UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT
OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-05379

Name of Registrant: Royce Focus Trust, Inc.

Address of Registrant: 1414 Avenue of the Americas
New York, NY 10019

Name and address of agent for service:   John E. Denneen, Esquire
    1414 Avenue of the Americas
    New York, NY 10019

Registrant’s telephone number, including area code: (212) 486-1445
Date of fiscal year end: December 31
Date of reporting period: January 1, 2003 - June 30, 2003

Item 1: Reports to Shareholders










2003 Semiannual 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, LLC manages three closed-end funds: Royce Value Trust, the first small-cap value closed-end fund offering; Royce Micro-Cap Trust, the only micro-cap closed-end fund; and Royce Focus Trust, a closed-end fund that invests in a limited number of domestic 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 and Royce Micro-Cap Trust have adopted a quarterly distribution policy for their 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 13, 15 and 17. For additional information on the Funds’ Distribution Reinvestment and Cash Purchase Options and the benefits for stockholders, see page 18.

   
     
     
     



THE ROYCE FUNDS



SEMIANNUAL 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 Stockholders: The Market: Reloaded  . . .  Small Almighty?
  2  

Small-Cap Market Cycle Performance   10  

History Since Inception   11  

Performance and Portfolio Review:
Royce Value Trust, Royce Micro-Cap Trust and Royce Focus Trust
  12  

Distribution Reinvestment and Cash Purchase Options   18  

Directors and Officers   19  

Notes to Performance and Statistical Information
  20  

Schedules of Investments and Other Financial Statements   21  

Postscript: ValueBall   Inside Back Cover  




  NAV AVERAGE ANNUAL TOTAL RETURNS Through June 30, 2003
  FUND 2ND QUARTER
2003*
  JAN-JUN
2003*
  1-YEAR   3-YEAR   5-YEAR   SINCE
INCEPTION
  INCEPTION
DATE

  Royce Value Trust   21.90 %   13.77 %   -4.01 %   6.17 %   6.51 %   11.34 %     11/26/86
  Royce Micro-Cap Trust   27.45     19.32     -2.68     8.18     7.02     11.88       12/14/93
  Royce Focus Trust   28.06     18.66     3.40     11.07     5.64     8.89         11/1/96**
  Russell 2000   23.42     17.88     -1.64     -3.30     0.97            

  Royce Value Trust’s 10-year NAV average annual total return for the period ended 6/30/03 was 11.21%.
 
Not annualized.
**  Date Royce & Associates, LLC assumed investment management responsibility.






   

LETTER TO OUR STOCKHOLDERS


 

Charles M. Royce, President


We are often asked what role earnings play in our company valuations. Along with balance sheet and cash flow analysis, an examination of earnings is one of the key components in our stock selection process. In general, we think of earnings in two ways, each of which is highly important. First, we closely examine a company’s earnings history. This tells us not only if a company has been good at making money, but also gives us insight into how it has fared when earnings were poor or non-existent. This kind of analysis is especially critical when looking at cyclical businesses, which often have variant earnings patterns more or less in line with their business cycle.


(continued on page 4)
   

THE MARKET: RELOADED

A s any viewer of the film The Matrix: Reloaded can testify, perceptions are often mistaken and reality is not always what it appears to be. One needs to be careful not to confuse what might feel real with what actually is real. As experienced investors, we would never confuse a three-month market rally with a substantial recovery for equities, yet even we were stunned by the market’s reversal of direction during the opening half of 2003. It was a period marked by extreme events, both in the stock market and the wider world. Initially, the equity market eerily reflected the mood of the country. Information about the war was instantly mirrored in the movements of the market. Prices were wildly volatile, though mostly falling, in the weeks leading up to the invasion of Iraq, giving most equity securities negative first-quarter returns. Once the fighting began, equity prices stabilized until it looked for a brief moment as if “Shock and Awe” was not running as smoothly as planned, which sent prices plummeting once again. Shortly after victory seemed assured, stocks shared in the celebration by moving higher. With victory came the perception that the stock market had somehow righted itself after the long bear market. When se veral companies reported modest earnings growth around the time that Baghdad fell, the stage was set


2 |   THE ROYCE FUNDS SEMIANNUAL REPORT 2003



  





for a full-scale rally. Prices continued to climb through April, and by mid-May some genuine momentum had been established. Like the omnipresent computer program that gives The Matrix its name, the market proved relentless and nearly impossible to stop once it was up and running again.
     How does an intrepid investor make sense of the now reloaded stock market? The dramatic comeback of equities is surely welcome news, but with only a partial earnings recovery to support it, how much longer can it last? The investment mindset has shifted from the fatalistic attitude of the last few years (especially virulent from 2002’s third quarter through this year’s first) to a confident outlook that seemed to spring up as soon as spring began. The perception of many is that the stock market is in great shape again, the bear market is over and all is well. The reality may not be quite so fabulous. While we still believe that the October 2002 market bottoms should hold, we would offer the caveat that there are many stocks whose gains have outraced their underlying value in anticipation of earnings (or similar good news) that may not arrive for some time. On the whole, we think that the improved picture is encouraging, yet the gap between perception and reality can be quite costly in equity investing. Investors should bear in mind that market volatility remains a reality even in the midst of a rally.
     We do not want to see a return to the often uninformed euphoria that characterized the late ’90s, but the frantic pace of the current rally leads us to suspect that a certain amount of this kind of optimism may have crept back into buyers’ minds. A new form of speculation seems to be emerging in which investors unhappy with the limited return potential for bonds are therefore eager to purchase stocks on the idea that their returns are higher. We cannot think of a poorer reason to buy equities. More to the point, if bonds do poorly — which we view as likely in a rising interest rate environment — it is not necessarily a positive for stocks. Stocks have historically represented higher return potential than bonds, but the attendant risk is higher, too. We suspect that this latter point may be lost on investors reeling from the effects of years of falling interest rates and plummeting stock prices.



The perception of many is that the stock market is in great shape again, the bear market is over and all is well. The reality may not be quite so fabulous.



THE ROYCE FUNDS SEMIANNUAL REPORT 2003 |   3
 
 



 





These types of companies appeal to us because we are often able to buy them near the low point in the cycle, when negative sentiment is exaggerated. Negative earnings are not a deterrent as long as we think that a company has what it takes to recover and resume its growth. We generally look at normalized earnings over three years or more, which gives us a good idea of not only what a company’s long-term earnings pattern has been, but its specific earnings’ history as well. We might discover that a particular company did not suffer earnings difficulties to the same degree as its competitors, or that it recovered quickly from a slowdown or cessation of earnings. How a business deals with adversity is very revealing.



(continued on page 6)


   

LETTER TO OUR STOCKHOLDERS


SMALL-CAPS GO WILD!


     While some people opted for the beach or the movie theater, many investors decided that small-cap and Technology stocks would be the hot summer destinations. The Russell 2000 finished the year-to-date period ended 6/30/03 up 17.9%, ahead of its large-cap counterpart the S&P 500, which finished the same period up 11.8%. The rally has thus far been especially kind to growth-oriented companies, as evidenced by the Nasdaq Composite’s strong showing year-to-date, up 21.5%. This stands to reason in part because many of the more speculative issues had been so severely punished throughout the long bear market. In fact, Technology’s relative strength was apparent both in 2002’s late-year rally and in the early months of 2003. Of the three major stock indices, only the Nasdaq Composite emerged from the mostly dismal first quarter with a positive return. It was up 0.4% versus respective losses of 4.5% and 3.2% for the Russell 2000 and S&P 500.
     What is less certain is how long the market’s advance will hold up: Many Technology (and other) companies have shown improved earnings, but arguably not enough to support the gains that their increased share prices might otherwise indicate. Simply because certain stocks lost money over an extended period of time does not mean that a proportionate recovery should be expected as the environment for equities begins to improve. This is especially the case for those securities that were grossly over-inflated prior to their descent. While it is not unusual in the early stages of a rally for an up market to operate on the inverted logic that what went down must come up, unimpeded progress is not the market’s historical norm.
     Considering their own reputation for volatility (as well as frailty), small-cap stocks have shined in the current rally after weathering the bear market surprisingly well. From the October 2002 small-cap bottom, the Russell 2000 was up 38.6%, versus respective gains of 45.7% and 27.1% for the Nasdaq Composite and S&P 500. In this year’s second quarter, the Russell 2000 was up 23.4%, enjoying its best quarterly showing in nearly 16 years and its fourth best quarterly performance since its inception in 1979. The S&P 500 (+15.4%) had its best showing since the fourth quarter of 1998, while the Nasdaq Composite (+21.0%) cruised to its best mark since 2001’s fourth quarter.
4 |   THE ROYCE FUNDS SEMIANNUAL REPORT 2003


   





FINDING VALUE


     Just as small-caps held their own through the bear market in defiance of conventional wisdom, small-cap value stocks have so far acquitted themselves well in the recent rally. Many market analysts hold the idea that value stocks should lag in vigorous up markets, at times becoming as lost as the tiny fish, Nemo, in the current animated film, Finding Nemo. While Nemo’s father needed help to search the ocean for his missing son, small-cap value companies did not vanish from the sea of equities, but instead swam near the front of the school, though small-cap growth took the lead. The Russell 2000 Growth Index stayed ahead of the Russell 2000 Value Index in both the second quarter and the year-to-date period ended 6/30/03. Small-cap growth was up 24.2% for the quarter and 19.3% year to date, while small-cap value was up 22.7% for the quarter and 16.5% year to date. It marked the third consecutive quarter in which growth outpaced value within small-cap. In fact, when small-cap value lost ground to growth in the more difficult first quarter, -5.1% versus -3.9%, it revealed the market strength shown by more growth-oriented companies before the current upswing was fully underway. As measured by the respective Russell 2000 Indices, growth has also had the performance edge from the small-cap market bottom on 10/9/02 through 6/30/03, returning 41.9% versus 35.5% for value.
     The substantial breadth of the rally has allowed small-cap value returns to remain competitive even in the midst of recent outperformance by their growth cousins. The price of Technology and other growth stocks soared, but nearly all industries have been participating. Small-cap value’s competitiveness is a pleasant sequel to its strong performance in the recent bear market. When viewed over longer-term periods, small-cap value has generally outperformed small-cap growth. From the small-cap market peak on 3/9/00 through 6/30/03, the Russell 2000 Value Index was up 38.1% versus a decline of 55.2% for the Russell 2000 Growth Index. Russell’s small-cap value index also beat small-cap growth for the three-, five-, 10-, 15- and 20-year periods ended 6/30/03.



We use many different measures to determine company quality, generally beginning with strong balance sheets that show relatively little or no debt, solid long-term earnings histories and the proven ability to generate free cash flow. A company’s unrecognized asset values, future prospects for growth or turnaround potential following difficulties such as an earnings disappointment can also be critical factors as we search for value as diligently as Nemo’s dad.



THE ROYCE FUNDS SEMIANNUAL REPORT 2003 |   5
 
 



   

LETTER TO OUR STOCKHOLDERS


 
During this process, we focus primarily on operating earnings which to us represent earnings in their purest form. This helps us to avoid the often confusing accounting practices of adjusting earnings for items such as interest expenses, gains from sales of business units and other non-recurring items. As long-term investors, we are also interested in long-term expenses such as depreciation because they offer clues as to the sustainability of current earnings and what the effects have been on past earnings. Rather than buy stocks based on high current earnings or promising projected earnings, we want to know more about where a company has been because in our experience that’s the best gauge of where a company is going. If business has been poor recently, we expect that our investigations will give us some idea of what the earnings might be under more



(continued on page 8)
   

CHARLIE’S (AS IN ROYCE’S) ANGELS

    However, recent competitive returns versus growth and long-term outperformance by value would mean little if The Royce Funds themselves failed to hold up well both in the bear market and in the recent rally. Fortunately, overall performance of the Funds has been strong in the short term and reasonably solid over longer-term periods as well. It was somewhat surprising that in the midst of a strong rally, two portfolios — Royce Micro-Cap and Focus Trust — beat the Russell 2000 on both a net asset value (NAV) and market price basis by turning in strong performances year-to-date through 6/30/03. In addition, all three closed-end Royce Funds then in existence outperformed the Russell 2000 for the three-, five-, 10-, 15-year, and since inception periods ended 6/30/03.



     While we continue to believe that a performance discussion of the small-cap indices is relevant, it is also true that the depths of the bear market and the opening months of the rally blurred much of the line that separates value and growth stocks. Our own stance has always been that we are less interested in classifying stocks as growth or value than we are in trying to find what we think are terrific businesses trading for less than our estimate of their current worth. We use many different measures to determine company quality, generally beginning with strong balance sheets that show relatively little or no debt, solid long-term earnings histories and the proven ability to generate free cash flow. A company’s unrecognized asset values, future prospects for growth or turnaround potential following difficulties such as an earnings disappointment can also be critical factors as we search for value as diligently as Nemo’s dad.


6 |   THE ROYCE FUNDS SEMIANNUAL REPORT 2003



   





Throughout the bear market, especially during the second half of 2002 and the first quarter of 2003, we found what we thought were extraordinary values in industries as diverse as telecommunications, insurance, drugs and biotech, oil and gas, and various consumer and industrial areas. We see a distinction between our style of value investing, in which we search high and low throughout the market for what we deem to be attractively undervalued small- and micro-cap companies, and value stocks, which are frequently defined in ways that we find unnecessarily narrow. Many portfolio holdings in the Technology and Health sectors, for example, may not fit strict definitions of value, but in our estimation we purchased strong businesses at deep discounts in both sectors. It pleases us that so many companies in a wide variety of industries have been reaping a fruitful harvest after a long and sometimes painful planting season. Our style of investing often requires considerable patience, and 2003 has so far provided an interesting combination of quicker-than-expected turnarounds and long-awaited rewards.


2 FAST, 2 FURIOUS?


     As of this writing, none of the major market indices has regained the peaks that they reached in March 2000. Even allowing for the recent rally, the past three years have been a trying period for investors. Although small-caps fared well relative to their larger counterparts, the recent decline was the worst for the Russell 2000 since the index’s inception in January 1979. When looking further back, and using the Center for Research in Securities Prices (CRSP) 6-10 index as a small-cap proxy, one finds that the recent bear market was the second worst for small-caps in the post World War II era (the worst took place between 1968 and 1974). Because significant down periods have often been followed by furious rallies, the Russell 2000’s 38.6% return from the small-cap market bottom on 10/9/02 through 6/30/03 is not at all surprising. Since the inception of the Russell 2000, rallies from small-cap bottoms to their subsequent market peaks lasted an average of 29 months (see the table below), so we do not expect to see a new small-cap peak anytime soon.

  RUSSELL 2000 MARKET RALLIES: 1979-2002 TROUGH-TO-PEAK DURATION
  DATE
OF BOTTOM
  DATE OF
TOP
  DURATION
MONTHS

  08/12/82   06/24/83   10

  07/25/84   08/25/87   36

  10/28/87   10/09/89   23

  10/30/90   05/22/96   66

  07/24/96   04/21/98   21

  10/09/98   03/09/00   17

  10/09/02   ???   ???

      Average:   29

THE ROYCE FUNDS SEMIANNUAL REPORT 2003 |   7
 
 



 





favorable circumstances. If recent earnings have been strong, we still need a sense of the company’s history.

The second part of our earnings analysis results in a forecast that looks ahead two or three years, sometimes longer. This is especially crucial for a company that’s just been through an earnings disappointment. Combining the two helps us to determine where we think the stock price may be headed. It gives us a sense of what we deem to be the company’s overall “earnings power.” It’s something of a hybrid of qualitative and quantitative analysis. It’s certainly not a precise projection, although it takes factors into account such as return on invested capital, earnings history and the relative strength or weakness of an industry. Because ultimately we believe earnings and stock price are correlated, it’s a critical step in the process.



   

LETTER TO OUR STOCKHOLDERS





Looking for Small-Cap’s Next Peak


     It would also not surprise us to see the pace of the rally slacken substantially. We measure full market cycle periods from peak to peak. As of 6/30/03, the Russell 2000 was still off 22.6% from its previous peak on 3/9/00. In order to surpass this previous peak (thus completing the market cycle), the small-cap index would need to return more than 29% from the end of June onward. The critical question, then, is not whether the rally will continue — we believe that the market will almost certainly find a new peak — but how long it will take for this new peak to be reached. Our belief is that this could take at least three to five years. Another issue worth considering is how much volatility will be involved in the remaining climb. The market may have made a hurried conclusion that the remaining ascent will be as smooth and quick as the early stages of the current rally. Our thought is that expectations for equities may have raced ahead of reality. As believers in the ubiquity of volatility, we see corrections as an inevitable part of small-cap’s move to a new peak.

SMALL ALMIGHTY?

     The last three-and-a-half months have been enjoyable for most equity investors. Those of us who invest for the long term have been gratified to see a protracted season of purchasing at ever-dwindling prices yield to a fast, dynamic rally, even if we believe that investors’ perceptions are in advance of reality. Our suspicion is that a more widespread


8 |   THE ROYCE FUNDS SEMIANNUAL REPORT 2003


   




earnings and economic recovery is still ahead of us, and will not begin in earnest until probably 2004 or even early 2005. The stirrings of each are with us currently, which has helped the market to recover, but we do not think that we will see sustained, robust earnings or overall economic recovery for a while. We also think that we will see regular market leadership rotation between small- and large-cap for the next several years. However, considering their head start during the bear market, we believe that small-caps should finish the decade ahead of their larger siblings.

     The rally has made it difficult to find value in the market. We have not been very aggressive buyers lately because so little looks attractive to us. However, there are always companies that, for one reason or another, are being penalized disproportionately. Recently, the number of companies that fit that description has been low, but they are out there and an increase in volatility should create greater buying opportunities. This supports our contention that careful stock picking should continue to bear fruit in the years ahead.




Our thought is that expectations for equities may have raced ahead of reality. As believers in the ubiquity of volatility, we see corrections as an inevitable part of small-caps’ move to a new peak.



We appreciate your continued support.
       
Sincerely,
       
 
Charles M. Royce
    President
W. Whitney George
Vice President
Jack E. Fockler, Jr.
Vice President
 
       
July 31, 2003
       

P.S. This report’s section headings are variations on current summer movie offerings. In order of appearance, we used The Matrix: Reloaded, Rugrats Go Wild!, Finding Nemo, Charlie’s Angels, 2 Fast, 2 Furious and Bruce Almighty.


THE ROYCE FUNDS SEMIANNUAL REPORT 2003 |   9
 
 





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 a more historically typical performance pattern in that value has provided a significant advantage during the downturn (3/9/00 – 10/9/02) and through June 30, 2003.

 
 

 
 
        PEAK-TO-PEAK
4/21/98–3/9/00
  PEAK-TO-TROUGH
3/9/00–10/9/02
  TROUGH-TO-CURRENT
10/9/02–6/30/03
  PEAK-TO-CURRENT
3/9/00–6/30/03
  PEAK-TO-CURRENT
4/21/98–6/30/03
 
  Russell 2000   26.3 %   -44.1 %   38.6 %   -22.6 %   -2.2 %






  Russell 2000 Value   -12.7     2.0     35.5     38.1     20.6  






  Russell 2000 Growth   64.8     -68.4     41.9     -55.2     -26.1  






  NAV CUMULATIVE TOTAL RETURN                              






  Royce Value Trust   10.0     -12.2     35.4     18.9     30.8  






  Royce Micro-Cap Trust   10.6     -13.6     42.2     22.2     35.2  






  Royce Focus Trust   -10.7     -4.9     42.6     35.7     21.2  



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 June 30, 2003, growth led value during the rally from the October low. All Royce Funds posted total returns of more than 35% during this period, with Royce Micro-Cap Trust and Royce Focus Trust outperforming the Russell 2000.


PEAK-TO-CURRENT:
From March 9, 2000 through June 30, 2003, value maintained a sizeable lead over growth. Again, all three Royce Funds held performance advantages over the Russell 2000 (-22.6%) and all provided positive performance. When current cycle returns are combined with those of the prior full market cycle, a period which includes both the pre-bubble rally and the ensuing bear market, value’s positive results compare favorably against growth’s negative results. During this period, all three Royce Funds outperformed the Russell 2000 and Russell 2000 Value returns.


