1999 Annual Report

# THE ROYCE FUNDS Value Investing In Small Companies For More Than 25 Years ### ROYCE VALUE TRUST ### ROYCE MICRO-CAP TRUST ### ROYCE FOCUS TRUST

www.roycefunds.com

A FEW WORDS ON CLOSED-END FUNDS

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

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

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

- Since a closed-end fund does not issue redeemable securities or offer its securities on a continuous basis, it does not need to liquidate securities or hold uninvested assets to meet investor demands for cash redemptions, as an open-end fund must.
- In a closed-end fund, not having to meet investor redemption requests or invest at inopportune times is ideal for value managers who attempt to buy stocks when prices are depressed and sell securities when prices are high.
- A closed-end fund may invest more freely in less liquid portfolio securities because it is not subject to potential stockholder redemption demands. This is particularly beneficial for Royce-managed closed-end funds, which invest in small- and micro-cap securities.
- The fixed capital structure allows permanent leverage to be employed as a means to enhance capital appreciation potential.
- Unlike open-end funds, our closed-end funds are able to distribute capital gains on a quarterly basis. Royce Value Trust has adopted a quarterly distribution policy.

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

WHY DIVIDEND REINVESTMENT IS IMPORTANT

A very important component of an investor’s total return comes from the reinvestment of distributions. By reinvesting distributions, our investors can maintain an undiluted investment in a Fund. To get a fair idea of the impact of reinvested distributions, please see the charts on pages 11, 13 and 15. For additional information on the Funds’ Distribution Reinvestment and Cash Purchase Options and the benefits for stockholders, see page 18.

THE ROYCE FUNDS

ANNUAL REPORT REFERENCE GUIDE

For more than 25 years, our approach has focused on evaluating a company’s current worth — what we believe a business would sell for in a private transaction between rational and well-informed parties. This requires a thorough analysis of the financial and operating dynamics of a business, as though we were purchasing the entire company. The price we pay for a security must be substantially lower than our appraisal of its current worth.

Letter to Our Stockholders: Better Late Than Never: Small-Caps Join the Party...To the Investor Go the Spoils | 2
Recent Market Cycle Results | 8
Performance Highlights: History Since Inception | 9
Performance and Portfolio Review: Royce Value Trust, Royce Micro-Cap Trust, Royce Focus Trust

| 10
Q & A Session with Chuck Royce, Whitney George and Jack Fockler | 16
Distribution Reinvestment and Cash Purchase Options | 18
Updates and Notes: What's New at www.roycefunds.com and elsewhere at the Firm | 19
Schedules of Investments and Other Financial Statements | 20
Postscript: This Just In | Inside Back Cover

NAV Average Annual Total Returns Through December 31, 1999 |  |  |  |  |  |
|  | 4th Quarter |  | JUL-DEC |  |  |  |  |  |  |  | From |  | Inception
Fund |  | 1999* |  | 1999* |  | 1-Year |  | 3-Year |  | 5-Year |  | Inception |  | Date
Royce Value Trust |  | 11.8 | % | 6.5 | % | 11.7 | % | 13.7 | % | 15.8 | % | 12.9 | % | 11/26/86
Royce Micro-Cap Trust |  | 13.6 |  | 10.1 |  | 12.7 |  | 11.2 |  | 14.5 |  | 13.0 |  | 12/14/93
Royce Focus Trust |  | 5.9 |  | -1.3 |  | 8.7 |  | 6.9 |  | n/a |  | 8.0 |  | 11/01/96**
Russell 2000 |  | 18.4 |  | 11.0 |  | 21.3 |  | 13.1 |  | 16.7 |  |  |  |

Royce Value Trust’s 10-year NAV average annual total return for the period ended 12/31/99 was 13.7% .

* Not annualized.

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

LETTER TO OUR STOCKHOLDERS

[PHOTO]

Charles M. Royce, President

Over the last 20 years, falling interest rates have been the engine driving the stock market’s record-breaking run, but the ride may soon slow down. As of December 31, 1999, the annual coupon yield on the long-term Treasury bond had declined 57% from its 1981 high of 15.2% to the current 6.5%. Short-term yields declined 70% from an annual rate high of 17.7% in 1981 to 5.3% currently. In order to match the magnitude of this drop, long-term rates would have to decline below 2.8% and short-term rates would have to fall below 1.6% — a possible, but unlikely scenario. Without this powerful backdrop, we think that the longevity of high stock market returns is questionable.

[GRAPHIC: The Royce Funds portfolio managers celebrating in Times Square]

Watching for Value at the Dot.Com Party

BETTER LATE THAN NEVER: SMALL-CAPS JOIN THE PARTY

It was only fitting that the stock market concluded the year with a fireworks display that would have made the pyrotechnists at the Eiffel Tower envious. The technology-laden Nasdaq Composite exploded with an 85.6% gain for 1999, the best single-year performance ever by a diversified domestic equity index. For an unprecedented fifth consecutive year, large-cap indices, the S&P 500 and Dow Jones Industrial Average, concluded 1999 with strong double-digit gains. Small-cap companies managed a fourth-quarter flurry of their own that enabled the Russell 2000 (+21.3%) to edge out the S&P 500 (+21.1%) in 1999 for the first time since 1993, news that risks being lost in the wake of the Nasdaq Composite’s record-shattering year.

If all of this were not enough to convince you that the stock market succumbed to millennium madness, consider that, according to Lipper, Inc., the average technology fund rose 134.8% in 1999. Contributing to this unheard of ascent was a torrid IPO (initial

2 | The Royce Funds Annual Report 1999

public offering) market that produced first-day gains of 100% or more for 101 companies. If this were to continue, IPO would need to be relabeled "instant profit opportunity." To put 1999 into perspective, over the prior 207 years, or since investors began gathering at Wall Street’s buttonwood tree in 1792, there had only been 42 IPOs with first-day gains of more than 100% (Source: The Wall Street Journal).

We can perhaps be indulged in a bit of hyperbole in saying that small-cap stocks, like the heroic warriors in Braveheart, refused to surrender to their large-cap counterparts. After five long years of underperformance, the Russell 2000 eked out its small edge versus the S&P 500 with better performance in the second and fourth quarters after a complete disconnect in the first quarter. Not on most investors’ radar screens is the fact that 1999’s calendar year results also reflected excellent small-cap performance from both the 10/8/98 Russell 2000 market trough (Russell 2000 +65.2% versus S&P 500 +55.6%) and the 1999 Russell 2000 low on 3/23/99 (Russell 2000 +33.1% versus S&P 500 +17.5%). Another little noticed, but compelling statistic is that, for the first time ever, the dividend yield of the Russell 2000 is greater than that of the S&P 500 and was so for all of 1999. Do we think that this is the start of something good for our asset class? "You betcha."

1999 SMALL-CAP VS. LARGE-CAP RESULTS BY QUARTER
| 1st Qtr |  | 2nd Qtr |  | 3rd Qtr |  | 4th Qtr |
Russell 2000 | -5.4 | % | 15.6 | % | -6.3 | % | 18.4 | %
S&P 500 | 5.0 | % | 7.1 | % | -6.3 | % | 14.9 | %

The Royce Funds Annual Report 1999 | 3

LETTER TO OUR STOCKHOLDERS

We looked at historical Russell 2000, Russell 2000 Value and Russell 2000 Growth index full market cycle returns to see if growth stocks had generally outperformed in up markets and value stocks in down markets over the last two decades. A full market cycle incorporates at least one up and one down phase and requires a move of at least 15% from the previous peak or trough.

Small-cap value outperformed growth during five out of six down market periods. Surprisingly, value also outperformed growth in four out of six up market periods. So despite strong recent performance by growth stocks — on the verge of winning their first full-market cycle out of six full market cycle periods throughout the small-cap index’s history (since 1979) — we believe that the long-term case for value remains compelling.

NEVER SURRENDER

Technology’s dominance extended across all capitalization categories. The sector now accounts for approximately 29% of the stocks in the S&P 500. In 1999, 66% of the S&P 500’s return was attributable to just 10 stocks, eight of which were technology issues. Approximately 93% of the Russell 2000’s gain for the year resulted from stocks in the technology sector, and it is now the largest sector in the Russell 2000, up from third at the beginning of 1999. In spite of these impressive statistics, technology’s impact was perhaps nowhere more evident than in the divergence between the growth and value investment styles. In all capitalization classes, growth stocks, typically those with high price/earnings and price/book ratios and high earnings growth rates, handily trounced value stocks, typically those with low P/E and P/B ratios and cyclical growth rates. In 1999, the year was like the old country music song, in which g rowth investors got th e goldmine and value investors got the shaft.

The divergence between growth and value in the small-cap sector was especially prominent. There was also substantial disparity within small-cap value itself. While performance spreads were consistent between growth and value in the Russell and the Wilshire small-cap style indices — growth outdistanced value — 1999 returns in the value category were markedly different for each index. The Russell 2000 Value index lost 1.5% in 1999, yet the Wilshire Small-Cap Value index’s return was even more miserable, down 15.6%. Since the Wilshire Small-Cap Value Index is made up of arguably higher-quality companies than the Russell 2000 Value, as measured by lower debt-to-capital and higher return-on-assets and return-on-equity ratios, the travails suffered by small-cap value investors in 1999 are readily evident (Source: Prudential Securities).

In all capitalization classes, growth stocks, typically those with high price/earnings and price/book ratios and high earnings growth rates, handily trounced value stocks, typically those with low P/E and P/B ratios and cyclical growth rates. In 1999, the year was like the old country music song, in which growth investors got the goldmine and value investors got the shaft.

4 | The Royce Funds Annual Report 1999

EXPECT THE UNEXPECTED

If Julius Caesar had gotten his way and been allowed to begin the calendar year with the spring equinox, we would be quite pleased with our closed-end funds’ performance in 1999, in what was as confounding and at times difficult a year as we have seen for some time. After getting off to a collectively slow start in the first quarter, each fund finished the year strongly. On a Net Asset Value - basis, for the last nine months of the year (3/31/99 - 12/31/99), Royce Value Trust was up 28.0%, Royce Micro-Cap Trust was up 28.3% and Royce Focus Trust was up 27.8%. These returns compare favorably with that of the small-cap oriented Russell 2000 - up 28.2% - for the same period.

Unfortunately, 1999’s results were measured by the twelve-month calendar that begins in January, and our closed-end portfolios were unable to shake off the adverse effects of the first-quarter downturn. All underperformed the Russell 2000 during the first quarter - in which small-cap value atypically lost ground to small-cap growth—only to outperform the index in the dynamic second quarter. During the difficult third quarter, in which the Russell 2000 was down 6.3%, Royce Value Trust and Royce Micro-Cap Trust outperformed the index, but Royce Focus Trust slightly lagged. Unfortunately, all three closed-end funds were unable to keep pace in the potent fourth quarter, when the Russell 2000 soared, up 18.4%.

Portfolio diversification, or lack thereof, did not seem to have a bearing on performance in 1999. For the full year, Royce Value Trust (+ 11.7%) and Royce Micro-Cap Trust (+12.7%), our two broadly diversified portfolios, and Royce Focus Trust (+8.7%), our concentrated small-cap portfolio, all turned in relatively solid, but unspectacular, performances in 1999, lagging the Russell 2000 (+21.3%). For a complete review and discussion of individual fund results and risk profiles, see pages 10-15.

If Julius Caesar had gotten his way and been allowed to begin the calendar year with the spring equinox, we would be quite pleased with our closed-end funds’ performance in 1999, in what was as confounding and at times difficult a year as we have seen for some time.

The Royce Funds Annual Report 1999 | 5

LETTER TO OUR STOCKHOLDERS

It comes as no surprise that technology, representing an average 15% of the index for the year, was the Russell 2000’s best performing sector in 1999, surging 101%. Less well-known is the fact that the Utilities sector (7% of the index) was up more than 40%. Offsetting these strong performances was the poor return of the highest weighted sector in the index, Financial Services (22% of the index), which was down almost 6% for the year.

Among small-caps, performance was skewed across the P/E range in 1999. The best performance was turned in by the companies with no earnings, up more than 85%, while the quintile with the lowest P/E ratios (median P/E of 7.5x) had the worst performance, down more than 10%.

[GRAPHIC: The Royce Funds portfolio managers conducting research]

Investors in a Speculators’ Market

NEW MILLENNIUM CONJECTURE

Like most people, we have spent some time reflecting on what the future might bring. Perhaps it is an occupational hazard, but looking forward always involves some looking backward for us as well. Investors in general seem comfortable taking more risk in order to achieve higher returns. Within the small-cap universe in 1999, the market appeared to us to undervalue good financial characteristics and to overvalue hopes, dreams and potential earnings growth. As a result, many "higher-quality" small-cap stocks are still waiting for their chance to shine. We have many portfolio companies that are very attractive to us from an earnings and balance sheet standpoint, yet their stocks performed worse in 1999 than most momentum-driven stocks that are highly leveraged and that have no earnings history. "Go figure."

Building long-term wealth is not simply a matter of participating in a favorable market. It is produced by applying a consistent discipline over time, and recognizing that in order to provide excellent long-term, absolute and relative results, our portfolios are likely to underperform over some short-term periods.

6 | The Royce Funds Annual Report 1999

What does it all mean for the future? Consider that, aside from technology, most stocks had an unspectacular year. Technology certainly led the market in terms of performance, but other sectors were generally unable to follow its lead. We think that this very narrow market environment could be followed by a return to "quality," a period where market performance will be driven less by momentum and more by business characteristics. While we recognize that technology is a very important factor in our economy, this offers no assurance that it must inevitably remain a market leader.

[PHOTO]

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

TO THE INVESTOR GO THE SPOILS

As we evaluate 1999’s performance and consider what 2000 may hold, it occurs to us that the traditional distinction between the terms "speculator" and "investor" is more relevant than ever. Speculators ("traders") are only concerned about a short-term change in price, whereas investors, ourselves included, are concerned about the long-term appreciation potential of an enterprise.

We think that the current environment of record-setting stock market returns is unlikely to continue. For the speculator, this is bad news; for the long-term investor, it is of less concern. Building long-term wealth is not simply a byproduct of a favorable market. It is produced by applying a consistent discipline over time, and recognizing that in order to provide excellent long-term, absolute and relative results, our portfolios are likely to underperform over some short-term periods.

In this period of extreme divergence between growth and value, we have no interest in exchanging our investment charter for that of the speculator. Current conditions seem ripe to us for a return to value, with the accompanying prospect of higher short-term returns for this style. Whatever the outcome in the near term, we believe that the individual companies in the Funds’ portfolios offer substantial long-term performance opportunity.

Sincerely,

/s/ Charles M. Royce

Charles M. Royce

President

/s/ W. Whitney George

W. Whitney George

Vice President

/s/ Jack E. Fockler, Jr.

Jack E. Fockler, Jr.

Vice President

January 31, 2000

PS We invite you to visit our Website at www.roycefunds.com for up-to-date information on our Funds and our company. Your questions and comments are welcome.

The Royce Funds Annual Report 1999 | 7

RECENT MARKET CYCLE RESULTS

ROYCE FUNDS VS. RUSSELL 2000

Performance measurement refers to the idea of comparing returns against a benchmark — exactly which benchmark and over what time periods are always the questions.

Although a number of style indices within the small-cap sector are now available, each incorporates different, in some cases substantially different, definitions of value. Since we select securities from the entire small-cap universe, not just the "value" portion of the sector, we believe that the broadly defined Russell 2000 is a better index with which to compare our investment results.

Traditional performance presentations revolve around fixed time periods (e.g., one-, three- and five-year returns), rather than around market cycles, even though this method may not reveal the complete picture. In contrast, we believe that peak-to-peak, or full-market-cycle, analyses capture performance more completely because they include both up and down phases.

