-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PBSEa//uoc0lObCp1WwXSYoPeyghZeY0pePFSD+f231lCEYMRnOrwYEpoNiKhl3r l3BCGAY/sHzZiZnjja/h3g== 0000950117-96-000822.txt : 19960808 0000950117-96-000822.hdr.sgml : 19960808 ACCESSION NUMBER: 0000950117-96-000822 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960807 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROYCE VALUE TRUST INC CENTRAL INDEX KEY: 0000804116 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 133356097 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04875 FILM NUMBER: 96604777 BUSINESS ADDRESS: STREET 1: 1414 AVE OF THE AMERICAS 9TH FL CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2123557311 MAIL ADDRESS: STREET 1: 1414 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10019 N-30D 1 ROYCE VALUE TRUST Royce Value Trust SEMI-ANNUAL REPORT June 30, 1996 The Royce Funds 1414 Avenue of the Americas New York, NY 10019 (212) 355-7311 (800) 221-4268 Dear Stockholder: After a left foot start in January, small company stocks, as measured by the Russell 2000 index, outperformed their large company brethren (S&P 500) in February, March, April and May (15.2% versus 6.2%), but were unable to continue their winning ways in June (-4.1% versus 0.4%). June's downturn in performance was the first sign of potentially higher volatility for small-cap issues. In fact, the Nasdaq Composite closed the second quarter off over 5% from the high it established on June 5th, its largest decline since a 13.8% drop in the second quarter of 1994. In spite of June's downturn, and because of the February-May surge, the Russell 2000 index of small-cap stocks won the first half performance derby with a 10.4% total return versus a 10.2% total return for the large-cap oriented S&P 500. Similarly, the small-cap oriented S&P 600 was up 11.2%. Effective July 1, 1996, the S&P 600 replaces the S&P 500 as the Fund's investment advisory fee performance benchmark. Within small-cap, 'growth' finished ahead of 'value' with the Russell 2000 Growth Index providing an 11.9% return versus an 8.7% gain for the Russell 2000 Value Index. A similar performance relationship, but with wider disparity, was also present in the Wilshire Target Small Cap Index Funds, as the Small Cap Growth Fund (+13.2%) handily outperformed the Small Cap Value Fund (+3.9%). ROYCE VALUE TRUST, INC. ('RVT'), with its small-cap value orientation, performed in line with the two small-cap value proxies for both the quarter and the six month period, posting NAV total returns of 3.8% and 6.8%, respectively. Contributing to the Fund's performance were nice gains in two sectors (retail and consumer durables) which had been mediocre performers in 1995. Although not always leading in the short-term, RVT's intermediate and longer-term results are competitive on an absolute and risk adjusted basis. Average annual NAV total returns for the one year, five year and since inception (November 26, 1986) periods were 16.0%, 15.9% and 12.4%, respectively. One of RVT's additional attributes is its relatively low risk profile. According to independent mutual fund evaluation service Morningstar, RVT was one of the lowest risk domestic equity closed-end funds for the three years ended June 30, 1996, as measured by standard deviation (4th lowest out of 32 funds), beta (5th lowest out of 32 funds) and Morningstar's risk ratio (5th lowest out of 32 funds). WE BELIEVE THAT OUR APPROACH OF INVESTING IN HIGH QUALITY SMALL-CAP COMPANIES, USING ABSOLUTE VALUATION STANDARDS, IS AN APPROPRIATE STRATEGY FOR GENERATING ABOVE AVERAGE RESULTS. FIREWORKS IN JULY [GRAPHIC] Louis Pasteur once said, 'Chance favors the prepared mind.' Although everyone was prepared for the fireworks of July 4th, few were prepared for the market fireworks which began in June and intensified throughout July. Double digit gains in small-cap indices were erased and many investors now find themselves starting over at mid-year. PERFORMANCE UPDATE THROUGH JULY 31 % DECLINE JULY '96 YTD RETURN FROM HIGH* RETURN THRU 7/31/96 --------- -------- ------------ RVT (NAV) -5.6% -3.8% +2.7% Russell 2000 -13.1% -8.7% +0.7% Nasdaq Comp. -13.4% -8.8% +2.7% * Russell 2000 high was made on 5/22/96. 2 We view the current pyrotechnics of July from the vantage point that these fluctuations are inevitable and desirable, and part of the normal rhythm of the market. We are prone to keep ourselves at a distance. This is largely common sense -- no special preparation needed. WORTH REPEATING To be quoted is flattering. To quote oneself presents the dual risk of boring our readers and tooting our own horn. Nevertheless, we want to repeat some of our comments from the 1995 Annual Report. (We promise we won't do this again.) IN OUR LAST REPORT WE SAID: 'An interesting aspect of this five year rise in both stocks and bonds is the ever increasing participation of individual investors....In fact, it is that very same demand which is believed to ensure future success and prevent any major reversal in market fortunes....The suggestion that continued success is nearly guaranteed by demand is a scary proposition....We remain most astonished, not with the magnitude of investor appetite for stocks, but the nearly universal assumption of its permanence.' WE NOW THINK: In a perverse way, the least informed (the purchasing public) now appear to be dictating investment policy to those presumed most knowledgeable (portfolio managers). Normally prudent professionals have taken comfort in the fact that the public is pouring money into equity mutual funds. As one of our shareholders commented, 'The inmates are running the asylum.' ALSO IN THE 1995 ANNUAL REPORT WE SAID: 'We are certain, particularly in a global economy, that an ample supply of securities can be created to meet and even exceed investors' demands.' AND NOW: The $132 billion of new investments in equity mutual funds for the first half of 1996 has eclipsed the prior annual record set in 1993 ($130 billion for the full year). Yet, the dramatic upward progress that this commitment was expected to produce has not materialized. A move up in long-term interest rates and increased corporate insider selling activity are partly to blame, as well as a surge in IPO activity. By late June, roughly 80 new offerings a week were producing a fresh supply of securities at the rate of approximately $20 billion a month. [GRAPHIC] One of the most instructive offerings of the recent IPO boom was the creation and issuance of Berkshire Hathaway Inc. Class B shares. Berkshire Hathaway's Chairman, Warren Buffett, is perhaps the best known investor of our time. Multiple warnings on the front page of the prospectus included ''neither Mr. Buffett nor Mr. Munger (Vice Chairman) would currently buy Berkshire shares (at the current price), nor would they recommend that their families or friends do so'' and ''Berkshire has attempted to assess the current demand for Class B shares and has tailored the size of this offering to fully satisfy that demand (and) therefore, buyers hoping to capture quick profits are almost certain to be disap- 3 pointed.'' Yet, despite the warnings, over $500 million was raised. WALL STREET HAS BEEN SUCCESSFUL IN CREATING AN AMPLE SUPPLY OF NEW AND SECONDARY OFFERINGS TO FULLY SATISFY DEMAND. HOWEVER, IT PROVIDES NO SIMILAR 'WARNING LABELS.' ADDITIONALLY WE SAID: 'The magnitude of the decline in interest rates is virtually not repeatable. Consequently, a further decline in interest rates will not have the same favorable impact on stock prices, no matter how bullish one is on rates.' AND NOW: The consensus expectations of lower rates (then at 6%) in an election year have proved to be wrong. Long-term government bond yields rose by over 20% in the first half to a current yield of over 7.0%. While this surprise has not ended the party, it's getting hard to find the punch bowl. AND FINALLY WE SAID: 'THE NEXT FIVE YEARS WILL BE DIFFERENT! It's not likely that the next five years will rival the previous five in terms of ideal wind conditions or spectacular performance. History tells us that periods of high valuation and high return are usually followed by periods of lower, less dynamic returns....We see no reason why performance should not revert to the mean and, thus, a period of lower five year returns is likely. Very simply, the last five years was a period in which risk and reward were synonymous and one in which risk management provided virtually no benefit. It's likely that we have completed the best five year performance period for this decade.' AND NOW? Enough said. THE VALUE IN VALUE INVESTING A basic premise of value investing is that stocks, like other goods and services, should be purchased at the most attractive prices possible, preferably at a discount to their 'intrinsic worth.' The reality for most investors is just the opposite. In other words, investor comfort levels and, therefore, demand increase when prices rise, and diminish as prices decline. The higher a stock rises, the greater the perceived opportunity. Value investing, on the other hand, takes a contrary view to this highly emotional process. By systematically reducing risk when others ignore it and taking risk when it is feared, one can capitalize on valuation discrepancies (opportunities) which develop from time to time. The greatest risk that the value investor confronts is the loss of either patience or discipline when faced with the prospect of being out-of-sync with the market. THE VALUE IN 'VALUE INVESTING' IS TO PROVIDE A COHERENT SYSTEM FOR RATIONAL DECISION MAKING . . . THE PURPOSE OF WHICH IS TO COMPOUND WEALTH WHILE MINIMIZING RISK. Its basic premise is that the price one pays for an investment makes a significant difference in the return one receives. WHAT WE DO [GRAPHIC] Royce Value Trust uses a risk-averse approach to invest in the securities of small-cap companies. Experience tells us that paying attention to risk does not diminish long-term results, although individual market phases may not necessarily confirm this. Our approach attempts to understand and value a company's private worth -- what we believe an enterprise would sell for in a transaction between rational parties. The price we will pay for a security must be significantly under our appraisal of its private worth. The consistent use of this discipline, applied to less well-known securities, is the source of our performance. 4 NO OTHER PLACE WE WOULD RATHER BE While the Fund focuses on companies with market caps below $1 billion, our weighted average and median market caps are actually much lower, $359 million and $256 million, respectively, at June 30, 1996. Although our orientation is small-cap stocks, our picking universe is by no means small, with over 10,000 companies valued at more than $900 billion in total market capitalization. It is both robust and perpetuating; IPO's, spin-offs and reorganizations create hundreds of new prospects each year. It is a sector rich in opportunity and easily accommodates our strategy given the size of the investable universe. From time to time we are criticized for the large number of securities that we hold in the portfolio. In fact, given the size of our universe, we believe our strategy is quite focused because total portfolio holdings represent fewer than 3% of the available small-cap universe. Not many large-cap managers would be content with only 15 selections from the S&P 500. Not long ago we had a conversation with a highly successful and respected fund manager about diversification. His contention was that statistical diversification could be achieved with just 13 holdings. His own portfolio was concentrated in a mere 20 selections. We were impressed. Yet, upon further examination, we discovered his 20 large-cap holdings were involved in 61 different businesses. As defined by Standard Industrial Classification codes (SICs), Philip Morris has seven different business groups, Pepsi has six, Johnson & Johnson has five and so on. In contrast, the vast majority of our holdings have single lines of business. When one adds up the numbers, there's really not much difference in terms of diversification between our approach and that of 'focused' managers. HOW IT WORKS [GRAPHIC] Our approach to investing in individual small-cap companies has proven historical benefits, but can be both unpredictable and frustrating in the near-term. We believe that the stock market in the short-term is a polling place, and in the long-term, a highly efficient weighing device. While our ultimate success will continue to be driven by the process of 'weighing the true value' of the small companies in which we have invested, the following provides a brief glimpse of some of this year's 'election results.' FALLING IN LOVE [GRAPHIC] Despite a generally rising market, there were numerous opportunities for us to either add new positions or increase our investment in some old favorites. The following companies represent our most significant commitments in 1996's first half. More importantly, they represent examples of works in progress which we hope will build future performance.
