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

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT
OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-04875

Name of Registrant: Royce Value Trust, Inc.

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

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

Registrant’s telephone number, including area code: (212) 486-1445
Date of fiscal year end: December 31
Date of reporting period: January 1, 2004 - June 30, 2004

Item 1: Reports to Shareholders
2004 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 primarily in a limited number of small-cap companies.
    
     
   
A closed-end fund is an investment company whose shares are listed on a stock exchange or are traded in the over-the-counter market. Like all investment companies, including open-end mutual funds, the assets of a closed-end fund are professionally managed in accordance with the investment objectives and policies approved by the fund’s Board of Directors. A closed-end fund raises cash for investment by issuing a fixed number of shares through initial and other public offerings 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 stock-holder 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. Each of the Funds has adopted a quarterly distribution policy for its common stock.
    
   
We believe that the closed-end fund structure is very suitable for the long-term investor who understands the benefits of a stable pool of capital.
    
         
     
    WHY  DIVIDEND  REINVESTMENT  IS  IMPORTANT    
     
   
A very important component of an investor’s total return comes from the reinvestment of distributions. By reinvesting distributions, our investors can maintain an undiluted investment in a Fund. 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 19.

    
     
     
     


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, over a two-to five-year period, resulting in capital appreciation for Fund investors.  
 

Important Performance and Risk Information		   2  
The Royce Funds’ Average Annual Total Return Table   2  
Small-Cap Market Cycle Performance   3  
Letter to Our Stockholders: The Imperfect Storm   4  
Performance and Portfolio Review:
Royce Value Trust, Royce Micro-Cap Trust and Royce Focus Trust		   12  
History Since Inception   18  
Distribution Reinvestment and Cash Purchase Options   19  
Directors and Officers   20  
Notes to Performance and Other Important Information
   21  
Schedules of Investments and Other Financial Statements   23  
Postscript: “What Does it Take... to be the Best?”   Inside Back Cover  






IMPORTANT PERFORMANCE AND RISK INFORMATION

All performance information in this Report reflects past performance, is presented on a total return basis and reflects the reinvestment of distributions. Past performance is no guarantee of future results. Investment return and market value of an investment will fluctuate, so that shares may be worth more or less than their original cost when sold. Current performance may be higher or lower than performance quoted. Current month-end performance may be obtained at www.roycefunds.com. The Royce Funds invest primarily in securities of small-cap and/or micro-cap companies, which may involve considerably more risk than investments in securities of larger-cap companies.
  NAV AVERAGE ANNUAL TOTAL RETURNS Through June 30, 2004
  FUND 2ND QUARTER
2004*		   JAN-JUNE
2004*		   1-YEAR   3-YEAR   5-YEAR   10-YEAR   SINCE
INCEPTION		   INCEPTION
DATE
  Royce Value Trust   2.38 %   9.58 %   35.60 %   9.12 %   13.24 %   13.94 %   12.59 %     11/26/86
  Royce Micro-Cap Trust   0.79     8.36     41.25     13.88     16.96     15.08     14.37       12/14/93
  Royce Focus Trust   1.67     10.60     43.84     13.90     14.43     n.a.      12.91         11/1/96**
  Russell 2000   0.47     6.76     33.37     6.24     6.63     10.93            
  Royce Value Trust’s 15-year NAV average annual total return for the period ended 6/30/04 was 12.88%.
 
*  Not annualized.
**  Date Royce & Associates, LLC assumed investment management responsibility.



NOTES TO PERFORMANCE, STATISTICAL AND OTHER INFORMATION IN THIS REPORT
     The thoughts expressed in this report concerning recent market movements and future prospects for small company stocks are solely the opinion of Royce at June 30, 2004, and, of course, historical market trends are not necessarily indicative of future market movements. Statements regarding the future prospects for particular securities held in the Funds’ portfolios and Royce’s investment intentions with respect to those securities reflect Royce’s opinions as of June 30, 2004 and are subject to change at any time without notice. There can be no assurance that securities mentioned in this report will be included in any Royce-managed portfolio in the future.
     Standard deviation is a statistical measure within which a fund’s total returns have varied over time. The greater the standard deviation, the greater a fund’s volatility. The Funds’ P/E ratio calculations exclude companies with zero or negative earnings.
     The Russell 2000, Russell 2000 Value, Russell 2000 Growth, Nasdaq Composite 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.

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SMALL-CAP MARKET CYCLE PERFORMANCE


Since the Russell 2000’s inception on 12/31/78, value outperformed growth in five of the six full small-cap market cycles (defined as a move of 15% from a previous peak or trough). The last small-cap market cycle (4/21/98 - 3/9/00) was the exception. The current cycle represents what we believe is a return to more historically typical performance in that value has provided a significant advantage during the downturn (3/9/00 - 10/9/02) and through June 30, 2004.

 
 

 
 
        PRIOR PEAK-TO-PEAK
4/21/98 – 3/9/00		   PEAK-TO-TROUGH
3/9/00 – 10/9/02		   TROUGH-TO-CURRENT
10/9/02 – 06/30/04		   PEAK-TO-CURRENT
3/9/00 – 6/30/04		   PRIOR PEAK-TO-CURRENT
4/21/98 – 6/30/04		  
  Russell 2000   26.3 %   -44.1 %   84.8 %   3.3 %   30.4 %
  Russell 2000 Value   -12.7     2.0     83.1     86.7     63.0  
  Russell 2000 Growth   64.8     -68.4     86.7     -41.0     -2.8  
  NAV CUMULATIVE
TOTAL RETURN		                              
  Royce Value Trust   10.0     -12.2     83.5     61.2     77.3  
  Royce Micro-Cap Trust   10.6     -13.6     99.8     72.6     91.0  
  Royce Focus Trust   -10.7     -4.9     105.1     95.1     74.3  



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, 2004, growth led value during the rally from the October low. All three Royce Funds posted total returns of more than 80% 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, 2004, value maintained a sizeable lead over growth. Again, all three Royce Funds held performance advantages over the Russell 2000 (3.3%) and all have 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 Value’s 63.0% return.
 
 

All performance information in this Report reflects past performance, is presented on a total return basis and reflects the reinvestment of distributions. Past performance is no guarantee of future results. Investment return and market value of an investment will fluctuate, so that shares may be worth more or less than their original cost when sold. Current performance may be higher or lower than performance quoted. Current month-end performance may be obtained at www.roycefunds.com.
 
 
 

THE ROYCE FUNDS SEMIANNUAL REPORT 2004  |   3




   

LETTER TO OUR STOCKHOLDERS
 

Charles M. Royce, President

In our annual and semiannual reports, we feature two-page spreads that examine various aspects of a fund’s performance and portfolio diagnostics. One of these diagnostic measures is “Weighted Average P/B Ratio.”
“P/B” stands for “price to book,” “price” being a stock’s price as of the date of the reports and “book” referring to the company’s book value.
Book value, which can be computed through an analysis of the balance sheet, is sometimes called “equity,” “shareholders’ equity” or “book liquidation value.” It represents the net worth based on book value of a company and is calculated by subtracting the business’s liabilities from its total assets. One reason that many investment professionals find book value significant is that it measures the value of
(continued on page 6)		    

THE IMPERFECT STORM

T wo thousand four set sail swimmingly. Mostly rising stock prices seemed to promise that 2003’s rally would continue without interruption into the new year. Soon, however, storm clouds appeared that darkened the sunny view of the ongoing bull market. As there had been in 2003, whispers were heard on Wall Street about bear market rallies and a poor earnings picture that could not justify then-current equity prices. Yet almost as quickly as the skies went gray, a bit of bright light broke through again, and stock prices sailed forward, though on choppier waters. The economy continued to grow, and the worrisome international picture did not seem to generate sufficient undertow to pull stock prices lower, at least not for very long. But if foreign affairs were not capable of depressing prices, what about the specter of rising interest rates, a ghostly shadow that had been looming over the stock market since at least the summer of 2003? Was the rising wave of a recovering economy strong enough to counteract two potential bear market makers? Would it calm the growing tide of discontent that seemed to affect more and more investors each day as the first half drew to a close?
     With 2004 at the halfway mark, there are still no clear answers to these questions. More importantly, the resulting uncertainty has left many small-cap investors feeling stranded in tumultuous waters, casting about for calm seas, cloudless skies and a steady course. None seem forthcoming as of this writing. About the only thing that does seem clear is the stock market’s utter unpredictability. This goes beyond the daily movement in prices; it has more to do with an overall lack of direction for equities. For anyone whose investment experiences began in the mid-’90s or later, such a period probably feels very odd. With


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obvious exceptions (such as the third quarter of 1998 or the first of 1999 and 2000), much of the last 10 years has been characterized by more or less clearly demarcated bull or bear market periods. Although there was spirited debate about how much longer either might last, no one seemed to be asking, “What kind of market are we in right now?” But this is exactly the question to which investors have been craving an answer since at least February of this year. The frustration of not receiving a response seems palpable as prices rise one day then fall the next, rise again, then fall once more. It’s as if several small fleets were scurrying across choppy waters in one direction before being rapidly pulled off course, then tacking to the first course again, desperate for a smooth and lengthy current toward “Equity Treasure Island.”
     Unfortunately for all of us, a global positioning system (g.p.s.) for equities does not exist. More nettlesome still is that no device, no matter how sophisticated its technology, is capable of guiding investors to a safe harbor where they could gain a respite from the small-cap market’s currently wavy waters without the possibility of missing out on potential returns. Yet it seems to us that the storm-tossed seas of the first half of 2004 are likely to remain with us for at least the next several months. Investors may simply need to accept feeling lost at sea until the market establishes a more consistent direction; otherwise, increased frustration could result in even higher levels of volatility. The feeling is comparable to the disorientation that often sets in when, at a certain distance from land, you can no longer sense the shore unless you’re an experienced sailor. We suspect that many investors have had this frightening sensation lately, which is one reason why the market looks good for a brief period before suddenly lurching in the opposite direction. Our own take is that unsettled weather on the high seas is all part of the cyclical nature of equity investing. The most baffled investors are probably those wedded to investing as a form of instant gratification, yet from our perspective there are far worse things than the opportunity to potentially compound at mid single digits per year.

Unfortunately for all of us, a global positioning system (g.p.s.) for equities does not exist. More nettlesome still is that no device, no matter how sophisticated its technology, is capable of guiding investors to a safe harbor where they could gain a respite from the small-cap market’s currently wavy waters without the possibility of missing out on potential returns.


FLEETS AND FLOTILLAS

     The market’s susceptibility to waves and whirlpools affected equities of all sizes, from the most massive ships to the tiniest dinghies. For the six-month period ended 6/30/04, none of the major indices achieved a double-digit return, though the small-cap oriented Russell 2000 (+6.8%) managed to stay ahead of both the large-cap S&P 500 (+3.4%) and the more tech-oriented Nasdaq Composite (+2.2%). Small-cap’s advantage came from its firstquarter performance, in which its 6.3% return outpaced that of both other indices (+1.7% and -0.5%, respectively). In the second quarter, after having outperformed the S&P 500 for four consecutive quarters, the Russell 2000 (+0.5%) lost ground both to the large-cap index

THE ROYCE FUNDS SEMIANNUAL REPORT 2004  |   5
 
 


 





the company’s assets that shareholders would theoretically receive if a company were
liquidated at the value as
stated on the balance sheet.

The price-to-book ratio is one of the traditional ways by which value investors seek to determine whether or not a company is undervalued. The ratio compares the market’s assessment of a company’s worth, as measured by its stock price, to the net value of the company as expressed by its book value. If a price-to-book ratio is high, it means that the stock market has placed a high premium on the business above and beyond the value of its net assets as reflected on the balance sheet. For example, if the book value of a firm is $5 per share, but its current price is $10 per share, its price-to-book ratio would be 2.0x (10/5). If the stock price moves higher, but the book value remains the same, declines or grows more slowly, then the stock becomes more expensive
in relation to its book value.
Conversely, if a


(continued on page 8)


    

LETTER TO OUR STOCKHOLDERS

(+1.7%) and to the Nasdaq Composite (+2.7%). The second quarter also included the largest decline for the Russell 2000 since the first quarter of 2003. From 4/5/04 through 5/17/04, the small-cap index fell 11.6%. However, the intermediate-term news for the asset class was more encouraging. The Russell 2000 outperformed the S&P 500 for the one-, three- and five-year periods ended 6/30/04.
     Although small-cap was a market leader through the bear market of 2000 and during the subsequent rally that kicked off in October 2002, we were not surprised by either its modest year-to-date results or its relative second-quarter stall. In our view, one consequence of the currently volatile market is likely to be a more or less regular rotation in leadership between small- and large-cap stocks. And while we still feel confident about the prospects for small-cap outperforming large-cap for the decade taken as whole, it must be admitted that at least part of this confidence is owing to the strong head start that small-cap has so far enjoyed from the beginning of 2000 through the end of June 2004. We continue to believe that the market is sailing on choppy, low-return waters and that neither small- nor large-cap stocks are likely to gain much of an advantage over the other in the months to come. The good ship of single asset class dominance has sailed.

VESSELS OF VALUE

     In contrast to their practice of often sailing in different directions, the two small-cap style indices — the Russell 2000 Value and Russell 2000 Growth — wound up the first half of the year in similar ports, though value held an advantage. The small-cap value index was up 7.8% versus a gain of 5.7% for its growth counterpart for the year-to-date period ended 6/30/04. The indices were obviously subject to the same volatility that has been rocking many smaller vessels so far this year, so their modest results and performance proximity were not surprising. Each index suffered in the period from 4/5/04 through 5/17/04, as value fell 11.3% and the growth index declined 12.0%. Over longer-term periods, value continued to outpace growth within small-cap, despite underperforming in the trough-to-current period from 10/9/02 through 6/30/04 (+83.1% versus +86.7%). The Russell 2000 Value index outperformed the Russell 2000 Growth index for the one-, three-, five- and 10-year periods ended 6/30/04.
     Frankly, we do not have much insight as to why small-cap value and growth results ran so closely together through the end of June, but we do see a move toward quality developing that we think is consistent with the current low-return climate for stocks. Between 9/30/02 (close to the small-cap market trough on 10/9/02) and 1/31/04, historically more volatile micro-cap stocks outperformed their small-cap counterparts. The Russell 2000’s micro-cap members were up a cumulative 102.6% versus 55.2% for their small-cap
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counterparts during this period. This outperformance coincided with a period in which companies throughout the asset class that had no earnings outperformed those that did by more than 50% (+106.6% versus +53.5%). In addition, dividend-paying companies also suffered relative neglect from the small-cap trough on 10/9/02 through 1/31/04, up 42.5% compared to a gain of 80.2% for non-dividendpaying small-caps. Since the end of January, however, these trends appear to be reversing: From 1/31/04 through 6/30/04, the Russell 2000’s small-cap members were up 2.7% versus 1.1% for the index’s micro-cap companies. Small-cap companies with earnings bested those without, and dividend-paying small-caps were up 5.2% versus a loss of 6.9% for those that did not pay dividends. Investors, who seemed uninterested in company quality throughout the recent rally period, may be getting into a quality state of mind as they try to navigate the market’s waters.

We continue to believe that the market is sailing on choppy, low-return waters and that neither small- nor large-cap stocks are likely to gain much of an advantage over the other in the months to come. The good ship of single asset class dominance has sailed.


THE ROYCE REGATTA

     Signs of this trend can be seen to some degree in The Royce Funds’ closed-end portfolios’ year-to-date performances through the end of June 2004. For the year-to-date period ended 6/30/04, Royce Focus Trust — a portfolio that selects the bulk of its holdings from the upper tier of small-cap — was the top performer among our closed-end funds. The Fund limits the number of its holdings, so its strong performance was an equally powerful testament to what was truly a stock picker’s market in 2004’s first half. However, it was not the only Fund in this report to generate solid returns. The more broadly diversified Royce Value Trust and Royce Micro-Cap Trust also enjoyed relatively high year-to-date returns. In fact, all three of our closed-end offerings outpaced the Russell 2000 in the first half on a net asset value (NAV) basis (see the bar chart on page 8), but as always we are more concerned with long-term and market cycle performance. We are therefore pleased to report that each of our closed-end funds outperformed the Russell 2000 on an NAV basis from its prior cycle peak on 3/9/00, as well as for the applicable one-, three-, five-, and 10-year periods ended 6/30/04. (Please see pages 12-17 for more complete information on The Royce Funds’ performance during these periods.)


THE ROYCE FUNDS SEMIANNUAL REPORT 2004  |   7
 
 


   

LETTER TO OUR STOCKHOLDERS


  company is trading at, near or below its book value, its low P/B ratio indicates that a company may be undervalued relative to its stock price.

However, simply because a company is cheap does not mean that its stock is worth buying. Value investors – especially those here at Royce – also want to know that a company possesses strong qualities as a business. A low P/B ratio is not very helpful in determining company quality – there may be very good reasons for a low P/B. Earnings (or earnings power) produced by book value are the true driving forces of valuation for our purposes. In addition, the ratio is less meaningful for many companies in areas such as healthcare and technology. These businesses are far more likely to have significant intangible assets, especially intellectual property, which are of great value to the company, but that may not be fully reflected in the book value. At Royce, our portfolio managers and analysts thus do not look for companies


(continued on page 10)		    



     As more of a stock picker’s market, the first half of 2004 stood in stark contrast to 2003, when Tech and micro-cap companies dominated the rally. Trying to identify industry- or sector-wide performance trends among the Funds is something of a moot exercise. Areas that were big winners in some portfolios posted modest gains or net losses in others. The market’s refusal to flow in one direction for very long meant that purchase opportunities have been scarce, although the second quarter gave us more chances to find what we believe are attractively undervalued small-cap stocks than we had found in the first. In the past, the kind of frustration that is so widespread in the market today has often worked to our benefit. If 2004’s buying opportunities work out, that frustration could become profitable for us again.


ALL HANDS ON DECK — RATES RISING ON THE HORIZON

     Many equity investors are concerned about the recent decision by the Federal Reserve to raise interest rates, fearful that a rising interest rate environment would have a deleterious effect on stock market returns, especially those of small-company stocks. However, history offers a more


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mixed record. Through the ’50s and ’60s, interest rates were rising over the long term, yet small-caps did well, just as they did in the late ’70s, another period in which rates were on the rise. In fact, over the past 50 years, there have been two major, long-term interest rate cycles: a rising interest-rate period that stretched from June 1954 through September 1981 and a declining interest-rate period that began in September 1981 and lasted until June 2003.

During the first period, small-caps, as measured by the CRSP (Center for Research in Securities Prices) 6-10 Composite, produced an average annual total return of 12.9%; in the declining interest rate period, the CRSP 6-10 Composite’s average annual total return was 12.6% (see the table below).
  S&P 500 AND CRSP 6-10
  Interest Rate Cycle Average Annual Total Returns
  Rate Cycle Period   Start Rate   End Rate   Duration (Years)   S&P 500   CRSP 6-10
  6/30/54 - 9/30/81    2.3%      15.3%   27.3         9.3%       12.9%
  9/30/81 - 6/30/03   15.3        3.3   21.8    13.5    12.6

     In the more recent long-term period of declining rates, there were four instances of significant counter moves, or rate increases. The range of increases fell between 2.2% and 3.2%, and the periods lasted an average of approximately one year. During the first three periods, small-cap returns were negative (-11.7%, -19.3% and -3.4%), while the most recent saw a 44.7% gain. The three more difficult performance periods occurred at the end of

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LETTER TO OUR STOCKHOLDERS
 
with low P/B ratios during the security selection process, but our risk-averse approach usually results in owning many companies that have them.

This is not to suggest that book value and P/B ratios are not important. Each remains an important measure of valuing companies relative to their stock price. They are also a critical part of our ongoing examination of a business’s financial well being. Ideally, we like to see book value growing. In addition, we prefer to see a company’s P/B ratio remain somewhat low. Our conservative bias leads us to believe that the further away from book value a company’s stock price goes, the further away we move from our margin of safety, a critical component in terms of how much risk we are willing to take in the stocks that we own. 		   



small-cap outperformance cycles in 1984, 1987 and 1994. Conversely, the positive performance period took place when small-cap was emerging as a market leader from late 1998 through January 2000 (see the table below). We suspect that small-cap returns in these counter-move periods owed more to the cyclical nature of the asset class than to any supposed interest rate sensitivity. We believe that the recent increase in interest rates is not likely to be a short-term phenomenon, but instead marks the beginning of a long-term trend that dates back to June 2003 when long-term rates were at 3.3%. In any case, our belief is that interest rates are not the primary driver of equity — including small-cap equity — returns, but are simply one factor among many to consider when making investment decisions.

 
  S&P 500 AND CRSP 6-10
  Declining Rate Period Counter Trend Cumulative Results
Rate Cycle Period Start Rate End Rate Duration (Years) S&P 500 CRSP 6-10
5/31/83 - 6/30/84 10.4%   13.6% 1.1   -1.0%     -11.7%
1/31/87 - 10/31/87 7.1 9.5 0.7 -6.1 -19.3
10/31/93 - 11/30/94 5.3 8.0 1.1 0.1 -3.4
10/31/98 - 1/31/00 4.5 6.7 1.3 29.0 44.7


 


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SETTING SAIL FOR HOME

      In thinking about the important factors inherent in any investment decision, we would advance the notion that overall company quality is a critical factor, especially in the current market climate. Quality has not, however, been a consistent driver of equity returns over the years. We have witnessed cycles that have brought us euphoria, and those that have left us crestfallen. In the former, we found that many investors shared our craving for quality, while in the latter they seemed impervious to its charms. The trends that we mentioned earlier — the stronger performance from 1/31/04 through 6/30/04 for small-cap stocks with earnings and/or those that pay dividends — have been of very brief duration, but we believe that they may mark the beginning of a period in which investors will be looking for seasoned, high-quality small-cap companies. Of course, value approaches have no monopoly on quality, especially if one views strong growth prospects as a qualitative measure. Still, our view is that the most effective way for us to navigate the potentially treacherous waters between the Scylla of rising interest rates and Charybdis of possible inflation is to continue doing what we have always done — search for what we think are financially strong, attractively priced small companies.


Our view is that the most effective way for us to navigate the potentially treacherous waters between the Scylla of rising interest rates and Charybdis of possible inflation is to continue doing what we have always done – search for what we think are financially strong, attractively priced small companies.

We appreciate your continued support.
       
Sincerely,
       
 
     Charles M. Royce
         President		 W. Whitney George
Vice President		 Jack E. Fockler, Jr.
Vice President		  
       
July 31, 2004
       

The market performance data and trends outlined in this letter are presented for illustrative purposes only. The thoughts concerning recent market movements and future prospects for small-company stocks are solely those of Royce & Associates, and, of course, there can be no assurance with regard to future market movements. Small- and micro-cap stocks may involve considerably more risk than larger-cap stocks. Past performance is no guarantee of future results. Historical market trends are not necessarily indicative of future market movements.


