N-30D 1 allied_53468.htm MAIN DOCUMENT




2001 Annual Report
 



THE
ROYCE
FUNDS


Value Investing In Small Companies
For More Than 25 Years


ROYCE VALUE TRUST

ROYCE MICRO-CAP TRUST

ROYCE FOCUS TRUST







www.roycefunds.com


 
A FEW WORDS ON CLOSED-END FUNDS

  


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

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

A CLOSED-END FUND OFFERS SEVERAL DISTINCT ADVANTAGES
NOT AVAILABLE FROM AN OPEN-END FUND STRUCTURE

  •

Since a closed-end fund does not issue redeemable securities or offer its securities on a continuous basis, it does not need to liquidate securities or hold uninvested assets to meet investor demands for cash redemptions, as an open-end fund must.

  
•

In a closed-end fund, not having to meet investor redemption requests or invest at inopportune times is ideal for value managers who attempt to buy stocks when prices are depressed and sell securities when prices are high.
•

A closed-end fund may invest more freely in less liquid portfolio securities because it is not subject to potential stockholder redemption demands. This is particularly beneficial for Royce-managed closed-end funds, which invest in small- and micro-cap securities.
•

The fixed capital structure allows permanent leverage to be employed as a means to enhance capital appreciation potential.
•

Unlike open-end funds, our closed-end funds are able to distribute capital gains on a quarterly basis. Royce Value Trust has adopted a quarterly distribution policy 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. To get a fair idea of the impact of reinvested distributions, please see the charts on pages 11, 13 and 15. For additional information on the Funds’ Distribution Reinvestment and Cash Purchase Options and the benefits for stockholders, see page 16.


THE ROYCE FUNDS

ANNUAL REPORT REFERENCE GUIDE
 
For more than 25 years, our approach has focused on evaluating a company’s current worth — our assessment of what we believe a knowledgeable buyer might pay to acquire the entire company, or what we think the value of the company should be in the stock market. This analysis takes into consideration a number of relevant factors, including the company’s future prospects. We select these securities using a risk-averse value approach, with the expectation that their market prices should increase toward our estimate of their current worth, resulting in capital appreciation for Fund investors.

Letter to Our Shareholders:
The Fast and the Furious … The Next Big Hill?   2    
 
Small-Cap Market Cycle Performance 8    
 
History Since Inception 9    
 
Performance and Portfolio Review:
Royce Value Trust, Royce Micro-Cap Trust and Royce Focus Trust		 10    
 
Distribution Reinvestment and Cash Purchase Options 16    
 
Directors and Officers
 17    
 
Stockholder Meeting Results 18    
 
Updates and Notes to Performance and Risk Information 19    
 
Schedules of Investments and Other Financial Statements 20    
 
Postscript: One Ring to Rule Them All ... Inside Back Cover    
 


NAV AVERAGE ANNUAL TOTAL RETURNS Through December 31, 2001
FUND
 4TH QUARTER
2001*
 JULY-DEC
2001*
 1-YEAR
 3-YEAR
 5-YEAR
 SINCE
INCEPTION
 INCEPTION
DATE
Royce Value Trust    21.50%   –0.21%    15.23%    14.48%    14.60%    13.25% 11/26/86
Royce Micro-Cap Trust 23.28 1.65 23.40 15.54 13.47 13.94 12/14/93
Royce Focus Trust 24.16 1.07 10.04 13.11 10.19 10.80 11/1/96**
Russell 2000 21.09 –4.09     2.48   6.42   7.52 n.a. n.a.
Royce Value Trust’s 10-year NAV average annual total return for the period ended 12/31/01 was 14.86% .
*Not annualized.
**Date Royce & Associates, Inc. assumed investment management responsibility.




    LETTER TO OUR SHAREHOLDERS

Charles M. Royce, President

How do The Royce Funds define concentration and how is it used in our portfolios?

Our use of concentration coincides with changes that the small-cap universe underwent in the early ’90s. At that time, we observed that the small-cap market was bifurcating into two distinct sectors: micro-cap at the lower end and small-cap at the upper end. In many ways, micro-caps represent what most investors think of when they think of small-cap investing — more illiquid companies with increased levels of volatility, but higher return potential. In contrast, the small-cap portion of the universe possesses all the attributes of a professional asset class — a high level of institutional acceptance, greater efficiency and widespread research coverage. It includes companies with established corporate cultures, not merely entrepreneurial enterprises. For us, these changes meant a re-orientation of our risk management style. We believe that portfolio concentration

(continued on page 4)		    

THE FAST AND THE FURIOUS

H ow strange that in a year as sorrowful and singular as 2001, one of the more notable elements in the stock market’s behavior from our perspective was the feeling of déjà vu. Domestic equity markets fell in the first quarter, rose in the second, fell again in the third, then rose once more in the fourth. While the quarterly performance pattern suggests an almost artful symmetry, more noteworthy was the consistent presence of high volatility and generally poor returns for the second consecutive year. We don’t mean to suggest that 2001’s overall returns were to be expected, rather that the market’s movements last year are comprehensible within the context of history: Bubbles still burst, booms still go bust and bulls eventually rest while bears roam. In other words, nothing that happened in the market over the last two years was especially surprising to those of us who still recognize that markets are cyclical, valuations are critical and momentum is finite.
     These ideas were tested both during the market’s ride on the “Big Momentum” roller coaster in the mid to late ’90s (when many openly questioned the importance of valuations) and in the immediate aftermath of September 11, when investors responded to the attacks with perhaps the most indiscriminate period of selling that we have seen in more than 25 years. The terrorist attacks were an unprecedented world event, but the market’s reaction was not an unprecedented one:

Bubbles still burst, booms still go bust and bulls eventually rest while bears roam. In other words, nothing that happened in the market over the last two years was especially surprising to those of us who still recognize that markets are cyclical, valuations are critical and momentum is finite.

2 | THE ROYCE FUNDS ANNUAL REPORT 2001  



Previous crises have inspired periods of frantic selling followed by a rally. The free fall during the week of September 17 – 21 now looks to have been an understandable reaction to an extraordinary occurrence. We saw the subsequent rally as compelling evidence of not only the market’s resiliency but also its volatility. That’s one reason why we have always preferred to try to make investing feel more like a ride on the “kiddie coaster” than a spin on the “Big Mo” thrill machine. We’re willing to stay away from the dizzying heights if it means that we can lessen some of the painful drops. Many investors who rode momentum through the late ’90s may still long for the days of exhilarating, skyward surges, but we suspect that just as many would opt out now that they have experienced the swooping, stomach-churning plunges that often follow.

  
“YOU MUST BE THIS SMALL …”

     Last year’s market roller coaster probably left a lot of investors feeling a bit queasy, as few major indices managed to end the year at the top of the ferris wheel. Only the small-cap Russell 2000 was able to finish the year with positive performance, up 2.5% in 2001. The fourth-quarter rally, while welcome for most investors, was not enough to lift the large-cap S&P 500 (-11.9%) and the more tech-oriented Nasdaq Composite (-21.1%) into positive territory for the calendar year. This marked the second year in which the two indices turned in negative calendar year returns, and the first time since 1973/ 74 that the S&P 500 posted back-to-back calendar year losses.

  
   
RUSSELL 2000 VS. S&P 500 QUARTERLY RESULTS
  1ST
QUARTER		 2ND
QUARTER		 3RD
QUARTER		 4TH
QUARTER
2001
  Russell 2000   -6.51% 14.29% -20.79%  21.09%    2.48%
  S&P 500 -11.86%   5.86% -14.67% 10.69% -11.88%


     Although the third-quarter downturn was the worst quarter for small-caps in more than 10 years, in general the asset class provided strong up-market returns in the second and fourth quarters and reasonable down-market returns in the first. The Russell 2000 outperformed the S&P 500 in the first-quarter decline, in the second-quarter rally and in the fourth-quarter uptick. Not only did the Russell 2000 outperform the S&P 500 in 10 out of 12 months in 2001, but it also outpaced its large-cap sibling for the second straight year.

  

Two years ago many market pundits were describing a Brave New World where the only companies worth owning would be mega-cap giants. Few were talking about small-caps emerging as market leaders . . . another lesson in the dubious nature of stock market forecasting.

  

THE ROYCE FUNDS ANNUAL REPORT 2001 | 3




within the small-cap tier is a sensible strategy, enabling us to potentially do more (in terms of performance) with less (in terms of total positions).

Our rules for concentration vary in accordance with cap size. Concentration works differently for small-caps than it does with larger stocks, where it has been an established strategy for many years. While a concentrated large-cap stock portfolio may typically contain 20 – 25 securities, we think that a corresponding small-cap portfolio can hold up to 50 positions and still be considered concentrated. In fact, a 50-stock small-cap portfolio may be more concentrated than a 20-stock large-cap portfolio. Why? It’s not unusual for a concentrated large-cap portfolio with 20 securities to equate to an investment in 75 – 100 businesses. For example, Philip Morris, an S&P 500 company and large-cap portfolio favorite, has seven different business units in seven different industries. Conversely, a small-cap company typically operates under a single line of business, so 50 stocks generally translates into 50 businesses.

A second point of distinction relates to the disparity in each sector’s number of names: The large-cap universe consists of 500 stocks versus more than

(continued on page 6)


     LETTER TO OUR SHAREHOLDERS

    Through the end of the year, the Russell 2000 also held a performance edge versus the S&P 500 in the current market cycle that began at the indices’ respective peaks. We think that this can be attributed to the cyclical nature of the stock market. Two years ago many market pundits were describing a Brave New World where the only companies worth owning would be mega-cap giants. Few were talking about small-caps emerging as market leaders . . . another lesson in the dubious nature of stock market forecasting.

MORE VALUABLE LESSONS
    If small-cap’s market leadership was one of 2001’s big stories, the return of value investing did not lag far behind. For two years in a row, small-cap value stocks, as represented by the Russell 2000 Value index, have outperformed small-cap growth stocks, as represented by the Russell 2000 Growth index. In 2001, the performance edge was substantial, with the value index up 14.0% versus a decline of 9.2% for its growth counterpart. Value’s advantage was intriguing in that it outperformed growth in just two of 2001’s calendar quarters, the first- and third-quarter down periods. Down-market phases have historically been harder on small-cap stocks, and we think that 2001 revealed the crucial role that better down-market returns can play in building successful long-term performance.
    Perhaps no more better example of this point can be found than in each index’s most recent market cycle performance. From the small-cap market peak on 3/9/00 through 12/31/01, the Russell 2000 Value index was up 33.9%, while the Russell 2000 Growth index was down 46.1%, a mirror image of the anomalous market cycle that lasted from 4/21/98 – 3/9/00 in which the Value index (-12.7%) trailed the Growth index (+64.8%). We think that recent market cycle and calendar year return gyrations may be typical of small-cap returns over the next few years. Specifically, we believe that while value and growth will continue to trade leadership during short-term periods, we expect value to outperform over full market cycles.
 
4 | THE ROYCE FUNDS ANNUAL REPORT 2001       



RIDING THE ROYCE COASTER

     Our small-cap focus and value orientation were reflected in 2001’s results for our Funds. All of our closed-end Royce Funds outperformed the Russell 2000 in 2001 (see the chart below for NAV results), and all three funds also beat their benchmark on a net asset value basis (NAV) in the fourth quarter and the second half of the year. Royce Micro-Cap Trust turned in positive second-half performance, while Royce Value Trust and Royce Focus Trust were down less than two percent versus a decline of 4.1% for the Russell 2000 for the same period. For the calendar year, Royce Micro-Cap Trust was the best performer, followed by Royce Value Trust and Royce Focus Trust. Last year’s market volatility enabled us to achieve strong short-term performance while also finding what we think are excellent opportunities for future growth. It’s rare that above-average returns and buying opportunities are simultaneously available in the short term.


  
 


     Over the longer term, the news was just as good, if not better. All three Royce Funds then in existence outperformed the Russell 2000 for the three-, five- and 10-year periods ended 12/31/01, as well as from the small-cap market peak on 3/9/00. This was especially gratifying in that the Funds’ long-term performance advantages were delivered with lower downside volatility than the benchmark. (For a more complete discussion of volatility, see page 19.)

  

SEARCHING, SEARCHING EVERYWHERE

     One positive by-product of the market’s sluggish performance has been an adjustment in investors’ expectations, a process that began this past summer and was then accelerated in the aftermath of the terrorist attacks. Investors no longer regard equities as a fast track to instant wealth. The once-fashionable term ‘day trading,’ with its associations of fevered speculation and frenetic buying and selling, has been gradually replaced by the more subdued ‘online investing.’ The past two years of high volatility, lower returns and small-cap market leadership have also been marked by renewed emphasis on more traditional notions about how to gauge company quality. We think that this has less to do with a company’s size and more to do with the attractive valuations that a few years of relative underperformance and attendant lack of investor interest can help create. As a result, the performance of small-cap value has improved, and the line for the kiddie coaster is growing longer.

THE ROYCE FUNDS ANNUAL REPORT 2001 | 5





8,100 for small-cap. While a portfolio of 20 securities represents 4% of the large-cap universe, 50 securities in a small-cap portfolio represents less than 1% of the total small-cap universe and less than 3.2% of the upper-end $400 million-to-$2 billion sector. In our version of concentration — normally employed by Royce Focus Trust — the top 20 holdings usually comprise more than 50% of the Fund’s equity positions, and its top 35 holdings typically comprise more than 80%.

What, then, does it take to construct a concentrated small cap portfolio? The security selection process intensifies. We must attempt to develop deep knowledge about a company as a business, not simply as a stock. Our concerns about what a company does and how well they do it go beyond conversations with management to those with customers, suppliers and occasionally even competitors. Critical to this is our willingness to adopt a long-term perspective. Patience is a must not only because we are dealing with a limited number of names, but also because conviction must precede purchase. If this sounds familiar, it is because these standards describe the way that we have been managing money since 1972.		     LETTER TO OUR SHAREHOLDERS

The Search For Value

     In the meantime, while taking note of how investors’ perceptions color evaluations of performance, we continue to do what we have always done — exhaustively search for what we think are great small-cap companies at attractive prices. For example, as of 12/31/99, when the three-year NAV average annual total return for the three funds in this report averaged 10.6%, small-cap value managers like us were thought to be faded relics, like old-style wooden coasters. After all, the average annual total return for the Nasdaq Composite was 46.6% for t same period. But since then, the Tech boom has gone bust, and the Nasdaq Composite has tumbled 61.4% from its peak on 3/11/00. The five-year NAV average annual total return for the period ended 12/31/01 for our three closed-end funds — a period that includes the three-year period just referenced — averaged 12.8%, a figure that now looks very sturdy, especially in light of the Nasdaq’s five-year average annual total return of 8.6%.

     This offers a potent lesson in the absolute importance of absolute returns. We haven’t changed anything about the way we select stocks. What account for the differences are changes in the economy, the market and the perceptions of investors. We’d like to think that we weren’t out of touch with the realities of investing three years ago, and similarly that we haven’t hit upon a magic elixir — or the Sorcerer’s Stone or the One Ring — since. Experience has brought home again and again the critical need to resist changing when our style is out of style, or crowing about it when our approach is “discovered” all over again.



We’d like to think that we weren’t out of touch with the realities of investing three years ago, and similarly that we haven’t hit upon a magic elixir — or the Sorcerer’s Stone or the One Ring — since. Experience has brought home again and again the critical need to resist changing when our style is out of style, and crowing about it when our approach is “discovered” all over again.

6 | THE ROYCE FUNDS ANNUAL REPORT 2001		   


THE NEXT BIG HILL?
     We think that the recent rally may have looked a little too far ahead, so we would not be surprised by a correction or two before the end of 2002’s second quarter, which may well coincide with the end of the recession. There s been good news in the form of improved stock performance, a solid fourth-quarter comeback for Technology issues and a feeling that the market has shaken off the after-effects of September 11. However, this has all happened in the midst of an ongoing recession, stock market indices that remain shy of their March 2000 peaks, political infighting over a stimulus package, continued high valuations and a dismal earnings picture. No wonder some investors are feeling confused, if not woozy, after the wild up and down ride of the last several years.

  

(l-r) Charlie Dreifus, Jack Fockler, Buzz Zaino, Whitney George, Chuck Royce

     We think that small-cap can remain a market leader through this uncertain period. The idea that small-caps can be attractive investments because of their higher growth potential and ability to respond more nimbly to economic and market changes seems to be returning. In addition, the market’s higher level of volatility would seem to favor approaches that emphasize risk management and careful stock selection. Nonetheless, we still believe that the market will continue to be characterized by low returns and higher volatility for the foreseeable future.

     We appreciate your continued support.

 Sincerely,

  

 Charles M. Royce
             President
W. Whitney George
Vice President
Jack E. Fockler, Jr.
Vice President		  

January 31, 2002
THE ROYCE FUNDS ANNUAL REPORT 2001 | 7


SMALL-CAP MARKET CYCLE PERFORMANCE


Since the Russell 2000’s inception in 1979, value has outperformed growth in five of the six full small-cap market cycles (defined as a move of 15% from a previous peak or trough). The last small-cap market cycle (4/21/98 – 3/9/00) was the exception. The current cycle represents what we believe is a return to more historically typical performance in that value has provided a significant advantage during the downturn (3/9/00 – 9/21/01) and through December 31, 2001.


 
      PEAK-TO-PEAK
4/21/98 - 3/9/00		 PEAK-TO-TROUGH
3/9/00 - 9/21/01		 TROUGH-TO-CURRENT
9/21/01 - 12/31/01		 PEAK-TO-CURRENT
3/9/00 - 12/31/01		  
 
Russell 2000
26.3% 
–36.2%     
29.5%  
–17.4%  
 
 Russell 2000 Value
 –12.7      
 7.1     
 25.0    
 33.9    
 
 Russell 2000 Growth
 64.8    
 –60.0         
 34.7    
 –46.1     



NAV CUMULATIVE
TOTAL RETURN











 
 Royce Value Trust
 10.0   
 –3.1       
 27.8   
 23.8  
 
 Royce Micro-Cap Trust
   10.6      
 –7.9      
 29.0   
 18.8  
  Royce Focus Trust  –10.7       –1.3       32.3    30.7  


PEAK-TO-TROUGH: Not only did value outperform growth (as measured by the Russell 2000 style indices), but it provided positive performance during the downdraft. All three Royce Funds outperformed the Russell 2000 in this period.


TROUGH-TO-CURRENT: Through December 31, 2001, growth led value during the rally from the September low. All three Royce Funds posted total returns of more than 25% during this period. Our concentrated portfolio, Royce Focus Trust (+32.3%), fared best.


PEAK-TO-CURRENT: Through December 31, 2001, value maintained a sizeable lead over growth. Again, all three Royce Funds held performance advantages over the Russell 2000 (-17.4%) and all have provided positive performance.




8 | THE ROYCE FUNDS ANNUAL REPORT 2001


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        
12/31/01     $ 16,322         4,707   $ 81,478   $ 73,994  
                                 
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        
12/31/01     $ 8,900         2,088   $ 24,701   $ 21,924  
                                 
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        
12/31/01     $ 4,375         1,232   $ 8,969   $ 8,193  

*

Beginning with 1997 distribution, the purchase price on RVT’s distributions is an average of the Fund’s full year distribution reinvestment cost.