SECURITY NET INVESTED - -------------------------------------- ------------ Penn Engineering & Mfg. Corp. $ 2,645,742 Marshall Industries 2,498,378 Zenith National Insurance Corp. 1,936,450 Leucadia National Corporation 1,830,897 Haemonetics Corporation 1,777,628
Our largest new purchases were old favorites, Penn Engineering and Manufacturing Corp. and Marshall Industries. Both of these companies are indirect participants in the recent technology boom and ensuing bust. Penn Engineering makes self clenching fasteners for computers and electronics as well as many other applications. Marshall Industries distributes electronic components including semi-conductors. Both companies have fortress like balance sheets, generate high internal rates of return on their own 5 capital and were purchased well off their highs. Zenith National Insurance Corp. and Leucadia National Corporation are insurance companies. Each is well managed, conservatively capitalized and, so far, unrecognized for their historically superior performance. Rising interest rates and continuing price competition in the insurance industry have provided us with the opportunity to increase our ownership in these companies on very favorable terms. Finally, Haemonetics Corporation is a market leader in providing equipment and disposable supplies in the collection of blood. Earnings growth has temporarily slowed at Haemonetics as the company awaits FDA approval for a new generation of blood collection products. If Haemonetics new products perform as we think they can, this could become a new growth stock star. HARVEST SEASON [GRAPHIC] Selling stocks is always difficult for the value investor for it requires either parting with success or admitting mistakes. So far this year we have done both. The following is a list of our five largest divestitures during 1996's first half.
SECURITY NET PROCEEDS - -------------------------------------- ------------ Cliffs Drilling Company $2,996,440 Comdisco, Inc. 2,403,349 Claire's Stores, Inc. 2,345,389 The Wet Seal, Inc. (Class A) 2,213,560 Ash Grove Cement Co. 2,072,700
In each case depicted above, we reduced our exposure due to full and fair valuations. These companies were all purchased when conditions in their respective industries were challenging and their potential was obscure to most investors. Lately, fortunes in energy, computer leasing, retailing, and even cement manufacturing have improved and we have enjoyed some big winners. VOLATILITY IS A FRIEND Recently, stock market volatility has generated a great deal of attention from the financial press. While large changes (100 point or greater moves) in the Dow Jones Industrial Average make interesting reading in the morning papers, their significance is exaggerated. The table below depicts the Russell 2000's yearly price variation using the index's annual range as a percentage of the beginning year's price. [GRAPHIC] It's interesting to note how tame the markets have remained in the last four and a half years relative to the prior thirteen. TO US, VOLATILITY IS A FRIEND IN THAT IT CREATES IRRATIONAL PRICING OF SECURITIES AND, THEREFORE, OPPORTUNITIES FOR US TO CAPITALIZE ON OUR RISK MANAGEMENT SKILLS. ARE THERE ANY REAL INVESTORS LEFT? [GRAPHIC] The term 'investor' denotes a long-term supplier of capital. In contrast, a 'speculator' is one who takes opportunistic risk in hopes of generating quick profits. In essence, investors expect to get paid by the correct assessment of underlying business fundamentals, whereas speculators count on others (often referred to as greater fools) to buy them out profitably. In the current bull market, it has become very difficult to tell the difference between investors and speculators. For example, what exactly is 'momentum investing?' The term 6 seems oxymoronic. While equities represent a permanent ownership position in an enterprise, in many fund portfolios, they are reviewed and replaced more frequently than three month Treasury Bills. Wall Street brokerage firms publish 'Buy' and 'Sell' recommendations based on a company's quarterly progress down to the penny per share; and the country's largest equity mutual fund lost its star manager after a short period of underperformance, which may have contributed to the decision by that fund's investors to withdraw in excess of $1 billion. Only time and more difficult market conditions will separate the true investors from disappointed speculators. GIVEN THAT WE BELIEVE THAT EQUITIES REPRESENT LONG-TERM INTERESTS IN BUSINESSES, THE TERM 'INVESTOR' SUITS US JUST FINE. WHAT DO WE DO NOW? Given our belief that the next phase of the market will include lower equity returns and greater volatility -- the need for basic blocking and tackling, in the form of commitment, focus and experience, is paramount. We remain committed to investing in high quality, small-cap companies using absolute valuation standards; our focus remains sharp, and exclusively on small and micro-cap companies; and our 20+ years of investment experience ensures that our vigilance and discipline remain constant. Your continued confidence is appreciated. Yours faithfully, /s/ Charles M. Royce Jack E. Fockler, Jr. Charles M. Royce W. Whitney George President Vice Presidents August 1, 1996 P.S. Our 'new era' fund will wait for the 'new era.' Note: The Fund intends (subject to effectiveness of registration under the Securities Act of 1933) to offer 2,400,000 shares of preferred stock for sale at $25.00 per share through an underwriting syndicate to be led by Morgan Stanley & Co. A registration statement relating to these securities has been filed with the Securities and Exchange Commission, but has not yet become effective. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This announcement does not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. Morningstar proprietary risk ratio, beta and standard deviation are measures of a fund's relative risk and are calculated for the trailing 36-month period. Morningstar risk ratio measures a fund's downside volatility relative to all equity funds which have an average score of 1.00. Beta is a measure of sensitivity to market movements compared to the unmanaged S&P 500 index, with the beta of the S&P 500 equal to 1.00. Standard deviation is a statistical measure within which a fund's total return falls. The average Morningstar risk ratio, beta and standard deviation for the 194 closed-end domestic equity funds with a three-year history as of 6/30/96 were: 0.53, 0.85 & 10.97, respectively. The Morningstar risk ratio, beta and standard deviation for Royce Value Trust over the same period were: 0.32, 0.54 & 6.94, respectively. Source: Morningstar, Inc. The Russell 2000, Russell 2000 Growth, Russell 2000 Value, S&P 500 and S&P SmallCap 600 indices are unmanaged and include the reinvestment of dividends. The Nasdaq Composite is an unmanaged index. The Wilshire Target Small Company Value and Growth Funds attempt to replicate the performance of the Wilshire Next 1750 Small Company Value and Growth Indices, respectively. 7
FUND HIGHLIGHTS June 30, 1996 ------------------ Net Assets $364,428,204 Net Asset Value Per Share $14.48 Market Price Per Share $12.375 Shares Outstanding 24,836,018
- -------------------------------------------------------------------------------- FINANCIAL REVIEW The table below represents the total returns of the Fund on two separate bases. NAV total return is the compound rate of return, using net asset values, on an amount invested in the Fund throughout the stated period and assumes reinvestment of dividend and capital gain distributions and primary participation in rights offerings. Stockholders are able to reinvest distributions, and purchase shares through rights offerings, at prices which have historically been below NAV, and without commission costs. NAV return is the most meaningful measurement of a continuous stockholder's progress. Market Value total return presents similar information, but values the Fund at market rather than NAV and, therefore, reflects the actual experience of a stockholder, before commission costs, who bought and sold shares of the Fund at the beginning and ending dates.