10 |   THE ROYCE FUNDS SEMIANNUAL REPORT 2003








HISTORY SINCE INCEPTION


The following table details the share accumulations by an initial investor in the Funds who reinvested all distributions (including fractional shares) and participated fully in primary subscriptions for each of the rights offerings. Full participation in distribution reinvestments and rights offerings can maximize the returns available to a long-term investor. This table should be read in conjunction with the Performance and Portfolio Reviews of the Funds.
 
  HISTORY     AMOUNT
INVESTED
  PURCHASE
PRICE*
  SHARES   NAV  
VALUE
 ** MARKET   
VALUE **
Royce Value Trust                              
  11/26/86   Initial Purchase   $ 10,000   $ 10.000   1,000   $ 9,280   $ 10,000  
  10/15/87   Distribution $0.30           7.000   42              
  12/31/87   Distribution $0.22           7.125   32     8,578     7,250  
  12/27/88   Distribution $0.51           8.625   63     10,529     9,238  
  9/22/89   Rights Offering     405     9.000   45              
  12/29/89   Distribution $0.52           9.125   67     12,942     11,866  
  9/24/90   Rights Offering     457     7.375   62              
  12/31/90   Distribution $0.32           8.000   52     11,713     11,074  
  9/23/91   Rights Offering     638     9.375   68              
  12/31/91   Distribution $0.61           10.625   82     17,919     15,697  
  9/25/92   Rights Offering     825     11.000   75              
  12/31/92   Distribution $0.90           12.500   114     21,999     20,874  
  9/27/93   Rights Offering     1,469     13.000   113              
  12/31/93   Distribution $1.15           13.000   160     26,603     25,428  
  10/28/94   Rights Offering     1,103     11.250   98              
  12/19/94   Distribution $1.05           11.375   191     27,939     24,905  
  11/3/95   Rights Offering     1,425     12.500   114              
  12/7/95   Distribution $1.29           12.125   253     35,676     31,243  
  12/6/96   Distribution $1.15           12.250   247     41,213     36,335  
  1997   Annual distribution total $1.21           15.374   230     52,556     46,814  
  1998   Annual distribution total $1.54           14.311   347     54,313     47,506  
  1999   Annual distribution total $1.37           12.616   391     60,653     50,239  
  2000   Annual distribution total $1.48           13.972   424     70,711     61,648  
  2001   Annual distribution total $1.49           15.072   437     81,478     73,994  
  2002   Annual distribution total $1.51           14.903   494              
  1/28/03   Rights Offering     5,600     10.770   520              
  2003   Year-to-date distribution total $0.65           13.143   273              

  6/30/03       $ 16,322         5,995   $ 85,848   $ 89,565  

Royce Micro-Cap Trust                              
  12/14/93   Initial Purchase   $ 7,500   $ 7.500   1,000   $ 7,250   $ 7,500  
  10/28/94   Rights Offering     1,400     7.000   200              
  12/19/94   Distribution $0.05           6.750   9     9,163     8,462  
  12/7/95   Distribution $0.36           7.500   58     11,264     10,136  
  12/6/96   Distribution $0.80           7.625   133     13,132     11,550  
  12/5/97   Distribution $1.00           10.000   140     16,694     15,593  
  12/7/98   Distribution $0.29           8.625   52     16,016     14,129  
  12/6/99   Distribution $0.27           8.781   49     18,051     14,769  
  12/6/00   Distribution $1.72           8.469   333     20,016     17,026  
  12/6/01   Distribution $0.57           9.880   114     24,701     21,924  
  2002   Annual distribution total $0.80           9.518   180              
  2003   Year-to-date distribution total $0.47           8.523   127              

  6/30/03       $ 8,900         2,395   $ 25,411   $ 23,399  

Royce Focus Trust                              
  10/31/96   Initial Purchase   $ 4,375   $ 4.375   1,000   $ 5,280   $ 4,375  
  12/31/96                         5,520     4,594  
  12/5/97   Distribution $0.53           5.250   101     6,650     5,574  
  12/31/98                         6,199     5,367  
  12/6/99   Distribution $0.145           4.750   34     6,742     5,356  
  12/6/00   Distribution $0.34           5.563   69     8,151     6,848  
  12/6/01   Distribution $0.14           6.010   28     8,969     8,193  
  12/6/02   Distribution $0.09           5.640   19              

  6/30/03       $ 4,375         1,251   $ 9,307   $ 8,469  

* Beginning with 1997 (RVT) and 2002 (OTCM) distribution, the purchase price on distributions is an average of the Fund’s full year distribution reinvestment cost.
** Other than for initial purchase and 6/30/03, values are stated as of December 31 of the year indicated, after reinvestment of distributions.
 

THE ROYCE FUNDS SEMIANNUAL REPORT 2003 |   11
 
 



ROYCE VALUE TRUST
                 
  AVERAGE ANNUAL TOTAL RETURNS
Through 6/30/03
 
MANAGER’S DISCUSSION

Royce Value Trust’s (RVT) diversified portfolio of small- and micro-cap stocks did well in 2003’s first half. For the year-to-date period ended 6/30/03, the Fund was up 13.8% on a net asset value (NAV) basis and 18.4% on a market price basis, compared to respective returns of 17.9% and 12.9% for its small-cap benchmarks, the Russell 2000 and the S&P 600. After an underwhelming first quarter, RVT rebounded in the more bullish second quarter, up 21.9% on an NAV basis and 25.1% on a market price basis. Over longer-term periods, the Fund enjoyed a pronounced performance advantage over both the Russell 2000 and the S&P 600. From the small-cap market peak on 3/9/00 through 6/30/03, RVT was up 18.9% on an NAV basis versus a loss of 22.6% for the Russell 2000 and a gain of 1.6% for the S&P 600. The Fund outperformed each of its benchmarks on an NAV and market price basis for the three-, five-, 10-, 15-year and since inception (11/26/86) periods ended 6/30/03. RVT’s average annual NAV total return since inception was 11.3%.
          Holdings in Technology, the Fund’s largest sector, made the most significant contribution to performance. While we do not shy away from Technology stocks in the Fund’s portfolio, we are cautious about our purchases in the sector. Tech enjoys a well-deserved reputation as an historically volatile area, but also as a fast-growing and dynamic one. Our goal when investing in Technology companies is to try to take advantage of some of the sector’s high growth while avoiding as much of the volatility as possible. We look for companies that possess strong balance sheets, earnings histories and the ability to generate free cash flow. In the latter stages of the bear market — including most of 2002 — even many of these less aggressive stocks took substantial lumps. Fortunately, many began to recover in October 2002.
          While Tech stocks were the brightest stars, gains came from a variety of industries throughout the portfolio. We continue to hold a large position in E*TRADE Group because we like the way in which the firm survived the internet stock bubble and expanded its online discount brokerage business into a full array of financial services. We first began to buy shares of FactSet Research Systems last year at prices that we thought were attractive. Increased revenues and rising earnings helped to boost the price of this leading provider of financial and economic information to the global investment community, but we are still holding a good-sized stake. Perceptron manufactures specialty electronic components as well as information-based process improvement solutions for various businesses. We like its niche business, low debt and growing profitability, characteristics that may have attracted investors to the stock in the second quarter. We are holding our shares for now. Insurance companies performed well as a group. We took some gains in medical malpractice specialist ProAssurance Corporation and in White Mountains Insurance Group, which provides property and casualty insurance, reinsurance and financial guaranty insurance. We also built our position in top holding, Erie Indemnity Company, the operator of Erie Insurance Exchange, which specializes in automotive, property and casualty insurance. Improved industry conditions helped its stock price to recover, although it has not yet regained its 2002 highs, which helps to explain why we have continued to buy shares.
  Second Quarter 2003*   21.90%  

 
  Jan-June 2003*   13.77     

 
  1-Year   -4.01     

 
  3-Year   6.17    

 
  5-Year   6.51    

 
  10-Year   11.21     

 
  15-Year   11.86     

 
  Since Inception (11/26/86)   11.34     
* Not annualized.      
         
  RISK/RETURN COMPARISON
3-Year Period ended 6/30/03
 
    Average Annual
Total Return
  Standard
Deviation
  Return
Efficiency*
 

 
  Royce Value Trust (NAV) 6.2%   24.1   0.26  

 
  S&P 600 2.4%   22.7   0.11  

 
  Russell 2000 -3.3%    22.8   -0.14   
*
Return Efficiency 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   RVT   Year   RVT    

   
  2002   -15.6%   1994   0.1        

   
  2001   15.2      1993   17.3        

   
  2000   16.6      1992   19.3        

   
  1999   11.7      1991   38.4        

   
  1998   3.3      1990   -13.8        

   
  1997   27.5      1989   18.3        

   
  1996   15.5      1988   22.7        

   
  1995   21.1      1987   -7.7        
 
12 |   THE ROYCE FUNDS SEMIANNUAL REPORT 2003



PERFORMANCE AND PORTFOLIO REVIEW
                         
      PORTFOLIO DIAGNOSTICS
    GOOD IDEAS THAT WORKED  
Velcro Industries — This past April, we had an opportunity to sell our position at a substantial gain in this company, which is primarily involved in the manufacturing and marketing of hook and loop fasteners.

Keane — We like the core business of this consulting, e-business
      Median Market Capitalization $821 million  
    Net Realized and Unrealized Gain      
    Year-to-Date Through 6/30/03         Weighted Average P/E Ratio 18.8x*  
    Velcro Industries $3,601,730        
 
        Weighted Average P/B Ratio 1.7x  
    Keane 2,314,825        
 
        Weighted Average Yield 0.7%  
    Marvel Enterprises 2,228,361        
 
        Fund Net Assets $859 million  
    FactSet Research Systems 2,209,200        
 
        Turnover Rate 12%  
    E*TRADE Group 2,093,000        
  and information technology services firm. Although its year-to-date performance in 2003 has been encouraging, we are still waiting for our longer-term experience to become profitable. Fortunately, we still like the firm’s prospects.       Net Leverage 12%  
     
        Symbol - Market Price RVT  
       
- NAV
XRVTX  
                  *
Excludes 19% of portfolio holdings with zero or negative earnings as of 6/30/03.
                   
    GOOD IDEAS AT THE TIME  
Allegiance Telecom — Our overall experience with this telecommunications service provider to small-and mid-sized businesses only became more disappointing as our hopes for a turnaround vanished when the firm recently filed for bankruptcy.
   
Net leverage is the percentage, in excess of 100%, of the total value of equity type investments, divided by net assets, excluding preferred stock.
    Net Realized and Unrealized Loss        
    Year-to-Date Through 6/30/03        
    Allegiance Telecom $1,488,021           TOP 10 POSITIONS % of Net Assets
 
        Erie Indemnity Company Cl. A 0.8 %
    Payless ShoeSource 1,300,264        
 
        Simpson Manufacturing 0.8  
    Covance 861,223        
 
        Keane 0.8  
    PXRE Group 829,789        
 
        White Mountains Insurance Group 0.8  
    Sotheby’s Holdings Cl. A 818,522        
 

Payless ShoeSource — Retracing our steps tells us that we probably began to buy this family footwear retailer too soon because inventory and expansion concerns have kept its price underfoot. Nonetheless, we still like its long-term prospects and have been increasing our stake.
      Arrow International 0.8  
     
        Florida Rock Industries 0.7  
     
        FactSet Research Systems 0.7  
                 
                    Ritchie Bros. Auctioneers 0.7  
 
    Ash Grove Cement Company Cl. B 0.7  
 
    Allied Waste Industries 0.7  
         
    PORTFOLIO SECTOR BREAKDOWN
    % of Net Assets
    Technology 20.2 %
 
    Industrial Products 13.4  
 
    Industrial Services 13.4  
 
    Financial Intermediaries 9.3  
                 
The regular reinvestment of distributions makes a difference!     Health 8.2  
1
Reflects the cumulative performance 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 participated in the primary subscriptions of the Fund’s rights offerings.
 
      Consumer Products 7.0  
   
2
Reflects the actual market price of one share as it has traded on the NYSE.
    Natural Resources 6.6  
                 
                    Financial Services 6.2  
                 
                    Consumer Services 5.1  
                 
                    Utilities 0.1  
                 
                    Miscellaneous 1.7  
                 
                    Bonds & Preferred Stocks 0.3  
                 
                    Treasuries, Cash & Cash Equivalents 8.5  
                         
                    CAPITAL STRUCTURE
                    Publicly Traded Securities Outstanding
                    at 6/30/03 at NAV or Liquidation Value
                    48.8 million shares
of Common Stock
$699 million  
                 
                    7.80% Cumulative
Preferred Stock
$60 million  
                 
                    7.30% Tax-Advantaged
Cumulative Preferred Stock
$100 million  
 
THE ROYCE FUNDS SEMIANNUAL REPORT 2003 |   13



ROYCE MICRO-CAP TRUST
                 
  NAV AVERAGE ANNUAL TOTAL RETURNS
Through 6/30/03
 
MANAGER’S DISCUSSION

Micro-cap stocks were among the big winners in the first half of 2003, which helped Royce Micro-Cap Trust’s (OTCM) diversified portfolio of micro-cap companies to turn in a strong first-half performance. For the year-to-date period ended 6/30/03, the Fund was up 19.3% on a net asset value (NAV) basis and 22.2% on a market price basis, in both cases ahead of its small-cap benchmark, the Russell 2000, which was up 17.9% for the same period. OTCM’s first-half performance was primarily the result of its strong second quarter in which it was up 27.5% on an NAV basis and 30.0% on a market price basis. We were even more pleased with the Fund’s performances over longer-term periods. From the 3/9/00 small-cap peak through 6/30/03, OTCM was up 22.2% on an NAV basis and 35.0% on a market price basis versus a loss of 22.6% for the benchmark. The Fund outperformed the Russell 2000 for the three-year, five-year and since inception (12/14/93) periods ended 6/30/03 on both an NAV and market price basis. OTCM’s average annual NAV total return since inception was 11.9%.
          A large portion of the Fund’s second-quarter recovery (and its strong year-to-date showing as well) can be attributed to holdings in Technology, its largest sector, and Health. Unlike Tech stocks, which were stirring back to life late in 2002 and earlier this year, the prices of many Health stocks in the market did not begin to get in shape until late March 2003. Aksys provides hemodialysis products and services for patients suffering from chronic kidney failure. We have been building a large position even as its price climbed in the spring because we like its core business. We took advantage of fast-rising prices to take gains in Martek Biosciences, a company that extracts fatty acids from fish and mixes it with baby formula because those fatty acids have been found to help in the development of human intelligence. Contact lens manufacturer Ocular Sciences enjoyed a healthy second quarter after its price slumped late in 2002 following negative earnings. Subsequent positive earnings helped its price to recover, though it is still shy of last year’s highs.
          Sapient Corporation provides a range of business and technology consulting services. We like its core business and, while still not profitable, its price rose steadily in the second quarter. Centillium Communications, a firm that makes semiconductors for DSL systems, is a conservatively capitalized firm with a reasonably growing business. Its price soared in the recent rally, as DSL orders grew and profits rose. Although we still hold a good-sized position, we sold some shares of REMEC, a company that makes telecommunications infrastructure products and microwave electronic subsystems for various military applications. Improved sales gave a boost to the price of Excel Technology, a manufacturer of laser systems and electro-optical components for scientific, industrial and medical applications.
          In May, we sold our shares of LendingTree, an internet-based marketplace for consumers and lenders to collect, exchange and compare credit information, after it was announced that USA Interactive would be acquiring the company at a substantial premium. We also slightly trimmed our position in men’s footwear manufacturer, Weyco Group, a long-time holding, when its price made upward strides earlier in the year.
  Second Quarter 2003*   27.45%  

 
  Jan - June 2003*   19.32     

 
  1-Year   -2.68     

 
  3-Year   8.18    

 
  5-Year   7.02    

 
  Since Inception (12/14/93)   11.88     
* Not annualized.      
         
  RISK/RETURN COMPARISON
3-Year Period ended 6/30/03
 
    Average Annual
Total Return
  Standard
Deviation
  Return
Efficiency*
 

 
  Royce Micro-Cap Trust (NAV) 8.2%   26.2   0.31  

 
  Russell 2000 -3.3%    22.8   -0.14   
*
Return Efficiency 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   OTCM    

   
  2002   -13.8%    

   
  2001   23.4       

   
  2000   10.9       

   
  1999   12.7       

   
  1998   -4.1       

   
  1997   27.1       

   
  1996   16.6       

   
  1995   22.9       

   
  1994   5.0       
 
14 |   THE ROYCE FUNDS SEMIANNUAL REPORT 2003



PERFORMANCE AND PORTFOLIO REVIEW
                         
      PORTFOLIO DIAGNOSTICS
    GOOD IDEAS THAT WORKED  
E-LOAN — We first began to buy shares of this online provider of consumer loans, mortgages, car loans, credit cards and small business loans late in 2001 because we liked the prospects for its business. It has become that rarest of gems, an internet company that has not simply survived, but thrived. We reduced our position in the spring.
      Median Market Capitalization $230 million  
    Net Realized and Unrealized Gain      
    Year-to-Date Through 6/30/03         Weighted Average P/B Ratio 1.4x  
    E-LOAN $1,599,907        
 
        Weighted Average Yield 0.4%  
    HomeFed Corporation 1,292,947        
 
        Fund Net Assets $237 million  
    Sapient Corporation 893,147        
 
        Turnover Rate 11%  
    REMEC 736,061        
 
        Net Leverage 12%  
    Aceto 683,815        
 
HomeFed Corporation — The price of this southern California-based real estate development company more than tripled from where we first began buying it a few years ago, as investors seemed to find value in its real estate activities in the San Diego area.
      Symbol - Market Price OTCM  
       
- NAV
XOTCX  
     
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  
On Assignment — We began to build our position in this medical staffing services company in the Fund’s portfolio during the summer of 2002 because we liked its balance sheet and its excellent reputation. Its earnings have been disappointing as its industry continues to struggle, yet we remain hopeful for a turnaround.
      TOP 10 POSITIONS % of Net Assets
    Net Realized and Unrealized Loss         Seneca Foods 1.2 %
    Year-to-Date Through 6/30/03      
    On Assignment $596,640           Sapient Corporation 1.2  
 
     
    PRG-Schultz International 563,391           800 JR Cigar 1.1  
 
     
    Allegiance Telecom 504,321           HomeFed Corporation 1.0  
 
     
    Syntel 460,066           Delta Apparel 1.0  
 
     
    The Boyds Collection 440,720           Dension International ADR 1.0  
 
PRG-Schultz International — Business has been mostly poor for this provider of recovery audit services, but we added to our stake in this year’s first half in the hope of an eventual turnaround owing to our belief in its core business.
   