**

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 2001 | 9


ROYCE VALUE TRUST


   NAV AVERAGE ANNUAL TOTAL RETURNS
    Through 12/31/01		   MANAGER’S DISCUSSION
     Fourth Quarter 2001*
 21.50%
   R

oyce Value Trust (RVT) beat both of its benchmarks, the Russell 2000 (+21.1%) and the S&P 600 (+20.7%),
     July-December 2001*
 –0.21    
  

on both an NAV (+21.5%) and market price basis (+22.5%) in the bullish fourth quarter. We were pleasantly surprised that our value approach did so well in the late year rally. For the calendar year, the Fund was up 15.2% on an NAV basis and 20.0% on a market price basis, outperforming both the Russell 2000 (+2.5%) and the S&P 600 (+6.5%). RVT also enjoyed a performance edge over its benchmarks for the three-, five-, 10-, 15-year and since inception (11/26/86) periods ended 12/31/01 on both an NAV and market price basis. The Fund’s NAV average annual total return since inception was 13.3%.
     Several of the Fund’s holdings in the Technology sector were beneficiaries of the market’s second- and fourth-quarter rallies. Software, often a volatile industry in the most stable times, posted the largest gains for the calendar year. We took advantage of rising prices in the spring to sell off our position in two companies, Ascential Software and Structural Dynamics Research. We reduced our position in ANSYS in December and took some gains in JDA Software in May and December. Timely selling in May also helped us post gains with information technology services companies American Management Systems and IMRglobal. A strong market for defense-related technology stocks helped to boost the price of Woodward Governor, a manufacturer of energy control systems and components for aircraft and industrial engines. Its price climbed in the second quarter (when we sold some shares), fell in the third, then recovered in the fourth, leading us to reduce our position once more.
     Companies in the Health sector also posted robust gains. Growing earnings and increased attention from Wall Street drove up the price of consumer health product maker Chattem, so we sold some shares between October and December. Regis operates and franchises hair and retail product salons. Its revenues grew, its price went up, and we continue to hold what we think is a well-managed firm with an expanding business. Last January, we saw what we thought was good value in contact lens maker Ocular Sciences. We first purchased it in RVT’s portfolio last January then watched its price soar.
     We like the management and balance sheet of recreation vehicle and small- to mid-sized bus manufacturer Thor Industries. Its expanding market share and an autumn acquisition attracted investors, as its stock price hit the high-speed lane in the fourth quarter. We slightly reduced our position late in the year. Thanks to its growing business, the price of oil and gas construction contractor Willbros Group gushed earlier in the year, leading us to sell some shares. Ticketmaster, whose main businesses include online and offline ticketing, and online city guides and classifieds, was another top performer. We like its management and the combination of profitable existing businesses with strong brand recognition and potentially high-growth new businesses.
     Proceeds from many of the Fund’s sales, especially later in the year, were used for what we believe are potentially profitable opportunities elsewhere in the small- and micro-cap sectors.

     1-Year
 15.23    
     3-Year
 14.48    
     5-Year
 14.60    
     10-year
 14.86    
     Since Inception (11/26/86)
 13.25    
*Not annualized.
   RISK/RETURN COMPARISON
   3-Year Period ended 12/31/01		  

      
     Royce Value
    Trust (NAV)
     S&P 600
     Russell 2000		 Average Annual
Total Return  

14.5       
10.2          
6.4          		 Standard
Deviation

19.1
21.2
23.5
RUR*  

0.76  
0.48   
0.27   		  


* Return per Unit of Risk (RUR) is the average annual total
  return divided by the annualized standard deviation over
  a designated time period.

Over the last three years, Royce Value Trust has outperformed the S&P 600 and the Russell 2000 on both an absolute and a risk-adjusted basis.




 
   CALENDAR YEAR NAV TOTAL RETURNS 
     Year
     2001
     2000
     1999
     1998
   � 1997
     1996
     1995
     1994		 RVT  
15.2%
16.6   
11.7   
3.3   
27.5   
15.5   
22.6   
1.1   		 Year
1993
1992
1991
1990
1989
1988
1987
 RVT  
17.9%
19.9   
39.5   
–13.1   
19.2   
22.8   
–7.7   
   		  


10 | THE ROYCE FUNDS ANNUAL REPORT 2001


PERFORMANCE AND PORTFOLIO REVIEW

        PORTFOLIO DIAGNOSTICS  
  GOOD IDEAS THAT WORKED
2001 Net Realized and Unrealized Gain		    

Urban Outfitters — Increased sales and additional Urban

     Median Market Cap. $586 million  
  Urban Outfitters $5,770,994    

Outfitters and Anthropologie stores were the right fit for this retailer and wholesaler of clothing and other merchandise. Its fast-rising price led us to sell some shares in the fourth quarter, though we still hold a good-sized position.

     Weighted Average P/E
   Ratio		 17.6x*  
 
  Covance 4,162,359       Weighted Average P/B
   Ratio		 1.5x  
 
  Thor Industries 3,684,942       Weighted Average
   Yield		 1.0%  
 
 
    Willbros Group 3,248,915       Turnover Rate 30%  
 
 
    Ticketmaster Cl. B 2,868,964       Net Leverage† 8%  
           
      Fund Net Assets $849 million  
 

Covance — This contract research organization providing product development services to the pharmaceutical, biotechnology and medical device industries, survived 2001’s volatile market in good shape. Its price began to climb in April after the company reduced debt and sold off some businesses. We sold shares in April, May, August and December.
  Symbol - Market Price RVT  
               - NAV XRVTX  

*


Excludes 24% of the portfolio holdings with zero or negative earnings as of 12/31/01.

  
†

Net leverage is the percentage, in excess of 100%, of the total value of equity type investments, divided by net assets, excluding preferred stock.
 

  
    GOOD IDEAS AT THE TIME
2001 Net Realized and Unrealized Loss		    

Washington Group International— This large-scale engineering and construction company could not dig its way out of its costly acquisition of Raytheon’s construction unit. Resulting overruns drove it to bankruptcy and a potentially lengthy lawsuit against Raytheon. We sold our remaining shares in August.

     TOP 10 POSITIONS
% of Net Assets		  
    Washington Group
   International		 $4,468,679       ProAssurance 1.1 %
 
    Charming Shoppes 0.9  
    Trenwick Group 3,071,666    
 
    White Mountains
   Insurance Group		 0.9  
    Highlands Insurance Group 2,057,407    
 
 
    ConBraCo Industries 1,831,200       Urban Outfitters 0.9  
 
 
    Denbury Resources 1,817,105       Avnet 0.9  
     
  American Management
   Systems		 0.9  
 

Trenwick Group – We have been re-evaluating this mid-sized reinsurer since its price fell precipitously in the wake of the terrorist attacks, although we sold some of our shares. The company found itself in the unenviable position of being large enough to have absorbed big losses after September 11, but unable to date to take advantage of the higher premiums that also followed.

  
  Arrow International 0.8  

Thor Industries
0.8

  Farmer Bros. 0.8  
  Simpson Manufacturing 0.7  
 
  PORTFOLIO SECTOR
   BREAKDOWN
% of Net Assets
  Technology 16.0 %
  Industrial Services 11.2  
  Industrial Products 10.8  
  Financial Intermediaries 10.0  
  Consumer Products 9.0  
Health
Natural Resources		 8.3
6.1
The regular reinvestment of distributions makes a difference!   Financial Services 5.1  
  1 Reflects the cumulative total return of an investment made by a stockholder who purchased one share at inception ($10.00 IPO) and then reinvested all annual distributions as indicated, and fully participated in primary subscriptions of rights offerings.
  Consumer Services 4.8  
  2 Reflects the actual market price of one share as it has traded on the NYSE.   Miscellaneous 4.9  
    Bonds & Preferred
   Stocks		 1.1  
  Treasuries, Cash &
   Cash Equivalents		 12.7  
 
  CAPITAL STRUCTURE
Publicly Traded Securities Outstanding
at 12/31/01 at NAV or Liquidation
   Value
  39.8 million shares
of Common Stock		 $689 million  
  7.80% Cumulative
Preferred Stock		 $60 million  
  7.30% Tax-Advantaged
Cumulative Preferred
   Stock		 $100 million  



THE ROYCE FUNDS ANNUAL REPORT 2001 | 11


  ROYCE ROYCE MICRO-CAP TRUST
 


 NAV AVERAGE ANNUAL TOTAL RETURNS
    Through 12/31/01		   MANAGER’S DISCUSSION
       Fourth Quarter 2001*
 23.28%
   S

ometimes a little micro-cap can go a long way. In the fourth-quarter rally, Royce Micro-Cap Trust (OTCM) rebounded from the difficult third
       July-December 2001*
 1.65    
  

quarter by outperforming its small-cap benchmark the Russell 2000 (+21.1%) on both a net asset value (NAV) (+23.3%) and market price basis (+29.0%). For the calendar year, the Fund was up 23.4% on an NAV basis and 28.8% on a market price basis, both results substantially ahead of the Russell 2000’s return of 2.5%. OTCM also held a performance edge over its benchmark on an NAV and market price basis for the three-year, five-year and since inception (12/14/93) periods ended 12/31/01. The Fund’s NAV average annual total return since inception was 13.9%.
     Technology, the Fund’s largest sector, was also its best performer in 2001. While we try to find what we think are attractively valued, conservatively capitalized companies in all of the Fund’s sectors, Tech companies present special challenges because of their inherently volatile nature. We try to stick to areas where we think the risks are relatively lower but the potential rewards are high — software, semiconductors and equipment, information technology services, telecommunications and aerospace. With the exception of telecommunications, each of these industries showed net gains last year. We sold some shares of Kronos in November after the price of this time and labor management systems company rose punctually at the beginning of the fourth-quarter rally. A soaring stock price for engineering software maker ANSYS led us to reduce our position in November and December. In August, we sold out of ESS Technology, a maker of semiconductors for DVD players, PCs and laptops, as its price benefited from strong DVD player sales.
     OTCM also enjoyed success in more traditional value areas, such as Industrial Services, Consumer Services and Consumer Products. Children’s apparel maker and retailer Oshkosh B’Gosh survived the recession to post solid gains. We trimmed our position in the spring and fall rallies. Growing earnings and a so-far favorable acquisition in December helped boost the price of custom memorial product manufacturer Matthews International. We continue to hold a large position. Footwear retailer The Finish Line endured major corporate restructuring early in the year, which sent some investors running and thus allowed us to build a position while paying less than book value for many of our shares. Investors dashed back in the fourth quarter. The price of correctional facilities operator Wackenhut Corrections escaped the doldrums with a strong year. Despite difficulties in its industry, the firm posted strong earnings and expanded its business. Although it suffered through a dismal year, we built a substantial position in discount retailer Stein Mart because we like its management and underlying financials.
     Companies in the Health sector also did well. We saw what we thought was good value in contact lens maker Ocular Sciences in 2000 and watched its price rise on the basis of its strong earnings. The price of specialty drug developer aaiPharma rose steadily through the year as its business continued to grow. After reaching its high for the year in July, medical and pharmaceutical contract research, marketing and consulting firm PAREXEL International stumbled in the third quarter before recovering a bit in November.
     We are very pleased that the Fund’s diversified portfolio of micro-cap stocks was able to avoid some of the extremes of volatility in 2001’s market. We think that value can still be found in the current marketplace.

       1-Year
 23.40    
       3-Year
 15.54    
       5-Year
 13.47    
       Since Inception (12/14/93)
 13.94    
  *Not annualized.
     RISK/RETURN COMPARISON
   3-Year Period ended 12/31/01		  
 
      
     Royce Micro-Cap
    Trust (NAV)
     Russell 2000		 Average Annual
Total Return  

15.5       
6.4          		 Standard
Deviation

20.1
23.5
RUR*  

0.77  
0.27   		  
 

* Return per Unit of Risk (RUR) is the average annual total
  return divided by the annualized standard deviation over a
  designated time period.

  Over the last three years, Royce Micro-Cap
  Trust has outperformed the Russell 2000 on both
  an absolute and a risk-adjusted basis.




 
     CALENDAR YEAR NAV TOTAL RETURNS 
       Year
     2001
     2000
     1999
     1998
     1997
     1996
     1995
     1994		   

   
   
   
   
   
   

   







OTCM  
23.4%
10.9    
12.7    
–4.1    
27.1    
16.6    
22.9    
6.0    		  




12 | THE ROYCE FUNDS ANNUAL REPORT 2001


PERFORMANCE AND PORTFOLIO REVIEW

        PORTFOLIO DIAGNOSTICS  
  GOOD IDEAS THAT WORKED
2001 Net Realized and Unrealized Gain		    

Urban Outfitters – Increased sales and additional Urban

     Median Market Cap. $273 million  
  Urban Outfitters $2,407,159    

Outfitters and Anthropologie stores were the right fit for this retailer and wholesaler of clothing and other merchandise. Its fast-rising price led us to sell some shares in the fourth quarter, though we still hold a good-sized position.

     Weighted Average P/E
   Ratio		 14.8x*  
 
  BioReliance 1,616,877       Weighted Average P/B
   Ratio		 1.2x  
 
  Oshkosh B’Gosh Cl. A 1,432,059       Weighted Average
   Yield		 0.8%  
 
 
    Kronos 1,334,244       Turnover Rate 27%  
 
 
    ANSYS 1,300,315       Net Leverage† 12%  
           
      Fund Net Assets $240 million  
 

BioReliance – We sold most of our position in this health services company that provides biomaterials testing and clinical services to biotechnology and pharmaceutical companies in November. Once investors discovered its ability to manufacture smallpox vaccines, its price seemed to grow immune to downturns.
  Symbol - Market Price OTCM  
                  - NAV XOTCX  

*


Excludes 29% of portfolio holdings with zero or negative earnings as of 12/31/01.

  

†


Net leverage is the percentage, in excess of 100%, of the total value of equity type investments, divided by net assets, excluding preferred stock.

  
       
    GOOD IDEAS AT THE TIME
2001 Net Realized and Unrealized Loss		    

Trenwick Group — We continue to re-evaluate this mid-sized reinsurer whose price fell precipitously in the wake of the terrorist attacks, although we sold our position in October. The company found itself in the unenviable position of being large enough to have absorbed big losses after September 11, but unable to date to take advantage of the higher premiums that also followed.

     TOP 10 POSITIONS
% of Net Assets		  
    Trenwick Group $1,176,677       Matthews International
   Cl. A		 1.5 %
 
 
    Liberty Satellite &
  Technology Cl. A		 908,988       Seneca Foods 1.2  
 
    Wackenhut Corrections 1.1  
    Visible Genetics 801,727    
 
 
    Highlands Insurance Group 712,567       800 JR Cigar 1.0  
 
 
    INT Media Group 692,953       Ash Grove Cement
   Company		 1.0  
     
  Stein Mart 1.0  
 

Liberty Satellite & Technology — Although the price of this distributor of Internet data and other content via satellite technology began to lose ground in May, we like its core business and thus believe in its ability to rebound.

  
  ProAssurance 1.0  
Ocular Sciences
IPC Holdings		 1.0
1.0
  Urban Outfitters 1.0  
 
  PORTFOLIO SECTOR
   BREAKDOWN
% of Net Assets
  Technology 19.0 %
  Industrial Products 12.4  
  Industrial Services 12.3  
  Consumer Products 12.0  
  Health 8.8  
  Financial Intermediaries 8.2  
The regular reinvestment of distributions makes a difference!   Natural Resources 8.0  
  1

Reflects the cumulative total return of an investment made by a stockholder who purchased one share at inception ($7.50 IPO) and then reinvested distributions as indicated, and fully participated in primary subscriptions of the 1994 rights offering.
  Consumer Services 6.3  
  2

Reflects the actual market price of one share as it has traded on the Nasdaq.

   Financial Services 2.3  
    Miscellaneous 4.7  

Preferred Stocks
 0.5
  Treasuries, Cash &
   Cash Equivalents		 5.5  
 
  CAPITAL STRUCTURE
Publicly Traded Securities Outstanding
at 12/31/01 at NAV or Liquidation
   Value
  16.9 million shares
of Common Stock		 $200 million  
  7.75% Cumulative
Preferred Stock		 $40 million  



THE ROYCE FUNDS ANNUAL REPORT 2001 | 13


ROYCE FOCUS TRUST


   NAV AVERAGE ANNUAL TOTAL RETURNS
    Through 12/31/01		   MANAGER’S DISCUSSION
     Fourth Quarter 2001*
 24.16%
   R

oyce Focus Trust’s (FUND) concentrated portfolio of small-cap stocks was able to effectively handle the high levels of volatility in 2001’s stock market.
     July-December 2001*
 –1.07   
  

Somewhat uncharacteristically for a value portfolio, the Fund enjoyed especially strong returns in the fourth-quarter rally, outperforming its benchmark the Russell 2000 (+21.1%) on both a net asset value (NAV) (+24.2%) and market price (+36.1%) basis. For the calendar year, FUND was up 10.0% on an NAV basis and 19.7% on a market price basis, versus 2.5% for the Russell 2000. The Fund also outperformed the Russell 2000 for the three-year, five-year and since inception of Royce’s management (11/1/96) periods ended 12/31/01. FUND’s NAV average annual total return since the inception of our management was 10.8%.
     The disparity between the Fund’s calendar year NAV and market price returns can be seen as another sign that investors are paying more attention to value stocks and the funds that invest in them. Certainly traditional value industries posted impressive gains in the Fund’s portfolio last year. We have liked the management and balance sheet of recreation vehicle and small- to mid-sized bus manufacturer Thor Industries for some years. Its expanding market share and an acquisition in the fall piqued the interest of others as its stock price hit the high-speed lane in the fourth quarter. Construction aggregates company (and long-time holding) Florida Rock Industries cemented a solid year with concrete gains. We trimmed our stake in each firm in November, but continue to hold a large position in both companies.
     We repurchased shares of leading land-drilling oil and natural gas contractor Nabors Industries when its price dropped in the third quarter. Its expanding business and a November acquisition subsequently helped its price to gush, leading us to sell in December. Welding and cutting products manufacturer Lincoln Electric Holdings hit a high in the spring before its price lost some of its spark in the third quarter. We like its core business enough to have added to our position in December.
     Portfolio holdings in the Technology sector benefited from the fourth-quarter rally. In February, we initiated a position in information technology consulting and staffing firm Perot Systems. Its price climbed through the year as it emerged as a leader in an industry that has seen more than its share of difficulties. Zebra Technologies develops and manufactures thermal transfer products for bar code applications. Its price ran to extremes throughout the year, enabling us to build a good-sized position. Aside from a brief thirdquarter stumble, the price of specialty business software maker JDA Software climbed steadily through the year, helped by its growing business. We are happy to hold a large stake.
     We sold most of our stake in workforce management and technology services firm Spherion in October, thinking that we could find potentially better opportunities elsewhere. Similar thinking led us to sell off our shares in three of the Fund’s other four loss leaders listed on the facing page (although Washington Group International’s bankruptcy made the decision easier than it was in the other cases).
     Looking forward, we think that the current volatile market can continue to create potentially attractive opportunities in the small-cap sector.

