
                               

      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.

    Years ended December 31,
   
    2004     2003     2002     2001     2000  

NET ASSET VALUE, BEGINNING OF PERIOD   $ 9.00     $ 6.27     $ 7.28     $ 6.77     $ 5.94  

INVESTMENT OPERATIONS:                                        

Net investment income (loss)

    0.02       0.08       (0.01 )     0.05       0.12  

Net realized and unrealized gain (loss) on investments

    2.63       3.57       (0.74 )     0.79       1.26  

Total investment operations

    2.65       3.65       (0.75 )     0.84       1.38  

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:                                        

Net investment income

    (0.00 )     (0.02 )     (0.03 )     (0.04 )     (0.03 )

Net realized gain on investments

    (0.15 )     (0.14 )     (0.13 )     (0.13 )     (0.14 )

Total distributions to Preferred Stockholders

    (0.15 )     (0.16 )     (0.16 )     (0.17 )     (0.17 )

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON                                        

STOCKHOLDERS RESULTING FROM INVESTMENT OPERATIONS

    2.50       3.49       (0.91 )     0.67       1.21  

DISTRIBUTIONS TO COMMON STOCKHOLDERS:                                        

Net investment income

    (0.02 )     (0.06 )     (0.02 )     (0.03 )     (0.06 )

Net realized gain on investments

    (1.72 )     (0.56 )     (0.07 )     (0.11 )     (0.28 )

Total distributions to Common Stockholders

    (1.74 )     (0.62 )     (0.09 )     (0.14 )     (0.34 )

CAPITAL STOCK TRANSACTIONS:                                        

Effect of Preferred Stock Offering

          (0.11 )                  

Effect of reinvestment of distributions by Common Stockholders

    (0.01 )     (0.03 )     (0.01 )     (0.02 )     (0.04 )

Total capital stock transactions

    (0.01 )     (0.14 )     (0.01 )     (0.02 )     (0.04 )

NET ASSET VALUE, END OF PERIOD   $ 9.75     $ 9.00     $ 6.27     $ 7.28     $ 6.77  

MARKET VALUE, END OF PERIOD   $ 10.47     $ 8.48     $ 5.56     $ 6.65     $ 5.69  

TOTAL RETURN (a):                                        
Market Value     47.3 %     64.0 %     (15.1 )%     19.7 %     27.9 %
Net Asset Value     29.2 %     54.3 %     (12.5 )%     10.0 %     20.9 %
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO                                        

COMMON STOCKHOLDERS:

                                       
Total expenses (b,c)     1.53 %     1.57 %     1.88 %     1.47 %     1.44 %

Management fee expense

    1.27 %     1.14 %     1.13 %     1.11 %     1.00 %

Other operating expenses

    0.26 %     0.43 %     0.75 %     0.36 %     0.44 %
Net investment income (loss)     0.24 %     1.07 %     (0.16 )%     0.70 %     1.93 %
SUPPLEMENTAL DATA:                                        
Net Assets Applicable to Common Stockholders,                                        

End of Period (in thousands)

  $ 105,853     $ 87,012     $ 57,956     $ 66,654     $ 60,933  
Liquidation Value of Preferred Stock,                                        

End of Period (in thousands)

  $ 25,000     $ 25,000     $ 20,000     $ 20,000     $ 20,000  
Portfolio Turnover Rate     52 %     49 %     61 %     54 %     69 %
PREFERRED STOCK:                                        
Total shares outstanding     1,000,000       1,000,000       800,000       800,000       800,000  
Asset coverage per share   $ 130.85     $ 112.01     $ 97.44     $ 108.32     $ 101.17  
Liquidation preference per share   $ 25.00     $ 25.00     $ 25.00     $ 25.00     $ 25.00  
Average market value per share (d):                                        

6.00% Cumulative

  $ 24.83     $ 25.45                    

7.45% Cumulative

        $ 25.53     $ 25.64     $ 25.09     $ 22.23  

(a)   The Market Value Total Return is calculated assuming a purchase of Common Stock on the opening of the first business day and a sale on the closing of the last business day of each period reported. Dividends and distributions, if any, are assumed for the purposes of this calculation, to be reinvested at prices obtained under the Fund’s Distribution Reinvestment and Cash Purchase Plan. Net Asset Value Total Return is calculated on the same basis, except that the Fund’s net asset value is used on the purchase and sale dates instead of market value.
(b)   Expense ratios based on total average net assets including liquidation value of Preferred Stock were 1.21%, 1.20%, 1.43%, 1.11% and 1.05% for the periods ended December 31, 2004, 2003, 2002, 2001 and 2000, respectively.
(c)   Expense ratios based on average net assets applicable to Common Stockholders before waiver of fees by the investment adviser would have been 1.73%, 2.06%, 1.69% and 1.81% for the periods ended December 31, 2003, 2002, 2001 and 2000, respectively.
(d)   The average of month-end market values during the period that the preferred stock was outstanding.