THE ROYCE FUNDS SEMIANNUAL REPORT 2004  |   11
 
 


ROYCE VALUE TRUST
                   
  AVERAGE ANNUAL TOTAL RETURNS
Through 6/30/04		  
MANAGER’S DISCUSSION

Royce Value Trust’s (RVT) broadly diversified portfolio of small- and micro-cap stocks successfully navigated the tempestuous seas of the small-cap realm in 2004’s first half. For the year-to-date period ended 6/30/04, the Fund was up 9.6% on a net asset value (NAV) basis and 6.5% on a market price basis. RVT’s year-to-date NAV performance was ahead of the small-cap oriented Russell 2000, which gained 6.8%, but trailed the small-cap S&P 600 index, which was up 10.1% for the same period. These results were mirrored by the Fund’s second-quarter returns, in which RVT gained 2.4% on an NAV basis and 1.0% on a market price basis. The Russell 2000 was up 0.5% in the second quarter while the S&P600 finished the quarter with a return of 3.6%. RVT’s NAV performance over market cycle and long-term periods was also solid on an absolute, as well as on a relative, basis. From the previous small-cap market peak on 3/9/00 through 6/30/04, the Fund was up 61.2% versus respective gains of 3.3% and 37.5% for the Russell 2000 and S&P 600. On an NAV basis, RVT outpaced the S&P 600 for the one-, five-, 10-, 15-year and since inception (11/26/86) periods ended 6/30/04 and was ahead of the Russell 2000 for each of these periods and for the three-year period as well. On a market price basis, RVT outperformed both benchmarks for the three-, five-, 10-, 15-year and since inception (11/26/86) periods ended 6/30/04. The Fund’s average annual NAV total return since inception was 12.6%.
          With the exception of modest losses among Technology holdings, the Fund enjoyed positive performances from all of its sectors, particularly in Industrial Products and Industrial Services. Several of these companies experienced slumping prices in the high-test rally in 2003 that primarily benefitted Technology, micro-cap and other more speculative stocks, which gave us the opportunity to build existing positions. Others are perennial favorites in the portfolio in which we were already holding good-sized stakes. We have owned BHA Group Holdings at various times dating back to shortly after the Fund’s inception owing to our interest in its well-run and unique business. The company manufactures air pollution control equipment known as baghouses and electrostatic precipitators. Although its stock price had been mostly on the rise between January and May, it rose precipitously on the announcement on May 31 that the energy division of General Electric was acquiring the company. We held a significant position at June 30. Another old favorite — and a top-10 holding — was welding and cutting products manufacturer Lincoln Electric Holdings. Its business improved late in 2003, especially its expanding operations in China, leading to a recovery in its stock price, which rose more or less steadily in 2004’s first half. MPS Group provides staffing, consulting and business services with a specialization in IT services through its subsidiary Modis. We like its business and low-debt balance sheet. Although volatile, its stock price turned in solid returns in the first half as conditions in IT services saw widespread improvement.
          Elsewhere in the portfolio, we had success with Urban Outfitters, a merchandiser and specialty retail store operator that we have liked since first purchasing shares in 1998. It experienced strong sales and also announced a two-for-one stock split in June. We took gains in January and May.


All performance information in this Report reflects past performance, is presented on a total return basis and reflects the reinvestment of distributions. Past performance is no guarantee of future results. Investment return and market value of an investment will fluctuate, so that shares may be worth more or less than their original cost when sold. Current performance may be higher or lower than performance quoted. Current month-end performance may be obtained at www.roycefunds.com.
  
  Second Quarter 2004*   2.38%  
 
  January-June 2004*   9.58     
 
  1-Year   35.60      
 
  3-Year   9.12    
 
  5-Year   13.24     
 
  10-Year   13.94     
 
  15-Year   12.88     
 
  Since Inception (11/26/86)   12.59     
* Not annualized.      
         
  RISK/RETURN COMPARISON
3-Year Period ended 6/30/04		  
    Average Annual
Total Return		   Standard
Deviation		   Return
Efficiency*		  
 
  Royce Value Trust (NAV) 9.1%   23.0   0.40  
 
  S&P 600 9.4%   21.0   0.45  
 
  Russell 2000 6.2%   23.9   0.26  

*

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 Russell 2000 on both an absolute and a risk-adjusted basis.
  
         
 
                   
  CALENDAR YEAR NAV TOTAL RETURNS    
  Year     RVT   Year      RVT    
   
  2003   40.8%   1995   21.1%     
   
  2002   -15.6%   1994   0.1        
   
  2001   15.2      1993   17.3        
   
  2000   16.6      1992   19.3        
   
  1999   11.7      1991   38.4        
   
  1998   3.3      1990   -13.8        
   
  1997   27.5      1989   18.3        
   
  1996   15.5      1988   22.7        
 
12  |   THE ROYCE FUNDS SEMIANNUAL REPORT 2004


PERFORMANCE AND PORTFOLIO REVIEW
                         
      PORTFOLIO DIAGNOSTICS
    GOOD IDEAS THAT WORKED  
MGP Ingredients — What happens to a company in an Atkins-diet-crazed country when it has success creating low-carbohydrate wheat gluten products? For one thing, the company’s stock price rises like yeast in an oven, as evidenced by the strong first-half showing of this agricultural products producer. We sold more than half of our position between January and May.
       Median Market Capitalization $996 million  
    Net Realized and Unrealized Gain      
    Year-to-Date Through 6/30/04         Weighted Average P/E Ratio 21.5x  
    MGP Ingredients $6,693,880        
 
        Weighted Average P/B Ratio 2.1x  
    CompX International Cl. A 4,146,920        
 
        Weighted Average Yield 0.8%  
    Urban Outfitters 2,642,588        
 
        Fund Net Assets $916 million  
    BHA Group Holdings 2,378,100        
 
        Turnover Rate 9%  
    Input/Output 2,364,078        
 

CompX International — We enjoyed sudden and unexpected success with this maker of cabinet and computer support systems parts. Shortly after purchasing shares in May, NLIndustries announced that it wished to purchase the bulk of the company’s outstanding stock, sending its price to new heights. We held a significant position at June 30.
       Net Leverage† 11%  
     
        Symbol - Market Price RVT  
       
- NAV
 XRVTX  
                  †
Net leverage is the percentage, in excess of 100%, of the total value of equity type investments, divided by net assets applicable to Common Stockholders.
    GOOD IDEAS AT THE TIME  
Cabot Microelectronics — We once held great affection for the core business of this firm. It supplies high-performance polishing slurries used to make integrated circuits for semiconductors in a process called chemical mechanical planarization. As the first half drew to a close, it looked as though its competitors were catching up with it, so we were monitoring the company’s situation more carefully.
    
    Net Realized and Unrealized Loss        
    Year-to-Date Through 6/30/04         TOP 10 POSITIONS
    Cabot Microelectronics $1,878,868           % of Net Assets Applicable to Common Stockholders
 
        Apollo Investment 1.1 %
    Falcon Products 1,354,884        
 
        Simpson Manufacturing 1.1  
    Syntel 1,258,839        
 
        Ritchie Bros. Auctioneers 1.0  
    Time Warner Telecom Cl. A 1,063,260        
 
        Arrow International 1.0  
    Moore Wallace 1,059,624        
 

Falcon Products — The market position of this supplier of furniture to restaurants looked very secure to us when we first began to buy shares and build our position. As its business stalled, the company took on debt, and we were suddenly far less comfortable.
       Sotheby’s Holdings Cl. A 0.9  
     
        Lincoln Electric Holdings 0.9  
     
        Erie Indemnity Company Cl. A 0.9  
                 
                    MacDermid 0.8  
 
    MPS Group 0.8  
 
    Nordson Corporation 0.8  
         
    PORTFOLIO SECTOR BREAKDOWN
    % of Net Assets Applicable to Common Stockholders
    Technology 20.6 %
 
    Industrial Products 18.5  
 
    Industrial Services 15.2  
 
    Health 11.0  
                 
The regular reinvestment of distributions makes a difference!     Financial Intermediaries 10.6  
1
Reflects the cumulative total return of an investment made by a stockholder who purchased one share at inception ($10.00 IPO) and then reinvested all annual distributions as indicated, and fully participated in primary subscriptions of the Fund’s rights offerings.
  
      Natural Resources 9.1  
   
2
Reflects the actual market price of one share as it has traded on the NYSE.
     Consumer Products 7.3  
                 
                    Financial Services 7.0  
                 
                    Consumer Services 6.2  
                 
                    Utilities 0.2  
                 
                    Miscellaneous 4.8  
                 
                    Bonds & Preferred Stock 0.3  
                 
                    Treasuries, Cash & Cash Equivalents 13.2  
                         
                    CAPITAL STRUCTURE
                    Publicly Traded Securities Outstanding
                    at 6/30/04 at NAV or Liquidation Value
                    51.1 million shares
of Common Stock		 $916 million  
                 
                    5.90% Cumulative
Preferred Stock		 $220 million  
 
THE ROYCE FUNDS SEMIANNUAL REPORT 2004  |   13


ROYCE MICRO-CAP TRUST
                   
  NAV AVERAGE ANNUAL TOTAL RETURNS
Through 6/30/04		  
MANAGER’S DISCUSSION

Following a red-hot 2003, micro-cap performance may have cooled down a bit in 2004’s first half, but you’d never know it from looking at recent short-term returns for Royce Micro-Cap Trust (RMT). For the year-to-date period ended 6/30/04, the Fund was up 8.4% on a net asset value (NAV) basis and 10.8% on a market price basis, both returns ahead of the 6.8% gain turned in by RMT’s small-cap benchmark, the Russell 2000. The Fund also beat the benchmark on both an NAV and market price basis in the second quarter, when micro-cap performance in general began to stall. RMT had respective NAV and market price returns of 0.8% and 2.3% versus 0.5% for the small-cap benchmark in the second quarter. The news was even better over recent market cycle and long-term performance periods. From the previous small-cap market peak on 3/9/00, RMT gained 72.6% on an NAV basis versus a 3.3% return for the benchmark. On both an NAV and market price basis, the Fund also outperformed the Russell 2000 for the one-, three-, five-, 10-year and since inception (12/14/93) periods ended 6/30/04. RMT s average annual NAV total return since inception was 14.4%.
          2003 was a year in which investors generally flocked to more speculative issues and enjoyed double-digit returns as a result. On the other hand, within small-cap the first half of 2004 generally bestowed favor on higher quality, more liquid companies, producing mostly single-digit positive performances. After leading small-caps (and most other equities) from October 2002 through the end of January 2004, micro-caps ceded leadership to their larger siblings within small-cap in February, though by a small margin. We expect that this trend will continue at least through the end of the year, as will the kind of constant volatility that marked the year’s first six months. However, this should not be construed as dire news for micro-caps or those who invest in them. Small-cap leadership has historically been cyclical, and our own approach to security selection remains firmly rooted in individual company quality. Just as important, our perspective remains focused on the long term. In addition, RMT produced solid absolute results not just in 2004’s first half but in the February through June period as well.
          Seven of the Fund’s nine sectors turned in positive performances in the year-to-date period, and the two that did not — Technology and Financial Services — posted only modest losses. Dominating performance were portfolio holdings in the Industrial Products sector, home to three of the Fund’s top five performing holdings. Sun Hydraulics manufactures high-performance, screw-in hydraulic cartridge valves and manifolds for fluid power systems. Its business endured some difficulties between 2001 and 2003 before recovering in 2004. Increased sales seemed enough to attract investors, as its price climbed through most of the first half. We trimmed our position in February, May and June, but still hold a good-sized stake.
          We like the way in which managed care company Sierra Health Services has made a name for itself as a small market H.M.O. The firm’s earnings improved in 2004, and its earnings outlook was even more optimistic, making it easy for us to hold a large stake at June 30.


All performance information in this Report reflects past performance, is presented on a total return basis and reflects the reinvestment of distributions. Past performance is no guarantee of future results. Investment return and market value of an investment will fluctuate, so that shares may be worth more or less than their original cost when sold. Current performance may be higher or lower than performance quoted. Current month-end performance may be obtained at www.roycefunds.com.
 
  Second Quarter 2004*   0.79%  
 
  January-June 2004*   8.36    
 
  1-Year   41.25     
 
  3-Year   13.88     
 
  5-Year   16.96     
 
  10-Year   15.08     
 
  Since Inception (12/14/93)   14.37     
* Not annualized.      
         
  RISK/RETURN COMPARISON
3-Year Period ended 6/30/04		  
    Average Annual
Total Return		   Standard
Deviation		   Return
Efficiency*		  
 
  Royce Micro-Cap Trust (NAV) 13.9%    25.7   0.54  
 
  Russell 2000 6.2%   23.9   0.26  

*

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      RMT    
   
  2003   55.6%    
   
  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 2004


PERFORMANCE AND PORTFOLIO REVIEW
                         
      PORTFOLIO DIAGNOSTICS
    GOOD IDEAS THAT WORKED  
Stein Mart — An earnings recovery and improving sales proved to be a winning formula for this discount fashion retailer with a business that we have liked for some years. It was the Fund’s top holding at June 30.

Juno Lighting — A company that we first bought in RMT’s portfolio in 2000, this designer of recessed and track-lighting fixtures appealed to us because of its high profit margins in
       Median Market Capitalization $279 million  
    Net Realized and Unrealized Gain      
    Year-to-Date Through 6/30/04         Weighted Average P/E Ratio 19.5x *
    Stein Mart $2,287,304        
 
        Weighted Average P/B Ratio 1.8x  
    Juno Lighting 1,661,380        
 
        Weighted Average Yield 0.6%  
    Sun Hydraulics 1,580,385        
 
        Fund Net Assets $271 million  
    BHA Group Holdings 1,230,428        
 
        Turnover Rate 16%  
    TransAct Technologies 1,224,007        
            Net Leverage† 5%  
 
an industry that’s known for tight ones. Its business remained strong and its stock price rose, leading us to hold a large stake at June 30.
    
        Symbol - Market Price RMT  
       
- NAV
 XOTCX  
             
      *
Excludes 22% of portfolio holdings with zero or negative earnings as of 6/30/04.
    GOOD IDEAS AT THE TIME  
iGATECorporation — A recovery in the IT services industry did little for the stock price of this IT consultant and staffing services firm. We held a significant position at June 30 because we still think that it’s a well-run, conservatively capitalized business.

Wet Seal (The) — We liked the low debt and solid reputation of this specialty retailer that focuses on clothing for teenage girls. Sales slumped and the turnaround that we had hoped for never
      
    Net Realized and Unrealized Loss       †
Net leverage is the percentage, in excess of 100%, of the total value of equity type investments, divided by net assets applicable to Common Stockholders.
    Year-to-Date Through 6/30/04              
    iGATE Corporation $1,144,525           TOP 10 POSITIONS
% of Net Assets Applicable to Common Stockholders
 
       
    Wet Seal (The) Cl. A 848,079           Stein Mart 1.7 %
 
     
    Young Innovations 651,370           Juno Lighting 1.7  
 
     
    Syntel 463,488           Delta Apparel 1.3  
 
     
    Modem Media 422,346           BHA Group Holdings 1.3  
               
 
materialized. Still confident that the company can reverse its fortunes, we held a significant position at June 30.
       Seneca Foods 1.2  
     
                    Excel Technology 1.2  
       
        Transaction Systems Architects Cl. A 1.1  
     
        Sapient Corporation 1.1  
     
                    ASA 1.1  
                 
    PICO Holdings 1.0  
         
    PORTFOLIO SECTOR BREAKDOWN
    % of Net Assets Applicable to Common Stockholders
    Technology 23.3 %
 
    Industrial Products 16.1  
 
    Industrial Services 15.1  
 
    Health 11.1  
 
    Natural Resources 10.3  
 
      Consumer Products 7.3  
The regular reinvestment of distributions makes a difference!  
1
Reflects the cumulative total return of an investment made by a stockholder who purchased one share at inception ($7.50 IPO) and then reinvested distributions as indicated, and fully participated in the primary subscription of the 1994 right offering.
     Financial Intermediaries 7.2  
   
2 Reflects the actual market price of one share as it has traded on the Nasdaq and, beginning 12/1/03, on the NYSE.     Consumer Services 6.0  
                 
                    Diversified Investment Companies 2.0  
                 
                    Financial Services 1.2  
                 
                    Miscellaneous 4.9  
                 
                    Preferred Stocks 0.5  
                 
                    Treasuries, Cash & Cash Equivalents 17.1  
                         
                    CAPITAL STRUCTURE
                    Publicly Traded Securities Outstanding
                    at 6/30/04 at NAV or Liquidation Value
                    19.5 million shares
of Common Stock		 $271 million  
                 
                    6.00% Cumulative
Preferred Stock		 $60 million  
 
THE ROYCE FUNDS SEMIANNUAL REPORT 2004  |   15


ROYCE FOCUS TRUST
                   
  NAV AVERAGE ANNUAL TOTAL RETURNS
Through 6/30/04		  
MANAGER’S DISCUSSION

Quality companies from the upper tier of the small-cap universe profited from the recent shift in leadership within the sector. The move certainly helped many of the holdings in Royce Focus Trust’s (FUND) limited portfolio of small-cap securities in the first half. For the year-to-date period ended 6/30/04, the Fund was up 10.6% on a net asset value (NAV) basis, well ahead of its small-cap benchmark, the Russell 2000, which was up 6.8% for the same period. The Fund was up 5.2% on a market price basis year-to-date. The NAV return in 2004’s second quarter was 1.7% (versus 0.5% for the Russell 2000), and the Fund’s market price return was -6.6%. While some snapback in the Fund’s market price after a strong first quarter result was understandable, we were frankly mystified by the market price’s sudden recoil from April through June. Over market-cycle and long-term performance periods, the Fund shone on both a market price and NAV basis. From the previous small-cap market peak on 3/9/00 through 6/30/04, the Fund was up 95.1% on an NAV basis and 109.0% on a market price basis versus a return of 3.3% for the small-cap index. The Fund outpaced the Russell 2000 for the one-, three-, five-year and since inception of our management (11/01/96) periods ended 6/30/04 on both a market price and NAV basis. The Fund’s average annual NAV total return since inception was 12.9%.
          The recent move to quality has been of very short duration, lasting only from February through the end of June, but may mark the beginning of a longer-term trend. During the rally that lasted from 10/9/02 through 1/31/04, not only did small-cap fall behind micro-cap, but companies with earnings trailed those without and businesses that paid dividends posted lower returns than those that did not. However, all three of these trends have reversed since the end of January. After a 16-month period of outperformance, a reversal was not unexpected, and has so far benefitted several of the Fund’s portfolio holdings.
          Holdings in the Health, Industrial Products and Financial Intermediaries sectors made the most significant positive impact on first-half performance. The rising price of generic and brand name drug maker Endo Pharmaceuticals Holdings led us to take some gains in February and April, though we still hold a good-sized position. Top-10 holding Schnitzer Steel Industries is a recycling and scrap metal company in a unique business with little competition and high barriers to entry. We think that it’s a well-managed firm and were pleased to see it post record profits and to explore the sale of one of its mills in the first half. Another top-10 position, Alleghany Corporation, is a holding company whose primary business is insurance. The firm made a series of what we regard as interesting acquisitions late in 2003 and has been deploying its cash effectively, two factors that boosted our confidence.
          Elsewhere in the portfolio, we sold our position in Tom Brown in April. We have long liked the fundamentals and management of this oil and natural gas company and were given a chance to sell at a substantial gain when a large Canadian oil and natural gas producer, Encana, announced that it was acquiring the firm. We also sold our position in Charming Shoppes, a women’s fashion retailer that has been held in many Royce-managed portfolios over the years due to our admiration for its ability to succeed in an extraordinarily competitive industry.


All performance information in this Report reflects past performance, is presented on a total return basis and reflects the reinvestment of distributions. Past performance is no guarantee of future results. Investment return and market value of an investment will fluctuate, so that shares may be worth more or less than their original cost when sold. Current performance may be higher or lower than performance quoted. Current month-end performance may be obtained at www.roycefunds.com.
  
  Second Quarter 2004*    1.67%  
 
  January-June 2004*   10.60     
 
  1-Year   43.84     
 
  3-Year   13.90     
 
  5-Year   14.43     
 
  Since Inception (11/1/96)†   12.91    
* Not annualized.      
†
Royce & Associates assumed investment management responsibility for the Fund on 11/1/96.
  
         
  RISK/RETURN COMPARISON
3-Year Period ended 6/30/04		  
    Average Annual
Total Return		   Standard
Deviation		   Return
Efficiency*		  
 
  Royce Focus Trust (NAV) 13.9%   23.8   0.58  
 
  Russell 2000  6.2%   23.9   0.26   

*

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    
   
  2003   54.3%    
   
  2002   -12.5       
   
  2001   10.0       
   
  2000   20.9       
   
  1999   8.7       
   
  1998   -6.8       
   
  1997   20.5       
 
16  |   THE ROYCE FUNDS SEMIANNUAL REPORT 2004


PERFORMANCE AND PORTFOLIO REVIEW
                         
      PORTFOLIO DIAGNOSTICS
    GOOD IDEAS THAT WORKED  
Nu Skin Enterprises — We like the core business of this direct marketer of cosmetics and diet and nutritional supplements. New products succeeded in North America, its increasingly important Japanese business flourished and the firm made profitable inroads into China. It was a top-10 holding in the Fund at June 30.
      Median Market Capitalization $1,191 million  
    Net Realized and Unrealized Gain      
    Year-to-Date Through 6/30/04         Weighted Average P/E Ratio 19.2x  
    Nu Skin Enterprises Cl. A $1,348,243        
 
        Weighted Average P/B Ratio 2.5x  
    Input/Output 1,144,358        
 
        Weighted Average Yield 1.6%  
    Tom Brown 925,084        
 
        Fund Net Assets $96 million  
    Alleghany Corporation 863,952        
 
        Turnover Rate 24%  
    Endo Pharmaceuticals Holdings 711,023        
 

Input/Output — The company provides several seismic imaging products primarily used by seismic contracting and oil and gas companies. New management took over the firm in 2002, with the intention of maintaining the company’s preeminence in its field. Booming business and what we think were a series of smart acquisitions indicate that they are succeeding. It was a top-10 holding in the Fund at June 30.
      Net Leverage† 3%  
     
        Symbol - Market Price FUND  
       
- NAV
 XFUNX  
                         
                  †
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  
Hecla Mining Company — This silver, gold, lead and zinc miner suffered from the same King Midas in Reverse condition that afflicted many of its compeers in the precious metals industry. We remain hopeful that this well-managed firm can turn things around, so we increased our position in the first half.
      