     1-Year
 10.04   
     3-Year
 13.11   
     5-Year
 10.19   
     Since Inception (11/1/96)† 10.80   
   *Not annualized.
   † Royce & Associates assumed
    investment management
    responsibility for the Fund on
    11/1/96.
   RISK/RETURN COMPARISON
   3-Year Period ended 12/31/01		  
 

Royce Focus
Trust (NAV)
Russell 2000		 Average Annual
Total Return

13.1 
6.4 		 Standard
Deviation

22.2
23.5
RUR*  

0.59  
0.27   		  

*

Return per Unit of Risk (RUR) is the average annual total return divided by the annualized standard deviation over a designated time period.

Over the last three years, Royce Focus Trust has outperformed the Russell 2000 on both an absolute and a risk-adjusted basis.




 
     CALENDAR YEAR NAV TOTAL RETURNS 
       Year
     2001
     2000
     1999
     1998
     1997		   

   
   
   




FUND  
10.0%
20.9    
8.7    
–6.8    
20.5    		  




14 | THE ROYCE FUNDS ANNUAL REPORT 2001


PERFORMANCE AND PORTFOLIO REVIEW

        PORTFOLIO DIAGNOSTICS  
  GOOD IDEAS THAT WORKED
2001 Net Realized and Unrealized Gain		    

Monaco Coach — The price of this recreational vehicle manufacturer climbed

     Median Market Cap.
 $766 million
  


Weighted Average
   P/E Ratio
15.7×
*

Monaco Coach
 $1,359,404
 

steadily from January through June, as growing demand and favorable comments from Wall Street brought investors along for the ride. We sold some shares in November.

  

Weighted Average P/B
   Ratio
2.0×

Kronos
 1,276,323
 

Weighted Average
   Yield
1.0%

  Perot Systems Cl. A 959,901       Turnover Rate 54%  
 
  Thor Industries 945,034       Net Leverage† 2%  
 
 
    Florida Rock Industries 944,689       Fund Net Assets $87 million  
 
 
              Symbol – Market Price FUND  
               – NAV XFUNX  
 

Kronos — The price of this time and labor management systems company rose punctually at the beginning of the fourth-quarter rally, thanks to inroads into the small- and mid-sized business markets. We trimmed our position between August and November.
*

Excludes 17% of the portfolio holdings with zero or negative earnings as of 12/31/01.

  

†

Net leverage is the percentage, in excess of 100%, of the total value of equity type investments, divided by net assets, excluding preferred stock.

  
       
    GOOD IDEAS AT THE TIME
2001 Net Realized and Unrealized Loss		     Comdisco — We sold what remained of our shares in June, sad to see this once-vital technology services firm unable to recover from the disaster of its costly Internet ventures.

INT Media Group — We think that the core business of this e-business and internet technology network services company remains viable, but we saw other

   TOP 10 POSITIONS
% of Net Assets		  
    Comdisco $1,584,147       Lincoln Electric Holdings 3.7 %
 
 
    INT Media Group 1,352,612       Perot Systems Cl. A 3.0  
 
 
    Washington Group
    International		 790,010       Monaco Coach
 2.9
  
 
Spherion
598,746
 
Florida Rock Industries
 2.5
   
EGL
563,118		       ProAssurance
 2.5
 

potentially rewarding opportunities, so we sold our shares in September.

   Simpson Manufacturing
 2.5
  Avnet
 2.3
 

 

  
Zebra Technologies Cl. A
 2.3
  ABM Industries 2.2  
  Input/Output 2.1  
 
  PORTFOLIO SECTOR BREAKDOWN
% of Net Assets
  Technology 20.4 %
  Industrial Products 11.1  
  Natural Resources 9.2  
  Financial Intermediaries 8.5  
  Consumer Products 8.2  
  Industrial Services 8.0  
    Health 7.7  
  1

2		 Royce & Associates assumed investment management responsibility for the Fund on 11/1/96.
Reflects the cumulative total return experience of a continuous
  Consumer Services 3.8  
 
3		 common stockholder who reinvested all distributions.
Reflects the actual market price of one share as it has traded on the		   Financial Services 1.4  
    Nasdaq.   Treasuries, Cash & Cash
   Equivalents		 21.7  
   
  CAPITAL STRUCTURE
Publicly Traded Securities Outstanding
at 12/31/01 at NAV or Liquidation
   Value
  9.2 million shares
of Common Stock		 $67 million  
  7.45% Cumulative
Preferred Stock		 $20 million  



THE ROYCE FUNDS ANNUAL REPORT 2001 | 15


DISTRIBUTION REINVESTMENT AND CASH PURCHASE OPTIONS FOR COMMON STOCKHOLDERS
 
 

WHY SHOULD I REINVEST MY DISTRIBUTIONS?

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


HOW DOES THE REINVESTMENT OF DISTRIBUTIONS FROM THE ROYCE CLOSED-END FUNDS WORK?

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


HOW DOES THIS APPLY TO REGISTERED STOCKHOLDERS?

     If your shares are registered directly with a Fund, your distributions are automatically reinvested unless you have otherwise instructed the Funds’ 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, 2002.


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.

 

16 | THE ROYCE FUNDS ANNUAL REPORT 2001


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, Director*,
                                              President and Treasurer
Age: 62                                     Tenure: Since 1986 (RVT), 1993
                                                                  (OTCM), 1996 (FUND)
No. of Funds Overseen: 17    Non-Royce Directorships: None
Principal Occupation(s) During Past Five Years:   President, Managing Director (since April 1997), Secretary, Treasurer and director of Royce & Associates, Inc. (“Royce”), the Funds’ investment adviser.

NAME AND POSITION:  Mark R. Fetting, Director*
Age:   47                                   Tenure: Since 2001
No. of Funds Overseen: 17    Non-Royce Directorships: None
Principal Occupation(s) During Past Five Years: Executive Vice President of Legg Mason, Inc.; director of Royce; 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, Director
Age: 70                                     Tenure: Since 1998
No. of Funds Overseen: 17    Non-Royce Directorships: Trustee
                                                    of the registered investment
                                                    companies constituting the 94 Eaton
                                                    Vance Funds
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 and as President and Publisher of Minneapolis Star and Tribune Company.

NAME AND POSITION:  Richard M. Galkin, Director
Age: 63                                     Tenure: Since1986(RVT),1993
                                                                   (OTCM), 1996 (FUND)
No. of Funds Overseen: 17    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, Director
Age: 62                                   Tenure: Since 1986 (RVT), 1993                                                                    (OTCM), 1996 (FUND)
No. of Funds Overseen: 17    Non-Royce Directorships: None
Principal Occupation(s) During Past Five Years: President of The Center for Health and Social Policy (since September 1996); President of Health Policy Associates, Inc., consultants; and Director of Columbia University Development Law and Policy Program and Professor at Columbia University (until August 1996).

NAME AND POSITION:  William L. Koke, Director
Age: 67                                     Tenure: Since 2001 (RVT), 2001
                                                                   (OTCM), 1997 (FUND)
No. of Funds Overseen: 17    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.

  


NAME AND POSITION:   David L. Meister, Director
Age: 62                                     Tenure: Since 1986 (RVT),
                                                                   1993 (OTCM), 1996 (FUND)
No. of Funds Overseen: 17    Non-Royce Directorships: None
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, Director
Age: 56                                     Tenure: Since 2001
No. of Funds Overseen: 17    Non-Royce Directorships: None
Principal Occupation(s) During Past Five Years: Trustee of Colgate University; Director of Pinnacle Holdings, Inc.; Director of Renaissance Capital Greenwich Funds; Vice 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, Vice President
Age: 50                                     Tenure: Since 1997
Principal Occupation(s) During Past Five Years: Managing Director and Chief Operating Officer of Royce (since October 2001); Director of Administration of the Funds since April 1993.


NAME AND POSITION:   Jack E. Fockler, Jr., Vice President
Age: 43                                     Tenure: Since 1995 (RVT),
                                                                  1995 (OTCM), 1996 (FUND)
Principal Occupation(s) During Past Five Years: Managing Director (since April 1997) and Vice President of Royce, having been employed by Royce since October 1989.


NAME AND POSITION:   W. Whitney George, Vice President
Age: 43                                     Tenure: Since 1995 (RVT),
                                                                   1995 (OTCM), 1996 (FUND)
Principal Occupation(s) During Past Five Years: Managing Director (since April 1997) and Vice President of Royce, having been employed by Royce since October 1991.


NAME AND POSITION:   Daniel A. O’Byrne, Vice President and Assistant Secretary
Age: 39                                     Tenure: Since 1994 (RVT),
                                                                  1994 (OTCM), 1996 (FUND)
Principal Occupation(s) During Past Five Years: Vice President of Royce (since May 1994), having been employed by Royce since October 1986.


NAME AND POSITION:   Andrew S. Novak, Secretary
Age: 33                                     Tenure: Since 2001
Principal Occupation(s) During Past Five Years: Associate General Counsel and Chief Compliance Officer of Royce since May 2001; Vice President of Mitchell Hutchins Asset Management, Inc. (from August 1997 to August 2000); attorney in private practice prior thereto.


* Interested Director.

Each director will hold office until the Funds’ next special meeting of stockholders and until their successors have been duly elected and qualified or until their earlier resignation or removal.


THE ROYCE FUNDS ANNUAL REPORT 2001 | 17


STOCKHOLDER MEETING RESULTS

At the 2001 Annual Meeting of Stockholders held on September 14, 2001, in conjunction with the acquisition of Royce & Associates by Legg Mason, Inc., the Funds’ stockholders: (i) approved a new Investment Advisory Agreement for the Fund and (ii) elected the board of directors, consisting of (a) Charles M. Royce, (b) Donald R. Dwight, (c) Mark R. Fetting, (d) Richard M. Galkin, (e) Stephen L. Isaacs, (f) William L. Koke, (g) David L. Meister and (h) G. Peter O’Brien.


     ROYCE VALUE TRUST, INC.
    COMMON STOCK AND PREFERRED STOCK VOTING TOGETHER AS A SINGLE CLASS COMMON STOCK AND PREFERRED STOCK VOTING TOGETHER AS A SINGLE CLASS COMMON STOCK AND PREFERRED STOCK VOTING TOGETHER AS A SINGLE CLASS PREFERRED STOCK VOTING AS A SEPARATE CLASS PREFERRED STOCK VOTING AS A SEPARATE CLASS PREFERRED STOCK VOTING AS A SEPARATE CLASS  
   
VOTES FOR		 VOTES AGAINST VOTES ABSTAINED VOTES FOR VOTES AGAINST VOTES ABSTAINED
               
(i)   32,633,470.8119 7,219,336.5952 347,336.3800 n.a. n.a. n.a.
(ii) (a) 39,795,257.7312 n.a. 404,886.0559 n.a. n.a. n.a.
  (b) 39,871,693.5231 n.a. 328,450.2640 n.a. n.a. n.a.
  (c) 39,755,402.2520 n.a. 444,741.5351 n.a. n.a. n.a.
  (d) 39,883,713.6115 n.a. 316,430.1756 n.a. n.a. n.a.
  (e) 39,887,446.3414 n.a. 312,697.4457 n.a. n.a. n.a.
  (f) n.a. n.a. n.a. 5,530,200 n.a. 43,205
  (g) n.a. n.a. n.a. 5,530,400 n.a. 43,005
  (h) 39,858,263.0730 n.a. 341,870.7168 n.a. n.a. n.a.


     ROYCE MICRO-CAP TRUST, INC.
    COMMON STOCK AND PREFERRED STOCK VOTING TOGETHER AS A SINGLE CLASS COMMON STOCK AND PREFERRED STOCK VOTING TOGETHER AS A SINGLE CLASS COMMON STOCK AND PREFERRED STOCK VOTING TOGETHER AS A SINGLE CLASS PREFERRED STOCK VOTING AS A SEPARATE CLASS PREFERRED STOCK VOTING AS A SEPARATE CLASS PREFERRED STOCK VOTING AS A SEPARATE CLASS  
   
VOTES FOR		 VOTES AGAINST VOTES ABSTAINED VOTES FOR VOTES AGAINST VOTES ABSTAINED
(i)       12,680.703 4,161,503.384  96,365.050 n.a. n.a. n.a.
(ii) (a) 16,742,585.736 n.a. 196,786.287 n.a. n.a. n.a.
  (b) 16,850,813.788 n.a.  88,558.235 n.a. n.a. n.a.
  (c) 16,723,356.788 n.a. 216,015.235 n.a. n.a. n.a.
  (d) 16,859,743.736 n.a.  78,828.287 n.a. n.a. n.a.
  (e) 16,854,775.736 n.a.  83,796.287 n.a. n.a. n.a.
  (f) n.a. n.a. n.a. 1,571,161 n.a. 5,620
  (g) n.a. n.a. n.a. 1,571,161 n.a. 5,620
  (h) 16,861,016.736 n.a.  77,555.287 n.a. n.a. n.a.


     ROYCE FOCUS TRUST, INC.
    COMMON STOCK AND PREFERRED STOCK VOTING TOGETHER AS A SINGLE CLASS COMMON STOCK AND PREFERRED STOCK VOTING TOGETHER AS A SINGLE CLASS COMMON STOCK AND PREFERRED STOCK VOTING TOGETHER AS A SINGLE CLASS PREFERRED STOCK VOTING AS A SEPARATE CLASS PREFERRED STOCK VOTING AS A SEPARATE CLASS PREFERRED STOCK VOTING AS A SEPARATE CLASS  
   
VOTES FOR		 VOTES AGAINST VOTES ABSTAINED VOTES FOR VOTES AGAINST VOTES ABSTAINED
(i)   6,140,326.6309 2,876,923.6556 97,465.2737 n.a. n.a. n.a.
(ii) (a) 9,046,573.4591 n.a. 68,143.1011 n.a. n.a. n.a.
  (b) 9,047,952.4591 n.a. 66,764.1011 n.a. n.a. n.a.
  (c) 9,039,790.0733 n.a. 74,926.4869 n.a. n.a. n.a.
  (d) 9,052,038.6639 n.a. 62,677.8963 n.a. n.a. n.a.
  (e) n.a. n.a. n.a. 767,274 n.a. 4,310
  (f) 9,051,240.4591 n.a. 63,476.1011 n.a. n.a. n.a.
  (g) n.a. n.a. n.a. 767,507 n.a. 5,017
  (h) 9,048,354.8685 n.a. 66,361.6917 n.a. n.a. n.a.



18 | THE ROYCE FUNDS ANNUAL REPORT 2001


UPDATES AND NOTES TO PERFORMANCE AND RISK INFORMATION
 
AUTHORIZED SHARE TRANSACTIONS

 

            Each of Royce Value Trust, Royce Micro-Cap Trust and Royce Focus Trust may repurchase up to 300,000 shares of its common stock and up to 10% of the issued and outstanding shares of each series of its preferred stock during the year ending December 31, 2002. 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.


  
NOTES TO PERFORMANCE AND RISK INFORMATION

     All performance information is presented on a total return basis and reflects the reinvestment of distributions. Past performance is no guarantee of future results. Share prices will fluctuate, so that shares may be worth more or less than their original cost when sold. Royce closed-end funds invest primarily in securities of small-cap and/or micro-cap companies that may involve considerably more risk than investments in securities of larger-cap companies. The thoughts expressed in this report concerning recent market movements and future prospects for small-cap company stocks are solely those of Royce, and, of course, historical market trends are not necessarily indicative of future market movements. Statements regarding the future prospects for particular securities held in the Funds’ portfolios and Royce’s investment intentions with respect to those securities reflect Royce’s opinions as of December 31, 2001, and are subject to change at any time without notice. There can be no assurance that securities mentioned in this report will be included in any Royce-managed portfolio in the future.

     Standard deviation is a statistical measure within which a fund’s total returns have varied over time. The greater the standard deviation, the greater a fund’s volatility. The Funds’ P/E ratio calculations exclude companies with zero or negative earnings.

     The Russell 2000, Russell 2000 Value, Russell 2000 Growth, Nasdaq Composite, S&P 500 and S&P 600 SmallCap are unmanaged indices of domestic common stocks. The Royce Funds is a service mark of The Royce Funds.

 




THE ROYCE FUNDS ANNUAL REPORT 2001 | 19


ROYCE VALUE TRUST, INC.
SCHEDULE OF INVESTMENTS
 DECEMBER 31, 2001
COMMON STOCKS - 86.2%
  SHARES
   VALUE
     SHARES
   VALUE
Consumer Products - 9.0%         Restaurants/Lodgings - 0.2%      
Apparel and Shoes - 2.9%           IHOP Corporation a 25,000   $        732,500
  Garan 46,900   $     1,993,250     Prime Hospitality a 96,400   1,065,220
  Jones Apparel Group a 81,500   2,703,355         1,797,720
  K-Swiss Cl. A 104,500   3,474,625   Retail Stores - 3.1%      
  Nautica Enterprises a 85,000   1,087,150     Big Lots 402,200   4,182,880
  Oshkosh B’Gosh Cl. A 108,300   4,542,102     Charming Shoppes a 821,700   4,363,227
  Polo Ralph Lauren Cl. A a 186,100   4,980,036     Claire’s Stores 132,200   1,996,220
  Weyco Group 167,664   4,250,282     Michaels Stores a 10,000   329,500
  Wolverine World Wide 99,400   1,495,970
     Pier 1 Imports 101,400   1,758,276
      24,526,770
     Ross Stores 134,500   4,314,760
Collectibles - 0.2%           Stein Mart a 172,800   1,444,608
  The Boyds Collection a 161,800   1,095,386     Urban Outfitters a 304,300   7,339,716
  Enesco Group a 172,200   1,084,860
         25,729,187
      2,180,246
   Other Consumer Services - 0.5%      
Food/Beverage/Tobacco - 0.6%           Sotheby’s Holdings Cl. A a 265,200   4,404,972
  800 JR Cigar a,d 172,400   2,241,200   Total (Cost $28,171,038)     40,098,839
  Hain Celestial Group a 37,800   1,037,988          
  Hershey Creamery 583   1,043,570   Financial Intermediaries - 10.0%      
  Tootsie Roll Industries 13,791   538,952
   Banking - 1.4%      
      4,861,710
     BOK Financial a 63,354   1,996,285
Home Furnishing/Appliances - 1.0%           Farmers & Merchants Bank of Long
    Beach		 1,266   3,342,240
  Bassett Furniture Industries 131,675   1,844,767     First National Bank Alaska 2,100   2,467,500
  Ethan Allen Interiors 10,000   415,900     Fulton Financial 18,903   412,652
  Falcon Products 377,000   2,544,750     Hudson City Bancorp 20,000   527,000
  La-Z-Boy 68,200   1,488,124     Mechanics Bank 200   2,800,000
  Lifetime Hoan 386,727   2,320,362
     Oriental Financial Group 58,000   1,078,800
      8,613,903
         12,624,477
Publishing - 0.2%         Insurance - 8.5%      
  Marvel Enterprises a 476,400   1,810,320
     Argonaut Group 187,000   3,659,590
Sports and Recreation - 2.2%           Baldwin & Lyons Cl. B 126,000   3,225,600
  Coachmen Industries 364,400   4,372,800     Capitol Transamerica 208,160   3,424,232
  Fleetwood Enterprises 152,300   1,725,559     Erie Indemnity Company Cl. A 97,900   3,768,171
  Monaco Coach a 74,050   1,619,474     Everest Re Group 45,300   3,202,710
  RockShox a,c 1,141,400   422,318     Fidelity National Financial 30,250   750,200
  Sturm, Ruger & Co. 258,400   3,095,632     First American 41,700   781,458
  Thor Industries 193,850   7,182,142
     HCC Insurance Holdings 78,700   2,168,185
      18,417,925
     Horace Mann Educators 91,000   1,931,020
Other Consumer Products - 1.9%           Leucadia National 59,300   1,711,991
  Burnham Corporation Cl. A 46,956   1,690,416     MBIA 24,900   1,335,387
  Burnham Corporation Cl. B 18,000   648,000     Markel Corporation a 4,200   754,530
  Lazare Kaplan International a 131,600   908,040     Mercury General 43,500   1,899,210
  Matthews International Cl. A 221,000   5,432,180     MIIX Group 36,300   442,860
  Starrett (L.S.) Company Cl. A 75,400   1,572,090     NYMAGIC 60,200   968,618
  Velcro Industries 525,800   5,836,380
     Old Republic International 109,200   3,058,692
      16,087,106
     PMA Capital Cl. A 241,700   4,664,810
Total (Cost $46,765,229)     76,497,980
     PXRE Group 176,551   3,114,360
            ProAssurance a 513,270   9,023,287
Consumer Services - 4.8%           RLI 66,362   2,986,290
Leisure/Entertainment - 1.0%           Radian Group 6,904   296,527
  †CryptoLogic a 124,000   2,201,000     Trenwick Group 215,200   2,188,584
  Ticketmaster Cl. B a 364,000   5,965,960
     Wesco Financial 11,990   3,776,850
      8,166,960
     White Mountains Insurance Group 21,200   7,377,600
            Zenith National Insurance 206,900   5,780,786
                72,291,548
          Securities Brokers - 0.1%      
            E*TRADE Group a 50,000   512,500
          Total (Cost $52,042,555)     85,428,525
                 