1996 - 1998 MARKET CYCLE VALUE OUTPERFORMED DURING UP AND DOWN PHASES Russell 2000
12/31/95 | 1159.603
| 1162.624
| 1156.601
| 1140.408
| 1145.57
| 1145.449
| 1128.029
| 1111.876
| 1122.127
| 1120.153
| 1109.049
| 1107.92
| 1111.2
| 1116.188
| 1121.004
| 1128.004
| 1132.207
| 1139.877
| 1140.219
| 1142.593
| 1144.833
| 1150.935
| 1158.356
| 1165.696
| 1166.74
| 1169.7
| 1175.875
| 1173.69
| 1177.422
| 1180.124
| 1181.014
| 1175.809
| 1180.501
| 1179.413
| 1182.585
| 1172.482
| 1181.421
| 1195.307
| 1197.452
| 1195.876
| 1194.262
| 1195.828
| 1194.461
| 1191.851
| 1197.271
| 1202.014
| 1203.07
| 1204.361
| 1174.153
| 1184.779
| 1180.914
| 1190.357
| 1196.744
| 1196.662
| 1209.752
| 1210.76
| 1208.858
| 1210.754
| 1212.805
| 1206.464
| 1206.78
| 1210.164
| 1211.253
| 1218.774
| 1224.379
| 1227.424
| 1230.311
| 1233.121
| 1218.106
| 1224.703
| 1219.525
| 1214.059
| 1220.085
| 1228.701
| 1236.151
| 1233.843
| 1243.392
| 1247.458
| 1256.49
| 1265.592
| 1270.01
| 1275.966
| 1281.811
| 1283.638
| 1283.944
| 1291.24
| 1275.418
| 1278.645
| 1278.681
| 1274.141
| 1272.759
| 1281.629
| 1294.307
| 1306.699
| 1317.843
| 1320.232
| 1323.09
| 1329.682
| 1338.687
| 1338.138
| 1343.717
| 1343.203
| 1344.142
| 1333.428
| 1324.395
| 1329.072
| 1334.541
| 1332.674
| 1337.293
| 1340.949
| 1332.179
| 1323.251
| 1326.645
| 1325.662
| 1327.02
| 1318.861
| 1310.634
| 1306.081
| 1288.526
| 1281.818
| 1270.708
| 1274.661
| 1280.527
| 1272.021
| 1255.482
| 1263.249
| 1279.74
| 1283.506
| 1280.712
| 1272.785
| 1253.82
| 1243.206
| 1242.374
| 1228.879
| 1199.197
| 1195.733
| 1162.891
| 1145.612
| 1175.349
| 1193.101
| 1187.889
| 1173.641
| 1151.78
| 1136.955
| 1151.249
| 1162.099
| 1156.949
| 1158.847
| 1167.963
| 1180.945
| 1199.24
| 1200.64
| 1202.477
| 1211.201
| 1210.988
| 1210.656
| 1210.408
| 1204.363
| 1208.478
| 1212.143
| 1216.9
| 1218.588
| 1218.045
| 1217.235
| 1226.193
| 1227.572
| 1226.505
| 1234.903
| 1241.89
| 1238.14
| 1235.775
| 1233.726
| 1238.201
| 1227.45
| 1236.445
| 1242.231
| 1244.62
| 1246.654
| 1252.502
| 1262.163
| 1268.005
| 1267.576
| 1265.602
| 1264.635
| 1270.137
| 1265.371
| 1269.455
| 1273.365
| 1278.39
| 1280.535
| 1284.068
| 1280.169
| 1290.871
| 1287.316
| 1294.828
| 1293.253
| 1287.775
| 1283.46
| 1285.327
| 1290.117
| 1294.147
| 1294.497
| 1292.058
| 1291.638
| 1290.176
| 1283.92
| 1271.802
| 1271.999
| 1272.705
| 1272.518
| 1261.94
| 1254.658
| 1255.467
| 1264.278
| 1261.543
| 1262.015
| 1261.884
| 1271.902
| 1278.692
| 1279.884
| 1284.154
| 1285.712
| 1286.063
| 1290.386
| 1287.912
| 1285.733
| 1289.47
| 1291.806
| 1290.403
| 1300.884
| 1309.614
| 1306.495
| 1311.2
| 1316.372
| 1321.197
| 1330.573
| 1331.896
| 1335.526
| 1321.988
| 1340.7
| 1343.934
| 1330.835
| 1326.239
| 1318.032
| 1304.437
| 1303.2
| 1314.263
| 1325.795
| 1327.964
| 1323.308
| 1324.886
| 1331.869
| 1337.836
| 1341.042
12/31/96 | 1350.871
| 1337.442
| 1348.111
| 1349.883
| 1356.8
| 1357.012
| 1362.574
| 1364.306
| 1363.642
| 1369.936
| 1368.836
| 1368.095
| 1371.507
| 1376.957
| 1380.566
| 1381.867
| 1381.144
| 1372.291
| 1362.738
| 1366.281
| 1365.69
| 1373.533
| 1377.868
| 1378.765
| 1373.598
| 1363.249
| 1363.427
| 1367.937
| 1358.475
| 1353.502
| 1363.713
| 1374.126
| 1377.721
| 1381.114
| 1381.762
| 1372.072
| 1367.505
| 1367.717
| 1369.151
| 1358.576
| 1348.471
| 1344.459
| 1346.299
| 1351.537
| 1359.218
| 1358.945
| 1364.95
| 1371.038
| 1373.96
| 1361.544
| 1345.548
| 1349.089
| 1335.574
| 1326.616
| 1314.823
| 1316.807
| 1314.623
| 1306.176
| 1310.642
| 1317.212
| 1304.63
| 1281.019
| 1275.068
| 1263.703
| 1258.489
| 1275.08
| 1290.07
| 1293.949
| 1297.13
| 1291.183
| 1269.493
| 1267.2
| 1275.271
| 1273.443
| 1274.298
| 1279.171
| 1266.242
| 1265.575
| 1266.753
| 1266.985
| 1257.387
| 1258.496
| 1275.336
| 1284.59
| 1294.651
| 1325.735
| 1357.262
| 1354.682
| 1349.214
| 1348.739
| 1353.729
| 1362.497
| 1361.983
| 1365.771
| 1371.168
| 1369.053
| 1373.639
| 1379.73
| 1386.797
| 1392.128
| 1408.029
| 1412.027
| 1416.23
| 1418.683
| 1427.5
| 1437.833
| 1436.92
| 1434.827
| 1443.325
| 1451.511
| 1454.396
| 1452.422
| 1453.936
| 1461.433
| 1470.992
| 1471.57
| 1472.606
| 1472.739
| 1487.734
| 1477.176
| 1466.736
| 1476.186
| 1468.458
| 1465.398
| 1474.076
| 1488.676
| 1480.111
| 1481.944
| 1487.432
| 1487.589
| 1495.021
| 1491.934
| 1498.879
| 1510.508
| 1516.568
| 1526.035
| 1540.968
| 1533.34
| 1524.978
| 1516.09
| 1526.074
| 1531.531
| 1533.631
| 1535.139
| 1535.6
| 1540.135
| 1553.818
| 1557.948
| 1556.93
| 1562.434
| 1572.399
| 1581.395
| 1579.305
| 1557.031
| 1551.361
| 1546.984
| 1548.264
| 1549.197
| 1536.917
| 1537.317
| 1556.6
| 1576.105
| 1568.427
| 1563.781
| 1572.506
| 1573.457
| 1583.25
| 1586.463
| 1593.595
| 1610.864
| 1613.644
| 1616.899
| 1629.532
| 1640.77
| 1647.379
| 1644.381
| 1641.087
| 1657.039
| 1657.422
| 1676.58
| 1680.282
| 1681.708
| 1684.324
| 1691.271
| 1693.078
| 1689.788
| 1687.285
| 1691.458
| 1700.297
| 1710.237
| 1713.145
| 1721.595
| 1731.706
| 1739.655
| 1747.309
| 1747.066
| 1750.424
| 1752.335
| 1752.991
| 1748.446
| 1744.85
| 1724.248
| 1694.428
| 1711.662
| 1730.867
| 1728.651
| 1695.065
| 1688.659
| 1585.402
| 1621.245
| 1640.59
| 1617.468
| 1635.109
| 1664.007
| 1668.803
| 1678.415
| 1671.26
| 1642.61
| 1643.37
| 1636.002
| 1598.892
| 1598.725
| 1617.61
| 1644.834
| 1631.855
| 1626.687
| 1645.486
| 1642.988
| 1616.311
| 1612.9
| 1617.841
| 1624.533
| 1640.433
| 1634.025
| 1639.133
| 1643.103
| 1654.941
| 1669.946
| 1655.577
| 1635.561
| 1605.393
| 1597.837
| 1590.795
| 1607.708
| 1611.796
| 1589.217
| 1587.864
| 1598.846
| 1595.724
| 1591.767
| 1591.767
| 1593.304
| 1613.496
| 1641.127
12/31/97 | 1652.967
| 1650.89
| 1652.774
| 1637.92
| 1625.711
| 1610.42
| 1562.528
| 1554.605
| 1583.383
| 1596.587
| 1596.181
| 1613.395
| 1632.364
| 1626.643
| 1612.877
| 1607.337
| 1592.873
| 1598.612
| 1621.285
| 1634.18
| 1626.88
| 1626.88
| 1643.096
| 1655.527
| 1671.205
| 1679.615
| 1685.211
| 1692.072
| 1706.844
| 1710.29
| 1711.828
| 1719.062
| 1714.224
| 1720
| 1718.431
| 1717.632
| 1726.222
| 1718.762
| 1734.645
| 1746.328
| 1747.177
| 1747.177
| 1745.856
| 1749.482
| 1748.272
| 1728.208
| 1754.047
| 1744.109
| 1757.106
| 1766.758
| 1769.339
| 1773.154
| 1784.309
| 1781.649
| 1786.294
| 1794.504
| 1794.482
| 1793.574
| 1802.396
| 1805.059
| 1807.904
| 1805.838
| 1802.67
| 1819.235
| 1835.398
| 1840.737
| 1838.415
| 1823.739
| 1798.908
| 1799.583
| 1817.398
| 1815.564
| 1835.505
| 1844.482
| 1834.125
| 1844.132
| 1850.563
| 1860.459
1998 - CURRENT PERIOD GROWTH LEADS ON STRENGTH OF TROUGH-TO-PEAK PERFORMANCE
| 1859.628
| 1836.363
| 1818.711
| 1774.536
| 1789.677
| 1806.655
| 1829.301
| 1837.264
| 1839.102
| 1825.168
| 1816.631
| 1804.028
| 1817.294
| 1807.556
| 1804.465
| 1809.626
| 1802.198
| 1790.393
| 1771.896
| 1784.229
| 1775.434
| 1770.503
| 1754.703
| 1724.95
| 1706.786
| 1728.138
| 1730.781
| 1730.781
| 1710.284
| 1705.111
| 1703.02
| 1712.916
| 1722.445
| 1730.281
| 1731.472
| 1710.392
| 1684.958
| 1675.221
| 1646.059
| 1663.141
| 1684.932
| 1668.182
| 1663.077
| 1675.152
| 1696.925
| 1712.623
| 1707.728
| 1708.623
| 1721.424
| 1734.422
| 1743.948
| 1738.191
| 1744.878
| 1741.363
| 1744.743
| 1744.953
| 1739.033
| 1740.422
| 1742.84
| 1752.73
| 1759.182
| 1754.427
| 1753.009
| 1731.563
| 1711.585
| 1679.046
| 1664.64
| 1644.019
| 1622.534
| 1617.455
| 1630.373
| 1594.014
| 1569.596
| 1525.135
| 1514.037
| 1544.202
| 1579.146
| 1563.278
| 1521.334
| 1551.898
| 1534.041
| 1529.829
| 1534.245
| 1562.036
| 1541.509
| 1526.193
| 1503.303
| 1495.838
| 1480.806
| 1445.479
| 1390.822
| 1362.452
| 1284.489
| 1323.101
| 1340.447
| 1316.01
| 1318.99
| 1375.82
| 1340.66
| 1311.34
| 1344.41
| 1360.3
| 1360.31
| 1369.16
| 1351.71
| 1381.9
| 1379.53
| 1400.93
| 1430.76
| 1408.84
| 1404.28
| 1401.37
| 1392.94
| 1385.01
| 1333.74
| 1332.96
| 1283.67
| 1267.3
| 1228.06
| 1182.12
| 1212.87
| 1240.47
| 1220.79
| 1238.52
| 1276.25
| 1307.29
| 1343.65
| 1365.82
| 1372.15
| 1396.73
| 1399.05
| 1417.91
| 1415.59
| 1415.7
| 1427.11
| 1441.5
| 1474.05
| 1476.82
| 1497.62
| 1512.24
| 1525.61
| 1518.27
| 1512.58
| 1499.84
| 1495.14
| 1484.5
| 1488.79
| 1484.89
| 1494.93
| 1503.52
| 1503.56
| 1518.03
| 1512.32
| 1522.78
| 1533.1
| 1517.02
| 1520.78
| 1516.23
| 1506.76
| 1519.62
| 1530.56
| 1531.76
| 1533.85
| 1512.93
| 1508.68
| 1480.27
| 1486.51
| 1487.72
| 1502.83
| 1516.74
| 1533.13
| 1526.94
| 1544.39
| 1547.37
| 1557.5
| 1566.37
| 1572.46
12/31/98 | 1610.89
| 1608.42
| 1611.66
| 1633.44
| 1634.18
| 1647.22
| 1655.07
| 1633.09
| 1623.33
| 1604.99
| 1631.12
| 1646.37
| 1645.19
| 1620.08
| 1613.99
| 1612.46
| 1624.7
| 1608.74
| 1619.79
| 1632.3
| 1628.06
| 1611.58
| 1619.25
| 1596.81
| 1577.85
| 1572.32
| 1540.91
| 1521.67
| 1552.96
| 1523
| 1515.92
| 1489.92
| 1495.64
| 1500.41
| 1521.29
| 1525.75
| 1511.29
| 1501.88
| 1500.09
| 1508.22
| 1508.39
| 1499.15
| 1507.16
| 1522.3
| 1530.07
| 1527.2
| 1534.79
| 1534.87
| 1524.7
| 1534.14
| 1527.73
| 1525.04
| 1529.38
| 1517.99
| 1504.94
| 1467.54
| 1471.84
| 1504.67
| 1508.39
| 1531.36
| 1527.79
| 1523.51
| 1527.77
| 1541.32
| 1536.69
| 1524.19
| 1532.42
| 1555.26
| 1580.02
| 1599.1
| 1599.86
| 1601.07
| 1616.05
| 1581.03
| 1592.32
| 1635.23
| 1643.81
| 1655.08
| 1667.52
| 1668.29
| 1662.38
| 1660.36
| 1660.03
| 1661.84
| 1659.23
| 1665.8
| 1662.43
| 1672.95
| 1695.14
| 1714.15
| 1723.74
| 1730.09
| 1700.62
| 1693.68
| 1698.18
| 1712.5
| 1719.71
| 1723.86
| 1690.41
| 1667.62
| 1671.33
| 1661.98
| 1684.28
| 1679.58
| 1676.97
| 1674.13
| 1698.51
| 1715.91
| 1704.74
| 1709.78
| 1698.47
| 1682.5
| 1657.65
| 1666.76
| 1694.98
| 1703.44
| 1709.87
| 1726.72
| 1718.67
| 1717.72
| 1702.94
| 1702.84
| 1724.42
| 1745.64
| 1760.44
| 1760.44
| 1747.77
| 1755.72
| 1755.86
| 1741.2
| 1749.25
| 1761.78
| 1766.84
| 1762.33
| 1775.38
| 1792.03
| 1789.91
| 1775.07
| 1745.02
| 1749.23
| 1737.21
| 1725.32
| 1704.28
| 1718.19
| 1718.8
| 1699.82
| 1712.14
| 1703.89
| 1679.62
| 1654.3
| 1654.51
| 1648.16
| 1639.98
| 1628.23
| 1649.2
| 1651.59
| 1671.7
| 1671.03
| 1679.35
| 1668.47
| 1667.13
| 1673.52
| 1684.41
| 1684
| 1687.05
| 1679.96
| 1666.35
| 1646.96
| 1648.77
| 1661.19
| 1647.56
| 1680.25
| 1689.16
| 1680.46
| 1687.58
| 1700.64
| 1695.15
| 1689.68
| 1682.52
| 1659.24
| 1675.45
| 1670.54
| 1644.77
| 1648.95
| 1620.78
| 1608.79
| 1627.21
| 1614.78
| 1626.57
| 1649.13
| 1634.52
| 1646.4
| 1644.05
| 1658.88
| 1652.46
| 1650.92
| 1660.52
| 1639.45
| 1618.97
| 1619.03
| 1601.05
| 1578.78
| 1586.75
| 1598.29
| 1599.69
| 1616.77
| 1613.22
| 1605.56
| 1609.74
| 1633.03
| 1655.81
| 1667.9
| 1670.11
| 1693.92
| 1699.51
| 1709.24
| 1719.64
| 1724.4
| 1734.08
| 1729.4
| 1737.83
| 1750.44
| 1765.74
| 1765.8
| 1784.96
| 1781.91
| 1780.16
| 1755.73
| 1761.51
| 1773.04
| 1765.91
| 1754.68
| 1753.25
| 1779.36
| 1795.43
| 1800.06
| 1800.03
| 1812.16
| 1796.99
| 1803.95
| 1818.57
| 1788.92
| 1784.02
| 1799.5
| 1803.14
| 1806.99
| 1840.15
| 1848.59
| 1865.82
| 1873.47
| 1889.46
| 1924.03
| 1921.75
| 1953.31
12/31/99 | 1953.31

1996 PEAK TO 1998 PEAK 5/22/96 - 4/21/98 | 1998 PEAK TO CURRENT 4/21/98 - 12/31/99 | 1996 PEAK TO CURRENT 5/22/96 - 12/31/99
Russell 2000 | 38.5% | 5.0% | 45.4%
Russell 2000 Value | 60.2 | -16.6 | 33.7
Russell 2000 Growth | 19.3 | 26.2 | 50.6
NAV CUMULATIVE TOTAL RETURN |  |  |
Royce Value Trust | 54.1 | 1.4 | 56.3
Royce Micro-Cap Trust | 48.6 | -3.9 | 42.7
Royce Focus Trust | n/a | -12.3 | n/a

Both Royce Value Trust and Royce Micro-Cap Trust beat the Russell 2000 index during the last full market cycle, attributable primarily to outperformance during the cycle’s decline.

All three Royce Funds are trailing the index in the 1998 peak-to-current period.

Royce Value Trust is outperforming the Russell 2000 from the 1996 peak.