    Net Realized and Unrealized Loss        
    Year-to-Date Through 6/30/04         TOP 10 POSITIONS
    Hecla Mining Company $915,285           % of Net Assets Applicable to Common Stockholders
 
        New Zealand Government 6.5% Bond 6.7 %
    Goldcorp 770,400        
 
        Simpson Manufacturing 4.1  
    Callaway Golf Company 560,411        
 
        Alleghany Corporation 3.8  
    Syntel 408,000        
 
        Schnitzer Steel Industries Cl. A 3.6  
    CEVA 287,626        
 
Goldcorp — We still believe that this is one of the premier North American gold mining companies. However, the prospect (and subsequent actuality) of rising interest rates, the rallying U.S. dollar and the decision on the part of the Chinese government to curb growth all conspired to depress precious metals prices. This in turn hurt the stock prices of companies such as Goldcorp, but we held a significant position at June 30.
       Glamis Gold 3.3  
     
        Bruker BioSciences 3.2  
     
        E*TRADE Financial 6% Cv. 3.2  
                 
                    Nu Skin Enterprises Cl. A 3.2  
 
    Input/Output 3.0  
 
    Florida Rock Industries 3.0  
         
    PORTFOLIO SECTOR BREAKDOWN
    % of Net Assets Applicable to Common Stockholders
    Industrial Products 20.0 %
 
    Natural Resources 19.1  
 
    Health 14.2  
 
    Financial Intermediaries 10.3  
                 
1
Royce & Associates assumed investment management responsibility for the Fund on 11/1/96.
     Industrial Services 7.0  
2
Reflects the cumulative total return experience of a continuous common stockholder who reinvested all distributions.
  
3
Reflects the actual market price of one share as it has traded on the Nasdaq.
     Consumer Products 6.7  
                 
        Technology 6.2  
                 
                    Financial Services 5.6  
                 
                    Consumer Services 4.5  
                 
                    Bonds 9.9  
                 
                    Treasuries, Cash & Cash Equivalents 22.7  
                         
                    CAPITAL STRUCTURE
                    Publicly Traded Securities Outstanding
                    at 6/30/04 at NAV or Liquidation Value
                    9.8 million shares
of Common Stock		 $96 million  
                 
                    6.00% Cumulative
Preferred Stock		 $25 million  
 
THE ROYCE FUNDS SEMIANNUAL REPORT 2004  |   17




HISTORY SINCE INCEPTION

The following table details the share accumulations by an initial investor in the Funds who reinvested all distributions (including fractional shares) and participated fully in primary subscriptions for each of the rights offerings. Full participation in distribution reinvestments and rights offerings can maximize the returns available to a long-term investor. This table should be read in conjunction with the Performance and Portfolio Reviews of the Funds.
 
  HISTORY     AMOUNT
INVESTED		   PURCHASE
PRICE*		   SHARES   NAV  
VALUE		 ** MARKET
VALUE**
Royce Value Trust                          
  11/26/86   Initial Purchase   $ 10,000   $ 10.000   1,000   $ 9,280   $ 10,000  
  10/15/87   Distribution $0.30           7.000   42              
  12/31/87   Distribution $0.22           7.125   32     8,578     7,250  
  12/27/88   Distribution $0.51           8.625   63     10,529     9,238  
  9/22/89   Rights Offering     405     9.000   45              
  12/29/89   Distribution $0.52           9.125   67     12,942     11,866  
  9/24/90   Rights Offering     457     7.375   62              
  12/31/90   Distribution $0.32           8.000   52     11,713     11,074  
  9/23/91   Rights Offering     638     9.375   68              
  12/31/91   Distribution $0.61           10.625   82     17,919     15,697  
  9/25/92   Rights Offering     825     11.000   75              
  12/31/92   Distribution $0.90           12.500   114     21,999     20,874  
  9/27/93   Rights Offering     1,469     13.000   113              
  12/31/93   Distribution $1.15           13.000   160     26,603     25,428  
  10/28/94   Rights Offering     1,103     11.250   98              
  12/19/94   Distribution $1.05           11.375   191     27,939     24,905  
  11/3/95   Rights Offering     1,425     12.500   114              
  12/7/95   Distribution $1.29           12.125   253     35,676     31,243  
  12/6/96   Distribution $1.15           12.250   247     41,213     36,335  
  1997   Annual distribution total $1.21           15.374   230     52,556     46,814  
  1998   Annual distribution total $1.54           14.311   347     54,313     47,506  
  1999   Annual distribution total $1.37           12.616   391     60,653     50,239  
  2000   Annual distribution total $1.48           13.972   424     70,711     61,648  
  2001   Annual distribution total $1.49           15.072   437     81,478     73,994  
  2002   Annual distribution total $1.51           14.903   494     68,770     68,927  
  1/28/03   Rights Offering     5,600     10.770   520              
  2003   Annual distribution total $1.30           14.582   516     106,216     107,339  
  2004   Year-to-Date distribution total $0.69           17.115   254              
  6/30/04       $ 21,922         6,491   $ 116,384   $ 114,307  
Royce Micro-Cap Trust                              
  12/14/93   Initial Purchase   $ 7,500   $ 7.500   1,000   $ 7,250   $ 7,500  
  10/28/94   Rights Offering     1,400     7.000   200              
  12/19/94   Distribution $0.05           6.750   9     9,163     8,462  
  12/7/95   Distribution $0.36           7.500   58     11,264     10,136  
  12/6/96   Distribution $0.80           7.625   133     13,132     11,550  
  12/5/97   Distribution $1.00           10.000   140     16,694     15,593  
  12/7/98   Distribution $0.29           8.625   52     16,016     14,129  
  12/6/99   Distribution $0.27           8.781   49     18,051     14,769  
  12/6/00   Distribution $1.72           8.469   333     20,016     17,026  
  12/6/01   Distribution $0.57           9.880   114     24,701     21,924  
  2002   Annual distribution total $0.80           9.518   180     21,297     19,142  
  2003   Annual distribution total $0.92           10.004   217     33,125     31,311  
  2004   Year-to-Date distribution total $0.53           12.917   103              
  6/30/04       $ 8,900         2,588   $ 35,896   $ 34,679  
Royce Focus Trust                              
  10/31/96   Initial Purchase   $ 4,375   $ 4.375   1,000   $ 5,280   $ 4,375  
  12/31/96                         5,520     4,594  
  12/5/97   Distribution $0.53           5.250   101     6,650     5,574  
  12/31/98                         6,199     5,367  
  12/6/99   Distribution $0.145           4.750   34     6,742     5,356  
  12/6/00   Distribution $0.34           5.563   69     8,151     6,848  
  12/6/01   Distribution $0.14           6.010   28     8,969     8,193  
  12/6/02   Distribution $0.09           5.640   19     7,844     6,956  
  12/8/03   Distribution $0.62           8.250   94     12,105     11,406  
  2004   Year-to-Date distribution total $0.21           8.878   32              
  6/30/04       $ 4,375         1,377   $ 13,384   $ 11,994  
* Beginning with the 1997 (RVT), 2002 (RMT) and 2004 (FUND) distribution, the purchase price of distributions is a weighted average of the distribution reinvestment prices for the year.
** Other than for initial purchase and June 30, 2004, values are stated as of December 31 of the year indicated, after reinvestment of distributions.
 


18  |   THE ROYCE FUNDS SEMIANNUAL REPORT 2004
 
 


 

DISTRIBUTION REINVESTMENT AND CASH PURCHASE OPTIONS FOR COMMON STOCKHOLDERS
  
 
   
WHY SHOULD I REINVEST MY DISTRIBUTIONS?
        By reinvesting distributions, a stockholder can maintain an undiluted investment in the Fund. The regular reinvestment of distributions has a significant impact on stockholder returns. In contrast, the stockholder who takes distributions in cash is penalized when shares are issued below net asset value to other stockholders.

HOW DOES THE REINVESTMENT OF DISTRIBUTIONS FROM THE ROYCE CLOSED-END FUNDS WORK?
        The Funds automatically issue shares in payment of distributions unless you indicate otherwise. The shares are generally issued at the lower of the market price or net asset value on the valuation date.

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

WHAT IF MY SHARES ARE HELD BY A BROKERAGE FIRM OR A BANK?
        If your shares are held by a brokerage firm, bank, or other intermediary as the stockholder of record, you should contact your brokerage firm or bank to be certain that it is automatically reinvesting distributions on your behalf. If they are unable to reinvest distributions on your behalf, you should have your shares registered in your name in order to participate.

WHAT OTHER FEATURES ARE AVAILABLE FOR REGISTERED STOCKHOLDERS?
        The Distribution Reinvestment and Cash Purchase Plans also allow registered stockholders to make optional cash purchases of shares of a Fund’s common stock directly through EquiServe on a monthly basis, and to deposit certificates representing your Fund shares with EquiServe for safekeeping. The Funds’ investment adviser is absorbing all commissions on optional cash purchases under the Plans through December 31, 2004.

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.


 


THE ROYCE FUNDS SEMIANNUAL REPORT 2004  |   19


  




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 (64), Director* and President   NAME AND POSITION: Arthur S. Mehlman (62), Director
Term Expires: 2006   Tenure: Since 1986 (RVT), 1993 (RMT), 1996 (FUND)   Term Expires: 2004   Tenure: Since 2004
Number of Funds Overseen: 21   Non-Royce Directorships: Director of Technology Investment Capital Corp.   Number of Funds Overseen: 21  
Non-Royce Directorships: Director/Trustee of registered investment companies constituting the 23 Legg Mason Funds.


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

 


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

NAME AND POSITION: David L. Meister (64), Director

NAME AND POSITION: Mark R. Fetting (49), Director* 		 
Term Expires: 2004   Tenure: Since 2001  
Number of Funds Overseen: 21  
Non-Royce Directorships: Director/Trustee of the registered investment companies constituting the 23 Legg Mason Funds.
  Term Expires: 2004   Tenure: Since 1986 (RVT), 1993 (RMT), 1996 (FUND)
  Number of Funds Overseen: 21  
Non-Royce Directorships: None

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

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

Principal Occupation(s) During Past Five Years: Chairman and Chief Executive Officer of The Tennis Channel (since June 2000). Chief Executive Officer of Seniorlife.com (from December 1999 to May 2000). Mr. Meister’s prior business experience includes having served as a consultant to the communications industry, President of Financial News Network, Senior Vice President of HBO, President of Time-Life Films and Head of Broadcasting for Major League Baseball.
 
NAME AND POSITION: G. Peter O’Brien (58), Director
Term Expires: 2005   Tenure: Since 1998   Term Expires: 2006   Tenure: Since 2001
Number of Funds Overseen: 21   Non-Royce Directorships: None   Number of Funds Overseen: 21  
Non-Royce Directorships: Director/Trustee of registered investment companies constituting the 23 Legg Mason Funds; Director of Renaissance Capital Greenwich Fund and Director of Technology Investment Capital Corp.

Principal Occupation(s) During Past Five Years: President of Dwight Partners, Inc., corporate communications consultant; Chairman (from 1982 to March 1998) and Chairman Emeritus (since March 1998) of Newspapers of New England, Inc. Mr. Dwight’s prior experience includes having served as Lieutenant Governor of the Commonwealth of Massachusetts, as President and Publisher of Minneapolis Star and Tribune Company, and as Trustee of the registered investment companies constituting the 94 Eaton Vance Funds.
   
   
   
 
Principal Occupation(s) During Past Five Years: Trustee of Colgate University; President of Hill House, Inc.; Director/Trustee of certain Legg Mason retail funds; Managing Director/Equity Capital Markets Group of Merrill Lynch & Co. (from 1971 to 1999).
NAME AND POSITION: John D. Diederich (53), Vice President and Treasurer
Tenure: Since 1997
Principal Occupation(s) During Past Five Years: Managing Director, Chief Operating Officer and Member of Board of Managers of Royce (since October 2001); Director of Administration of the Funds since April 1993.

NAME AND POSITION: Jack E. Fockler, Jr. (45), Vice President
Tenure: Since 1995 (RVT), 1995 (RMT), 1996 (FUND)
Principal Occupation(s) During Past Five Years: Managing Director and Vice President of Royce, having been employed by Royce since October 1989.

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

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

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

Principal Occupation(s) During Past Five Years: Private investor. Mr. Galkin’s prior business experience includes having served as President of Richard M. Galkin Associates, Inc., telecommunications consultants, President of Manhattan Cable Television (a subsidiary of Time, Inc.), President of Haverhills Inc. (another Time, Inc. subsidiary), President of Rhode Island Cable Television and Senior Vice President of Satellite Television Corp. (a subsidiary of Comsat).
 
NAME AND POSITION: Stephen L. Isaacs (64), Director  
Term Expires: 2005 (RVT), 2005 (RMT), 2004 (FUND)   Tenure: Since 1986 (RVT), 1993 (RMT), 1996 (FUND)  
Number of Funds Overseen: 21   Non-Royce Directorships: None  


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

 
NAME AND POSITION: William L. Koke (69), Director  
Term Expires: 2004 (RVT), 2004 (RMT), 2005 (FUND)   Tenure: Since 2001 (RVT), 2001 (RMT), 1997 (FUND)  
Number of Funds Overseen: 21   Non-Royce Directorships: None  


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

 
 
 
* Interested Director.
 

20  |   THE ROYCE FUNDS SEMIANNUAL REPORT 2004


NOTES TO PERFORMANCE AND OTHER IMPORTANT INFORMATION

  PROXY VOTING POLICIES AND PROCEDURES
     A copy of the policies and procedures that The Royce Funds use to determine how to vote proxies relating to portfolio securities is available, without charge, by calling 1-800-221-4268 (toll-free) and on The Royce Funds’ website at www.roycefunds.com. Beginning September 2004, information regarding how each of The Royce Funds voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 will also be available without charge, by calling 1-800-221-4268 (toll-free), on the website of the Securities and Exchange Commission, at www.sec.gov, and on The Royce Funds’ website at www.roycefunds.com.

AUTHORIZED SHARE TRANSACTIONS
     Royce Value Trust, Royce Micro-Cap Trust and Royce Focus Trust may each repurchase up to 300,000 shares of its respective common stock and up to 10% of the issued and outstanding shares of each series of its preferred stock during the year ending December 31, 2004. 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.

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 forwardlooking 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 shareholder communications or reports.

INVESTMENT POLICY CHANGES
     The Funds’ Board of Directors has approved the following non-fundamental investment policy changes:
    • Effective May 1, 2004, the Funds adjusted their definitions of small- and micro-cap securities. Accordingly, all companies with market capitalizations of less than $500 million are considered micro-cap, and all companies between $500 million and $2.5 billion are considered small-cap.
    • Effective June 15, 2004, the amount of Royce Focus Trust’s net assets that must normally be invested in equity securities was lowered from 75% to 65%.
 
 

  THE ROYCE FUNDS SEMIANNUAL REPORT 2004  |   21


THIS PAGE INTENTIONALLY LEFT BLANK.










SCHEDULES OF INVESTMENTS AND OTHER FINANCIAL STATEMENTS

 
 
  Royce Value Trust 24-36    
 
  Royce Micro-Cap Trust 37-48    
 
  Royce Focus Trust 49-56    
 












  


ROYCE VALUE TRUST, INC.

SCHEDULE OF INVESTMENTS
JUNE 30, 2004 (UNAUDITED)
COMMON STOCKS – 110.5%                            
      SHARES     VALUE         SHARES     VALUE
     
   
       
   
Consumer Products – 7.3%              

Four Seasons Hotels

     35,000   $ 2,107,350
Apparel and Shoes - 3.2%              

IHOP Corporation

     161,700     5,782,392

Jones Apparel Group

     81,500   $ 3,217,620  

Jack in the Box a

     26,000     772,200

K-Swiss Cl. A

     231,700     4,682,657  

Mandarin Oriental International ADR a,b,d,e

     63,800     350,900

Oshkosh B’Gosh Cl. A

     104,300     2,604,371  

Prime Hospitality a

     106,100     1,126,782

Polo Ralph Lauren Cl. A

     150,000     5,167,500  

Ryan’s Restaurant Group a

     53,900     851,620

Timberland Company Cl. A a

     30,000     1,937,700  

The Steak n Shake Company a

     38,500     701,470

Tommy Hilfiger a

     221,000     3,345,940            

Warnaco Group (The) a

     42,000     893,340               13,877,414

Weyco Group

     153,996     5,280,677            

Wolverine World Wide

     82,600     2,168,250   Retail Stores - 2.8%            
         
 

BJ’s Wholesale Club a

     38,000     950,000
            29,298,055  

Big Lots a

     207,200     2,996,112
         
 

Charming Shoppes a,d

     584,400     5,218,692
Collectibles - 0.1%              

Claire’s Stores

     152,300     3,304,910

The Boyds Collection a

     234,200     777,544  

GameStop Corporation Cl. A a

     50,000     761,000

Enesco Group a

     47,200     422,912  

†Krispy Kreme Doughnuts a,d

     17,000     324,530
         
 

Linens ’n Things a

     29,000     849,990
            1,200,456  

Payless ShoeSource a

     209,600     3,125,136
         
 

Stein Mart a

     192,800     3,134,928
Food/Beverage/Tobacco - 0.4%              

Urban Outfitters a

     82,600     5,031,166

Aaron Rents

     3,000     99,420  

Wet Seal (The) Cl. A a,d

     25,000     130,750

Hain Celestial Group a

     37,800     684,180            

Hershey Creamery Company

     709     1,843,400               25,827,214

Lancaster Colony

     16,900     703,716            
         
  Other Consumer Services - 1.4%            
            3,330,716  

†Coinstar a,d

     34,000     746,980
         
 

ITT Educational Services a

     105,000     3,992,100
Home Furnishing and Appliances - 0.7%              

Sotheby’s Holdings Cl. A a

     510,200     8,142,792

Bassett Furniture Industries

     102,975     2,240,736            

Falcon Products a,c

     791,600     2,105,656               12,881,872

La-Z-Boy

     68,200     1,226,236            

Natuzzi ADR b

     67,200     721,728   Total (Cost $37,993,912)           56,503,150
         
           
            6,294,356   Financial Intermediaries – 10.6%            
         
  Banking - 2.5%            
Publishing - 0.4%              

BOK Financial a

     129,327     5,078,671

Scholastic Corporation a

     130,000     3,893,500  

Farmers & Merchants Bank of Long Beach

     1,266     6,355,320
         
 

First National Bank Alaska

     2,130     4,632,750
Sports and Recreation - 1.3%              

Mechanics Bank

     200     3,720,000

Callaway Golf Company

     275,800     3,127,572  

Mercantile Bankshares

     20,000     936,400

Coachmen Industries

     47,700     762,723  

NetBank

     70,000     765,100

Monaco Coach

     141,050     3,973,379  

Oriental Financial Group

     49,225     1,332,521

Oakley

     243,100     3,145,714            

Thor Industries

     26,100     873,306               22,820,762
         
           
            11,882,694   Insurance - 7.1%            
         
 

Alleghany Corporation a

     9,700     2,783,900
Other Consumer Products - 1.2%              

Argonaut Group a

     187,000     3,446,410

Blyth

     54,700     1,886,603  

Baldwin & Lyons Cl. B

     22,200     595,848

Burnham Corporation Cl. B

     36,000     1,008,000  

Commerce Group

     49,500     2,443,815

†Dorel Industries Cl. B a,d

     17,500     569,958  

Erie Indemnity Company Cl. A

     169,900     7,947,922

Fossil a

     22,500     613,125  

Leucadia National

     51,500     2,559,550

Lazare Kaplan International a

     103,600     875,420  

Markel Corporation a

     4,200     1,165,500

Matthews International Cl. A

     186,000     6,126,840  

Montpelier Re Holdings

     53,000     1,852,350
         
 

NYMAGIC

     85,200     2,249,280
            11,079,946  

Navigators Group a

     83,200     2,403,648
         
 

PICO Holdings a

     209,800     4,011,166
Total (Cost $42,652,528)           66,979,723  

PMA Capital Cl. A a,d

     171,700     1,545,300
         
 

PXRE Group

     176,551     4,461,444
Consumer Services – 6.2%              

Philadelphia Consolidated Holding a

     35,000     2,102,450

Leisure and Entertainment - 0.5%

              

The Phoenix Companies

     81,900     1,003,275

Carmike Cinemas a

     21,000     828,450  

ProAssurance Corporation a

     148,070     5,050,668

Gemstar-TV Guide International a

     201,100     965,280  

RLI

     99,724     3,639,926

Hasbro

     50,000     950,000  

Reinsurance Group of America

     30,000     1,219,500

Magna Entertainment Cl. A a,d

     198,800     1,172,920  

Wesco Financial

     7,750     2,805,500
         
               
            3,916,650                
         
               
Restaurants and Lodgings - 1.5%                            

Benihana Cl. A a

     57,500     856,750                

CEC Entertainment a

     45,000     1,327,950                

24  |   THE ROYCE FUNDS SEMIANNUAL REPORT 2004
 
 


  


ROYCE VALUE TRUST, INC.

SCHEDULE OF INVESTMENTS
JUNE 30, 2004 (UNAUDITED)
                             
      SHARES     VALUE         SHARES     VALUE
     
   
       
   
Financial Intermediaries (continued)              

Sybron Dental Specialties a

     50,000   $ 1,492,500
Insurance (continued)              

The TriZetto Group a

     215,200     1,441,840

White Mountains Insurance Group

     14,100   $ 7,191,000  

Young Innovations

     62,550     1,588,770

Zenith National Insurance

     96,900     4,709,340            
         
              26,671,639
            65,187,792            
         
  Drugs and Biotech - 3.1%            
Real Estate Investment Trusts - 0.2%              

Abgenix a

     38,000     445,360

Public Storage

     25,000     1,150,250  

Affymetrix a

     75,800     2,480,934

Sun Communities

     20,400     768,060  

Antigenics a,d

     38,500     329,560
         
 

Applera Corporation - Celera Genomics Group a

     199,200     2,292,792
            1,918,310  

Biogen Idec a

     28,100     1,777,325
         
 

Biopure Corporation Cl. A a,d

     18,200     12,740
Securities Brokers - 0.7%              

Celgene Corporation a,d

     40,000     2,290,400

E*TRADE Financial a

     451,700     5,036,455  

Cephalon a

     4,900     264,600

Knight Trading Group a

     100,000     1,002,000  

Cerus Corporation a

     21,700     52,080
         
 

Chiron Corporation a

     21,800     973,152
            6,038,455  

DUSA Pharmaceuticals a,d

     79,700     757,150
         
 

Endo Pharmaceuticals Holdings a

     174,200     4,084,990
Other Financial Intermediaries - 0.1%              

Genzyme Corporation a

     28,000     1,325,240

Chicago Mercantile Exchange

     10,000     1,443,700  

Human Genome Sciences a

     90,000     1,046,700
         
 

Invitrogen Corporation a

     40,000     2,879,600
Total (Cost $52,910,416)           97,409,019  

Lexicon Genetics a

     463,300     3,632,272
         
 

Millennium Pharmaceuticals a

     50,000     690,000
Financial Services – 7.0%              

Perrigo Company

     161,650     3,066,501
Information and Processing - 2.4%              

Shire Pharmaceuticals Group ADR a,b

     20,853     557,609

eFunds Corporation a

     224,275     3,924,813            

FactSet Research Systems

     93,500     4,419,745               28,959,005

Fair Isaac

     49,000     1,635,620            

Global Payments

     68,500     3,083,870   Health Services - 1.1%            

Interactive Data a

     134,300     2,339,506  

†AMN Healthcare Services a,d

     26,000     397,540

Moody’s Corporation

     30,000     1,939,800  

Accredo Health a

     8,705     339,060

National Processing a

     20,000     575,000  

Albany Molecular Research a

     85,000     1,099,050

SEI Investments

     150,200     4,361,808  

Gentiva Health Services a

     30,150     490,239
           
 

Health Management Associates Cl. A

     27,400     614,308
            22,280,162  

IMPATH a,d

     93,000     511,500
         
 

Lincare Holdings a

     34,600     1,136,956
Insurance Brokers - 1.2%              

Manor Care

     58,300     1,905,244

Crawford & Company Cl. A

     289,100     1,364,552  

MedQuist a

     73,893     881,543

Crawford & Company Cl. B

     60,300     297,279  

On Assignment a

     425,200     2,508,680

Gallagher (Arthur J.) & Company

     111,200     3,386,040  

Quovadx a

     3,000     3,600

Hilb Rogal & Hobbs Company

     155,050     5,532,184  

US Oncology a

     1,800     26,496
         
           
            10,580,055               9,914,216
         
           
Investment Management - 3.1%               Medical Products and Devices - 3.0%            

Alliance Capital Management Holding L.P.