20 | THE ROYCE FUNDS ANNUAL REPORT 2001


ROYCE VALUE TRUST, INC.
SCHEDULE OF INVESTMENTS
 DECEMBER 31, 2001
  SHARES
   VALUE
     SHARES
   VALUE
Financial Services - 5.1%         Health Services - 0.7%      
Information and Processing - 1.0%           Gentiva Health Services a 30,150   $       661,793
  BARRA a 72,200   $    3,399,898     Health Management Associates Cl. A a 27,400   504,160
  eFunds Corporation a 192,675   2,649,281     Lincare Holdings a 44,600   1,277,790
  SEI Investments 12,000   541,320     Manor Care a 63,300   1,500,843
  SunGard Data Systems a 49,200   1,423,356
     MedQuist a 73,893   2,161,370
      8,013,855
         6,105,956
Insurance Brokers - 1.8%         Personal Care - 1.0%      
  Brown & Brown 20,000   546,000     Chattem a 87,400   1,678,954
  Clark/Bardes a 105,900   2,671,857     †Ocular Sciences a 167,500   3,902,750
  Crawford & Co. Cl. A 327,350   2,861,039     Regis 112,200   2,892,516
  Crawford & Co. Cl. B 75,300   882,516         8,474,220
  Gallagher (Arthur J.) & Company 99,200   3,421,408   Surgical Products and Devices - 1.8%      
  Hilb, Rogal & Hamilton 92,675   5,194,434
     Arrow International 180,600   7,213,164
      15,577,254
     Haemonetics a 102,900   3,490,368
Investment Management - 2.2%           Invacare 17,000   573,070
  Affiliated Managers Group a 67,800   4,778,544     Novoste a 36,500   319,010
  BKF Capital Group a 94,000   2,697,800     STERIS a 33,600   613,872
  BlackRock Cl. A a 55,000   2,293,500     Varian Medical Systems a 42,900   3,057,054
  Eaton Vance 115,200   4,095,360         15,266,538
  Federated Investors Cl. B 15,000   478,200   Total (Cost $43,392,791)     70,264,810
  John Nuveen Company Cl. A 77,100   4,123,308   Industrial Products - 10.8%      
  U.S. Global Investors Cl. A a 249,205   261,665
   Building Systems and Components - 1.7%      
      18,728,377
     Decker Manufacturing 6,022   174,638
Other Financial Services - 0.1%           Mueller (Paul) 53,200   1,564,080
  Profit Recovery Group International a 123,800   1,008,970
     Preformed Line Products Company 131,600   2,488,556
Total (Cost $19,198,469)     43,328,456
     Simpson Manufacturing a 112,200   6,429,060
Health - 8.3%           Skyline 123,400   3,979,650
Commercial Services - 2.0%               14,635,984
  Covance a 270,200   6,133,540   Construction Materials - 1.8%      
  IDEXX Laboratories a 44,100   1,257,291     Ameron International 13,000   899,600
  PAREXEL International a 277,700   3,984,995     Ash Grove Cement Company Cl. B 50,518   6,238,973
  Pharmaceutical Product Development a 10,000   323,100     Florida Rock Industries 169,800   6,211,284
  Quintiles Transnational a 140,300   2,256,024     Puerto Rican Cement Company 105,200   1,988,280
  The TriZetto Group a 111,800   1,466,816         15,338,137
  Young Innovations a 51,700   1,341,615
   Industrial Components - 0.8%      
      16,763,381
     Penn Engineering &
     Manufacturing		 257,600   4,314,800
Drugs and Biotech - 2.8%           Penn Engineering &
     Manufacturing Cl. A		 79,600   1,314,196
     Abgenix a 38,000   1,278,320     Precision Castparts 10,000   282,500
     Affymetrix a 63,600   2,400,900     Woodhead Industries 45,400   720,952
  †Biopure Corporation Cl. A a 48,200   684,922         6,632,448
     Celera Genomics Group -         Machinery - 2.0%      
        Applera Corporation a 79,800   2,129,862     Coherent a 106,300   3,286,796
     Cerus Corporation a 21,700   992,775     Federal Signal 93,600   2,084,472
     Chiron Corporation a 21,800   955,712     Graco 17,700   691,185
     Emisphere Technologies a 120,500   3,845,155     Lincoln Electric Holdings 237,880   5,813,787
     Exelixis a 45,000   747,900     Nordson Corporation 93,000   2,456,130
     Gene Logic a 99,700   1,878,348     Oshkosh Truck 5,000   243,750
     Genzyme Corporation - General           PAXAR a 175,100   2,486,420
        Division a 28,000   1,676,080         17,062,540
     IDEC Pharmaceuticals a 38,100   2,626,233   Paper and Packaging - 0.3%      
     Lexicon Genetics a 246,200   2,841,148     Liqui-Box 59,978   2,474,092
     Millennium Pharmaceuticals a 24,000   588,240   Pumps, Valves and Bearings - 1.3%      
     Shire Pharmaceuticals Group ADR a,b 20,853   763,220     Baldor Electric 62,900   1,314,610
     Vertex Pharmaceuticals a 10,000   245,900
     ConBraCo Industries a 7,630   1,983,800
      23,654,715
     Denison International ADR a,b 88,400   1,463,904

THE ROYCE FUNDS ANNUAL REPORT 2001 | 21


ROYCE VALUE TRUST, INC.
SCHEDULE OF INVESTMENTS
 DECEMBER 31, 2001
  SHARES
   VALUE
     SHARES
   VALUE
Industrial Products (continued)         Engineering and Construction - 0.3%      
Pumps, Valves and Bearings (continued)           Clayton Homes 25,000   $       427,500
  Kaydon Corporation 161,200   $    3,656,016     Jacobs Engineering Group a 10,000   660,000
  NN 127,100   1,417,165     McDermott International a 71,000   871,170
  Roper Industries 28,100   1,390,950
     Todd Shipyards a 39,200   348,880
      11,226,445
         2,307,550
Specialty Chemicals and Materials- 1.5%         Food/Tobacco Processors - 1.8%      
  Aceto 60,010   624,104     Corn Products International 15,000   528,750
  Arch Chemicals 38,200   886,240     Farmer Bros. 26,000   6,890,000
  Brady Corporation Cl. A 94,400   3,455,040     Midwest Grain Products 321,200   3,713,072
  CFC International a 123,500   494,000     Seaboard 2,650   810,900
  Calgon Carbon 50,000   417,500     Universal 89,000   3,240,490
  Donaldson Company 26,000   1,009,840         15,183,212
  Hawkins 301,278   2,681,374   Industrial Distribution - 0.7%      
  MacDermid 179,131   3,036,270     Central Steel & Wire 3,699   1,738,530
  Valspar 10,000   396,000
     Ritchie Bros. Auctioneers a 155,200   3,861,376
      13,000,368
     TBC a 21,300   285,207
Textiles - 0.4%               5,885,113
  Fab Industries 67,700   1,232,140   Printing - 2.1%      
  Unifi a 241,200   1,748,700
     Bowne & Co. 383,100   4,903,680
      2,980,840
     Ennis Business Forms 424,500   4,075,200
Other Industrial Products - 1.0%           New England Business Service 268,500   5,141,775
  BHA Group Holdings 125,409   1,881,135     Standard Register (The) 208,710   3,867,396
  IMPCO Technologies a 15,500   196,695         17,988,051
  Kimball International Cl. B 334,880   5,073,432   Transportation and Logistics - 2.1%      
  Myers Industries 42,182   575,784     Airborne 100,000   1,483,000
  Steelcase Cl. A 32,500   478,400     AirNet Systems a 85,700   706,168
  Trinity Industries 20,000   543,400
     C. H. Robinson Worldwide 40,000   1,156,600
      8,748,846
     CNF 62,600   2,100,230
Total (Cost $60,045,017)     92,099,700
     EGL a 198,525   2,769,424
Industrial Services - 11.2%           Hub Group Cl. A a 77,000   806,960
Advertising/Publishing - 0.3%           Landstar System a 25,400   1,841,754
  Grey Global Group 3,817   2,544,985
     Patriot Transportation Holding a,c 166,300   3,332,652
Commercial Services - 3.4%           Pittston Brink’s Group 156,213   3,452,307
  ABM Industries 84,500   2,649,075         17,649,095
  Allied Waste Industries a 144,800   2,035,888   Other Industrial Services - 0.5%      
  Benchmark Electronics a 31,900   604,824     Landauer 112,900   3,821,665
  CDI Corporation a 166,200   3,157,800     Republic Services a 18,600   371,442
  Carlisle Holdings a 634,900   1,396,780         4,193,107
  Catalina Marketing a 12,200   423,340   Total (Cost $74,195,119)     94,938,660
  Cornell Companies a 124,400   2,195,660   Natural Resources - 6.1%      
  Fisher Communications 16,096   708,224   Energy Services - 2.3%      
†Iron Mountain a 68,300   2,991,540     Carbo Ceramics 105,600   4,135,296
  Korn/Ferry International a 43,700   465,405     Chiles Offshore a 31,300   622,557
  MPS Group a 114,300   816,102     Global Industries a 119,500   1,063,550
  Manpower 55,800   1,881,018     Helmerich & Payne 98,400   3,284,592
  MAXIMUS a 28,000   1,177,680     Input/Output a 374,800   3,077,108
  New Horizons Worldwide a 111,500   1,282,250     Peerless Mfg. a,c 158,600   2,862,730
  On Assignment a 30,000   689,100     Tidewater 21,600   732,240
  Open Plan Systems a,c 376,000   58,280     Willbros Group a 236,400   3,782,400
  RemedyTemp Cl. A a 65,000   925,600         19,560,473
  Sevenson Environmental Services 292,292   3,069,066   Oil and Gas - 1.6%      
  Spherion Corporation a 109,000   1,063,840     Alberta Energy Company 14,700   556,395
  TMP Worldwide a 24,000   1,029,600     Tom Brown a 28,000   756,280
  Tyler Technologies a 124,500   566,475
     Denbury Resources a 458,900   3,354,559
      29,187,547
     EOG Resources 15,000   586,650
            PetroCorp a 124,400   1,119,600
22 | THE ROYCE FUNDS ANNUAL REPORT 2001


ROYCE VALUE TRUST, INC.
SCHEDULE OF INVESTMENTS
 DECEMBER 31, 2001
  SHARES
   VALUE
     SHARES
   VALUE
Natural Resources (continued)         Internet Software and Services - 0.3%      
Oil and Gas (continued)           CNET Networks a 172,400   $    1,546,428
  Pure Resources a 206,132   $    4,143,253     DoubleClick a 96,700   1,096,578
  3TEC Energy a 120,000   1,680,000     Verado Holdings (Warrants) a 1,054   0
  Toreador Resources a 100,300   461,380         2,643,006
  Vintage Petroleum 48,300   697,935
   IT Services - 1.8%      
      13,356,052
     American Management Systems a 401,900   7,266,352
Precious Metals and Mining - 0.8%           answerthink a 301,100   1,966,183
  Anglogold ADR b 285,100   5,148,906     Cognizant Technology Solutions a 20,000   819,600
  Barrick Gold 26,500   422,675     Covansys Corporation a 70,300   629,185
  Gold Fields ADR b 188,800   913,792     DiamondCluster International Cl. A a 115,000   1,506,500
  MK Gold a 517,900   274,487
     Gartner Cl. A a 70,000   818,300
      6,759,860
     QRS Corporation a 57,500   810,750
Real Estate - 1.4%           Sapient Corporation a 120,000   926,400
  Alico 52,000   1,630,200     Syntel a 65,300   844,329
  Chateau Communities 20,000   598,000         15,587,599
  Chelsea Property Group 37,500   1,841,250   Semiconductors and Equipment - 3.0%      
  Consolidated-Tomoka Land 13,564   269,652     Adaptec a 79,500   1,152,750
  Kimco Realty 22,500   735,525     BE Semiconductor Industries a 58,000   484,300
  Public Storage 45,000   1,503,000     Credence Systems a 20,600   382,542
†Trammell Crow Company a 422,400   4,942,080     Cymer a 14,500   387,585
  Vornado Realty Trust 10,000   416,000
     DuPont Photomasks a 35,000   1,520,750
      11,935,707
     Electroglas a 210,200   3,104,654
Total (Cost $34,981,348)     51,612,092
     Exar a 62,300   1,298,955
Technology - 16.0%           Fairchild Semiconductor Cl. A a 98,000   2,763,600
Aerospace/Defense - 1.9%           Helix Technology 36,900   832,095
  Curtiss-Wright 121,900   5,820,725     Intevac a 191,850   457,562
  Ducommun a 317,200   3,520,920     Kulicke & Soffa Industries a 75,800   1,299,970
  Herley Industries a 30,000   510,000     Lam Research a 5,000   116,100
  Special Metals a 420,600   1,089,312     Lattice Semiconductor a 142,000   2,920,940
  Woodward Governor 83,600   4,869,700
    †Mentor Graphics a 184,900   4,358,093
      15,810,657
     National Semiconductor a 23,200   714,328
Components and Systems - 3.3%           Novellus Systems a 12,000   473,400
  American Power Conversion a 86,200   1,246,452     PCD a,c 477,600   831,024
  Analogic 27,800   1,070,578     Varian a 28,000   908,320
  Cognex Corporation a 73,400   1,879,774     Veeco Instruments a 20,000   721,000
  Dionex a 101,000   2,576,510     Vishay Intertechnology a 33,900   661,050
  Excel Technology a 148,400   2,582,160         25,389,018
  Imation Corporation a 55,700   1,202,006   Software - 3.0%      
  InFocus Corporation a 79,000   1,739,580     ANSYS a 45,500   1,121,575
  Kronos a 35,850   1,734,423     Aspen Technology a 27,100   455,280
  Newport 102,600   1,978,128     Autodesk 90,500   3,372,935
  Perceptron a 397,400   524,568     Business Objects ADR a,b 25,500   861,900
  Radiant Systems a 57,500   661,250     HNC Software a 10,000   206,000
  Rainbow Technologies a 106,900   791,060     iGate Capital a 77,200   316,520
  Scitex a 320,700   1,459,185     Integral Systems a 84,800   1,632,400
  Symbol Technologies 70,000   1,111,600     i2 Technologies a 85,000   671,500
  Technitrol 124,600   3,441,452     JDA Software Group a 197,400   4,411,890
  Zebra Technologies Cl. A a 66,700   3,702,517
     MRO Software a 46,000   1,075,480
      27,701,243
     MSC.Software a 52,600   820,560
Distribution - 1.9%           Macromedia a 43,000   765,400
   Arrow Electronics a 71,100   2,125,890     Manugistics Group a 49,200   1,037,136
   Avnet 285,355   7,267,992     National Instruments a 61,100   2,288,806
   Pioneer-Standard Electronics 158,125   2,008,188     Peregrine Systems a 26,983   400,158
 †Plexus a 103,600   2,751,616     Phoenix Technologies a 20,900   243,276
   Richardson Electronics 180,300   2,181,630
     Progress Software a 60,500   1,045,440
      16,335,316
          
THE ROYCE FUNDS ANNUAL REPORT 2001 | 23


ROYCE VALUE TRUST, INC.
SCHEDULE OF INVESTMENTS
 DECEMBER 31, 2001
  SHARES
   VALUE
     PRINCIPAL
AMOUNT
   VALUE
Technology (continued)         CORPORATE BONDS - 0.6%      
Software (continued)         Charming Shoppes 7.50% Conv.      
  SPSS a 127,500   $   2,263,125       Sub. Note due 7/15/06 $     3,694,000   $        3,610,885
  Transaction Systems Architects Cl. A a 237,300   2,909,298
   Dixie Group 7.00% Conv. Sub.      
      25,898,679
       Deb. Due 5/15/12 633,000   189,900
Telecommunication - 0.8%         Richardson Electronics 7.25%      
†Clarent Corporation a,d 15,000   36,000       Conv. Sub. Deb. due 12/15/06 1,319,000   1,088,175
  Globecomm Systems a 130,300   787,012   Verado Holdings 0% (Step) e      
  Level 3 Communications a 214,900   1,074,500       Sr. Note due 4/15/08 4,515,000   45,150
  McLeodUSA Cl. A a 4,140,200   1,531,874   TOTAL CORPORATE BONDS      
            (Cost $7,708,089)     4,934,110
  Plantronics a 55,100   1,412,764   U.S. TREASURY OBLIGATIONS
   - 5.4%		      
  REMEC a 204,200   2,039,958
   U.S. Treasury Notes      
      6,882,108
   †6.625%, due 3/31/02 20,000,000   20,231,200
Total (Cost $107,787,702)     136,247,626
   †4.25%, due 3/31/03 25,000,000   25,582,000
Miscellaneous - 4.9%         TOTAL U.S. TREASURY
   OBLIGATIONS		      
Total (Cost $36,978,632)     41,730,446
     (Cost $45,152,228)     45,813,200
TOTAL COMMON STOCKS         REPURCHASE AGREEMENT - 6.8%      
  (Cost $503,557,900)     732,247,134
   State Street Bank & Trust Company,      
PREFERRED STOCKS - 0.5%           0.85% dated 12/31/01, due 1/2/02,      
  Pioneer-Standard Electronics           maturity value $57,746,727      
      6.75% Conv. 80,000   3,620,000     (collateralized by U.S. Treasury Bonds,      
  SVB Capital I 8.25% 20,000   454,900
     7.25% due 5/15/16, valued at $58,901,849)      
TOTAL PREFERRED STOCKS                 
  (Cost $4,315,000)     4,074,900
     (Cost $57,744,000)     57,744,000
          TOTAL INVESTMENTS - 99.5%      
            (Cost $618,477,217)     844,813,344
                 
          CASH AND OTHER ASSETS      
            LESS LIABILITIES - 0.5%     4,327,624
          NET ASSETS - 100.0%     $ 849,140,968
a Non-income producing.
b American Depository Receipt.
c At December 31, 2001, 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 Securities for which market quotations are no longer readily available represent 0.3% of net assets. These securities have been valued at their fair value under procedures established by the Fund’s Board of Directors.
e Coupon rate of 0% to 4/2003; thereafter 13%.
† New additions in 2001.
  Bold indicates the Fund’s largest 20 equity holdings in terms of December 31, 2001 market value.
   