42  |  THE ROYCE FUNDS ANNUAL REPORT 2004



ROYCE FOCUS TRUST DECEMBER 31, 2004

 

   Notes to Financial Statements


Summary of Significant Accounting Policies:

        Royce Focus Trust, Inc. (“the Fund”) is a diversified closed-end investment company. The Fund commenced operations on March 2, 1988 and Royce & Associates, LLC (“Royce”) assumed investment management responsibility for the Fund on November 1, 1996.
        The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

Valuation of Investments:
        Securities are valued as of the close of trading on the New York Stock Exchange (generally 4:00 p.m. Eastern time) on the valuation date. Securities that trade on an exchange or Nasdaq are valued at their last reported sales price taken from the primary market in which each security trades or, if no sale is reported for such day, at their bid price. Other over-the-counter securities for which market quotations are readily available are valued at their bid price. Securities for which market quotations are not readily available are valued at their fair value under procedures established by the Fund’s Board of Directors. Bonds and other fixed income securities may be valued by reference to other securities with comparable ratings, interest rates and maturities, using established independent pricing services.

Investment Transactions and Related Investment Income:
        Investment transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date and any non-cash dividend income is recorded at the fair market value of the securities received. Interest income is recorded on an accrual basis. Realized gains and losses from investment transactions are determined on the basis of identified cost for book and tax purposes.

Expenses:
         The Fund incurs direct and indirect expenses. Expenses directly attributable to the Fund are charged to the Fund’s operations, while expenses applicable to more than one of the Royce Funds are allocated in an equitable manner. Allocated personnel and occupancy costs related to The Royce Funds are included in administrative and office facilities expenses. The Fund has adopted a deferred fee agreement that allows the Fund’s Directors to defer the receipt of all or a portion of Directors’ Fees otherwise payable. The deferred fees are invested in certain Royce Funds until distributed in accordance with the agreement.

Taxes:
        As a qualified regulated investment company under Subchapter M of the Internal Revenue Code, the Fund is not subject to income taxes to the extent that it distributes substantially all of its taxable income for its
 

fiscal year. The Schedule of Investments includes information regarding income taxes under the caption “Income Tax Information”.

Distributions:
        The Fund currently has a policy of paying quarterly distributions on the Fund’s Common Stock. Distributions are currently being made at the annual rate of 5% 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 1.25% of the rolling average or the distribution required by IRS regulations. Distributions to Preferred Stockholders are recorded on an accrual basis and paid quarterly. The Fund is required to allocate long-term capital gain distributions and other types of income proportionately to distributions made to holders of shares of Common Stock and Preferred Stock. To the extent that distributions are not paid from long-term capital gains, net investment income or net short-term capital gains, they will represent a return of capital. Distributions are determined in accordance with income tax regulations that may differ from accounting principles generally accepted in the United States of America. Permanent book and tax basis differences relating to stockholder distributions will result in reclassifications within the capital accounts. Undistributed net investment income may include temporary book and tax basis differences, which will reverse in a subsequent period. Any taxable income or gain remaining undistributed at fiscal year end is distributed in the following year.

Repurchase Agreements:
        The Fund entered into repurchase agreements with respect to its portfolio securities solely with State Street Bank and Trust Company (“SSB&T”), the custodian of its assets. The Fund restricts repurchase agreements to maturities of no more than seven days. Securities pledged as collateral for repurchase agreements, which are held by SSB&T until maturity of the repurchase agreements, are marked-to-market daily and maintained at a value at least equal to the principal amount of the repurchase agreement (including accrued interest). Repurchase agreements could involve certain risks in the event of default or insolvency of SSB&T, including possible delays or restrictions upon the ability of the Fund to dispose of the underlying securities.

Securities Lending:
        The Fund loans securities to qualified institutional investors for the purpose of realizing additional income. Collateral on all securities loaned for the Fund is accepted in cash and is invested temporarily by the custodian. The collateral is equal to at least 100% of the current market value of the loaned securities.

Capital Stock:
        The Fund issued 1,182,493 and 432,353 shares of Common Stock as reinvestment of distributions by Common Stockholders for the years ended December 31, 2004 and 2003, respectively.
        On October 20, 2003, the Fund redeemed all (800,000 shares) of its then outstanding 7.45% Cumulative Preferred Stock at the redemption

THE  ROYCE  FUNDS  ANNUAL  REPORT  2004  |  43
 
 



ROYCE VALUE TRUST DECEMBER 31, 2004

 

   Notes to Financial Statements (continued)


price of $25.00 per share, plus accumulated and unpaid dividends through the redemption date of $0.14486 per share. On October 17, 2003, the Fund received net proceeds of $24,212,500 (after underwriting discounts of $787,500 and before estimated offering expenses of $196,500) from the public offering of 1,000,000 shares of 6.00% Cumulative Preferred Stock. Commencing October 17, 2008 and thereafter, the Fund, at its option, may redeem the 6.00% Cumulative Preferred Stock, in whole or in part, at the redemption price.
        At December 31, 2004, 1,000,000 shares of 6.00% Cumulative Preferred Stock were outstanding. The Fund’s Cumulative Preferred Stock is classified outside of permanent equity (net assets applicable to Common Stockholders) in the accompanying financial statements in accordance with Emerging Issues Task Force (EITF) Topic D-98, Classification and Measurement of Redeemable Securities, that requires preferred securities that are redeemable for cash or other assets to be classified outside of permanent equity to the extent that the redemption is at a fixed or determinable price and at the option of the holder or upon the occurrence of an event that is not solely within the control of the issuer.
        The Fund is required to meet certain asset coverage tests with respect to the Cumulative Preferred Stock as required by the 1940 Act. In addition, pursuant to the Rating Agency Guidelines established by Moody’s, the Fund is required to maintain a certain discounted asset
 

coverage. If the Fund fails to meet these requirements and does not correct such failure, the Fund may be required to redeem, in part or in full, the Cumulative Preferred Stock at a redemption price of $25.00 per share, plus an amount equal to the accumulated and unpaid dividends, whether or not declared on such shares, in order to meet these requirements. Additionally, failure to meet the foregoing asset coverage requirements could restrict the Fund’s ability to pay dividends to Common Shareholders and could lead to sales of portfolio securities at inopportune times. The Fund has met these requirements since issuing the Preferred Stock.