        Excel Technology 0.9  
     
        Young Innovations 0.9  
     
                    Bonavista Petroleum 0.9  
                 
    BHA Group Holdings 0.8  
         
    PORTFOLIO SECTOR BREAKDOWN
    % of Net Assets
    Technology 24.0 %
 
    Industrial Products 13.7  
 
    Industrial Services 12.2  
 
    Health 11.2  
 
    Consumer Products 9.0  
 
      Natural Resources 8.6  
The regular reinvestment of distributions makes a difference!  
1
Reflects the cumulative performance of an investment made by a stockholder who purchased one share at inception ($7.50 IPO) and then reinvested distributions as indicated and participated in the primary subscription of the 1994 rights offering.
    Financial Intermediaries 5.1  
   
2 Reflects the actual market price of one share as it has traded on the Nasdaq.     Consumer Services 4.5  
                 
                    Financial Services 1.6  
                 
                    Diversified Investment Companies 0.2  
                 
                    Miscellaneous 2.9  
                 
                    Preferred Stocks 0.5  
                 
                    Treasuries, Cash & Cash Equivalents 6.5  
                         
                    CAPITAL STRUCTURE
                    Publicly Traded Securities Outstanding
                    at 6/30/03 at NAV or Liquidation Value
                    18.5 million shares
of Common Stock
$197 million  
                 
                    7.75% Cumulative
Preferred Stock
$40 million  
 
THE ROYCE FUNDS SEMIANNUAL REPORT 2003 |   15



ROYCE FOCUS TRUST
                 
  NAV AVERAGE ANNUAL TOTAL RETURNS
Through 6/30/03
 
MANAGER’S DISCUSSION

Royce Focus Trust’s (FUND) concentrated portfolio of small- and micro-cap stocks did relatively well in an environment that showed great favor to micro-cap issues in the first half of 2003. The Fund finished the year-to-date period ended 6/30/03 up 18.7% on a net asset value (NAV) basis and 21.8% on a market price basis, in each case ahead of its small-cap benchmark, the Russell 2000, which was up 17.9% for the same period. The Fund’s first-half performance was strong on both an absolute and relative basis and was especially pleasing to us because we would typically not expect it to beat its benchmark in the early stages of a dramatic rally. We were also pleased with the Fund’s performance advantage over the Russell 2000 over longer-term periods. From the small-cap market peak on 3/9/00 through 6/30/03, the Fund was up 35.7% on an NAV basis and 47.5% on a market price basis versus a loss of 22.6% for the Russell 2000. The Fund also outperformed its benchmark on both an NAV and market price basis for the one-, three-, five-year and since inception (11/1/96) periods ended 6/30/03. The Fund’s average annual NAV total return since inception was 8.9%.
          Holdings in most sectors and industries scored gains in the first half. In a market that was so good to Technology, as well as financial and investment management stocks, it would have been hard for online discount broker and banker E*TRADE Group not to succeed. Although we initiated our position with a large purchase in 2001, we purchased some shares in 2002 when it was trading at close to book value and have watched its price more than double from that level. In our view, the company has room to grow before its stock would be overpriced. Insurance companies performed well as a group. We reduced our position in medical malpractice specialist ProAssurance Corporation as its price climbed during the spring, though we still hold a good-sized position. We also took some gains in property-casualty insurer, Zenith National Insurance, although based on our estimation of the firm’s strengths, we thought that it would have recovered sooner. We are still holding a large stake.
          Cornell Companies, which provides privatized correctional, treatment and educational services outsourced by federal, state and local government agencies, successfully rehabilitated itself from management and accounting issues. Investors seemed to take notice of improved earnings and increased opportunities for privatization in a recessionary economy. Winnebago Industries is the kind of company that we feel is made for the Fund’s portfolio. It has an established business with a history of strong earnings, free cash flow and talented management. We first began to buy the stock in the Fund’s portfolio this past March when its price fell to levels that we found attractive. If only every investment could turn around so quickly. Shortly after we began to purchase shares, its price began cruising upward. With an aging consumer market and an excellent reputation for high quality recreation vehicles, we like its prospects and are holding on to a large position. We also like the prospects for strong-performing, top-ten holding TSX Group, a Canadian firm that operates the Toronto Stock Exchange, the third largest exchange in North America, in addition to exchanges in Vancouver, Alberta and Winnipeg. We like the firm’s solid dividend and large amount of cash per share.
  Second Quarter 2003*   28.06%  

 
  Jan-June 2003*   18.66     

 
  1-Year   3.40    

 
  3-Year   11.07      

 
  5-Year   5.64    

 
  Since Inception (11/1/96)   8.89     
* Not annualized.      
Royce & Associates assumed investment management responsibility for the Fund on 11/1/96.
 
         
  RISK/RETURN COMPARISON
3-Year Period ended 6/30/03
 
    Average Annual
Total Return
  Standard
Deviation
  Return
Efficiency*
 

 
  Royce Focus Trust (NAV) 11.1%   26.2   0.42  

 
  Russell 2000   -3.3%   22.8   -0.14   
*
Return Efficiency 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   FUND    

   
  2002   -12.5%    

   
  2001   10.0       

   
  2000   20.9       

   
  1999   8.7       

   
  1998   -6.8       

   
  1997   20.5       
 
16 |   THE ROYCE FUNDS SEMIANNUAL REPORT 2003



PERFORMANCE AND PORTFOLIO REVIEW
                         
      PORTFOLIO DIAGNOSTICS
    GOOD IDEAS THAT WORKED  
Endo Pharmaceuticals Holdings — We first bought shares of this pharmaceutical company that specializes in pain management drugs last November. Its price continued to climb, and we took some gains in the spring.

West Corporation — We first bought  shares
      Median Market Capitalization $812 million  
    Net Realized and Unrealized Gain      
    Year-to-Date Through 6/30/03         Weighted Average P/E Ratio 19.6x *
    Endo Pharmaceuticals Holdings $1,374,980        
 
        Weighted Average P/B Ratio 1.9x  
    West Corporation 856,404        
 
        Weighted Average Yield 0.5%  
    Cornell Companies 818,733        
 
        Fund Net Assets $89 million  
    E*TRADE Group (Bond) 690,000        
 
        Turnover Rate 34%  
    TSX Group 634,208        
 
of this telecommunications services company in February, when its price fell to a level that we found enticing. In April and May, we sold some shares as its price began to rise quickly, but are otherwise content to keep holding for now.
      Net Leverage 8%  
     
        Symbol - Market Price FUND  
       
- NAV
XFUNX  
                  *
Excludes 21% of portfolio holdings with zero or negative earnings as of 6/30/03.
                   
    GOOD IDEAS AT THE TIME  
Durect Corporation — We initiated our position in May, although we have long admired the core product of this pharmaceuticals firm — a matchstick-sized, implantable device for pain medication that lasts as long as 90 days. We are hopeful that the company’s stock price can recover.
   
Net leverage is the percentage, in excess of 100%, of the total value of equity type investments, divided by net assets, excluding preferred stock.
    Net Realized and Unrealized Loss        
    Year-to-Date Through 6/30/03        
    Durect Corporation $318,944           TOP 10 POSITIONS % of Net Assets
 
        New Zealand Government Bond 5.7 %
    Lightspan 279,556        
 
        E*TRADE Group 4.8  
    Lincoln Electric Holdings 258,367        
 
        Simpson Manufacturing 2.9  
    Monaco Coach 232,987        
 
        TSX Group 2.7  
    Natuzzi ADR 198,018        
 
Lightspan — The price of this educational software maker nearly dropped out in the first half, proving that not every Tech company was an “A” student in the first half. We are holding on to our shares for now.
      Florida Rock Industries 2.7  
     
        Goldcorp 2.4  
     
        Nu Skin Enterprises Cl. A 2.4  
                 
                    Lincoln Electric Holdings 2.3  
 
    Winnebago Industries 2.1  
 
    Endo Pharmaceuticals Holdings 1.9  
         
    PORTFOLIO SECTOR BREAKDOWN
    % of Net Assets
    Technology 13.7 %
 
    Natural Resources 12.2  
 
    Health 10.4  
 
    Financial Intermediaries 9.3  
                 
1
Royce & Associates assumed investment management responsibility for the Fund on 11/1/96.
    Industrial Products 9.1  
2
Reflects the cumulative performance experience of a continuous common stockholder who reinvested all distributions.
 
      Industrial Services 7.1  
3
Reflects the actual market price of one share as it has traded on the Nasdaq.
 
        Consumer Products 6.2  
                 
                    Consumer Services 5.2  
                 
                    Financial Services 1.7  
                 
                    Bonds 9.0  
                 
                    Treasuries, Cash & Cash Equivalents 16.1  
                         
                    CAPITAL STRUCTURE
                    Publicly Traded Securities Outstanding
                    at 6/30/03 at NAV or Liquidation Value
                    9.2 million shares
of Common Stock
$69 million  
                 
                    7.45% Cumulative
Preferred Stock
$20 million  
 
THE ROYCE FUNDS SEMIANNUAL REPORT 2003 |   17





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, 2003.

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.



18 |   THE ROYCE FUNDS SEMIANNUAL REPORT 2003








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 (63), Director* and President   NAME AND POSITION: David L. Meister (63), Director
Term Expires: 2003   Tenure: Since 1986 (RVT), 1993 (OTCM), 1996 (FUND)   Term Expires: 2003   Tenure: Since 1986 (RVT), 1993 (OTCM), 1996 (FUND)
No. of Funds Overseen: 18   Non-Royce Directorships: None   No. of Funds Overseen: 18   Non-Royce Directorships: None

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

 

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 (57), Director


NAME AND POSITION:
Mark R. Fetting (48), Director*
 
Term Expires: 2004   Tenure: Since 2001  
No. of Funds Overseen: 18  
Non-Royce Directorships: Director/Trustee of the registered investment companies constituting the 22 Legg Mason Funds.
 
Principal Occupation(s) During Past Five Years: Executive Vice President of Legg Mason, Inc.; Member of Board of Managers 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.

  Term Expires: 2003   Tenure: Since 2001
  No. of Funds Overseen: 18  
Non-Royce Directorships: None
 
Principal Occupation(s) During Past Five Years: Trustee of Colgate University; Director of Renaissance Capital Greenwich Funds; Vice President of Hill House, Inc.; Managing Director/Equity Capital Markets Group of Merrill Lynch & Co. (from 1971 to 1999).

NAME AND POSITION: John D. Diederich (52), Vice President and Treasurer
Tenure: Since 1997

Principal Occupation(s) During Past Five Years: Managing Director, Chief Operating Officer and Member of Board of Managers of Royce (since October 2001); Director of Administration of the Funds since April 1993.

NAME AND POSITION: Jack E. Fockler, Jr. (44), Vice President
Tenure: Since 1995 (RVT), 1995 (OTCM), 1996 (FUND)

Principal Occupation(s) During Past Five Years: Managing Director and Vice President of Royce, having been employed by Royce since October 1989.

NAME AND POSITION: W. Whitney George (45), Vice President
Tenure: Since 1995 (RVT), 1995 (OTCM), 1996 (FUND)

Principal Occupation(s) During Past Five Years: Managing Director and Vice President of Royce, having been employed by Royce since October 1991.

NAME AND POSITION: Daniel A. O’Byrne (41), Vice President and Assistant Secretary
Tenure: Since 1994 (RVT), 1994 (OTCM), 1996 (FUND)

Principal Occupation(s) During Past Five Years: Vice President of Royce, having been employed by Royce since October 1986.

NAME AND POSITION: John E. Denneen (36), Secretary
Tenure: 1996-2001 and Since April 2002

Principal Occupation(s) During Past Five Years: General Counsel (Deputy General Counsel prior to 2003), Principal, Chief Compliance Officer and Secretary of Royce and Principal of Credit Suisse First Boston Private Equity (2001-2002).
 
 
NAME AND POSITION: Donald R. Dwight (72), Director  
Term Expires: 2005   Tenure: Since 1998  
No. of Funds Overseen: 18  

Non-Royce Directorships: None

 

Principal Occupation(s) During Past Five Years: President of Dwight Partners, Inc., corporate communications consultant; Chairman (from 1982 to March 1998) and Chairman Emeritus (since March 1998) of Newspapers of New England, Inc. Mr. Dwight’s prior experience includes having served as Lieutenant Governor of the Commonwealth of Massachusetts, as President and Publisher of Minneapolis Star and Tribune Company, and as Trustee of the registered investment companies constituting the 94 Eaton Vance Funds.

 
NAME AND POSITION: Richard M. Galkin (65), Director  
Term Expires: 2004   Tenure: Since 1986 (RVT), 1993 (OTCM), 1996 (FUND)  
No. of Funds Overseen: 18   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 (63), Director  
Term Expires: 2005 (RVT), 2005 (OTCM), 2003 (FUND)   Tenure: Since 1986 (RVT), 1993 (OTCM), 1996 (FUND)  
No. of Funds Overseen: 18   Non-Royce Directorships: None  

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

 
NAME AND POSITION: William L. Koke (68), Director  
Term Expires: 2003 (RVT), 2003 (OTCM), 2005 (FUND)   Tenure: Since 2001 (RVT), 2001 (OTCM), 1997 (FUND)  
No. of Funds Overseen: 18   Non-Royce Directorships: None  

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

 
 
* Interested Director.

THE ROYCE FUNDS SEMIANNUAL REPORT 2003 |   19







NOTES TO PERFORMANCE AND STATISTICAL 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, 2003. 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 STATISTICAL 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 or volatility. Investment return and principal value will fluctuate, so that shares may be worth more or less than their original cost when sold. The Royce Funds invest primarily in securities of small-cap and/or micro-cap companies that may involve considerably more risk than investments in securities of larger-cap companies. The thoughts expressed in this report concerning recent market movements and future prospects for small company stocks are solely the current opinion of Royce, and, of course, historical market trends are not necessarily indicative of future market movements. Statements regarding the future prospects for particular securities held in the Funds’ portfolios and Royce’s investment intentions with respect to those securities reflect Royce’s opinions as of June 30, 2003 and are subject to change at any time without notice. There can be no assurance that securities mentioned in this report will be included in any Royce-managed portfolio in the future.
     Standard deviation is a statistical measure within which a fund’s total returns have varied over time. The greater the standard deviation, the greater a fund’s volatility.
     The Russell 2000, Russell 2000 Value, Russell 2000 Growth, Nasdaq Composite, and S&P 500 are unmanaged indices of domestic common stocks. CRSP (Center for Research in Security Pricing) divides the U.S. equity market into 10 deciles. Deciles 1-5 represent the largest domestic equity companies and deciles 6-10 represent the smallest. By way of comparison, the CRSP 1-5 would have similar capitalization parameters to the S&P 500 and the CRSP 6-10 would approximately match those of the Russell 2000. Returns for the market indices used in this report were based on information supplied to Royce by Frank Russell, CRSP and Morningstar. Royce has not independently verified the above described information. The Royce Funds is a service mark of The Royce Funds.

FORWARD-LOOKING STATEMENTS

     This material contains forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve risks and uncertainties, including, among others, statements as to:
  • the Funds’ future operating results,
  • the prospects of the Funds’ portfolio companies,
  • the impact of investments that the Funds have made or may make,
  • the dependence of the Funds’ future success on the general economy and its impact on the companies and industries in which the Funds invest, and
  • the ability of the Funds’ portfolio companies to achieve their objectives.
     This report uses words such as “anticipates,” “believes,” “expects,” “future,” “intends,” and similar expressions to identify forward-looking statements. Actual results may differ materially from those projected in the forward-looking statements for any reason.
     The Royce Funds have based the forward-looking statements included in this report on information available to us on the date of the report, and we assume no obligation to update any such forward-looking statements. Although The Royce Funds undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make through future stockholder communications or reports.

 

20 |   THE ROYCE FUNDS SEMIANNUAL REPORT 2003







ROYCE VALUE TRUST, INC.


SCHEDULES OF INVESTMENTS

JUNE 30, 2003 (UNAUDITED)

   
COMMON STOCKS – 91.2%                        
    SHARES     VALUE       SHARES      VALUE
   
   
     
   
Consumer Products – 7.0%
           
Shuffle Master a,d
  5,000   $ 146,950
Apparel and Shoes - 2.5%
           
TiVo a
  17,000     209,950
Jones Apparel Group a
  81,500   $ 2,384,690          
K-Swiss Cl. A
  119,000     4,107,880             4,163,495
Nautica Enterprises a
  83,700     1,073,871          
Oshkosh B’Gosh Cl. A
  104,300     2,816,100  
Restaurants/Lodgings - 1.4%
         
Polo Ralph Lauren Cl. A
  150,000     3,868,500  
Benihana Cl. A a,d
  57,500     759,000
Timberland Company Cl. A a
  10,000     528,600  
CEC Entertainment a
  30,000     1,107,900
Weyco Group
  112,664     5,183,671  
Four Seasons Hotels d
  80,000     3,460,800
Wolverine World Wide
  94,400     1,818,144  
IHOP Corporation d
  161,700     5,104,869
       
 
Jack in the Box a
  10,000     223,000
          21,781,456  
Prime Hospitality a,d
  106,100     711,931
       
 
Ryan’s Family Steak Houses a,d
  48,900     684,600
Collectibles - 0.2%
                   
The Boyds Collection a
  234,200     1,103,082             12,052,100
Enesco Group a
  117,200     867,280          
       
 
Retail Stores - 2.3%
         
          1,970,362  
Big Lots a
  307,200     4,620,288
       
 
Charming Shoppes a,d
  803,400     3,992,898
Food/Beverage/Tobacco - 0.6%
           
Claire’s Stores
  127,700     3,238,472
800 JR Cigar a,e
  172,400     2,241,200  
Payless ShoeSource a
  289,600     3,620,000
Hain Celestial Group a
  37,800     604,422  
Stein Mart a
  192,800     1,154,872
Hershey Creamery
  709     1,772,500  
Urban Outfitters a,d
  83,800     3,008,420
Lancaster Colony
  16,900     653,354          
       
            19,634,950
          5,271,476          
       
 
Other Consumer Services - 0.9%
         
Home Furnishing/Appliances - 1.1%
           
ITT Educational Services a
  120,000     3,510,000
Bassett Furniture Industries
  116,675     1,549,444  
Sotheby’s Holdings Cl. A a,d
  540,200     4,019,088
Falcon Products a,c
  782,600     3,310,398  
Strayer Education
  10,000     794,500
La-Z-Boy d
  68,200     1,526,316          
Lifetime Hoan d
  295,327     2,250,392             8,323,588
Natuzzi ADR b
  62,200     498,844          
       
 
Total (Cost $42,102,506)
        44,174,133
          9,135,394          
       
 
Financial Intermediaries – 9.3%
         
Publishing - 0.5%             Banking - 2.3%          
Martha Stewart Living Omnimedia Cl. A a,d
  6,000     56,340  
BOK Financial a
  125,561     4,842,888
Scholastic Corporation a
  130,000     3,871,400  
Farmers & Merchants Bank of Long Beach
  1,266     4,665,210
       
 
First National Bank Alaska
  2,130     3,197,130
          3,927,740  
Mechanics Bank
  200     3,500,000
       
 
Mercantile Bankshares
  20,000     787,600
Sports and Recreation - 0.7%
           
NetBank
  70,000     921,200
Callaway Golf
  35,000     462,700  
Oriental Financial Group
  79,750     2,048,777
Coachmen Industries
  67,700     809,015          
Fleetwood Enterprises a,d
  234,300     1,733,820             19,962,805
Monaco Coach a
  141,050     2,162,296          
Thor Industries
  22,100     902,122  
Insurance - 6.3%
         
       
 
Argonaut Group a
  187,000     2,305,710
          6,069,953  
Erie Indemnity Company Cl. A
  169,900     7,008,375
       
 
Everest Re Group
  12,600     963,900
Other Consumer Products - 1.4%
           
Fidelity National Financial
  12,843     395,051
Blyth
  54,700     1,487,840  
First American
  31,700     835,295
Burnham Corporation Cl. B
  18,000     859,500  
Leucadia National
  51,500     1,911,680
Fossil a
  15,000     353,400  
Markel Corporation a
  4,200     1,075,200
Lazare Kaplan International a
  103,600     600,880  
Montpelier Re Holdings a
  53,000     1,674,800
Matthews International Cl. A
  196,000     4,852,960  
NYMAGIC
  85,200     1,726,152
Oakley a
  243,100     2,861,287  
Navigators Group a
  83,200     2,481,024
Scotts (The) Cl. A a
  20,000     990,000  
PICO Holdings a
  154,300     2,005,900
       
 
PMA Capital Cl. A d
  231,700     2,912,469
          12,005,867  
PXRE Group
  176,551     3,495,710
       
 
Philadelphia Consolidated Holding a
  35,000     1,414,000
Total (Cost $42,721,425)
        60,162,248  
The Phoenix Companies d
  81,900     739,557
       
 
ProAssurance Corporation a
  202,070     5,453,869
Consumer Services – 5.1%
           
RLI
  118,724     3,906,020
Leisure/Entertainment - 0.5%
           
Reinsurance Group of America d
  30,000     963,000
Ascent Media Group Cl. A a,d
  380,900     472,316  
Trenwick Group a,d
  212,260     65,801
Corus Entertainment Cl. B a,d
  22,000     370,920  
Wesco Financial
  9,850     3,073,200
Gemstar-TV Guide International a
  215,100     1,094,859              
Hasbro
  50,000     874,500              
Magna Entertainment Cl. A a
  198,800     994,000              

THE ROYCE FUNDS SEMIANNUAL REPORT 2003 |   21
 
 





ROYCE VALUE TRUST, INC.