INCOME TAX INFORMATION: The cost of total investments for Federal income tax purposes was $622,277,890. At December 31, 2001, net unrealized appreciation for all securities was $222,535,454, consisting of aggregate gross unrealized appreciation of $251,928,390 and aggregate gross unrealized depreciation of $29,392,936. 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.
   
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

24 | THE ROYCE FUNDS ANNUAL REPORT 2001


ROYCE VALUE TRUST, INC.
 
STATEMENT OF ASSETS AND LIABILITIES                                                                                                                                        DECEMBER 31, 2001
ASSETS:    
Investments at value (identified cost $560,733,217) $787,069,344  
Repurchase agreement (at cost and value) 57,744,000  
Cash 559,451  
Receivable for investments sold 4,495,162  
Receivable for dividends and interest 1,326,735  
Prepaid expenses
 19,742  
     Total Assets
 851,214,434  
LIABILITIES:  
Payable for investments purchased 746,910  
Payable for investment advisory fee 844,476  
Preferred dividends accrued but not yet declared 266,223  
Accrued expenses
 215,857  
     Total Liabilities
 2,073,466  
     Net Assets
 $849,140,968  
ANALYSIS OF NET ASSETS:  
PREFERRED STOCK:  
Par value of 7.80% Cumulative Preferred Stock – $0.001 per share; 2,400,000 shares outstanding        $            2,400  
Par value of 7.30% Tax-Advantaged Cumulative Preferred Stock – $0.001 per share; 4,000,000 shares outstanding 4,000  
Additional paid-in capital
 159,993,600  
Net Assets applicable to Preferred Stock at a liquidation value of $25 per share
 160,000,000  
COMMON STOCK:  
Par value of Common Stock – $0.001 per share; 39,801,721 shares outstanding (150,000,000 shares authorized) 39,802  
Additional paid-in capital 456,885,911  
Undistributed net investment income 2,116,678  
Accumulated net realized gain on investments 4,028,673  
Net unrealized appreciation on investments 226,336,127  
Preferred dividends accrued but not yet declared
 (266,223)
Net Assets applicable to Common Stock (net asset value per share – $17.31)
 $689,140,968  
Net Assets
         $849,140,968
   
STATEMENT OF CHANGES IN NET ASSETS
  Year ended   Year ended  
  December
31, 2001		   December
31, 2000		  
 
 
 
INVESTMENT OPERATIONS:        
   Net investment income $       2,247,245   $       6,912,303  
   Net realized gain on investments 53,961,553   58,270,139  
   Net change in unrealized appreciation on investments
 46,195,029
34,769,579
  
      Net increase in net assets from investment operations
 102,403,827
99,952,021
  
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:        
   Net investment income (370,182 ) (1,075,514 )
   Net realized gain on investments
 (11,609,818
 )
 (10,904,486
 )
      Total distributions to Preferred Stockholders
 (11,980,000
 )
 (11,980,000
 )
DISTRIBUTIONS TO COMMON STOCKHOLDERS:        
   Net investment income (1,768,474 ) (4,781,175 )
   Net realized gain on investments
 (55,464,014
 )
 (48,640,033
 )
      Total distributions to Common Stockholders
 (57,232,488
 )
 (53,421,208
 )
CAPITAL STOCK TRANSACTIONS:        
   Reinvestment of distributions to Common Stockholders
 32,687,267
35,783,120
  
NET INCREASE IN NET ASSETS 65,878,606   70,333,933  
NET ASSETS:        
   Beginning of year
 783,262,362
712,928,429
  
   End of year (including undistributed net investment income        
     of $2,116,678 and $4,909,558, respectively)
 $   849,140,968
$   783,262,362
  

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

THE ROYCE FUNDS ANNUAL REPORT 2001 | 25


ROYCE VALUE TRUST, INC.
 
STATEMENT OF OPERATIONS                                                                                        YEAR ENDED DECEMBER 31, 2001
INVESTEMENT INCOME:    
Income:    
     Dividends $8,751,337  
     Interest
 3,971,220
  
Total income
 12,722,557
  
Expenses:    
     Investment advisory fees 9,660,223  
     Administrative and office facilities expenses 316,955  
     Custodian and transfer agent fees 235,710  
     Stockholder reports 208,567  
     Directors’ fees 77,870  
     Professional fees 59,908  
     Other expenses
 165,749
  
Total expenses 10,724,982  
Fees waived by investment adviser
 (249,670
 )
Net expenses
 10,475,312
  
Net investment income
 2,247,245
  
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:    
Net realized gain on investments 53,961,553  
Net change in unrealized appreciation on investments
 46,195,029
  
Net realized and unrealized gain on investments
 100,156,582
  
NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS
 $102,403,827
  

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

26 | THE ROYCE FUNDS ANNUAL REPORT 2001


ROYCE VALUE TRUST, INC.
FINANCIAL HIGHLIGHTS

This table is presented to show selected data for a share of Common Stock outstanding throughout each period, and to assist stockholders in evaluating the Fund’s performance for the periods presented.
  Year ended December 31,


2001
2000
1999
1998
1997
NET ASSET VALUE, BEGINNING OF PERIOD
$16.56
$15.77
$15.72
$16.91
$14.32
INVESTMENT OPERATIONS (a):                      
    Net investment income   0.05   0.18   0.26   0.17   0.21  
    Net realized and unrealized gain on investments
2.58
2.58
1.65
0.67
3.85
        Total investment operations
2.63
2.76
1.91
0.84
4.06
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:                      
    Net investment income   (0.01 ) (0.03 ) (0.04 ) (0.03 ) (0.03 )
    Net realized gain on investments
(0.30
 )
 (0.30
 )
 (0.32
 )
 (0.26
 )
 (0.15
 )
        Total distributions to Preferred Stockholders
(0.31
 )
 (0.33
 )
 (0.36
 )
 (0.29
 )
 (0.18
 )
DISTRIBUTIONS TO COMMON STOCKHOLDERS:                      
    Net investment income   (0.05 ) (0.13 ) (0.15 ) (0.16 ) (0.19 )
    Net realized gain on investments
(1.44
 )
 (1.35
 )
 (1.22
 )
 (1.38
 )
 (1.02
 )
        Total distributions to Common Stockholders
(1.49
 )
 (1.48
 )
 (1.37
 )
 (1.54
 )
 (1.21
 )
CAPITAL STOCK TRANSACTIONS:                      
    Effect of reinvestment of distributions by Common Stockholders   (0.08 ) (0.16 ) (0.13 ) (0.09 ) (0.08 )
    Effect of Preferred Stock offering
–  
–  
–  
(0.11
 )
 –  
        Total capital stock transactions
(0.08
 )
 (0.16
 )
 (0.13
 )
 (0.20
 )
 (0.08
 )
NET ASSET VALUE, END OF PERIOD (a)
$17.31
$16.56
$15.77
$15.72
$16.91
MARKET VALUE, END OF PERIOD
$15.72
$14.438
$13.063
$13.750
$15.063
TOTAL RETURN (b):                      
Net Asset Value (a)   15.2 % 16.6 % 11.7 % 3.3 % 27.5 %
Market Value   20.0 % 22.7 % 5.7 % 1.5 % 28.8 %
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO                      
    COMMON STOCKHOLDERS:                      
Total expenses (c,d)   1.61 % 1.43 % 1.39 % 1.31 % 1.12 %
    Management fee expense   1.45 % 1.25 % 1.18 % 1.10 % 0.39 %
    Interest expense   –     –     –     –     0.45 %
    Other operating expenses   0.16 % 0.18 % 0.21 % 0.21 % 0.28 %
Net investment income   0.35 % 1.18 % 1.47 % 1.11 % 1.53 %
SUPPLEMENTAL DATA:                      
Net Assets, End of Period (in thousands)   $849,141   $783,262   $712,928   $676,963   $554,231  
Portfolio Turnover Rate   30 % 36 % 41 % 43 % 29 %
PREFERRED STOCK:                      
Total shares outstanding   6,400,000   6,400,000   6,400,000   6,400,000   2,400,000  
Asset coverage per share   $132.68   $122.38   $111.40   $105.78   $165.51  
Liquidation preference per share   $25.00   $25.00   $25.00   $25.00   $25.00  
Average market value per share:                      
    7.80% Cumulative (e)   $25.70   $23.44   $24.98   $25.91   $25.70  
    7.30% Tax-Advantaged Cumulative (e)   $25.37   $22.35   $24.24   $25.43   –    
NOTES:                      
Total amount outstanding (in thousands)   –     –     –     –     $27,801  
Asset coverage per note   –     –     –     –     $2,090.89  
Average market value per note (e)
–  
–  
–  
–  
$107.69
(a) Through December 31, 1997, Net Asset Value per share, Net Asset Value Total Returns and Income from Investment Operations were calculated assuming that the then outstanding convertible notes had been fully converted, except when the effect of doing so resulted in a higher Net Asset Value per share than would have been calculated without such assumption. If it were not assumed that the Notes had been converted, the Net Asset Value per share would have been increased by $0.31 at December 31, 1997.
(b) The Net Asset Value and Market Value Total Returns assume a continuous Common Stockholder who reinvested all net investment income dividends and capital gain distributions.
(c) Expense ratios based on total average net assets were 1.30%, 1.12%, 1.06%, 1.06% and 0.99% for the periods ended December 31, 2001, 2000, 1999, 1998 and 1997, respectively.
(d) Expense ratios based on average net assets applicable to Common Stockholders before waiver of fees by the investment adviser would have been 1.65%, 1.51%, 1.48%, 1.34% and 1.14% for the periods ended December 31, 2001, 2000, 1999, 1998 and 1997, respectively.
(e) The average of month-end market values during the period.


THE ROYCE FUNDS ANNUAL REPORT 2001 | 27


ROYCE VALUE TRUST, INC.

NOTES TO FINANCIAL STATEMENTS

Summary of Significant Accounting Policies:
 

     Royce Value Trust, Inc. (“the Fund”) was incorporated under the laws of the State of Maryland on July 1, 1986 as a diversified closed-end investment company. The Fund commenced operations on November 26, 1986.

 

     The preparation of financial statements in conformity with 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 listed on an exchange or on the Nasdaq National Market System (NMS) are valued on the basis of the last reported sale prior to the time the valuation is made or, if no sale is reported for such day, at their bid price for exchange-listed securities and at the average of their bid and asked prices for Nasdaq NMS securities. Quotations are taken from the market where the security is primarily traded. Other over-the-counter securities for which market quotations are readily available are valued at their bid price. Securities for which market quotations are not readily available are valued at their fair value under procedures established by the Fund’s Board of Directors. Bonds and other fixed income securities may be valued by reference to other securities with comparable ratings, interest rates and maturities, using established independent pricing services.

  
  Investment Transactions and Related Investment Income:
 

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

  
  Expenses:
 

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

  
  Taxes:
 

     As a qualified regulated investment company under Subchapter M of the Internal Revenue Code, the Fund is not subject to income taxes to the extent that it distributes substantially all of its taxable income for its fiscal year. The Schedule of Investments includes information regarding income taxes under the caption “Income Tax Information”.

  
  Distributions:
 

     The Fund currently has a policy of paying quarterly distributions on the Fund’s Common Stock. Distributions are currently being made at the annual rate of 9% of the rolling average of the prior four calendar quarter-end NAVs of the Fund’s Common Stock, with the fourth quarter distribution being the greater of 2.25% of the rolling average or the distribution required by IRS regulations. Distributions to Preferred Stockholders are recorded on an accrual basis and paid quarterly. Distributions are determined in accordance with income tax regulations that may differ from 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 enters into repurchase agreements with respect to its portfolio securities solely with State Street Bank and Trust Company (“SSB&T”), the custodian of its assets. The Fund restricts repurchase agreements to maturities of no more than seven days. Securities pledged as collateral for repurchase agreements, which are held by SSB&T until maturity of the repurchase agreements, are marked-to-market daily and maintained at a value at least equal to the principal amount of the repurchase agreement (including accrued interest). Repurchase agreements could involve certain risks in the event of default or insolvency of SSB&T, including possible delays or restrictions upon the ability of the Fund to dispose of the underlying securities.

  
Capital Stock:
 

     The Fund currently has two issues of Preferred Stock outstanding: 7.80% Cumulative Preferred Stock and 7.30% Tax-Advantaged Cumulative Preferred Stock. Both issues of Preferred Stock have a liquidation preference of $25.00 per share.
     Under the Investment Company Act of 1940, the Fund is required to maintain an asset coverage of at least 200% for the Preferred Stock. In addition, pursuant to the Rating Agency Guidelines established by Moody’s, the Fund is required to maintain a certain discounted asset coverage. The Fund has met these requirements since issuing Preferred Stock.

 
28 | THE ROYCE FUNDS ANNUAL REPORT 2001


ROYCE VALUE TRUST, INC.

NOTES TO FINANCIAL STATEMENTS  (continued)

 

     The Fund is required to allocate long-term capital gain distributions and other types of income proportionately to distributions made to holders of shares of Common Stock and Preferred Stock. To the extent that dividends are not paid from long-term capital gains, net investment income or net short-term capital gains, they will represent a return of capital.

 

     The Fund issued 2,167,201 and 2,562,739 shares of Common Stock as reinvestment of distributions by Common Stockholders for the years ended December 31, 2001 and 2000, respectively.

  
Investment Advisory Agreement:
 

     As compensation for its services under the Investment Advisory Agreement, Royce & Associates, Inc. (“Royce”) receives a fee comprised of a Basic Fee (“Basic Fee”) and an adjustment to the Basic Fee based on the investment performance of the Fund in relation to the investment record of the S&P 600 SmallCap Index (“S&P 600”).

 

     The Basic Fee is a monthly fee equal to 1/12 of 1% (1% on an annualized basis) of the average of the month-end net assets of the Fund for the applicable performance period. The performance period for each month was from July 1, 1996 to the most recent month-end, until the Investment Advisory Agreement had been in effect for 60 full calendar months (June 30, 2001), when it became a rolling 60-month period ending with the most recent calendar month.

 

     The Basic Fee for each month is increased or decreased at the rate of 1/12 of .05% for each percentage point that the investment performance of the Fund exceeds, or is exceeded by, the percentage change in the investment record of the S&P 600 for the performance period by more than two percentage points. The maximum increase or decrease in the Basic Fee for any month may not exceed 1/12 of .5%. Accordingly, for each month, the maximum monthly fee rate as adjusted for performance is 1/12 of 1.5% and is payable if the investment performance of the Fund exceeds the percentage change in the investment record of the S&P 600 by 12 or more percentage points for the performance period, and the minimum monthly fee rate as adjusted for performance is 1/12 of .5% and is payable if the percentage change in the investment record of the S&P 600 exceeds the investment performance of the Fund by 12 or more percentage points for the performance period.

 

     Notwithstanding the foregoing, Royce is not entitled to receive any fee for any month when the investment performance of the Fund for the rolling 36-month period ending with such month is negative. In the event that the Fund’s investment performance for such a performance period is less than zero, Royce will not be required to refund to the Fund any fee earned in respect of any prior performance period.

 

     Royce has voluntarily committed to waive the portion of its investment advisory fee attributable to an issue of the Fund’s Preferred Stock for any month in which the Fund’s average annual NAV total return since issuance of the Preferred Stock fails to exceed the applicable Preferred Stock dividend rate.

 

     For the year ended December 31, 2001, the Fund accrued and paid Royce advisory fees totaling $9,410,553, which is net of $249,670 voluntarily waived by Royce.
  
Distributions to Stockholders:
 

The tax character of distributions paid to stockholders during 2001 and 2000 was as follows:

   
 
  Distributions paid from:       2001         2000
    Ordinary income $   16,631,761   $   29,227,800
    Long-term capital gain 52,580,727
   36,173,408
  $   69,212,488
   $   65,401,208
 
  As of December 31, 2001, the tax basis components of distributable earnings included in stockholders’ equity were as follows:
 
 
  Undistributed ordinary income $    6,030,028 
  Undistributed long-term gain 3,915,997 
  Unrealized appreciation 222,535,454 
  Accrued preferred distributions (266,224)
    $ 232,215,255 

Purchases and Sales of Investment Securities:
 

     For the year ended December 31, 2001, the cost of purchases and proceeds from sales of investment securities, other than short-term securities, amounted to $232,661,899 and $278,561,068, respectively.

 
THE ROYCE FUNDS ANNUAL REPORT 2001 | 29


ROYCE VALUE TRUST, INC.

NOTES TO FINANCIAL STATEMENTS  (continued)

Transactions in Shares of Affiliated Companies:
 

     An “Affiliated Company”, as defined in the Investment Company Act of 1940, is a company in which a Fund owns 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, 2001:

    Purchases
   Sales
    
Affiliated Company Shares Cost Shares Cost Realized Gain (Loss) Dividend Income
Open Plan Systems – – – – – –
PCD 177,400 $414,540 – – – –
Patriot Transportation
  Holdings		 – – – – – –
Peerless Mfg. – – – – – –
RockShox 101,000 $ 49,820 – – – –
Technical Communications – – 106,700 $615,477 $(498,173) –
Other:
 

     In 2001, Royce fully reimbursed the Fund for a $480,000 loss realized upon the disposition of a security inadvertently purchased for the Fund that did not meet the Fund’s investment restrictions.



REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of Royce Value Trust, Inc.
     We have audited the accompanying statement of assets and liabilities of Royce Value Trust, Inc., including the schedule of investments, as of December 31, 2001, and the related statement of operations for the year then ended, and the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the four years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for the period ended December 31, 1997 were audited by other auditors whose report dated February 10, 1998 expressed an unqualified opinion on those financial highlights.
     We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, 2001, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
     In our opinion, the financial statements and financial highlights referred to above and audited by us present fairly, in all material respects, the financial position of Royce Value Trust, Inc. at December 31, 2001, 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 four 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 17, 2002



30 | THE ROYCE FUNDS ANNUAL REPORT 2001


ROYCE MICRO-CAP TRUST, INC.
SCHEDULE OF INVESTMENTS
 DECEMBER 31, 2001
COMMON STOCKS - 94.0%
  SHARES
   VALUE
     SHARES
   VALUE
Consumer Products - 12.0%           Dress Barn (The) a 37,400   $       935,374
Apparel and Shoes - 3.5%           Finish Line (The) Cl. A a 110,300   1,686,487
  Delta Apparel a 110,500   $    2,309,450     La Senza Corporation 189,900   852,719
  Garan 23,700   1,007,250     Stein Mart a 295,200   2,467,872
  Kleinert’s a,d 14,200   113,600     Urban Outfitters a 97,300   2,346,876
†Nautica Enterprises a 107,600   1,376,204         11,820,568
  Oshkosh B’Gosh Cl. A 47,000   1,971,180   Other Consumer Services - 0.3%      
  Weyco Group 68,400   1,733,940
   †E-LOAN a 465,500   856,520
      8,511,624
   Total (Cost $9,776,890)     15,116,287
Collectibles - 1.2%         Financial Intermediaries - 8.2%      
  The Boyds Collection a 176,500   1,194,905   Banking - 0.8%      
  Enesco Group a 82,700   521,010     First Midwest Financial 1,000   13,525
  Topps Company (The) a 101,000   1,227,150
     HomeFed a 1,108,521   1,053,095
      2,943,065
     Queen City Investments 948   398,160
Food/Beverage/Tobacco - 1.1%           Sterling Bancorp 12,100   353,320
  800 JR Cigar a,d 193,000   2,509,000
         1,818,100
Home Furnishing/Appliances - 1.2%         Closed End Funds - 0.2%      
  Bassett Furniture Industries 92,600   1,297,326     Central Fund of Canada Cl. A 140,000   462,000
  Falcon Products 122,700   828,225   Insurance - 7.2%      
  Lifetime Hoan 120,054   720,324
     Arch Capital Group a 25,700   661,775
      2,845,875
     CNA Surety 15,000   232,500
Publishing - 0.1%           Capitol Transamerica 84,165   1,384,514
  Marvel Enterprises a 87,700   333,260
     GAINSCO a 25,000   40,000
Sports and Recreation - 2.1%           IPC Holdings 80,600   2,385,760
  Cannondale Corporation a 10,000   22,400     Independence Holding 36,630   659,340
  Lund International Holdings a 387,950   100,867     NYMAGIC 112,700   1,813,343
  Meade Instruments a 143,600   514,088     Navigators Group a 114,400   2,285,140
  Monaco Coach a 75,900   1,659,933     PICO Holdings a 37,500   468,750
  Thor Industries 59,300   2,197,065     PMA Capital Cl. A 57,109   1,102,204
  Winnebago Industries 14,200   524,548
     PXRE Group 73,164   1,290,613
      5,018,901
     Philadelphia Consolidated
    Holding a		 52,500   1,979,775
Other Consumer Products - 2.8%           ProAssurance a 139,500   2,452,410
  Cross (A.T.) & Company Cl. A a 100,000   590,000     Wellington Underwriting 444,712   661,069
  Hunt Corporation 50,000   385,000         17,417,193
  Lazare Kaplan International a 192,700   1,329,630   Total (Cost $12,755,001)     19,697,293
  Matthews International Cl. A 146,000   3,588,680   Financial Services - 2.3%      
  Velcro Industries 81,500   904,650
   Insurance Brokers - 1.0%      
      6,797,960
     Clark/Bardes a 50,900   1,284,207
Total (Cost $18,225,657)     28,959,685
     CorVel a 18,750   614,063
Consumer Services - 6.3%           Hilb, Rogal & Hamilton 10,100   566,105
Leisure/Entertainment - 1.0%               2,464,375
  Allen Organ Cl. B 1,600   49,760   Investment Management - 0.4%      
  CryptoLogic a 63,600   1,128,900     BKF Capital Group a 27,700   794,990
  Liberty Livewire Cl. A a 158,900   1,103,894   Other Financial Services - 0.9%      
  3DO Company a 6,000   12,480
   †Electro Rent a 65,000   837,850
      2,295,034
     Profit Recovery Group International a 165,000   1,344,750
Restaurants/Lodgings - 0.1%               2,182,600
  Chart House Enterprises a 20,000   18,000   Total (Cost $3,220,907)     5,441,965
  Diedrich Coffee a 32,350   126,165
   Health - 8.8%      
      144,165
   Commercial Services - 1.9%      
Retail Stores - 4.9%           ICON ADR a,b 800   23,848
  Brookstone a 23,000   269,790     PAREXEL International a 134,400   1,928,640
  Buckle (The) a 61,500   1,371,450     The TriZetto Group a 74,800   981,376
  Cato Cl. A 100,000   1,890,000          

THE ROYCE FUNDS ANNUAL REPORT 2001 | 31


ROYCE MICRO-CAP TRUST, INC.
SCHEDULE OF INVESTMENTS
 DECEMBER 31, 2001
  SHARES
   VALUE
     SHARES
   VALUE
Health (continued)           Penn Engineering & Manufacturing 56,600   $       948,050
Commercial Services (continued)           Penn Engineering & Manufacturing
    Cl. A		 30,800   508,508
  Young Innovations a 65,900   $    1,710,105
     Scientific Technologies 10,700   41,302
      4,643,969
   †Wescast Industries Cl. A 30,300   925,665
Drugs and Biotech - 3.4%           Woodhead Industries 10,000   158,800
  Antigenics a 60,800   997,120         2,837,610
  Biopure Corporation Cl. A a 5,000   71,050   Machinery - 0.7%      
  BioReliance a 20,300   579,159     Astec Industries a 31,700   458,382
  BioSource International a 89,300   741,190     Atchison Casting a 52,500   92,400
  Cephalon a 7,000   529,095     Lindsay Manufacturing 10,000   193,500
†DUSA Pharmaceuticals a 79,700   641,585     Micro General a 59,840   820,406
  Emisphere Technologies a 32,400   1,033,884         1,564,688
  Geron a 6,000   52,200   Paper and Packaging - 0.8%      
  Lexicon Genetics a 102,100   1,178,234     Liqui-Box 13,100   540,375
  Myriad Genetics a 5,000   263,200     Peak International a 197,000   1,477,500
  Sangamo BioSciences a 10,000   93,400         2,017,875
  ViroPharma a 18,800   431,460   Pumps, Valves and Bearings - 1.6%      
  Visible Genetics a 44,500   496,175     Denison International ADR a,b 113,500   1,879,560
†VIVUS a 167,200   814,264     NN 80,500   897,575
  Zila a 95,000   228,000
     Sun Hydraulics 152,550   1,167,007
      8,150,016
         3,944,142
Health Services - 1.1%         Specialty Chemicals and Materials - 1.1%      
  aaiPharma a 57,000   1,434,120     Aceto 58,421   607,578
  DIANON Systems a 15,500   942,400     Balchem 10,000   213,500
  Sierra Health Services a 40,000   324,000
     CFC International a 144,700   578,800
      2,700,520
     Eastern 5,000   60,050
Personal Care - 1.0%           Hawkins 122,667   1,091,736
  Ocular Sciences a 103,800   2,418,540
     OSCA a 1,100   22,935
Surgical Products and Devices - 1.4%               2,574,599
  Allied Healthcare Products a 247,400   915,380   Textiles - 0.6%      
  Cohesion Technologies a 5,000   24,900     Fab Industries 76,400   1,390,480
  CONMED a 3,900   77,844   Other Industrial Products - 1.6%      
  NMT Medical a 54,900   463,905     BHA Group Holdings 126,915   1,903,725
  Orthofix International a 29,500   1,094,524     Cubic Corporation 7,500   385,200
  Osteotech a 122,100   677,655     Maxwell Technologies a 20,000   196,000
  PLC Systems a 105,200   62,068
     Mity Enterprises a 21,300   175,725
      3,316,276
     Myers Industries 63,474   866,420
Total (Cost $13,140,034)     21,229,321
     Quixote 22,500   427,500
Industrial Products - 12.4%               3,954,570
Building Systems and Components - 1.9%         Total (Cost $21,353,556)     29,880,286
  Juno Lighting a 81,200   770,182   Industrial Services - 12.3%      
  LSI Industries 38,850   675,990   Commercial Services - 4.8%      
  Mueller (Paul) 16,650   489,510     Butler International a 21,000   60,900
  Simpson Manufacturing a 27,600   1,581,480     CDI Corporation a 45,900   872,100
  Skyline 32,100   1,035,225
     Edgewater Technology a 18,339   72,439
      4,552,387
     Exponent a 63,200   777,360
Construction Materials - 2.9%           Kforce a 35,000   220,150
  Ash Grove Cement Company 20,000   2,470,000     Marketing Specialists a 155,000   1,256
  Florida Rock Industries 60,000   2,194,800   †National Service Industries 421,200   850,824
  Monarch Cement 50,410   937,626     New Horizons Worldwide a 117,300   1,348,950
  Puerto Rican Cement Company 58,700   1,109,430     On Assignment a 30,000   689,100
  Synalloy Corporation 95,700   332,079
     Open Plan Systems a 57,400   8,897
      7,043,935
     RemedyTemp Cl. A a 70,200   999,648
Industrial Components - 1.2%           SCB Computer Technology a 50,000   30,000
  Chase Industries a 27,900   255,285     Sevenson Environmental Services 137,632   1,445,136

32 | THE ROYCE FUNDS ANNUAL REPORT 2001


ROYCE MICRO-CAP TRUST, INC.
SCHEDULE OF INVESTMENTS
 DECEMBER 31, 2001
  SHARES
   VALUE
     SHARES
   VALUE
Industrial Services (continued)           Evergreen Resources a 20,000   $       772,200
Commercial Services (continued)           NATCO Group Cl. A a 90,400   632,800
  Tyler Technologies a 328,200   $    1,493,310     PetroCorp a 203,200   1,828,800
  Wackenhut Corrections a 184,800   2,561,328     Pure Resources a 68,724   1,381,352
  Westaff a 70,500   176,250
     3TEC Energy a 80,000   1,120,000
      11,607,648
         9,148,554
Food/Tobacco Processors - 2.0%         Precious Metals and Mining - 0.5%      
  Farmer Bros. 4,000   1,060,000   †Apex Silver Mines a 79,600   796,000
  Martek Biosciences a 33,800   735,150     MK Gold a 603,700   319,961
  Midwest Grain Products 96,122   1,111,170         1,115,961
  Seneca Foods Cl. A a 78,500   1,129,615   Real Estate - 0.6%      
  Seneca Foods Cl. B a 47,200   654,664
     Liberte Investors 367,500   1,433,250
      4,690,599
   Total (Cost $11,670,747)     19,259,082
Industrial Distribution - 0.7%         Technology - 19.0%      
  Lawson Products 12,200   317,200   Aerospace/Defense - 3.4%      
†Strategic Distribution a,c 208,690   1,273,009
     Curtiss-Wright 33,900   1,618,725
      1,590,209
     Ducommun a 165,200   1,833,720
Printing - 1.6%           HEICO 75,000   1,130,250
  Bowne & Co. 110,000   1,408,000     HEICO Cl. A 15,750   212,468
  Ennis Business Forms 36,200   347,520     Herley Industries a 90,000   1,530,000
  Moore Corporation 39,600   376,200     SkyWest 10,000   254,500
  New England Business Service 79,500   1,522,425     Special Metals a 228,800   592,569
  Schawk Cl. A 26,300   289,300
     Woodward Governor 15,300   891,225
      3,943,445
         8,063,457
Transportation and Logistics - 2.7%         Components and Systems - 2.8%      
  AirNet Systems a 110,200   908,048     CSP a 117,581   417,471
  Aramex International a 112,600   1,137,260     Excel Technology a 66,600   1,158,840
  EGL a 42,100   587,295     Kronos a 30,750   1,487,685
  Forward Air a 36,800   1,248,256     MOCON 52,600   508,116
  Frozen Food Express Industries a 107,500   230,050     Performance Technologies a 24,750   329,670
  Hub Group Cl. A a 6,500   68,120     Printronix a 55,000   514,800
  Knight Transportation a 38,925   731,011     Rainbow Technologies a 135,500   1,002,700
  Mesaba Holdings a 25,000   178,000     SBS Technologies a 44,900   654,193
  Patriot Transportation Holding a 27,700   555,108     SIPEX Corporation a 24,100   309,685
  Pittston Brink’s Group 39,365   869,966
     TransAct Technologies a 68,200   375,100
      6,513,114
         6,758,260
Other Industrial Services - 0.5%         Distribution - 1.8%      
  Landauer 32,300   1,093,355
   †Daisytek International a 75,300   991,701
            Elamex a 70,200   315,900
Total (Cost $23,467,116)     29,438,370
     Pioneer-Standard Electronics 107,000   1,358,900
Natural Resources - 8.0%           Richardson Electronics 146,600   1,773,860
Energy Services - 3.1%               4,440,361
  Carbo Ceramics 33,600   1,315,776   Internet Software and Services - 0.3%      
  Dril-Quip a 42,700   1,029,070     Lionbridge Technologies a 37,500   65,644
  GulfMark Offshore a 34,600   979,526   †Register.com a 53,100   610,650
  Input/Output a 194,500   1,596,845         676,294
  Lufkin Industries 25,000   670,000   IT Services - 3.8%      
  MarkWest Hydrocarbon a 15,200   97,280     Analysts International 175,000   722,750
  Peerless Mfg. a 43,200   779,760     answerthink a 211,600   1,381,748
  Valley National Gases a 30,100   198,660     Braun Consulting a 10,000   35,500
  Willbros Group a 55,900   894,400
     CACI International Cl. A a 10,000   394,850
      7,561,317
   †CIBER a 160,000   1,512,000
Oil and Gas - 3.8%           Covansys Corporation a 97,100   869,045
  Bonavista Petroleum a 81,000   1,373,485   †DiamondCluster International Cl. A a 60,000   786,000
  Denbury Resources a 179,700   1,313,607     Forrester Research a 70,500   1,419,870
  EnergySouth 30,200   726,310     Syntel a 145,300   1,878,729

THE ROYCE FUNDS ANNUAL REPORT 2001 | 33


ROYCE MICRO-CAP TRUST, INC.

 
SCHEDULE OF INVESTMENTS
 DECEMBER 31, 2001
 
  SHARES
   VALUE
     SHARES
   VALUE
 
Technology (continued)         Miscellaneous - 4.7%       
IT Services (continued)         Total (Cost $10,744,554)     $     11,418,505
 
  Technology Solutions a 50,000   $   111,000
   TOTAL COMMON STOCKS       
      9,111,492
     (Cost $159,755,134)     226,116,069
 
Semiconductors and Equipment - 1.5%                 
  Electroglas a 71,500   1,056,055           
  Exar a 17,000   354,450   PREFERRED STOCKS - 0.5%       
  Helix Technology 9,500   214,225     Chart House Enterprises Conv. a 6,396   6,396 
  Innovex a 30,000   101,400     Seneca Foods Conv. a 75,409   1,085,136
 
  Intevac a 111,450   265,808  
TOTAL PREFERRED STOCKS		       
  Photronics a 29,750   932,662     (Cost $957,998)     1,091,532
 
  Teradyne a 13,604   410,025           
  Xicor a 35,000   388,500
     PRINCIPAL     
      3,723,125
     AMOUNT
     
Software - 4.0%                 
  Aladdin Knowledge Systems a 27,300   86,541   U.S. TREASURY OBLIGATIONS - 4.3%       
  ANSYS a 35,400   872,610   U.S. Treasury Notes       
  Applix a 20,000   28,000     6.25%, due 8/31/02 $ 5,000,000   5,143,750 
  Computer Access Technology a 48,000   240,000     6.00%, due 9/30/02 5,000,000   5,153,100
 
  iGate Capital a 178,400   731,440   TOTAL U.S. TREASURY
  OBLIGATIONS		       
  Integral Systems a 58,300   1,122,275     (Cost $10,000,343)     10,296,850
 
  JDA Software Group a 78,000   1,743,300           
  MSC.Software a 17,700   276,120   REPURCHASE AGREEMENT - 2.4%       
†Roxio a 105,293   1,742,599   State Street Bank & Trust Company,       
  SPSS a 91,900   1,631,225     0.85% dated 12/31/01, due 1/2/02,       
†Transaction Systems Architects Cl. A a 90,100   1,104,626     maturity value $5,761,272       
  VerticalBuyer a 12,716   64
     (collateralized by U.S. Treasury Bonds,       
      9,578,800
     6.25% due 8/15/23, valued at $5,878,155)       
Telecommunication - 1.4%           (Cost $5,761,000)     5,761,000
 
  Captaris a 30,000   110,700           
  Globecomm Systems a 95,900   579,236   TOTAL INVESTMENTS - 101.2%       
†MetaSolv a 90,000   707,346     (Cost $176,474,475)     243,265,451 
  REMEC a 82,500   824,175           
  Somera Communications a 132,900   1,003,395   LIABILITIES LESS       
  Technical Communications a,c 96,700   98,634
     CASH AND OTHER ASSETS - (1.2)%     (2,822,326
)
      3,323,486
           
Total (Cost $35,400,672)     45,675,275
   NET ASSETS - 100.0%     $ 240,443,125
 
 

a
Non-income producing.
b American Depository Receipt.
c At December 31, 2001, 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 Securities for which market quotations are no longer readily available represent 1.09% of net assets. These securities have been valued at their fair value under procedures established by the Fund’s Board of Directors.
† New additions in 2001.
  Bold indicates the Fund’s largest 20 equity holdings in terms of December 31, 2001 market value.
   
INCOME TAX INFORMATION: The cost of total investments for Federal income tax purposes was $176,879,059. At December 31, 2001, net unrealized appreciation for all securities was $66,386,392, consisting of aggregate gross unrealized appreciation of $75,670,414 and aggregate gross unrealized depreciation of $9,284,022. 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.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.   

34 | THE ROYCE FUNDS ANNUAL REPORT 2001


ROYCE MICRO-CAP TRUST, INC.
  
  
 
STATEMENT OF ASSETS AND LIABILITIES
 DECEMBER 31, 2001
  
 
ASSETS:    
Investments at value (identified cost $170,713,475) $ 237,504,451  
Repurchase agreement (at cost and value) 5,761,000  
Cash 15,393  
Receivable for dividends and interest 302,237  
Prepaid expenses
 5,312
  
       Total Assets
 243,588,393
  
LIABILITIES:    
Payable for investments purchased 2,747,637  
Payable for investment advisory fee 251,369  
Preferred dividends accrued but not yet declared 68,889  
Accrued expenses
 77,373
  
       Total Liabilities
 3,145,268
  
       Net Assets
 $ 240,443,125
  
ANALYSIS OF NET ASSETS:    
PREFERRED STOCK:    
Par value of 7.75% Cumulative Preferred Stock – $0.001 per share; 1,600,000 shares outstanding $           1,600  
Additional paid-in capital
 39,998,400
  
Net Assets applicable to Preferred Stock at a liquidation value of $25 per share
 40,000,000
  
COMMON STOCK:    
Par value of Common Stock – $0.001 per share; 16,945,768 shares outstanding (150,000,000 shares authorized) 16,946  
Additional paid-in capital 129,887,279  
Accumulated net realized gain on investments 3,816,813  
Net unrealized appreciation on investments 66,790,976  
Preferred dividends accrued but not yet declared
 (68,889
 )
Net Assets applicable to Common Stock (net asset value per share – $11.83)
 $ 200,443,125
  
Net Assets
 240,443,125
  

STATEMENTS OF CHANGES IN NET ASSETS
  
  
  
  
  
  Year ended Year ended   
  December 31, December 31,   
  2001
 2000         
 
INVESTMENT OPERATIONS:          
     Net investment income (loss) $     (775,205 ) $    1,226,568  
     Net realized gain on investments 12,077,022   21,073,379  
     Net change in unrealized appreciation on investments
 29,883,551
  
  
 (3,359,234
 )
          Net increase in net assets from investment operations
 41,185,368
  
  
 18,940,713
  
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:        
     Net investment income –           (160,545 )
     Net realized gain on investments
 (3,100,000
 )
  
 (2,939,455
 )
          Total distributions to Preferred Stockholders
 (3,100,000
 )
  
 (3,100,000
 )
DISTRIBUTIONS TO COMMON STOCKHOLDERS:          
     Net investment income –           (1,224,282 )
     Net realized gain on investments
 (9,211,976
 )
  
 (22,436,013
 )
          Total distributions to Common Stockholders
 (9,211,976
 )
  
 (23,660,295
 )
CAPITAL STOCK TRANSACTIONS:          
     Reinvestment of distributions to Common Stockholders
 7,749,904
  
  
 20,370,540
  
NET INCREASE IN NET ASSETS 36,623,296     12,550,958  
NET ASSETS:          
     Beginning of year
 203,819,829
  
  
 191,268,871
  
     End of year
 $240,443,125
  
  
 $203,819,829
  

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
 
 
 
THE ROYCE FUNDS ANNUAL REPORT 2001 | 35


ROYCE MICRO-CAP TRUST, INC.
  