8 | The Royce Funds Annual Report 1999

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

|  |  | Amount | Purchase |  | NAV | Market
History |  |  | Invested | Price | Shares | Value* | 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
9/8/97 |  | Distribution $0.33 |  | 15.625 | 61 |  |
12/5/97 |  | Distribution $0.88 |  | 15.313 | 169 | 52,556 | 46,814
3/6/98 |  | Distribution $0.37 |  | 16.688 | 69 |  |
6/5/98 |  | Distribution $0.39 |  | 16.250 | 76 |  |
9/8/98 |  | Distribution $0.40 |  | 12.563 | 104 |  |
12/7/98 |  | Distribution $0.38 |  | 13.000 | 98 | 54,313 | 47,506
3/8/99 |  | Distribution $0.37 |  | 11.875 | 108 |  |
6/7/99 |  | Distribution $0.34 |  | 13.313 | 91 |  |
9/7/99 |  | Distribution $0.33 |  | 12.688 | 95 |  |
12/6/99 |  | Distribution $0.33 |  | 12.750 | 97 |  |
12/31/99 |  |  | $ 16,322 |  | 3,846 | $ 60,653 | $ 50,239
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 |  |
12/31/99 |  |  | $ 8,900 |  | 1,641 | $ 18,051 | $ 14,769
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 |  |
12/31/99 |  |  | $ 4,375 |  | 1,135 | $ 6,742 | $ 5,356

* Other than for initial purchase, values are stated as of December 31 of the year indicated, after reinvestment of distributions.

The Royce Funds Annual Report 1999 | 9

ROYCE VALUE TRUST

NAV AVERAGE ANNUAL TOTAL RETURNS
Through 12/31/99

Fourth Quarter 1999* | 11.8%
Jul-Dec 1999* | 6.5
1-Year | 11.7
3-Year | 13.7
5-Year | 15.8
10-year | 13.7
Since Inception (11/26/86) | 12.9

*Not annualized.

RISK/RETURN COMPARISON
3-Year Period ended 12/31/99

| Average Annual Total Return | Standard Deviation | RUR*
Royce Value Trust (NAV) | 13.7 | 17.5 | 0.78
S&P 600 | 11.7 | 20.5 | 0.57
Russell 2000 | 13.1 | 20.9 | 0.63

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

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

DOWN MARKET PERFORMANCE COMPARISON
All Down Periods of 7.5% or Greater
in Percentages (%)

| RVT (NAV) | Russell 2000
8/25/87-10/28/87 | -26.4 | -38.9
10/9/89-10/31/90 | -22.1 | -32.5
2/12/92-7/8/92 | -2.1 | -12.0
3/18/94-12/9/94 | -5.3 | -12.3
5/22/96-7/24/96 | -6.3 | -15.4
1/22/97-4/25/97 | -3.1 | -9.0
10/13/97-1/12/98 | -8.1 | -11.3
4/21/98-10/8/98 | -31.3 | -36.5

CALENDAR YEAR NAV TOTAL RETURNS

Year | RVT |  | Year | RVT
1999 | 11.7% |  | 1992 | 19.9%
1998 | 3.3 |  | 1991 | 39.5
1997 | 27.5 |  | 1990 | -13.1
1996 | 15.5 |  | 1989 | 19.2
1995 | 22.6 |  | 1988 | 22.8
1994 | 1.1 |  | 1987 | -7.7
1993 | 17.9 |  |  |

MANAGER’S DISCUSSION

Royce Value Trust (RVT), our broadly diversified closed-end fund of small- and micro-cap stocks, was up 11.7% on a Net Asset Value basis and 5.7% on a market price basis in 1999. Although we think that the Fund’s NAV return was reasonable considering the difficulties that small-cap value endured last year, it was disappointing compared to its small-cap benchmarks, the S&P 600 (+12.4%) and the Russell 2000 (+21.3%). The Fund’s average annual NAV total return since inception (11/26/86) was 12.9%. This compares to respective returns of 12.3% for the Russell 2000 and 10.9% for the S&P 600.

For small-cap value in general, and RVT in particular, performance anomalies were common in 1999. After losing ground against its benchmark during the first quarter, the Fund outperformed the Russell 2000 during the more dynamic second quarter and in the third-quarter downturn. With these gyrations, RVT’s NAV performance was virtually flat through the end of the third quarter and holding its own relative to its benchmarks. During the explosive fourth quarter, however, the Fund could not keep pace, gaining 11.8% on an NAV basis, versus 12.5% for the S&P 600 and 18.4% for the Russell 2000.

In 1999, our holdings received little attention from a market that was focused on momentum, and our valuations, as measured by its weighted average P/E ratio, actually declined from the end of 1998. The attributes that we seek, namely strong balance sheets and strong records of earnings, did not consistently translate into high performance in 1999.

We increased our holdings in the Technology sector, which also generated the greatest positive impact on performance. For example, we took new positions in information technology service companies, such as CIBER and JDA Software Group, when Y2K anxiety created an earnings slowdown. We also sold our position in Unitrode Corporation, an analog semiconductor manufacturer, at a substantial profit.

Several new companies placed among our top-ten positions. Interim Services, new to the portfolio as a whole, is a staffing and career management services company that offers what we think is a winning combination of attractive value and balance sheet quality. We nearly doubled our position in Arnold Industries, in our view a very attractively valued trucking company in an industry that received scant investment attention in 1999 (Circle International Group, a freight forwarder company in the portfolio, has a similar profile). Lilly Industries, a manufacturer of industrial coatings and specialty chemicals, represents another significant increase, although we have held shares since RVT’s inception in November 1986.

In our view, RVT’s portfolio is well-positioned to take advantage of opportunities in the small- and micro-cap sectors. We believe that when the market again emphasizes "quality," as opposed to its current emphasis on momentum, good things will follow for Royce Value Trust.

10 | The Royce Funds Annual Report 1999

PERFORMANCE AND PORTFOLIO REVIEW

GOOD IDEAS THAT WORKED
1999 Net Realized and Unrealized Gain

Exar | $8,331,788
Unitrode Corporation | 4,642,115
Integral Systems | 3,687,054
Micro Strategy Cl. A | 3,367,006
Topps Company (The) | 3,216,198

Exar — The management of this analog semiconductor manufacturer developed new telecommunications products that created a major turnaround in the company’s prospects and caused the stock price to surge in the fourth quarter.

Unitrode Corporation — Small-cap stocks are often subject to an advantageous "urge to merge," and a takeover last summer by Texas Instruments sent the price of this analog semiconductor manufacturer well beyond our initial sell target.

GOOD IDEAS AT THE TIME
1999 Net Realized and Unrealized Loss

Axiohm Transaction Solutions | $2,747,124
Stone & Webster | 2,416,906
Medical Assurance | 2,233,311
PXRE Group | 2,051,178
Nvest LP | 1,956,101

Axiohm Transaction Solutions — It appeared that we had overstayed our welcome with this designer and manufacturer of thermal printheads and printer components when management began to take the majority of shares private. We were left with a minority stake of ever-dwindling value before selling what remained of our entire position last October.

Stone & Webster — The stock of this engineering, construction and design firm declined precipitously in the fourth quarter in the midst of a financial crisis. Selling the building that housed its corporate headquarters gave a small boost both to the company and its stock price. We are hopeful that the recovery can continue.

ROYCE VALUE TRUST MARKET PRICE — ACTUAL vs. ADJUSTED*

Market Price Total Returns
Since Inception | 268.2%
10 Years = | 221.3
5 Years = | 93.7
3 Years = | 38.2
1 Year = | 5.7

| Adjusted Market Price |  | Actual Market Price
| 10.00 |  | 10.00
1986 | 9.88 |  | 9.88
| 10.75 |  | 10.75
| 9.75 |  | 9.75
| 9.63 |  | 9.63
| 8.63 |  | 8.63
| 9.50 |  | 9.50
| 9.37 |  | 9.38
| 9.12 |  | 9.13
| 9.50 |  | 9.50
| 9.25 |  | 9.25
| 7.30 |  | 7.00
| 6.91 |  | 6.63
1987 | 7.26 |  | 6.75
| 7.53 |  | 7.00
| 8.60 |  | 8.00
| 8.73 |  | 8.13
| 8.60 |  | 8.00
| 8.46 |  | 7.88
| 9.27 |  | 8.63
| 9.14 |  | 8.50
| 9.00 |  | 8.38
| 9.54 |  | 8.88
| 9.27 |  | 8.63
| 8.87 |  | 8.25
1988 | 9.25 |  | 8.13
| 9.96 |  | 8.75
| 9.68 |  | 8.50
| 10.10 |  | 8.88
| 10.39 |  | 9.13
| 10.67 |  | 9.38
| 10.53 |  | 9.25
| 10.96 |  | 9.63
| 11.10 |  | 9.75
| 10.99 |  | 9.63
| 10.84 |  | 9.50
| 10.84 |  | 9.50
1989 | 11.46 |  | 9.50
| 10.71 |  | 8.88
| 10.56 |  | 8.75
| 11.16 |  | 9.25
| 11.16 |  | 9.25
| 11.46 |  | 9.50
| 11.61 |  | 9.63
| 11.31 |  | 9.50
| 10.26 |  | 8.25
| 9.53 |  | 7.88
| 8.78 |  | 7.25
| 9.38 |  | 7.75
1990 | 10.23 |  | 8.13
| 10.85 |  | 8.75
| 12.43 |  | 9.88
| 13.05 |  | 10.38
| 13.53 |  | 10.75
| 12.90 |  | 10.25
| 12.58 |  | 10.00
| 12.74 |  | 10.13
| 12.42 |  | 9.88
| 12.46 |  | 9.88
| 12.93 |  | 10.25
| 12.61 |  | 10.00
1991 | 13.83 |  | 10.38
| 14.67 |  | 11.00
| 15.67 |  | 11.75
| 15.33 |  | 11.50
| 15.50 |  | 11.63
| 15.33 |  | 11.38
| 15.00 |  | 11.25
| 15.00 |  | 11.25
| 14.83 |  | 11.13
| 15.19 |  | 11.38
| 15.36 |  | 11.50
| 16.86 |  | 12.63
1992 | 17.54 |  | 12.25
| 18.25 |  | 12.75
| 18.25 |  | 12.88
| 18.61 |  | 13.00
| 18.43 |  | 12.88
| 18.43 |  | 12.88
| 18.79 |  | 13.13
| 19.33 |  | 13.38
| 19.50 |  | 13.63
| 19.75 |  | 13.75
| 20.47 |  | 14.25
| 19.94 |  | 13.88
1993 | 20.13 |  | 12.88
| 20.72 |  | 13.25
| 20.33 |  | 13.00
| 19.16 |  | 12.25
| 19.55 |  | 12.50
| 19.35 |  | 12.38
| 19.16 |  | 12.25
| 19.35 |  | 12.38
| 19.74 |  | 12.63
| 18.76 |  | 12.00
| 18.18 |  | 11.63
| 19.18 |  | 12.13
1994 | 19.00 |  | 11.00
| 20.08 |  | 11.63
| 20.30 |  | 11.75
| 19.65 |  | 11.38
| 20.52 |  | 11.88
| 20.73 |  | 12.13
| 20.73 |  | 12.00
| 21.81 |  | 12.63
| 22.68 |  | 13.13
| 23.33 |  | 13.50
| 22.25 |  | 12.88
| 23.10 |  | 13.25
1995 | 22.91 |  | 11.88
| 23.87 |  | 12.38
| 23.39 |  | 12.13
| 23.63 |  | 12.25
| 23.63 |  | 12.25
| 24.35 |  | 12.63
| 23.87 |  | 12.38
| 22.42 |  | 11.63
| 23.63 |  | 12.25
| 24.35 |  | 12.63
| 23.87 |  | 12.38
| 24.84 |  | 12.88
1996 | 26.64 |  | 12.63
| 26.11 |  | 12.38
| 26.37 |  | 12.50
| 24.79 |  | 11.75
| 25.06 |  | 11.88
| 26.90 |  | 12.75
| 29.01 |  | 13.75
| 30.07 |  | 14.25
| 32.31 |  | 15.31
| 35.01 |  | 16.25
| 33.39 |  | 15.50
| 35.41 |  | 16.44
1997 | 34.32 |  | 15.06
| 34.03 |  | 14.94
| 36.74 |  | 16.13
| 39.88 |  | 17.13
| 39.45 |  | 16.94
| 39.01 |  | 16.75
| 39.35 |  | 16.50
| 36.07 |  | 15.13
| 28.02 |  | 11.75
| 31.68 |  | 12.88
| 33.68 |  | 13.69
| 34.45 |  | 14.00
1998 | 34.82 |  | 13.75
| 34.03 |  | 13.44
| 31.97 |  | 12.63
| 29.54 |  | 11.31
| 33.95 |  | 13.00
| 34.76 |  | 13.31
| 35.48 |  | 13.25
| 35.15 |  | 13.13
| 34.48 |  | 12.88
| 34.00 |  | 12.38
| 33.31 |  | 12.13
| 35.54 |  | 12.94
1999 | 36.82 |  | 13.06

*Reflects market price total return experience of a continuous stockholder who reinvested all
distributions and fully participated in primary subscriptions of rights offerings. This graph
illustrates the market price change from IPO of $10 per share on 11/26/86.

PORTFOLIO DIAGNOSTICS

Median Market Cap. | $519 million
Weighted Average P/E Ratio | 13.7x
Weighted Average P/B Ratio | 1.6x
Weighted Average Yield | 1.3%
Fund Net Assets | $713 million
Turnover Rate | 41%
Net Leverage† | 13%
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, excluding preferred stock.

TOP 10 POSITIONS % of Net Assets

Charming Shoppes | 1.3%
National Computer Systems | 0.9
Gallagher (Arthur J.) & Co. | 0.9
Velcro Industries | 0.8
Pioneer-Standard Electronics | 0.8
Circle International Group | 0.8
Arnold Industries | 0.8
Lilly Industries CL A | 0.8
Simpson Manufacturing | 0.8
Interim Services | 0.8

Portfolio Sector Breakdown
% of Net Assets

Technology | 19.2%
Industrial Products | 13.8
Industrial Services | 12.7
Financial Intermediaries | 7.8
Consumer Products | 7.6
Financial Services | 7.2
Natural Resources | 5.1
Health | 4.1
Consumer Services | 2.9
Miscellaneous | 4.9
Bonds & Preferred Stocks | 2.5
Treasuries, Cash &Cash Equivalents | 12.2

CAPITAL STRUCTURE
Publicly Traded Securities Outstanding
at 12/31/99 at NAV or Liquidation Value

35.1 million shares of Common Stock | $553 million
2.4 million shares of 7.80% Cumulative Preferred Stock | $60 million
4.0 million shares of 7.30% Tax-Advantaged Cumulative Preferred Stock | $100 million

11 | The Royce Funds Annual Report 1999

ROYCE MICRO-CAP TRUST

NAV AVERAGE ANNUAL TOTAL RETURNS
Through 12/31/99

Fourth Quarter 1999* | 13.6%
Jul-Dec 1999* | 10.1
1-Year | 12.7
3-Year | 11.2
5-Year | 14.5
Since Inception (12/14/93) | 13.0

*Not annualized.

RISK/RETURN COMPARISON
3-Year Period ended 12/31/99

| Average Annual Total Return | Standard Deviation | RUR*
Royce Micro-Cap |  |  |
Trust (NAV) | 11.2 | 16.6 | 0.67
Russell 2000 | 13.1 | 20.9 | 0.63

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

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

DOWN MARKET PERFORMANCE COMPARISON
All Down Periods of 7.5% or Greater, in Percentages (%)

| OTCM (NAV) | Russell 2000
3/18/94-12/9/94 | -0.4 | -12.3
5/22/96-7/24/96 | -6.8 | -15.4
1/22/97-4/25/97 | -3.4 | -9.0
10/13/97-1/12/98 | -7.4 | -11.3
4/21/98-10/8/98 | -29.9 | -36.5

CALENDAR YEAR NAV TOTAL RETURNS

Year | OTCM
1999 | 12.7%
1998 | -4.1
1997 | 27.1
1996 | 16.6
1995 | 22.9
1994 | 6.0

MANAGER’S DISCUSSION

Never give your opponent a quarter-mile start in a one-mile race. After moving backwards in the first quarter (down 12.1% on a Net Asset Value basis), Royce Micro-Cap Trust (OTCM) finished the year strongly on both an NAV and market price basis. Although the Fund bested its benchmark, the Russell 2000, by a nose for the last three quarters (28.4% versus 28.2%, respectively), the difficult first quarter hindered 1999 performance. For the full year, OTCM was up 12.7% on an NAV basis and a relatively disappointing 4.5% on a market price basis, versus a gain of 21.3% for the Russell 2000. The Fund’s average annual NAV total return since inception (12/14/93) was 13.0%.

Virtually ignored from April ‘98 through April ‘99, micro-cap securities began to get their wind back in the second quarter, led by the technology sector. OTCM followed suit, posting strong second-quarter results, holding its own in the third-quarter downdraft and performing solidly in the fourth quarter. In a year characterized by wildly divergent micro-cap stock performance, we are not unhappy with OTCM’s NAV total return, considering its relatively low-risk profile. The micro-cap companies that we hold generally possess solid balance sheets and earnings records.

The Technology sector, which dominated every asset class in the market last year and accounted for approximately 20% of the Fund’s equity holdings, was our best performer in 1999. We enjoyed particular success in the semiconductor industry with companies such as Exar and Electroglas, as well as with Integral Systems, a ground-systems satellite builder whose stock price vaulted from the teens into the mid-forties near the end of the year.

There are several new names among the Fund’s top-ten holdings, such as Aurora Biosciences, a company that designs and develops proprietary drug discovery systems, services and technologies that accelerate and enhance the discovery of new medicines. BARRA, another strong performer, provides investment information products that combine technology, data, software and services. MSC.Software, another new addition to the top ten, is a designer and manufacturer of proprietary software for use in automotive, aerospace and other types of engineering whose price fell close to 50% in 1998’s third-quarter correction (when we first increased our position) before beginning to recover in the fourth quarter of this year.