NAV Market Value S&P Russell S&P Small- Total Return Total Return 500`D' 2000`D' Cap 600`D' ------------ ------------ ----- --------- ---------- Total Returns 3 months ended 6/30/96 3.8% 1.0% 4.5% 5.0% 5.2% 6 months ended 6/30/96 6.8 4.2 10.2 10.4 11.2 Annual Returns (ended December 31) 1995 22.6 20.5 37.5 28.4 30.0 1994 1.1 - 5.6 1.3 - 1.8 - 4.8 1993 17.9 14.8 10.0 18.9 18.8 1992 19.9 26.8 7.7 18.4 21.0 1991 39.5 35.3 30.5 46.1 48.5 Average Annual Total Returns (ended June 30, 1996) 1-year 16.0% 15.1% 26.1% 23.9% 26.0% 3-year 13.2 8.3 17.3 15.8 15.6 5-year 15.9 13.7 15.8 17.5 18.4 Since inception* 12.4 9.5 14.3 12.0 10.3
`D' The S&P 500, Russell 2000 and S&P SmallCap 600 are unmanaged indices and include the reinvestment of dividends. Source: Frank Russell Co. * Inception date - November 26, 1986 The results presented in this report represent past performance and should not be considered representative of the 'total return' from an investment in the Fund today. They are provided only to give an historical perspective of the Fund. The investment return and net asset and market values of Fund shares will fluctuate, so that the shares may be worth more or less than their original cost when sold. 8 HISTORY SINCE INCEPTION The following table details the share accumulation history of an initial investor in the Fund who reinvested all distributions and participated fully in the rights offering. By reinvesting all distributions and fully participating in the rights offerings, an investor maximizes his returns. This table should be read in conjunction with the Financial Review of the Fund (see page 8).
Amount Purchase NAV MKT History Invested Price Shares Value* Value* ------------------- -------- -------- ------ ------- ------- 11/26/86 Initial Purchase $10,000 $10.000 1,000 $ 9,280 $10,000 10/15/87 Distribution $.30 7.000 42 12/31/87 Distribution $.22 7.125 32 8,578 7,250 12/27/88 Distribution $.51 8.625 63 10,529 9,238 09/22/89 Rights Offering 405 9.000 45 12/29/89 Distribution $.52 9.125 67 12,942 11,866 09/24/90 Rights Offering 457 7.375 62 12/31/90 Distribution $.32 8.000 52 11,713 11,074 09/23/91 Rights Offering 638 9.375 68 12/31/91 Distribution $.61 10.625 82 17,919 15,697 09/25/92 Rights Offering 825 11.000 75 12/31/92 Distribution $.90 12.500 114 21,999 20,874 09/24/93 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 11/03/95 Rights Offering 1,425 12.500 114 12/07/95 Distribution $1.29 12.125 253 35,676 31,243 - --------------------------------------------------------------------------------------------- 06/30/96 $16,322 2,631 $38,097 $32,559 - ---------------------------------------------------------------------------------------------
* Other than for Initial Purchase and for the current period, values are stated as of December 31 of the year indicated, after reinvestment of distributions. The Board of Directors has given the Fund's management the discretionary authority to cause the Fund to repurchase up to 300,000 shares of its common stock in open market and other transactions through December 31, 1996. Such repurchases would be effected at a price per share less than the then current net asset value, but not in excess of the then prevailing market price. ------------------------ The Board of Directors of the Fund is authorized to offer stockholders an opportunity to subscribe for additional shares of common stock of the Fund through rights offerings at a price per share that may be less than the then current net asset value of the Fund's common stock. The timing and terms of any such offerings are left to the Board's discretion. The Fund does not expect to have a rights offering in 1996. 9 DISTRIBUTION REINVESTMENT AND CASH PURCHASE PLAN WHAT IS THE DISTRIBUTION REINVESTMENT AND CASH PURCHASE PLAN? Distributions of net investment income and capital gains, if any, are normally made in December. The Fund's Distribution Reinvestment and Cash Purchase Plan (the 'Plan') offers you an automatic way to reinvest your dividends and capital gains distributions in additional shares of the Fund, increasing your holdings in the Fund. Reinvestment of the annual distribution is done at market price, without commissions. The number of shares to be issued to a stockholder will be determined by dividing the amount of the distribution payable to the stockholder by the last reported sale price of a share of the Fund's common stock on the valuation date, which follows the record date. The plan also allows registered stockholders to make optional cash investments in shares of the Fund's common stock through the Plan Agent and to deposit certificates representing Fund shares with the Plan Agent for safekeeping. Stockholders should refer to the Plan document for information on these options. HOW DO REGISTERED STOCKHOLDERS PARTICIPATE IN THE PLAN? If your shares are registered directly with the Fund, you are automatically a participant in the Plan unless you have instructed the Plan Agent in writing otherwise. The Plan Agent must receive the instructions not less than 10 days prior to the record date for a distribution in order to be effective for that distribution. A registered stockholder may also receive the distribution in the form of a stock certificate for the full shares and a check for the fractional share if the Plan Agent is properly notified. Stockholders who elect to not participate in the Plan will receive all distributions in cash, paid by check and mailed directly to the stockholder by State Street Bank and Trust Company, dividend paying agent and Plan Agent. WHAT IF MY SHARES ARE HELD BY A BROKERAGE FIRM, BANK OR OTHER NOMINEE? If your shares are held in the name of a brokerage firm, bank, or other nominee as the stockholder of record, we still expect them to automatically reinvest distributions on your behalf. Please consult with your brokerage firm, bank or other nominee to be certain that it is reinvesting distributions on your behalf. If your nominee is unable to reinvest distributions on your behalf, you should instruct your nominee to have your shares registered in your name in order to participate. HOW WILL I KNOW HOW MANY SHARES I HAVE? The Plan Agent maintains the account for registered stockholders in the Plan and sends written confirmation of all transactions in the account, including information needed by participants for personal and tax records. Shares in the account of each participant will be held by the Plan Agent in non-certificated form in the name of the participant, and each participant will be able to vote those shares at a shareholder meeting or by proxy. A participant may also send other stock certificates held by them to the Plan Agent to be held in non-certificated form. There is no service fee charged to participants for reinvesting distributions. The Plan Agent's fees for the processing of the distribution reinvestment are paid for by the Fund. A participant may terminate his account under the Plan by written notice to the Plan Agent. Termination will be effective as described in the Plan. If a participant elects to sell his shares before the Plan is terminated, the Plan 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. WHAT IF I NEED MORE INFORMATION? You may obtain more detailed information by requesting a copy of the Plan from the Plan Agent. All correspondence (including notifications) should be directed to: Royce Value Trust, Inc. Distribution Reinvestment and Cash Purchase Plan, c/o State Street Bank and Trust Company, PO Box 8200, Boston MA 02266-8200, (800) 426-5523. 10 PORTFOLIO SUMMARY The following information is provided as a 'bird's eye' view of the RVT portfolio. For a more complete picture, the full portfolio and accompanying financial statements should be read in their entirety. - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION
% of Common % of Total Stocks Value Investments ------------- --------------- --------------- Top 100 Stocks.................................. 63.6% $ 236,146,300 58.1% Other Stocks.................................... 36.4 135,067,767 33.3 ------------- --------------- ---------- Common Stocks................................... 100.0% 371,214,067 91.4 ------------- ------------- Bonds & Preferred Stock......................... 3,224,705 0.8 Repurchase Agreement............................ 31,500,000 7.8 --------------- ---------- Total Investments............................... $ 405,938,772 100.0% --------------- ---------- --------------- ----------
- -------------------------------------------------------------------------------- PORTFOLIO DIAGNOSTICS Weighted Average Market Capitalization (Total Portfolio).......... $359 Million Median Market Capitalization (Total Portfolio).................... $256 Million Weighted Average P/E Ratio (100 Largest Positions)................ 13.8x Weighted Average P/B Ratio (100 Largest Positions)................ 1.6x Weighted Average Portfolio Yield (100 Largest Positions).......... 1.9%
- -------------------------------------------------------------------------------- COMMON STOCK SECTORS
% of Net Assets --------------- Financial.......................................................... 25.6% Industrial Cyclicals............................................... 24.2 Services........................................................... 16.1 Consumer Durables.................................................. 11.4 Retail............................................................. 7.2 Technology......................................................... 5.0 Consumer Staples................................................... 4.3 Energy............................................................. 3.4 Miscellaneous...................................................... 2.9 Health............................................................. 1.7 Utilities.......................................................... 0.1