     135,000     4,583,250  

Allied Healthcare Products a

     62,000     310,620

†Apollo Investment a

     743,800     10,242,126  

Arrow International

     297,802     8,910,236

BKF Capital Group

     35,700     1,037,085  

CONMED Corporation a

     81,500     2,233,100

BlackRock Cl. A

     25,000     1,595,750  

Datascope

     32,000     1,270,080

Eaton Vance

     70,200     2,682,342  

Diagnostic Products

     25,000     1,098,500

Federated Investors Cl. B

     31,500     955,710  

Haemonetics a

     77,900     2,309,735

Gabelli Asset Management Cl. A

     93,100     3,956,750  

Invacare Corporation

     88,000     3,935,360

Nuveen Investments Cl. A

     138,600     3,714,480  

Novoste a

     66,500     182,210
         
 

STERIS Corporation a

     170,600     3,848,736
            28,767,493  

Thoratec Corporation a

     2,000     21,460
         
 

Varian Medical Systems a

     40,800     3,237,480
Other Financial Services - 0.3%              

Zoll Medical a

     20,200     708,616

PRG-Schultz International a

     467,000     2,554,490            

Van der Moolen Holding ADR a,b

     21,000     154,140               28,066,133
         
           
            2,708,630   Personal Care - 0.9%            
         
 

Ocular Sciences a

     152,500     5,795,000
Total (Cost $50,594,866)           64,336,340  

Regis

     37,200     1,658,748
         
           
Health – 11.0%                           7,453,748

Commercial Services - 2.9%

                        

Covance a

     122,700     4,733,766   Total (Cost $68,270,420)           101,064,741

First Consulting Group a

     520,900     2,875,368            

Gene Logic a

     340,100     1,377,405                

IDEXX Laboratories a

     94,300     5,935,242                

PAREXEL International a

     277,700     5,498,460                

Pharmaceutical Product Development a

     54,400     1,728,288                
                             
                             
                             

THE ROYCE FUNDS SEMIANNUAL REPORT 2004   |  25
 

  


ROYCE VALUE TRUST, INC.

SCHEDULE OF INVESTMENTS
JUNE 30, 2003 (UNAUDITED)
                         
    SHARES     VALUE       SHARES     VALUE
   
   
     
   
Industrial Products – 18.5%             Pumps, Valves and Bearings - 0.5%          
Automotive - 0.3%            

Baldor Electric

   62,900   $ 1,468,715

†Adesa a,d

   9,500   $ 228,380  

Conbraco Industries a

   7,630     839,300

CLARCOR

   22,000     1,007,600  

Franklin Electric

   47,200     1,782,272

IMPCO Technologies a,d

   15,500     98,115          

LKQ Corporation a

   88,000     1,630,640             4,090,287

Quantam Fuel Systems

                    

Technologies Worldwide a

   15,500     94,240   Specialty Chemicals and Materials - 1.7%          
       
 

Albemarle Corporation

   34,000     1,076,100
          3,058,975  

Arch Chemicals

   38,200     1,100,924
       
 

Balchem Corporation

   26,200     720,500
Building Systems and Components - 1.4%            

CFC International a

   123,500     952,185

Decker Manufacturing

   6,022     198,726  

Cabot Corporation

   56,500     2,299,550

Preformed Line Products Company

   91,600     2,134,280  

Hawkins

   136,878     1,639,798

Simpson Manufacturing

   180,400     10,124,048  

MacDermid

   226,631     7,671,459
       
 

Material Sciences a

   31,000     330,150
          12,457,054          
       
            15,790,666
Construction Materials - 1.9%                    

Ameron International

   11,000     375,430   Textiles - 0.2%          

Ash Grove Cement Company Cl. B

   50,518     6,542,081  

Culp a

   120,000     933,600

ElkCorp

   41,000     981,540  

Unifi a

   265,100     776,743

Florida Rock Industries

   133,700     5,638,129          

Martin Marietta Materials

   10,000     443,300             1,710,343

Synalloy Corporation a,c

   345,000     3,519,000          
       
  Other Industrial Products - 3.3%          
          17,499,480  

Albany International Cl. A

   45,500     1,526,980
       
 

BHA Group Holdings

   187,252     7,087,488
Industrial Components - 2.1%            

Brady Corporation Cl. A

   139,400     6,426,340

AMETEK

   86,000     2,657,400  

Diebold

   100,000     5,287,000

Bel Fuse Cl. A

   26,200     942,152  

Kimball International Cl. B

   397,380     5,861,355

Belden

   92,800     1,988,704  

Maxwell Technologies a

   21,500     277,350

C & D Technologies

   50,000     891,500  

Myers Industries

   27,727     390,951

Donaldson Company

   52,000     1,523,600  

Peerless Manufacturing a,c

   158,600     1,879,410

Penn Engineering & Manufacturing

   251,600     5,394,304  

Steelcase Cl. A

   50,000     700,000

Penn Engineering & Manufacturing Cl. A

   77,600     1,416,200  

Trinity Industries

   20,000     635,800

PerkinElmer

   135,000     2,705,400          

Powell Industries a

   57,400     980,392             30,072,674

Woodhead Industries

   45,400     701,884          
       
  Total (Cost $95,153,042)         169,170,254
          19,201,536          
       
  Industrial Services – 15.2%          
Machinery - 4.8%             Advertising and Publishing - 0.3%          

Coherent a

   228,500     6,820,725  

Interpublic Group of Companies a,d

   180,000     2,471,400

Federal Signal

   58,600     1,090,546          

Graco

   96,825     3,006,416   Commercial Services - 6.0%          

IDEX Corporation

   36,000     1,236,600  

ABM Industries

   181,800     3,539,646

Lincoln Electric Holdings

   237,880     8,109,329  

Administaff a

   48,500     805,100

National Instruments

   71,400     2,188,410  

Allied Waste Industries a

   188,800     2,488,384

Nordson Corporation

   172,200     7,468,314  

Carlisle Holdings a,d

   194,900     1,284,391

Oshkosh Truck

   7,000     401,170  

Central Parking

   83,800     1,566,222

PAXAR Corporation a

   333,100     6,502,112  

Convergys Corporation a

   121,000     1,863,400

T-3 Energy Services a,d

   336,110     1,996,493  

Copart a

   138,100     3,687,270

Woodward Governor Company

   73,600     5,307,296  

Harsco Corporation

   18,000     846,000
       
 

Hewitt Associates Cl. A a

   59,000     1,622,500
          44,127,411  

Hudson Highland Group a

   50,549     1,549,832
       
 

iGATE Corporation a

   110,500     439,790
Metal Fabrication and Distribution - 2.1%            

Iron Mountain a

   137,450     6,633,337

Commercial Metals Company

   5,000     162,250  

Learning Tree International a

   53,400     774,834

CompX International Cl. A a

   482,200     7,233,000  

MPS Group a

   622,500     7,544,700

Kaydon Corporation

   208,700     6,455,091  

Manpower

   55,800     2,832,966

NN

   127,100     1,615,441  

Metro One Telecommunications a,d

   25,000     36,750

Oregon Steel Mills a

   247,900     3,654,046  

Monster Worldwide a

   79,000     2,031,880
       
 

New Horizons Worldwide a

   270,000     1,620,000
          19,119,828  

Pemstar a,d

   291,000     675,120
       
 

RemedyTemp Cl. A a

   62,500     756,250
Paper and Packaging - 0.2%            

Renaissance Learning

   15,000     336,300

Peak International a

   408,400     2,042,000              
       
             

26  |   THE ROYCE FUNDS SEMIANNUAL REPORT 2004
 
 


  


ROYCE VALUE TRUST, INC.

SCHEDULE OF INVESTMENTS
JUNE 30, 2004 (UNAUDITED)
                         
    SHARES     VALUE       SHARES     VALUE
   
   
     
   
Industrial Services (continued)             Natural Resources – 9.1%          
Commercial Services (continued)             Energy Services - 4.0%          

Reynolds & Reynolds Company Cl. A

   52,000   $ 1,202,760  

Atwood Oceanics a

   19,700   $ 822,475

Rollins

   87,000     2,001,870  

Carbo Ceramics

   105,600     7,207,200

SOURCECORP a

   35,000     963,200  

Core Laboratories a

   36,200     832,600

Spherion Corporation a

   3,000     30,420  

ENSCO International

   6,443     187,491

TRC Companies a

   39,000     650,520  

Global Industries a

   119,500     683,540

†Viad

   94,900     2,563,249  

Hanover Compressor Company a

   160,000     1,904,000

Watson Wyatt & Company Holdings

   91,000     2,425,150  

Helmerich & Payne

   161,400     4,220,610

West Corporation a,d

   75,000     1,961,250  

Hydril Company a

   23,000     724,500
       
 

Input/Output a

   790,100     6,549,929
          54,733,091  

Key Energy Services a

   10,000     94,400
       
 

Precision Drilling a

   29,500     1,416,295
Engineering and Construction - 1.6%            

TETRA Technologies a

   69,000     1,852,650

†Champion Enterprises a,d

   115,000     1,055,700  

Tidewater

   32,600     971,480

EMCOR Group a

   42,100     1,851,558  

Universal Compression Holdings a

   115,000     3,528,200

Fleetwood Enterprises a

   234,300     3,409,065  

Veritas DGC a

   63,700     1,474,655

Insituform Technologies Cl. A a

   209,200     3,403,684  

Willbros Group a

   252,600     3,806,682

†Integrated Electrical Services a,d

   69,000     555,450          

Jacobs Engineering Group a

   10,000     393,800             36,276,707

McDermott International a

   71,000     721,360          

Washington Group International a

   100,000     3,589,000   Oil and Gas - 3.2%        

 

      
 

Chesapeake Energy

   82,000     1,207,040
          14,979,617  

Cimarex Energy a

   140,170     4,237,339
       
 

Denbury Resources a

   174,100     3,647,395
           

EOG Resources

   5,000     298,550
Food and Tobacco Processors - 1.1%            

†Houston Exploration Company (The) a

   62,000     3,214,080

Farmer Bros.

   150,000     4,024,500  

Husky Energy

   85,000     1,626,324

MGP Ingredients

   143,200     5,540,408  

Penn Virginia

   32,000     1,155,520

Seneca Foods Cl. B a

   6,500     118,632  

Plains Exploration & Production Company a

   104,000     1,908,400
       
 

Prima Energy a

   43,000     1,701,510
          9,683,540  

Remington Oil & Gas a,d

   78,500     1,852,600
       
 

SEACOR Holdings a

   159,500     7,006,835
Industrial Distribution - 1.3%            

Toreador Resources a,d

   100,300     738,208

Central Steel & Wire

   3,799     1,804,525  

Vintage Petroleum

   48,300     819,651

Ritchie Bros. Auctioneers

   310,400     9,035,744          

Strategic Distribution

   115,000     1,512,250             29,413,452
       
         
          12,352,519   Precious Metals and Mining - 0.9%          
       
 

AngloGold Ashanti ADR b

   49,900     1,604,784
Printing - 0.6%            

†Bema Gold a,d

   270,000     734,400

Bowne & Co.

   68,100     1,079,385  

Glamis Gold a

   155,000     2,717,150

Ennis Business Forms

   62,700     1,222,650  

Gold Fields ADR b

   57,800     607,478

New England Business Service

   68,800     3,027,200  

Hecla Mining Company a,d

   198,000     1,128,600
       
 

MK Resources Company a

   431,700     1,122,420
          5,329,235  

†Miramar Mining a,d

   110,000     127,600
       
 

Stillwater Mining Company a

   40,296     604,843
Transportation and Logistics - 3.6%                    

AirNet Systems a

   219,000     981,120             8,647,275

Alexander & Baldwin

   60,000     2,007,000          

Atlantic Coast Airlines Holdings a

   86,000     493,640   Real Estate - 1.0%          

Brink’s Company (The)

   137,278     4,701,772  

Alico

   52,000     2,087,800

C. H. Robinson Worldwide

   40,000     1,833,600  

Consolidated-Tomoka Land

   13,564     512,177

Continental Airlines Cl. B a,d

   100,000     1,137,000  

Trammell Crow Company a

   434,400     6,125,040

EGL a

   173,125     4,605,125          

Forward Air a

   166,500     6,227,100             8,725,017

Frozen Food Express Industries a

   306,635     2,103,516          

Hub Group Cl. A a

   77,000     2,625,700   Total (Cost $54,480,373)         83,062,451

Landstar System a

   15,100     798,337          

Patriot Transportation Holding a

   101,300     3,342,900   Technology – 20.6%          

UTI Worldwide

   45,000     2,371,050  

Aerospace and Defense - 0.9%

          
       
 

Armor Holdings a

   25,000     850,000
          33,227,860  

Curtiss-Wright

   86,600     4,866,054
       
 

Ducommun a

   117,200     2,505,736
Other Industrial Services - 0.7%            

Herley Industries a

   2,000     39,080

Landauer

   117,900     5,265,414          

Team a

   53,500     866,165             8,260,870
       
         
          6,131,579              
       
             
Total (Cost $89,357,854)         138,908,841              
       
             

THE ROYCE FUNDS SEMIANNUAL REPORT 2004   |  27
 
 


  


ROYCE VALUE TRUST, INC.

SCHEDULE OF INVESTMENTS
JUNE 30, 2004 (UNAUDITED)
                             
      SHARES     VALUE         SHARES     VALUE
     
   
       
   
                             
Technology (continued)              

Sapient Corporation a

     819,400   $ 4,924,594
Components and Systems - 5.7%              

Syntel

     148,500     2,457,675

Advanced Digital Information a,d

     31,000   $ 300,700  

Unisys Corporation a

     325,000     4,511,000

American Power Conversion

     151,200     2,971,080            

Analogic Corporation

     22,000     933,460               47,343,128

Dionex Corporation a

     81,000     4,468,770            

Excel Technology a

     168,500     5,602,625   Semiconductors and Equipment - 3.6%            

Imation Corporation

     15,700     668,977  

Artisan Components a,d

     15,000     387,000

InFocus Corporation a

     79,000     671,500  

BE Semiconductor Industries a

     58,000     307,980

KEMET Corporation a

     90,000     1,099,800  

Cabot Microelectronics a,d

     133,900     4,098,679

Kronos a

     38,775     1,597,530  

CEVA a,d

     31,666     250,478

Methode Electronics Cl. A

     50,000     648,500  

Cognex Corporation

     118,400     4,556,032

Metrologic Instruments a

     15,000     299,100  

Credence Systems a

     10,600     146,280

Newport Corporation a

     141,200     2,283,204  

Cymer a

     14,500     542,880

Perceptron a

     397,400     2,821,540  

DSP Group a

     115,000     3,132,600

Plexus Corporation a

     375,700     5,071,950  

DuPont Photomasks a

     35,000     711,550

Radiant Systems a

     32,500     152,425  

Electroglas a,d

     281,700     1,507,095

REMEC a,d

     189,200     1,195,744  

Exar Corporation a

     94,400     1,383,904

Symbol Technologies

     228,600     3,369,564  

Fairchild Semiconductor International Cl. A a

     51,200     838,144

TTM Technologies a

     165,700     1,963,545  

Helix Technology

     36,900     787,077

Technitrol a

     329,900     7,224,810  

Integrated Circuit Systems a

     75,000     2,037,000

Tektronix

     65,000     2,211,300  

Intevac a

     115,050     1,020,493

Vishay Intertechnology a

     63,900     1,187,262  

Kulicke & Soffa Industries a

     105,800     1,159,568

Zebra Technologies Cl. A a

     64,350     5,598,450  

Lattice Semiconductor a

     254,000     1,780,540
         
 

Mentor Graphics a

     225,700     3,491,579
            52,341,836  

National Semiconductor a

     76,400     1,680,036
         
 

Novellus Systems a

     12,000     377,280
Distribution - 1.5%              

Semitool a

     50,000     566,000

Agilysys

     185,125     2,552,874  

Veeco Instruments a

     65,000     1,677,650

Anixter International

     41,900     1,425,857            

Arrow Electronics a

     114,700     3,076,254               32,439,845

Avnet a

     52,355     1,188,458            

Benchmark Electronics a

     25,000     727,500   Software - 2.1%            

Insight Enterprises a

     56,000     994,560  

ANSYS a

     10,000     470,000

Tech Data a

     96,500     3,776,045  

Aspen Technology a

     27,100     196,746
         
 

Autodesk

     91,000     3,895,710
            13,741,548  

Business Objects ADR a,b,d

     20,500     463,915
         
 

Integral Systems

     59,800     961,584
Internet Software and Services - 0.8%              

JDA Software Group a

     74,900     986,433

CNET Networks a

     155,400     1,720,278  

MRO Software a

     46,000     626,060

CryptoLogic

     202,000     3,638,020  

Macromedia a

     51,600     1,266,780

CyberSource Corporation a

     10,000     83,600  

ManTech International Cl. A a

     135,000     2,533,950

DoubleClick a,d

     156,700     1,217,559  

Manugistics Group a

     49,200     160,884

RealNetworks a

     85,400     584,136  

Novell a

     50,000     419,500

Satyam Computer Services ADR b

     20,000     370,000  

Progress Software a

     30,500     660,935

Vastera a

     15,000     45,000  

SPSS a

     107,500     1,931,775
         
 

Transaction Systems Architects Cl. A a

     213,150     4,589,120
            7,658,593            
         
              19,163,392
IT Services - 5.2%                        

answerthink a

     655,000     3,753,150   Telecommunications - 0.8%            

BearingPoint a

     524,000     4,647,880  

Catapult Communications a

     75,100     1,727,300

Black Box

     47,000     2,221,220  

Corvis Corporation a,d

     10,000     14,100

CACI International Cl. A a

     10,000     404,400  

Covad Communications Group a,d

     35,000     84,000

CGI Group Cl. A a,d

     106,700     722,359  

Globecomm Systems a,d

     233,700     1,222,251

CIBER a

     85,000     698,700  

IDT Corporation a

     25,000     450,750

Computer Task Group a

     101,100     399,345  

IDT Corporation Cl. B a

     40,000     737,600

Covansys Corporation a

     251,600     2,599,028  

Inet Technologies a

     65,000     810,550

DiamondCluster International a

     80,400     698,676  

Level 3 Communications a,d

     280,400     995,420

Forrester Research a

     91,500     1,706,475  

PECO II a

     93,600     74,880

Gartner Cl. A a

     316,000     4,177,520  

Scientific-Atlanta

     23,500     810,750

Keane a

     468,000     6,406,920  

Time Warner Telecom Cl. A a

     179,000     750,010

MAXIMUS a

     125,400     4,446,684            

Perot Systems Cl. A a

     165,100     2,190,877               7,677,611

QRS Corporation a

     57,500     376,625            
                Total (Cost $136,037,813)           188,626,823
                         

28  |   THE ROYCE FUNDS SEMIANNUAL REPORT 2004
 
 


 


ROYCE VALUE TRUST, INC.

SCHEDULE OF INVESTMENTS
JUNE 30, 2004 (UNAUDITED)
      SHARES     VALUE         VALUE
     
   
       
                       
Utilities – 0.2%               REPURCHASE AGREEMENT – 10.4%      

CH Energy Group

     44,500   $ 2,066,580  

State Street Bank & Trust Company,

      

Southern Union a

     10,500     221,340  

0.60% dated 6/30/04, due 7/1/04,

      
Total (Cost $2,127,416)        
 

maturity value $95,309,588

      
            2,287,920  

(collateralized by U.S. Treasury Bonds,

      
         
 

7.25% due 5/15/16 and U.S. Treasury Notes,

      
Miscellaneous – 4.8%              

4.25% due 8/15/13, valued at $97,227,114)

      
Total (Cost $41,763,125)           44,513,863  

(Cost $95,308,000)

   $ 95,308,000
         
     
TOTAL COMMON STOCKS               COLLATERAL RECEIVED FOR      

(Cost $671,341,765)

           1,012,863,125  

SECURITIES LOANED – 1.8%

      
         
  U.S. Treasury Bonds      
PREFERRED STOCK – 0.1%              

6.125%-10.375% due 11/15/09-8/15/29

     154,088

Aristotle Corporation 11.00% Conv.