SCHEDULE OF INVESTMENTS

JUNE 30, 2003 (UNAUDITED)

   
    SHARES      VALUE       SHARES      VALUE
   
   
     
   
Financial Intermediaries (continued)
       
Affymetrix a,d
  96,600   $ 1,903,986
Insurance (continued)
           
Antigenics a,d
  38,500     443,520
White Mountains Insurance Group d
  16,900   $ 6,675,500  
Applera Corporation - Celera
         
Zenith National Insurance d
  106,900     3,046,650  
Genomics Group a
  199,200     2,055,744
       
 
Biopure Corporation Cl. A a,d
  43,200     263,952
          54,128,863  
BioSource International a
  1,600     11,040
       
 
Celgene Corporation a
  40,000     1,216,000
Securities Brokers - 0.6%
           
Cephalon a
  4,900     201,684
E*TRADE Group a
  575,000     4,887,500  
Cerus Corporation a
  21,700     163,401
Knight Trading Group a
  115,000     715,300  
Chiron Corporation a
  21,800     953,096
       
 
DUSA Pharmaceuticals a
  79,700     200,047
          5,602,800  
Endo Pharmaceuticals Holdings a
  120,000     2,030,400
       
 
Genzyme Corporation - General Division a
  28,000     1,170,400
Other Financial Intermediaries - 0.1%
           
Human Genome Sciences a
  90,000     1,144,800
Chicago Mercantile Exchange d
  10,000     696,300  
IDEC Pharmaceuticals a,d
  28,100     955,400
       
 
Invitrogen Corporation a
  40,000     1,534,800
Total (Cost $50,876,045)
        80,390,768  
Lexicon Genetics a
  256,200     1,719,102
       
 
Millennium Pharmaceuticals a
  50,000     786,500
Financial Services – 6.2%
           
Perrigo Company
  169,900     2,657,236
Information and Processing - 2.1%
           
Shire Pharmaceuticals Group ADR a,b
  20,853     410,804
BARRA a
  42,200     1,506,540          
eFunds Corporation a
  167,675     1,933,293             20,220,532
FactSet Research Systems d
  140,000     6,167,000          
Fair Isaac
  5,190     267,025  
Health Services - 1.3%
         
Global Payments
  61,500     2,183,250  
Accredo Health a
  8,705     189,769
Moody’s Corporation
  50,000     2,635,500  
Albany Molecular Research a
  65,000     981,500
National Processing a,d
  20,000     321,600  
First Consulting Group a
  315,900     1,475,253
SEI Investments
  93,200     2,982,400  
Gene Logic a,d
  138,100     824,457
       
 
Gentiva Health Services a
  30,150     271,350
          17,996,608  
Health Management Associates Cl. A
27,400     505,530
       
 
IMPATH a,d
  93,000     1,315,020
Insurance Brokers - 1.0%
           
Lincare Holdings a
  24,600     775,146
Brown & Brown
  20,000     650,000  
Manor Care a
  58,300     1,458,083
Crawford & Co. Cl. A
  297,350     1,442,147  
MedQuist a
  73,893     1,495,594
Crawford & Co. Cl. B
  75,300     369,723  
On Assignment a
  293,200     1,172,800
Gallagher (Arthur J.) & Company
  106,200     2,888,640  
Quovadx a
  168,400     503,516
Hilb, Rogal & Hamilton
  105,550     3,592,922          
       
            10,968,018
          8,943,432          
       
 
Personal Care - 0.6%
         
Investment Management - 2.7%
           
Ocular Sciences a,d
  177,500     3,523,375
Affiliated Managers Group a,d
  60,000     3,657,000  
Regis
  57,200     1,661,660
Alliance Capital Management Holding L.P.
  139,000     5,073,500          
BKF Capital Group a
  94,000     2,052,020             5,185,035
BlackRock Cl. A a,d
  35,000     1,576,400          
Eaton Vance
  80,200     2,534,320  
Surgical Products and Devices - 2.4%
         
Federated Investors Cl. B
  35,000     959,700  
Allied Healthcare Products a
  60,000     214,200
Neuberger Berman d
  105,000     4,190,550  
Arrow International
  151,100     6,671,065
Nuveen Investments Cl. A
  119,200     3,247,008  
CONMED Corporation a
  38,500     703,010
       
 
Datascope
  34,000     1,009,460
          23,290,498  
Diagnostic Products
  25,000     1,026,250
       
 
Haemonetics a
  92,900     1,737,230
Other Financial Services - 0.4%
           
Invacare
  100,000     3,300,000
PRG-Schultz International a,d
  284,200     1,676,780  
Novoste a
  66,500     399,000
Van der Moolen Holding ADR b
  119,000     1,642,200  
STERIS a
  48,600     1,122,174
       
 
Varian Medical Systems a
  60,800     3,500,256
          3,318,980  
Zoll Medical a
  20,200     677,912
       
         
Total (Cost $37,351,067)
        53,549,518             20,360,557
       
         
Health – 8.2%
            Total (Cost $60,623,736)         70,104,985
Commercial Services - 1.6%
                   
IDEXX Laboratories a
  104,100     3,506,088  
Industrial Products – 13.4%
         
PAREXEL International a,d
  277,700     3,873,915  
Building Systems and Components - 1.1%
     
Pharmaceutical Product Development a
  10,000     287,300  
Decker Manufacturing
  6,022     198,726
Quintiles Transnational a
  130,300     1,848,957  
Preformed Line Products Company
  131,600     1,928,598
Sybron Dental Specialties a,d
  21,000     495,600  
Simpson Manufacturing a,d
  190,400     6,968,640
The TriZetto Group a
  190,200     1,148,808          
Young Innovations a
  77,550     2,210,175             9,095,964
       
         
          13,370,843              
       
             
Drugs and Biotech - 2.3%
                       
Abgenix a,d
  38,000     398,620              

22 |   THE ROYCE FUNDS SEMIANNUAL REPORT 2003
 
 





ROYCE VALUE TRUST, INC.


SCHEDULE OF INVESTMENTS

JUNE 30, 2003 (UNAUDITED)

   
    SHARES      VALUE       SHARES      VALUE
   
   
     
   
Industrial Products (continued)
           
Diebold
  100,000   $ 4,325,000
Construction Materials - 1.8%
           
IMPCO Technologies a
  15,500     95,480
Ash Grove Cement Company Cl. B
50,518   $ 5,961,124  
Kimball International Cl. B
  334,880     5,224,128
ElkCorp
  25,000     562,500  
Maxwell Technologies a,d
  21,500     123,840
Florida Rock Industries
  153,800     6,348,864  
Myers Industries
  52,727     500,907
Oregon Steel Mills a
  247,900     718,910  
Peerless Mfg. a,c
  158,600     1,752,530
Synalloy Corporation a,c
  345,000     1,873,350  
Quantum Fuel Systems Technologies
       
       
 
Worldwide a,d
  15,500     34,565
          15,464,748  
Steelcase Cl. A d
  82,500     970,200
       
 
Trinity Industries d
  20,000     370,200
Industrial Components - 1.8%
                   
Bel Fuse Cl. A
  53,200     1,090,600             21,421,802
Belden d
  95,800     1,522,262          
C & D Technologies
  50,000     718,000  
Total (Cost $83,669,214)
        115,236,150
Donaldson Company
  26,000     1,155,700          
Kaydon Corporation
  171,200     3,560,960  
Industrial Services – 13.4%
         
Penn Engineering & Manufacturing
  251,600     3,434,340  
Advertising/Publishing - 0.7%
         
Penn Engineering & Manufacturing Cl. A
  77,600     942,064  
Catalina Marketing a,d
  60,000     1,059,000
PerkinElmer
  135,000     1,864,350  
Cordiant Communications Group ADR a,b
  100,000     28,000
Powell Industries a
  57,400     840,336  
Grey Global Group
  3,817     2,948,671
Woodhead Industries
  45,400     568,408  
Interpublic Group of Companies a
  155,000     2,073,900
       
         
          15,697,020             6,109,571
       
         
Machinery - 3.5%
           
Commercial Services - 5.0%
         
Cognex Corporation a
  163,400     3,651,990  
ABM Industries d
  119,200     1,835,680
Coherent a
  233,700     5,534,016  
Allied Waste Industries a
  569,800     5,726,490
Federal Signal d
  58,600     1,029,602  
Carlisle Holdings a
  204,900     676,170
Graco
  26,550     849,600  
Central Parking d
  171,400     2,118,504
Lincoln Electric Holdings
  237,880     4,855,131  
Convergys Corporation a
  156,000     2,496,000
National Instruments a,d
  41,100     1,552,758  
Core Laboratories a
  125,200     1,352,160
Nordson Corporation
  172,200     4,106,970  
Cornell Companies a
  124,400     1,883,416
Oshkosh Truck
  13,000     771,160  
Covance a
  132,700     2,401,870
PAXAR Corporation a
  370,100     4,071,100  
Hewitt Associates Cl. A a
  40,000     942,000
Woodward Governor
  83,600     3,594,800  
Hudson Highland Group a,d
  11,174     212,418
       
 
iGATE Corporation a
  144,500     501,415
          30,017,127  
Iron Mountain a
  127,450     4,727,120
       
 
Korn/Ferry International a
  189,400     1,534,140
Paper and Packaging - 0.4%
           
Learning Tree International a,d
  53,400     834,642
Peak International a
  408,400     1,816,972  
MPS Group a
  539,300     3,710,384
Sealed Air a
  34,000     1,620,440  
Manpower
  55,800     2,069,622
       
 
Metro One Telecommunications a,d
  25,000     129,000
          3,437,412  
Monster Worldwide a
  149,000     2,939,770
       
 
New Horizons Worldwide a
  136,500     584,220
Pumps, Valves and Bearings - 0.7%
           
RemedyTemp Cl. A a,d
  78,500     724,555
Baldor Electric
  62,900     1,295,740  
Renaissance Learning a,d
  10,000     219,000
ConBraCo Industries
  7,630     587,510  
Spherion Corporation a
  109,000     757,550
Denison International ADR a,b
  79,400     1,528,450  
TRC Companies a,d
  53,000     782,280
Franklin Electric
  23,600     1,313,340  
United Stationers a
  23,000     831,910
NN
  127,100     1,609,086  
Wackenhut Corrections a
  21,100     289,281
       
 
Watson Wyatt & Company Holdings Cl. A a
  45,000     1,043,100
          6,334,126  
West Corporation a
  75,000     1,998,750
       
         
Specialty Chemicals and Materials - 1.2%
                  43,321,447
Arch Chemicals
  38,200     729,620          
CFC International a
  123,500     666,900  
Engineering and Construction - 0.5%
         
Commercial Metals
  5,000     88,950  
EMCOR Group a
  15,000     740,400
Hawkins
  301,278     3,018,806  
Jacobs Engineering Group a
  20,000     843,000
MacDermid
  211,631     5,565,895  
McDermott International a
  71,000     449,430
       
 
Washington Group International a
  100,000     2,196,000
          10,070,171          
       
            4,228,830
Textiles - 0.4%
                   
Fab Industries a
  209,800     1,930,160  
Food/Tobacco Processors - 0.9%
         
Unifi a
  285,100     1,767,620  
Farmer Bros.
  15,000     5,089,350
       
 
MGP Ingredients
  321,200     2,805,682
          3,697,780          
       
            7,895,032
Other Industrial Products - 2.5%
                   
BHA Group Holdings
  187,252     3,709,462              
Brady Corporation Cl. A
  129,400     4,315,490              

THE ROYCE FUNDS SEMIANNUAL REPORT 2003 |   23
 
 





ROYCE VALUE TRUST, INC.


SCHEDULE OF INVESTMENTS

JUNE 30, 2003 (UNAUDITED)

   
    SHARES      VALUE       SHARES      VALUE
   
   
     
   
Industrial Services (continued)
           
Veritas DGC a
  123,000   $ 1,414,500
Industrial Distribution - 1.1%
           
Vintage Petroleum
  48,300     544,824
Central Steel & Wire
  3,699   $ 1,387,125          
Ritchie Bros. Auctioneers a
  155,200     5,976,752             17,356,686
Strategic Distribution a
  115,000     1,870,015          
       
 
Precious Metals and Mining - 0.7%
         
          9,233,892  
AngloGold ADR b,d
  111,900     3,569,610
       
 
Glamis Gold a
  115,000     1,319,050
Printing - 1.5%
           
Gold Fields ADR b
  57,800     704,004
Bowne & Co.
  383,100     4,991,793  
MK Gold a
  517,900     393,604
Ennis Business Forms
  62,700     912,285  
Stillwater Mining a
  60,000     308,400
Moore Wallace a
  90,700     1,331,476          
New England Business Service
  178,300     5,349,000             6,294,668
       
         
          12,584,554  
Real Estate - 1.2%
         
       
 
Alico
  52,000     1,283,880
Transportation and Logistics - 3.1%
           
Chelsea Property Group
  55,000     2,217,050
Airborne
  100,000     2,090,000  
Consolidated-Tomoka Land
  13,564     340,728
AirNet Systems a
  219,000     886,950  
Public Storage
  45,000     1,524,150
Atlas Air Worldwide Holdings a,d
  210,000     308,700  
Trammell Crow Company a
  432,400     4,587,764
Brink’s Company (The)
  137,278     2,000,140          
C. H. Robinson Worldwide
  40,000     1,422,400             9,953,572
CNF
  62,600     1,588,788          
Continental Airlines Cl. B a,d
  150,000     2,245,500  
Total (Cost $41,719,336)
        56,991,877
EGL a,d
  198,525     3,017,580          
Forward Air a,d
  148,000     3,754,760  
Technology – 20.2%
         
Frozen Food Express Industries a
  306,635     968,967  
Aerospace/Defense - 0.9%
         
Hub Group Cl. A a
  77,000     676,060  
Curtiss-Wright d
  58,300     3,684,560
Landstar System a
  33,800     2,124,330  
Ducommun a
  117,200     1,652,520
Patriot Transportation Holding a
  136,300     3,842,297  
Herley Industries a
  32,000     543,360
UTI Worldwide
  45,000     1,403,550  
Integral Systems a
  74,800     1,487,024
       
         
          26,330,022             7,367,464
       
         
Other Industrial Services - 0.6%
           
Components and Systems - 5.4%
         
Landauer
  117,900     4,931,757  
Adaptec a,d
  99,500     774,110
Republic Services a
  18,600     421,662  
Advanced Digital Information a
  79,000     789,210
       
 
American Power Conversion
  231,200     3,604,408
          5,353,419  
Analogic Corporation
  5,000     243,800
       
 
Catapult Communications a
  75,100     797,562
Total (Cost $90,768,813)
        115,056,767  
Dionex Corporation a
  89,000     3,537,750
       
 
Excel Technology a
  168,500     3,846,855
Natural Resources – 6.6%
           
Imation Corporation
  35,700     1,350,174
Energy Services - 2.7%
           
InFocus Corporation a
  79,000     372,880
Carbo Ceramics d
  105,600     3,933,600  
KEMET Corporation a,d
  135,000     1,363,500
ENSCO International
  6,443     173,317  
Kronos a
  35,850     1,821,538
Global Industries a
  119,500     575,990  
Methode Electronics Cl. A
  50,000     537,500
Hanover Compressor Company a
  175,000     1,977,500  
Newport Corporation a,d
  102,600     1,518,480
Helmerich & Payne
  98,400     2,873,280  
Pemstar a,d
  220,000     921,800
Input/Output a
  540,100     2,905,738  
Perceptron a
  397,400     2,384,400
Precision Drilling a
  37,500     1,416,000  
Radiant Systems a
  47,500     320,150
TETRA Technologies a
  49,000     1,452,850  
Rainbow Technologies a
  116,900     983,129
Tidewater
  21,600     634,392  
REMEC a,d
  214,200     1,490,832
Universal Compression Holdings a
  115,000     2,398,900  
Scitex a
  245,700     624,078
Willbros Group a
  485,600     5,045,384  
Storage Technology a
  90,000     2,316,600
       
 
Symbol Technologies
  304,900     3,966,749
          23,386,951  
TTM Technologies a
  280,500     1,315,545
       
 
Technitrol a
  285,900     4,302,795
Oil and Gas - 2.0%
           
Tektronix a
  65,000     1,404,000
Tom Brown a
  76,000     2,112,040  
Vishay Intertechnology a
  83,900     1,107,480
Chesapeake Energy d
  73,000     737,300  
Zebra Technologies Cl. A a
  62,500     4,699,375
Cimarex Energy a
  138,170     3,281,537          
Denbury Resources a
  352,600     4,735,418             46,394,700
EOG Resources
  5,000     209,200          
EnCana Corporation
  21,638     830,250  
Distribution - 2.5%
         
Husky Energy
  85,000     1,097,179  
Anixter International a,d
  41,900     981,717
PetroCorp a
  154,900     1,727,135  
Arrow Electronics a
  316,100     4,817,364
Prima Energy a
  17,500     365,400  
Avnet a,d
  405,355     5,139,901
Toreador Resources a
  100,300     301,903  
Benchmark Electronics a
  45,400     1,396,504
                         

24 |   THE ROYCE FUNDS SEMIANNUAL REPORT 2003
 
 





ROYCE VALUE TRUST, INC.