Investment Advisory Agreement:
        The Investment Advisory Agreement between Royce and the Fund provides for fees to be paid at an annual rate of 1.0% of the Fund’s average daily net assets applicable to Common Stockholders plus the liquidation value of Preferred Stock. Royce has voluntarily committed to waive the portion of its investment advisory fee attributable to an issue of the Fund’s Preferred Stock for any month in which the Fund’s average annual NAV total return since issuance of the Preferred Stock fails to exceed the applicable Preferred Stock’s dividend rate.
        For the year ended December 31, 2004, the Fund accrued and paid Royce advisory fees totaling $1,197,732.

Distributions to Stockholders:
     The tax character of distributions paid to stockholders during 2004 and 2003 was as follows:


Distributions paid from:

    2004       2003

Ordinary income

  $ 263,335     $ 1,622,760

Long-term capital gain

    18,427,261       5,615,063
   
    $ 18,690,596     $ 7,237,823

     As of December 31, 2004, the tax basis components of distributable earnings included in stockholder’s equity were as follows:


Undistributed long-term capital gain   $ 1,664,129  
Unrealized appreciation     44,902,673  
Accrued preferred distributions     (33,333 )
   
    $ 46,533,469  

     For financial reporting purposes, capital accounts and distributions to shareholders are adjusted to reflect the tax character of permanent book / tax differences. For the year ended December 31, 2004, the Fund recorded the following permanent reclassifications, which relate primarily to the current net operating losses. Results of operations and net assets were not affected by these reclassifications.


  Undistributed     Accumulated    
  Net Investment     Net Realized  
  Income     Gain (Loss)  
 
   
 
  $22,760     $(22,760)  

Purchases and Sales of Investment Securities:
      For the year ended December 31, 2004, the cost of purchases and proceeds from sales of investment securities, other than short-term securities and collateral received for securities loaned, amounted to $61,719,366 and $56,634,211, respectively.


44  |  THE  ROYCE  FUNDS  ANNUAL  REPORT  2004
 
 


ROYCE FOCUS TRUST

 

   Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Royce Focus Trust, Inc.

      We have audited the accompanying statement of assets and liabilities of Royce Focus Trust, Inc., including the schedule of investments, as of December 31, 2004, and the related statement of operations for the year then ended, and the statement of changes in net assets for the two years in the period then ended and the financial highlights for each of the five 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.
      We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (U.S.). 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, 2004, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
      In our opinion, the financial statements and financial highlights referred to above and audited by us present fairly, in all material respects, the financial position of Royce Focus Trust, Inc. at December 31, 2004, 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 five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.


TAIT, WELLER, & BAKER

Philadelphia, PA
January 21, 2005


THE  ROYCE  FUNDS  ANNUAL  REPORT  2004  |  45
 
 



DISTRIBUTION  REINVESTMENT  AND  CASH  PURCHASE  OPTIONS  FOR  COMMON  STOCKHOLDERS

Why should I reinvest my distributions?

By reinvesting distributions, a stockholder can maintain an undiluted investment in the Fund. The regular reinvestment of distributions has a significant impact on stockholder returns. In contrast, the stockholder who takes distributions in cash is penalized when shares are issued below net asset value to other stockholders.

How does the reinvestment of distributions from the Royce closed-end funds work?

The Funds automatically issue shares in payment of distributions unless you indicate otherwise. The shares are generally issued at the lower of the market price or net asset value on the valuation date.

How does this apply to registered stockholders?

If your shares are registered directly with a Fund, your distributions are automatically reinvested unless you have otherwise instructed the Funds’ transfer agent, EquiServe, in writing. A registered stockholder also has the option to receive the distribution in the form of a stock certificate or in cash if EquiServe is properly notified.

What if my shares are held by a brokerage firm or a bank?

If your shares are held by a brokerage firm, bank, or other intermediary as the stockholder of record, you should contact your brokerage firm or bank to be certain that it is automatically reinvesting distributions on your behalf. If they are unable to reinvest distributions on your behalf, you should have your shares registered in your name in order to participate.

What other features are available for registered stockholders?

The Distribution Reinvestment and Cash Purchase Plans also allow registered stockholders to make optional cash purchases of shares of a Fund’s common stock directly through EquiServe on a monthly basis, and to deposit certificates representing your Fund shares with EquiServe for safekeeping. The Funds’ investment adviser is absorbing all commissions on optional cash purchases under the Plans through December 31, 2005.

How do the Plans work for registered stockholders?

EquiServe 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 EquiServe 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 EquiServe 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, EquiServe will deduct a $2.50 fee plus brokerage commissions from the sale transaction. If a nominee is the registered owner of your shares, the nominee will maintain the accounts on your behalf.