     4,800     39,360   U.S. Treasury Notes      
         
 

6.625% due 5/15/07

     86,332
TOTAL PREFERRED STOCK               Money Market Funds      

(Cost $31,005)

           39,360  

State Street Navigator Securities Lending Prime Portfolio

     16,809,933
         
     
               

(Cost $17,050,353)

     17,050,353
      PRINCIPAL            
      AMOUNT         TOTAL INVESTMENTS – 125.8%      
     
       

(Cost $811,714,988)

     1,153,249,893
CORPORATE BONDS – 0.2%                      
Dixie Group 7.00%               LIABILITIES LESS CASH      

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

   $ 490,000     460,600  

AND OTHER ASSETS – (1.8)%

     (16,843,233)
Richardson Electronics 7.25%                      

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

     1,319,000     1,279,430   PREFERRED STOCK – (24.0)%     (220,000,000)
         
     
TOTAL CORPORATE BONDS               NET ASSETS APPLICABLE TO      

(Cost $1,561,975)

           1,740,030  

COMMON STOCKHOLDERS – 100.0%

   $ 916,406,660
         
     
U.S TREASURY OBLIGATIONS – 2.8%                      
U. S. Treasury Notes                      

5.625%, due 2/15/06

     25,000,000     26,249,025          
         
         
TOTAL U.S. TREASURY OBLIGATIONS                      

(Cost $26,421,890)

           26,249,025          
         
         
a   Non-income producing.
b   American Depository Receipt.
c   At June 30, 2004, the Fund owned 5% or more of the Company’s outstanding voting securities thereby making the Company an Affiliated Company as that term is defined in the Investment Company Act of 1940.
d   A portion of these securities were on loan at June 30, 2004. Total market value of loaned securities at June 30, 2004 was $16,600,071.
e   A security for which market quotations are no longer readily available represents 0.4% of net assets. This security has been valued at its fair value under procedures established by the Fund’s Board of Directors.
†   New additions in 2004.
    Bold indicates the Fund’s largest 20 equity holdings in terms of June 30, 2004 market value.
 
INCOME TAX INFORMATION: The cost of total investments for Federal income tax purposes was $813,738,257. At June 30, 2004, net unrealized appreciation for all securities was $339,511,636, consisting of aggregate gross unrealized appreciation of $384,719,732 and aggregate gross unrealized depreciation of $45,208,096. 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 2004   |  29
 
 




ROYCE VALUE TRUST, INC.

STATEMENT OF ASSETS AND L IABILITIES
JUNE 30, 2004 (UNAUDITED)
ASSETS:        
Investments at value (including collateral on loaned securities)        

Affiliated Companies (cost $7,777,789)

   $ 7,504,066  

Non-affiliates (cost $708,629,199)

     1,050,437,827  
Total investments at value     1,057,941,893  
Repurchase agreement (at cost and value)     95,308,000  
Cash     338  
Receivable for investments sold     2,067,839  
Receivable for dividends and interest     1,016,978  
Prepaid expenses     (66,862 )

Total Assets

     1,156,268,186  
LIABILITIES:        
Payable for collateral on loaned securities     17,050,353  
Payable for investments purchased     1,254,725  
Payable for investment advisory fee     1,035,940  
Preferred dividends accrued but not yet declared     288,449  
Accrued expenses     232,059  

Total Liabilities

     19,861,526  
PREFERRED STOCK:        

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

     220,000,000  

Total Preferred Stock

     220,000,000  
NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS   $ 916,406,660  
ANALYSIS OF NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:        

Common Stock paid-in capital – $0.001 par value per share; 51,109,751 shares outstanding (150,000,000 shares authorized)

   $ 597,415,350  
Undistributed net investment income (loss)     (2,744,503 )
Accumulated net realized gain (loss) on investments     21,643,378  
Net unrealized appreciation (depreciation) on investments     341,534,905  
Quarterly and accrued distributions     (41,442,470 )

Net Assets applicable to Common Stockholders (net asset value per share – $17.93)

   $ 916,406,660  
 
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

30  |   THE ROYCE FUNDS SEMIANNUAL REPORT 2004
 
 




ROYCE VALUE TRUST, INC.

STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED)
INVESTMENT INCOME:        
Income:        

Dividends

        

Affiliated Companies

   $   –  

Non-affiliates

     3,208,968  

Interest

     579,846  

Securities lending

     60,121  
Total income     3,848,935  
Expenses:        

Investment advisory fees

     6,071,937  

Stockholder reports

     202,626  

Custody and transfer agent fees

     120,966  

Directors’ fees

     59,886  

Administrative and office facilities expenses

     50,964  

Professional fees

     31,130  

Other expenses

     55,929  
Total expenses     6,593,438  
Net investment income (loss)     (2,744,503 )
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:        
Net realized gain (loss) on investments        

Affiliated Companies

     5,043,390  

Non-affiliates

     21,462,331  
Net change in unrealized appreciation (depreciation) on investments     63,304,077  
Net realized and unrealized gain (loss) on investments     89,809,798  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM INVESTMENT OPERATIONS     87,065,295  
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS     (6,490,000 )

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

 $ 80,575,295  

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

THE ROYCE FUNDS SEMIANNUAL REPORT 2004   |  31
 
 




ROYCE VALUE TRUST, INC.

STATEMENT OF CHANGES IN NET ASSETS
    Six months ended
June 30, 2004
(unaudited)		   Year ended
December 31,
2003
   
 
INVESTMENT OPERATIONS:                

Net investment income (loss)

   $ (2,744,503 )   $ (2,493,169 )

Net realized gain (loss) on investments

     26,505,721       74,989,675  

Net change in unrealized appreciation (depreciation) on investments

     63,304,077       208,275,790  

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

     87,065,295       280,772,296  
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:                

Net investment income

     –       –  

Net realized gain on investments

     –       (12,252,107 )

Quarterly distributions*

     (6,490,000 )     (22,225 )

Total distributions to Preferred Stockholders

     (6,490,000 )     (12,274,332 )

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

     80,575,295       268,497,964  
DISTRIBUTIONS TO COMMON STOCKHOLDERS:                

Net investment income

     –       –  

Net realized gain on investments

     –       (61,293,595 )

Quarterly distributions*

     (34,664,021 )     –  

Total distributions to Common Stockholders

     (34,664,021 )     (61,293,595 )
CAPITAL STOCK TRANSACTIONS:                

Net proceeds from rights offering

     –       54,487,617  

Offering costs from issuance of Preferred Stock

     –       (7,261,800 )

Reinvestment of distributions to Common Stockholders

     19,722,271       35,567,306  

Total capital stock transactions

     19,722,271       82,793,123  
NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS     65,633,545       289,997,492  
NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:                

Beginning of period

     850,773,115       560,775,623  

End of period (including undistributed net investment income (loss) of $(2,744,503) in 2004)

   $ 916,406,660     $ 850,773,115  
*To be allocated to net investment income and capital gains at year end.
 
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

32  |   THE ROYCE FUNDS SEMIANNUAL REPORT 2004
 
 




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, 2004  
    (unaudited)     2003       2002       2001       2000       1999  
NET ASSET VALUE, BEGINNING OF PERIOD     $17.03       $13.22       $17.31       $16.56       $15.77       $15.72  
INVESTMENT OPERATIONS:                                                

Net investment income (loss)

     (0.05 )     (0.05 )     (0.02 )     0.05       0.18       0.26  

Net realized and unrealized gain (loss) on investments

     1.77       5.64       (2.25 )     2.58       2.58       1.65  

Total investment operations

     1.72       5.59       (2.27 )     2.63       2.76       1.91  
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:                                                

Net investment income

     –       –       (0.01 )     (0.01 )     (0.03 )     (0.04 )

Net realized gain on investments

     –       (0.26 )     (0.28 )     (0.30 )     (0.30 )     (0.32 )

Quarterly distributions*

     (0.13 )     –       –       –       –       –  

Total distributions to Preferred Stockholders

     (0.13 )     (0.26 )     (0.29 )     (0.31 )     (0.33 )     (0.36 )

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

     1.59       5.33       (2.56 )     2.32       2.43       1.55  
DISTRIBUTIONS TO COMMON STOCKHOLDERS:                                                

Net investment income

     –       –       (0.07 )     (0.05 )     (0.13 )     (0.15 )

Net realized gain on investments

     –       (1.30 )     (1.44 )     (1.44 )     (1.35 )     (1.22 )

Quarterly distributions*

     (0.69 )     –       –       –       –       –  

Total distributions to Common Stockholders

     (0.69 )     (1.30 )     (1.51 )     (1.49 )     (1.48 )     (1.37 )
CAPITAL STOCK TRANSACTIONS:                                                

Effect of reinvestment of distributions by Common Stockholders

     (0.00 )     (0.00 )     (0.02 )     (0.08 )     (0.16 )     (0.13 )

Effect of rights offering and Preferred Stock offering

     –       (0.22 )     –       –       –       –  

Total capital stock transactions

     (0.00 )     (0.22 )     (0.02 )     (0.08 )     (0.16 )     (0.13 )
NET ASSET VALUE, END OF PERIOD     $17.93       $17.03       $13.22       $17.31       $16.56       $15.77  
MARKET VALUE, END OF PERIOD     $17.61       $17.21       $13.25       $15.72       $14.438       $13.063  
TOTAL RETURN (a):                                                
Market Value     6.5 %***     42.0 %     (6.9 )%     20.0 %     22.7 %     5.7 %
Net Asset Value     9.6 %***     40.8 %     (15.6 )%     15.2 %     16.6 %     11.7 %

RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:

                                                
Total expenses (b,c)     1.49 %**     1.49 %     1.72 %     1.61 %     1.43 %     1.39 %

Management fee expense

     1.37 %**     1.34 %     1.56 %     1.45 %     1.25 %     1.18 %

Other operating expenses

     0.12 %**     0.15 %     0.16 %     0.16 %     0.18 %     0.21 %
Net investment income (loss)     (0.62 )%**     (0.36 )%     (0.09 )%     0.35 %     1.18 %     1.47 %
SUPPLEMENTAL DATA:                                                

Net Assets Applicable to Common Stockholders,
End of Period (in thousands)

     $916,407       $850,773       $560,776       $689,141       $623,262       $552,928  

Liquidation Value of Preferred Stock, End of Period (in thousands)

     $220,000       $220,000       $160,000       $160,000       $160,000       $160,000  
Portfolio Turnover Rate     9 %     23 %     35 %     30 %     36 %     41 %
PREFERRED STOCK:                                                
Total shares outstanding     8,800,000       8,800,000       6,400,000       6,400,000       6,400,000       6,400,000  
Asset coverage per share     $129.14       $121.68       $112.62       $132.68       $122.38       $111.40  
Liquidation preference per share     $25.00       $25.00       $25.00       $25.00       $25.00       $25.00  
Average market value per share (d):                                                

5.90% Cumulative

     $24.46       $25.04       –       –       –       –  

7.80% Cumulative

     –       $25.87       $26.37       $25.70       $23.44       $24.98  

7.30% Tax-Advantaged Cumulative

     –       $25.53       $25.82       $25.37       $22.35       $24.24  
(a)   The Market Value Total Return is calculated assuming a purchase of Common Stock on the opening of the first business day and a sale on the closing of the last business day of each period reported. Dividends and distributions, if any, are assumed for the purposes of this calculation, to be reinvested at prices obtained under the Fund’s Distribution Reinvestment and Cash Purchase Plan. Net Asset Value Total Return is calculated on the same basis, except that the Fund’s net asset value is used on the purchase and sale dates instead of market value.
(b)   Expense ratios based on total average net assets including liquidation value of Preferred Stock were 1.19%, 1.19%, 1.38%, 1.30%, 1.12% and 1.06% for the periods ended June 30, 2004 and December 31, 2003, 2002, 2001, 2000 and 1999, respectively.
(c)   Expense ratios based on average net assets applicable to Common Stockholders before waiver of fees by the investment adviser would have been 1.62%, 1.82%, 1.65%, 1.51% and 1.48% for the periods ended December 31, 2003, 2002, 2001, 2000 and 1999, respectively.
(d)   The average of month-end market values during the period that the preferred stock was outstanding.
*   To be allocated to net investment income and capital gains at year end.
**   Annualized.
***   Not annualized.

THE ROYCE FUNDS SEMIANNUAL REPORT 2004   |  33
 




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 that trade on an exchange or Nasdaq are valued at their last reported sales price taken from the primary market in which each security trades or, if no sale is reported for such day, at their bid price. Other over-the-counter securities for which market quotations are readily available are valued at their bid price. Securities for which market quotations are not readily available are valued at their fair value under procedures established by the Fund’s Board of Directors. Bonds and other fixed income securities may be valued by reference to other securities with comparable ratings, interest rates and maturities, using established independent pricing services.

Investment Transactions and Related Investment Income:
      Investment transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date and any non-cash dividend income is recorded at the fair market value of the securities received. Interest income is recorded on 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. The Fund is required to allocate long-term capital gain distributions and other types of income proportionately to distributions made to holders of shares of Common Stock and Preferred Stock. To the extent that distributions are not paid from long-term capital gains, net investment income or net short-term capital gains, they will represent a return of capital. Distributions are determined in accordance with income tax regulations that may differ from accounting principles generally accepted in the United States of America. Permanent book and tax basis differences relating to stockholder distributions will result in reclassifications within the capital accounts. Undistributed net investment income may include temporary book and tax basis differences, which will reverse in a subsequent period. Any taxable income or gain remaining undistributed at fiscal year end is distributed in the following year.

Repurchase Agreements:
      The Fund 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. Collateral on all securities loaned for the Fund is accepted in cash and is invested temporarily by the custodian. The collateral is equal to at least 100% of the current market value of the loaned securities.

34  |   THE ROYCE FUNDS SEMIANNUAL REPORT 2004
 




ROYCE VALUE TRUST, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
 
Capital Stock:
 
      The Fund issued 1,153,402 and 2,448,904 shares of Common Stock as reinvestment of distributions by Common Stockholders for the six months ended June 30, 2004 and the year ended December 31, 2003, respectively.
      On March 10, 2003, the Fund completed a rights offering of Common Stock to its stockholders at the rate of one common share for each 10 rights held by stockholders of record on January 28, 2003. The rights offering was fully subscribed, resulting in the issuance of 5,090,083 common shares at a price of $10.77, and proceeds of $54,820,194 to the Fund prior to the deduction of estimated expenses of $332,577. The net asset value per share of the Fund’s Common Stock was reduced by approximately $0.07 per share as a result of the issuance.
      On October 10, 2003, the Fund redeemed all (2,400,000 shares) of its then outstanding 7.80% Cumulative Preferred Stock at the redemption price of $25.00 per share, plus accumulated and unpaid dividends through the redemption date of $0.0975 per share, and all (4,000,000 shares) of its outstanding 7.30% Tax-Advantaged Cumulative Preferred Stock at the redemption price of $25.00 per share, plus accumulated and unpaid dividends through the redemption date of $0.09125 per share. On October 9, 2003, the Fund received net proceeds of $213,070,000 (after underwriting discounts of $6,930,000 and before estimated offering expenses of $331,800) from the public offering of 8,800,000 shares of 5.90% Cumulative Preferred Stock. Commencing October 9, 2008 and thereafter, the Fund, at its option, may redeem the 5.90% Cumulative Preferred Stock, in whole or in part, at the redemption price.
      At June 30, 2004, 8,800,000 shares of the 5.90% Cumulative Preferred Stock were outstanding. The Fund is required to meet certain asset coverage tests with respect to the Cumulative Preferred Stock as required by the 1940 Act. In addition, pursuant to the Rating Agency Guidelines established by Moody’s, the Fund is required to maintain a certain discounted asset coverage. If the Fund fails to meet these requirements and does not correct such failure, the Fund may be required to redeem, in part or in full, the Cumulative Preferred Stock at a redemption price of $25.00 per share, plus an amount equal to the accumulated and unpaid dividends, whether or not declared on such shares, in order to meet these requirements. Additionally, failure to meet the foregoing asset coverage requirements could restrict the Fund’s ability to pay dividends to Common Stockholders and could lead to sales of portfolio securities at inopportune times. The Fund has met these requirements since issuing the Preferred Stock.
      Under Emerging Issues Task Force (EITF) Topic D-98, Classification and Measurement of Redeemable Securities, preferred securities that are redeemable for cash or other assets are to be classified outside of permanent equity to the extent that the redemption is at a fixed or determinable price and at the option of the holder or upon the occurrence of an event that is not solely within the control of the issuer. Subject to the guidance of the EITF, the Fund’s Cumulative Preferred Stock is classified outside of permanent equity (net assets applicable to Common Stockholders) in the accompanying financial statements.
 
Investment Advisory Agreement:
 
      As compensation for its services under the Investment Advisory Agreement, Royce & Associates, LLC (“Royce”) receives a fee comprised of a Basic Fee (“Basic Fee”) and an adjustment to the Basic Fee based on the investment performance of the Fund in relation to the investment record of the S&P 600 SmallCap Index (“S&P 600”).
      The Basic Fee is a monthly fee equal to 1/12 of 1% (1% on an annualized basis) of the average of the Fund’s month-end net assets applicable to Common Stockholders, plus the liquidation value of Preferred Stock, for the rolling 60-month period ending with such month (the “performance period”). The Basic Fee for each month is increased or decreased at the rate of 1/12 of .05% for each percentage point that the investment performance of the Fund exceeds, or is exceeded by, the percentage change in the investment record of the S&P 600 for the performance period by more than two percentage points. The maximum increase or decrease in the Basic Fee for any month may not exceed 1/12 of .5%. Accordingly, for each month, the maximum monthly fee rate as adjusted for performance is 1/12 of 1.5% and is payable if the investment performance of the Fund exceeds the percentage change in the investment record of the S&P 600 by 12 or more percentage points for the performance period, and the minimum monthly fee rate as adjusted for performance is 1/12 of .5% and is payable if the percentage change in the investment record of the S&P 600 exceeds the investment performance of the Fund by 12 or more percentage points for the performance period.
      Notwithstanding the foregoing, Royce is not entitled to receive any fee for any month when the investment performance of the Fund for the rolling 36-month period ending with such month is negative. In the event that the Fund’s investment performance for such a performance period is less than zero, Royce will not be required to refund to the Fund any fee earned in respect of any prior performance period.
      Royce has voluntarily committed to waive the portion of its investment advisory fee attributable to an issue of the Fund’s Preferred Stock for any month in which the Fund’s average annual NAV total return since issuance of the Preferred Stock fails to exceed the applicable Preferred Stock dividend rate.
      For the six months ended June 30, 2004 the Fund accrued and paid Royce advisory fees totaling $6,071,937.
 
Purchases and Sales of Investment Securities:
 
      For the six months ended June 30, 2004, the cost of purchases and proceeds from sales of investment securities, other than short-term securities, amounted to $132,416,200 and $90,575,726, respectively.

THE  ROYCE  FUNDS  SEMIANNUAL  REPORT  2004  |   35
 




ROYCE VALUE TRUST, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
 
Transactions in Shares of Affiliated Companies:
      An “Affiliated Company”, as defined in the Investment Company Act of 1940, is a company in which a Fund owns 5% or more of the company’s outstanding voting securities. The Fund effected the following transactions in shares of such companies during the six months ended June 30, 2004:
  
 
Affiliated Company   Shares
12/31/03		   Market
Value
12/31/03		   Purchases   Sales   Realized
Gain
(Loss)		   Dividend
Income		   Shares
6/30/04		   Market
Value
6/30/04

CompX International *

   482,200   $ 3,086,080   $ –   $ –   $ –     $ –          

Falcon Products

   761,600     3,351,040     109,500     –     –       –   791,600   $ 2,105,656

MGP Ingredients *

   417,322     6,572,822     –     2,682,904     5,043,390       –          

Peerless Manufacturing

   1,58,600     2,045,940     –     –     –       –   158,600     1,879,410

Richardson Electronics * 7.25% Conv. Due 12/15/06

   1,319,000     1,213,480     –     –     –       –          

Synalloy Corporation

   345,000     2,387,400     –     –     –       –   345,000     3,519,000
   
        $ 18,656,762               $ 5,043,390       –       $ 7,504,066
   
* Not an affiliated company at June 30, 2004.                      

36  |   THE  ROYCE  FUNDS  SEMIANNUAL  REPORT  2004
 
 




ROYCE MICRO-CAP TRUST, INC.

SCHEDULE OF INVESTMENTS
JUNE 30, 2004 (UNAUDITED)

COMMON STOCKS – 104.5%

                          
  SHARES       VALUE     SHARES       VALUE  
 
     
   
     
 

Consumer Products – 7.3%

            

Media and Broadcasting - 0.4%

            

Apparel and Shoes - 3.1%

            

†Outdoor Channel Holdings a,c

 27,900     $ 962,550  

Ashworth a

 58,100     $ 482,811          
 

Delta Apparel

 146,500       3,567,275  

Restaurants and Lodgings - 0.3%

            

Innovo Group a,c

 86,000       98,040  

Angelo and Maxie’s a

 3,333       2,866  

Kleinert’s a,d

 14,200       –  

Benihana Cl. A a

 34,770       518,073  

Steven Madden a

 14,500       289,565  

BUCA a,c

 30,000       159,900  

Marisa Christina a

 76,600       96,516  

California Pizza Kitchen a

 10,000       191,600  

Mossimo a

 103,000       386,250          
 

Oshkosh B’Gosh Cl. A

 37,000       923,890             872,439  

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

 44,000       572,000          
 

Weyco Group

 60,000       2,057,460  

Retail Stores - 4.7%

            
       
 

†America’s Car-Mart a,c

 23,000       690,690  
          8,473,807  

Brookstone a

 51,750       1,037,587  
       
 

Buckle (The)

 36,500       1,031,125  

Collectibles - 0.8%

            

Cato Corporation Cl. A

 58,000       1,302,100  

Action Performance Companies

 5,000       75,350  

Deb Shops

 19,900       478,794  

The Boyds Collection a

 227,700       755,964  

Dress Barn (The) a,c

 53,660       918,659  

Enesco Group a

 37,400       335,104  

La Senza Corporation

 99,900       731,775  

Topps Company (The)

 101,000       979,700  

†REX Stores a,c

 38,000       465,500  
       
 

Shoe Carnival a

 11,000       165,110  
          2,146,118  

Stein Mart a

 285,200       4,637,352  
       
 

United Retail Group a

 60,600       155,136  

Food/Beverage/Tobacco - 0.2%

            

Wet Seal (The) Cl. A a,c

 227,000       1,187,210  

Green Mountain Coffee Roasters a,c

 28,600       531,102          
 

Riviana Foods

 1,200       31,404             12,801,038  
       
         
 
          562,506  

Other Consumer Services - 0.4%

            
       
 

Ambassadors Group

 7,500       176,325  

Home Furnishing and Appliances - 0.8%

            

Ambassadors International

 6,100       78,019  

Falcon Products a

 150,000       399,000  

E-LOAN a,c

 82,500       222,750  

Lifetime Hoan c

 73,854       1,683,133  

Rent-Way a

 66,000       594,000  

Stanley Furniture Company

 2,500       105,275          
 
       
            1,071,094  
          2,187,408          
 
       
 

Total (Cost $10,473,009)

         16,301,761  

Publishing - 0.4%

                    
 

Information Holdings a

 40,000       1,094,800  

Diversified Investment Companies – 2.0%

            
       
 

Closed-End Mutual Funds - 2.0%

            

Sports and Recreation - 1.0%

            

†ASA

 81,500       2,941,335  

Monaco Coach

 73,900       2,081,763  

Central Fund of Canada Cl. A

 237,000       1,246,620  

National R.V. Holdings a

 31,800       469,050  

†MVC Capital a

 122,200       1,153,568  
       
         
 
          2,550,813  

Total (Cost $5,075,465)

         5,341,523  
       
         
 

Other Consumer Products - 1.0%

            

Financial Intermediaries – 7.2%

            

Burnham Holdings Cl. A

 1,000       28,000  

Banking - 2.1%

            

Cobra Electronics a

 10,000       87,800  

Abigail Adams National Bancorp

 17,000       255,850  

Concord Camera a

 5,000       16,500  

Arrow Financial

 13,500       411,075  

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

 100,000       477,000  

First Midwest Financial

 64,800       1,539,000  

†EZCORP Cl. A a,c

 15,000       148,800  

First National Lincoln

 40,200       783,900  

JAKKS Pacific a

 30,000       623,700  

FirstBank NW

 4,930       132,420  

Lazare Kaplan International a

 151,700       1,281,865  

Lakeland Financial

 22,500       753,750  
       
 

Pacific Mercantile Bancorp a

 39,000       424,632  
          2,663,665  

Peapack-Gladstone Financial

 7,800       250,536  
       
 

Queen City Investments a

 948       568,800  

Total (Cost $11,615,744)

         19,679,117  

Sterling Bancorp

 18,150       501,303  
       
         
 

Consumer Services – 6.0%

                       5,621,266  

Direct Marketing - 0.1%

                    
 

J. Jill Group a

 5,500       129,745  

Insurance - 4.2%

            

Sportsman’s Guide (The) a

 5,000       116,995  

American Safety Insurance Holdings a

 5,000       75,050  

ValueVision Media Cl. A a

 5,000       65,100  

Argonaut Group a

 30,900       569,487  
       
 

Independence Holding

 18,630       633,420  
          311,840  

NYMAGIC

 67,900       1,792,560  
       
 

Navigators Group a

 37,200       1,074,708  

Leisure and Entertainment - 0.1%

              

IMAX Corporation a,c

 25,000       138,500    

Singing Machine Company (The) a,c

 5,000       2,500    

TiVo a,c

 20,000       141,800    
       
   
          282,800    
       
   

THE ROYCE FUNDS SEMIANNUAL REPORT 2004   |  37
 
 




ROYCE MICRO-CAP TRUST, INC.