- -------------------------------------------------------------------------------- TOP TWENTY POSITIONS
Market Value % of Net Assets --------------- --------------- 1. Ash Grove Cement Company Cl. B............................... $4,321,629 1.2% 2. Comdisco, Inc................................................ 4,136,194 1.1 3. The Standard Register Company................................ 3,824,263 1.0 4. Zenith National Insurance Corp............................... 3,810,600 1.0 5. Family Dollar Stores, Inc.................................... 3,612,263 1.0 6. Wesco Financial Corporation.................................. 3,445,375 0.9 7. Velcro Industries N.V........................................ 3,335,550 0.9 8. Lilly Industries, Inc. Cl. A................................. 3,273,911 0.9 9. Juno Lighting, Inc........................................... 3,262,300 0.9 10. Marshall Industries.......................................... 3,234,000 0.9 11. Florida Rock Industries, Inc................................. 3,224,025 0.9 12. Kimball International, Inc. Cl. B............................ 3,138,200 0.9 13. Pennsylvania Manufacturers Corporation Cl. A................. 3,117,800 0.9 14. National Bancorp of Alaska, Inc.............................. 3,104,010 0.9 15. Transnational Re Corporation Cl. A........................... 3,087,975 0.8 16. Ethan Allen Interiors Inc.................................... 3,078,900 0.8 17. Woodward Governor Company.................................... 3,053,600 0.8 18. Vallen Corporation........................................... 3,050,757 0.8 19. Farmer Bros. Co.............................................. 3,036,000 0.8 20. The Dress Barn, Inc.......................................... 2,973,600 0.8
11 ROYCE VALUE TRUST, INC. SCHEDULE OF INVESTMENTS AT JUNE 30, 1996 (unaudited) - -------------------------------------------------------------------------------- COMMON STOCKS -- 101.9%
Shares Value - ---------- ------------ CONSUMER DURABLES -- 11.4% 63,290 Allen Organ Company Cl. B........................ $ 2,476,221 24,000 Burnham Corporation Cl. A........................ 618,000 18,000 *Burnham Corporation Cl. B........................ 463,500 52,950 *Conso Products Co......... 860,438 106,500 *Delta Woodside Industries, Inc...................... 545,812 124,400 Ethan Allen Interiors Inc...................... 3,078,900 154,172 First Years Inc............ 2,119,865 41,000 Flexsteel Industries, Inc...................... 481,750 99,400 Garan Incorporated......... 1,689,800 65,700 *Johnson Worldwide Associates, Inc. Cl. A... 903,375 191,900 Juno Lighting, Inc......... 3,262,300 148,400 K-Swiss Inc. Cl. A......... 1,613,850 5,000 La-Z-Boy Chair Company..... 150,625 116,100 *Lazare Kaplan International, Inc....... 1,523,813 191,336 *Lifetime Hoan Corporation.............. 2,056,862 41,000 *Marisa Christina, Incorporated............. 820,000 54,700 Matthews International Corporation Cl. A........ 1,504,250 41,600 National Presto Industries, Inc...................... 1,580,800 64,900 The Rival Company.......... 1,492,700 30,700 Russ Berrie and Company, Inc...................... 564,113 58,700 The Singer Company N.V..... 1,188,675 115,700 Skyline Corporation........ 2,892,500 85,200 The Stride Rite Corporation.............. 702,900 55,100 Sturm, Ruger & Company, Inc...................... 2,562,150 158,400 Thomaston Mills, Inc. Cl. A........................ 1,782,000 125,700 Thor Industries, Inc....... 2,576,850 129,500 *The Topps Company, Inc.... 728,437 30,200 Weyco Group, Inc........... 1,223,100 ------------ 41,463,586 ------------ CONSUMER STAPLES -- 4.3% 68,000 Alico, Inc................. 1,326,000 22,000 Farmer Bros. Co............ 3,036,000 30,000 Golden Enterprises, Inc.... 241,875 643 Hershey Creamery Company... 1,067,380 52,200 *J & J Snack Foods Corp.... 600,300 165,600 *Midwest Grain Products, Inc...................... 2,152,800 4,050 Seaboard Corporation....... 803,925 102,700 Stanhome Inc............... 2,721,550 60,100 Velcro Industries N.V. .... 3,335,550 20,000 WLR Foods, Inc............. 280,000 ------------ 15,565,380 ------------ ENERGY -- 3.4% 105,400 *American Oilfield Divers, Inc...................... 948,600 70,000 *Belden & Blake Corporation.............. 1,452,500 63,400 *Tom Brown, Inc............ 1,085,725 60,700 Camco International Inc.... 2,056,213 31,400 Devon Energy Corporation... 769,300 Shares Value - ---------- ------------ 28,000 *Gulfmark International Inc...................... $ 973,000 66,500 Lufkin Industries, Inc..... 1,363,250 146,400 *Offshore Logistics, Inc...................... 2,031,300 54,300 Penn Virginia Corporation.............. 1,900,500 ------------ 12,580,388 ------------ FINANCIAL -- 25.6% 10,400 Alexander & Alexander Services Inc............. 205,400 10,103 *Alleghany Corporation..... 1,939,776 57,750 ALLIED Group, Inc.......... 2,512,125 94,000 ALLIED Life Financial Corporation.............. 1,880,000 45,474 Argonaut Group, Inc........ 1,421,063 36,856 *Avatar Holdings Inc....... 1,266,925 15,000 BHC Financial, Inc......... 210,000 46,100 BHI Corporation............ 674,212 60,000 Baker, Fentress & Company.................. 1,147,500 126,000 Baldwin & Lyons, Inc. Cl. B........................ 2,598,750 42,800 W. R. Berkley Corp......... 1,786,900 92,100 E.W. Blanch Holdings, Inc...................... 1,830,487 10,000 CB Bancshares, Inc......... 311,250 91,850 Capitol Transamerica Corporation.............. 1,768,113 155,350 Comdisco, Inc.............. 4,136,194 111,718 The Commerce Group, Inc.... 2,332,113 7,800 Consolidated-Tomoka Land Co....................... 154,050 8,282 County Bank Corp........... 296,081 50,200 Crawford & Company Cl. B... 872,225 100,100 Crawford & Company Cl. A... 1,701,700 65,100 Eaton Vance Corp........... 2,359,875 44,000 Fidelity National Financial, Inc........... 665,500 215 The First National Bank of Anchorage................ 324,650 57,750 Fremont General Corporation.............. 1,328,250 79,600 Arthur J. Gallagher & Co....................... 2,547,200 114,000 *Gryphon Holdings Inc...... 1,710,000 104,700 Guaranty National Corporation.............. 1,884,600 202,475 Hilb, Rogal & Hamilton Company.................. 2,809,341 108,128 Independence Holding Company.................. 506,850 131,100 Intercargo Corporation..... 1,130,737 39,059 Investors Financial Services Corporation..... 908,122 8,989 *Investors Financial Services Corporation Cl. A........................ 208,994 7,400 The John Nuveen Company.... 184,075 27,615 Keystone Heritage Group, Inc...................... 624,789 77,500 Lawyers Title Corporation.............. 1,395,000 100,400 Leucadia National Corporation.............. 2,459,800
The accompanying notes are an integral part of the financial statements. 12 ROYCE VALUE TRUST, INC. SCHEDULE OF INVESTMENTS AT JUNE 30, 1996 (unaudited) - --------------------------------------------------------------------------------
Shares Value - ---------- ------------ FINANCIAL-(CONT'D) 38,110 *MAIC Holdings, Inc........ $ 1,419,598 4,200 *Markel Corporation........ 390,600 200 THE MECHANICS BANK......... 1,420,000 23,800 NYMAGIC, INC............... 449,225 49,270 National Bancorp of Alaska, Inc...................... 3,104,010 59,500 New England Investment Companies, L.P........... 1,398,250 123,800 The Newhall Land and Farming Company.......... 2,042,700 119,500 Nobel Insurance Limited.... 1,389,187 45,600 Oriental Federal Savings Bank..................... 866,400 53,587 Orion Capital Corporation.............. 2,732,937 183,400 Pennsylvania Manufacturers Corporation Cl. A........ 3,117,800 108,100 Phoenix Duff & Phelps Corporation.............. 810,750 107,200 The Pioneer Group, Inc..... 2,867,600 69,500 Piper Jaffray Companies Inc...................... 868,750 33,512 Poe & Brown, Inc........... 829,422 19,250 RLI Corp................... 469,219 59,025 *Rand Capital Corporation.............. 92,227 15,356 *Reliance Group Holdings, Inc...................... 31,679 21,200 Student Loan Corporation... 763,200 38,587 Titan Holdings, Inc........ 540,218 129,600 *Toreador Royalty Corporation.............. 356,400 5,000 Transatlantic Holdings, Inc...................... 350,625 125,400 Transnational Re Corporation Cl. A........ 3,087,975 58,500 Trenwick Group Inc......... 2,925,000 249,205 *U.S. Global Investors Inc. Cl. A.................... 716,464 21,450 Vornado Realty Trust....... 876,769 21,500 Wesco Financial Corporation.............. 3,445,375 165,100 **Willis Corroon Group plc...................... 1,960,563 139,200 Zenith National Insurance Corp..................... 3,810,600 ------------ 93,226,190 ------------ HEALTH -- 1.7% 25,200 Diagnostic Products Corporation.............. 970,200 154,000 *Haemonetics Corporation... 2,810,500 43,900 Life Technologies, Inc..... 1,382,850 47,200 *Spacelabs Medical, Inc.... 1,097,400 ------------ 6,260,950 ------------ INDUSTRIAL CYCLICALS -- 24.2% 2,501 R. P. Adams Company, Inc...................... 45,018 50,200 American Filtrona Corporation.............. 1,606,400 27,800 *Ameron International Corp..................... 1,098,100 45,000 *Art's-Way Manufacturing Co., Inc................. 225,000 38,759 Ash Grove Cement Company Cl. B.................... 4,321,629 Shares Value - ---------- ------------ 53,500 *Guy F. Atkinson Company of California............... $ 722,250 47,190 BHA Group, Inc. Cl. A...... 625,267 16,500 Baldor Electric Company.... 371,250 15,300 *Banister Foundation Inc...................... 120,488 25,200 *Bird Corp................. 82,687 116,600 Blessings Corporation...... 