How can I get more information on the Plans?

You can call an Investor Services Representative at (800) 221-4268 or you can request a copy of the Plan for your Fund from EquiServe. All correspondence (including notifications) should be directed to: [Name of Fund] Distribution Reinvestment and Cash Purchase Plan, c/o EquiServe, PO Box 43011, Providence, RI 02940-3011, telephone (800) 426-5523.


46  |  THE  ROYCE  FUNDS  ANNUAL  REPORT  2004
 
 



DIRECTORS AND OFFICERS

All Directors and Officers may be reached c/o The Royce Funds, 1414 Avenue of the Americas, New York, NY 10019

NAME AND POSITION: Charles M. Royce (65), Director* and President   NAME AND POSITION: Arthur S. Mehlman (63), Director
Term Expires: 2006:   Tenure: Since 1986 (RVT), 1993 (RMT), 1996 (FUND)   Term Expires: 2004   Tenure: Since 2004
Number of Funds Overseen: 21   Non-Royce Directorships: Director of Technology Investment Capital Corp.   Number of Funds Overseen: 21  

Non-Royce Directorships: Director/ Trustee of registered investment companies constituting the 23 Legg Mason Funds and Director of Municipal Mortgage & Equity, LLC.


Principal Occupation(s) During Past Five Years:
President, Chief Investment Officer and Member of Board of Managers of Royce & Associates, LLC (“Royce”) (since October 2001), the Trust’s investment adviser.

 


Principal Occupation(s) During Past Five Years:
Director of The League for People with Disabilities, Inc.; Director of University of Maryland Foundation and University of Maryland College Park Foundation (nonprofits) and Partner, KPMG LLP (international accounting firm) (1972-2002).

NAME AND POSITION: David L. Meister (65), Director


NAME AND POSITION:
Mark R. Fetting (50), Director*
 
Term Expires: 2004   Tenure: Since 2001  
Number of Funds Overseen: 21  
Non-Royce Directorships: Director/Trustee of the registered investment companies constituting the 23 Legg Mason Funds.
  Term Expires: 2004   Tenure: Since 1986 (RVT), 1993 (RMT), 1996 (FUND)
  Number of Funds Overseen: 21  
Non-Royce Directorships: None

Principal Occupation(s) During Past Five Years:
Executive Vice President of Legg Mason, Inc.; Member of Board of Managers of Royce (since October 2001); Division President and Senior Officer, Prudential Financial Group, Inc. and related companies, including Fund Boards and consulting services to subsidiary companies (from 1991 to 2000). Mr. Fetting’s prior business experience includes having served as Partner, Greenwich Associates and Vice President, T. Rowe Price Group, Inc.

NAME AND POSITION: Donald R. Dwight (73), Director
 

Principal Occupation(s) During Past Five Years:
Chairman and Chief Executive Officer of The Tennis Channel (since June 2000). Chief Executive Officer of Seniorlife.com (from December 1999 to May 2000). Mr. Meister’s prior business experience includes having served as a consultant to the communications industry, President of Financial News Network, Senior Vice President of HBO, President of Time-Life Films and Head of Broadcasting for Major League Baseball.
 
NAME AND POSITION:
G. Peter O’Brien (59), Director
Term Expires: 2005   Tenure: Since 1998   Term Expires: 2006   Tenure: Since 2001
Number of Funds Overseen: 21   Non-Royce Directorships: None   Number of Funds Overseen: 21  
Non-Royce Directorships: Director/ Trustee of registered investment companies constituting the 23 Legg-Mason Funds; Director of Renaissance Capital Greenwich Fund and Director of Technology Investment Capital Corp.

Principal Occupation(s) During Past Five Years: President of Dwight Partners, Inc., corporate communications consultant; Chairman (from 1982 to March 1998) and Chairman Emeritus (since March 1998) of Newspapers of New England, Inc. Mr. Dwight’s prior experience includes having served as Lieutenant Governor of the Commonwealth of Massachusetts, as President and Publisher of Minneapolis Star and Tribune Company, and as Trustee of the registered investment companies constituting the Eaton Vance Funds.
   
   
   
 
Principal Occupation(s) During Past Five Years: Trustee of Colgate University; President of Hill House, Inc.; Director/Trustee of certain Legg Mason retail funds; Managing Director/Equity Capital Markets Group of Merrill Lynch & Co. (from 1971 to 1999).

NAME AND POSITION: John D. Diederich (53), Vice President and Treasurer
Tenure: Since 1997
Principal Occupation(s) During Past Five Years: Managing Director, Chief Operating Officer and Member of Board of Managers of Royce (since October 2001); Director of Administration of the Funds since April 1993.

NAME AND POSITION: Jack E. Fockler, Jr. (46), Vice President
Tenure: Since 1995 (RVT), 1995 (RMT), 1996 (FUND)
Principal Occupation(s) During Past Five Years: Managing Director and Vice President of Royce, having been employed by Royce since October 1989.

NAME AND POSITION: W. Whitney George (46), Vice President
Tenure: Since 1995 (RVT), 1995 (RMT), 1996 (FUND)
Principal Occupation(s) During Past Five Years: Managing Director and Vice President of Royce, having been employed by Royce since October 1991.