SCHEDULE OF INVESTMENTS
JUNE 30, 2004 (UNAUDITED)
  SHARES       VALUE       SHARES       VALUE  
 
     
     
     
 

Financial Intermediaries (continued)

            

Health Services - 1.8%

              

Insurance (continued)

            

ATC Healthcare Cl. A a

   35,000     $ 17,850  

PICO Holdings a,c

 145,100     $ 2,774,167  

Covalent Group a

   25,000       95,750  

PXRE Group

 73,164       1,848,854  

†Curative Health Services a,c

   4,900       42,434  

ProAssurance Corporation a

 29,800       1,016,478  

Gentiva Health Services a

   15,000       243,900  

Wellington Underwriting

 444,712       727,613  

MIM Corporation a,c

   83,100       722,970  

Zenith National Insurance

 19,100       928,260  

MedCath Corporation a

   18,000       360,000  
       
 

On Assignment a

   26,100       153,990  
          11,440,597  

Quovadx a

   5,000       6,000  
       
 

RehabCare Group a

   22,000       585,860  

Real Estate Investment Trusts - 0.7%

            

SFBC International a

   15,000       469,950  

First Acceptance a

 258,405       1,808,835  

Sierra Health Services a

   40,000       1,788,000  
       
 

†Sun Healthcare Group a,c

   10,000       90,000  

Securities Brokers - 0.2%

            

Superior Consultant Holdings a

   10,000       60,000  

First Albany

 9,600       96,384  

U.S. Physical Therapy a,c

   10,000       137,100  

Sanders Morris Harris Group

 21,000       309,750            
 

Stifel Financial a

 8,800       239,360               4,773,804  
       
           
 
          645,494  

Medical Products and Devices - 3.0%

              
       
 

Aksys a,c

   76,000       443,080  

Total (Cost $12,694,481)

         19,516,192  

Allied Healthcare Products a

   258,400       1,294,584  
       
 

Cantel Medical a,c

   19,000       409,450  

Financial Services – 1.2%

            

CONMED Corporation a

   3,900       106,860  

Insurance Brokers - 0.4%

            

Exactech a

   60,200       1,306,340  

Clark a

 20,900       387,695  

Medical Action Industries a

   58,500       1,076,400  

CorVel Corporation a,c

 28,750       815,062  

Molecular Devices a,c

   25,500       453,390  
       
 

NMT Medical a

   44,000       165,000  
          1,202,757  

OrthoLogic Corporation a

   20,000       173,400  
       
 

Orthofix International a

   28,000       1,196,440  

Other Financial Services - 0.8%

            

Osteotech a

   26,100       169,389  

MicroFinancial a

 10,000       33,900  

PLC Systems a

   105,200       85,212  

PRG-Schultz International a

 365,000       1,996,550  

†Synovis Life Technologies a,c

   5,000       53,750  
       
 

Utah Medical Products

   42,300       1,117,566  
          2,030,450            
 
       
              8,050,861  

Total (Cost $2,814,985)

         3,233,207            
 
       
 

Personal Care - 1.5%

              

Health – 11.1%

            

CCA Industries

   69,000       581,670  

Commercial Services - 2.8%

            

Helen of Troy a,c

   20,000       737,400  

Bruker BioSciences a

 195,300       951,111  

Lifeline Systems a

   20,400       482,664  

First Consulting Group a

 274,700       1,516,344  

Nature’s Sunshine Products

   36,000       512,640  

ICON ADR a,b

 800       35,192  

Ocular Sciences a

   47,300       1,797,400  

PAREXEL International a,c

 121,400       2,403,720            
 

The TriZetto Group a

 182,000       1,219,400               4,111,774  

Young Innovations

 61,450       1,560,830            
 
       
 

Total (Cost $20,615,947)

           30,035,425  
          7,686,597            
 
       
 

Industrial Products – 16.1%

              

Drugs and Biotech - 2.0%

            

Automotive - 0.4%

              

†Able Laboratories a,c

 2,500       51,400  

Spartan Motors

   2,800       34,300  

Antigenics a,c

 60,800       520,448  

Strattec Security a

   3,300       225,819  

Arena Pharmaceuticals a,c

 14,000       76,440  

Wescast Industries Cl. A

   37,900       915,285  

BioSource International a

 177,900       1,255,974            
 

CancerVax Corporation a,c

 15,000       114,150               1,175,404  

Cerus Corporation a

 20,000       48,000            
 

Durect Corporation a,c

 44,100       153,909  

Building Systems and Components - 2.0%

              

DUSA Pharmaceuticals a,c

 10,200       96,900  

Juno Lighting a

   126,600       4,519,620  

Emisphere Technologies a,c

 174,700       716,270  

LSI Industries

   67,812       779,838  

Genitope Corporation a

 10,000       98,710            
 

Geron Corporation a,c

 6,000       48,540               5,299,458  

†Hi-Tech Pharmacal a,c

 30,000       490,200            
 

Maxim Pharmaceuticals a,c

 6,200       59,830  

Construction Materials - 1.4%

              

Maxygen a,c

 5,000       52,850  

Ash Grove Cement Company

   8,000       1,036,000  

Myriad Genetics a,c

 45,000       671,400  

Monarch Cement

   50,410       1,146,827  

Nabi Biopharmaceuticals a

 5,000       71,100  

Synalloy Corporation a

   171,000       1,744,200  

NeoPharm a

 1,000       10,330            
 

Regeneration Technologies a

 21,000       225,330               3,927,027  

Sangamo BioSciences a

 10,000       60,200            
 

VIVUS a,c

 162,200       590,408  

Industrial Components - 2.6%

              
       
 

Aaon a

   47,500       959,025  
          5,412,389    
       
   

38  |   THE ROYCE FUNDS SEMIANNUAL REPORT 2004
 
 




ROYCE MICRO-CAP TRUST, INC.

SCHEDULE OF INVESTMENTS
JUNE 30, 2004 (UNAUDITED)
    SHARES       VALUE       SHARES       VALUE  
   
     
     
     
 

Industrial Products (continued)

              

Quixote Corporation

   35,000     $ 701,750  

Industrial Components (continued)

              

Raven Industries

   20,000       710,600  

Bel Fuse Cl. A

   52,600     $ 1,891,496            
 

Penn Engineering & Manufacturing

   56,600       1,213,504               6,787,300  

Penn Engineering & Manufacturing Cl. A

   30,800       562,100            
 

Powell Industries a,c

   85,300       1,456,924  

Total (Cost $25,379,555)

           43,551,267  

Scientific Technologies a

   10,700       56,710            
 

Tech/Ops Sevcon

   76,200       450,342  

Industrial Services – 15.1%

              

II-VI

   10,000       306,600  

Advertising and Publishing - 1.1%

              

Woodhead Industries

   10,000       154,600  

FindWhat.com a,c

   10,000       231,400  
         
 

†MDC Partners Cl. A a

   80,000       960,000  
            7,051,301  

Modem Media a

   194,200       1,021,492  
         
 

NetRatings a

   50,000       814,500  

Machinery - 1.6%

                        
 

Astec Industries a,c

   40,200       756,966               3,027,392  

Cascade Corporation

   24,800       775,000            
 

Hurco Companies a,c

   16,100       191,896  

Commercial Services - 6.4%

              

Keithley Instruments

   14,000       310,100  

APAC Customer Services a,c

   178,900       309,497  

Lindsay Manufacturing

   10,000       240,200  

Administaff a

   10,000       166,000  

MTS Systems

   10,000       234,500  

American Bank Note Holographics a

   267,200       681,360  

Mueller (Paul) Company

   13,650       431,340  

Bennett Environmental a

   13,000       163,020  

†Pason Systems

   57,200       1,322,691  

Butler International a

   38,500       92,400  
         
 

Carlisle Holdings a

   390,000       2,570,100  
            4,262,693  

Edgewater Technology a

   18,339       113,518  
         
 

Exponent a

   68,300       1,835,221  

Metal Fabrication and Distribution - 1.5%

              

Geo Group (The) a,c

   53,700       1,095,480  

†Commonwealth Industries a

   71,890       743,343  

Gevity HR

   2,000       52,380  

Encore Wire a

   10,000       275,700  

Hardinge

   5,000       60,100  

Memry Corporation a

   114,100       189,406  

iGATE Corporation a

   309,700       1,232,606  

Metals USA a

   70,000       1,251,600  

Kforce a

   55,000       519,200  

NN

   127,300       1,617,983  

NCO Group a

   20,000       533,800  

Universal Stainless & Alloy Products a

   7,700       83,622  

NIC a

   26,800       192,156  
         
 

New Horizons Worldwide a

   141,000       846,000  
            4,161,654  

†Pegasus Solutions a,c

   59,700       783,861  
         
 

Pegasystems a,c

   211,600       1,851,500  

Paper and Packaging - 0.1%

              

Pemstar a,c

   157,500       365,400  

Mod-Pac Corporation a

   23,200       206,921  

RemedyTemp Cl. A a

   98,200       1,188,220  
         
 

TRC Companies a,c

   33,400       557,112  

Pumps, Valves and Bearings - 1.2%

              

Volt Information Sciences a

   36,600       1,153,266  

Gardner Denver a

   14,600       407,340  

Westaff a

   362,500       1,025,875  

Gorman-Rupp Company

   2,700       73,359            
 

Sun Hydraulics

   150,850       2,657,977               17,388,072  
         
           
 
            3,138,676  

Engineering and Construction - 1.4%

              
         
 

Comfort Systems USA a

   77,000       492,030  

Specialty Chemicals and Materials - 2.6%

              

Devcon International a

   21,700       256,277  

Aceto

   131,446       2,313,450  

Insituform Technologies Cl. A a

   89,000       1,448,030  

American Pacific

   36,000       271,440  

Keith Companies a

   10,000       144,000  

Balchem Corporation

   10,000       275,000  

Skyline Corporation

   32,100       1,304,865  

CFC International a

   136,700       1,053,957            
 

Eastern Company (The)

   61,627       1,029,171               3,645,202  

Hawkins

   122,667       1,469,551            
 

NuCo2 a,c

   20,000       394,000  

Food and Tobacco Processors - 0.9%

              

Park Electrochemical

   10,000       252,500  

ML Macadamia Orchards L.P.

   120,200       494,022  
         
 

Seneca Foods Cl. A a

   62,500       1,140,625  
            7,059,069  

Seneca Foods Cl. B a

   42,500       775,668  
         
           
 

Textiles - 0.2%

                           2,410,315  

Fab Industries

   56,400       192,324            
 

†Tag-It Pacific a,c

   67,000       289,440  

Industrial Distribution - 0.8%

              
         
 

Central Steel & Wire

   1,200       570,000  
            481,764  

Elamex a

   70,200       151,632  
         
 

Lawson Products

   19,500       743,925  

Other Industrial Products - 2.5%

              

Strategic Distribution

   59,690       784,924  

Airboss of America a

   159,300       237,655            
 

BHA Group Holdings

   93,915       3,554,683               2,250,481  

EnPro Industries a,c

   20,000       459,600            
 

Maxwell Technologies a

   15,300       197,370  

Printing - 1.6%

              

Myers Industries

   29,342       413,722  

Bowne & Co.

   66,500       1,054,025  

Peerless Manufacturing a

   43,200       511,920  

Courier Corporation

   15,300       638,622  

THE ROYCE FUNDS SEMIANNUAL REPORT 2004   |  39
 
 




ROYCE MICRO-CAP TRUST, INC.

SCHEDULE OF INVESTMENTS
JUNE 30, 2004 (UNAUDITED)
    SHARES       VALUE       SHARES       VALUE  
   
     
     
     
 

Industrial Services (continued)

              

†Etruscan Resources a,c

   575,900     $ 850,576  

Printing (continued)

              

MK Resources Company a

   516,300       1,342,380  

Ennis Business Forms

   11,200     $ 218,400  

Northern Orion Resources a

   165,000       377,853  

New England Business Service

   32,400       1,425,600            
 

Schawk Cl. A

   75,700       1,057,529               4,195,364  
         
           
 
            4,394,176  

Real Estate - 0.9%

              
         
 

HomeFed Corporation a

   69,352       2,340,630  

Transportation and Logistics - 2.2%

              

Kennedy-Wilson a

   21,500       150,285  

AirNet Systems a

   196,000       878,080            
 

Forward Air a

   43,800       1,638,120               2,490,915  

†Frontier Airlines a,c

   27,000       293,760            
 

Frozen Food Express Industries a

   141,000       967,260  

Other Natural Resources - 0.2%

              

Hub Group Cl. A a

   6,500       221,650  

Pope Resources L.P.

   33,000       643,500  

Knight Transportation a

   28,925       831,015            
 

Marten Transport a

   5,000       93,250  

Total (Cost $14,579,736)

           28,022,155  

Patriot Transportation Holding a

   28,400       937,200            
 

Vitran Corporation Cl. A a

   5,000       82,250  

Technology – 23.3%

              
         
 

Aerospace and Defense - 2.4%

              
            5,942,585  

Astronics Corporation a

   104,000       560,560  
         
 

CPI Aerostructures a

   62,000       700,600  

Other Industrial Services - 0.7%

              

Ducommun a

   84,500       1,806,610  

Landauer

   21,300       951,258  

Fairchild Corporation (The) Cl. A a

   76,500       327,420  

Perma-Fix Environmental Services a

   156,000       279,240  

HEICO Corporation

   54,600       996,450  

Team a

   39,000       631,410  

HEICO Corporation Cl. A

   4,160       58,032  
         
 

Herley Industries a

   81,000       1,582,740  
            1,861,908  

Kaman Corporation Cl. A

   22,500       314,775  
         
 

MAIR Holdings a,c

   8,600       70,176  

Total (Cost $26,364,681)

           40,920,131  

SIFCO Industries a

   45,800       167,170  
         
           
 

Natural Resources – 10.3%

                           6,584,533  

Energy Services - 4.6%

                        
 

Carbo Ceramics

   33,600       2,293,200  

Components and Systems - 5.9%

              

Conrad Industries a

   98,000       235,200  

Advanced Photonix Cl. A a,c

   267,900       648,318  

Dril-Quip a

   66,500       1,243,550  

†AlphaSmart a,c

   16,200       91,206  

†Gulf Island Fabrication

   59,500       1,286,985  

Bonso Electronics International a

   39,300       235,800  

GulfMark Offshore a

   70,200       1,107,756  

CSP a

   127,581       944,099  

†Horizon Offshore a,c

   176,000       174,240  

Cable Design Technologies a

   30,000       318,000  

Input/Output a,c

   168,500       1,396,865  

Del Global Technologies a

   168,279       429,111  

Lufkin Industries

   36,000       1,151,280  

Excel Technology a

   97,900       3,255,175  

NATCO Group Cl. A a

   100,400       774,084  

†International DisplayWorks a,c

   51,000       216,750  

Tesco Corporation a,c

   25,000       202,250  

Intrusion a,c

   18,750       37,125  

Trican Well Service a

   5,000       156,646  

Kronos a

   17,375       715,850  

Valley National Gases a

   30,100       307,020  

Lantronix a

   34,500       43,815  

Veritas DGC a,c

   37,700       872,755  

MOCON

   22,600       192,100  

Willbros Group a,c

   79,900       1,204,093  

Mobility Electronics a

   1,000       8,420  
         
 

Neoware Systems a,c

   48,000       396,960  
            12,405,924  

Newport Corporation a,c

   45,000       727,650  
         
 

OSI Systems a,c

   13,000       259,090  

Oil and Gas - 3.1%

              

Performance Technologies a

   44,750       421,098  

Bonavista Energy Trust

   132,000       2,268,596  

Plexus Corporation a

   21,500       290,250  

Contango Oil & Gas Company a

   30,000       199,500  

Printronix a

   32,700       482,325  

†Delta Petroleum a,c

   39,000       524,550  

REMEC a

   166,500       1,052,280  

Denbury Resources a

   53,800       1,127,110  

Richardson Electronics

   202,100       2,239,268  

Evergreen Resources a

   25,000       1,010,000  

TransAct Technologies a

   78,600       2,485,332  

†Gulfport Energy a,c

   182,400       419,520  

Zomax a

   86,000       324,220  

Nuvista Energy a

   121,000       741,019            
 

†Pioneer Drilling Company a,c

   45,000       345,600               15,814,242  

Plains Exploration & Production Company a

   24,140       442,969            
 

Prima Energy a

   18,000       712,260  

Distribution - 0.9%

              

Toreador Resources a,c

   67,300       495,328  

Agilysys

   90,000       1,241,100  
         
 

Bell Industries a

   85,700       257,100  
            8,286,452  

Jaco Electronics a

   31,400       190,912  
         
 

Nu Horizons Electronics a

   40,000       360,000  

Precious Metals and Mining - 1.5%

              

Pomeroy IT Solutions

   35,000       417,200  

Apex Silver Mines a

   78,100       1,331,605            
 

Brush Engineered Materials a

   15,500       292,950               2,466,312  
                         
 

40  |   THE ROYCE FUNDS SEMIANNUAL REPORT 2004
 
 




ROYCE MICRO-CAP TRUST, INC.

SCHEDULE OF INVESTMENTS
JUNE 30, 2004 (UNAUDITED)
    SHARES       VALUE       SHARES       VALUE  
   
     
     
     
 

Technology (continued)

              

Brooktrout a

   27,100     $ 292,951  

Internet Software and Services - 0.7%

              

C-COR.net a

   5,000       51,450  

Inforte Corporation a

   40,000     $ 403,960  

Captaris a

   50,000       323,000  

Keynote Systems a

   7,200       99,000  

Centillium Communications a

   108,000       413,640  

Lionbridge Technologies a,c

   37,500       286,875  

Computer Network Technology a,c

   20,000       119,800  

LookSmart a

   20,000       43,400  

Giga-tronics a

   3,200       5,920  

†Raindance Communications a,c

   52,000       108,160  

Interland a

   2,500       7,025  

RealNetworks a

   65,700       449,388  

MetaSolv a

   5,800       16,472  

Register.com a

   41,857       249,468  

North Pittsburgh Systems

   15,700       314,785  

Stamps.com a

   21,200       216,028  

Optical Communication Products a

   45,000       109,800  

Vastera a

   25,000       75,000  

PC-Tel a

   28,100       331,580  
         
 

Radyne ComStream a

   79,400       635,200  
            1,931,279  

SpectraLink Corporation

   57,000       849,300  
         
 

†Terremark Worldwide a,c

   345,000       293,250  

IT Services - 4.8%

              

Tollgrade Communications a

   20,000       212,400  

CIBER a

   207,662       1,706,982  

ViaSat a

   95,200       2,375,240  

Computer Task Group a

   341,100       1,347,345            
 

Covansys Corporation a

   242,500       2,505,025               7,879,603  

DiamondCluster International a

   158,100       1,373,889            
 

DynTek Cl. A a

   100,000       80,000  

Total (Cost $39,622,989)

           63,032,942  

Forrester Research a,c

   105,500       1,967,575            
 

Sapient Corporation a,c

   500,000       3,005,000  

Miscellaneous – 4.9%

              

Syntel

   56,800       940,040  

Total (Cost $12,742,199)

           13,344,496  

Tier Technologies Cl. B a

   6,800       66,232            
 
         
 

TOTAL COMMON STOCKS

              
            12,992,088  

(Cost $181,978,791)

           282,978,216  
         
           
 

Semiconductors and Equipment - 1.5%

              

PREFERRED STOCKS – 0.5%

              

August Technology a

   2,000       25,080  

Angelo and Maxie’s 10.00% Conv.