1,195,150 83,100 W. H. Brady Co. Cl. A...... 1,848,975 148,900 CalMat Co.................. 2,698,813 36,400 Cascade Corp............... 486,850 375 Central Steel & Wire Company.................. 236,625 114,969 *Chemfab Corporation....... 1,609,566 19,700 CLARCOR Inc................ 487,575 2,300 ConBraCo Industries, Inc...................... 977,500 53,400 Curtiss-Wright Corporation.............. 2,883,600 6,022 Decker Manufacturing Corporation.............. 228,836 98,000 Fab Industries, Inc........ 2,670,500 9,000 Federal Signal Corporation.............. 211,500 124,600 Florida Rock Industries, Inc...................... 3,224,025 73,645 *`D'General Builders Corporation.............. 46,028 111,900 P. H. Glatfelter Company... 2,056,162 24,800 Gorman-Rupp Company........ 328,600 124,969 Hawkins Chemical, Inc...... 968,510 12,500 *Hirsh International Corp. Cl. A.................... 239,063 28,800 *Insituform Technologies, Inc...................... 223,200 68,600 International Aluminum Corporation.............. 1,732,150 41,700 Kaman Corporation Cl. A.... 422,212 113,600 Kimball International, Inc. Cl. B.................... 3,138,200 79,750 Knape & Vogt Manufacturing Company.................. 1,256,062 49,650 LeaRonal, Inc.............. 1,241,250 192,583 Lilly Industries, Inc. Cl. A........................ 3,273,911 21,990 The Lincoln Electric Company.................. 775,148 63,900 The Lincoln Electric Company Cl. A............ 1,932,975 52,878 Liqui-Box Corporation...... 1,586,340 188,200 *MK Gold Company........... 282,300 39,553 MacDermid, Incorporated.... 2,768,710 44,800 Mine Safety Appliances Company.................. 1,836,800 38,300 Paul Mueller Company....... 1,302,200 31,500 NCH Corporation............ 2,023,875 30,700 Nordson Corporation........ 1,734,550 37,600 Oil-Dri Corporation of America.................. 559,300 45,000 Oregon Steel Mills, Inc.... 618,750 92,800 Oshkosh Truck Corporation Cl. B.................... 1,310,800 57,800 Peerless Mfg. Co........... 621,350 10,000 *Pegasus Gold Inc.......... 122,500
The accompanying notes are an integral part of the financial statements. 13 ROYCE VALUE TRUST, INC. SCHEDULE OF INVESTMENTS AT JUNE 30, 1996 (unaudited) - --------------------------------------------------------------------------------
Shares Value - ---------- ------------ INDUSTRIAL CYCLICALS-(CONT'D) 126,600 Penn Engineering and Manufacturing Inc........ $ 2,389,575 30,400 Penn Engineering and Manufacturing Corp. Cl. A........................ 718,200 75,800 *Perini Corporation........ 909,600 23,400 Precision Castparts Corp..................... 1,006,200 41,300 Preformed Line Products Company.................. 1,404,200 83,300 Puerto Rican Cement Company, Inc............. 2,592,713 103,750 Quaker Chemical Corporation.............. 1,322,812 51,270 Robroy Industries, Inc. Cl. A........................ 794,685 102,600 *Shorewood Packaging Corporation.............. 1,577,475 126,700 *Simpson Manufacturing Co., Inc...................... 2,534,000 47,000 *Sinter Metals, Inc. Cl. A........................ 822,500 59,500 The L. S. Starrett Company Cl. A.................... 1,547,000 33,300 Tecumseh Products Company Cl. A.................... 1,789,875 44,286 *Thermal Industries, Inc...................... 395,806 59,800 *The Turner Corporation.... 687,700 45,200 Unifi, Inc................. 1,271,250 4,308 United Screw and Bolt Corporation.............. 310,176 73,700 Versa Technologies, Inc.... 994,950 15,000 Wellman, Inc............... 350,625 34,700 Woodward Governor Company.. 3,053,600 70,800 Zero Corporation........... 1,513,350 ------------ 88,364,842 ------------ RETAIL -- 7.2% 5,000 *Alexander's, Inc.......... 363,125 13,000 J. Baker, Inc.............. 97,500 53,100 Blair Corporation.......... 1,254,488 26,900 *The Buckle, Inc........... 921,325 212,400 *CATHERINES STORES CORPORATION.............. 2,097,450 1,200 Cato Corporation Cl. A..... 7,200 133,100 *Charming Shoppes, Inc..... 940,019 81,800 Claire's Stores, Inc....... 2,259,725 7,800 Dart Group Corporation Cl. A........................ 694,200 130,400 Deb Shops Inc.............. 652,000 283,200 *The Dress Barn, Inc....... 2,973,600 207,900 Family Dollar Stores, Inc...................... 3,612,263 80,500 Frederick's of Hollywood, Inc. Cl. A............... 402,500 182,296 Frederick's of Hollywood, Inc. Cl. B............... 820,332 57,000 *InterTAN Inc.............. 327,750 135,800 *Little Switzerland, Inc...................... 712,950 88,000 *Mikasa, Inc............... 968,000 Shares Value - ---------- ------------ 49,830 *Monro Muffler Brake, Inc...................... $ 915,623 15,900 Oshkosh B'Gosh, Inc. Cl. A........................ 286,200 180,805 Pier 1 Imports, Inc........ 2,689,474 107,600 *Stein Mart, Inc........... 1,963,700 27,183 Strawbridge & Clothier Cl. A........................ 441,724 127,800 *Suzy Shier Ltd............ 697,200 ------------ 26,098,348 ------------ SERVICES -- 16.1% 33,340 Aceto Corporation.......... 525,105 79,712 Air Express International Corporation.............. 2,251,864 149,948 Arnold Industries, Inc..... 2,136,759 37,200 Atlantic Southeast Airlines, Inc............ 1,050,900 81,174 *Bell Industries, Inc...... 1,359,664 52,700 Bowl America Incorporated Cl. A.................... 368,900 20,000 Bowne & Co., Inc........... 412,500 38,100 *Jenny Craig, Inc.......... 681,038 105,600 Dames & Moore.............. 1,280,400 103,400 Ennis Business Forms, Inc...................... 1,176,175 119,900 *FRP Properties, Inc....... 2,457,950 167,800 *FCA International Ltd..... 285,069 2,600 Fisher Companies Inc....... 227,500 220,935 Frozen Food Express Industries, Inc.......... 2,485,519 31,400 Gilbert Associates, Inc. Cl. A.................... 400,350 13,417 Grey Advertising Inc....... 2,965,157 20,304 Hardinge Brothers, Inc..... 644,652 115,825 The Harper Group........... 2,258,587 76,100 *International Dairy Queen, Inc. Cl. A............... 1,674,200 12,500 *Internation Family Entertainment, Inc....... 231,250 72,850 *JOULE Inc................. 437,100 39,500 Kenan Transport Company.... 819,625 40,300 Lawson Products, Inc....... 1,017,575 115,500 *Marshall Industries....... 3,234,000 99,800 Merrill Corporation........ 2,495,000 98,300 *MovieFone, Inc. Cl. A..... 417,775 98,400 New England Business Service, Inc............. 1,918,800 9,300 *Nichols Research Corporation.............. 290,625 9,900 *PAYCO AMERICAN CORPORATION.............. 86,625 72,600 Plenum Publishing Corporation.............. 2,541,000 173,500 Richardson Electronics, Ltd...................... 1,735,000 78,500 *Rollins Environmental Services, Inc............ 304,188 53,000 Rykoff-Sexton, Inc......... 761,875 84,525 *SEATTLE FILMWORKS, Inc.... 1,373,531 155,000 Sotheby's Holdings, Inc. Cl. A.................... 2,247,500
The accompanying notes are an integral part of the financial statements. 14 ROYCE VALUE TRUST, INC. SCHEDULE OF INVESTMENTS AT JUNE 30, 1996 (unaudited) - --------------------------------------------------------------------------------
Shares Value - ---------- ------------ SERVICES-(CONT'D) 155,300 The Standard Register Company.................. $ 3,824,263 30,000 *Steck-Vaughn Publishing Corporation.............. 375,000 52,600 Stone & Webster, Inc....... 1,794,975 229,500 *TBC Corporation........... 1,979,438 109,400 Treadco, Inc............... 929,900 42,000 True North Communications Inc...................... 934,500 56,200 *The Union Corporation..... 1,109,950 174,329 *Vallen Corporation........ 3,050,757 ------------ 58,552,541 ------------ TECHNOLOGY -- 5.0% 57,250 Astro-Med, Inc............. 515,250 129,605 *CSP Inc................... 1,069,241 32,000 Communications Systems, Inc...................... 440,000 50,200 *Comptek Research, Inc..... 276,100 32,400 *Dionex Corporation........ 1,044,900 105,900 *Electroglas, Inc.......... 1,509,075 105,250 *Exar Corporation.......... 1,368,250 25,000 *Fusion Systems............ 618,750 57,100 *Giga-tronics Incorporated............. 642,375 15,000 Hach Company............... 240,000 16,089 *IFR Systems, Inc.......... 197,090 73,200 *ILC Technology, Inc....... 850,950 26,300 *Integral Systems, Inc..... 710,100 105,000 Landauer Inc............... 2,218,125 9,400 MacNeal-Schwendler Corporation.............. 70,500 20,350 Modern Controls, Inc....... 211,131 47,700 National Computer Systems, Inc...................... 1,019,588 1,000 *National Instruments Corp..................... 22,500 40,100 Newport Corporation........ 395,987 21,200 *Phoenix Technologies Ltd...................... 355,100 67,200 *Programming & Systems, Inc...................... 16,800 104,000 *`D'Sage Laboratories, Inc...................... 1,664,000 96,100 Scitex Corporation Limited.................. 1,657,725 49,800 *Technical Communications Corporation.............. 790,575 39,300 Woodhead Industries, Inc...................... 461,775 ------------ 18,365,887 ------------ Shares Value - ---------- ------------ UTILITIES -- .1% 10,000 *Digital Systems International, Inc....... $ 151,250 ------------ MISCELLANEOUS -- 2.9%................... 10,584,705 Total Common Stocks (Cost $286,228,272)...... 371,214,067 ------------ PREFERRED STOCKS -- .1% 11,500 *Bird Corp. $1.85 Conv. (Cost $201,690).......... 175,375 ------------ Principal Amount - ---------- CORPORATE BONDS -- .8% $ 824,000 Dixie Yarns, Inc. 7.00% Conv. Sub. Deb. due 5/15/12.................. 626,240 314,000 Reliance Group Holdings, Inc. 9.00% Sr. Note due 11/15/00................. 313,215 1,073,000 Richardson Electronics, Ltd. 7.25% Conv. Sub. Deb. due 12/15/06........ 912,050 1,458,000 Semi-Tech Corp 0% Sr. Secs. Disc Note due 8/15/03.... 856,575 750,000 Shoney's, Inc. 0% Sub. Conv. Deb. due 4/11/04... 341,250 ------------ Total Corporate Bonds (Cost $2,674,170)........ 3,049,330 ------------ REPURCHASE AGREEMENT -- 8.6% State Street Bank and Trust Company, 4.90% due 7/01/96, collateralized by U.S. Treasury Notes, 5.25%, due 12/31/97, valued at $32,131,220 (Cost 31,500,000 $31,500,000).......................... ------------ TOTAL INVESTMENTS -- 111.4% (COST $320,604,132)......................... 405,938,772 LIABILITIES LESS CASH AND OTHER ASSETS -- (11.4%)..................... (41,510,568) ------------ NET ASSETS -- 100.0%.................... $364,428,204 ------------ ------------