We are pleased by the recent resurgence in micro-cap performance, but we are even more excited about the opportunities remaining in the non-technology sectors. We believe that these companies remain considerably undervalued by the market, which can be seen in the Fund’s low P/E and P/B ratios. The lack of correlation between individual company quality and market performance in 1999 fuels our hopes for a profitable new year.

12 | The Royce Funds Annual Report 1999

PERFORMANCE AND PORTFOLIO REVIEW

GOOD IDEAS THAT WORKED
1999 Net Realized and Unrealized Gain

Exar | $2,569,978
Aurora Biosciences | 1,967,404
Kronos | 1,543,205
Corel | 1,535,684
Newport | 1,463,182

Exar — The management of this analog semiconductor manufacturer developed new telecommunications products that created a major turnaround in the company’s prospects and caused the stock price to surge in the fourth quarter.

Aurora Biosciences — Both institutional interest and the stock price were low early in 1999 for this designer and developer of systems that enhance and accelerate the discovery of new drugs, although we were drawn by what we thought was terrific management. Late in the year, the company attracted serious attention from Wall Street, which led to a significant increase in the stock price.

GOOD IDEAS AT THE TIME
1999 Net Realized and Unrealized Loss

800 JR Cigar | $1,173,423
Midwest Grain Products | 1,078,850
North Face (The) | 757,825
International Isotopes | 740,254
Wellington Underwriting | 669,713

800 JR Cigar — A glut of premium cigars caused this mail-order distributor to miss quarterly earnings estimates and subsequently slump just like other tobacco-related companies did in 1999. We remain optimistic due to the company’s low valuation and the fact that management holds about 75% of the stock.

Midwest Grain Products — The stock of this manufacturer of wheat gluten, premium wheat starch, food grade and fuel grade alcohol suffered an almost 50% decline last year. We expected that the stock would recover with the resolution of trade issue difficulties, but currently these issues remain unresolved. Their solid product line and valuable assets feed our hopes for an eventual turnaround.

ROYCE MICRO-CAP TRUST MARKET PRICE — ACTUAL vs. ADJUSTED*

Market Price Total Returns
Since Inception = | 65.5%
5 Years = | 74.4
3 Years = | 27.8
1 Year = | 4.5

|  | Adjusted Market Price |  | Actual Market Price
1993 |  | 7.50 |  | 7.50
|  | 7.75 |  | 7.75
|  | 7.50 |  | 7.50
|  | 6.50 |  | 6.50
|  | 6.63 |  | 6.63
|  | 7.13 |  | 7.13
|  | 6.75 |  | 6.75
|  | 7.00 |  | 7.00
|  | 7.13 |  | 7.13
|  | 7.00 |  | 7.00
|  | 7.38 |  | 7.38
|  | 7.19 |  | 7.13
1994 |  | 7.11 |  | 7.00
|  | 6.86 |  | 6.75
|  | 7.24 |  | 7.13
|  | 6.98 |  | 6.88
|  | 6.98 |  | 6.88
|  | 7.11 |  | 7.00
|  | 7.49 |  | 7.38
|  | 7.87 |  | 7.75
|  | 8.13 |  | 8.00
|  | 8.51 |  | 8.38
|  | 7.87 |  | 7.75
|  | 7.75 |  | 7.63
1995 |  | 8.52 |  | 8.00
|  | 8.25 |  | 7.75
|  | 8.25 |  | 7.75
|  | 8.25 |  | 7.75
|  | 8.92 |  | 8.38
|  | 8.92 |  | 8.38
|  | 9.18 |  | 8.63
|  | 8.25 |  | 7.75
|  | 8.45 |  | 7.94
|  | 8.52 |  | 8.00
|  | 8.52 |  | 8.00
|  | 9.05 |  | 8.50
1996 |  | 9.71 |  | 8.25
|  | 9.30 |  | 7.88
|  | 9.41 |  | 8.00
|  | 8.97 |  | 7.63
|  | 9.56 |  | 8.13
|  | 10.15 |  | 8.63
|  | 10.57 |  | 8.98
|  | 10.66 |  | 9.06
|  | 11.32 |  | 9.63
|  | 13.16 |  | 11.19
|  | 12.79 |  | 10.88
|  | 12.72 |  | 10.81
1997 |  | 13.10 |  | 10.13
|  | 12.62 |  | 9.75
|  | 13.43 |  | 10.38
|  | 13.64 |  | 11.31
|  | 14.40 |  | 11.13
|  | 13.91 |  | 10.75
|  | 13.35 |  | 10.31
|  | 12.62 |  | 9.75
|  | 10.11 |  | 7.81
|  | 10.43 |  | 8.06
|  | 10.67 |  | 8.25
|  | 11.56 |  | 8.94
1998 |  | 11.87 |  | 8.88
|  | 11.03 |  | 8.25
|  | 10.70 |  | 8.00
|  | 9.95 |  | 7.44
|  | 11.12 |  | 8.31
|  | 11.29 |  | 8.44
|  | 11.29 |  | 8.44
|  | 11.33 |  | 8.47
|  | 11.29 |  | 8.44
|  | 11.37 |  | 8.50
|  | 11.04 |  | 8.25
|  | 11.95 |  | 8.94
1999 |  | 12.41 |  | 9.00

*Reflects market price total return experience of a continuous stockholder who reinvested
all distributions and fully participated in the 1994 rights offering. This graph illustrates
the market price change from IPO of $7.50 per share on 12/14/93.

PORTFOLIO DIAGNOSTICS

Median Market Cap. | $236 million
Weighted Average P/E Ratio | 14.1x
Weighted Average P/B Ratio | 1.5x
Weighted Average Yield | 1.1%
Fund Net Assets | $191 million
Turnover Rate | 49%
Net Leverage† | 0%
Symbol – Market Price | OTCM
– NAV | XOTCX

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

TOP 10 POSITIONS % of Net Assets

Kronos | 1.6%
Duff & Phelps Credit Rating | 1.5
Matthews International CL. A | 1.2
Simpson Manufacturing | 1.1
Ash Grove Cement Company | 1.0
Aurora Biosciences | 1.0
Titan Exploration | 1.0
Florida Rock Industries | 1.0
BARRA | 1.0
MSC.Software | 0.9

PORTFOLIO SECTOR BREAKDOWN
% of Net Assets

Technology | 18.3%
Industrial Products | 11.6
Industrial Services | 11.3
Consumer Products | 10.0
Health | 6.3
Natural Resources | 5.9
Financial Intermediaries | 4.1
Financial Services | 3.4
Consumer Services | 1.8
Utilities | 0.2
Miscellaneous | 4.8
Bond & Preferred Stock | 0.6
Treasuries, Cash &Cash Equivalents | 21.7

CAPITAL STRUCTURE
Publicly Traded Securities Outstanding
at 12/31/99 at NAV or Liquidation Value

13.8 million shares of Common Stock | $151 million
1.6 million shares of 7.75% Cumulative Preferred Stock | $40 million

13 | The Royce Funds Annual Report 1999

ROYCE FOCUS TRUST

NAV AVERAGE ANNUAL TOTAL RETURNS
Through 12/31/99

Fourth Quarter 1999* | 5.9%
Jul-Dec 1999* | -1.3
1-Year | 8.7
3-Year | 6.9
Since Inception (11/1/96)(1) | 8.0

* Not annualized.

(1) Date Royce & Associates, Inc. assumed investment management responsibility.

RISK/RETURN COMPARISON
3-Year Period ended 12/31/99

| Average Annual Total Return | Standard Deviation | RUR*
Royce Focus Trust (NAV) | 6.9 | 19.8 | 0.35
Russell 2000 | 13.1 | 20.9 | 0.63

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

Over the last three years, Royce Focus Trust has had volatility comparable
to the Russell 2000, but with lower performance.

DOWN MARKET PERFORMANCE COMPARISON
All Down Periods of 7.5% or Greater, in Percentages (%)

| FUND (NAV) | Russell 2000
1/22/97- 4/25/97 | -1.1 | -9.0
10/13/97- 1/12/98 | -10.3 | -11.3
4/21/98- 10/8/98 | -35.2 | -36.5

CALENDAR YEAR NAV TOTAL RETURNS

Year | FUND
1999 | 8.7%
1998 | -6.8
1997 | 20.5

MANAGER’S DISCUSSION

We think that Robert Ripley would have readily agreed that the performance of Royce Focus Trust (FUND) in 1999 was strange indeed. For the full year, the Fund’s concentrated portfolio of small-cap companies was up 8.7% on a Net Asset Value basis, but down a disappointing 0.3% on a market price basis. Both returns fell well behind the benchmark, the small-cap oriented Russell 2000, which was up 21.3%.

"Believe it or not," the Fund was no exception to the oddities that affected small-cap value investing in 1999, atypically losing ground against its benchmark in the first-quarter downturn, only to outperform the index — again atypically — during the subsequent second-quarter rally. It narrowly underperformed the Russell 2000 in the third-quarter downdraft and lagged dramatically in the fourth-quarter upswing. All of this took place during a difficult year for small-cap value stocks, in which the Russell 2000 Value index was down 1.5%.

The Fund’s use of concentration, in our view, acted as neither a help nor a hindrance to its 1999 performance. FUND’s preference for small-cap companies with great balance sheets trading at low valuations was out of step with a market that seemed bent on rewarding higher-risk, higher-valuation investments.

Portfolio holdings in the Technology sector made the greatest positive impact on performance. This was not surprising, owing to the sector’s market dominance last year. The bulk of our technology holdings are not "cutting edge" companies, but instead offer solid balance sheets and proven earnings records. Hurting the Fund’s performance in 1999 were companies in the Consumer Products and Financial Intermediaries sectors. We took advantage of low prices in the latter sector throughout the year, particularly when insurance company stocks declined to what we believe were attractive levels. We added significantly to our position in Arthur J. Gallagher & Co., an insurer specializing in risk management, that recovered nicely before the end of the year.

Several positions made new appearances in our top-ten holdings. Comdisco is a computer and technology leasing firm that has leveraged its expertise into some profitable Internet opportunities. Plantronics is a leader in the fast-growing telephone headset industry whose stock price endured some precipitous drops before rebounding in the fourth quarter. Arrow International is a designer and manufacturer of clinically advanced medical products for critical and cardiac care whose stock we bought when slower-than-expected growth rates caused its price to plummet last spring.

In our view, the underlying fundamentals of the individual portfolio companies possess substantial untapped performance opportunity. We believe that a return to "quality," as opposed to the current environment that has been dominated by momentum investing, will result in good things for Royce Focus Trust.

14 | The Royce Funds Annual Report 1999

PERFORMANCE AND PORTFOLIO REVIEW

GOOD IDEAS THAT WORKED
1999 Net Realized and Unrealized Gain

Marshall Industries | $2,186,393
Charming Shoppes | 1,976,297
Comdisco | 1,868,548
Gallagher (Arthur J.) & Co. | 1,032,707
Avnet | 1,030,909

Charming Shoppes — The stock of this women’s fashion retailer, a long-term holding with solid (and, in our view, improving) business fundamentals, continues to benefit from the increasing attention of other investors.

Comdisco — This firm has leveraged their expertise in leasing computer equipment and technology into a profitable combination of leasing information technology services, Internet access and Internet venture capital opportunities.

GOOD IDEAS AT THE TIME
1999 Net Realized and Unrealized Loss

Gibson Greetings | $1,480,054
Oakley | 1,193,287
Enesco Group | 1,185,466
Morrison Knudsen | 742,370
New England Business Service | 675,461

Gibson Greetings — We began to sell our position in this greeting card and novelty toy company in May 1999, selling the position entirely out of the portfolio by October, once it appeared that its creative management might be unable to revitalize the company. American Greetings announced plans to buy the company with a tender offer in November.

Oakley — The company continues to be the dominant force in the sunglasses business, but its stock price was stomped on as a result of its slow start in the footwear industry. We still have high hopes based on their strong brand name and talented management.

ROYCE FOCUS TRUST MARKET PRICE — ACTUAL vs. ADJUSTED(2)

Market Price Total Returns
Since 11/1/96 = | 22.4%
1 Year = | -0.3

|  | Adjusted Market Price |  | Actual Market Price
|  | 4.38 |  | 4.38
|  | 4.66 |  | 4.66
1996 |  | 4.59 |  | 4.59
|  | 4.75 |  | 4.75
|  | 4.56 |  | 4.56
|  | 4.88 |  | 4.88
|  | 4.72 |  | 4.72
|  | 4.81 |  | 4.81
|  | 5.00 |  | 5.00
|  | 5.28 |  | 5.28
|  | 5.44 |  | 5.44
|  | 6.06 |  | 6.06
|  | 5.69 |  | 5.69
|  | 5.69 |  | 5.69
1997 |  | 5.57 |  | 5.06
|  | 5.64 |  | 5.13
|  | 5.78 |  | 5.25
|  | 6.23 |  | 5.66
|  | 6.54 |  | 5.94
|  | 6.23 |  | 5.66
|  | 6.05 |  | 5.50
|  | 6.12 |  | 5.56
|  | 4.82 |  | 4.38
|  | 5.30 |  | 4.81
|  | 5.09 |  | 4.63
|  | 5.30 |  | 4.81
1998 |  | 5.37 |  | 4.88
|  | 4.82 |  | 4.38
|  | 4.54 |  | 4.13
|  | 4.41 |  | 4.00
|  | 4.54 |  | 4.13
|  | 5.37 |  | 4.88
|  | 5.44 |  | 4.94
|  | 5.54 |  | 5.03
|  | 5.58 |  | 5.06
|  | 5.37 |  | 4.88
|  | 5.34 |  | 4.84
|  | 5.30 |  | 4.81
1999 |  | 5.36 |  | 4.72

(2) Reflects market price total return experience of a continuous stockholder who reinvested all distributions.
This graph illustrates the market price change from $4.375 on 11/1/96, the date Royce & Associates, Inc. assumed
investment management responsibility.

PORTFOLIO DIAGNOSTICS

Median Market Cap. | $725 million
Weighted Average P/E Ratio | 13.8x
Weighted Average P/B Ratio | 1.9x
Weighted Average Yield | 1.2%
Fund Net Assets | $71 million
Turnover Rate | 60%
Net Leverage† | 12%
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.

TOP 10 POSITIONS % of Net Assets

Charming Shoppes | 6.8%
Morrison Knudsen | 4.9
Gallagher (Arthur J.) & Co. | 4.8
New England Business Service | 4.6
Florida Rock Industries | 4.6
Comdisco | 4.5
Lincoln Electric Holdings | 4.2
Plantronics | 3.8
Arrow International | 3.7
Oakley | 3.2

PORTFOLIO SECTOR BREAKDOWN
% of Net Assets

Technology | 14.9%
Industrial Products | 13.7
Industrial Services | 13.3
Natural Resources | 9.5
Financial Services | 9.3
Consumer Services | 6.8
Financial Intermediaries | 6.3
Health | 3.7
Consumer Products | 3.2
Treasuries, Cash &Cash Equivalents | 19.3

CAPITAL STRUCTURE
Publicly Traded Securities Outstanding
at 12/31/99 at NAV or Liquidation Value

8.6 million shares of Common Stock | $51 million
800,000 shares of 7.45% Cumulative Preferred Stock | $20 million

15 | The Royce Funds Annual Report 1999

Q&A WITH CHUCK ROYCE, WHITNEY GEORGE AND JACK FOCKLER

Senior staff members Chuck Royce, Jack Fockler and Whitney George recently sat down to discuss some of the changes that have taken place in money management. Chuck Royce has been President of Royce & Associates since 1973 and manages most of the firm’s offerings. Whitney George, who joined the firm as an analyst in 1991 and became a portfolio manager in 1997, is a Vice President and Managing Director of Royce & Associates. Vice President and Managing Director of Royce & Associates, Jack Fockler has worked closely with Chuck since joining the firm in 1989. Jack, Whitney and Chuck are also members of the firm’s Executive Committee.

Jack: Individual stocks such as Microsoft and AOL have had extraordinary returns through the ‘90s. At the same time, managed account investing is no longer the exclusive province of the wealthiest institutions and individuals. Why, then, should investors buy closed-end funds today?

> Chuck: The classic argument in favor of closed-end investing was to build a diversified investment portfolio by using an active manager. Recently, the Internet has given individual investors access to information, trading, and order placement that they lacked five or ten years ago. It has also provided people with a greater sense of control over their money. However, these developments have not invalidated the idea that there are advantages to professional management, particularly in the small-cap world, even if this year’s results and the longer-term returns of a few very successful stocks appear to have obscured its importance.

> Whitney: The individual may feel that he or she is winning in the short-term, especially if they’ve invested in Internet stocks or those in the Nasdaq 100, but I have substantial doubts about the long-term viability of such high returns and the idea that risk doesn’t need to be a primary consideration. With our approach, there is always an attempt to reduce risk, and we continue to view active professional management as having a distinct advantage over the long term. Which is not to say that owning closed-end funds is mutually exclusive from owning individual stocks, only that there are important differences between the two.

Jack: Do you think that there has been a tendency among investment managers to emphasize short-term performance?

> Whitney: To some degree, this is true. Money managers have to answer to stockholders and institutional clients, and no manager wants to have to explain why he or she didn’t do something that they could have done. As a result, many professional investors have hopped on the momentum bandwagon to pacify and preserve their client base, even if they may not think it’s the right move over the long term.