SCHEDULE OF INVESTMENTS

JUNE 30, 2003 (UNAUDITED)

   
    SHARES      VALUE       SHARES      VALUE
   
   
     
   
Technology (continued)
           
ParthusCeva a
  31,666   $ 258,078
Distribution (continued)
           
Semitool a
  50,000     246,500
Brightpoint a
  11,286   $ 138,818  
Veeco Instruments a,d
  65,000     1,106,950
Insight Enterprises a
  71,500     719,290          
Plexus a
  274,600     3,166,138             24,937,850
Tech Data a
  200,500     5,355,355          
       
 
Software - 1.9%
         
          21,715,087  
Adobe Systems
  30,000     962,100
       
 
ANSYS a
  45,500     1,415,050
Internet Software and Services - 0.8%
           
Aspen Technology a,d
  27,100     130,080
CNET Networks a
  265,400     1,653,442  
Autodesk
  251,000     4,056,160
CryptoLogic a
  202,000     1,510,960  
Business Objects ADR a,b,d
  25,500     559,725
CyberSource Corporation a
  10,000     27,400  
JDA Software Group a
  149,900     1,677,381
DoubleClick a
  166,700     1,541,975  
MRO Software a
  46,000     396,980
EarthLink a
  122,700     968,103  
MSC.Software a,d
  42,600     287,124
Overture Services a,d
  5,000     90,650  
Macromedia a
  61,600     1,296,064
RealNetworks a
  85,400     579,012  
Manugistics Group a,d
  49,200     202,212
Satyam Computer Services ADR b,d
  20,000     198,600  
Novell a
  146,000     449,680
Stamps.com a
  80,300     385,440  
Phoenix Technologies a,d
  40,900     231,085
Vastera a
  15,000     89,550  
Progress Software a
  50,500     1,046,865
       
 
SPSS a
  107,500     1,799,550
          7,045,132  
Transaction Systems Architects Cl. A a
  237,300     2,126,208
       
         
IT Services - 4.3%
                      16,636,264
American Management Systems a
  331,900     4,739,532          
Answerthink a
  655,000     1,264,150  
Telecommunication - 1.5%
         
BearingPoint a
  486,000     4,689,900  
ADC Telecommunications a
  113,000     263,064
CIBER a
  70,000     491,400  
ADTRAN a
  40,000     2,040,800
Covansys Corporation a
  251,600     772,412  
Allegiance Telecom a,d
  2,016,700     110,918
DiamondCluster International Cl. A a
  288,900     1,071,819  
Anaren a,d
  30,000     281,100
Forrester Research a
  91,500     1,496,940  
Andrew Corporation a
  30,000     276,000
Gartner Cl. A a
  166,000     1,258,280  
Arris Group a,d
  70,000     347,200
CGI Group Cl. A a
  106,700     642,334  
Comverse Technology a
  30,000     450,900
Keanea
  497,000     6,774,110  
Globecomm Systems a
  233,700     766,536
MAXIMUS a,d
  113,000     3,122,190  
IDT Corporation a,d
  25,000     447,500
Perot Systems Cl. A a
  165,100     1,875,536  
IDT Corporation Cl. B a
  40,000     704,000
QRS Corporation a
  57,500     304,750  
Inet Technologies a
  65,000     648,050
Sapient Corporation a
  1,124,400     3,114,588  
Level 3 Communications a,d
  408,400     2,711,776
Syntel a
  72,400     1,138,852  
Liberty Satellite & Technology Cl. A a,d
  196,530     510,978
Unisys Corporation a
  325,000     3,991,000  
PECO II a
  93,600     58,781
       
 
Plantronics a
  55,100     1,194,017
          36,747,793  
Polycom a,d
  37,000     512,820
       
 
Sycamore Networks a
  38,000     145,540
Semiconductors and Equipment - 2.9%
       
Time Warner Telecom Cl. A a
  204,000     1,299,480
Artisan Components a
  15,000     339,150          
BE Semiconductor Industries a
  58,000     310,300             12,769,460
Credence Systems a
  10,600     89,782          
Cymer a,d
  14,500     464,145  
Total (Cost $167,662,238)
        173,613,750
DSP Group a
  115,000     2,475,950          
DuPont Photomasks a
  35,000     659,050  
Utilities – 0.1%
         
Electroglas a,d
  281,700     369,027  
Southern Union a
  10,000     169,400
Exar Corporation a
  92,300     1,461,109          
Fairchild Semiconductor Cl. A a
  183,000     2,340,570  
Total (Cost $132,500)
        169,400
GlobespanVirata a
  85,000     701,250          
Helix Technology d
  51,900     686,637  
Miscellaneous – 1.7%
         
Integrated Circuit Systems a,d
  135,000     4,243,050  
Total (Cost $11,930,854)
        14,181,950
Intevac a,d
  216,650     1,455,888          
Kulicke & Soffa Industries a
  105,800     676,062  
TOTAL COMMON STOCKS
         
Lattice Semiconductor a
  264,000     2,172,720  
(Cost $629,557,734)
        783,631,546
Mentor Graphics a,d
  225,700     3,268,136          
National Semiconductor a
  43,200     851,904  
PREFERRED STOCKS – 0.1%
         
Novellus Systems a
  12,000     439,452  
Aristotle Corporation 11.00% Conv.
  4,800     33,888
NVIDIA Corporation a
  14,000     322,140  
SVB Capital I 8.25%
  20,000     499,980
                     
             
TOTAL PREFERRED STOCKS
         
             
(Cost $531,005)
        533,868
                     

THE ROYCE FUNDS SEMIANNUAL REPORT 2003 |   25
 
 





ROYCE VALUE TRUST, INC.


SCHEDULE OF INVESTMENTS

JUNE 30, 2003 (UNAUDITED)

   
       PRINCIPAL AMOUNT      VALUE          VALUE  
     
   
       
 
CORPORATE BONDS – 0.2%
             
REPURCHASE AGREEMENT – 5.4%
       
Dixie Group 7.00%
             
State Street Bank & Trust Company, 0.30% dated 6/30/03, due 7/1/03, maturity value $46,399,387 (collateralized by U.S. Treasury Notes, 1.75% due 12/31/04, valued at $47,329,137)
       
Conv. Sub. Deb. due 5/15/12
  $ 537,000   $ 322,200          
Richardson Electronics 7.25%
                     
Conv. Sub. Deb. due 12/15/06
    1,319,000     1,081,580          
         
 
(Cost $46,399,000)
  $ 46,399,000  
TOTAL CORPORATE BONDS
                 
 
(Cost $1,544,984)
          1,403,780  
TOTAL INVESTMENTS – 100.1%
       
         
 
(Cost $705,485,847)
    859,617,619  
U.S. TREASURY OBLIGATIONS – 3.2%
                 
U.S. Treasury Notes
             
LIABILITIES LESS CASH
       
5.625%, due 2/15/06
    25,000,000     27,649,425  
AND OTHER ASSETS – (0.1)%
    (396,423 )
         
     
 
TOTAL U.S. TREASURY OBLIGATIONS
       
NET ASSETS – 100.0%
  $ 859,221,196  
(Cost $27,453,124)
          27,649,425      
 
         
           


a Non-income producing.
b American Depository Receipt.
c At June 30, 2003, the Fund owned 5% or more of the Company’s outstanding voting securities thereby making the Company an Affiliated Company as that term is defined in the Investment Company Act of 1940.
d A portion of these securities were on loan at June 30, 2003. Total market value of loaned securities at June 30, 2003 was $33,925,944.
e A security for which market quotations are no longer readily available represents 0.3% of net assets. This security has been valued at its fair value under procedures established by the Fund’s Board of Directors.
New additions in 2003.
  Bold indicates the Fund’s largest 20 equity holdings in terms of June 30, 2003 market value.
 
INCOME TAX INFORMATION: The cost of total investments for Federal income tax purposes was $709,157,702. At June 30, 2003, net unrealized appreciation for all securities was $150,459,917, consisting of aggregate gross unrealized appreciation of $228,856,672 and aggregate gross unrealized depreciation of $78,396,755. 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.
 

26 |   THE ROYCE FUNDS SEMIANNUAL REPORT 2003
 
 





ROYCE VALUE TRUST, INC.


STATEMENT OF ASSETS AND LIABILITIES

JUNE 30, 2003 (UNAUDITED)  

ASSETS:
     
Investments at value (identified cost $659,086,847)
$ 813,218,619  
Repurchase agreement (at cost and value)
  46,399,000  
Cash
  126  
Collateral from brokers on securities loaned
  36,246,784  
Receivable for investments sold
  612,103  
Receivable for dividends and interest
  929,747  

 
Total Assets
  897,406,379  

 
LIABILITIES:
     
Payable for collateral on securities loaned
  36,246,784  
Payable for investments purchased
  637,532  
Payable for investment advisory fee
  809,646  
Preferred dividends accrued but not yet declared
  266,225  
Accrued expenses
  224,996  

 
Total Liabilities
  38,185,183  

 
Net Assets
$ 859,221,196  

 
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; 48,820,755 shares outstanding (150,000,000 shares authorized)
  48,821  
Additional paid-in capital
  566,557,501  
Accumulated net investment loss
  (895,291 )
Accumulated net realized gain on investments
  15,009,715  
Net unrealized appreciation on investments
  154,131,809  
Quarterly and accrued distributions
  (35,631,359 )

 
Net Assets applicable to Common Stock (net asset value per share – $14.32)
  699,221,196  

 
Net Assets
$ 859,221,196  

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

THE ROYCE FUNDS SEMIANNUAL REPORT 2003 |   27
 
 





ROYCE VALUE TRUST, INC.


STATEMENT OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2003 (UNAUDITED)  

INVESTMENT INCOME:
     
Income:
     
Dividends
$ 2,629,376  
Interest
  851,553  

 
Total income
  3,480,929  

 
Expenses:
     
Investment advisory fees
  4,482,527  
Stockholder reports
  176,214  
Custody and transfer agent fees
  104,025  
Administrative and office facilities expenses
  58,433  
Directors’ fees
  55,391  
Professional fees
  46,220  
Other expenses
  70,077  

 
Total expenses
  4,992,887  
Fees waived by investment advisor
  (616,667 )

 
Net expenses
  4,376,220  

 
Net investment income (loss)
  (895,291 )

 
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
     
Net realized gain on investments
  18,822,862  
Net change in unrealized appreciation on investments
  84,176,771  

 
Net realized and unrealized gain on investments
  102,999,633  

 
NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS
$ 102,104,342  

 

STATEMENTS OF CHANGES IN NET ASSETS

  Six months ended
June 30, 2003
(unaudited)
  Year ended
December 31,
2002
 
 
 
 
INVESTMENT OPERATIONS:
             
Net investment loss
$ (895,291 )   $ (583,347 )
Net realized gain on investments
  18,822,862       62,933,497  
Net change in unrealized appreciation on investments
  84,176,771       (156,381,089 )

 
Net increase (decrease) in net assets from investment operations
  102,104,342       (94,030,939 )

 
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
             
Net investment income
  –           (581,030 )
Net realized gain on investments
  –           (11,398,970 )
Quarterly distributions *
  (5,990,000 )     –      

 
Total distributions to Preferred Stockholders
  (5,990,000 )     (11,980,000 )

 
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
             
Net investment income
  –           (2,981,664 )
Net realized gain on investments
  –           (58,496,049 )
Quarterly distributions *
  (29,375,135 )     –      

 
Total distributions to Common Stockholders
  (29,375,135 )     (61,477,713 )

 
CAPITAL STOCK TRANSACTIONS:
             
Proceeds from rights offering
  54,505,909       –      
Reinvestment of distributions to Common Stockholders
  17,200,457       39,123,307  

 
Total capital stock transactions
  71,706,366       39,123,307  

 
NET INCREASE (DECREASE) IN NET ASSETS
  138,445,573       (128,365,345 )
NET ASSETS:
             
Beginning of period
  720,775,623       849,140,968  

 
End of period (including accumulated net investment loss of $895,291 in 2003)
$ 859,221,196     $ 720,775,623  

 
* To be allocated to net investment income and capital gains at year-end.
 
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

28 |   THE ROYCE FUNDS SEMIANNUAL REPORT 2003
 
 





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.
 
  Six months ended   Years ended December 31,
  June 30, 2003  
 
  (unaudited)     2002       2001       2000       1999       1998  

 
NET ASSET VALUE, BEGINNING OF PERIOD
  $13.22       $17.31       $16.56       $15.77       $15.72       $16.91  

 
INVESTMENT OPERATIONS:
                                             
Net investment income (loss)
  (0.02 )     (0.02 )     0.05       0.18       0.26       0.17  
Net realized and unrealized gain (loss) on investments
  1.97       (2.25 )     2.58       2.58       1.65       0.67  

 
Total investment operations
  1.95       (2.27 )     2.63       2.76       1.91       0.84  

 
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
                                             
Net investment income
  –          (0.01 )     (0.01 )     (0.03 )     (0.04 )     (0.03 )
Net realized gain on investments
  –          (0.28 )     (0.30 )     (0.30 )     (0.32 )     (0.26 )
Quarterly distributions *
  (0.13 )     –          –          –          –          –     

 
Total distributions to Preferred Stockholders
  (0.13 )     (0.29 )     (0.31 )     (0.33 )     (0.36 )     (0.29 )

 
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
                                             
Net investment income
  –          (0.07 )     (0.05 )     (0.13 )     (0.15 )     (0.16 )
Net realized gain on investments
  –          (1.44 )     (1.44 )     (1.35 )     (1.22 )     (1.38 )
Quarterly distributions *
  (0.65 )     –          –          –          –          –     

 
Total distributions to Common Stockholders
  (0.65 )     (1.51 )     (1.49 )     (1.48 )     (1.37 )     (1.54 )

 
CAPITAL STOCK TRANSACTIONS:
                                             
Effect of reinvestment of distributions by Common Stockholders
  (0.00 )     (0.02 )     (0.08 )     (0.16 )     (0.13 )     (0.09 )
Effect of rights offering or Preferred Stock offering
  (0.07 )     –          –          –          –          (0.11 )

 
Total capital stock transactions
  (0.07 )     (0.02 )     (0.08 )     (0.16 )     (0.13 )     (0.20 )

 
NET ASSET VALUE, END OF PERIOD
  $14.32       $13.22       $17.31       $16.56       $15.77       $15.72  

 
MARKET VALUE, END OF PERIOD
  $14.94       $13.25       $15.72       $14.438       $13.063       $13.75  

 
TOTAL RETURN (a):
                                             
Market Value
  18.4 %***     (6.9 )%     20.0 %     22.7 %     5.7 %     1.5 %
Net Asset Value
  13.8 %***     (15.6 )%     15.2 %     16.6 %     11.7 %     3.3 %
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:
                                             
Total expenses (b,c)
  1.47 %**     1.72 %     1.61 %     1.43 %     1.39 %     1.31 %
Management fee expense
  1.30 %**     1.56 %     1.45 %     1.25 %     1.18 %     1.10 %
Other operating expenses
  0.17 %**     0.16 %     0.16 %     0.18 %     0.21 %     0.21 %
Net investment income (loss)
  (0.30 )%**     (0.09 )%     0.35 %     1.18 %     1.47 %     1.11 %
SUPPLEMENTAL DATA:
                                             
Net Assets, End of Period (in thousands)
  $859,221       $720,776       $849,141       $783,262       $712,928       $676,963  
Portfolio Turnover Rate
  12 %     35 %     30 %     36 %     41 %     43 %
PREFERRED STOCK:
                                             
Total shares outstanding
  6,400,000       6,400,000       6,400,000       6,400,000       6,400,000       6,400,000  
Asset coverage per share
  $134.25       $112.62       $132.68       $122.38       $111.40       $105.78  
Liquidation preference per share
  $25.00       $25.00       $25.00       $25.00       $25.00       $25.00  
Average market value per share:
                                             
7.80% Cumulative (d)
  $26.09       $26.37       $25.70       $23.44       $24.98       $25.91  
7.30% Tax-Advantaged Cumulative (d)
  $25.60       $25.82       $25.37       $22.35       $24.24       $25.43  

 
(a)
The Market Value Total Return is calculated assuming a purchase of Common Stock on the opening of the first business day and a sale on the closing of the last business day of each period reported. Dividends and distributions, if any, are assumed for the purposes of this calculation to be reinvested at prices obtained under the Fund’s Distribution Reinvestment and Cash Purchase Plan. Net Asset Value Total Return is calculated on the same basis, except that the Fund’s net asset value is used on the purchase and sale dates instead of market value.
(b)
Expense ratios based on total average net assets were 1.16%, 1.38%, 1.30%, 1.12%, 1.06% and 1.06% for the periods ended June 30, 2003 and December 31, 2002, 2001, 2000, 1999 and 1998, respectively.
(c)
Expense ratios based on average net assets applicable to Common Stockholders before waiver of fees by the investment adviser would have been 1.67%, 1.82%, 1.65%, 1.51%, 1.48% and 1.34% for the periods ended June 30, 2003 and December 31, 2002, 2001, 2000, 1999 and 1998, respectively.
(d)
The average of month-end market values during the period.
 
  *
To be allocated to net investment income and capital gains at year-end.
 **
Annualized.
***
Not annualized.

THE ROYCE FUNDS SEMIANNUAL REPORT 2003 |   29
 
 





ROYCE VALUE TRUST, INC.


NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

 
Summary of Significant Accounting Policies:
 
      Royce Value Trust, Inc. (“the Fund”) was incorporated under the laws of the State of Maryland on July 1, 1986 as a diversified closed-end investment company. The Fund commenced operations on November 26, 1986.
      The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

Valuation of Investments:
      Securities are valued as of the close of trading on the New York Stock Exchange (generally 4:00 p.m. Eastern time) on the valuation date. Securities 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. 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:
      Investm ent 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 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 ar e 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. Secur ities pledged as collateral for repurchase agreements, which are held by SSB&T until maturity of the repurchase agreements, are marked-to-market daily and maintained at a value at least equal to the principal amount of the repurchase agreement (including accrued interest). Repurchase agreements could involve certain risks in the event of default or insolvency of SSB&T, including possible delays or restrictions upon the ability of the Fund to dispose of the underlying securities.

Securities Lending:
      The Fund loans securities to qualified institutional investors for the purpose of realizing additional income. This income is included in interest income. Collateral on all securities loaned for the Fund is accepted in cash and is invested temporarily, typically, and specifically at June 30, 2003, in a registered money market fund, by the custodian. The collateral is equal to at least 100% of the current market value of the loaned securities.

30 |   THE ROYCE FUNDS SEMIANNUAL REPORT
 
 





ROYCE VALUE TRUST, INC.


NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 
Capital Stock:
 
      The Fund currently has two issues of Preferred Stock outstanding: 7.80% Cumulative Preferred Stock and 7.30% Tax-Advantaged Cumulative Preferred Stock. Both issues of Preferred Stock have a liquidation preference of $25.00 per share.
      Under the Investment Company Act of 1940, the Fund is required to maintain an asset coverage of at least 200% for the Preferred Stock. In addition, pursuant to the Rating Agency Guidelines established by Moody’s, the Fund is required to maintain a certain discounted asset coverage. The Fund has met these requirements since issuing Preferred Stock.
      The Fund is required to allocate long-term capital gain distributions and other types of income proportionately to distributions made to holders of shares of Common Stock and Preferred Stock. To the extent that distributions are not p aid from long-term capital gains, net investment income or net short-term capital gains, they will represent a return of capital.
      The Fund issued 1,313,310 and 2,615,641 shares of Common Stock as reinvestment of distributions by Common Stockholders for the six months ended June 30, 2003 and the year ended December 31, 2002, respectively.
      During the quarter ended March 31, 2003, the Fund completed a rights offering of 5,090,083 shares to its stockholders at the rate of one share for each 10 rights held by the stockholders of record on January 28, 2003. These shares were priced at $10.77, which was $0.50 below the last reported sale price on the New York Stock Exchange on March 11, 2003. 34.5% of the offering was subscribed for through primary subscription. The remaining shares were purchased by those stockholders who subscribed with their primary rights and who also elected to purchase additional shares using over-subscription right s.

Investment Advisory Agreement:
 
      As compensation for its services under the Investment Advisory Agreement, Royce & Associates, LLC (“Royce”) receives a fee comprised of a Basic Fee (“Basic Fee”) and an adjustment to the Basic Fee based on the investment performance of the Fund in relation to the investment record of the S&P 600 SmallCap Index (“S&P 600”).
      The Basic Fee is a monthly fee equal to 1/12 of 1% (1% on an annualized basis) of the average of the month-end net assets of the Fund for the rolling 60-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 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 six months ended June 30, 2003, the Fund accrued and paid Royce advisory fees totaling $3,865,860, which is net of $616,667 voluntarily waived by Royce.

Purchases and Sales of Investment Securities:
 
      For the six months ended June 30, 2003, the cost of purchases and proceeds from sales of investment securities, other than short-term securities, amounted to $87,757,204 and $87,320,273, respectively.

Transactions in Shares of Affiliated Companies:
 
      An “Affiliated Company”, as defined in the Investment Company Act of 1940, is a company in which a Fund owns 5% or more of the company’s outstanding voting securities. The Fund effected the following transactions in shares of such companies during the six months ended June 30, 2003:

  Purchases   Sales        
 
 
       
Affiliated Company
Shares
    Cost
  Shares
    Cost
  Realized Gain (Loss)
  Dividend Income
                           
Falcon Products
405,600   $ 1,635,894          
McLeodUSA
             
Peerless Mfg.
             
Synalloy Corporation
345,000     1,797,450          


THE ROYCE FUNDS SEMIANNUAL REPORT 2003 |   31
 
 





ROYCE MICRO-CAP TRUST, INC.