NAME AND POSITION: Daniel A. O’Byrne (42), Vice President and Assistant Secretary
Tenure: Since 1994 (RVT), 1994 (RMT), 1996 (FUND)
Principal Occupation(s) During Past Five Years: Vice President of Royce, having been employed by Royce since October 1986.

NAME AND POSITION: John E. Denneen (37), Secretary
Tenure: 1996-2001 and Since April 2002
Principal Occupation(s) During Past Five Years: General Counsel(Deputy General Counsel prior to 2003), Principal, Chief Legal and Compliance Officer and Secretary of Royce (1996-2001 and since April 2002); Principal of Credit Suisse First Boston Private Equity (2001-2002).
 
 
NAME AND POSITION: Richard M. Galkin (66), Director  
Term Expires: 2004   Tenure: Since 1986 (RVT), 1993 (RMT), 1996 (FUND)  
Number of Funds Overseen: 21   Non-Royce Directorships: None  

Principal Occupation(s) During Past Five Years: Private investor. Mr. Galkin’s prior business experience includes having served as President of Richard M. Galkin Associates, Inc., telecommunications consultants, President of Manhattan Cable Television (a subsidiary of Time, Inc.), President of Haverhills Inc. (another Time, Inc. subsidiary), President of Rhode Island Cable Television and Senior Vice President of Satellite Television Corp. (a subsidiary of Comsat).
 
NAME AND POSITION: Stephen L. Isaacs (65), Director  
Term Expires: 2005 (RVT), 2005 (RMT), 2004 (FUND)   Tenure: Since 1986 (RVT), 1993 (RMT), 1996 (FUND)  
Number of Funds Overseen: 21   Non-Royce Directorships: None  


Principal Occupation(s) During Past Five Years: President of The Center for Health and Social Policy (since September 1996); Attorney and President of Health Policy Associates, Inc., consultants. Mr. Isaacs’s prior business experience includes having served as Director of Columbia University Development Law and Policy Program and Professor at Columbia University (until August 1996).

 
NAME AND POSITION: William L. Koke (70), Director  
Term Expires: 2004 (RVT), 2004 (RMT), 2005 (FUND)   Tenure: Since 2001 (RVT), 2001 (RMT), 1997 (FUND)  
Number of Funds Overseen: 21   Non-Royce Directorships: None  


Principal Occupation(s) During Past Five Years: Financial planner with Shoreline Financial Consultants. Mr. Koke’s prior business experience includes having served as Director of Financial Relations of SONAT, Inc., Treasurer of Ward Foods, Inc. and President of CFC, Inc.

 

* Interested Director

THE ROYCE FUNDS ANNUAL REPORT 2004  |  47



OTHER IMPORTANT INFORMATION


Forward-Looking Statements
       This material contains forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve risks and uncertainties, including, among others, statements as to:
 
  the Funds’ future operating results
  the prospects of the Funds’ portfolio companies
  the impact of investments that the Funds have made or may make
  the dependence of the Funds’ future success on the general economy and its impact on the companies and industries in which the Funds invest, and
  the ability of the Funds’ portfolio companies to achieve their objectives.

       This Report uses words such as “anticipates,” “believes,” “expects,” “future,” “intends,” and similar expressions to identify forward-looking statements. Actual results may differ materially from those projected in the forward-looking statements for any reason.
       The Royce Funds have based the forward-looking statements included in this Report on information available to us on the date of the Report, and we assume no obligation to update any such forward-looking statements. Although The Royce Funds undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make through future stockholder communications or Reports.
 
Authorized Share Transactions
       Royce Value Trust, Royce Micro-Cap Trust and Royce Focus Trust may each repurchase up to 300,000 shares of its respective common stock and up to 10% of the issued and outstanding shares of its respective preferred stock during the year ending December 31, 2005. Any such repurchases would take place at then prevailing prices in the open market or in other transactions. Common stock repurchases would be effected at a price per share that is less than the share’s then current net asset value, and preferred stock repurchases would be effected at a price per share that is less than the share’s liquidation value.
       Royce Value Trust, Royce Micro-Cap Trust and Royce Focus Trust are also authorized to offer their common stockholders an opportunity to subscribe for additional shares of their common stock through rights offerings at a price per share that may be less than the share’s then current net asset value. The timing and terms of any such offerings are within each Board’s discretion.
 
Proxy Voting
       A copy of the policies and procedures that The Royce Funds use to determine how to vote proxies relating to portfolio securities is available, without charge, by calling 1-800-221-4268 (toll-free) and on the website of the Securities and Exchange Commission (“SEC”), at www.sec.gov. Information regarding how each of The Royce Funds voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is also available without charge, by calling 1-800-221-4268 (toll-free), on the website of the SEC, at www.sec.gov., and on The Royce Funds’ website at www.roycefunds.com.
 
Form N-Q Filing
       The Funds file their complete schedules of investments with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Funds’ Forms N-Q are available on The Royce Funds’ website at www.roycefunds.com and on the SEC’s website at www.sec.gov. The Funds’ Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. To find out more about this public service, call the SEC at 1-800-732-0330. The Funds’ complete schedules of investments are updated quarterly, and are available at www.roycefunds.com.
 