  
 
     
STATEMENT OF OPERATIONS
 YEAR ENDED DECEMBER 31, 2001
  
     
INVESTMENT INCOME:    
Income:    
     Dividends $ 1,529,395  
     Interest
 923,904
  
Total income
 2,453,299
  
Expenses:    
     Investment advisory fees 2,894,285  
     Custodian and transfer agent fees 109,774  
     Administrative and office facilities expenses 85,355  
     Stockholder reports 62,824  
     Professional fees 35,239  
     Directors’ fees 34,823  
     Other expenses
 56,204
  
Total expenses 3,278,504  
Fees waived by investment adviser
 (50,000
 )
Net expenses
 3,228,504
  
Net investment income (loss)
 (775,205
 )
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:    
Net realized gain on investments 12,077,022  
Net change in unrealized appreciation on investments
 29,883,551
  
Net realized and unrealized gain on investments
 41,960,573
  
NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS
 $41,185,368
  

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
 
 
36 | THE ROYCE FUNDS ANNUAL REPORT 2001


ROYCE MICRO-CAP TRUST, INC.
 
FINANCIAL HIGHLIGHTS

This table is presented to show selected data for a share of Common Stock outstanding throughout each period, and to assist stockholders in evaluating the Fund’s performance for the periods presented.
 
  Years ended December 31,
 
 2001
  
 2000
  
 1999
  
 1998
  
 1997
  
NET ASSET VALUE, BEGINNING OF PERIOD
 $10.14
  
 $11.00
  
 $10.06
  
 $10.84
  
 $9.38
  
INVESTMENT OPERATIONS:                    
   Net investment income (loss) (0.05 ) 0.09   0.12   0.13   0.17  
   Net realized and unrealized gain (loss) on investments
 2.57
  
 1.23
  
 1.35
  
 (0.36
 )
 2.61
  
     Total investment operations
 2.52
  
 1.32
  
 1.47
  
 (0.23
 )
 2.78
  
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:                    
   Net investment income –     (0.01 ) (0.05 ) (0.06 ) (0.02 )
   Net realized gain on investments
 (0.19
 )
 (0.22
 )
 (0.18
 )
 (0.18
 )
 (0.12
 )
     Total distributions to Preferred Stockholders
 (0.19
 )
 (0.23
 )
 (0.23
 )
 (0.24
 )
 (0.14
 )
DISTRIBUTIONS TO COMMON STOCKHOLDERS:                    
   Net investment income –     (0.09 ) (0.06 ) (0.07 ) (0.16 )
   Net realized gain on investments
 (0.57
 )
 (1.63
 )
 (0.21
 )
 (0.22
 )
 (0.84
 )
     Total distributions to Common Stockholders
 (0.57
 )
 (1.72
 )
 (0.27
 )
 (0.29
 )
 (1.00
 )
CAPITAL STOCK TRANSACTIONS:                    
   Effect of reinvestment of distributions by Common Stockholders (0.07 ) (0.23 ) (0.03 ) (0.02 ) (0.06 )
   Effect of Preferred Stock offering
 –  
  
 –  
  
 –  
  
 –  
  
 (0.12
 )
     Total capital stock transactions
 (0.07
 )
 (0.23
 )
 (0.03
 )
 (0.02
 )
 (0.18
 )
NET ASSET VALUE, END OF PERIOD
 $11.83
  
 $10.14
  
 $11.00
  
 $10.06
  
 $10.84
  
MARKET VALUE, END OF PERIOD
 $10.50
  
 $8.625
  
 $9.00
  
 $8.875
  
 $10.125
  
TOTAL RETURN (a):

                    
Net Asset Value 23.4 % 10.9 % 12.7 % (4.1 )% 27.1 %
Market Value 28.8 % 15.3 % 4.5 % (9.4 )% 35.0 %
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE                    
   TO COMMON STOCKHOLDERS:                    
Total expenses (b,c) 1.78 % 1.32 % 1.27 % 1.18 % 0.83 %
   Management fee expense 1.57 % 1.08 % 0.91 % 0.80 % 0.40 %
   Other operating expenses 0.21 % 0.24 % 0.36 % 0.38 % 0.43 %
Net investment income (loss) (0.43 )% 0.74 % 1.20 % 1.21 % 1.77 %
SUPPLEMENTAL DATA:                    
Net Assets, End of Period (in thousands) $240,443   $203,820   $191,269   $175,495   $182,362  
Portfolio Turnover Rate 27 % 49 % 49 % 44 % 34 %
PREFERRED STOCK:                    
Total shares outstanding 1,600,000   1,600,000   1,600,000   1,600,000   1,600,000  
Asset coverage per share $150.28   $127.39   $119.54   $109.68   $113.98  
Liquidation preference per share $25.00   $25.00   $25.00   $25.00   $25.00  
Average market value per share (d)
 $25.30
  
 $23.08
  
 $24.67
  
 $25.40
  
 $25.56
  
(a) The Net Asset Value and Market Value Total Returns assume a continuous Common Stockholder who reinvested all net investment income dividends and capital gain distributions.
(b) Expense ratios based on total average net assets were 1.46%, 1.06%, 0.98%, 0.92% and 0.72% for the periods ended December 31, 2001, 2000, 1999, 1998 and 1997, respectively.
(c) Expense ratios based on average net assets applicable to Common Stockholders before waiver of fees by the investment adviser would have been 1.81%, 1.44% and 1.24% for the periods ended December 31, 2001, 1999 and 1998, respectively.
(d) The average of month-end market values during the period.
 
 
 
THE ROYCE FUNDS ANNUAL REPORT 2001 | 37


ROYCE MICRO-CAP TRUST, INC.
 
NOTES TO FINANCIAL STATEMENTS
 
Summary of Significant Accounting Policies:
 

     Royce Micro-Cap Trust, Inc. (the “Fund”) was incorporated under the laws of the State of Maryland on September 9, 1993 as a diversified closed-end investment company. The Fund commenced operations on December 14, 1993.
     The preparation of financial statements in conformity with 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 listed on an exchange or on the Nasdaq National Market System (NMS) are valued on the basis of the last reported sale prior to the time the valuation is made or, if no sale is reported for such day, at their bid price for exchange-listed securities and at the average of their bid and asked prices for Nasdaq NMS securities. Quotations are taken from the market where the security is primarily traded. Other over-the-counter securities for which market quotations are readily available are valued at their bid price. Securities for which market quotations are not readily available are valued at their fair value under procedures established by the Fund’s Board of Directors. Bonds and other fixed income securities may be valued by reference to other securities with comparable ratings, interest rates and maturities, using established independent pricing services.

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

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

Taxes:
     As a qualified regulated investment company under Subchapter M of the Internal Revenue Code, the Fund is not subject to income taxes to the extent that it distributes substantially all of its taxable income for its fiscal year. The Schedule of Investments includes information regarding income taxes under the caption “Income Tax Information”.

Distributions:
     Distributions to Common Stockholders are recorded on the ex-dividend date and paid annually in December. Distributions to Preferred Stockholders are recorded on an accrual basis and paid quarterly. Distributions are determined in accordance with income tax regulations that may differ from 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 enters into repurchase agreements with respect to its portfolio securities solely with State Street Bank and Trust Company (“SSB&T”), the custodian of its assets. The Fund restricts repurchase agreements to maturities of no more than seven days. Securities pledged as collateral for repurchase agreements, which are held by SSB&T until maturity of the repurchase agreements, are marked-to-market daily and maintained at a value at least equal to the principal amount of the repurchase agreement (including accrued interest). Repurchase agreements could involve certain risks in the event of default or insolvency of SSB&T, including possible delays or restrictions upon the ability of the Fund to dispose of the underlying securities.

 
Capital Stock:
 

     The Fund currently has 1,600,000 shares of 7.75% Cumulative Preferred Stock outstanding. The stock has a liquidation preference of $25.00 per share.
     Under the Investment Company Act of 1940, the Fund is required to maintain an asset coverage of at least 200% for the Preferred Stock. In addition, pursuant to the Rating Agency Guidelines established by Moody’s, the Fund is required to maintain a certain discounted asset coverage. The Fund has met these requirements since issuing the Preferred Stock.

 

38 | THE ROYCE FUNDS ANNUAL REPORT 2001


ROYCE MICRO-CAP TRUST, INC.
 
NOTES TO FINANCIAL STATEMENTS (continued)
 
 

     The Fund is required to allocate long-term capital gain distributions and other types of income proportionately to distributions made to holders of shares of Common Stock and Preferred Stock. To the extent that dividends on the shares of Preferred Stock are not paid from long-term capital gains, net investment income or net short-term capital gains, they will represent a return of capital.
     The Fund issued 784,403 and 2,405,377 shares of Common Stock as reinvestment of distributions by Common Stockholders for the years ended December 31, 2001 and 2000, respectively.

 
Investment Advisory Agreement:
 

     As compensation for its services under the Investment Advisory Agreement, Royce & Associates, Inc. (“Royce”) receives a fee comprised of a Basic Fee (“Basic Fee”) and an adjustment to the Basic Fee based on the investment performance of the Fund in relation to the investment record of the Russell 2000.
     The Basic Fee is a monthly fee equal to 1/12 of 1% (1% on an annualized basis) of the average of the month-end net assets of the Fund for the rolling 36-month period ending with such month. The Basic Fee for each month is increased or decreased at the rate of 1/12 of .05% for each percentage point that the investment performance of the Fund exceeds, or is exceeded by, the percentage change in the investment record of the Russell 2000 for the performance period by more than two percentage points. The performance period for each such month is a rolling 36-month period ending with such month. The maximum increase or decrease in the Basic Fee for any month may not exceed 1/12 of .5%. Accordingly, for each month, the maximum monthly fee rate as adjusted for performance is 1/12 of 1.5% and is payable if the investment performance of the Fund exceeds the percentage change in the investment record of the Russell 2000 by 12 or more percentage points for the performance period, and the minimum monthly fee rate as adjusted for performance is 1/12 of .5% and is payable if the percentage change in the investment record of the Russell 2000 exceeds the investment performance of the Fund by 12 or more percentage points for the performance period.
     Royce has voluntarily committed to waive the portion of its investment advisory fee attributable to the Fund’s Preferred Stock for any month in which the Fund’s average annual NAV total return since issuance of the Preferred Stock fails to exceed the Preferred Stock’s dividend rate.
     For the year ended December 31, 2001, the Fund accrued and paid Royce advisory fees totaling $2,844,285, which is net of $50,000 voluntarily waived by Royce.

 
Distributions to Stockholders:
 

The tax character of distributions paid to stockholders during 2001 and 2000 was as follows:
   
 
Distributions paid from: 2001   2000
 
    Ordinary income $  3,817,946 $18,156,894
    Long-term capital gain 8,494,030 8,603,401
 
$12,311,976 $26,760,295
 
 

As of December 31, 2001, the tax basis components of distributable earnings included in stockholders’ equity were as follows:
 
 
Undistributed ordinary income $         8,582  
Undistributed long-term gain 4,212,820
Unrealized appreciation 66,386,393
Accrued preferred distributions (68,889 )
   
$70,538,906
  
 
 
Purchases and Sales of Investment Securities:
 

     For the year ended December 31, 2001, the cost of purchases and proceeds from sales of investment securities, other than short-term securities, amounted to $58,409,890 and $64,751,885, respectively.

 

THE ROYCE FUNDS ANNUAL REPORT 2001 | 39


ROYCE MICRO-CAP TRUST, INC.
 
NOTES TO FINANCIAL STATEMENTS (continued)
 
Transactions in Shares of Affiliated Companies:
 

     An “Affiliated Company”, as defined in the Investment Company Act of 1940, is a company in which a Fund owns 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, 2001:
  Purchases Sales  
 
 
Affiliated Company
 Shares
 Cost
 Shares
 Cost
 Realized Gain (Loss)
 Dividend Income
Smithfield Companies (The) — — 148,400 $788,710 $472,590 $11,872
Strategic Distribution 211,400 $1,611,978     9,800   $82,056     $3,446 —
Technical Communications   96,700 $   108,304 — — — —




REPORT OF INDEPENDENT AUDITORS
 
To the Board of Directors and Stockholders of Royce Micro-Cap Trust, Inc.

     We have audited the accompanying statement of assets and liabilities of Royce Micro-Cap Trust, Inc., including the schedule of investments, as of December 31, 2001, and the related statement of operations for the year then ended, and the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the four years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for the year in the period ended December 31, 1997 were audited by other auditors whose report dated February 10, 1998 expressed an unqualified opinion on those financial highlights.
     We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, 2001, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
     In our opinion, the financial statements and financial highlights referred to above and audited by us present fairly, in all material respects, the financial position of Royce Micro-Cap Trust, Inc. at December 31, 2001, 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 four 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 17, 2002

 






40 | THE ROYCE FUNDS ANNUAL REPORT 2001


ROYCE FOCUS TRUST, INC.
SCHEDULE OF INVESTMENTS
 DECEMBER 31, 2001
COMMON STOCKS – 78.3%
  SHARES
   VALUE
     SHARES
   VALUE
Consumer Products – 8.2%         Industrial Components - 1.7%      
Apparel and Shoes - 1.9%           †Wescast Industries Cl. A 48,000   $      1,466,400
  †Nautica Enterprises a 129,000   $    1,649,910
   Machinery - 3.7%      
Home Furnishing/Appliances - 1.4%            Lincoln Electric Holdings 130,100   3,179,644
  †Industrie Natuzzi ADR b 83,800   1,226,832
   Pumps, Valves and Bearings - 0.7%      
Sports and Recreation - 4.9%            Roper Industries 13,300   658,350
   Monaco Coach a 113,850   2,489,899   Total (Cost $6,244,335)     9,671,107
   Thor Industries 47,000   1,741,350   Industrial Services – 8.0%      
      4,231,249
   Commercial Services - 7.0%      
Total (Cost $4,753,455)     7,107,991
      ABM Industries 60,700   1,902,945
Consumer Services – 3.8%           †Cornell Companies a 25,000   441,250
Retail Stores - 3.8%           †Diebold 24,000   970,560
   Big Lots 99,400   1,033,760     †New Horizons Worldwide a 80,500   925,750
   Charming Shoppes a 332,000   1,762,920     †On Assignment a 50,000   1,148,500
   Claire’s Stores 33,000   498,300
      Spherion Corporation a 72,500   707,600
                6,096,605
Total (Cost $2,761,799)     3,294,980
   Food/Tobacco Processors - 0.6%      
Financial Intermediaries – 8.5%            Midwest Grain Products 41,200   476,272
Insurance - 6.5%         Transportation and Logistics - 0.4%      
  †Erie Indemnity Company Cl. A 23,500   904,515     †EGL a 25,000   348,750
   ProAssurance a 124,255   2,184,403   Total (Cost $6,287,649)     6,921,627
   White Mountains Insurance Group 4,000   1,392,000   Natural Resources – 9.2%      
   Zenith National Insurance 39,800   1,112,012
   Energy Services - 2.1%      
      5,592,930
      Input/Output a 220,900   1,813,589
Securities Brokers - 2.0%         Oil and Gas - 5.2%      
  †E*TRADE Group a 170,000   1,742,500
      Tom Brown a 63,800   1,723,238
Total (Cost $4,871,600)     7,335,430
     †EOG Resources 28,700   1,122,457
Financial Services – 1.4%            3TEC Energy a 120,000   1,680,000
Insurance Brokers - 1.4%               4,525,695
   Gallagher (Arthur J.) & Company 36,000   1,241,640
   Precious Metals and Mining - 1.9%      
Total (Cost $283,005)     1,241,640
      Anglogold ADR b 89,900   1,623,594
Health – 7.7%         Total (Cost $5,948,589)     7,962,878
Commercial Services - 0.4%         Technology – 20.4%      
  †Quintiles Transnational a 20,000   321,600
   Aerospace/Defense - 1.7%      
Drugs and Biotech - 4.2%            Curtiss-Wright 30,300   1,446,825
  †Celera Genomics Group -         Components and Systems - 5.0%      
     Applera Corporation a 54,000   1,441,260      Dionex a 40,000   1,020,400
  †Incyte Genomics a 36,700   717,852      Kronos a 27,750   1,342,545
  †Lexicon Genetics a 128,500   1,482,890
      Zebra Technologies Cl. A a 35,200   1,953,952
      3,642,002
         4,316,897
Personal Care - 1.2%         Distribution - 4.1%      
  †Ocular Sciences a 46,000   1,071,800
      Avnet 79,100   2,014,677
Surgical Products and Devices - 1.9%            Richardson Electronics 129,000   1,560,900
   Arrow International 40,200   1,605,588
         3,575,577
Total (Cost $5,337,970)     6,640,990
   Internet Software and Services - 0.5%      
Industrial Products - 11.1%           †Register.com 35,000   402,500
Building Systems and Components - 2.5%         IT Services - 6.4%      
   Simpson Manufacturing a 38,000   2,177,400
     †Forrester Research a 70,600   1,421,884
Construction Materials - 2.5%           †Perot Systems Cl. A a 128,600   2,626,012
   Florida Rock Industries 59,850   2,189,313
     †Syntel a 118,700   1,534,791
        5,582,687
 
 
THE ROYCE FUNDS ANNUAL REPORT 2001 | 41


ROYCE FOCUS TRUST, INC.
SCHEDULE OF INVESTMENTS
 DECEMBER 31, 2001
  SHARES
   VALUE   
     VALUE
  
Technology (continued)           REPURCHASE AGREEMENT - 9.7%    
Software - 1.8%         State Street Bank & Trust Company,    
  †JDA Software Group a 72,100   $      1,611,435   
    0.85% dated 12/31/01, due 1/2/02,    
Telecommunication – 0.9%            Maturity value $8,413,397    
   Plantronics a 30,000   769,200   
    (collateralized by U.S. Treasury Bonds,    
Total (Cost $12,684,188)     17,705,121   
    9.875% due 11/15/15, valued at $8,585,974)    
TOTAL COMMON STOCKS            (Cost $8,413,000) $  8,413,000
  
   (Cost $49,172,590)     67,881,764   
 TOTAL INVESTMENTS - 100.3%    
  PRINCIPAL          (Cost $67,659,742) 86,908,014  
  AMOUNT
            
          LIABILITIES LESS CASH    
U.S. TREASURY OBLIGATIONS – 12.3%            AND OTHER ASSETS - (0.3)% (254,371
 )
U.S. Treasury Notes         NET ASSETS - 100.0% $86,653,643
  
   5.75%, due 10/31/02 $5,000,000   5,155,450          
   7.25%, due 8/15/04 5,000,000   5,457,800   
      
TOTAL U.S. TREASURY OBLIGATIONS              
   (Cost $10,074,152)     10,613,250   
      
 
a Non-income producing.
b American Depository Receipt.
† New additions in 2001.
  Bold indicates the Fund’s largest 20 equity holdings in terms of December 31, 2001 market value.