 
SCHEDULE OF INVESTMENTS JUNE 30, 2003 (UNAUDITED)

 
COMMON STOCKS – 93.0%
                       
    SHARES     VALUE       SHARES     VALUE
   
   
     
   
Consumer Products – 9.0%
           
Retail Stores - 3.6%
         
Apparel and Shoes - 3.0%
           
Brookstone a
  23,000   $ 465,750
Ashworth a
  43,000   $ 304,870  
Buckle (The) a
  36,500     701,895
Delta Apparel
  146,500     2,380,625  
Cato Cl. A
  58,000     1,222,640
Kleinert’s a,d
  14,200     0  
Charming Shoppes a,c
  50,000     248,500
Marisa Christina a
  51,600     73,788  
Dress Barn (The) a
  53,660     679,872
Nautica Enterprises a
  107,600     1,380,508  
FTD Cl. A a,c
  10,000     201,800
Oshkosh B’Gosh Cl. A
  37,000     999,000  
Gadzooks a,c
  63,000     357,840
Weyco Group
  40,000     1,840,400  
InterTAN a
  49,800     408,360
       
 
La Senza Corporation
  99,900     722,124
          6,979,191  
Stein Mart a
  285,200     1,708,348
       
 
United Retail Group a
  60,600     119,382
Collectibles - 1.0%
           
Wet Seal (The) Cl. A a
  157,000     1,676,760
The Boyds Collection a,c
  227,700     1,072,467          
Enesco Group a
  52,400     387,760             8,513,271
Topps Company (The) a
  101,000     867,590          
       
 
Other Consumer Services - 0.4%
         
          2,327,817  
Ambassadors Group a
  7,500     104,775
       
 
Ambassadors International a
  6,100     73,261
Food/Beverage/Tobacco - 1.3%
           
E-LOAN a,c
  80,500     469,315
800 JR Cigar a,d
  193,000     2,509,000  
First Cash Financial Services a
  20,500     291,305
Green Mountain Coffee Roasters a,c
  15,000     285,000          
Monterey Pasta Company a,c
  69,000     341,550             938,656
       
         
          3,135,550  
Total (Cost $7,950,925)
        10,571,896
       
         
Home Furnishing/Appliances - 0.8%
           
Diversified Investment Companies – 0.2%
     
Bassett Furniture Industries
  26,300     349,264  
Closed-End Mutual Funds - 0.2%
         
Falcon Products a
  150,000     634,500  
Central Fund of Canada Cl. A c
  140,000     600,600
Lifetime Hoan c
  109,854     837,088          
Stanley Furniture Company
  2,500     68,525  
Total (Cost $554,082)
        600,600
       
         
          1,889,377  
Financial Intermediaries – 5.1%
         
       
 
Banking - 0.4%
         
Publishing - 0.3%
           
First Midwest Financial
  1,000     18,585
Information Holdings a
  40,000     730,000  
Queen City Investments a
  948     466,416
       
 
Sterling Bancorp
  14,520     404,963
Sports and Recreation - 0.8%
                   
Johnson Outdoors Cl. A a
  31,600     431,340             889,964
Monaco Coach a,c
  85,900     1,316,847          
National R.V. Holdings a
  31,800     164,724  
Insurance - 4.7%
         
       
 
Arch Capital Group a
  25,700     892,561
          1,912,911  
Argonaut Group a
  30,900     380,997
       
 
Ceres Group a
  50,300     144,864
Other Consumer Products - 1.8%
           
Independence Holding
  18,630     393,279
Concord Camera a
  30,000     212,700  
NYMAGIC
  67,900     1,375,654
Cross (A. T.) & Company Cl. A a
  100,000     594,000  
Navigators Group a
  47,200     1,407,504
JAKKS Pacific a
  35,000     465,150  
PICO Holdings a
  91,600     1,190,800
Lazare Kaplan International a
  151,700     879,860  
PMA Capital Cl. A
  80,000     1,005,600
Matthews International Cl. A
  76,000     1,881,760  
PXRE Group
  73,164     1,448,647
Pillowtex Corporation a
  20,000     4,400  
ProAssurance Corporation a
  57,500     1,551,925
Water Pik Technologies a,c
  41,500     322,455  
Wellington Underwriting a
  444,712     754,544
       
 
Zenith National Insurance c
  19,100     544,350
          4,360,325          
       
            11,090,725
Total (Cost $15,141,248)
        21,335,171          
       
 
Total (Cost $7,574,357)
        11,980,689
Consumer Services – 4.5%
                   
Direct Marketing - 0.1%
           
Financial Services – 1.6%
         
ValueVision Media Cl. A a
  5,000     68,150  
Information and Processing - 0.3%
         
       
 
Fidelity National Information Solutions a
  20,668     539,021
Leisure/Entertainment - 0.2%
           
InterCept a
  32,000     267,520
ACTV a
  55,000     53,900          
IMAX Corporation a,c
  25,000     225,000             806,541
TiVo a,c
  20,000     247,000          
       
 
Insurance Brokers - 0.4%
         
          525,900  
Clark a
  20,900     249,755
       
 
CorVel a
  18,750     675,000
Restaurants/Lodgings - 0.2%
                   
Angelo and Maxie’s a
  3,333     9,832             924,755
Benihana Cl. A a
  29,770     392,964          
IHOP Corporation c
  3,900     123,123              
       
             
          525,919              
       
             
                         
32 |   THE ROYCE FUNDS SEMIANNUAL REPORT 2003
 
 





ROYCE MICRO-CAP TRUST, INC.

 
SCHEDULE OF INVESTMENTS JUNE 30, 2003 (UNAUDITED)

 
    SHARES     VALUE       SHARES     VALUE
   
   
     
   
Financial Services (continued)
           
CONMED Corporation a,c
  3,900   $ 71,214
Investment Management - 0.2%
           
Cyberonics a,c
  5,000     107,550
BKF Capital Group a
  27,700   $ 604,691  
Exactech a
  50,000     720,000
       
 
Interpore International a
  17,600     224,048
Other Financial Services - 0.7%
           
Molecular Devices a
  10,000     159,100
MicroFinancial a
  10,000     18,400  
NMT Medical a
  44,000     174,680
New Century Financial
  5,000     218,250  
Orthofix International a
  29,500     965,830
PRG-Schultz International a,c
  225,000     1,327,500  
Osteotech a
  22,100     300,339
       
 
PLC Systems a
  105,200     68,380
          1,564,150  
Theragenics Corporation a
  15,000     64,500
       
 
Utah Medical Products a
  42,300     848,115
Total (Cost $2,775,622)
        3,900,137          
       
            6,034,194
Health – 11.2%
                   
Commercial Services - 3.1%
           
Total (Cost $21,482,648)
        26,422,351
BioReliance Corporation a
  58,300     1,235,960          
Bruker Daltonics a,c
  200,300     1,067,599  
Industrial Products – 13.7%
         
ICON ADR a,b
  800     25,456  
Building Systems and Components - 2.0%
     
PAREXEL International a
  134,400     1,874,880  
Drew Industries a
  15,000     273,000
The TriZetto Group a
  181,500     1,096,260  
Juno Lighting a
  108,600     1,453,068
Young Innovations a
  73,850     2,104,725  
LSI Industries
  43,850     486,735
       
 
Simpson Manufacturing a
  44,200     1,617,720
          7,404,880  
Skyline Corporation
  32,100     963,000
       
         
Drugs and Biotech - 2.5%
                      4,793,523
Antigenics a,c
  60,800     700,416          
Arena Pharmaceuticals a
  14,000     92,960  
Construction Materials - 1.8%
         
BioSource International a
  177,900     1,227,510  
Ash Grove Cement Company
  8,000     944,000
Emisphere Technologies a
  187,200     673,920  
Eagle Building Technologies a,c
  15,000     21,000
Geron Corporation a,c
  6,000     44,160  
Encore Wire a
  10,000     95,000
Lexicon Genetics a
  192,100     1,288,991  
Florida Rock Industries
  35,000     1,444,800
Martek Biosciences a
  12,800     549,632  
Monarch Cement
  50,410     879,655
Myriad Genetics a
  5,000     68,050  
Synalloy Corporation a
  171,000     928,530
Nabi Biopharmaceuticals a
  40,000     274,400  
Universal Stainless & Alloy Products a
  7,700     50,589
Sangamo BioSciences a
  10,000     28,500          
ViroPharma a,c
  18,800     48,880             4,363,574
VIVUS a,c
  167,200     859,408          
       
 
Industrial Components - 2.2%
         
          5,856,827  
Aaon a
  37,500     694,500
       
 
Bel Fuse Cl. A
  52,600     1,078,300
Health Services - 2.2%
           
Cable Design Technologies a
  30,000     214,500
ATC Healthcare Cl. A a
  35,000     22,050  
Penn Engineering & Manufacturing
  56,600     772,590
aaiPharma a,c
  31,600     628,208  
Penn Engineering & Manufacturing Cl. A
  30,800     373,912
Covalent Group a
  25,000     56,250  
Powell Industries a
  85,800     1,256,112
First Consulting Group a
  146,700     685,089  
Scientific Technologies a
  10,700     51,895
Gene Logic a
  210,000     1,253,700  
Tech/Ops Sevcon
  76,200     400,050
MIM Corporation a,c
  38,100     248,793  
II-VI a
  10,000     230,800
MedCath Corporation a,c
  18,000     105,300  
Woodhead Industries
  10,000     125,200
On Assignment a,c
  132,000     528,000          
Quovadx a
  45,000     134,550             5,197,859
RehabCare Group a
  25,000     366,250          
SFBC International a,c
  23,000     416,300  
Machinery - 1.6%
         
Sierra Health Services a,c
  40,000     800,000  
Astec Industries a
  40,200     350,544
Superior Consultant Holdings a
  10,000     30,000  
Hurco Companies a
  16,100     37,835
       
 
LeCroy Corporation a
  34,000     328,440
          5,274,490  
Lindsay Manufacturing
  10,000     232,200
       
 
MTS Systems
  10,000     147,400
Personal Care - 0.8%
           
Mueller (Paul)
  16,650     674,325
Helen of Troy a
  20,000     303,200  
T-3 Energy Services a
  198,610     1,306,854
Inter Parfums
  46,200     341,880  
Woodward Governor
  15,300     657,900
Ocular Sciences a,c
  60,800     1,206,880          
       
            3,735,498
          1,851,960          
       
 
Pumps, Valves and Bearings - 2.0%
         
Surgical Products and Devices - 2.6%
       
Denison International ADR a,b
  123,500     2,377,375
Aksys a,c
  85,000     1,100,750  
NN
  80,500     1,019,130
Allied Healthcare Products a
  258,400     922,488  
Sun Hydraulics
  152,550     1,229,553
Cantel Medical a
  21,000     281,820          
Colorado MEDtech a
  5,400     25,380             4,626,058
                     
                         
THE ROYCE FUNDS SEMIANNUAL REPORT 2003 |   33
 
 





ROYCE MICRO-CAP TRUST, INC.

 
SCHEDULE OF INVESTMENTS
JUNE 30, 2003 (UNAUDITED)
 
    SHARES     VALUE       SHARES     VALUE
   
   
     
   
Industrial Products (continued)
           
Food/Tobacco Processors - 1.5%
         
Specialty Chemicals and Materials - 2.0%
           
Galaxy Nutritional Foods a
  113,500   $ 320,070
Aceto
  87,631   $ 1,616,792  
MGP Ingredients
  96,122     839,626
American Pacific a
  15,000     112,200  
ML Macadamia Orchards LP Cl. A
  120,200     420,700
Balchem Corporation
  10,000     235,200  
Seneca Foods Cl. A a
  58,500     1,024,920
CFC International a
  144,700     781,380  
Seneca Foods Cl. B a
  47,200     854,792
Eastern Company (The)
  20,000     292,000          
Hawkins
  122,667     1,229,123             3,460,108
NuCo2 a,c
  20,000     188,200          
Park Electrochemical
  10,000     199,500  
Industrial Distribution - 0.9%
         
       
 
Central Steel & Wire
  1,200     450,000
          4,654,395  
Elamex a
  70,200     239,031
       
 
Lawson Products
  12,200     335,976
Textiles - 0.3%
           
Strategic Distribution a
  68,490     1,113,716
Fab Industries a
  76,400     702,880          
       
            2,138,723
Other Industrial Products - 1.8%
                   
Astronics Corporation a
  26,400     85,668  
Printing - 1.6%
         
BHA Group Holdings
  96,915     1,919,886  
Bowne & Co.
  90,000     1,172,700
Maxwell Technologies a
  15,300     88,128  
Ennis Business Forms
  11,200     162,960
Myers Industries
  29,342     278,749  
Moore Wallace a
  39,600     581,328
Peerless Mfg. a
  43,200     477,360  
New England Business Service
  52,900     1,587,000
Quixote Corporation
  12,500     319,125  
Schawk Cl. A
  16,300     170,824
Spartan Motors c
  26,200     216,674          
Wescast Industries Cl. A
  37,900     942,952             3,674,812
       
         
          4,328,542  
Transportation and Logistics - 2.2%
         
       
 
AirNet Systems a
  196,000     793,800
Total (Cost $23,162,094)
        32,402,329  
Atlas Air Worldwide Holdings a,c
  120,000     176,400
       
 
EGL a
  42,100     639,920
Industrial Services – 12.2%
           
Forward Air a
  43,800     1,111,206
Advertising/Publishing - 0.3%
           
Frozen Food Express Industries a
  227,500     718,900
Digital Generation Systems a
  6,700     12,864  
Hawaiian Holdings a
  75,000     63,750
FindWhat.com a,c
  10,000     188,100  
Hub Group Cl. A a
  6,500     57,070
Modem Media Cl. A a
  141,200     561,976  
Knight Transportation a
  38,925     969,233
       
 
Patriot Transportation Holding a
  28,400     800,596
          762,940          
       
            5,330,875
Commercial Services - 5.0%
                   
American Bank Note Holographics a
  267,200     325,984  
Other Industrial Services - 0.1%
         
Butler International a
  38,500     30,800  
Team a
  44,100     352,800
Carlisle Holdings a
  400,000     1,320,000          
Core Laboratories a
  24,000     259,200  
Total (Cost $24,350,375)
        28,830,143
Edgewater Technology a
  18,339     88,027          
Exponent a
  63,200     979,600  
Natural Resources – 8.6%
         
Heidrick & Struggles International a,c
  10,000     126,200  
Energy Services - 2.7%
         
iGATE Corporation a
  324,700     1,126,709  
Carbo Ceramics
  33,600     1,251,600
Innodata Corporation a
  245,100     330,885  
Dril-Quip a
  42,700     777,140
Kforce a
  55,000     265,650  
GulfMark Offshore a
  69,200     1,168,096
Manufacturers Services a
  95,000     460,750  
Input/Output a
  193,500     1,041,030
NCO Group a
  20,000     358,200  
Lufkin Industries
  25,000     608,750
NIC a
  26,800     78,256  
MarkWest Hydrocarbon a
  15,200     115,672
New Horizons Worldwide a,c
  282,000     1,206,960  
NATCO Group Cl. A a
  100,400     685,732
Pegasystems a
  75,000     552,750  
Valley National Gases a
  30,100     179,095
RemedyTemp Cl. A a
  71,700     661,791  
Willbros Group a
  55,900     580,801
TRC Companies a,c
  25,000     369,000          
Tyler Technologies a
  65,000     276,250             6,407,916
Volt Information Sciences a
  36,600     499,590          
Wackenhut Corrections a
  94,800     1,299,708  
Oil and Gas - 3.3%
         
Watson Wyatt & Company
           
Bonavista Petroleum a
  71,000     2,010,990
Holdings Cl. A a
  15,000     347,700  
Contango Oil & Gas Company a
  50,000     204,500
Westaff a
  362,500     808,375  
Denbury Resources a
  87,000     1,168,410
       
 
Evergreen Resources a,c
  20,000     1,086,200
          11,772,385  
PetroCorp a
  171,200     1,908,880
       
 
Prima Energy a
  21,000     438,480
Engineering and Construction - 0.6%
           
Toreador Resources a
  2,300     6,923
Insituform Technologies Cl. A a
  70,000     1,237,600  
Veritas DGC a,c
  79,400     913,100
Keith Companies a
  10,000     99,900          
       
            7,737,483
          1,337,500          
       
             
                         
34 |   THE ROYCE FUNDS SEMIANNUAL REPORT 2003
 
 





ROYCE MICRO-CAP TRUST, INC.

 
SCHEDULE OF INVESTMENTS
JUNE 30, 2003 (UNAUDITED)
 
    SHARES     VALUE       SHARES     VALUE
   
   
     
   
Natural Resources (continued)
           
Digitas a
  50,500   $ 250,480
Precious Metals and Mining - 0.7%
           
Lionbridge Technologies a,c
  37,500     190,875
Apex Silver Mines a
  79,600   $ 1,174,100  
Overstock.com a,c
  37,000     536,870
Brush Engineered Materials a
  15,500     129,425  
RealNetworks a,c
  65,700     445,446
MK Gold a
  603,700     458,812  
Register.com a
  84,000     492,240
       
 
Stamps.com a
  170,000     816,000
          1,762,337  
United Online a,c
  15,000     380,100
       
         
Real Estate - 1.9%
                      3,479,787
HomeFed Corporation a
  898,521     2,470,933          
Liberte Investors a
  346,800     1,883,124  
IT Services - 4.6%
         
Stratus Properties a
  11,000     102,905  
CACI International Cl. A a
  10,000     343,000
       
 
CIBER a
  220,000     1,544,400
          4,456,962  
Computer Task Group a
  341,100     968,724
       
 
Covansys Corporation a
  242,500     744,475
Total (Cost $10,827,234)
        20,364,698  
DiamondCluster International Cl. A a
280,000     1,038,800
       
 
DynTek Cl. A a
  224,000     179,200
Technology – 24.0%
           
Forrester Research a
  105,500     1,725,980
Aerospace/Defense - 2.1%
           
Sapient Corporation a
  995,000     2,756,150
Ducommun a
  99,500     1,402,950  
Syntel a
  81,000     1,274,130
HEICO Corporation c
  66,600     812,520  
Technology Solutions a
  50,000     50,000
Herley Industries a
  76,000     1,290,480  
Tier Technologies Cl. B a
  40,500     313,875
Integral Systems a
  58,300     1,159,004          
Mesaba Holdings a
  51,600     318,372             10,938,734
SIFCO Industries a
  45,800     92,058          
       
 
Semiconductors and Equipment - 2.0%
     
          5,075,384  
August Technology a
  72,000     457,200
       
 
California Micro Devices a
  25,000     53,750
Components and Systems - 5.0%
           
Exar Corporation a,c
  68,500     1,084,355
Advanced Photonix Cl. A a
  455,200     409,680  
FSI International a
  34,500     134,550
CSP a
  117,581     378,611  
GlobespanVirata a
  14,000     115,500
Concurrent Computer a
  102,500     299,300  
Helix Technology
  9,500     125,685
Del Global Technologies a
  468,279     1,077,042  
Inficon Holding ADR a,b
  10,000     64,500
Excel Technology a,c
  97,900     2,235,057  
Intevac a
  114,050     766,416
Intrusion a
  75,000     56,250  
Oak Technology a,c
  20,000     124,200
Kronos a
  20,750     1,054,308  
PDF Solutions a
  25,000     288,750
Lantronix a
  224,500     166,130  
Photronics a
  29,750     519,138
Mobility Electronics a,c
  90,000     364,500  
Pixelworks a,c
  36,000     213,840
MOCON
  22,600     163,850  
Semitool a
  50,500     248,965
Newport Corporation a
  45,000     666,000  
Teradyne a
  13,604     235,485
OSI Systems a
  20,000     321,200  
Xicor a
  35,000     219,450
Pemstar a,c
  71,500     299,585          
Performance Technologies a
  24,750     180,675             4,651,784
Printronix a
  45,300     507,360          
Rainbow Technologies a
  181,500     1,526,415  
Software - 3.8%
         
Read-Rite a
  1,000     65  
ANSYS a
  15,400     478,940
REMEC a,c
  182,500     1,270,200  
Aladdin Knowledge Systems a
  27,300     103,494
Spectrum Control a
  12,500     70,250  
Applix a,c
  20,000     32,000
TransAct Technologies a
  68,200     827,266  
AsiaInfo Holdings a,c
  67,000     549,400
       
 
Aspen Technology a,c
  22,000     105,600
          11,873,744  
Chordiant Software a
  160,000     297,600
       
 
ILOG ADR a,b,c
  35,000     292,950
Distribution - 1.8%
           
Indus International a
  144,800     290,903
Bell Industries a
  85,700     185,969  
JDA Software Group a
  110,500     1,236,495
Daisytek International a
  40,300     2,821  
Lightspan a
  480,000     325,440
Jaco Electronics a
  38,000     183,882  
MSC.Software a,c
  63,700     429,338
Nu Horizons Electronics a
  40,000     240,000  
PLATO Learning a
  70,000     402,500
PC Connection a
  5,000     34,000  
Retek a
  25,000     160,000
Pioneer-Standard Electronics
  90,000     763,200  
SCB Computer Technology a
  50,000     80,000
Plexus Corporation a
  83,000     956,990  
SPSS a
  91,900     1,538,406
Pomeroy IT Solutions a
  31,100     343,966  
Transaction Systems Architects Cl. A a
  155,100     1,389,696
Richardson Electronics
  206,600     1,673,460  
Verity a
  95,000     1,202,700
       
         
          4,384,288             8,915,462
       
         
Internet Software and Services - 1.5%
                       
Convera Corporation a,c
  33,200     132,136              
CyberSource Corporation a
  86,000     235,640              
                         
THE ROYCE FUNDS SEMIANNUAL REPORT 2003 |   35
 
 





ROYCE MICRO-CAP TRUST, INC.