* Non-income producing. ** American Depository Receipt. `D' At June 30, 1996, the Fund owned 5% or more of the Company's outstanding shares thereby making the Company an affiliated person as that term is defined in the Investment Company Act of 1940. INCOME TAX INFORMATION -- The cost of total investments for federal income tax purposes was $320,604,132. At June 30, 1996, net unrealized appreciation for all securities was $85,334,640, consisting of aggregate gross unrealized appreciation of $97,930,143 and aggregate gross unrealized depreciation of $12,595,503. The accompanying notes are an integral part of the financial statements. 15 ROYCE VALUE TRUST, INC. STATEMENT OF ASSETS AND LIABILITIES (unaudited) - --------------------------------------------------------------------------------
June 30, 1996 ------------- ASSETS: Investments at value (identified cost $320,604,132)....................................... $ 405,938,772 Cash...................................................................................... 143,207 Receivable for investments sold........................................................... 400,629 Receivable for dividends and interest..................................................... 596,506 Prepaid expenses and other assets......................................................... 96,857 ------------- Total Assets......................................................................... 407,175,971 ------------- LIABILITIES: Notes payable............................................................................. 38,685,014 Interest payable.......................................................................... 1,150,000 Payable for investments purchased......................................................... 2,584,619 Investment advisory fee payable........................................................... 114,567 Accrued expenses.......................................................................... 213,567 ------------- Total Liabilities.................................................................... 42,747,767 ------------- Net Assets........................................................................... $ 364,428,204 ------------- ------------- ANALYSIS OF NET ASSETS: Undistributed net investment income....................................................... $ 2,181,080 Accumulated net realized gain on investments.............................................. 22,313,646 Net unrealized appreciation on investments................................................ 85,334,640 Capital Stock (24,836,018 shares outstanding)............................................. 24,836 Additional paid-in capital................................................................ 254,574,002 ------------- Net Assets........................................................................... $ 364,428,204 ------------- ------------- PRICING OF SHARES: Net asset value per share, assuming conversion of Notes ($403,113,218 [div] 27,843,537 fully converted shares).................................. $14.48 ------------- -------------
The accompanying notes are an integral part of the financial statements. 16 ROYCE VALUE TRUST, INC. STATEMENT OF OPERATIONS (unaudited) - --------------------------------------------------------------------------------
Six Months ended June 30, 1996 ------------- INVESTMENT INCOME: Income: Dividends.............................................................................. $ 3,172,647 Interest............................................................................... 687,359 ------------- Total Income...................................................................... 3,860,006 ------------- Expenses: Investment advisory fee................................................................ 704,547 Interest expense....................................................................... 1,150,000 Amortization of underwriting discount and offering costs............................... 82,264 Administrative and office facilities expense........................................... 92,632 Custodian and transfer agent fees...................................................... 64,792 Professional fees...................................................................... 28,392 Directors' fees........................................................................ 24,934 Other expenses......................................................................... 153,274 ------------- Total Expenses.................................................................... 2,300,835 Fees waived by investment adviser................................................. (44,656) ------------- Net Expenses...................................................................... 2,256,179 ------------- Net Investment Income............................................................. 1,603,827 ------------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on investments....................................................... 19,234,136 Net unrealized appreciation on investments............................................. 4,619,890 ------------- Net realized and unrealized gain on investments................................... 23,854,026 ------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................................ $ 25,457,853 ------------- -------------
The accompanying notes are an integral part of the financial statements. 17 ROYCE VALUE TRUST, INC. STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Six Months Year ended ended June 30, 1996 December 31, (unaudited) 1995 ------------- ------------ FROM INVESTMENT OPERATIONS: Net investment income.............................................. $ 1,603,827 $ 1,030,325 Net realized gain on investments................................... 19,234,136 32,580,075 Net unrealized appreciation on investments......................... 4,619,890 29,032,226 ------------- ------------ Increase in net assets resulting from operations................... 25,457,853 62,642,626 Dividends paid from net investment income.......................... -- (693,347) Distributions paid from net realized gain.......................... -- (29,124,623) FROM CAPITAL STOCK TRANSACTIONS: Increase in net assets from capital stock transactions............. -- 37,113,835 ------------- ------------ INCREASE IN NET ASSETS.................................................. 25,457,853 69,938,491 NET ASSETS: Beginning of period................................................ 338,970,351 269,031,860 ------------- ------------ End of period (including undistributed net investment income of $2,181,080 and $577,253, respectively)........................... $ 364,428,204 $338,970,351 ------------- ------------ ------------- ------------
STATEMENT OF CASH FLOWS (unaudited) - --------------------------------------------------------------------------------
Six Months ended June 30, 1996 ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Investment income received........................................................... $ 3,922,867 Interest paid........................................................................ (1,150,000) Payment of operating expenses........................................................ (1,048,258) Purchases of investments............................................................. (90,132,901) Proceeds from sales and maturities of investments.................................... 88,551,499 ------------- Cash from operating activities.................................................. 143,207 Cash at beginning of period..................................................... 0 ------------- Cash at end of period........................................................... $ 143,207 ------------- ------------- RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS TO CASH FROM OPERATING ACTIVITIES: Net increase in net assets resulting from operations................................. $ 25,457,853 Net increase in investments.......................................................... (20,992,186) Net increase in unrealized appreciation on investments............................... (4,619,890) Decrease in dividends and interest receivable........................................ 62,861 Decrease in receivable for investments sold.......................................... 2,145,034 Accretion of offering costs.......................................................... 82,264 Decrease in payable for investments purchased........................................ (1,926,301) Decrease in accrued expenses and other assets........................................ (66,428) ------------- Cash from operating activities.................................................. $ 143,207 ------------- -------------
The accompanying notes are an integral part of the financial statements. 18 ROYCE VALUE TRUST, INC. FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- This table is presented to show selected data for a share outstanding throughout each period, and to assist stockholders in evaluating the Fund's performance.