Annual Certifications
       As required, the Funds have submitted to the New York Stock Exchange (“NYSE”) for Royce Value Trust, Royce Micro-Cap Trust and Royce Focus Trust, and to Nasdaq for Royce Focus Trust, respectively, the annual certification of the Funds’ Chief Executive Officer that he is not aware of any violation of the NYSE’s or Nasdaq’s Corporate Governance listing standards. The Funds also have included the certification of the Funds’ Chief Executive Officer and Chief Financial Officer required by section 302 of the Sarbanes-Oxley Act of 2002 as exhibits to the Funds’ Form N-CSR for the year ended December 31, 2004, filed with the Securities and Exchange Commission.

48  |  THE  ROYCE  FUNDS  ANNUAL  REPORT  2004
 
 




STOCKHOLDER MEETING RESULTS

                               
                               
ROYCE VALUE TRUST, INC.

  At the 2004 Annual Meeting of Stockholders held on September 28, 2004, the Fund’s stockholders elected five Directors, consisting of:  
 
 
        Votes For   Votes Abstained    
 
 
    Mark R. Fetting*     54,308,032       432,961      
    Richard M. Galkin*     54,325,149       415,844      
    William L. Koke**     7,659,862       67,338      
    Arthur S. Mehlman*     54,331,600       409,393      
    David L. Meister**     7,650,962       76,238      
 
 
 
* Common Stock and Preferred Stock voting together as a single class.
                   
 
** Preferred Stock voting as a separate class.
                   


ROYCE MICRO-CAP TRUST, INC.

  At the 2004 Annual Meeting of Stockholders held on September 28, 2004, the Fund’s stockholders elected five Directors, consisting of:  
 
 
        Votes For   Votes Abstained    
 
 
    Mark R. Fetting*     20,558,869       142,202      
    Richard M. Galkin*     20,542,698       158,193      
    William L. Koke**     1,961,756       19,834      
    Arthur S. Mehlman*     20,567,831       133,510      
    David L. Meister**     1,963,956       17,634      
 
 
 
* Common Stock and Preferred Stock voting together as a single class.
                   
 
** Preferred Stock voting as a separate class.
                   


ROYCE FOCUS TRUST, INC.

  At the 2004 Annual Meeting of Stockholders held on September 28, 2004, the Fund’s stockholders elected five Directors, consisting of:  
 
 
        Votes For   Votes Abstained    
 
 
    Mark R. Fetting*     9,105,495       107,025      
    Richard M. Galkin*     9,105,926       107,224      
    Stephen L. Isaacs**     987,606       6,693      
    Arthur S. Mehlman*     9,106,894       105,626      
    David L. Meister**     986,706       7,593      
 
 
 
* Common Stock and Preferred Stock voting together as a single class.
                   
 
** Preferred Stock voting as a separate class.
                   



 
   

 

TheRoyceFunds


Wealth Of Experience
With approximately $20.9 billion in open- and closed-end fund assets under management, Royce & Associates is committed to the same small-company investing principles that have served us well for more than 30 years. Charles M. Royce, our Chief Investment Officer, enjoys one of the longest tenures of any active mutual fund manager. Royce’s investment staff includes six other Portfolio Managers, as well as eight assistant portfolio managers and analysts, and six traders..

Multiple Funds, Common Focus
Our goal is to offer both individual and institutional investors the best available small-cap value portfolios. Unlike a lot of mutual fund groups with broad product offerings, we have chosen to concentrate on small-company value investing by providing investors with a range of funds that take full advantage of this large and diverse sector.

Consistent Discipline
Our approach emphasizes paying close attention to risk and maintaining the same discipline, regardless of market movements and trends. The price we pay for a security must be significantly below our appraisal of its current worth. This requires a thorough analysis of the financial and business dynamics of an enterprise, as though we were purchasing the entire company.

Co-Ownership Of Funds
It is important that our employees and shareholders share a common financial goal; our officers, employees and their families currently have approximately $74 million invested in The Royce Funds.

 

   

 
    General Information
Additional Report Copies
and Fund Inquiries
(800) 221-4268


EquiServe
Transfer Agent and Registrar
(800) 426-5523

Broker/Dealer Services
For Fund Materials and Performance Updates,
(800) 59-ROYCE (597-6923)


Advisor Services
For Fund Materials, Performance Updates,
Transactions or Account Inquiries
(800) 33-ROYCE (337-6923)
   

 
    www.roycefunds.com    
   
 
 

CE-REP-1204

 
   




Item 2: Code(s) of Ethics – As of the end of the period covered by this report, the Registrant had adopted a code of ethics, as defined in Item 2 of Form N-CSR, applicable to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of this code of ethics is filed as an exhibit to this Form N-CSR. No substantive amendments were approved or waivers were granted to this code of ethics during the period covered by this report.

 
Item 3: Audit Committee Financial Expert
 
(a)(1)   The Board of Directors of the Registrant has determined that it has an audit committee financial expert.
 
(a)(2)   Arthur S. Mehlman was designated by the Board of Trustees as the Registrant’s Audit Committee Financial Expert, effective April 15, 2004. Mr. Mehlman is “independent” as defined under Item 3 of Form N-CSR.
 
Item 4: Principal Accountant Fees and Services.
 