> Chuck: I agree. The dream of high performance with little or no consideration of risk has affected almost everyone to a certain extent, so it’s understandable that some professional investors would capitulate to the trend. We’re looking like the turtles in this race because we continue to pick stocks the way we always have. Fortunately, we have very experienced managers and a solid base of informed investors in our open-and closed-end funds, as well as in our institutional business.

Jack: Chuck, when you began to manage Pennsylvania Mutual Fund in the early ‘70s, you weren’t wed to a particular asset class or investment style—you simply bought the stocks of companies that satisfied your own risk-averse criteria. Did the increasing professionalization and popularity of money management in the ‘90s have a negative effect by limiting managers to style and asset categories too rigidly? How valid are the lines that many of us draw between value and growth?

16 | The Royce Funds Annual Report 1999

> Chuck: I think it has had an unintended limiting effect, but more in terms of investment style than asset class. Many companies that we look at don’t fit the classic, Ben Graham-style value mold, but they probably wouldn’t be classified as growth companies, either. We try to buy cheap companies that we believe have the potential to grow, but we also pay close attention to risk factors that should give us protection against the downside. I don’t really like being considered a straight-out value investor. I want to be known as a very good investor in the small-cap world, one who takes into account both risk and reward. Whether small-cap growth is doing better than value, or vice-versa, is not something that affects our day-to-day work.

Jack: Has the delineation of asset classes and investment styles created too much emphasis on relative performance and not enough on absolute?

> Whitney: Unfortunately, there’s no question that relative performance is the name of the game today. We’ve often said that you can’t eat from the table of relative performance, but many investors think that a fund’s investment objective is to be the top performer in its asset class every single quarter. We think our job as active managers is to deliver above-average absolute returns, adjusted for both risk and inflation. We try to accomplish this over long-term periods, usually three or more years. It’s unreasonable to expect a manager to outperform in every short-term performance period. It’s a nice idea, and we’re certainly proud of our relative performance achievements, but that’s not our goal. Short-term returns are only important insofar as they contribute to the goal of building strong absolute returns over the long term.

I want to be known as a very good investor in the small-cap world, one who takes into account both risk and reward. Whether small-cap growth is doing better than value, or vice-versa, is not something that affects our day-to-day work.

Jack: Is it old-fashioned to talk about absolute performance when so many investors own funds in different classes with different styles and are generally just looking at the top performers in the most recent period and making their picks that way?

> Chuck: It’s true that many people tend to invest by looking in the rearview mirror—they want yesterday’s stellar returns today and in the future. Since this is essentially impossible, we think that investors should look instead at a fund’s long-term returns and how they were achieved. They should also learn about a manager’s methodology, philosophy and risk tolerance. Unfortunately, the typical investor presumes that what worked in the last few years will work in the next few. I certainly couldn’t have predicted in 1998 how the Funds would perform in 1999. I’m sure that this year will have its own surprises. This takes us back to the importance of staying true to our approach over the long haul.

17 | The Royce Funds Annual Report 1999

DISTRIBUTION REINVESTMENT AND CASH PURCHASE OPTIONS FOR COMMON STOCKHOLDERS

Why should I reinvest my distributions?

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

How does the reinvestment of distributions from the Royce Closed-End Funds work?

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

How does this apply to registered stockholders?

If your shares are registered directly with a Fund, your distributions are automatically reinvested unless you have otherwise instructed the Funds’ custodian, State Street Bank and Trust Company, in writing. A registered stockholder also has the option to receive the distribution in the form of a stock certificate or in cash if State Street 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 State Street on a monthly basis, and to deposit certificates representing your Fund shares with State Street for safekeeping. The Funds’ investment adviser is absorbing all commissions on optional cash purchases under the Plans through December 31, 2000.

How do the plans work for registered stockholders?

State Street 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 State Street 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 State Street 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, State Street 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 State Street. All correspondence (including notifications) should be directed to: [Name of Fund] Distribution Reinvestment and Cash Purchase Plan, c/o State Street Bank and Trust Company, PO Box 8200, Boston, MA 02110, telephone (800) 426-5523.

18 | The Royce Funds Annual Report 1999

UPDATES AND NOTES TO PERFORMANCE AND RISK INFORMATION

FIRM UPDATES

We are pleased to report that we began the new year with no Y2K-related problems in our internal computer systems.

[GRAPHIC: Computer display "The Royce Funds"]

NEW @ www.roycefunds.com

We completed the redesign of our website in November, with a new look for our homepage and improved navigation. Please e-mail us at funds@roycenet.com and let us know what you think.

This Annual Report is available on our website in both PDF (Portable Document Format) for easy printing and HTML format for easy online reading.

AUTHORIZED SHARE TRANSACTIONS

Each of Royce Value Trust, Royce Micro-Cap Trust and Royce Focus Trust may repurchase up to 300,000 shares of its common stock and up to 10% of the issued and outstanding shares of each series of its preferred stock during the year ending December 31, 2000. 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 offering are within each Board’s discretion.

NOTES TO PERFORMANCE AND RISK INFORMATION

All performance information is presented on a total return basis and reflects the reinvestment of distributions and participation in primary subscriptions of any rights offerings. Past performance is no guarantee of future results. Share prices will fluctuate, so that shares may be worth more or less than their original cost when sold. The Royce Funds invest primarily in securities of small-cap and/or micro-cap companies that may involve considerably more risk than investments in securities of larger-cap companies. Historical market trends are not necessarily indicative of future market movements. There can be no assurance that securities mentioned in this report will be included in any Royce-managed portfolio in the future.

Standard deviation is a statistical measure within which a fund’s total returns have varied over time.
The greater the standard deviation, the greater a fund’s volatility.

The Russell 2000, Russell 2000 Value, Russell 2000 Growth, Wilshire Small-Cap Value, NASDAQ Composite, Dow Jones Industrial Average, S&P 500 and S&P 600 SmallCap are unmanaged indices of domestic common stocks. The Royce Funds is a service mark of The Royce Funds.

19 | The Royce Funds Annual Report 1999

ROYCE VALUE TRUST, INC. |

SCHEDULE OF INVESTMENTS | DECEMBER 31, 1999

COMMON STOCKS—85.3% | SHARES |  | VALUE
--- | --- | --- | ---
Consumer Products—7.6%
Apparel and Shoes—1.8%
Garan | 96,900 |  | $ 2,773,763
K-Swiss Cl. A | 82,700 |  | 1,536,411
North Face (The)* | 451,100 |  | 1,832,594
Oshkosh B'Gosh Cl. A | 114,300 |  | 2,407,444
Timberland Company Cl. A* | 900 |  | 47,587
Weyco Group | 159,400 |  | 4,094,588
|  |  | 12,692,387
Collectibles—0.4%
Action Performance* | 2,000 |  | 23,000
Department 56* | 51,200 |  | 1,158,400
Enesco Group | 176,700 |  | 1,954,744
|  |  | 3,136,144
Food/Beverage/Tobacco—0.6%
Celestial Seasonings* | 40,000 |  | 744,375
800 JR Cigar* | 172,400 |  | 1,497,725
Hershey Creamery | 583 |  | 1,224,300
J & J Snack Foods* | 5,000 |  | 102,500
Tootsie Roll Industries | 13,000 |  | 428,187
|  |  | 3,997,087
Home Furnishing/Appliances—1.2%
Bassett Furniture Industries | 194,187 |  | 3,106,992
Burnham Corporation Cl. A | 46,956 |  | 1,666,938
Burnham Corporation Cl. B | 18,000 |  | 639,000
Conso International* | 174,175 |  | 1,502,259
La-Z-Boy | 28,200 |  | 474,113
Lifetime Hoan | 238,992 |  | 1,254,708
|  |  | 8,644,010
Publishing—0.6%
Gibson Greetings* | 173,400 |  | 1,555,181
Marvel Enterprises* | 383,200 |  | 2,107,600
Reader's Digest Association (The) Cl. A | 5,000 |  | 146,250
Scholastic* | 1,200 |  | 74,625
|  |  | 3,883,656
Sports and Recreation—1.3%
Johnson Worldwide Associates Cl. A* | 251,800 |  | 1,786,206
Lund International Holdings* | 153,600 |  | 902,400
Oakley* | 362,200 |  | 2,014,737
++RockShox* | 1,060,400 |  | 1,855,700
Sturm, Ruger & Co. | 298,800 |  | 2,651,850
|  |  | 9,210,893
Other Consumer Products—1.7%
Lazare Kaplan International* | 190,100 |  | 1,544,563
Matthews International Cl. A | 115,200 |  | 3,168,000
Starrett (L. S.) Company Cl. A | 75,400 |  | 1,691,787
Velcro Industries | 497,500 |  | 6,001,094
|  |  | 12,405,444
|  |  | 53,969,621
Consumer Services—2.9%
Leisure/Entertainment—0.1%
Anchor Gaming* | 1,000 |  | 43,438
Linea Aerea Nacional Chile ADR+ | 10,000 |  | 75,625
Seattle FilmWorks* | 237,287 |  | 659,954
|  |  | 779,017
Restaurants/Lodgings—0.6%
Buffets* | 443,435 |  | 4,434,350
Papa John's International* | 5,000 |  | 130,312
|  |  | 4,564,662
Retail Stores—2.2%
Abercrombie & Fitch Cl. A* | 2,000 |  | 53,375
Charming Shoppes* | 881,900 |  | 5,842,587
Claire's Stores | 70,200 |  | 1,570,725
Consolidated Stores* | 10,000 |  | 162,500
Family Dollar Stores | 4,700 |  | 76,669
Mikasa | 168,900 |  | 1,699,556
Pier 1 Imports | 52,500 |  | 334,688
Sunglass Hut International* | 226,800 |  | 2,551,500
Suzy Shier | 248,000 |  | 944,926
Urban Outfitters* | 79,300 |  | 2,309,612
|  |  | 15,546,138
|  |  | 20,889,817
Financial Intermediaries—7.8%
Banking—1.4%
Argonaut Group | 34,800 |  | 691,650
BOK Financial* | 41,509 |  | 838,612
Boston Private Financial Holdings* | 10,000 |  | 85,000
First National Bank of Anchorage | 2,100 |  | 2,018,100
Fulton Financial | 17,146 |  | 308,628
HomeFed* | 429,990 |  | 376,241
Mechanics Bank | 200 |  | 2,600,000
National Bancorp of Alaska | 73,880 |  | 2,073,258
Oriental Financial Group | 58,000 |  | 1,279,625
|  |  | 10,271,114
Closed End Funds—0.1%
Baker, Fentress & Co. | 45,000 |  | 638,438
Insurance—6.2%
Baldwin & Lyons Cl. B | 126,000 |  | 2,787,750
CNA Surety | 20,000 |  | 260,000
Capitol Transamerica | 106,415 |  | 1,070,801
Chicago Title | 37,015 |  | 1,711,944
Commerce Group | 54,318 |  | 1,419,058
Erie Indemnity Company Cl. A | 17,000 |  | 550,375
Highlands Insurance Group* | 236,800 |  | 2,249,600
Independence Holding | 58,164 |  | 668,886
Leucadia National | 4,500 |  | 104,062
Markel* | 2,200 |  | 341,000

20 | The Royce Funds Annual Report 1999

ROYCE VALUE TRUST, INC. |

SCHEDULE OF INVESTMENTS | DECEMBER 31, 1999

| SHARES |  | VALUE
--- | --- | --- | ---

Financial Intermediaries (continued)
Insurance—(continued)
Medical Assurance* | 188,068 |  | $ 3,984,691
Mutual Risk Management | 246,900 |  | 4,151,006
NYMAGIC | 47,700 |  | 629,044
Nobel Insurance* | 121,500 |  | 30,375
Old Republic International | 73,700 |  | 1,004,162
PMA Capital Cl. A | 214,200 |  | 4,257,225
PXRE Group | 298,151 |  | 3,875,963
RLI | 41,162 |  | 1,399,508
Trenwick Group | 245,950 |  | 4,165,778
Wesco Financial | 11,990 |  | 2,937,550
Zenith National Insurance | 206,700 |  | 4,263,188
White Mountains Insurance Group | 22,200 |  | 2,675,100
|  |  | 44,537,066
Securities Brokers—0.1%
Raymond James Financial | 7,500 |  | 140,156
|  |  | 55,586,774
Financial Services—7.2%
Information and Processing—1.6%
BARRA* | 58,800 |  | 1,866,900
Duff & Phelps Credit Rating | 60,200 |  | 5,354,038
Fair, Isaac and Co. | 71,600 |  | 3,794,800
|  |  | 11,015,738
Insurance Brokers—2.6%
Blanch (E.W.) Holdings | 42,600 |  | 2,609,250
Clark/Bardes Holdings* | 80,900 |  | 1,162,937
Crawford & Co. Cl. A | 327,350 |  | 3,723,606
Crawford & Co. Cl. B | 75,300 |  | 1,025,963
Gallagher (Arthur J.) & Co. | 101,900 |  | 6,598,025
Hilb, Rogal & Hamilton | 112,675 |  | 3,183,069
|  |  | 18,302,850
Investment Management—3.0%
Affiliated Managers Group* | 107,800 |  | 4,359,162
Alliance Capital Management Holding L.P. | 107,200 |  | 3,209,300
Eaton Vance | 97,100 |  | 3,689,800
Federated Investors Cl. B | 10,000 |  | 200,625
John Nuveen Company Cl. A | 41,400 |  | 1,492,987
Lexington Global Asset Managers* | 21,100 |  | 51,431
Nvest LP | 198,300 |  | 3,148,013
PIMCO Advisors Holdings LP | 42,740 |  | 1,610,764
Phoenix Investment Partners | 202,700 |  | 1,646,937
Pioneer Group (The)* | 103,600 |  | 1,631,700
SEI Investments | 2,000 |  | 238,031
U.S. Global Investors Cl. A* | 249,205 |  | 373,808
|  |  | 21,652,558
|  |  | 50,971,146
Health—4.1%
Commercial Services—1.2%
IDEXX Laboratories* | 20,000 |  | 322,500
PAREXEL International* | 320,200 |  | 3,782,362
Quintiles Transnational* | 61,600 |  | 1,151,150
Schein (Henry)* | 239,000 |  | 3,181,688
Young Innovations* | 49,700 |  | 729,969
|  |  | 9,167,669
Drugs and Biotech—1.5%
Affymetrix* | 15,000 |  | 2,545,312
Biogen* | 4,000 |  | 338,000
BioReliance* | 61,000 |  | 348,844
Cerus Corporation* | 26,800 |  | 710,200
Dura Pharmaceuticals* | 6,200 |  | 86,413
Genzyme Corporation--General Division* | 40,000 |  | 1,800,000
Genzyme Corporation--Tissue Repair* | 15,300 |  | 43,987
Genzyme Corporation--Molecular Oncology* | 4,322 |  | 30,254
Genzyme Corporation--Surgical Products* | 7,160 |  | 41,618
IDEC Pharmaceuticals* | 30,000 |  | 2,947,500
Incyte Pharmaceuticals* | 13,000 |  | 780,000
Liposome Company (The)* | 5,000 |  | 61,016
Millennium Pharmaceuticals* | 5,000 |  | 610,000
Shire Pharmaceuticals Group ADR+* | 20,853 |  | 607,344
|  |  | 10,950,488
Consumer Health Services—0.1%
Invacare | 17,000 |  | 341,063
Personal Care—0.1%
Chattem* | 5,000 |  | 95,000
Surgical Products and Devices—1.2%
Arrow International | 98,700 |  | 2,862,300
Biomet | 5,000 |  | 200,000
Haemonetics* | 208,200 |  | 4,957,762
NMT Medical* | 150,600 |  | 432,975
PE Corporation--PE Biosystems Group | 2,000 |  | 240,625
PE Corporation--Celera Genomics Group* | 500 |  | 74,500
|  |  | 8,768,162
|  |  | 29,322,382
Industrial Products—13.8%
Building Systems and Components—3.5%
Decker Manufacturing | 6,022 |  | 319,166
Falcon Products | 349,400 |  | 3,013,575
Fleetwood Enterprises | 20,000 |  | 412,500