   6,991       16,149  

Exar Corporation a

   68,500       1,004,210  

Seneca Foods Conv. a

   75,409       1,364,903  

FSI International a

   34,500       269,445            
 

Helix Technology

   9,500       202,635  

TOTAL PREFERRED STOCKS

              

Inficon Holding ADR a,b,c

   10,000       87,500  

(Cost $957,998)

           1,381,052  

Intevac a

   85,450       757,942            
 

†Monolithic System Technology a,c

   5,000       37,650       PRINCIPAL          

PDF Solutions a,c

   30,000       254,100       AMOUNT          

Photronics a

   29,750       563,465  

U.S. TREASURY OBLIGATIONS – 1.8%

  
       

QuickLogic Corporation a

   20,000       69,800  

U.S. Treasury Notes

              

Semitool a

   25,500       288,660  

1.875%, due 9/30/04

 $ 5,000,000       5,006,250  

SIPEX Corporation a,c

   58,000       330,600            
 

White Electronic Designs a

   10,000       52,400  

TOTAL U.S. TREASURY OBLIGATIONS

              
         
 

(Cost $5,002,167)

           5,006,250  
            3,943,487            
 
         
 

REPURCHASE AGREEMENT – 15.5%

              

Software - 4.2%

              

State Street Bank & Trust Company,

              

Aladdin Knowledge Systems a

   27,300       449,085  

0.60% dated 6/30/04, due 7/1/04,

              

ANSYS a,c

   15,400       723,800  

maturity value $42,146,702

              

Applix a

   20,000       86,200  

(collateralized by U.S. Treasury Bonds,

              

ILOG ADR a,b,c

   35,000       447,650  

12.75% due 11/15/10, valued at $42,994,494)

              

Indus International a

   180,200       378,420  

(Cost $42,146,000)

           42,146,000  

Integral Systems

   59,000       948,720            
 

†Intervideo a,c

   2,000       25,880  

COLLATERAL RECEIVED FOR SECURITIES LOANED – 4.3%

              

JDA Software Group a,c

   59,500       783,615  

U.S. Treasury Bonds

              

MSC.Software a,c

   17,700       158,415  

5.50%-13.25% due 2/15/06-8/15/28

           41,111  

OpenTV Cl. A a

   40,333       83,893  

U.S. Treasury Notes

              

Peerless Systems a

   36,600       46,482  

1.625%-6.75% due 8/31/04-1/15/14

           35,614  

PLATO Learning a

   121,142       1,200,517  

Money Market Funds

              

SCO Group (The) a,c

   23,500       137,475  

State Street Navigator Securities Lending

              

SPSS a

   91,900       1,651,443  

Prime Portfolio

           11,495,360  

Transaction Systems Architects Cl. A a

   140,100       3,016,353            
 

Verity a

   95,000       1,283,450  

(Cost $11,572,085)

           11,572,085  
         
           
 
            11,421,398    
         
   

Telecommunications - 2.9%

                

Anaren a

   93,500       1,527,790    

THE ROYCE FUNDS SEMIANNUAL REPORT 2004   |  41
 
 




ROYCE MICRO-CAP TRUST, INC.

SCHEDULE OF INVESTMENTS
JUNE 30, 2004 (UNAUDITED)
              VALUE    
             
   

TOTAL INVESTMENTS – 126.6%

                  

(Cost $241,657,041)

           $ 343,083,603    
                   

LIABILITIES LESS CASH

                  

AND OTHER ASSETS – (4.5)%

             (12,171,107 )  
                   

PREFERRED STOCK – (22.1)%

             (60,000,000 )  
           
   
                   

NET ASSETS APPLICABLE TO

                  

COMMON STOCKHOLDERS – 100.0%

           $ 270,912,496    
           
   
a   Non-income producing.
b   American Depository Receipt.
c   A portion of these securities were on loan at June 30, 2004. Total market value of loaned securities at June 30, 2004 was $11,297,088.
d   A security for which market quotations are no longer readily available represents 0% of net assets. This security has been valued at its fair value under procedures established by the Fund’s Board of Directors.
†
   New additions in 2004.
    Bold indicates the Fund’s largest 20 equity holdings in terms of June 30, 2004 market value.
     
     
INCOME TAX INFORMATION: The cost of total investments for Federal income tax purposes was $242,550,297. At June 30, 2004, net unrealized appreciation for all securities was $100,533,306, consisting of aggregate gross unrealized appreciation of $108,621,486 and aggregate gross unrealized depreciation of $8,088,180. The primary differences in book and tax basis cost is the timing of the recognition of losses on securities sold and amortization of discount for book and tax purposes.

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

42  |   THE ROYCE FUNDS SEMIANNUAL REPORT 2004
 
 




ROYCE MICRO-CAP TRUST, INC.

STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2004 (UNAUDITED)
ASSETS:        
Investments at value (including collateral on loaned securities)*   $ 300,937,603  
Repurchase agreement (at cost and value)     42,146,000  
Cash     560  
Receivable for investments sold     280,322  
Receivable for dividends and interest     131,712  
Prepaid expenses     44  

Total Assets

     343,496,241  
LIABILITIES:        
Payable for collateral on loaned securities     11,572,085  
Payable for investments purchased     517,036  
Payable for investment advisory fee     315,568  
Preferred dividends accrued but not yet declared     80,000  
Accrued expenses     99,056  

Total Liabilities

     12,583,745  
PREFERRED STOCK:        

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

     60,000,000  

Total Preferred Stock

     60,000,000  
NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS   $ 270,912,496  
ANALYSIS OF NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:        

Common Stock paid-in capital – $0.001 par value per share; 19,532,180 shares outstanding (150,000,000 shares authorized)

   $ 152,388,696  
Undistributed net investment income (loss)     2,276,672  
Accumulated net realized gain (loss) on investments     26,846,681  
Net unrealized appreciation (depreciation) on investments     101,426,562  
Quarterly and accrued distributions     (12,026,115 )

Net Assets applicable to Common Stockholders (net asset value per share – $13.87)

   $ 270,912,496  

*Investments at identified cost

   $ 199,511,041  
 
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

THE ROYCE FUNDS SEMIANNUAL REPORT 2004   |  43
 
 




ROYCE MICRO-CAP TRUST, INC.

STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED)
INVESTMENT INCOME:        
Income:        

Dividends

   $ 750,518  

Interest

     116,366  

Securities lending

     32,682  
Total income     899,566  
Expenses:        

Investment advisory fees

     1,841,056  

Custody and transfer agent fees

     79,055  

Stockholder reports

     63,223  

Directors’ fees

     28,277  

Professional fees

     20,618  

Administrative and office facilities expenses

     14,845  

Other expenses

     25,768  
Total expenses     2,072,842  
Net investment income (loss)     (1,173,276 )
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:        
Net realized gain (loss) on investments     17,489,862  
Net change in unrealized appreciation (depreciation) on investments     6,428,815  
Net realized and unrealized gain (loss) on investments     23,918,677  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM INVESTMENT OPERATIONS     22,745,401  
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS     (1,800,000 )

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

   $ 20,945,401  

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

44  |   THE ROYCE FUNDS SEMIANNUAL REPORT 2004
 
 




ROYCE MICRO-CAP TRUST, INC.

STATEMENT OF CHANGES IN NET ASSETS
    Six months ended
June 30, 2004
(unaudited)		   Year ended
December 31,
2003
   
 
INVESTMENT OPERATIONS:                

Net investment income (loss)

   $ (1,173,276 )   $ (1,643,163 )

Net realized gain (loss) on investments

     17,489,862       30,865,842  

Net change in unrealized appreciation (depreciation) on investments

     6,428,815       67,143,086  

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

     22,745,401       96,365,765  
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:                

Net realized gain on investments

     –       (3,236,104 )

Quarterly distributions*

     (1,800,000 )     (11,111 )

Total distributions to Preferred Stockholders

     (1,800,000 )     (3,247,215 )

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

     20,945,401       93,118,550  
DISTRIBUTIONS TO COMMON STOCKHOLDERS:                

Net realized gain on investments

     –       (16,874,985 )

Quarterly distributions*

     (10,146,115 )     –  

Total distributions to Common Stockholders

     (10,146,115 )     (16,874,985 )
CAPITAL STOCK TRANSACTIONS:                

Offering costs from issuance of Preferred Stock

     –       (2,097,350 )

Reinvestment of distributions to Common Stockholders

     6,688,158       11,707,658  

Total capital stock transactions

     6,688,158       9,610,308  
NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS     17,487,444       85,853,873  
NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:                

Beginning of period

     253,425,052       167,571,179  

End of period (including undistributed net investment income (loss) of $2,276,672 in 2004 and $3,449,948 in 2003)

   $ 270,912,496     $ 253,425,052  
*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 2004   |  45
 
 




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, 2004  
  (unaudited)           2003             2002             2001             2000             1999  

NET ASSET VALUE, BEGINNING OF PERIOD

     $13.33       $9.39       $11.83       $10.14       $11.00       $10.06  

INVESTMENT OPERATIONS:

                                                

Net investment income (loss)

     (0.06 )     (0.09 )     (0.13 )     (0.05 )     0.09       0.12  

Net realized and unrealized gain (loss) on investments

     1.24       5.28       (1.29 )     2.57       1.23       1.35  

Total investment operations

     1.18       5.19       (1.42 )     2.52       1.32       1.47  

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:

                                                

Net investment income

     –         –         –         –         (0.01 )     (0.05 )

Net realized gain on investments

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

Quarterly distributions*

     (0.09 )     –         –         –         –         –    

Total distributions to Preferred Stockholders

     (0.09 )     (0.18 )     (0.18 )     (0.19 )     (0.23 )     (0.23 )

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

     1.09       5.01       (1.60 )     2.33       1.09       1.24  

DISTRIBUTIONS TO COMMON STOCKHOLDERS:

                                                

Net investment income

     –         –         –         –         (0.09 )     (0.06 )

Net realized gain on investments

     –         (0.92 )     (0.80 )     (0.57 )     (1.63 )     (0.21 )

Quarterly distributions*

     (0.53 )     –         –         –         –         –    

Total distributions to Common Stockholders

     (0.53 )     (0.92 )     (0.80 )     (0.57 )     (1.72 )     (0.27 )

CAPITAL STOCK TRANSACTIONS:

                                                

Effect of Preferred Stock Offering

     –         (0.11 )     –         –         –         –    

Effect of reinvestment of distributions by Common Stockholders

     (0.02 )     (0.04 )     (0.04 )     (0.07 )     (0.23 )     (0.03 )

Total capital stock transactions

     (0.02 )     (0.15 )     (0.04 )     (0.07 )     (0.23 )     (0.03 )

NET ASSET VALUE, END OF PERIOD

     $13.87       $13.33       $9.39       $11.83       $10.14       $11.00  

MARKET VALUE, END OF PERIOD

     $13.40       $12.60       $8.44       $10.50       $8.625       $9.00  

TOTAL RETURN (a):

                                                

Market Value

     10.8 %***     63.6 %     (12.7 )%     28.8 %     15.3 %     4.5 %

Net Asset Value

     8.4 %***     55.6 %     (13.8 )%     23.4 %     10.9 %     12.7 %

RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:

                                                

Total expenses (b,c)

     1.56 %**     1.82 %     1.96 %     1.78 %     1.32 %     1.27 %

Management fee expense

     1.39 %**     1.59 %     1.59 %     1.57 %     1.08 %     0.91 %

Other operating expenses

     0.17 %**     0.23 %     0.37 %     0.21 %     0.24 %     0.36 %

Net investment income (loss)

     (0.89 )%**     (0.82 )%     (1.23 )%     (0.43 )%     0.74 %     1.20 %

SUPPLEMENTAL DATA:

                                                

Net Assets Applicable to Common Stockholders,

                                                

End of Period (in thousands)

     $270,912       $253,425       $167,571       $200,443       $163,820       $151,269  

Liquidation Value of Preferred Stock, End of Period (in thousands)

     $60,000       $60,000       $40,000       $40,000       $40,000       $40,000  

Portfolio Turnover Rate

     16 %     26 %     39 %     27 %     49 %     49 %

PREFERRED STOCK:

                                                

Total shares outstanding

     2,400,000       2,400,000       1,600,000       1,600,000       1,600,000       1,600,000  

Asset coverage per share

     $137.88       $130.59       $129.73       $150.28       $127.39       $119.54  

Liquidation preference per share

     $25.00       $25.00       $25.00       $25.00       $25.00       $25.00  

Average market value per share (d):

                                                

6.00% Cumulative

     $24.62       $25.37       –         –         –         –    

7.75% Cumulative

     –         $25.70       $25.91       $25.30       $23.08       $24.67  
(a)
The Market Value Total Return is calculated assuming a purchase of Common Stock on the opening of the first business day and a sale on the closing of the last business day of each period reported. Dividends and distributions, if any, are assumed for the purposes of this calculation, to be reinvested at prices obtained under the Fund’s Distribution Reinvestment and Cash Purchase Plan. Net Asset Value Total Return is calculated on the same basis, except that the Fund’s net asset value is used on the purchase and sale dates instead of market value.
(b)
Expense ratios based on total average net assets including liquidation value of Preferred Stock were 1.28%, 1.49%, 1.62%, 1.46%, 1.06% and 0.98% for the periods ended June 30, 2004 and December 31, 2003, 2002, 2001, 2000 and 1999, respectively.
(c)
Expense ratios based on average net assets applicable to Common Stockholders before waiver of fees by the investment adviser would have been 1.92%, 2.04%, 1.81% and 1.44% for the periods ended December 31, 2003, 2002, 2001 and 1999, respectively.
(d)
The average of month-end market values during the period that the preferred stock was outstanding.
 
*  
To be allocated to net investment income and capital gains at year end.
**  
Annualized.
***  
Not annualized.

46  |   THE ROYCE FUNDS SEMIANNUAL REPORT 2004
 
 




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 that trade on an exchange or Nasdaq are valued at their last reported sales price taken from the primary market in which each security trades or, if no sale is reported for such day, at their bid price. Other over-the-counter securities for which market quotations are readily available are valued at their bid price. Securities for which market quotations are not readily available are valued at their fair value under procedures established by the Fund’s Board of Directors. Bonds and other fixed income securities may be valued by reference to other securities with comparable ratings, interest rates and maturities, using established independent pricing services.

Investment Transactions and Related Investment Income:
      Investment transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date and any non-cash dividend income is recorded at the fair market value of the securities received. Interest income is recorded on 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. The Fund is required to allocate long-term capital gain distributions and other types of income proportionately to distributions made to holders of shares of Common Stock and Preferred Stock. To the extent that distributions are not paid from long-term capital gains, net investment income or net short-term capital gains, they will represent a return of capital. Distributions are determined in accordance with income tax regulations that may differ from accounting principles generally accepted in the United States of America. Permanent book and tax basis differences relating to stockholder distributions will result in reclassifications within the capital accounts. Undistributed net investment income may include temporary book and tax basis differences, which will reverse in a subsequent period. Any taxable income or gain remaining undistributed at fiscal year end is distributed in the following year.

Repurchase Agreements:
      The Fund 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.

THE ROYCE FUNDS SEMIANNUAL REPORT 2004  |   47
 
 




ROYCE MICRO-CAP TRUST, INC.

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

Capital Stock:
 
      The Fund issued 516,840 and 1,173,282 shares of Common Stock as reinvestment of distributions by Common Stockholders for the six months ended June 30, 2004 and the year ended December 31, 2003, respectively.
      On October 20, 2003, the Fund redeemed all (1,600,000 shares) of its then outstanding 7.75% Cumulative Preferred Stock at the redemption price of $25.00 per share, plus accumulated and unpaid dividends through the redemption date of $0.15069 per share. On October 16, 2003, the Fund received net proceeds of $58,110,000 (after underwriting discounts of $1,890,000 and before estimated offering expenses of $207,350) from the public offering of 2,400,000 shares of 6.00% Cumulative Preferred Stock. Commencing October 16, 2008 and thereafter, the Fund, at its option, may redeem the 6.00% Cumulative Preferred Stock, in whole or in part, at the redemption price.
      At June 30, 2004, 2,400,000 shares of the 6.00% Cumulative Preferred Stock were outstanding. The Fund is required to meet certain asset coverage tests with respect to the Cumulative Preferred Stock as required by the 1940 Act. In addition, pursuant to the Rating Agency Guidelines established by Moody’s, the Fund is required to maintain a certain discounted asset coverage. If the Fund fails to meet these requirements and does not correct such failure, the Fund may be required to redeem, in part or in full, the Cumulative Preferred Stock at a redemption price of $25.00 per share, plus an amount equal to the accumulated and unpaid dividends, whether or not declared on such shares, in order to meet these requirements. Additionally, failure to meet the foregoing asset coverage requirements could restrict the Fund’s ability to pay dividends to Common Stockholders and could lead to sales of portfolio securities at inopportune times. The Fund has met these requirements since issuing the Preferred Stock.
      Under Emerging Issues Task Force (EITF) Topic D-98, Classification and Measurement of Redeemable Securities, preferred securities that are redeemable for cash or other assets are to be classified outside of permanent equity to the extent that the redemption is at a fixed or determinable price and at the option of the holder or upon the occurrence of an event that is not solely within the control of the issuer. Subject to the guidance of the EITF, the Fund’s Cumulative Preferred Stock is classified outside of permanent equity (net assets applicable to Common Stockholders) in the accompanying financial statements.

Investment Advisory Agreement:
 
      As compensation for its services under the Investment Advisory Agreement, Royce & Associates, LLC (“Royce”) receives a fee comprised of a Basic Fee (“Basic Fee”) and an adjustment to the Basic Fee based on the investment performance of the Fund in relation to the investment record of the Russell 2000.
      The Basic Fee is a monthly fee equal to 1/12 of 1% (1% on an annualized basis) of the average of the Fund’s month-end net assets applicable to Common Stockholders, plus the liquidation value of Preferred Stock, for the rolling 36-month period ending with such month (the “performance period”). The Basic Fee for each month is increased or decreased at the rate of 1/12 of .05% for each percentage point that the investment performance of the Fund exceeds, or is exceeded by, the percentage change in the investment record of the Russell 2000 for the performance period by more than two percentage points. The performance period for each such month is a rolling 36-month period ending with such month. The maximum increase or decrease in the Basic Fee for any month may not exceed 1/12 of .5%. Accordingly, for each month, the maximum monthly fee rate as adjusted for performance is 1/12 of 1.5% and is payable if the investment performance of the Fund exceeds the percentage change in the investment record of the Russell 2000 by 12 or more percentage points for the performance period, and the minimum monthly fee rate as adjusted for performance is 1/12 of .5% and is payable if the percentage change in the investment record of the Russell 2000 exceeds the investment performance of the Fund by 12 or more percentage points for the performance period.
      Royce has voluntarily committed to waive the portion of its investment advisory fee attributable to an issue of the Fund’s Preferred Stock for any month in which the Fund’s average annual NAV total return since issuance of the Preferred Stock fails to exceed the applicable Preferred Stock dividend rate.
      For the six months ended June 30, 2004 the Fund accrued and paid Royce advisory fees totaling $1,841,056.

Purchases and Sales of Investment Securities:
 
      For the six months ended June 30, 2004, the cost of purchases and proceeds from sales of investment securities, other than short-term securities, amounted to $44,735,404 and $45,266,499, respectively.


48  |   THE ROYCE FUNDS SEMIANNUAL REPORT 2004
 
 




ROYCE FOCUS TRUST, INC.

SCHEDULE OF INVESTMENTS
JUNE 30, 2004 (UNAUDITED)

COMMON STOCKS – 93.6%

                              
    SHARES       VALUE       SHARES       VALUE  
   
     
     
     
 

Consumer Products – 6.7%

              

Construction Materials - 3.0%

              

Sports and Recreation - 3.4%

              

Florida Rock Industries

   67,500     $ 2,846,475  

Callaway Golf Company

   75,000     $ 850,500            
 

Winnebago Industries

   65,000       2,423,200  

Machinery - 7.0%

              
         
 

Lincoln Electric Holdings

   75,000       2,556,750  
            3,273,700  

†Pason Systems

   100,000       2,312,397  
         
 

Woodward Governor Company

   24,400       1,759,484  

Other Consumer Products - 3.3%

                        
 

Matthews International Cl. A

   42,500       1,399,950               6,628,631  

Yankee Candle Company a

   60,000       1,755,000            
 
         
 

Metal Fabrication and Distribution - 5.9%

              
            3,154,950  

†IPSCO

   100,000       2,253,000  
         
 

†Schnitzer Steel Industries Cl. A

   100,000       3,396,000  

Total (Cost $3,984,719)

           6,428,650            
 
         
              5,649,000  

Consumer Services – 4.5%

                        
 

Direct Marketing - 3.2%

              

Total (Cost $11,055,899)

           19,052,506  

Nu Skin Enterprises Cl. A

   119,900       3,035,868            
 
         
 

Industrial Services – 7.0%

              

Retail Stores - 1.3%

              

Commercial Services - 3.4%

              

Big Lots a

   89,400       1,292,724  

Carlisle Holdings a,b

   300,000       1,977,000  
         
 

West Corporation a

   50,000       1,307,500  

Total (Cost $1,899,181)

           4,328,592            
 
         
              3,284,500  

Financial Intermediaries – 10.3%

                        
 

Insurance - 8.1%

              

Engineering and Construction - 2.4%

              

Alleghany Corporation a

   12,546       3,600,702  

Dycom Industries a

   80,000       2,240,000  

ProAssurance Corporation a

   47,155       1,608,457            
 

White Mountains Insurance Group

   3,000       1,530,000  

Industrial Distribution - 1.2%

              

Zenith National Insurance

   20,000       972,000  

Ritchie Bros. Auctioneers

   40,000       1,164,400  
         
           
 
            7,711,159  

Total (Cost $3,197,443)

           6,688,900  
         
           
 

Other Financial Intermediaries - 2.2%

              

Natural Resources – 19.1%

              

TSX Group

   60,300       2,141,041  

Energy Services - 9.4%

              
         
 

Ensign Resource Service Group

   150,000       2,370,953  

Total (Cost $4,756,081)

           9,852,200  

Input/Output a

   350,000       2,901,500  
         
 

Tesco Corporation a

   150,000       1,213,500  

Financial Services – 5.6%

              

†Trican Well Service a

   80,000       2,506,341  

Information and Processing - 2.8%

                        
 

eFunds Corporation a

   150,000       2,625,000               8,992,294  
         
           
 

Investment Management - 2.8%

              

Precious Metals and Mining - 9.7%

              

†Gabelli Asset Management Cl. A

   35,000       1,487,500  

Glamis Gold a

   180,000       3,155,400  

U.S. Global Investors Cl. A a

   345,605       1,226,898  

Goldcorp

   180,000       2,100,600  
         
 

Hecla Mining Company a

   400,000       2,280,000  
            2,714,398  

Meridian Gold a

   130,000       1,686,100  
         
           
 

Total (Cost $4,222,827)

           5,339,398               9,222,100  
         
           
 

Health – 14.2%

              

Total (Cost $14,675,855)

           18,214,394  

Commercial Services - 3.2%

                        
 

†Bruker BioSciences a

   635,000       3,092,450  

Technology – 6.2%

              
         
 

Components and Systems - 1.4%

              

Drugs and Biotech - 7.1%

              

Richardson Electronics

   120,000       1,329,600  

Endo Pharmaceuticals Holdings a

   75,000       1,758,750            
 

Lexicon Genetics a

   300,000       2,352,000  

IT Services - 0.9%

              

†Myriad Genetics a

   60,000       895,200  

Syntel

   50,000       827,500  

†Orchid BioSciences a,b

   150,000       1,155,000            
 

VIVUS a,b

   170,800       621,712  

Semiconductors and Equipment - 1.8%

              
         
 

CEVA a

   124,200       982,422  
            6,782,662  

Exar Corporation a

   50,000       733,000  
         
           
 

Medical Products and Devices - 1.9%

                           1,715,422  

Arrow International

   60,000       1,795,200            
 
         
 

Software - 2.1%

              

Personal Care - 2.0%

              

PLATO Learning a

   100,000       991,000  

Ocular Sciences a

   50,000       1,900,000  

Transaction Systems Architects Cl. A a

   50,000       1,076,500  
         
           
 

Total (Cost $10,811,955)

           13,570,312               2,067,500  
         
           
 

Industrial Products – 20.0%

              

Total (Cost $4,014,304)

           5,940,022  

Building Systems and Components - 4.1%

                        
 

Simpson Manufacturing

   70,000       3,928,400  

TOTAL COMMON STOCKS

              
         
 

(Cost $58,618,264)

           89,414,974  
                         
 

THE ROYCE FUNDS SEMIANNUAL REPORT 2004   |  49
 
 




ROYCE FOCUS TRUST, INC.