 
SCHEDULE OF INVESTMENTS
JUNE 30, 2003 (UNAUDITED)
 
    SHARES     VALUE       SHARES     VALUE  
   
   
     
   
 
Technology (continued)
           
PREFERRED STOCKS – 0.5%
           
Telecommunication - 3.2%
           
Angelo and Maxie’s 10.00% Conv.
  6,991   $ 16,079  
ADC Telecommunications a,c
  100,000   $ 232,800  
Seneca Foods Conv.a
  75,409     1,025,562  
Allegiance Telecom a,c
  790,000     43,450          
 
Anaren a,c
  123,000     1,152,510  
TOTAL PREFERRED STOCKS
           
Brooktrout a
  28,400     220,441  
(Cost $957,998)
        1,041,641  
C-COR.net a,c
  5,000     24,500          
 
Captaris a
  30,000     102,600     PRINCIPAL        
Centillium Communications a
  24,000     237,840     AMOUNT        
Computer Access Technology a
  48,000     156,000    
       
Computer Network Technology a,c
  20,000     162,000  
U.S. TREASURY OBLIGATIONS – 2.1%
       
Giga-tronics a
  3,200     5,536  
U.S Treasury Notes
           
ITXC Corporation a
  36,000     93,960  
1.875%, due 9/30/04
$ 5,000,000     5,049,220  
Interland a
  25,000     24,500          
 
Level 3 Communications a,c
  84,300     559,752  
TOTAL U.S. TREASURY OBLIGATIONS
       
Liberty Satellite & Technology Cl. A a
118,200     307,320  
(Cost $5,010,808)
        5,049,220  
MetaSolv a,c
  44,100     86,436          
 
Optical Communication Products Cl. A a
  220,300     396,540  
REPURCHASE AGREEMENT – 4.6%
           
PC-Tel a
  31,100     368,846  
State Street Bank & Trust Company, 0.30% dated 6/30/03, due 7/1/03, maturity value $10,850,090 (collateralized by U.S. Treasury Bonds, 8.50% due 2/15/20, valued at $11,063,754)
(Cost $10,850,000)
           
Radyne ComStream a
  65,000     132,600              
Somera Communications a,c
  132,900     194,034              
SpectraLink Corporation a
  132,000     1,304,160              
Tollgrade Communications a,c
  20,000     373,000           10,850,000  
ViaSat a
  98,200     1,408,188          
 
       
  TOTAL INVESTMENTS – 100.2%          
          7,587,013  
(Cost $187,606,816)
        237,151,621  
       
               
Total (Cost $51,202,632)
        56,906,196  
LIABILITIES LESS CASH
           
       
 
AND OTHER ASSETS – (0.2)%
        (427,603 )
Miscellaneous – 2.9%
                   
 
Total (Cost $5,766,793)
        6,896,550   NET ASSETS – 100.0%       $ 236,724,018  
       
         
 
TOTAL COMMON STOCKS
                       
(Cost $170,788,010)
        220,210,760                
       
               
                           

a   Non-income producing.
b   American Depository Receipt.
c   A portion of these securities were on loan at June 30, 2003. Total market value of loaned securities at June 30, 2003 was $7,992,197.
d   Securities for which market quotations are no longer readily available represent 1.06% 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 2003.
    Bold indicates the Fund’s largest 20 equity holdings in terms of June 30, 2003 market value.
     
INCOME TAX INFORMATION: The cost of total investments for Federal income tax purposes was $188,619,900. At June 30, 2003, net unrealized depreciation appreciation for all securities was $48,531,721, consisting of aggregate gross unrealized appreciation of $65,691,964 and aggregate gross unrealized of $17,160,243. 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.
     
     
36 |   THE ROYCE FUNDS SEMIANNUAL REPORT 2003
 
 





ROYCE MICRO-CAP TRUST, INC.


STATEMENT OF ASSETS AND LIABILITIES

JUNE 30, 2003 (UNAUDITED)  

ASSETS:
     
Investments at value (identified cost $176,756,816)
$ 226,301,621  
Repurchase agreement (at cost and value)
  10,850,000  
Cash
  624  
Collateral from brokers on securities loaned
  8,369,427  
Receivable for investments sold
  126,725  
Receivable for dividends and interest
  70,652  
Prepaid expenses
  9,686  

 
Total Assets
  245,728,735  

 
LIABILITIES:
     
Payable for collateral on securities loaned
  8,369,427  
Payable for investments purchased
  194,112  
Payable for investment advisory fee
  278,115  
Preferred dividends accrued but not yet declared
  68,887  
Accrued expenses
  94,176  

 
Total Liabilities
  9,004,717  

 
Net Assets
$ 236,724,018  

 
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; 18,540,334 shares outstanding (150,000,000 shares authorized)
  18,540  
Additional paid-in capital
  142,059,397  
Accumulated net investment loss
  (1,199,081 )
Accumulated net realized gain on investments
  16,392,806  
Net unrealized appreciation on investments
  49,544,805  
Quarterly and accrued distributions
  (10,092,449 )

 
Net Assets applicable to Common Stock (net asset value per share – $10.61)
  196,724,018  

 
Net Assets
$ 236,724,018  

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

THE ROYCE FUNDS SEMIANNUAL REPORT 2003 |   37
 
 





ROYCE MICRO-CAP TRUST, INC.


STATEMENT OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2003 (UNAUDITED)  

INVESTMENT INCOME:
     
Income:
     
Dividends
$ 402,854  
Interest
  72,794  

 
Total income
  475,648  

 
Expenses:
     
Investment advisory fees
  1,658,923  
Custody and transfer agent fees
  61,256  
Stockholder reports
  48,061  
Professional fees
  30,077  
Directors’ fees
  26,132  
Administrative and office facilities expenses
  16,672  
Other expenses
  33,608  

 
Total expenses
  1,874,729  
Fees waived by investment advisor
  (200,000 )

 
Net expenses
  1,674,729  

 
Net investment loss
  (1,199,081 )

 
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
     
Net realized gain on investments
  12,706,206  
Net change in unrealized appreciation on investments
  21,690,144  

 
Net realized and unrealized gain on investments
  34,396,350  

 
NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS
$ 33,197,269  

 

STATEMENTS OF CHANGES IN NET ASSETS

  Six months ended
June 30, 2003
  Year ended
December 31,
  (unaudited)   2002
 
 
INVESTMENT OPERATIONS:
             
Net investment loss
$ (1,199,081 )   $ (2,363,582 )
Net realized gain on investments
  12,706,206       16,747,557  
Net change in unrealized appreciation on investments
  21,690,144       (38,936,315 )

 
Net increase (decrease) in net assets from investment operations
  33,197,269       (24,552,340 )

 
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
             
Net investment income
         
Net realized gain on investments
        (3,100,000 )
Quarterly distributions *
  (1,550,000 )      

 
Total distributions to Preferred Stockholders
  (1,550,000 )     (3,100,000 )

 
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
             
Net investment income
         
Net realized gain on investments
        (13,769,198 )
Quarterly distributions *
  (8,473,560 )      

 
Total distributions to Common Stockholders
  (8,473,560 )     (13,769,198 )

 
CAPITAL STOCK TRANSACTIONS:
             
Reinvestment of distributions to Common Stockholders
  5,979,130       8,549,592  

 
NET INCREASE (DECREASE) IN NET ASSETS
  29,152,839       (32,871,946 )
NET ASSETS:
             
Beginning of period
  207,571,179       240,443,125  

 
End of period (including accumulated net investment loss of $1,199,081 in 2003)
$ 236,724,018     $ 207,571,179  

 
* To be allocated to net investment income and capital gains at year-end.
 
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

38 |   THE ROYCE FUNDS SEMIANNUAL REPORT 2003
 
 





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.
 
  Six months ended   Years ended December 31,
  June 30, 2003  
  (unaudited)           2002             2001             2000             1999             1998  

NET ASSET VALUE, BEGINNING OF PERIOD
  $9.39       $11.83       $10.14       $11.00       $10.06       $10.84  

INVESTMENT OPERATIONS:
                                             
Net investment income (loss)
  (0.06 )     (0.13 )     (0.05 )     0.09       0.12       0.13  
Net realized and unrealized gain (loss) on investments
  1.87       (1.29 )     2.57       1.23       1.35       (0.36 )

Total investment operations
  1.81       (1.42 )     2.52       1.32       1.47       (0.23 )

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
                                             
Net investment income
  –          –          –          (0.01 )     (0.05 )     (0.06 )
Net realized gain on investments
  –          (0.18 )     (0.19 )     (0.22 )     (0.18 )     (0.18 )
Quarterly distributions *
  (0.09 )     –          –          –          –          –     

Total distributions to Preferred Stockholders
  (0.09 )     (0.18 )     (0.19 )     (0.23 )     (0.23 )     (0.24 )

DISTRIBUTIONS TO COMMON STOCKHOLDERS:
                                             
Net investment income
  –          –          –          (0.09 )     (0.06 )     (0.07 )
Net realized gain on investments
  –          (0.80 )     (0.57 )     (1.63 )     (0.21 )     (0.22 )
Quarterly distributions *
  (0.47 )     –          –          –          –          –     

Total distributions to Common Stockholders
  (0.47 )     (0.80 )     (0.57 )     (1.72 )     (0.27 )     (0.29 )

CAPITAL STOCK TRANSACTIONS:
                                             
Effect of reinvestment of distributions by Common Stockholders
  (0.03 )     (0.04 )     (0.07 )     (0.23 )     (0.03 )     (0.02 )

Total capital stock transactions
  (0.03 )     (0.04 )     (0.07 )     (0.23 )     (0.03 )     (0.02 )

NET ASSET VALUE, END OF PERIOD
  $10.61       $9.39       $11.83       $10.14       $11.00       $10.06  

MARKET VALUE, END OF PERIOD
  $9.77       $8.44       $10.50       $8.625       $9.00       $8.875  

TOTAL RETURN (a):
                                             
Market Value
  22.2 %***     (12.7 )%     28.8 %     15.3 %     4.5 %     (9.4 )%
Net Asset Value
  19.3 %***     (13.8 )%     23.4 %     10.9 %     12.7 %     (4.1 )%
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:
                                             
Total expenses (b,c)
  1.98 %**     1.96 %     1.78 %     1.32 %     1.27 %     1.18 %
Management fee expense
  1.72 %**     1.59 %     1.57 %     1.08 %     0.91 %     0.80 %
Other operating expenses
  0.26 %**     0.37 %     0.21 %     0.24 %     0.36 %     0.38 %
Net investment income (loss)
  (1.42) %**     (1.23 )%     (0.43 )%     0.74 %     1.20 %     1.21 %
SUPPLEMENTAL DATA:
                                             
Net Assets, End of Period (in thousands)
  $236,724       $207,571       $240,443       $203,820       $191,269       $175,495  
Portfolio Turnover Rate
  11 %     39 %     27 %     49 %     49 %     44 %
PREFERRED STOCK:
                                             
Total shares outstanding
  1,600,000       1,600,000       1,600,000       1,600,000       1,600,000       1,600,000  
Asset coverage per share
  $147.95       $129.73       $150.28       $127.39       $119.54       $109.68  
Liquidation preference per share
  $25.00       $25.00       $25.00       $25.00       $25.00       $25.00  
Average market value per share (d)
  $25.90       $25.91       $25.30       $23.08       $24.67       $25.40  

(a)
The Market Value Total Return is calculated assuming a purchase of Common Stock on the opening of the first business day and a sale on the closing of the last business day of each period reported. Dividends and distributions, if any, are assumed for the purposes of this calculation to be reinvested at prices obtained under the Fund’s Distribution Reinvestment and Cash Purchase Plan. Net Asset Value Total Return is calculated on the same basis, except that the Fund’s net asset value is used on the purchase and sale dates instead of market value.
(b)
Expense ratios based on total average net assets were 1.60%, 1.62%, 1.46%, 1.06%, 0.98% and 0.92% for the periods ended June 30, 2003 and December 31, 2002, 2001, 2000, 1999 and 1998, respectively.
(c)
Expense ratios based on average net assets applicable to Common Stockholders before waiver of fees by the investment adviser would have been 2.21%, 2.04%, 1.81%, 1.44% and 1.24% for the periods ended June 30, 2003 and December 31, 2002, 2001, 1999 and 1998, respectively.
(d)
The average of month-end market values during the period.
 
*  
To be allocated to net investment income and capital gains at year-end.
**  
Annualized.
***  
Not annualized.

THE ROYCE FUNDS SEMIANNUAL REPORT 2003 |   39
 
 





ROYCE MICRO-CAP TRUST, INC.


NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

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

Valuation of Investments:
      Securities are valued as of the close of trading on the New York Stock Exchange (generally 4:00 p.m. Eastern Time) on the valuation date. Securities listed on an exchange or the Nasdaq National Market System (NMS) are valued at their last reported sales price or official closing price taken from the primary market in which each security trades 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. 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 are invested in certain Royce Funds until distributed in accordance with the agreement.

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

Distributions:
      The Fund currently has a policy of paying quarterly distributions on the Fund’s Common Stock. Distributions are currently being made at the annual rate of 9% of the rolling average of the prior four calendar quarter-end NAVs of the Fund’s Common Stock, with the fourth quarter distribution being the greater of 2.25% of the rolling average or the distribution required by IRS regulations. Distributions to Preferred Stockholders are recorded on an accrual basis and paid quarterly. 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.

Securities Lending:
      The Fund loans securities to qualified institutional investors for the purpose of realizing additional income. This income is included in interest income. Collateral on all securities loaned for the Fund is accepted in cash and is invested temporarily, typically, and specifically at June 30, 2003, in a registered money market fund, by the custodian. The collateral is equal to at least 100% of the current market value of the loaned securities.

40 |   THE ROYCE FUNDS SEMIANNUAL REPORT 2003
 
 





ROYCE MICRO-CAP TRUST, INC.


NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 
Capital Stock:
 
      The Fund currently has 1,600,000 shares of 7.75% Cumulative Preferred Stock outstanding. The stock has a liquidation preference of $25.00 per share.
      Under the Investment Company Act of 1940, the Fund is required to maintain an asset coverage of at least 200% for the Preferred Stock. In addition, pursuant to the Rating Agency Guidelines established by Moody’s, the Fund is required to maintain a certain discounted asset coverage. The Fund has met these requirements since issuing the Preferred Stock.
      The Fund is required to allocate long-term capital gain distributions and other types of income proportionately to distributions made to holders of shares of Common Stock and Preferred Stock. To the extent that distributions are not paid from long-term capital gains, net investment income or net short-term capital gains, they will represent a return of capital.
      The Fund issued 698,276 and 896,290 shares of Common Stock as reinvestment of distributions by Common Stockholders for the periods ended June 30, 2003 and December 31, 2002, respectively.

Investment Advisory Agreement:
 
      As compensation for its services under the Investment Advisory Agreement, Royce & Associates, LLC (“Royce”) receives a fee comprised of a Basic Fee (“Basic Fee”) and an adjustment to the Basic Fee based on the investment performance of the Fund in relation to the investment record of the Russell 2000.
      The Basic Fee is a monthly fee equal to 1/12 of 1% (1% on an annualized basis) of the average of the 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 six months ended June 30, 2003, the Fund accrued and paid Royce advisory fees totaling $1,458,923, which is net of $200,000 voluntarily waived by Royce.

Purchases and Sales of Investment Securities:
 
      For the six months ended June 30, 2003, the cost of purchases and proceeds from sales of investment securities, other than short-term securities, amounted to $22,799,895 and $34,025,558, respectively.

Transactions in Shares of Affiliated Companies:
 
      An “Affiliated Company”, as defined in the Investment Company Act of 1940, is a company in which a Fund owns 5% or more of the company’s outstanding voting securities. The Fund effected the following transactions in shares of such companies during the six months ended June 30, 2003:
 

  Purchases   Sales        
 
 
       
Affiliated Company
Shares
    Cost
  Shares
    Cost
  Realized Gain (Loss)
  Dividend Income
                           
Technical Communications
      96,700   $ 108,304   $(61,331)  


THE ROYCE FUNDS SEMIANNUAL REPORT 2003 |   41
 
 





ROYCE FOCUS TRUST, INC.


SCHEDULE OF INVESTMENTS

JUNE 30, 2003 (UNAUDITED)

   
COMMON STOCKS – 74.9%                        
    SHARES     VALUE       SHARES      VALUE
   
   
     
   
Consumer Products – 6.2%
                       
Sports and Recreation - 3.6%
           
Machinery - 3.5%
         
Callaway Golf
  100,000   $ 1,322,000  
Lincoln Electric Holdings
  99,800   $ 2,036,918
Winnebago Industries c
  50,000     1,895,000  
Woodward Governor
  24,400     1,049,200
       
         
          3,217,000             3,086,118
       
         
Other Consumer Products - 2.6%
           
Total (Cost $4,617,941)
        8,056,806
Oakley a
  75,000     882,750          
Yankee Candle Company a
  60,000     1,393,200  
Industrial Services – 7.1%
         
       
 
Commercial Services - 5.3%
         
          2,275,950  
Carlisle Holdings a
  400,000     1,320,000
       
 
Cornell Companies a
  75,000     1,135,500
Total (Cost $4,305,372)
        5,492,950  
Covance a
  50,000     905,000
       
 
West Corporation a
  50,000     1,332,500
Consumer Services – 5.2%
                   
Direct Marketing - 2.4%
                      4,693,000
Nu Skin Enterprises Cl. A
  200,000     2,090,000          
       
 
Engineering and Construction - 1.8%
         
Retail Stores - 2.8%
           
Dycom Industries a
  100,000     1,630,000
Big Lots a
  89,400     1,344,576          
Charming Shoppes a,c
  230,000     1,143,100  
Total (Cost $3,871,542)
        6,323,000
       
         
          2,487,676  
Natural Resources – 12.2%
         
       
 
Energy Services - 2.7%
         
Total (Cost $3,614,159)
        4,577,676  
Ensign Resource Service Group
  53,000     789,674
       
 
Input/Output a
  300,000     1,614,000
Financial Intermediaries – 9.3%
                   
Insurance - 5.1%
                      2,403,674
ProAssurance Corporation a
  47,155     1,272,713          
White Mountains Insurance Group c
  4,000     1,580,000  
Oil and Gas - 1.6%
         
Zenith National Insurance
  59,000     1,681,500  
Tom Brown a
  50,000     1,389,500
       
         
          4,534,213  
Precious Metals and Mining - 7.9%
         
       
 
AngloGold ADR b
  25,000     797,500
Securities Brokers - 1.4%
           
Apex Silver Mines a
  100,000     1,475,000
E*TRADE Group a
  150,000     1,275,000  
Glamis Gold a
  125,000     1,433,750
       
 
Goldcorp
  180,000     2,160,000
Other Financial Intermediaries - 2.8%
           
Meridian Gold a
  99,800     1,146,702
TSX Group
  120,000     2,434,077          
       
            7,012,952
Total (Cost $4,622,704)
        8,243,290          
       
 
Total (Cost $8,749,421)
        10,806,126
Financial Services – 1.7%
                   
Information and Processing - 1.1%
           
Technology – 13.7%
         
eFunds Corporation a
  85,000     980,050  
Components and Systems - 1.6%
         
       
 
REMEC a
  200,000     1,392,000
Investment Management - 0.6%
                   
U.S. Global Investors Cl. A a,c
  295,605     546,869  
Distribution - 1.2%
         
       
 
Richardson Electronics
  129,000     1,044,900
Total (Cost $1,566,006)
        1,526,919          
       
 
Internet Software and Services - 1.6%
         
Health – 10.4%
           
Overstock.com a,c
  100,000     1,451,000
Drugs and Biotech - 8.8%
                   
Antigenics a,c
  80,000     921,600  
IT Services - 3.0%
         
Durect Corporation a,c
  220,000     530,200  
Perot Systems Cl. A a
  140,500     1,596,080
Emisphere Technologies a
  200,000     720,000  
Syntel a
  70,000     1,101,100
Endo Pharmaceuticals Holdings a
  100,000     1,692,000          
Lexicon Genetics a
  200,000     1,342,000             2,697,180
Perrigo Company
  87,300     1,365,372          
VIVUS a,c
  250,000     1,285,000  
Semiconductors and Equipment - 1.9%
     
       
 
Exar Corporation a
  50,000     791,500
          7,856,172  
ParthusCeva a,c
  109,600     893,240
       
         
Personal Care - 1.6%
                      1,684,740
Ocular Sciences a
  70,000     1,389,500          
       
 
Software - 1.6%
         
Total (Cost $7,522,624)
        9,245,672  
Lightspan a
  750,000     508,500
       
 
Transaction Systems Architects Cl. A a
  100,000     896,000
Industrial Products – 9.1%
                   
Building Systems and Components - 2.9%
                  1,404,500
Simpson Manufacturing a
  70,000     2,562,000          
       
             
Construction Materials - 2.7%
                       
Florida Rock Industries
  58,350     2,408,688              
       
             

42 |   THE ROYCE FUNDS SEMIANNUAL REPORT 2003
 
 





ROYCE FOCUS TRUST, INC.