21 | The Royce Funds Annual Report 1999

ROYCE VALUE TRUST, INC. |

SCHEDULE OF INVESTMENTS | DECEMBER 31, 1999

| SHARES |  | VALUE
--- | --- | --- | ---

Industrial Products (continued)
Building Systems and Components—(continued)
International Aluminum | 51,700 |  | $ 1,214,950
Juno Lighting | 19,008 |  | 197,208
Kimball International Cl. B | 168,580 |  | 2,781,570
Mueller (Paul) | 53,200 |  | 1,536,150
Preformed Line Products Company | 127,600 |  | 2,105,400
Simpson Manufacturing* | 126,700 |  | 5,543,125
Skyline | 123,400 |  | 2,899,900
Thor Industries | 159,950 |  | 4,868,478
|  |  | 24,892,022
Construction Materials—2.0%
Ameron International | 13,000 |  | 514,312
Ash Grove Cement Company Cl. B | 50,518 |  | 5,051,800
Florida Rock Industries | 148,000 |  | 5,096,750
Puerto Rican Cement | 98,300 |  | 3,342,200
|  |  | 14,005,062
Industrial Components—0.1%
Woodhead Industries | 45,400 |  | 527,775
Industrial OEM—0.1%
Ionics* | 5,000 |  | 140,625
Machinery—1.6%
Atchison Casting* | 58,600 |  | 534,725
Federal Signal | 114,900 |  | 1,845,581
Hurco Companies* | 5,000 |  | 17,500
Lincoln Electric Holdings | 243,580 |  | 5,023,838
Nordson | 41,100 |  | 1,983,075
Oshkosh Truck | 59,100 |  | 1,732,369
PAXAR* | 40,000 |  | 337,500
Tecumseh Products Company Cl. A | 3,300 |  | 155,719
|  |  | 11,630,307
Paper and Packaging—1.1%
CLARCOR | 4,550 |  | 81,900
Liqui-Box | 59,978 |  | 2,968,911
PalEx* | 250,800 |  | 1,755,600
Peak International* | 44,500 |  | 456,125
Shorewood Packaging* | 134,850 |  | 2,553,722
|  |  | 7,816,258
Pumps, Valves and Bearings—1.4%
ConBraCo Industries | 7,630 |  | 3,891,300
Denison International ADR+* | 88,400 |  | 906,100
Kaydon Corporation | 159,100 |  | 4,265,869
Robroy Industries Cl. A | 40,523 |  | 283,661
Sun Hydraulics | 87,450 |  | 568,425
|  |  | 9,915,355
Specialty Chemicals and Materials—2.5%
Aceto | 60,010 |  | 660,110
Brady (W.H.) Cl. A | 121,100 |  | 4,109,831
Calgon Carbon | 10,000 |  | 59,375
Chemfab* | 133,219 |  | 2,081,547
Hawkins Chemical | 301,278 |  | 2,617,353
Lilly Industries Cl. A | 414,283 |  | 5,566,928
MacDermid | 72,331 |  | 2,970,092
|  |  | 18,065,236
Textiles—0.9%
Delta Woodside Industries | 125,400 |  | 235,125
Fab Industries | 175,500 |  | 1,897,594
++Thomaston Mills Cl. A* | 327,800 |  | 491,700
Unifi* | 319,800 |  | 3,937,537
Wellman | 15,000 |  | 279,375
|  |  | 6,841,331
Other Industrial Products—0.6%
BHA Group Holdings | 123,209 |  | 970,271
Baldor Electric | 27,000 |  | 489,375
Landauer | 112,900 |  | 2,469,688
Myers Industries | 34,862 |  | 549,076
|  |  | 4,478,410
|  |  | 98,312,381
Industrial Services—12.7%
Advertising/Publishing—0.7%
Grey Advertising | 4,817 |  | 1,926,800
True North Communications | 63,000 |  | 2,815,313
|  |  | 4,742,113
Commercial Services—3.2%
CDI* | 100,000 |  | 2,412,500
Carlisle Holdings* | 251,100 |  | 3,013,200
Catalina Marketing* | 5,000 |  | 578,750
Cornell Corrections* | 80,400 |  | 673,350
Fisher Companies | 16,096 |  | 993,928
Interim Services* | 223,000 |  | 5,519,250
Korn/Ferry International* | 53,700 |  | 1,953,337
Marketing Specialists* | 124,900 |  | 468,375
Modis Professional Services* | 324,700 |  | 4,626,975
Olsten | 86,600 |  | 979,662
++Open Plan Systems* | 354,300 |  | 708,600
Shared Medical Systems | 21,900 |  | 1,115,531
|  |  | 23,043,458
Engineering and Construction—1.9%
Danaher | 14,396 |  | 694,607
McDermott International | 11,000 |  | 99,688
Morrison Knudsen* | 494,100 |  | 3,860,156
Sevenson Environmental Services | 265,720 |  | 2,557,555
Stone & Webster | 218,500 |  | 3,673,531

22 | The Royce Funds Annual Report 1999

ROYCE VALUE TRUST, INC. |

SCHEDULE OF INVESTMENTS | DECEMBER 31, 1999

| SHARES |  | VALUE
--- | --- | --- | ---

Industrial Services (continued)
Engineering and Construction (continued)
Todd Shipyards* | 39,200 |  | $ 308,700
Willbros Group* | 483,700 |  | 2,237,112
|  |  | 13,431,349
Food/Tobacco Processors—1.0%
DIMON | 253,600 |  | 824,200
Farmer Bros. | 26,000 |  | 4,134,000
Midwest Grain Products* | 231,800 |  | 1,709,525
Seaboard | 3,750 |  | 728,438
|  |  | 7,396,163
Industrial Distribution—0.5%
Central Steel & Wire | 3,699 |  | 2,256,390
Ritchie Bros. Auctioneers* | 40,900 |  | 1,134,975
TBC* | 21,300 |  | 133,125
|  |  | 3,524,490
Printing—1.3%
Bowne & Co. | 122,200 |  | 1,649,700
Ennis Business Forms | 302,100 |  | 2,341,275
New England Business Service | 86,000 |  | 2,101,625
Standard Register (The) | 163,200 |  | 3,162,000
|  |  | 9,254,600
Transportation and Logistics—4.1%
Air Express International | 152,268 |  | 4,920,160
AirNet Systems* | 240,200 |  | 1,711,425
Arnold Industries | 418,348 |  | 5,883,019
C. H. Robinson Worldwide | 5,000 |  | 198,750
Circle International Group | 266,725 |  | 5,934,631
Eagle USA Airfreight* | 20,000 |  | 862,500
Fritz Companies* | 56,000 |  | 588,000
Frozen Food Express Industries | 220,670 |  | 855,096
Hub Group Cl. A* | 107,000 |  | 2,140,000
Kenan Transport | 63,300 |  | 2,005,819
Pittston BAX Group | 285,300 |  | 3,031,313
Ryanair Holdings ADR+* | 22,000 |  | 1,212,750
|  |  | 29,343,463
|  |  | 90,735,636
Natural Resources—5.1%
Energy Services—1.7%
Carbo Ceramics | 148,100 |  | 3,239,687
Global Industries* | 108,100 |  | 932,363
Helmerich & Payne | 149,800 |  | 3,267,512
Input/Output* | 343,100 |  | 1,736,944
Nabors Industries* | 26,000 |  | 804,375
++Peerless Mfg. | 79,300 |  | 1,030,900
Tidewater | 28,000 |  | 1,008,000
Valley National Gases* | 30,100 |  | 95,944
|  |  | 12,115,725
Gold—0.1%
MK Gold* | 517,900 |  | 485,531
Oil and Gas—2.8%
Barrett Resources* | 185,700 |  | 5,466,544
Tom Brown* | 103,000 |  | 1,377,625
Denbury Resources* | 1,173,500 |  | 5,060,719
Devon Energy | 79,200 |  | 2,603,700
Forest Oil* | 2,000 |  | 26,375
PetroCorp* | 121,900 |  | 708,544
Renaissance Energy* | 36,400 |  | 365,639
Titan Exploration* | 682,500 |  | 3,711,094
Toreador Royalty* | 97,100 |  | 424,813
|  |  | 19,745,053
Real Estate—0.5%
Alico | 52,000 |  | 871,000
Consolidated-Tomoka Land | 13,564 |  | 172,941
FRP Properties* | 119,900 |  | 2,817,650
|  |  | 3,861,591
|  |  | 36,207,900
Technology—19.2%
Aerospace/Defense—1.5%
Curtiss-Wright | 121,900 |  | 4,495,063
Special Metals* | 676,300 |  | 2,155,706
Woodward Governor | 138,600 |  | 3,811,500
|  |  | 10,462,269
Components and Systems—4.0%
American Power Conversion* | 10,000 |  | 263,750
Coherent* | 80,900 |  | 2,164,075
Dionex* | 101,000 |  | 4,159,937
Ezenia!* | 166,100 |  | 1,318,419
IFR Systems* | 9,133 |  | 91,901
Imation Corporation* | 50,000 |  | 1,678,125
Keithley Instruments | 2,600 |  | 52,975
Logitech International ADR+* | 1,000 |  | 27,562
National Instruments* | 72,600 |  | 2,776,950
Newport | 65,400 |  | 2,992,050
PCD* | 124,600 |  | 841,050
Penn Engineering & Manufacturing | 153,600 |  | 3,552,000
Penn Engineering & Manufacturing Cl. A | 39,800 |  | 840,775
Perceptron* | 242,100 |  | 968,400
PerkinElmer | 1,000 |  | 41,687
Rainbow Technologies* | 32,800 |  | 762,600
SAES Getters ADR+ | 5,000 |  | 30,000
Scitex* | 307,100 |  | 4,472,144
Vicor* | 5,000 |  | 202,500
Zebra Technologies Cl. A* | 25,000 |  | 1,462,500
|  |  | 28,699,400

23 | The Royce Funds Annual Report 1999

ROYCE VALUE TRUST, INC. |

SCHEDULE OF INVESTMENTS | DECEMBER 31, 1999

| SHARES |  | VALUE
--- | --- | --- | ---

Technology (continued)
Distribution—1.5%
Arrow Electronics* | 37,500 |  | $ 951,562
Avnet | 81,659 |  | 4,940,370
Daisytek International* | 65,300 |  | 1,522,306
Pioneer-Standard Electronics | 123,925 |  | 1,789,167
Richardson Electronics | 195,600 |  | 1,467,000
|  |  | 10,670,405
Semiconductors and Equipment—4.0%
BE Semiconductor Industries* | 112,500 |  | 1,518,750
Credence Systems* | 15,300 |  | 1,323,450
Cymer* | 29,000 |  | 1,334,000
Dallas Semiconductor | 46,100 |  | 2,970,569
DuPont Photomasks* | 35,000 |  | 1,688,750
Electroglas* | 178,400 |  | 4,526,900
Etec Systems* | 5,000 |  | 224,375
Exar* | 75,100 |  | 4,421,512
Helix Technology | 50,700 |  | 2,271,994
Intevac* | 198,050 |  | 693,175
Kulicke & Soffa Industries* | 30,400 |  | 1,293,900
Lam Research* | 13,000 |  | 1,450,313
Micrel* | 30,000 |  | 1,708,125
Novellus Systems* | 4,000 |  | 490,125
Varian Semiconductor Equipment Associates* | 55,000 |  | 1,870,000
Veeco Instruments* | 5,400 |  | 252,788
|  |  | 28,038,726
Software/Services—7.4%
ANSYS* | 95,100 |  | 1,046,100
Aspect Development* | 35,000 |  | 2,397,500
Aspen Technology* | 54,400 |  | 1,438,200
Autodesk | 82,100 |  | 2,770,875
Avant!* | 46,000 |  | 690,000
Benchmark Electronics* | 26,000 |  | 596,375
Business Objects ADR+* | 12,000 |  | 1,603,500
CIBER* | 117,100 |  | 3,220,250
Cognex* | 93,700 |  | 3,654,300
Comdisco | 75,500 |  | 2,812,375
Documentum* | 5,000 |  | 299,375
FileNet* | 10,000 |  | 255,000
Harbinger* | 36,500 |  | 1,161,156
IMRglobal Corporation* | 118,000 |  | 1,482,375
Integral Systems* | 117,800 |  | 5,197,925
Integrated Systems* | 5,000 |  | 167,813
i2 Technologies* | 10,000 |  | 1,950,000
JDA Software Group* | 194,500 |  | 3,184,937
Kronos* | 19,600 |  | 1,176,000
MSC.Software* | 128,800 |  | 1,304,100
Macromedia* | 3,000 |  | 219,375
Manugistics Group* | 20,000 |  | 646,250
MicroStrategy Cl. A* | 10,000 |  | 2,100,000
National Computer Systems | 176,000 |  | 6,622,000
Pegasystems* | 45,000 |  | 506,250
Phoenix Technologies* | 4,700 |  | 74,319
QRS Corporation* | 7,500 |  | 787,500
Radiant Systems* | 15,000 |  | 602,812
Remedy* | 10,600 |  | 502,175
Siebel Systems* | 4,000 |  | 336,000
Sterling Commerce* | 50,000 |  | 1,703,125
Structural Dynamics Research* | 141,200 |  | 1,800,300
Sybase* | 5,000 |  | 85,000
Tecnomatix Technologies* | 10,000 |  | 287,500
Wind River Systems* | 7,500 |  | 274,687
|  |  | 52,955,449
Telecommunication—0.8%
Davel Communications Group | 65,000 |  | 308,750
FirstWorld Communications (Warrants) | 4,239 |  | 423,900
Level 3 Communications* | 2,200 |  | 180,125
Plantronics* | 28,100 |  | 2,010,906
REMEC* | 83,200 |  | 2,121,600
++Technical Communications* | 106,700 |  | 626,863
Visual Networks* | 1,000 |  | 79,250
|  |  | 5,751,394
|  |  | 136,577,643
Miscellaneous—4.9% |  |  | 35,231,851
TOTAL COMMON STOCKS
(Cost $461,224,237) |  |  | 607,805,151
PREFERRED STOCKS—0.6%
Pioneer-Standard Electronics 6.75% Conv. | 80,000 |  | 4,160,000
SVB Capital I 8.25% | 20,000 |  | 368,750
TOTAL PREFERRED STOCKS
(Cost $4,315,000) |  |  | 4,528,750

24 | The Royce Funds Annual Report 1999

ROYCE VALUE TRUST, INC. |

SCHEDULE OF INVESTMENTS | DECEMBER 31, 1999

| PRINCIPAL AMOUNT |  | VALUE
--- | --- | --- | ---
CORPORATE BONDS—1.9%
Charming Shoppes 7.50% Conv. Sub. Note due 7/15/06 | $ 3,694,000 |  | $ 3,767,880
Dixie Group 7.00% Conv. Sub. Deb. due 5/15/12 | 728,000 |  | 521,430
FirstWorld Communications 0% (Step)** Sr. Note due 4/15/08 | 6,700,000 |  | 3,685,000
MSC.Software 7.875% Conv. Sub. Deb. due 8/18/04 | 2,765,000 |  | 2,419,375
Richardson Electronics 8.25% Conv. Sub. Deb. due 6/15/06 | 2,049,000 |  | 1,639,200
Richardson Electronics 7.25% Conv. Sub. Deb. due 12/15/06 | 1,319,000 |  | 989,250
Sunglass Hut International 5.25% Conv. Sub. Note due 6/15/03 | 500,000 |  | 408,125
Tops Appliance City 6.50% Conv. Sub. Deb. due 11/30/03 | 1,000,000 |  | 380,000
TOTAL CORPORATE BONDS
(Cost $13,898,190) |  |  | 13,810,260
U. S. TREASURY OBLIGATIONS—10.7%
U.S. Treasury Notes |  |  |
4.875%, due 3/31/01 | 55,000,000 |  | 54,149,150
6.25%, due 8/31/02 | 10,000,000 |  | 9,984,400
4.75%, due 2/15/04 | 13,000,000 |  | 12,262,640
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $77,731,405) |  |  | 76,396,190
REPURCHASE AGREEMENT—1.2% |  |  |
State Street Bank & Trust Company 2.50% dated 12/31/99, due 1/3/00, maturity value $8,532,777 (collateralized by U.S. Treasury Bonds, 7.25%--8.50% due 5/15/16--2/15/20, valued at $8,707,175) (Cost $8,531,000) |  |  | 8,531,000
TOTAL INVESTMENTS—99.7%
(Cost $565,699,832) |  |  | 711,071,351
CASH AND OTHER ASSETS LESS LIABILITIES—0.3% |  |  | 1,857,078
NET ASSETS—100.0% |  |  | $712,928,429

* Non-income producing.

+ American Depository Receipt.

++ At December 31, 1999, 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.

** Coupon rate of 0% to 4/2003; thereafter 13%.

INCOME TAX INFORMATION: The cost of total investments for Federal income tax purposes was $568,478,231. At December 31, 1999, net unrealized appreciation for all securities was $142,593,120, consisting of aggregate gross unrealized appreciation of $200,813,807 and aggregate gross unrealized depreciation of $58,220,687. The Fund designated $41,325,401 as a capital gain dividend for the purpose of its dividend paid deduction.