INCOME TAX INFORMATION: The cost of total investments for Federal income tax purposes was $67,899,155. At December 31, 2001, net unrealized appreciation for all securities was $19,008,859, consisting of aggregate gross unrealized appreciation of $19,334,722 and aggregate gross unrealized depreciation of $325,863. 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.

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


ROYCE FOCUS TRUST, INC.
  
  
 
STATEMENT OF ASSETS AND LIABILITIES
 DECEMBER 31, 2001
  
ASSETS:    
Investments at value (identified cost $59,246,742) $78,495,014  
Repurchase agreement (at cost and value) 8,413,000  
Cash 228  
Receivable for investments sold 116,634  
Receivable for dividends and interest 222,516  
Prepaid expenses
 1,986
  
     Total Assets
 87,249,378
  
LIABILITIES:    
Payable for investments purchased 446,614  
Payable for investment advisory fee 72,425  
Preferred dividends accrued but not yet declared 33,112  
Accrued expenses
 43,584
  
     Total Liabilities
 595,735
  
     Net Assets
 $86,653,643
  
ANALYSIS OF NET ASSETS:    
PREFERRED STOCK:    
Par value of 7.45% Cumulative Preferred Stock – $0.001 per share; 800,000 shares outstanding $              800  
Additional paid-in capital
 19,999,200
  
Net Assets applicable to Preferred Stock at a liquidation value of $25 per share
 20,000,000
  
COMMON STOCK:    
Par value of Common Stock – $0.001 per share; 9,161,324 shares outstanding (100,000,000 shares authorized) 9,161  
Additional paid-in capital 45,366,987  
Undistributed net investment income 423,485  
Accumulated net realized gain on investments 1,638,850  
Net unrealized appreciation on investments 19,248,272  
Preferred dividends accrued but not yet declared
 (33,112
 )
Net Assets applicable to Common Stock (net asset value per share – $7.28)
 $66,653,643
  
Net Assets
 $86,653,643
  

STATEMENTS OF CHANGES IN NET ASSETS
  
  
  
  
  
  Year ended   Year ended    
  December 31,        December 31,  
  2001     
 2000        
  
INVESTMENT OPERATIONS:          
     Net investment income $     431,263   $ 1,043,797  
     Net realized gain on investments 2,603,772   5,191,596  
     Net change in unrealized appreciation on investments
 4,458,997
  
  
 5,798,144
  
         Net increase in net assets from investment operations
 7,494,032
  
  
 12,033,537
  
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:          
     Net investment income (321,840 )   (257,701 )
     Net realized gain on investments
 (1,168,160
 )
  
 (1,232,299
 )
         Total distributions to Preferred Stockholders
 (1,490,000
 )
  
 (1,490,000
 )
DISTRIBUTIONS TO COMMON STOCKHOLDERS:          
     Net investment income (272,127 )   (506,486 )
     Net realized gain on investments
 (987,720
 )
  
 (2,412,246
 )
         Total distributions to Common Stockholders
 (1,259,847
 )
  
 (2,918,732
 )
CAPITAL STOCK TRANSACTIONS:          
     Reinvestment of distributions to Common Stockholders
 976,135
  
  
 2,305,095
  
NET INCREASE IN NET ASSETS 5,720,320     9,929,900  
NET ASSETS:          
     Beginning of year
 80,933,323
  
  
 71,003,423
  
     End of year (including undistributed net investment income
           of $423,485 and $955,077, respectively)
 $86,653,643
  
  
 $80,933,323
  

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
 
 
 
THE ROYCE FUNDS ANNUAL REPORT 2001 | 43


ROYCE FOCUS TRUST, INC.
  
  
 
STATEMENT OF OPERATIONS
 YEAR ENDED DCEMBER 31, 2001
  
INVESTMENT INCOME    
Income:    
     Interest $ 854,507  
     Dividends
 480,709
  
Total income
 1,335,216
  
Expenses:    
     Investment advisory fees 813,757  
     Custodian and transfer agent fees 73,253  
     Stockholder reports 33,228  
     Administrative and office facilities expenses 31,907  
     Professional fees 29,030  
     Directors’ fees 25,642  
     Other expenses
 29,740
  
Total expenses 1,036,557  
Fees waived by investment adviser
 (132,604
 )
Net expenses
 903,953
  
Net investment income
 431,263
  
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:    
Net realized gain on investments 2,603,772  
Net change in unrealized appreciation on investments
 4,458,997
  
Net realized and unrealized gain on investments
 7,062,769
  
NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS
 $7,494,032
  
 
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
 
 
 
44 | THE ROYCE FUNDS ANNUAL REPORT


ROYCE FOCUS TRUST, INC.
 
FINANCIAL HIGHLIGHTS

This table is presented to show selected data for a share of Common Stock outstanding throughout each period, and to assist stockholders in evaluating the Fund’s performance for the periods presented.
 
  Years ended December 31,
 
 2001
  
 2000
  
 1999
  
 1998
  
 1997
  
NET ASSET VALUE, BEGINNING OF PERIOD
 $6.77
  
 $5.94
  
 $5.63
  
 $6.04
  
 $5.52
  
INVESTMENT OPERATIONS:                    
     Net investment income 0.05   0.12   0.08   0.12   0.08  
     Net realized and unrealized gain (loss) on investments
 0.79
  
 1.26
  
 0.58
  
 (0.35
 )
 1.12
  
        Total investment operations
 0.84
  
 1.38
  
 0.66
  
 (0.23
 )
 1.20
  
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:                    
     Net investment income (0.04 ) (0.03 ) (0.01 ) (0.16 ) –     
     Net realized gain on investments
 (0.13
 )
 (0.14
 )
 (0.17
 )
 (0.02
 )
 (0.01
 )
        Total distributions to Preferred Stockholders
 (0.17
 )
 (0.17
 )
 (0.18
 )
 (0.18
 )
 (0.01
 )
DISTRIBUTIONS TO COMMON STOCKHOLDERS:                    
     Net investment income (0.03 ) (0.06 ) (0.01 ) –      (0.12 )
     Net realized gain on investments
 (0.11
 )
 (0.28
 )
 (0.14
 )
 –   
  
 (0.41
 )
        Total distributions to Common Stockholders
 (0.14
 )
 (0.34
 )
 (0.15
 )
 –   
  
 (0.53
 )
CAPITAL STOCK TRANSACTIONS:                    
     Effect of reinvestment of distributions by Common Stockholders (0.02 ) (0.04 ) (0.02 ) –      (0.04 )
     Effect of Preferred Stock offering
 –   
  
 –   
  
 –   
  
 –   
  
 (0.10
 )
        Total capital stock transactions
 (0.02
 )
 (0.04
 )
 (0.02
 )
 –   
  
 (0.14
 )
NET ASSET VALUE, END OF PERIOD
 $7.28
  
 $6.77
  
 $5.94
  
 $5.63
  
 $6.04
  
MARKET VALUE, END OF PERIOD
 $6.65
  
 $5.69
  
 $4.72
  
 $4.88
  
 $5.06
  
TOTAL RETURN (a):                    
Net Asset Value 10.0 % 20.9 % 8.7 % (6.8 )% 20.5 %
Market Value 19.7 % 27.9 % (0.3 )% (3.7 )% 21.3 %
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO                    
     COMMON STOCKHOLDERS:                    
Total expenses (b,c) 1.47 % 1.44 % 1.51 % 1.62 % 0.94 %
     Management fee expense 1.11 % 1.00 % 1.00 % 1.14 % 0.39 %
     Other operating expenses 0.36 % 0.44 % 0.51 % 0.48 % 0.55 %
Net investment income 0.70 % 1.93 % 1.47 % 1.95 % 1.35 %
SUPPLEMENTAL DATA:                    
Net Assets, End of Period (in thousands) $86,654   $80,933   $71,003   $67,457   $70,893  
Portfolio Turnover Rate 54 % 69 % 60 % 90 % 74 %
PREFERRED STOCK:                    
Total shares outstanding 800,000   800,000   800,000   800,000   800,000  
Asset coverage per share $108.32   $101.17   $88.75   $84.32   $88.62  
Liquidation preference per share $25.00   $25.00   $25.00   $25.00   $25.00  
Average market value per share (d)
 $25.09
  
 $22.23
  
 $24.00
  
 $25.16
  
 $25.25
  
(a) The Net Asset Value and Market Value Total Returns assume a continuous Common Stockholder who reinvested all net investment income dividends and capital gain distributions.
(b) Expense ratios based on total average net assets were 1.11%, 1.05%, 1.06%, 1.16% and 0.90% for the periods ended December 31, 2001, 2000, 1999, 1998 and 1997, respectively.
(c) Expense ratios based on average net assets applicable to Common Stockholders before waiver of fees by the investment adviser would have been 1.69%, 1.81%, 1.93%, 1.88% and 1.60% for the periods ended December 31, 2001, 2000, 1999, 1998 and 1997, respectively.
(d) The average of month-end market values during the period.
 
 
 
THE ROYCE FUNDS ANNUAL REPORT 2001 | 45


ROYCE FOCUS TRUST, INC.
 
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, Inc. (“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 listed on an exchange or on the Nasdaq National Market System (NMS) are valued on the basis of the last reported sale prior to the time the valuation is made or, if no sale is reported for such day, at their bid price for exchange-listed securities and at the average of their bid and asked prices for Nasdaq NMS securities. Quotations are taken from the market where the security is primarily traded. Other over-the-counter securities for which market quotations are readily available are valued at their bid price. Securities for which market quotations are not readily available are valued at their fair value under procedures established by the Fund’s Board of Directors. Bonds and other fixed income securities may be valued by reference to other securities with comparable ratings, interest rates and maturities, using established independent pricing services.

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

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

Taxes:
     As a qualified regulated investment company under Subchapter M of the Internal Revenue Code, the Fund is not subject to income taxes to the extent that it distributes substantially all of its taxable income for its fiscal year. The Schedule of Investments includes information regarding income taxes under the caption “Income Tax Information”.

Distributions:
     Distributions to Common Stockholders are recorded on the ex-dividend date and paid annually in December. Distributions to Preferred Stockholders are recorded on an accrual basis and paid quarterly. Distributions are determined in accordance with income tax regulations that may differ from 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 enters into repurchase agreements with respect to its portfolio securities solely with State Street Bank and Trust Company (“SSB&T”), the custodian of its assets. The Fund restricts repurchase agreements to maturities of no more than seven days. Securities pledged as collateral for repurchase agreements, which are held by SSB&T until maturity of the repurchase agreements, are marked-to-market daily and maintained at a value at least equal to the principal amount of the repurchase agreement (including accrued interest). Repurchase agreements could involve certain risks in the event of default or insolvency of SSB&T, including possible delays or restrictions upon the ability of the Fund to dispose of the underlying securities.

 






46 | THE ROYCE FUNDS ANNUAL REPORT 2001


ROYCE FOCUS TRUST, INC.
 
NOTES TO FINANCIAL STATEMENTS (continued)
 
Capital Stock:
 

     The Fund currently has 800,000 shares of 7.45% Cumulative Preferred Stock outstanding. The stock has a liquidation preference of $25.00 per share.
     Under the Investment Company Act of 1940, the Fund is required to maintain an asset coverage of at least 200% for the Preferred Stock. In addition, pursuant to the Rating Agency Guidelines established by Moody’s, the Fund is required to maintain a certain discounted asset coverage. The Fund has met these requirements since issuing the Preferred Stock.
     The Fund is required to allocate long-term capital gain distributions and other types of income proportionately to distributions made to holders of shares of Common Stock and Preferred Stock. To the extent that dividends on the shares of Preferred Stock are not paid from long-term capital gains, net investment income or net short-term capital gains, they will represent a return of capital.
     The Fund issued 162,419 and 414,399 shares of Common Stock as reinvestment of distributions by Common Stockholders for the years ended December 31, 2001 and 2000, respectively.
 
Investment Advisory Agreement:
 

     The Investment Advisory Agreement between Royce and the Fund provides for fees to be paid at an annual rate of 1.0% of the average daily net assets of the Fund. Royce has voluntarily committed to waive the portion of its investment advisory fee attributable to the Fund’s Preferred Stock for any month in which the Fund’s average annual NAV total return since issuance of the Preferred Stock fails to exceed the Preferred Stock’s dividend rate.
     For the year ended December 31, 2001, the Fund accrued and paid Royce advisory fees totaling $681,153, which is net of $132,604 voluntarily waived by Royce.

 
Distributions to Stockholders:
 

     The tax character of distributions paid to stockholders during 2001 and 2000 was as follows:
   
 
Distributions paid from: 2001
   2000
    Ordinary income $   593,967 $2,253,805
     
    Long-term capital gain 2,155,880 2,154,927
 
$2,749,847 $4,408,732
 
 

     As of December 31, 2001, the tax basis components of distributable earnings included in stockholders’ equity were as follows:
 
 
Undistributed ordinary income $     423,485  
Undistributed long-term gain 1,878,263
Unrealized appreciation 19,008,859
Accrued preferred distributions (33,112 )
   
$21,277,495
  
 
 
Purchases and Sales of Investment Securities:
 

     For the year ended December 31, 2001, the cost of purchases and proceeds from sales of investment securities, other than short-term securities, amounted to $40,972,503 and $45,380,066, respectively.

 

THE ROYCE FUNDS ANNUAL REPORT 2001 | 47


ROYCE FOCUS TRUST, INC.
 
REPORT OF INDEPENDENT AUDITORS
 
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, 2001, and the related statement of operations, and the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the four years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for the period ended December 31, 1997 were audited by other auditors whose report dated February 10, 1998 expressed an unqualified opinion on those financial highlights.
     We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, 2001, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
     In our opinion, the financial statements and financial highlights referred to above and audited by us present fairly, in all material respects, the financial position of Royce Focus Trust, Inc. at December 31, 2001, 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 four 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 17, 2002

 






48 | THE ROYCE FUNDS ANNUAL REPORT 2001


POSTSCRIPT
 

ONE  RING  TO  RULE  THEM ALL .  .  .

     The film versions of both J. K. Rowling’s Harry Potter and the Sorcerer’s Stone and J. R. R. Tolkien’s The Lord of the Rings: The Fellowship of the Ring, each based on a well-loved fantasy tale, have captured the popular imagination. We’re struck by their shared themes. Both feature a diminutive hero who is challenged to rise above his apparently humble status to achieve great things. In Harry Potter, the title character is an orphan who is actually a wizard of almost limitless power, but who must keep the powerful Sorcerer’s Stone from falling into the clutches of the evil wizard, Voldemort. The Lord of the Rings plays for even higher stakes. The hobbit hero Frodo Baggins must destroy the One Ring, which grants near absolute power to whomever wields it, by casting it into the fires of Mount Doom, located deep in the realm of the arch-villain, Sauron. Failure would result in an evil, demonic force ruling the world. Hobbits are no bigger than most eight-year-olds, and exist in relative obscurity among the physically larger peoples of Middle-Earth, including elves, men, dwarves and wizards.
     There are also parallels with each film and small-cap value investors. Harry spends the first 10 years of his life enduring endless insults from his aunt, uncle and his portly cousin Dudley Dursley. Small-cap value investors can probably relate to young Harry’s early distress. While dot.com and other technology wizards seemed to be utilizing the Sorcerer’s Stone to achieve magical returns in the late ’90s, small-cap value investors were as popular as poor Harry was in the Dursley household.
     The number of similarities with hobbits and small-cap value investors may be even greater. Tolkien’s furry-footed, four-foot heroes love simple things — well-tilled earth, hearths, good ale, and, most of all, peace and quiet. They live their lives in their home country of the Shire pretty much ignored by the rest of Middle-Earth, which doesn’t concern hobbits at all — they like being left alone.
     Which is what we like most about working in the broad and diverse small-cap universe. Our chosen investment domains, especially micro-cap and low-priced stocks, are often neglected by Wall Street, which makes us that much happier because it gives us the opportunity to find what we think are great undervalued companies. In addition, hobbits’ love of peace and quiet is mirrored in our passion for managing risk. We strive to use volatility to our advantage in the stock selection process so that we can hopefully avoid its extremes in our portfolios. And, of course, the last two years have seen a resurgence in small-cap value investing, with investors and the financial press suddenly discovering an approach that we have used for more than 25 years. This is not too far afield from the realization in the film that hobbits have more strength and noble qualities than most in Tolkien’s universe at first suspected.
     Then there is the One Ring — the ring that subjects all other powers to it, but corrupts its wearer. The ring designed, in Tolkien’s phrase, “to rule them all and in the darkness bind them.” No one is immune to its power, no one can wield it to any good purpose for very long.
     As the Ring Bearer, Frodo Baggins is beset by innumerable temptations to wield the Ring, even slipping it on few times throughout his long journey to try and destroy it. Investors were similarly enticed by the idea of an endlessly upswinging market in the previous decade, and many succumbed to its allure only to find themselves bound in the darkness of the tech wreck that began in the spring of 2000. Thankfully, we’ve been managing money long enough to know that there’s no investment equivalent to the One Ring (or the Sorcerer’s Stone).
     Tolkien’s book, popular for more than 40 years, is a classic. Rowling’s books seem well on their way to a similar status. While not an approach to “rule them all,” we think that small-cap value is also a classic, an all-weather style that has served our investors well since the early ’70s.





 
   

 

TheRoyceFunds
1414 AVENUE OF THE AMERICAS • NEW YORK, NY 10019

WEALTH OF EXPERIENCE

With approximately $6.0 billion in total assets under management, Royce & Associates is committed to the same small-company investing principles that have served us well for more than 25 years. Charles M. Royce, our primary portfolio manager, enjoys one of the longest tenures of any active mutual fund manager. The senior staff includes four Portfolio Managers and a Managing Director, as well as eight analysts and four traders.

MULTIPLE FUNDS, COMMON FOCUS

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

CONSISTENT DISCIPLINE

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

CO-OWNERSHIP OF FUNDS

It is important that our employees and shareholders share a common financial goal; our officers, employees and their affiliates currently have approximately $50 million invested in The Royce Funds.

 

    

 
    GENERAL INFORMATION
Additional Report Copies
(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