Six Months ended Years ended December 31, June 30, 1996 -------------------------------------------------------- (unaudited) 1995 1994 1993 1992 1991 ------------- -------- -------- -------- -------- -------- NET ASSET VALUE, BEGINNING OF PERIOD.... $ 13.56 $ 12.34 $ 13.47 $ 12.50 $ 11.23 $ 8.58 INCOME FROM INVESTMENT OPERATIONS(a): Net investment income................. 0.07 0.04 0.04 0.09 0.15 0.17 Net realized and unrealized gain on investments......................... 0.85 2.70 0.09 2.12 2.12 3.20 ------------- -------- -------- -------- -------- -------- Total from investment operations.... 0.92 2.74 0.13 2.21 2.27 3.37 ------------- -------- -------- -------- -------- -------- DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income................. -- (0.03) (0.01) (0.09) (0.15) (0.17) Net realized gain on investments...... -- (1.26) (1.04) (1.06) (0.75) (0.44) ------------- -------- -------- -------- -------- -------- Total dividends and distributions... -- (1.29) (1.05) (1.15) (0.90) (0.61) ------------- -------- -------- -------- -------- -------- CAPITAL STOCK TRANSACTIONS: Effect of rights offering............. -- (0.12) (0.14) (0.08) (0.06) (0.10) Effect of reinvestment of distributions....................... -- (0.11) (0.07)* (0.01) (0.04) (0.01) ------------- -------- -------- -------- -------- -------- Total capital stock transactions.... -- (0.23) (0.21) (0.09) (0.10) (0.11) ------------- -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD (a)...... $ 14.48 $ 13.56 $ 12.34 $ 13.47 $ 12.50 $ 11.23 ------------- -------- -------- -------- -------- -------- ------------- -------- -------- -------- -------- -------- MARKET VALUE, END OF PERIOD............. $ 12.375 $ 11.875 $ 11.000 $ 12.875 $ 12.250 $ 10.375 ------------- -------- -------- -------- -------- -------- ------------- -------- -------- -------- -------- -------- TOTAL RETURN (b): Net Asset Value (a)................... 6.8% 22.6% 1.1% 17.9% 19.9% 39.5% Market Value.......................... 4.2% 20.5% - 5.6% 14.8% 26.8% 35.3% RATIOS BASED ON AVERAGE NET ASSETS: Total expenses(c)....................... 1.29%** 2.01% 2.01% 1.33% 0.81% 0.79% Management fee expense.................. 0.38%** 0.97% 1.21% 1.09% 0.53% 0.43% Interest expense........................ 0.70%** 0.75% 0.46% -- -- -- Other operating expenses................ 0.21%** 0.29% 0.34% 0.24% 0.28% 0.36% Net investment income................... 0.92%** 0.34% 0.31% 0.74% 1.31% 1.52% SUPPLEMENTAL DATA: Net Assets, End of Period (in thousands)............................ $364,428 $338,970 $269,032 $246,558 $202,483 $166,550 Portfolio Turnover Rate................. 13% 32% 35% 33% 40% 34% Average Commission Rate Paid`D'......... $ 0.0574 -- -- -- -- --
- ------------ (a) Commencing June 21, 1995, Net Asset Value per share, Net Asset Value Total Return and Income from Investment Operations are calculated assuming the Notes are fully converted except when the effect of doing so results in a higher Net Asset Value per share than was calculated without such assumption. If it were assumed the Notes had not been converted, the Net Asset Value per share would have been increased by $0.12 at June 30, 1996 and $0.09 at December 31, 1995. (b) The Net Asset Value and Market Value Total Return assume a continuous stockholder who reinvested all net investment income dividends and capital gain distributions and fully participated in primary rights offerings. (c) Expense ratios before waiver of fees by the investment advisor would have been 1.32% for the six months ended June 30, 1996, and 2.04% and 2.02% for the years ended December 31, 1995 and 1994, respectively. * Includes distributions paid January 31, 1994 and distributions paid December 30, 1994. ** Annualized. `D' For fiscal years beginning on or after October 1, 1995, the Fund is required to disclose its average commission rate paid per share for purchases and sales of investments. The accompanying notes are an integral part of the financial statements. 19 ROYCE VALUE TRUST, INC. NOTES TO FINANCIAL STATEMENTS (unaudited) - -------------------------------------------------------------------------------- NOTE 1. 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. Valuation of investments: Securities listed on an exchange or on the Nasdaq National Market System are valued on the basis of the last reported sale prior to the time the valuation is made or, if no sale is reported for such day, at their bid price for exchange-listed securities and at the average of their bid and asked prices for Nasdaq securities. Quotations are taken from the market where the security is primarily traded. Other over-the-counter securities for which market quotations are readily available are valued at their bid price. Securities for which market quotations are not readily available are valued at their fair value under procedures established and supervised by the Fund's Board of Directors. Bonds and other fixed income securities may be valued by reference to other securities with comparable ratings, interest rates and maturities, using established independent pricing services. Investment transactions and related investment income: Investment transactions are accounted for on the trade date and dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis. Realized gains and losses from investment transactions and unrealized appreciation and depreciation of investments are determined on the basis of identified cost for book and tax purposes. For the six months ended June 30, 1996, net realized gain on investments of $19,234,136 included $16,786,957 of net long-term gain and $2,447,179 of net short-term gain. 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: Dividend and capital gain distributions are recorded on the ex-dividend date and paid annually in December. These distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Permanent book and tax basis differences relating to shareholder distributions will result in reclassification to paid-in capital and may affect net investment income per share. Undistributed net investment income may include temporary book and tax basis differences which will reverse in a subsequent period. Any taxable income or gain remaining at fiscal year end is distributed in the following year. Repurchase agreements: The Fund enters into repurchase agreements with respect to its portfolio securities solely with State Street Bank and Trust Company ('SSB&T'), the custodian of its assets. The Fund restricts repurchase agreements to maturities of no more than seven days. Securities pledged as collateral for repurchase agreements are held by SSB&T until maturity of the repurchase agreements. Repurchase agreements could involve certain risks in the event of default or insolvency of SSB&T, including possible delays or restrictions upon the ability of the Fund to dispose of the underlying securities. 20 ROYCE VALUE TRUST, INC. NOTES TO FINANCIAL STATEMENTS (unaudited) (continued) - -------------------------------------------------------------------------------- NOTE 2. INVESTMENT COMPANY CONVERTIBLE NOTES: The Fund issued $40,000,000 aggregate principal amount of Investment Company Convertible Notes (the 'Notes') on June 22, 1994. The Fund received proceeds of $38,350,000 after the deduction of the underwriting discount and offering costs incurred by the Fund in connection with the issuance of the Notes. The underwriting discount and the offering costs of $1,200,000 and $450,000, respectively, are being accreted on a straight line basis over the term of the Notes. The Notes, which are unsecured obligations of the Fund, mature on June 30, 2004 and bear interest payable on June 30 and December 31 of each year commencing with June 30, 1994 at the rate of 5 3/4% per annum. The Notes have Aaa rating from Moody's Investors Services, Inc. ('Moody's'). The Notes are convertible into shares of Common Stock of the Fund at the option of the holder, at any time prior to maturity, except during the period from the second trading day prior to the ex-dividend date through the last day of each year unless an earlier date is selected by the Fund, and unless previously redeemed at the option of the Fund. The conversion price at June 30, 1996 is $13.30 per share. This conversion price is subject to an annual net adjustment involving an escalation of 6.75% and a reduction for the impact on net asset value per share of distributions to stockholders. Under the Investment Company Act of 1940, the Fund is required to maintain an asset coverage of at least 300% for the Notes. In addition, the Indenture governing the Notes requires the Fund to maintain a certain discounted asset coverage for its portfolio that equals or exceeds the Basic Maintenance Amount under the guidelines established by Moody's. The Fund has met these requirements since the issuance of the Notes. Commencing July 1, 1997, and any time thereafter prior to maturity, the