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

25 | The Royce Funds Annual Report 1999

ROYCE VALUE TRUST, INC. |

STATEMENT OF ASSETS AND LIABILITIES | DECEMBER 31, 1999

ASSETS:
Investments at value (identified cost $557,168,832) | $702,540,351 |
Repurchase agreement (at cost and value) | 8,531,000 |
Cash | 161,537 |
Receivable for investments sold | 2,102,335 |
Receivable for dividends and interest | 2,190,974 |
Prepaid expenses | 24,689 |
Total Assets | 715,550,886 |
LIABILITIES:
Payable for investments purchased | 1,650,189 |
Payable for investment advisory fee | 507,773 |
Preferred dividends accrued but not yet declared | 266,223 |
Accrued expenses | 198,272 |
Total Liabilities | 2,622,457 |
Net Assets | $712,928,429 |
Net Assets applicable to Preferred Stock at a liquidation value of $25 per share | $160,000,000 |
Net Assets applicable to Common Stock (net asset value per share -- $15.77) | $552,928,429 |
SUMMARY OF STOCKHOLDERS' EQUITY:
7.80% Cumulative Preferred Stock-par value $0.001 per share; 2,400,000 shares outstanding | $ 2,400 |
7.30% Tax-Advantaged Cumulative Preferred Stock-par value $0.001 per share; 4,000,000 shares outstanding | 4,000 |
Common Stock-par value $0.001 per share; 35,071,781 shares outstanding (150,000,000 shares authorized) | 35,072 |
Additional paid-in capital | 548,391,715 |
Undistributed net investment income | 4,175,310 |
Accumulated net realized gain on investments | 15,214,636 |
Net unrealized appreciation on investments | 145,371,519 |
Preferred dividends accrued but not yet declared | (266,223 | )
Net Assets | $712,928,429 |

STATEMENT OF CHANGES IN NET ASSETS |

| Year ended December 31, 1999 |  | Year ended December 31, 1998 |
--- | --- | --- | --- | ---
INVESTMENT OPERATIONS:
Net investment income | $ 7,312,087 |  | $ 5,725,999 |
Net realized gain on investments | 61,397,109 |  | 53,554,124 |
Net change in unrealized appreciation on investments | (2,262,846 | ) | (31,906,113 | )
Net increase in net assets from investment operations | 66,446,350 |  | 27,374,010 |
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income | (1,338,166 | ) | (944,176 | )
Net realized gain on investments | (10,641,834 | ) | (8,134,436 | )
Preferred dividends accrued but not yet declared | — |  | (159,555 | )
Total distributions to Preferred Stockholders | (11,980,000 | ) | (9,238,167 | )
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income | (5,152,339 | ) | (5,045,674 | )
Net realized gain on investments | (40,974,216 | ) | (43,475,552 | )
Total distributions to Common Stockholders | (46,126,555 | ) | (48,521,226 | )
CAPITAL STOCK TRANSACTIONS:
Conversion of Notes to Common Stock | — |  | 26,814,113 |
Reinvestment of distributions to Common Stockholders | 27,625,539 |  | 29,819,441 |
Net proceeds from issuance of Preferred Stock | — |  | 96,484,000 |
Total capital stock transactions | 27,625,539 |  | 153,117,554 |
NET INCREASE IN NET ASSETS | 35,965,334 |  | 122,732,171 |
NET ASSETS:
Beginning of year | 676,963,095 |  | 554,230,924 |
End of year (including undistributed net investment income
of $4,175,310 and $1,846,013, respectively) | $712,928,429 |  | $676,963,095 |

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

26 | The Royce Funds Annual Report 1999

ROYCE VALUE TRUST, INC. |

STATEMENT OF OPERATIONS | YEAR ENDED DECEMBER 31, 1999

INVESTMENT INCOME: |  |
--- | --- | ---
Income:
Dividends | $ 7,963,383 |
Interest | 6,302,331 |
Total Income | 14,265,714 |
Expenses:
Investment advisory fees | 6,350,354 |
Administrative and office facilities expenses | 306,685 |
Stockholder reports | 264,069 |
Custodian and transfer agent fees | 207,334 |
Directors' fees | 77,133 |
Professional fees | 69,240 |
Other expenses | 122,530 |
Total Expenses | 7,397,345 |
Fees Waived by Investment Adviser | (443,718 | )
Net Expenses | 6,953,627 |
Net Investment Income | 7,312,087 |
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments | 61,397,109 |
Net change in unrealized appreciation on investments | (2,262,846 | )
Net realized and unrealized gain on investments | 59,134,263 |
NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS | $66,446,350 |

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

27 | The Royce Funds Annual Report 1999

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.
| Years ended December 31,
| 1999 |  | 1998 |  | 1997 |  | 1996 |  | 1995 |
NET ASSET VALUE, BEGINNING OF PERIOD | $15.72 |  | $16.91 |  | $14.32 |  | $13.56 |  | $12.34 |
INVESTMENT OPERATIONS(a):
Net investment income | 0.26 |  | 0.17 |  | 0.21 |  | 0.26 |  | 0.04 |
Net realized and unrealized gain on investments | 1.65 |  | 0.67 |  | 3.85 |  | 1.92 |  | 2.70 |
Total investment operations | 1.91 |  | 0.84 |  | 4.06 |  | 2.18 |  | 2.74 |
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income | (0.04 | ) | (0.03 | ) | (0.03 | ) | (0.01 | ) | — |
Net realized gain on investments | (0.32 | ) | (0.26 | ) | (0.15 | ) | (0.06 | ) | — |
Total distributions to Preferred Stockholders | (0.36 | ) | (0.29 | ) | (0.18 | ) | (0.07 | ) | — |
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income | (0.15 | ) | (0.16 | ) | (0.19 | ) | (0.15 | ) | (0.03 | )
Net realized gain on investments | (1.22 | ) | (1.38 | ) | (1.02 | ) | (1.00 | ) | (1.26 | )
Total distributions to Common Stockholders | (1.37 | ) | (1.54 | ) | (1.21 | ) | (1.15 | ) | (1.29 | )
CAPITAL STOCK TRANSACTIONS:
Effect of reinvestment of distributions by Common Stockholders | (0.13 | ) | (0.09 | ) | (0.08 | ) | (0.11 | ) | (0.11 | )
Effect of Preferred Stock offering or rights offerings | — |  | (0.11 | ) | — |  | (0.09 | ) | (0.12 | )
Total capital stock transactions | (0.13 | ) | (0.20 | ) | (0.08 | ) | (0.20 | ) | (0.23 | )
NET ASSET VALUE, END OF PERIOD(a) | $15.77 |  | $15.72 |  | $16.91 |  | $14.32 |  | $13.56 |
MARKET VALUE, END OF PERIOD | $13.063 |  | $13.750 |  | $15.063 |  | $12.625 |  | $11.875 |
TOTAL RETURN(b):
Net Asset Value(a) | 11.7 | % | 3.3 | % | 27.5 | % | 15.5 | % | 22.6 | %
Market Value | 5.7 | % | 1.5 | % | 28.8 | % | 16.3 | % | 20.5 | %
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:
Total expenses (c,d) | 1.39 | % | 1.31 | % | 1.12 | % | 1.28 | % | 2.01 | %
Management fee expense | 1.18 | % | 1.10 | % | 0.39 | % | 0.39 | % | 0.97 | %
Interest expense | — |  | — |  | 0.45 | % | 0.64 | % | 0.75 | %
Other operating expenses | 0.21 | % | 0.21 | % | 0.28 | % | 0.25 | % | 0.29 | %
Net investment income | 1.47 | % | 1.11 | % | 1.53 | % | 1.27 | % | 0.34 | %
SUPPLEMENTAL DATA:
Net Assets, End of Period (in thousands) | $712,928 |  | $676,963 |  | $554,231 |  | $441,837 |  | $338,970 |
Portfolio Turnover Rate | 41 | % | 43 | % | 29 | % | 34 | % | 32 | %
PREFERRED STOCK:
Total shares outstanding | 6,400,000 |  | 6,400,000 |  | 2,400,000 |  | 2,400,000 |  | — |
Asset coverage per share | $111.40 |  | $105.78 |  | $165.72 |  | $120.46 |  | — |
Liquidation preference per share | $25.00 |  | $25.00 |  | $25.00 |  | $25.00 |  | — |
Average market value per share:
7.80% Cumulative (e) | $24.98 |  | $25.91 |  | $25.70 |  | $25.20 |  | — |
7.30% Tax-Advantaged Cumulative (e) | $24.24 |  | $25.43 |  | — |  | — |  | — |
NOTES:
Total amount outstanding (in thousands) | — |  | — |  | $27,801 |  | $40,000 |  | $40,000 |
Asset coverage per note | — |  | — |  | $2,093.56 |  | $1,201.51 |  | $944.35 |
Average market value per note (e) | — |  | — |  | $107.69 |  | $100.68 |  | $96.92 |

(a) From June 21, 1995 through December 31, 1997, Net Asset Value per share, Net Asset Value Total Returns and Income from Investment Operations were calculated assuming that the then outstanding convertible notes had been fully converted, except when the effect of doing so resulted in a higher Net Asset Value per share than would have been calculated without such assumption. If it were not assumed the Notes had been converted, the Net Asset Value per share would have been increased by $0.31, $0.17, and $0.09 at December 31, 1997, 1996 and 1995, respectively.
(b) The Net Asset Value and Market Value Total Returns assume a continuous Common Stockholder who reinvested all net investment income dividends and capital gain distributions and fully participated in primary subscriptions for rights offerings.
(c) Expense ratios based on total average net assets were 1.06%, 1.06%, 0.99%, 1.20% and 2.01% for the periods ended December 31, 1999, 1998, 1997, 1996 and 1995, respectively.
(d) Expense ratios based on average net assets applicable to Common Stockholders before waiver of fees by the investment adviser would have been 1.48%, 1.34%, 1.14%, 1.31% and 2.04% for the periods ended December 31, 1999, 1998, 1997, 1996 and 1995, respectively.
(e) The average of month-end market values during the period.

28 | The Royce Funds Annual Report 1999

ROYCE VALUE TRUST, INC. |
--- | ---
NOTES TO FINANCIAL STATEMENTS |

Summary of Significant Accounting Policies:

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

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

Valuation of Investments:

Securities listed on an exchange or on the Nasdaq National Market System are valued on the basis of the last reported sale prior to the time the valuation is made or, if no sale is reported for such day, at their bid price for exchange-listed securities and at the average of their bid and asked prices for Nasdaq securities. Quotations are taken from the market where the security is primarily traded. Other over-the-counter securities for which market quotations are readily available are valued at their bid price. Securities for which market quotations are not readily available are valued at their fair value under procedures established 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 payable on or after July 1, 1999. The deferred fees remain invested in certain Royce Funds until distributed in accordance with the agreement.

Taxes:

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

Distributions:

The Fund currently has a policy of paying quarterly distributions on the Fund's Common Stock. Distributions are currently being made at the annual rate of 9% of the rolling average of the prior four calendar quarter-end NAVs of the Fund's Common Stock, with the fourth quarter distribution being the greater of 2.25% of the rolling average or the distribution required by IRS regulations. Distributions to Preferred Stockholders are recorded on an accrual basis and paid quarterly. Distributions are determined in accordance with income tax regulations that may differ from generally accepted accounting principles. 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.

Investment Company Convertible Notes:

On February 5, 1998, the Fund redeemed $256,000 of Investment Company Convertible Notes ("Notes"), constituting all of the then outstanding Notes, at a price equal to 100% of the principal amount of each Note plus accrued unpaid interest to that date. Prior to February 5, 1998, the remainder of the Notes had been converted to Common Stock of the Fund. The Fund issued 2,091,425 shares of Common Stock upon conversion of Notes for the period ended December 31, 1998.

29 | The Royce Funds Annual Report 1999

ROYCE VALUE TRUST, INC. |
--- | ---
NOTES TO FINANCIAL STATEMENTS (continued) |

Capital Stock:

The Fund currently has two issues of Preferred Stock outstanding: 7.80% Cumulative Preferred Stock and 7.30% Tax-Advantaged Cumulative Preferred Stock. Both issues of Preferred Stock have a liquidation preference of $25.00 per share.

Under the Investment Company Act of 1940, the Fund is required to maintain an asset coverage of at least 200% for the Preferred Stock. In addition, pursuant to the Rating Agency Guidelines established by Moody's, the Fund is required to maintain a certain discounted asset coverage. The Fund has met these requirements since issuing Preferred Stock.

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

The Fund issued 2,191,520 and 2,080,238 shares of Common Stock as reinvestment of distributions by Common Stockholders for the years ended December 31, 1999 and 1998, respectively.

Investment Advisory Agreement:

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

The Basic Fee is a monthly fee equal to 1/12 of 1% (1% on an annualized basis) of the average of the month-end net assets of the Fund for the applicable performance period.

The performance period for each month will be from July 1, 1996 to the most recent month-end, until the Investment Advisory Agreement has been in effect for 60 full calendar months, when it will become a rolling 60-month period ending with the most recent calendar month.

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

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

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

For the year ended December 31, 1999, the Fund accrued and paid Royce advisory fees totaling $5,906,636, which is net of $443,718 voluntarily waived by Royce.

Purchases and Sales of Investment Securities:

For the year ended December 31, 1999, the cost of purchases and proceeds from sales of investment securities, other than short-term securities, amounted to $293,164,355 and $256,637,558, respectively.

30 | The Royce Funds Annual Report 1999

ROYCE VALUE TRUST, INC. |
--- | ---
NOTES TO FINANCIAL STATEMENTS (continued) |

Transactions in Shares of Affiliated Companies:

An "Affiliated Company", as defined in the Investment Company Act of 1940, is a company in which a Fund owns 5% or more of the company's outstanding voting securities. The Fund effected the following transactions in shares of such companies during the year ended December 31, 1999:

|  | Purchases |  | Sales |
Affiliated Company |  | Shares |  | Cost |  | Shares |  | Cost |  | Realized Gain/Loss |  | Dividend Income
Axiohm Transaction Solutions |  | 5,000 |  | $ 18,750 |  | 445,575 |  | $3,511,667 |  | $(3,376,304) |  | —
Open Plan Systems |  | 209,300 |  | $523,105 |  | — |  | — |  | — |  | —
Peerless Mfg. |  | — |  | — |  | — |  | — |  | — |  | $39,650
RockShox |  | — |  | — |  | 40,600 |  | $ 215,500 |  | $ (152,684) |  | —
Technical Communications |  | — |  | — |  | — |  | — |  | — |  | —
Thomaston Mills Cl.A |  | — |  | — |  | — |  | — |  | — |  | —

REPORT OF INDEPENDENT AUDITORS |
--- | ---

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

We have audited the accompanying statement of assets and liabilities of Royce Value Trust, Inc., including the schedule of investments, as of December 31, 1999, and the related statement of operations for the year then ended, and the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for periods indicated thereon. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 1999, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above and audited by us present fairly, in all material respects, the financial position of Royce Value Trust, Inc. at December 31, 1999, the results of its operations for the year then ended, and the changes in its net assets for each of the two years in the period then ended and the financial highlights for periods presented, in conformity with generally accepted accounting principles.

TAIT, WELLER & BAKER

Philadelphia, PA

January 28, 2000

31 | The Royce Funds Annual Report 1999

ROYCE MICRO-CAP TRUST, INC. |

SCHEDULE OF INVESTMENTS | DECEMBER 31, 1999

Common Stocks -- 77.7%

| SHARES |  | VALUE
--- | --- | --- | ---
Consumer Products—10.0%
Apparel and Shoes—2.4%
Garan | 46,700 |  | $ 1,336,788
**Kleinert's* | 14,200 |  | 142,000
North Face (The)* | 84,600 |  | 343,687
Oshkosh B'Gosh Cl. A | 46,600 |  | 981,513
Weyco Group | 68,400 |  | 1,757,025
|  |  | 4,561,013
Collectibles—0.3%
Enesco Group | 60,800 |  | 672,600
Food/Beverage/Tobacco—1.2%
800 JR Cigar* | 133,300 |  | 1,158,044
++Smithfield Companies (The) | 148,400 |  | 1,113,000
|  |  | 2,271,044
Home Furnishing/Appliances—1.5%
Bassett Furniture Industries | 7,900 |  | 126,400
Conso International* | 197,800 |  | 1,706,025
Lifetime Hoan | 116,254 |  | 610,333
Mity-Lite* | 21,300 |  | 331,481
|  |  | 2,774,239
Publishing—1.1%
Gibson Greetings* | 51,600 |  | 462,788
Marvel Enterprises* | 208,600 |  | 1,147,300
Topps Company (The)* | 42,000 |  | 435,750
|  |  | 2,045,838
Sports and Recreation—0.8%
Allen Organ Cl. B | 6,600 |  | 250,800
Johnson Worldwide Associates Cl. A* | 60,000 |  | 425,625
Lund International Holdings* | 146,700 |  | 861,862
|  |  | 1,538,287
Other Consumer Products—2.7%
Koala Corporation* | 80,000 |  | 1,120,000
Lazare Kaplan International* | 110,100 |  | 894,563
Matthews International Cl. A | 81,000 |  | 2,227,500
Velcro Industries | 81,500 |  | 983,094
|  |  | 5,225,157
|  |  | 19,088,178
Consumer Services—1.8%
Restaurants/Lodgings—0.3%
Pizza Inn | 145,700 |  | 601,012
Retail Stores—1.5%
Bombay Company (The)* | 46,600 |  | 209,700
Brookstone* | 13,000 |  | 228,313
Cato Cl. A | 47,500 |  | 599,687
Piercing Pagoda* | 3,000 |  | 45,375
Stein Mart* | 76,400 |  | 434,525
Suzy Shier | 156,800 |  | 597,437
Urban Outfitters* | 24,600 |  | 716,475
|  |  | 2,831,512
|  |  | 3,432,524
Financial Intermediaries—4.1%
Banking—0.3%
Iron & Glass Bancorp | 8,580 |  | 197,340
Queen City Investments* | 948 |  | 402,900
|  |  | 600,240
Closed End Funds—0.3%
Central Fund of Canada Cl. A | 140,000 |  | 586,250
Insurance—3.5%
Capitol Transamerica | 75,965 |  | 764,398
Highlands Insurance Group* | 84,700 |  | 804,650
Independence Holding | 33,300 |  | 382,950
NYMAGIC | 52,700 |  | 694,981
Navigators Group* | 42,600 |  | 426,000
Nobel Insurance* | 183,000 |  | 45,750
PICO Holdings* | 16,900 |  | 208,081
PMA Capital Cl. A | 56,609 |  | 1,125,104
PXRE Group | 75,164 |  | 977,132
Philadelphia Consolidated Holding* | 34,200 |  | 495,900
Wellington Underwriting | 444,712 |  | 748,873
|  |  | 6,673,819
|  |  | 7,860,309
Financial Services—3.4%
Information and Processing—2.5%
BARRA* | 58,250 |  | 1,849,438
Duff & Phelps Credit Rating | 32,600 |  | 2,899,362
|  |  | 4,748,800
Insurance Brokers—0.9%
Clark/Bardes Holdings* | 46,200 |  | 664,125
CorVel* | 10,000 |  | 235,000
Hilb, Rogal & Hamilton | 30,300 |  | 855,975
|  |  | 1,755,100
|  |  | 6,503,900
Health—6.3%
Commercial Services—2.3%
Analysts International | 15,000 |  | 187,500
ChiRex* | 56,500 |  | 826,313
Healthworld Corporation* | 35,000 |  | 726,250
ICON ADR+* | 1,000 |  | 17,000
PAREXEL International* | 144,400 |  | 1,705,725
Young Innovations* | 65,900 |  | 967,906
|  |  | 4,430,694