 
SCHEDULE OF INVESTMENTS
JUNE 30, 2003 (UNAUDITED)
 
                PRINCIPAL      
    SHARES     VALUE     AMOUNT     VALUE
   
   
   
   
Technology (continued)
           
U.S. TREASURY OBLIGATIONS – 6.0%
     
Telecommunication - 2.8%
           
U.S. Treasury Notes
         
Anaren a,c
  140,000   $ 1,311,800  
7.25%, due 8/15/04
$ 5,000,000   $ 5,344,725
ViaSat a,c
  83,700     1,200,258          
       
 
TOTAL U.S. TREASURY OBLIGATIONS
     
          2,512,058  
(Cost $5,033,324)
        5,344,725
       
         
Total (Cost $10,466,402)
        12,186,378  
REPURCHASE AGREEMENT – 9.5%
         
       
 
State Street Bank & Trust Company, 0.30% dated 6/30/03, due 7/1/03, maturity value $8,442,070 (collateralized by U.S. Treasury Bonds, 6.375% due 8/15/27, valued at $8,613,909)
         
TOTAL COMMON STOCKS
                     
(Cost $49,336,171)
        66,458,817            
       
           
                       
  PRINCIPAL        
(Cost $8,442,000)
        8,442,000
  AMOUNT                
 
       
TOTAL INVESTMENTS – 99.4%
         
CORPORATE BONDS – 3.3%
           
(Cost $69,948,953)
        88,210,927
E*TRADE Group 6.00%
                       
Conv. Sub. Note due 2/1/07
$ 3,000,000     2,940,000  
CASH AND OTHER ASSETS
         
       
 
LESS LIABILITIES – 0.6%
        519,568
TOTAL CORPORATE BONDS
                   
(Cost $2,226,761)
        2,940,000  
NET ASSETS – 100%
      $ 88,730,495
       
         
GOVERNMENT BONDS – 5.7%
                       
New Zealand 6.50%, due 2/15/06
  8,250,000     5,025,385              
       
             
TOTAL GOVERNMENT BONDS
                       
(Cost $4,910,697)
        5,025,385              
       
             

a   Non-income producing.
b   American Depository Receipt.
c   A portion of these securities were on loan at June 30, 2003. Total market value of loaned securities at June 30, 2003 was $3,305,289.
  New additions in 2003.
    Bold indicates the Fund’s largest 20 equity holdings in terms of June 30, 2003 market value.
     
INCOME TAX INFORMATION: The cost of total investments for Federal income tax purposes was $70,316,034. At June 30, 2003, net unrealized appreciation for all securities was $17,894,893, consisting of aggregate gross unrealized appreciation of $19,366,001 and aggregate gross unrealized depreciation of $1,471,108. 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.
     
     
THE ROYCE FUNDS SEMIANNUAL REPORT 2003 |   43
 
 





ROYCE FOCUS TRUST, INC.

 
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2003 (UNAUDITED)
ASSETS:
       
Investments at value (identified cost $61,506,953)
  $ 79,768,927  
Repurchase agreement (at cost and value)
    8,442,000  
Cash
    517  
Collateral from brokers on securities loaned
    3,403,611  
Receivable for investments sold
    284,594  
Receivable for dividends and interest
    370,313  
Prepaid expenses
    11,545  

Total Assets
    92,281,507  

LIABILITIES:
       
Payable for collateral on securities loaned
    3,403,611  
Payable for investment advisory fee
    56,720  
Preferred dividends accrued but not yet declared
    33,112  
Accrued expenses
    57,569  

Total Liabilities
    3,551,012  

Net Assets
  $ 88,730,495  

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; 9,241,025 shares outstanding (100,000,000 shares authorized)
    9,241  
Additional paid-in capital
    45,713,027  
Undistributed net investment income
    165,852  
Accumulated net realized gain on investments
    5,356,492  
Net unrealized appreciation on investments
    18,263,995  
Quarterly and accrued distributions
    (778,112 )

Net Assets applicable to Common Stock (net asset value per share – $7.44)
    68,730,495  

Net Assets
  $ 88,730,495  

 
 
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
 
44 |   THE ROYCE FUNDS SEMIANNUAL REPORT 2003
 
 





ROYCE FOCUS TRUST, INC.

 
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2003 (UNAUDITED)
INVESTMENT INCOME:
               
Income:
               
Interest
          $ 401,058  
Dividends
            197,770  

Total income
            598,828  

Expenses:
               
Investment advisory fees
            392,077  
Custody and transfer agent fees
            38,899  
Stockholder reports
            26,154  
Professional fees
            25,830  
Directors’ fees
            15,771  
Administrative and office facilities expenses
            6,178  
Other expenses
            27,244  

Total expenses
            532,153  
Fees waived by investment adviser
            (99,177 )

Net expenses
            432,976  

Net investment income
            165,852  

REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
               
Net realized gain on investments
            4,290,829  
Net change in unrealized appreciation on investments
            7,062,848  

Net realized and unrealized gain on investments
            11,353,677  

NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS
    $ 11,519,529  

                 
STATEMENTS OF CHANGES IN NET ASSETS
    Six months ended
June 30, 2003
(unaudited)
  Year ended
December 31,
2002
   
 
INVESTMENT OPERATIONS:
               
Net investment income (loss)
  $ 165,852       (103,396 )
Net realized gain on investments
    4,290,829       1,317,847  
Net change in unrealized appreciation on investments
    7,062,848       (8,047,125 )

Net increase (decrease) in net assets from investment operations
    11,519,529       (6,832,674 )

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
               
Net investment income
          (272,620 )
Net realized gain on investments
          (1,217,380 )
Quarterly distributions*
    (745,000 )      

Total distributions to Preferred Stockholders
    (745,000 )     (1,490,000 )

DISTRIBUTIONS TO COMMON STOCKHOLDERS:
               
Net investment income
          (150,865 )
Net realized gain on investments
          (673,654 )

Total distributions to Common Stockholders
          (824,519 )

CAPITAL STOCK TRANSACTIONS:
               
Reinvestment of distributions to Common Stockholders
          449,516  

NET INCREASE (DECREASE) IN NET ASSETS
    10,774,529       (8,697,677 )
NET ASSETS:
               
Beginning of period
    77,955,966       86,653,643  

End of period (including undistributed net investment income of $165,852 in 2003)
  $ 88,730,495     $ 77,955,966  

* To be allocated to net investment income and capital gains at year-end.
 
 
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
 
THE ROYCE FUNDS SEMIANNUAL REPORT 2003 |   45
 
 





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.
 
    Six months ended   Years ended December 31,
    June 30, 2003  
    (unaudited)   2002   2001   2000   1999   1998

NET ASSET VALUE, BEGINNING OF PERIOD
    $6.27       $7.28       $6.77       $5.94       $5.63       $6.04  

INVESTMENT OPERATIONS:
                                               
Net investment income (loss)
    0.02       (0.01 )     0.05       0.12       0.08       0.12  
Net realized and unrealized gain (loss) on investments
    1.23       (0.74 )     0.79       1.26       0.58       (0.35 )

Total investment operations
    1.25       (0.75 )     0.84       1.38       0.66       (0.23 )

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
                                               
Net investment income
    –          (0.03 )     (0.04 )     (0.03 )     (0.01 )     (0.16 )
Net realized gain on investments
    –          (0.13 )     (0.13 )     (0.14 )     (0.17 )     (0.02 )
Quarterly distributions *
    (0.08 )     –          –          –          –          –     

Total distributions to Preferred Stockholders
    (0.08 )     (0.16 )     (0.17 )     (0.17 )     (0.18 )     (0.18 )

DISTRIBUTIONS TO COMMON STOCKHOLDERS:
                                               
Net investment income
    –          (0.02 )     (0.03 )     (0.06 )     (0.01 )     –     
Net realized gain on investments
    –          (0.07 )     (0.11 )     (0.28 )     (0.14 )     –     

Total distributions to Common Stockholders
    –          (0.09 )     (0.14 )     (0.34 )     (0.15 )     –     

CAPITAL STOCK TRANSACTIONS:
                                               
Effect of reinvestment of distributions by Common Stockholders
    –          (0.01 )     (0.02 )     (0.04 )     (0.02 )     –     

Total capital stock transactions
    –          (0.01 )     (0.02 )     (0.04 )     (0.02 )     –     

NET ASSET VALUE, END OF PERIOD
    $7.44       $6.27       $7.28       $6.77       $5.94       $5.63  

MARKET VALUE, END OF PERIOD
    $6.77       $5.56       $6.65       $5.69       $4.72       $4.88  

TOTAL RETURN (a):
                                               
Market Value
    21.8 %***     (15.1 )%     19.7 %     27.9 %     (0.3 )%     (3.7 )%
Net Asset Value
    18.7 %***     (12.5 )%     10.0 %     20.9 %     8.7 %     (6.8 )%
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:
                                               
Total expenses (b,c)
    1.48 %**     1.88 %     1.47 %     1.44 %     1.51 %     1.62 %
Management fee expense
    1.00 %**     1.13 %     1.11 %     1.00 %     1.00 %     1.14 %
Other operating expenses
    0.48 %**     0.75 %     0.36 %     0.44 %     0.51 %     0.48 %
Net investment income (loss)
    0.57 %**     (0.16 )%     0.70 %     1.93 %     1.47 %     1.95 %
SUPPLEMENTAL DATA:
                                               
Net Assets, End of Period (in thousands)
    $88,730       $77,956       $86,654       $80,933       $71,003       $67,457  
Portfolio Turnover Rate
    34 %     61 %     54 %     69 %     60 %     90 %
PREFERRED STOCK:
                                               
Total shares outstanding
    800,000       800,000       800,000       800,000       800,000       800,000  
Asset coverage per share
    $110.91       $97.44       $108.32       $101.17       $88.75       $84.32  
Liquidation preference per share
    $25.00       $25.00       $25.00       $25.00       $25.00       $25.00  
Average market value per share (d)
    $25.62       $25.64       $25.09       $22.23       $24.00       $25.16  

(a)   The Market Value Total Return is calculated assuming a purchase of Common Stock on the opening of the first business day and a sale on the closing of the last business day of each period reported. Dividends and distributions, if any, are assumed for the purposes of this calculation to be reinvested at prices obtained under the Fund’s Distribution Reinvestment and Cash Purchase Plan. Net Asset Value Total Return is calculated on the same basis, except that the Fund’s net asset value is used on the purchase and sale dates instead of market value.
(b)   Expense ratios based on total average net assets were 1.10%, 1.43%, 1.11%, 1.05%, 1.06% and 1.16% for the periods ended June 30, 2003 and December 31, 2002, 2001, 2000, 1999 and 1998, respectively.
(c)   Expense ratios based on average net assets applicable to Common Stockholders before waiver of fees by the investment adviser would have been 1.82%, 2.06%, 1.69%, 1.81%, 1.93% and 1.88% for the periods ended June 30, 2003 and December 31, 2002, 2001, 2000, 1999 and 1998, respectively.
(d)   The average of month-end market values during the period.
 
*   To be allocated to net investment income and capital gains at year-end.
**   Annualized.
***   Not annualized.
 
 
46 |   THE ROYCE FUNDS SEMIANNUAL REPORT 2003
 
 





ROYCE FOCUS TRUST, INC.


NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

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

Valuation of Investments:
      Securities are valued as of the close of trading on the New York Stock Exchange (generally 4:00 p.m. Eastern Time) on the valuation date. Securities listed on an exchange or the Nasdaq National Market System (NMS) are valued at their last reported sales price or official closing price taken from the primary market in which each security trades 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. 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 are invested in certain Royce Funds until distributed in accordance with the agreement.

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

Distributions:
      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.

Securities Lending:
      The Fund loans securities to qualified institutional investors for the purpose of realizing additional income. This income is included in interest income. Collateral on all securities loaned for the Fund is accepted in cash and is invested temporarily, typically, and specifically at June 30, 2003, in a registered money market fund, by the custodian. The collateral is equal to at least 100% of the current market value of the loaned securities.

THE ROYCE FUNDS SEMIANNUAL REPORT 2003 |   47
 
 





ROYCE FOCUS TRUST, INC.


NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

 
Capital Stock:
 
      The Fund currently has 800,000 shares of 7.45% Cumulative Preferred Stock outstanding. The stock has a liquidation preference of $25.00 per share.
      Under the Investment Company Act of 1940, the Fund is required to maintain an asset coverage of at least 200% for the Preferred Stock. In addition, pursuant to the Rating Agency Guidelines established by Moody’s, the Fund is required to maintain a certain discounted asset coverage. The Fund has met these requirements since issuing the Preferred Stock.
      The Fund is required to allocate long-term capital gain distributions and other types of income proportionately to distributions made to holders of shares of Common Stock and Preferred Stock. To the extent that distributions are not paid from long-term capital gains, net investment income or net short-term capital gains, they will represent a return of capital.
      The Fund issued 79,701 shares of Common Stock as reinvestment of distributions by Common Stockholders for the year ended December 31, 2002.

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 six months ended June 30, 2003, the Fund accrued and paid Royce advisory fees totaling $292,900, which is net of $99,177 voluntarily waived by Royce.

Purchases and Sales of Investment Securities:
 
      For the six months ended June 30, 2003, the cost of purchases and proceeds from sales of investment securities, other than short-term securities, amounted to $23,629,502 and $23,175,577, respectively.


48 |   THE ROYCE FUNDS SEMIANNUAL REPORT 2003
 
 





POSTSCRIPT

 

VALUEBALL
 

          “With the first pick in the 2003 NBA draft, the Cleveland Cavaliers select LeBron James of St. Vincent-St. Mary High School.” So began another season of hope for another beleaguered franchise in the world of professional sports. LeBron is perhaps the most heralded basketball player to enter the pros since Michael Jordan. He may also be the most over-hyped. At the tender age of 18, he signed a $90 million contract with Nike before he ever played a minute of basketball beyond the high-school level. Other sports are hardly immune to the same manic thinking whereby an untried rookie is suddenly transformed into the Next Big Thing. Such is the heady bliss conjured by the magic word “potential.” Talent evaluation is, after all, an imperfect art. It is extraordinarily difficult to look at a young athlete playing at one level and determine how that same person might perform at the next.
 
          This is especially the case in baseball, by far the most challenging sport in which to project talent. (It also holds true for stock selection.) Yet some of the sport’s more shop-worn methods are changing and might soon be swept aside with the success of Michael Lewis’s bestseller, Moneyball, which focuses on Oakland Athletics General Manager Billy Beane. For the last several years, Beane has put together highly competitive teams with less than half the budget of a high-priced squad like the Yankees, Dodgers or Mets. One might say that he puts together teams in much the same way that we try to select stocks. He tends to gravitate toward players that many other scouts and general managers have ignored, believing in his own standards of player value as opposed to what others think will work best.
 
          Beane is a disciple of Bill James (no relation to LeBron), author of the occasionally maligned but obsessively studied tome The Baseball Abstract. Just as Benjamin Graham is the father of value investing, James (who first began publishing his reports in 1977) is the father of what has come to be called sabermetrics. Sabermetrics involves a combination of statistical analysis and subjective evaluation to obtain rational, objective information about a player’s abilities. For example, baseball people seldom looked at on-base-percentage (OBP), they thought mostly of a player’s batting average until Bill James. James pointed out that a player with a batting average of .275 and an OBP of .355 was more productive than one hitting .295 with an OBP of only .315 because, while he hit for a lower average, he was able to get on base more frequently by drawing walks more effectively than the latter player.
 
          We think that this effective measure of offensive efficiency bears comparison with Ben Graham’s notion of net net working capital. In Graham’s now-classic formulation, he looked at the worth of a company once all debts were paid. The remaining assets were what he used as the basis of a company’s valuation. In each case, a progressive thinker created a rational method of measuring value that flew in the face of conventional wisdom but that ultimately proved to be very successful. Here at Royce, we continue to use variations on Ben Graham’s method as one means of estimating company valuations.
 
          We see other parallels between the approach that James pioneered and our own methods of selecting securities. Like us, he is less enthralled with potential and concentrates instead on historical results. He has repeatedly questioned the validity of accepted ideas and has displayed a stubborn confidence in his work (as we did back in the ’70s, by insisting that value investing would indeed work in the small-cap world). He has seen qualities in players that others failed to notice and pointed out that quality athletes were often not the high-paid superstars most people thought a necessary part on any winning team.
          Of course, if our evaluations were as astute as his usually are, we might be using this space to discuss triple-digit mutual fund returns. Maybe we could hire him away from the Red Sox.








 
   

 

TheRoyceFunds

1414 AVENUE OF THE AMERICAS • NEW YORK, NY 10019

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

WEALTH OF EXPERIENCE

With approximately $10.7 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 Chief Investment Officer, enjoys one of the longest tenures of any active mutual fund manager. He is supported by a senior staff that includes five Portfolio Managers and a Managing Director, as well as nine analysts and five 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 $48 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    
 
CE-SA-0603

 
     



Item 2: Code(s) of Ethics - Not applicable to this semi-annual report.

Item 3: Audit Committee Financial Expert - Not applicable to this semi-annual report.

Item 4: Principal Accountant Fees and Services - Not applicable to this semi-annual report.

Item 5: Reserved.

Item 6: Reserved.

Item 7: Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies - Not applicable to this semi-annual report.

Item 8: Reserved.

Item 9: Controls and Procedures.

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

(b) Internal Controls. There were no significant changes in Registrant’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Item 10: Exhibits attached hereto. (Attach certifications as exhibits)

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

ROYCE FOCUS TRUST, INC.

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

Date: August 20, 2003

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

ROYCE FOCUS TRUST, INC.

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

Date: August 20, 2003

ROYCE FOCUS TRUST, INC.

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

Date: August 20, 2003