(a)   Audit Fees:
    Year ended December 31, 2004 - $31,000
    Year ended December 31, 2003 - $29,500
 
(b)   Audit-Related Fees:
    Year ended December 31, 2004 - $1,500 – Preparation of reports to rating agency for Preferred Stock
    Year ended December 31, 2003 - $6,000 – Preparation of reports to rating agency for Preferred Stock
 
(c)   Tax Fees:
    Year ended December 31, 2004 - $2,500 – Preparation of tax returns
    Year ended December 31, 2003 - $2,500 – Preparation of tax returns
 
(d)   All Other Fees:
    Year ended December 31, 2004 - $0
    Year ended December 31, 2003 - $7,500 – Services in connection with Registration Statement on Form N-2 for newly issued Preferred Stock
    $3,000 – Services in connection with Registration Statement on Form N-2 relating to the Fund's Rights Offering


(e)(1)   Annual Pre-Approval: On an annual basis, the Registrant’s independent auditor submits to the Audit Committee a schedule of proposed audit, audit-related, tax and other non-audit services to be rendered to the Registrant and/or investment adviser(s) for the following year that require pre-approval by the Audit Committee. This schedule provides a description of each type of service that is expected to require pre-approval and the maximum fees that can be paid for each such service without further Audit Committee approval. The Audit Committee then reviews and determines whether to approve the types of scheduled services and the projected fees for them. Any subsequent revision to already pre-approved services or fees (including fee increases) are presented for consideration at the next regularly scheduled Audit Committee meeting, as needed.

 

           If subsequent to the annual pre-approval of services and fees by the Audit Committee, the Registrant or one of its affiliates determines that it would like to engage the Registrant’s independent auditor to perform a service not already pre-approved, the request is to be submitted to the Registrant’s Chief Financial Officer, and if he or she determines that the service fits within the independence guidelines (e.g., it is not a prohibited service), he or she will then arrange for a discussion of the proposed service and fee to be included on the agenda for the next regularly scheduled Audit Committee meeting so that pre-approval can be considered.

 

           Interim Pre-Approval: If, in the judgment of the Registrant’s Chief Financial Officer, a proposed engagement needs to commence before the next regularly scheduled Audit Committee meeting, he or she shall submit a written summary of the proposed engagement to all members of the Audit Committee, outlining the services, the estimated maximum cost, the category of the services (e.g., audit, audit-related, tax or other) and the rationale for engaging the Registrant’s independent auditor to perform the services. To the extent the proposed engagement involves audit, audit-related or tax services, any individual member of the Audit Committee who is an independent Board member is authorized to pre-approve the engagement. To the extent the proposed engagement involves non-audit services other than audit-related or tax, the Chairman of the Audit Committee is authorized to

 



pre-approve the engagement. The Registrant’s Chief Financial Officer will arrange for this interim review and coordinate with the appropriate member(s) of the Committee. The independent auditor may not commence the engagement under consideration until the Registrant’s Chief Financial Officer has informed the auditor in writing that pre-approval has been obtained from the Audit Committee or an individual member who is an independent Board member. The member of the Audit Committee who pre-approves any engagements in between regularly scheduled Audit Committee meetings is to report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next regularly scheduled meeting.

 
(e)(2)   Not Applicable
 
(f)   Not Applicable
 
(g)   Year ended December 31, 2004 - $4,000
    Year ended December 31, 2003 - $19,000
 
(h)   No such services were rendered during 2004 or 2003.
 
Item 5:  Not Applicable.
 
Item 6:  Not Applicable.
 
Item 7:  
      June 5, 2003
       
Royce & Associates Proxy Voting Guidelines and Procedures
 

These procedures apply to Royce & Associates, LLC (“Royce”) and all funds and other client accounts for which it is responsible for voting proxies, including all open and closed-end registered investment companies (“The Royce Funds”), limited partnerships, limited liability companies, separate accounts, other accounts for which it acts as investment adviser and any accounts for which it acts as sub-adviser that have directly or indirectly delegated proxy voting authority to Royce. The Boards of Trustees/Directors of The Royce Funds have delegated all proxy voting decisions to Royce.

 

Receipt of Proxy Material. Under the continuous oversight of the Head of Administration, an Administrative Assistant designated by him is responsible for monitoring receipt of all proxies and ensuring that proxies are received for all securities for which Royce has proxy voting responsibility. All proxy materials are logged in upon receipt by Royce’s Librarian.

 

Voting of Proxies. Once proxy material has been logged in by Royce’s Librarian, it is then promptly reviewed by the designated Administrative Assistant to evaluate the issues presented. Regularly recurring matters are usually voted as recommended by the issuer’s board of directors or “management.” The Head of Administration, in consultation with the Chief Investment Officer, develops and updates a list of matters Royce treats as “regularly recurring” and is responsible for ensuring that the designated Administrative Assistant has an up-to-date list of these matters at all times, including instructions from Royce’s Chief Investment Officer on how to vote on those matters on behalf of Royce clients. Examples of “regularly recurring” matters include non-contested elections of directors and non-contested approval of independent auditors. Non-“regularly recurring” matters are brought to the attention of the portfolio manager(s) for the account(s) involved by the designated Administrative Assistant, and, after giving some consideration to advisories from “Proxy Master” (a service provided by Institutional Shareholder Services), the portfolio manager directs that such matters be voted in a way that he or she believes should better protect or enhance the value of the investment. If the portfolio manager determines that information concerning any proxy requires analysis, is missing or incomplete, he or she then gives the proxy to an analyst or another portfolio manager for review and analysis.