Fund may, at its option, redeem the Notes in whole or in part for cash at a price equal to 100% of their principal amount, together with accrued interest thereon. Prior to July 1, 1997, the Fund will have the option to redeem the Notes for cash at a price equal to 100% of their principal amount, together with accrued interest, only if a redemption is necessary for the Fund to maintain the required asset coverage for the Notes and/or continue to qualify as a regulated investment company. Only July 1, 1999, if the average market price per $1,000 principal amount of Notes for the 45 trading days ending May 31, 1999 is less than $950, the Fund will either call all of the Notes for redemption or reset one or more of the terms of the Notes so that the market value of the Notes is at or as close as possible to par. NOTE 3. INVESTMENT ADVISORY AGREEMENT: Under the Investment Advisory Agreement between Quest Advisory Corp. ('Quest') and the Fund effective through June 30, 1996, the Basic Fee is a monthly fee equal to 1/12 of 1% (1% on an annualized basis) of the average of the total net assets of the Fund at the end of each month included in the applicable performance period, which is a rolling 36 month period ending with the most recent calendar month. The Basic Fee for such monthly period is subject to increase or decrease, depending on the extent, if any, by which the investment performance of the Fund exceeds by more than 2 percentage points, or is exceeded by more than 1 percentage point, by the percentage change in the investment record of the S&P 500 for such performance period. For each percentage point in excess of 2 that the investment performance of the Fund exceeds the percentage change in the investment record of the S&P 500, such Basic Fee is increased at the rate of 1/12 of .05%. For each percentage point in excess of 1 that the percentage change in the investment record of the S&P 500 exceeds the investment performance of the Fund, such Basic Fee is decreased at the rate of 1/12 of .1%. 21 ROYCE VALUE TRUST, INC. NOTES TO FINANCIAL STATEMENTS (unaudited) (continued) - -------------------------------------------------------------------------------- The maximum increase or decrease in the Basic Fee for any month may not exceed 1/12 of .5%. Accordingly, the maximum monthly fee rate as adjusted for performance is 1/12 of 1.5% and would be payable if the investment performance of the Fund exceeded the percentage change in the investment record of the S&P 500 by 12 or more percentage points for the performance period. The minimum monthly fee rate as adjusted for performance is 1/12 of .5% and would be payable if the percentage change in the investment record of the S&P 500 exceeded the investment performance of the Fund by 6 or more percentage points for the performance period. The Investment Advisory Agreement also provides that Quest will not be entitled to receive any fees for any performance period in which the investment performance of the Fund, rounded to the nearest whole point, is less than zero. In the event that the Fund's investment performance for a performance period, rounded to the nearest whole point, is less than zero, Quest will not be required to refund to the Fund any fees earned for any prior performance period. In calculating the investment performance of the Fund and the percentage change in the investment record of the S&P 500, all dividends and other distributions during the performance period are treated as having been reinvested and gain (loss) from transactions in Fund shares is eliminated. Fractions of a percentage point are rounded to the nearest whole point (to the higher whole point if exactly one-half). For the six months ended June 30, 1996, the Fund paid Quest advisory fees totalling $659,891 which is net of $44,656 voluntarily waived by Quest. Effective July 1, 1996, the Fund entered into a new Investment Advisory Agreement with Quest which changed, among other things, the benchmark index to the S&P 600 and changed the rate of decrease in the Agreement to be equal to the rate of increase. NOTE 4. TRANSACTIONS IN SHARES OF AFFILIATED COMPANIES: An 'Affiliated Company', as defined in the Investment Company Act of 1940, is a company in which the Fund owns at least 5% of the company's outstanding voting securities. The Fund effected the following transactions in shares of such companies during the six months ended June 30, 1996.
Purchases Sales ------------------- ------------------- Realized Dividend Affiliated Company Shares Cost Shares Cost Gain/Loss Income - ------------------------------ ------- -------- ------- -------- --------- -------- General Builders Corp......... -- -- -- -- -- -- Sage Laboratories, Inc........ -- -- -- -- -- -- United Services Advisers, Inc............... -- -- 249,205 $436,109 -- --
NOTE 5. FUND SHARES: At June 30, 1996, there were 150,000,000 shares of common stock and 50,000,000 shares of preferred stock, $.001 par value, authorized. Only common stock has been issued, and transactions were as follows:
Six Months ended June 30, 1996 Year ended (unaudited) December 31, 1995 ------------------------ ------------------------ Shares Amount Shares Amount --------- ----------- --------- ----------- Net proceeds from rights offerings............ -- -- 1,308,387 $16,244,838 Dividends and distributions reinvested in additional shares........................... -- -- 1,721,155 20,868,997
During the year ended December 31, 1995, the Fund completed a rights offering of 1,308,387 shares to its stockholders at the rate of one share for each twenty rights held by stockholders of record on September 20, 1995. 22 ROYCE VALUE TRUST, INC. NOTES TO FINANCIAL STATEMENTS (unaudited) (continued) - -------------------------------------------------------------------------------- NOTE 6. PURCHASES AND SALES OF SECURITIES: For the six months ended June 30, 1996, the cost of purchases and proceeds from sales of investment securities, other than short-term securities, amounted to $58,632,901 and $66,626,851, respectively. At the Annual Meeting of Stockholders held on June 26, 1996, Fund stockholders elected directors, ratified the Board's selection of the Fund's independent public accountants for 1996, and approved the following proposals:
Proposal/ Votes Votes Votes Cast Votes Name of Director Cast For Withheld Against Abstained - --------------------------------------------- ---------- -------- ---------- --------- Proposal to approve new Investment Advisory Agreement with Quest Advisory Corp. ....... 19,036,178 N/A 595,061 370,906 Proposal to change the Fund's investment policy concerning warrants, rights and options.................................... 13,330,499 N/A 634,457 537,072 Ratification of independent public ac- countants.................................. 19,737,602 N/A 81,359 183,184 Charles M. Royce............................. 19,751,866 250,279 N/A N/A Thomas R. Ebright............................ 19,655,377 346,768 N/A N/A Richard M. Galkin............................ 19,657,300 344,845 N/A N/A Stephen L. Isaacs............................ 19,676,454 325,691 N/A N/A David L. Meister............................. 19,675,370 326,775 N/A N/A
23 OFFICERS Charles M. Royce, President and Treasurer Jack E. Fockler, Jr., Vice President W. Whitney George, Vice President Daniel A. O'Byrne, Vice President & Assistant Secretary John E. Denneen, Secretary INDEPENDENT ACCOUNTANTS Ernst & Young LLP CUSTODIAN, TRANSFER AGENT AND REGISTRAR State Street Bank and Trust Company DIRECTORS Thomas R. Ebright Quest Advisory Corp., Vice President Royce, Ebright & Associates, Inc., President Richard M. Galkin Richard M. Galkin Associates Inc., President Stephen L. Isaacs Columbia University Development Law and Policy Program, Director; Attorney David L. Meister Communications Industry, Consultant Charles M. Royce Quest Advisory Corp., President Royce Value Trust, Inc. Semi-Annual Report 1996 1414 Avenue of the Americas New York, New York 10019 (800) 221-4268 STATEMENT OF DIFFERENCES ------------------------ The dagger symbol shall be expressed as..... `D' The division sign shall be expressed as..... [div] GRAPHIC APPENDIX On page 2 of the paper format Royce Value Trust report: Picture of firecracker exploding On page 3 of the paper format Royce Value Trust report: A picture of a Prospectus cover of Berkshire Hathaway Inc. On page 4 of the paper format Royce Value Trust report: A picture of a scale balancing a dollar sign and a factory. On page 5 of the paper format Royce Value Trust report: A picture of a man in long white coat pointing with a pointer. A picture of Cupid shooting an arrow with two hearts around him. On page 6 of the paper format Royce Value Trust report: A picture of a basket of fruit at harvest time. A bar graph of the Russell 2000 price variations from 1979 to 1996. A picture of a ticker tape machine. -----END PRIVACY-ENHANCED MESSAGE-----