SCHEDULE OF INVESTMENTS
JUNE 30, 2004 (UNAUDITED)
    PRINCIPAL                          
    AMOUNT       VALUE               VALUE  
   
     
             
 

CORPORATE BONDS – 3.2%

              

REPURCHASE AGREEMENT – 6.2%

              

E*TRADE Financial 6.00%

              

State Street Bank & Trust Company

              

Conv. Sub. Note due 2/1/07

 $ 3,000,000     $ 3,060,000  

0.60% dated 6/30/04, due 7/1/04,

              
         
 

maturity value $5,910,099

              

TOTAL CORPORATE BONDS

              

(collateralized by U.S. Treasury Bonds,

              

(Cost $2,402,466)

           3,060,000  

7.25% due 5/15/16, valued at $6,030,635)

              
         
 

(Cost $5,910,000)

         $ 5,910,000  

GOVERNMENT BONDS – 6.7%

                        
 

(Principal Amount shown in

              

COLLATERAL RECEIVED FOR SECURITIES LOANED – 1.4%

      

New Zealand dollars.)

              

Money Market Funds

              

New Zealand 6.50%, due 2/15/06

   10,000,000       6,365,454  

State Street Navigator Securities Lending

              
         
 

Prime Portfolio

              

TOTAL GOVERNMENT BONDS

              

(Cost $1,328,990)

           1,328,990  

(Cost $5,908,069)

           6,365,454            
 
         
 

TOTAL INVESTMENTS – 126.6%

              

U.S. TREASURY OBLIGATIONS – 15.5%

              

(Cost $89,151,005)

           120,934,498  

U.S. Treasury Notes

              

LIABILITIES LESS CASH

              

7.25%, due 8/15/04

   5,000,000       5,036,720  

AND OTHER ASSETS – (0.4)%

           (394,513 )

†1.50%, due 3/31/06

   10,000,000       9,818,360  

PREFERRED STOCK – (26.2)%

           (25,000,000 )
         
           
 

TOTAL U.S. TREASURY OBLIGATIONS

              

NET ASSETS APPLICABLE TO

              

(Cost $14,983,216)

           14,855,080  

COMMON STOCKHOLDERS – 100.0%

         $ 95,539,985  
         
           
 
a   Non-income producing.
b   A portion of these securities were on loan at June 30, 2004. Total market value of loaned securities at June 30, 2004 was $1,319,413.
†   New additions in 2004.
    Bold indicates the Fund’s largest 20 equity holdings in terms of June 30, 2004 market value.
     
INCOME TAX INFORMATION: The cost of total investments for Federal income tax purposes was $89,482,397. At June 30, 2004, net unrealized appreciation for all securities was $31,452,101, consisting of aggregate gross unrealized appreciation of $31,843,050 and aggregate gross unrealized depreciation of $390,949. 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.

50  |   THE ROYCE FUNDS SEMIANNUAL REPORT 2004
 
 




ROYCE FOCUS TRUST, INC.

STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2004 (UNAUDITED)
ASSETS:        
Investments at value (including collateral on loaned securities)*   $ 115,024,498  
Repurchase agreement (at cost and value)     5,910,000  
Cash     440  
Receivable for investments sold     668,309  
Receivable for dividends and interest     448,743  
Prepaid expenses     736  

Total Assets

     122,052,726  
LIABILITIES:        
Payable for collateral on loaned securities     1,328,990  
Payable for investment advisory fee     96,456  
Preferred dividends accrued but not yet declared     33,333  
Accrued expenses     53,962  

Total Liabilities

     1,512,741  
PREFERRED STOCK:        

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

     25,000,000  

Total Preferred Stock

     25,000,000  
NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS   $ 95,539,985  
ANALYSIS OF NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:        

Common Stock paid-in capital – $0.001 par value per share; 9,828,631 shares outstanding (100,000,000 shares authorized)

   $ 49,668,899  
Undistributed net investment income (loss)     104,221  
Accumulated net realized gain (loss) on investments     16,806,005  
Net unrealized appreciation (depreciation) on investments     31,783,493  
Quarterly and accrued distributions     (2,822,633 )

Net Assets applicable to Common Stockholders (net asset value per share – $9.72)

   $ 95,539,985  

*Investments at identified cost

   $ 83,241,005  
 
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

THE ROYCE FUNDS SEMIANNUAL REPORT 2004   |  51
 
 




ROYCE FOCUS TRUST, INC.

STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED)
INVESTMENT INCOME:        
Income:        

Interest

   $ 569,364  

Dividends

     239,186  

Securities lending

     2,590  
Total income     811,140  
Expenses:        

Investment advisory fees

     582,431  

Custody and transfer agent fees

     41,500  

Stockholder reports

     27,597  

Professional fees

     17,790  

Directors’ fees

     10,232  

Administrative and office facilities expenses

     5,333  

Other expenses

     22,036  
Total expenses     706,919  
Net investment income (loss)     104,221  
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:        
Net realized gain (loss) on investments     13,954,356  
Net change in unrealized appreciation (depreciation) on investments     (4,105,089 )
Net realized and unrealized gain (loss) on investments     9,849,267  

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM INVESTMENT OPERATIONS

     9,953,488  
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS     (750,000 )

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

   $ 9,203,488  

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

52  |   THE ROYCE FUNDS SEMIANNUAL REPORT 2004
 
 




ROYCE FOCUS TRUST, INC.

STATEMENTS OF CHANGES IN NET ASSETS
    Six months ended
June 30, 2004
(unaudited)		   Year ended
December 31,
2003
   
 
INVESTMENT OPERATIONS:                

Net investment income (loss)

   $ 104,221     $ 735,458  

Net realized gain (loss) on investments

     13,954,356       8,288,351  

Net change in unrealized appreciation (depreciation) on investments

     (4,105,089 )     24,687,435  

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

     9,953,488       33,711,244  
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:                

Net investment income

     –       (153,283 )

Net realized gain on investments

     –       (1,355,105 )

Quarterly distributions*

     (750,000 )     (221 )

Total distributions to Preferred Stockholders

     (750,000 )     (1,508,609 )

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

     9,203,488       32,202,635  
DISTRIBUTIONS TO COMMON STOCKHOLDERS:                

Net investment income

     –       (582,175 )

Net realized gain on investments

     –       (5,147,260 )

Quarterly distributions*

     (2,039,300 )     –  

Total distributions to Common Stockholders

     (2,039,300 )     (5,729,435 )
CAPITAL STOCK TRANSACTIONS:                

Offering costs from issuance of Preferred Stock

     –       (984,000 )

Reinvestment of distributions to Common Stockholders

     1,363,719       3,566,912  

Total capital stock transactions

     1,363,719       2,582,912  
NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS     8,527,907       29,056,112  
NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:                

Beginning of period

     87,012,078       57,955,966  

End of period (including net investment income (loss) of $104,221 in 2004)

   $ 95,539,985     $ 87,012,078  
*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 2004   |  53
 
 




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, 2004  
  (unaudited)           2003             2002             2001             2000             1999  

NET ASSET VALUE, BEGINNING OF PERIOD

 $ 9.00     $ 6.27     $ 7.28     $ 6.77     $ 5.94     $ 5.63  

INVESTMENT OPERATIONS:

                                              

Net investment income (loss)

   0.01       0.08       (0.01 )     0.05       0.12       0.08  

Net realized and unrealized gain (loss) on investments

   1.01       3.57       (0.74 )     0.79       1.26       0.58  

Total investment operations

   1.02       3.65       (0.75 )     0.84       1.38       0.66  

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:

                                              

Net investment income

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

Net realized gain on investments

   –       (0.14 )     (0.13 )     (0.13 )     (0.14 )     (0.17 )

Quarterly distributions*

   (0.08 )     –       –       –       –       –  

Total distributions to Preferred Stockholders

   (0.08 )     (0.16 )     (0.16 )     (0.17 )     (0.17 )     (0.18 )

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON

                                              

STOCKHOLDERS RESULTING FROM INVESTMENT OPERATIONS

   0.94       3.49       (0.91 )     0.67       1.21       0.48  

DISTRIBUTIONS TO COMMON STOCKHOLDERS:

                                              

Net investment income

   –       (0.06 )     (0.02 )     (0.03 )     (0.06 )     (0.01 )

Net realized gain on investments

   –       (0.56 )     (0.07 )     (0.11 )     (0.28 )     (0.14 )

Quarterly distributions*

   (0.21 )     –       –       –       –       –  

Total distributions to Common Stockholders

   (0.21 )     (0.62 )     (0.09 )     (0.14 )     (0.34 )     (0.15 )

CAPITAL STOCK TRANSACTIONS:

                                              

Effect of Preferred Stock Offering

   –       (0.11 )     –       –       –       –  

Effect of reinvestment of distributions by Common Stockholders

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

Total capital stock transactions

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

NET ASSET VALUE, END OF PERIOD

 $ 9.72     $ 9.00     $ 6.27     $ 7.28     $ 6.77     $ 5.94  

MARKET VALUE, END OF PERIOD

 $ 8.71     $ 8.48     $ 5.56     $ 6.65     $ 5.69     $ 4.72  

TOTAL RETURN (a):

                                              

Market Value

   5.2 %***     64.0 %     (15.1 )%     19.7 %     27.9 %     (0.3 )%

Net Asset Value

   10.6 %***     54.3 %     (12.5 )%     10.0 %     20.9 %     8.7 %

RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:

                                              

Total expenses (b,c)

   1.54 %**     1.57 %     1.88 %     1.47 %     1.44 %     1.51 %

Management fee expense

   1.27 %**     1.14 %     1.13 %     1.11 %     1.00 %     1.00 %

Other operating expenses

   0.27 %**     0.43 %     0.75 %     0.36 %     0.44 %     0.51 %

Net investment income (loss)

   0.23 %**     1.07 %     (0.16 )%     0.70 %     1.93 %     1.47 %

SUPPLEMENTAL DATA:

                                              

Net Assets Applicable to Common Stockholders,

                                              

End of Period (in thousands)

 $ 95,540     $ 87,012     $ 57,956     $ 66,654     $ 60,933     $ 51,003  

Liquidation Value of Preferred Stock, End of Period (in thousands)

 $ 25,000     $ 25,000     $ 20,000     $ 20,000     $ 20,000     $ 20,000  

Portfolio Turnover Rate

   24 %     49 %     61 %     54 %     69 %     60 %

PREFERRED STOCK:

                                              

Total shares outstanding

   1,000,000       1,000,000       800,000       800,000       800,000       800,000  

Asset coverage per share

 $ 120.54     $ 112.01     $ 97.44     $ 108.32     $ 101.17     $ 88.75  

Liquidation preference per share

 $ 25.00     $ 25.00     $ 25.00     $ 25.00     $ 25.00     $ 25.00  

Average market value per share (d):

                                              

6.00% Cumulative

 $ 24.86     $ 25.45       –       –       –       –  

7.45% Cumulative

   –     $ 25.53     $ 25.64     $ 25.09     $ 22.23     $ 24.00  
(a)
The Market Value Total Return is calculated assuming a purchase of Common Stock on the opening of the first business day and a sale on the closing of the last business day of each period reported. Dividends and distributions, if any, are assumed for the purposes of this calculation, to be reinvested at prices obtained under the Fund’s Distribution Reinvestment and Cash Purchase Plan. Net Asset Value Total Return is calculated on the same basis, except that the Fund’s net asset value is used on the purchase and sale dates instead of market value.
(b)
Expense ratios based on total average net assets including liquidation value of Preferred Stock were 1.21%, 1.20%, 1.43%, 1.11%, 1.05% and 1.06% for the periods ended June 30, 2004 and December 31, 2003, 2002, 2001, 2000 and 1999, respectively.
(c)
Expense ratios based on average net assets applicable to Common Stockholders before waiver of fees by the investment adviser would have been 1.73%, 2.06%, 1.69%, 1.81% and 1.93%, for the periods ended December 31, 2003, 2002, 2001, 2000 and 1999, respectively.
(d)
The average of month-end market values during the period that the preferred stock was outstanding.
 
*  
To be allocated to net investment income and capital gains at year end.
**  
Annualized.
***  
Not annualized.

54  |   THE ROYCE FUNDS SEMIANNUAL REPORT 2004
 
 




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 that trade on an exchange or Nasdaq are valued at their last reported sales price taken from the primary market in which each security trades or, if no sale is reported for such day, at their bid price. Other over-the-counter securities for which market quotations are readily available are valued at their bid price. Securities for which market quotations are not readily available are valued at their fair value under procedures established by the Fund’s Board of Directors. Bonds and other fixed income securities may be valued by reference to other securities with comparable ratings, interest rates and maturities, using established independent pricing services.

Investment Transactions and Related Investment Income:
      Investment transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date and any non-cash dividend income is recorded at the fair market value of the securities received. Interest income is recorded on 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 5% of the rolling average of the prior four calendar quarter-end NAVs of the Fund’s Common Stock, with the fourth quarter distribution being the greater of 1.25% of the rolling average or the distribution required by IRS regulations. Distributions to Preferred Stockholders are recorded on an accrual basis and paid quarterly. The Fund is required to allocate long-term capital gain distributions and other types of income proportionately to distributions made to holders of shares of Common Stock and Preferred Stock. To the extent that distributions are not paid from long-term capital gains, net investment income or net short-term capital gains, they will represent a return of capital. Distributions are determined in accordance with income tax regulations that may differ from accounting principles generally accepted in the United States of America. Permanent book and tax basis differences relating to stockholder distributions will result in reclassifications within the capital accounts. Undistributed net investment income may include temporary book and tax basis differences, which will reverse in a subsequent period. Any taxable income or gain remaining undistributed at fiscal year end is distributed in the following year.

Repurchase Agreements:
      The Fund 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.

THE ROYCE FUNDS SEMIANNUAL REPORT 2004  |   55
 
 




ROYCE FOCUS TRUST, INC.

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

Capital Stock:
 
      The Fund issued 155,253 and 432,353 shares of Common Stock as reinvestment of distributions by Common Stockholders for the six months ended June 30, 2004 and the year ended December 31, 2003, respectively.
      On October 20, 2003, the Fund redeemed all (800,000 shares) of its then outstanding 7.45% Cumulative Preferred Stock at the redemption price of $25.00 per share, plus accumulated and unpaid dividends through the redemption date of $0.14486 per share. On October 17, 2003, the Fund received net proceeds of $24,212,500 (after underwriting discounts of $787,500 and before estimated offering expenses of $196,500) from the public offering of 1,000,000 shares of 6.00% Cumulative Preferred Stock. Commencing October 17, 2008 and thereafter, the Fund, at its option, may redeem the 6.00% Cumulative Preferred Stock, in whole or in part, at the redemption price.
      At June 30, 2004, 1,000,000 shares of the 6.00% Cumulative Preferred Stock were outstanding. The Fund is required to meet certain asset coverage tests with respect to the Cumulative Preferred Stock as required by the 1940 Act. In addition, pursuant to the Rating Agency Guidelines established by Moody’s, the Fund is required to maintain a certain discounted asset coverage. If the Fund fails to meet these requirements and does not correct such failure, the Fund may be required to redeem, in part or in full, the Cumulative Preferred Stock at a redemption price of $25.00 per share, plus an amount equal to the accumulated and unpaid dividends, whether or not declared on such shares, in order to meet these requirements. Additionally, failure to meet the foregoing asset coverage requirements could restrict the Fund’s ability to pay dividends to Common Stockholders and could lead to sales of portfolio securities at inopportune times. The Fund has met these requirements since issuing the Preferred Stock.
      Under Emerging Issues Task Force (EITF) Topic D-98, Classification and Measurement of Redeemable Securities, preferred securities that are redeemable for cash or other assets are to be classified outside of permanent equity to the extent that the redemption is at a fixed or determinable price and at the option of the holder or upon the occurrence of an event that is not solely within the control of the issuer. Subject to the guidance of the EITF, the Fund’s Cumulative Preferred Stock is classified outside of permanent equity (net assets applicable to Common Stockholders) in the accompanying financial statements.

Investment Advisory Agreement:
 
      The Investment Advisory Agreement between Royce and the Fund provides for fees to be paid at an annual rate of 1.0% of the Fund’s average daily net assets applicable to Common Stockholders, plus the liquidation value of Preferred Stock. Royce has voluntarily committed to waive the portion of its investment advisory fee attributable to an issue of the Fund’s Preferred Stock for any month in which the Fund’s average annual NAV total return since issuance of the Preferred Stock fails to exceed the applicable Preferred Stock dividend rate.
      For the six months ended June 30, 2004 the Fund accrued and paid Royce advisory fees totaling $582,431.

Purchases and Sales of Investment Securities:
 
      For the six months ended June 30, 2004, the cost of purchases and proceeds from sales of investment securities, other than short-term securities, amounted to $31,135,525 and $25,121,300, respectively.


56  |   THE ROYCE FUNDS SEMIANNUAL REPORT 2004
 
 




POSTSCRIPT
 
“WHAT DOES IT TAKE... TO BE THE BEST?”
 
          We hear this question a lot, usually in the dramatic, reverential tone of television commercial voiceovers touting everything from cars, Olympic athletes, laundry detergent, chocolate bars, even mutual fund companies. The question, which is almost never answered directly, is followed by the recitation of words such as “commitment... discipline... honesty... integrity,” etc. It’s always a stirring presentation, with beautifully filmed images designed to evoke a given company’s ceaseless devotion to excellence.
 
          The financial press has its own go at the same idea. Each year, various media outlets provide lists of “The Best Funds for the Current Bull/Bear Market,” “10 Funds to Help You Thrive in 2005’s Economy,” “Want to Retire at 40? These Funds Will Help You Get There in Style” and, of course, the annual “The Year’s Best Mutual Funds” pieces. We have long since resigned ourselves to the inevitability of such features, and, truth be told, we never have a problem when a Royce-managed portfolio makes an appearance on any list with the word “best” in it (unless, of course, it was “Best Funds to Dump Right Now”). Our point, however, has less to do with the proliferation of lists designed to show who’s the best as it does with the question of how “best” is defined and delineated.
 
          In the mutual fund world, more often than not we see what in our view is a responsible attempt to weigh various factors — long-term historical returns, asset class, investment approach, overall risk factors and current market conditions — and use them to create a list of top performers. As useful as these stories are, and as valuable as the accompanying graphs and tables can be, we still feel a bit uneasy about the use of the term “best.” It’s not that a fund with a superb performance record over a three-year or longer period isn’t worthy of mention; it’s just that an honorific such as “best” seems likely to inspire unreasonable expectations from prospective investors. Then there is the issue of timing. Many mutual funds experience the same cyclical ups and downs as individual stocks, so that by the time a portfolio or company makes a “This Year’s Best” list, it may not be a particularly wise investment. Sometimes, “This Year’s Best” may really be referring to last year’s, three years ago’s or last market cycle’s, and the savvy move might be for an investor to look elsewhere.
 
          Even more problematic are the stories that do not take all (or even more than one or two) of these criteria into account. The upshot is a piece that provides a list of a bunch of mutual funds that have done well year-to-date or for one year prior to publication, posting or broadcast. This makes it virtually impossible for a prospective shareholder to weigh the various benefits and risks of making an investment in any fund on such a list. More importantly, the implicit point is that shareholders need not trouble themselves over such apparently insignificant issues as market cycle performance, long-term returns, risk or investment style — issues that we think are absolutely critical in evaluating any mutual fund’s track record. As long as short-term performance is strong, such stories suggest, why worry about anything else?
 
          Well, we worry quite a bit... about everything other than short-term performance. Our security selection process is driven by the idea that we need to know as much as possible about the companies whose stock we own. Developing knowledge about these companies helps us to reduce the risk of losing money, and not losing money is as important to us as making it. We manage small-cap portfolios with strong long-term returns and lower risk over full market cycle periods.
          When and if that effort puts us on a “Best” list, we’ll be pleased. When it doesn’t, which could be often, we won’t worry. In a business full of terrific funds and talented managers, there’s room for plenty to be the “best,” however one chooses to define it.






 
   

 

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 $17.2 billion in open- and closed-end fund assets under management, Royce & Associates is committed to the same small-company investing principles that have served us well for more than 25 years. Charles M. Royce, our Chief Investment Officer, enjoys one of the longest tenures of any active mutual fund manager. Royce’s investment staff includes six other Portfolio Managers, as well as nine assistant portfolio managers and 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 mutual fund groups with broad product offerings, we have chosen to concentrate on small-company value investing by providing investors with a range of funds that take full advantage of this large and diverse sector.

CONSISTENT DISCIPLINE

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

CO-OWNERSHIP OF FUNDS

It is important that our employees and shareholders share a common financial goal; our officers, employees and their affiliates currently have approximately $70 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-0604

 		      


Item 2: Code(s) of Ethics - Not applicable to this semi-annual report.
   
Item 3: Audit Committee Financial Expert
   
(a)(1) The Board of Directors of the Registrant has determined that it has an audit committee financial expert.
   
(a)(2) Arthur S. Mehlman was designated by the Board of Directors as the Registrant’s Audit Committee Financial Expert, effective April 15, 2004. Mr. Mehlman is “independent” as defined under Item 3 of Form N-CSR.
 
   
Item 4: Principal Accountant Fees and Services - Not applicable to this semi-annual report.
 
Item 5: Audit Committee of Listed Registrants – Not applicable to this semi-annual report.
 
Item 6: Schedule of Investments – See Item 1.
 
Item 7: Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies - Not applicable to this semi-annual report.
 
Item 8: Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchases – None.
 
Item 9: Submission of Matters to a Vote of Security Holders – None.
 
Item 10: Controls and Procedures.
 
(a) Disclosure Controls and Procedures. The Principal Executive and Financial Officers concluded that the Registrant’s Disclosure Controls and Procedures are effective based on their evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report.
 
(b) Internal 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 11: 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 VALUE TRUST, INC.

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

Date: August 27, 2004

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

ROYCE VALUE TRUST, INC.         ROYCE VALUE TRUST, INC.
                 
BY: /s/ Charles M. Royce         BY: /s/ John D. Diederich
   Charles M. Royce            John D. Diederich
   President            Chief Financial Officer
                 
Date: August 27, 2004         Date: August 27, 2004