 



 
  a.             From time to time, it is possible that one Royce portfolio manager will decide (i) to vote shares held in client accounts he or she manages differently from the vote of another Royce portfolio manager whose client accounts hold the same security or (ii) to abstain from voting on behalf of client accounts he or she manages when another Royce portfolio manager is casting votes on behalf of other Royce client accounts.
 
     

The designated Administrative Assistant reviews all proxy votes collected from Royce’s portfolio managers prior to such votes being cast. If any difference exists among the voting instructions given by Royce’s portfolio managers, as described above, the designated Administrative Assistant then presents these proposed votes to the Head of Administration and the Chief Investment Officer. The Chief Investment Officer, after consulting with the relevant portfolio managers, either reconciles the votes or authorizes the casting of differing votes by different Royce portfolio managers. The Head of Administration maintains a log of all votes for which different portfolio managers have cast differing votes, that describes the rationale for allowing such differing votes and contains the initials of both the Chief Investment Officer and Head of Administration allowing such differing votes. The Head of Administration performs a weekly review of all votes cast by Royce to confirm that any conflicting votes were properly handled in accordance with the above-described procedures.

 
  b.             There are many circumstances that might cause Royce to vote against an issuer’s board of directors or “management” proposal. These would include, among others, excessive compensation, unusual management stock options, preferential voting, poison pills, etc. Royce’s portfolio managers decide these issues on a case-by-case basis as described above.
 
  c.             A Royce portfolio manager may, on occasion, determine to abstain from voting a proxy or a specific proxy item when he or she concludes that the potential benefit of voting is outweighed by the cost, when it is not in the client account’s best interest to vote.
 
  d.             When a client has authorized Royce to vote proxies on its behalf, Royce will generally not accept instructions from the clients regarding how to vote proxies.
 
Custodian banks are authorized to release all shares held for Royce client account portfolios to Automated Data Processing Corporation (“ADP”) for voting, utilizing ADP’s “Proxy Edge” software system. Substantially all portfolio companies utilize ADP to collect their proxy votes. However, for the limited number of portfolio companies that do not utilize ADP, Royce attempts to register at least a portion of its clients holdings as a physical shareholder in order to ensure its receipt of a physical proxy.
 
Under the continuous oversight of the Head of Administration, the designated Administrative Assistant is responsible for voting all proxies in a timely manner. Votes are returned to ADP using Proxy Edge as ballots are received, generally two weeks before the scheduled meeting date. The issuer can thus see that the shares were voted, but the actual vote cast is not released to the company until 4pm on the day before the meeting. If proxies must be mailed, they go out at least ten business days before the meeting date.
 
Conflicts of Interest. The designated Administrative Assistant reviews reports generated by Royce’s portfolio management system (“Quest PMS”) that set forth by record date, any security held in a Royce client account which is issued by a (i) public company that is, or a known affiliate of which is, a separate account client of Royce (including sub-advisory relationships), (ii) public company, or a known affiliate of a public company, that has invested in a privately-offered pooled vehicle managed by Royce or (iii) public company, or a known affiliate of a public company, by which the spouse of a Royce employee or an immediate family member of a Royce employee living in the household of such employee is employed, for the purpose of identifying any potential proxy votes that could present a conflict of interest for Royce. The Head of Administration develops and updates the list of such public companies or their known affiliates which is used by Quest PMS to generate these daily reports. This list also contains information regarding the source of any potential conflict relating to such companies. Potential conflicts identified on the “conflicts reports” are brought to the attention of the Head of Administration by the designated Administrative Assistant, who then reviews them to determine if business or personal relationships exist between Royce, its officers, managers or employees and the company that could present a material conflict of interest. Any such identified material conflicts are voted by Royce in accordance with the recommendation given by an independent third party research firm (Institutional Shareholder Services). The Head of Administration maintains a

 



log of all such conflicts identified, the analysis of the conflict and the vote ultimately cast. Each entry in this log is signed by the Chief Investment Officer before the relevant votes are cast.

Recordkeeping. A record of the issues and how they are voted is stored in the Proxy Edge system. Copies of all physically executed proxy cards, all proxy statements and any other documents created or reviewed that are material to making a decision on how to vote proxies are retained in the Company File maintained by Royce’s Librarian.

Item 8: Not Applicable.

Item 9: Not Applicable.

Item 10: Controls and Procedures.

(a) Disclosure Controls and Procedures. The Principal Executive and Financial Officers concluded that the Registrant’s Disclosure Controls and Procedures are effective based on their evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report.

(b) Internal Control over Financial Reporting. There were no significant changes in Registrant’s internal control over financial reporting or in other factors that could significantly affect this control subsequent to the date of the evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Item 11: Exhibits attached hereto.

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ROYCE VALUE TRUST, INC.

BY: /s/ Charles M. Royce     
      Charles M. Royce
      President

Date: February 28, 2005

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

ROYCE VALUE TRUST, INC.

BY: /s/ Charles M. Royce     
      Charles M. Royce
      President

Date: February 28, 2005

ROYCE VALUE TRUST, INC.

BY: /s/ John D. Diederich     
      John D. Diederich
      Chief Financial Officer

Date: February 28, 2005