32 | The Royce Funds Annual Report 1999

ROYCE MICRO-CAP TRUST, INC. |

SCHEDULE OF INVESTMENTS | DECEMBER 31, 1999

| SHARES |  | VALUE
--- | --- | --- | ---
Health (continued)
Drugs and Biotech—3.6%
Aurora Biosciences* | 75,000 |  | $ 1,987,500
BioReliance* | 135,800 |  | 776,606
Celgene Corporation* | 12,000 |  | 840,000
Cephalon* | 40,000 |  | 1,382,500
Myriad Genetics* | 10,000 |  | 460,000
Scotia Holdings* | 80,000 |  | 167,991
ViroPharma* | 28,000 |  | 1,036,000
Visible Genetics* | 10,000 |  | 300,000
|  |  | 6,950,597
Surgical Products and Devices—0.4%
Allied Healthcare Products* | 97,200 |  | 230,850
NMT Medical* | 126,900 |  | 364,837
Orthofix International* | 12,000 |  | 171,750
|  |  | 767,437
|  |  | 12,148,728
Industrial Products—11.6%
Building Systems and Components—3.2%
Falcon Products | 66,500 |  | 573,563
LSI Industries | 25,900 |  | 560,087
Mueller (Paul) | 16,650 |  | 480,769
Simpson Manufacturing* | 46,100 |  | 2,016,875
Skyline | 32,100 |  | 754,350
Thor Industries | 55,200 |  | 1,680,150
|  |  | 6,065,794
Construction Materials—3.3%
Ash Grove Cement Company | 20,000 |  | 2,000,000
Florida Rock Industries | 55,000 |  | 1,894,063
Monarch Cement | 50,410 |  | 1,033,405
Puerto Rican Cement | 38,200 |  | 1,298,800
|  |  | 6,226,268
Industrial Components—0.5%
Herley Industries* | 50,000 |  | 759,375
Woodhead Industries | 10,000 |  | 116,250
|  |  | 875,625
Machinery—0.2%
Oshkosh Truck | 10,500 |  | 307,781
Paper and Packaging—0.6%
Liqui-Box | 13,100 |  | 648,450
PalEx* | 40,100 |  | 280,700
Tuscarora | 23,000 |  | 278,875
|  |  | 1,208,025
Pumps, Valves and Bearings—0.2%
NN Ball & Roller | 65,500 |  | 474,875
Specialty Chemicals and Materials—2.0%
Aceto | 58,421 |  | 642,631
CFC International* | 23,200 |  | 152,250
Chemfab* | 80,700 |  | 1,260,937
Hauser* | 45,400 |  | 141,875
Hawkins Chemical | 122,667 |  | 1,065,670
Synalloy | 73,700 |  | 552,750
|  |  | 3,816,113
Other Industrial Products—1.6%
BHA Group Holdings | 126,915 |  | 999,456
Landauer | 32,300 |  | 706,563
Myers Industries | 52,459 |  | 826,229
Pioneer Metals* | 1,570 |  | 596,600
|  |  | 3,128,848
|  |  | 22,103,329
Industrial Services—11.3%
Commercial Services—3.8%
Applied Analytical Industries* | 103,400 |  | 943,525
++Business Resource Group* | 315,000 |  | 1,673,437
Carlisle Holdings* | 128,400 |  | 1,540,800
Cornell Corrections* | 79,200 |  | 663,300
Exponent* | 63,200 |  | 418,700
RCM Technologies* | 62,300 |  | 1,074,675
RemedyTemp Cl. A* | 44,000 |  | 836,000
|  |  | 7,150,437
Engineering and Construction—1.6%
Sevenson Environmental Services | 125,120 |  | 1,204,280
Stone & Webster | 85,100 |  | 1,430,744
Willbros Group* | 100,000 |  | 462,500
|  |  | 3,097,524
Food/Tobacco Processors—1.3%
Farmer Bros. | 4,000 |  | 636,000
Midwest Grain Products* | 121,122 |  | 893,275
Seneca Foods Cl. A* | 1,500 |  | 17,250
Seneca Foods Cl. B* | 26,200 |  | 301,300
Standard Commercial | 166,755 |  | 594,065
|  |  | 2,441,890
Printing—1.2%
Ennis Business Forms | 132,700 |  | 1,028,425
New England Business Service | 45,300 |  | 1,107,019
Schawk | 26,300 |  | 223,550
|  |  | 2,358,994

33 | The Royce Funds Annual Report 1999

ROYCE MICRO-CAP TRUST, INC. |

SCHEDULE OF INVESTMENTS | DECEMBER 31, 1999

| SHARES |  | VALUE
--- | --- | --- | ---
Industrial Services (continued)
Transportation and Logistics—3.4%
AirNet Systems* | 194,300 |  | $ 1,384,387
Circle International Group | 62,100 |  | 1,381,725
Forward Air* | 36,600 |  | 1,587,525
Kenan Transport | 34,800 |  | 1,102,725
Knight Transportation* | 12,500 |  | 214,063
Pittston BAX Group | 81,200 |  | 862,750
|  |  | 6,533,175
|  |  | 21,582,020
Natural Resources—5.9%
Energy Services—2.4%
Carbo Ceramics | 52,600 |  | 1,150,625
Dril-Quip* | 30,600 |  | 929,475
GulfMark Offshore* | 49,600 |  | 725,400
Input/Output* | 170,600 |  | 863,662
Lufkin Industries | 25,000 |  | 375,000
MarkWest Hydrocarbon* | 32,600 |  | 211,900
Peerless Mfg. | 21,600 |  | 280,800
|  |  | 4,536,862
Gold—0.3%
MK Gold* | 603,700 |  | 565,969
Oil and Gas—2.7%
Bonavista Petroleum* | 105,000 |  | 1,185,660
Denbury Resources* | 139,200 |  | 600,300
Evergreen Resources* | 20,000 |  | 395,000
PetroCorp* | 177,200 |  | 1,029,975
Titan Exploration* | 350,500 |  | 1,905,844
|  |  | 5,116,779
Real Estate—0.5%
FRP Properties* | 27,700 |  | 650,950
Liberte Investors | 103,300 |  | 355,094
|  |  | 1,006,044
|  |  | 11,225,654
Technology—18.3%
Aerospace/Defense—0.9%
Curtiss-Wright | 35,000 |  | 1,290,625
Special Metals* | 154,300 |  | 491,831
|  |  | 1,782,456
Components and Systems—6.3%
Advanced Energy Industries* | 14,600 |  | 719,050
Aladdin Knowledge Systems* | 27,300 |  | 464,100
CEM* | 84,800 |  | 911,600
Coherent* | 45,000 |  | 1,203,750
MOCON | 50,200 |  | 301,200
Newport | 28,100 |  | 1,285,575
PCD* | 76,100 |  | 513,675
Penn Engineering & Manufacturing | 39,700 |  | 918,063
Penn Engineering & Manufacturing Cl. A | 15,400 |  | 325,325
Perceptron* | 152,100 |  | 608,400
Performance Technologies* | 56,250 |  | 977,344
Printronix* | 20,000 |  | 455,000
Rainbow Technologies* | 68,700 |  | 1,597,275
SBS Technologies* | 25,300 |  | 923,450
TSI | 30,000 |  | 352,500
TransAct Technologies* | 68,200 |  | 515,762
|  |  | 12,072,069
Distribution—1.0%
Kent Electronics* | 30,100 |  | 684,775
Richardson Electronics | 158,500 |  | 1,188,750
|  |  | 1,873,525
Semiconductors and Equipment—2.0%
Aetrium* | 10,000 |  | 65,938
Align-Rite International* | 40,000 |  | 877,500
Electroglas* | 49,900 |  | 1,266,212
Exar* | 14,800 |  | 871,350
Helix Technology | 9,500 |  | 425,719
Intevac* | 111,450 |  | 390,075
|  |  | 3,896,794
Software/Services—6.5%
CCC Information Services Group* | 46,300 |  | 792,888
CSP* | 58,581 |  | 446,680
Integral Systems* | 32,600 |  | 1,438,475
JDA Software Group* | 83,600 |  | 1,368,950
Kronos* | 51,000 |  | 3,060,000
MSC.Software* | 113,100 |  | 1,145,138
Mastech Corporation* | 64,800 |  | 1,603,800
New Horizons Worldwide* | 92,600 |  | 1,099,625
SPSS* | 32,700 |  | 825,675
Tyler Technologies* | 97,300 |  | 535,150
|  |  | 12,316,381
Telecommunication—1.6%
Globecomm Systems* | 30,000 |  | 757,500
REMEC* | 63,600 |  | 1,621,800
Vertex Communications* | 30,000 |  | 615,000
|  |  | 2,994,300
|  |  | 34,935,525
Utilities—0.2%
EnergySouth | 22,900 |  | 475,175
Miscellaneous—4.8% |  |  | 9,274,204
TOTAL COMMON STOCKS
(Cost $107,983,960) |  |  | 148,629,546
PREFERRED STOCK—0.3%
Seneca Foods Conv.*
(Cost $623,500) | 51,250 |  | 589,375

34 | The Royce Funds Annual Report 1999

ROYCE MICRO-CAP TRUST, INC. |

SCHEDULE OF INVESTMENTS | DECEMBER 31, 1999

|  | PRINCIPAL AMOUNT |  | VALUE
CORPORATE BOND—0.3%
MSC.Software 7.875% Conv. |
Sub. Deb. due 8/18/04 |
(Cost $593,250) |  | $ 700,000 |  | $ 612,500
U.S. TREASURY OBLIGATIONS—17.6% |
U.S. Treasury Notes |
6.25%, due 8/31/00 |  | 5,000,000 |  | 5,007,800
4.875%, due 3/31/01 |  | 14,000,000 |  | 13,783,420
6.25%, due 8/31/02 |  | 5,000,000 |  | 4,992,200
6.00%, due 8/15/04 |  | 10,000,000 |  | 9,843,700
TOTAL U.S. TREASURY OBLIGATIONS |
(Cost $33,991,172) |  |  |  | 33,627,120

|  | VALUE
REPURCHASE AGREEMENT—4.4%
State Street Bank & Trust Company, 2.50% dated 12/31/99, due 1/3/00 maturity value $8,469,764 (collateralized by U.S. Treasury Bonds, 6.00%—7.25%, due 5/15/16—2/15/26, valued at $8,639,188) (Cost $8,468,000) |  | $ 8,468,000
TOTAL INVESTMENTS—100.3% (Cost $151,659,882) |  | 191,926,541
LIABILITIES LESS CASH AND OTHER ASSETS—(0.3%) |  | (657,670)
NET ASSETS—100.0% |  | $191,268,871

* Non-income producing.

** A security for which market quotations are no longer readily available represents 0.07% of net assets. This security has been valued at its fair value under procedures established by the Fund's Board of Directors.

+ American Depository Receipt.

++ At December 31, 1999, the Fund owned 5% or more of the Company's outstanding voting securities thereby making the Company an Affiliated Company as the term is defined in the Investment Company Act of 1940.

INCOME TAX INFORMATION: The cost of total investments for Federal income tax purposes was $151,920,032. At December 31, 1999, net unrealized appreciation for all securities was $40,006,509, consisting of aggregate gross unrealized appreciation of $48,066,683 and aggregate gross unrealized depreciation of $8,060,174. The Fund designated $4,273,110 as a capital gain dividend for the purpose of its dividend paid deduction.

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

35 | The Royce Funds Annual Report 1999

ROYCE MICRO-CAP TRUST, INC. |

STATEMENT OF ASSETS AND LIABILITIES | DECEMBER 31, 1999

ASSETS:
Investments at value (identified cost $143,191,882) | $183,458,541
Repurchase agreement (at cost and value) | 8,468,000
Receivable for investments sold | 886,265
Receivable for dividends and interest | 744,626
Prepaid expenses | 6,460
Total Assets | 193,563,892
LIABILITIES:
Payable for investments purchased | 2,029,519
Payable for investment advisory fee | 105,386
Preferred dividends accrued but not yet declared | 68,889
Accrued expenses | 91,227
Total Liabilities | 2,295,021
Net Assets | $191,268,871
Net Assets applicable to Preferred Stock at a liquidation value of $25 per share | $ 40,000,000
Net Assets applicable to Common Stock (net asset value per share—$11.00) | $151,268,871
SUMMARY OF STOCKHOLDERS' EQUITY:
7.75% Cumulative Preferred Stock--par value $0.001 per share; 1,600,000 shares outstanding | $1,600
Common Stock--par value $0.001 per share; 13,755,988 shares outstanding (150,000,000 shares authorized) | 13,756
Additional paid-in capital | 141,768,425
Undistributed net investment income | 260,595
Accumulated net realized gain on investments and foreign currency | 9,026,725
Net unrealized appreciation on investments and foreign currency | 40,266,659
Preferred dividends accrued but not yet declared | (68,889)
Net Assets | $191,268,871

STATEMENTS OF CHANGES IN NET ASSETS |

| Year ended December 31, 1999 |  | Year ended December 31, 1998 |
--- | --- | --- | --- | ---
INVESTMENT OPERATIONS:
Net investment income | $ 1,592,653 |  | $ 1,720,215 |
Net realized gain on investments and foreign currency | 10,265,741 |  | 5,532,509 |
Net change in unrealized appreciation on investments and foreign currency | 8,091,588 |  | (10,118,947 | )
Net increase (decrease) in net assets from investment operations | 19,949,982 |  | (2,866,223 | )
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income | (707,110 | ) | (758,880 | )
Net realized gain on investments and foreign currency | (2,392,890 | ) | (2,341,120 | )
Total distributions to Preferred Stockholders | (3,100,000 | ) | (3,100,000 | )
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income | (834,803 | ) | (932,213 | )
Net realized gain on investments and foreign currency | (2,800,617 | ) | (2,875,417 | )
Total distributions to Common Stockholders | (3,635,420 | ) | (3,807,630 | )
CAPITAL STOCK TRANSACTIONS:
Reinvestment of distributions to Common Stockholders | 2,559,108 |  | 2,907,409 |
NET INCREASE (DECREASE) IN NET ASSETS | 15,773,670 |  | (6,866,444 | )
NET ASSETS:
Beginning of year | 175,495,201 |  | 182,361,645 |
End of year (including undistributed net investment income of $260,595 and $209,855, respectively) | $191,268,871 |  | $175,495,201 |

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

36 | The Royce Funds Annual Report 1999

ROYCE MICRO-CAP TRUST, INC. |

STATEMENT OF OPERATIONS | YEAR ENDED DECEMBER 31, 1999

INVESTMENT INCOME:
PageIncome:
Dividends | $ 1,279,590 |
Interest | 2,001,276 |
Total Income | 3,280,866 |
Expenses:
Investment advisory fees | 1,437,600 |
Custodian and transfer agent fees | 103,216 |
Stockholder reports | 86,345 |
Administration fees | 85,611 |
Administrative and office facilities expenses | 81,022 |
Professional fees | 36,072 |
Directors' fees | 34,230 |
Other expenses | 50,692 |
Total Expenses | 1,914,788 |
Fees Waived by Investment Adviser | (226,575 | )
Net Expenses | 1,688,213 |
Net Investment Income | 1,592,653 |
REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain on investments and foreign currency | 10,265,741 |
Net change in unrealized appreciation on investments and foreign currency | 8,091,588 |
Net realized and unrealized gain on investments and foreign currency | 18,357,329 |
NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS | $19,949,982 |

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

37 | The Royce Funds Annual Report 1999

ROYCE MICRO-CAP TRUST, INC. |

FINANCIAL HIGHLIGHTS |

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

| Years ended December 31,
| 1999 |  | 1998 |  | 1997 |  | 1996 |  | 1995 |
NET ASSET VALUE, BEGINNING OF PERIOD | $10.06 |  | $10.84 |  | $9.38 |  | $8.89 |  | $7.58 |
INVESTMENT OPERATIONS:
Net investment income | 0.12 |  | 0.13 |  | 0.17 |  | 0.09 |  | 0.02 |
Net realized and unrealized gain (loss) on investments and foreign currency | 1.35 |  | (0.36 | ) | 2.61 |  | 1.32 |  | 1.69 |
Total investment operations | 1.47 |  | (0.23 | ) | 2.78 |  | 1.41 |  | 1.71 |
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income | (0.05 | ) | (0.06 | ) | (0.02 | ) | — |  | — |
Net realized gain on investments and foreign currency | (0.18 | ) | (0.18 | ) | (0.12 | ) | — |  | — |
Total distributions to Preferred Stockholders | (0.23 | ) | (0.24 | ) | (0.14 | ) | — |  | — |
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income | (0.06 | ) | (0.07 | ) | (0.16 | ) | (0.10 | ) | (0.02 | )
Net realized gain on investments and foreign currency | (0.21 | ) | (0.22 | ) | (0.84 | ) | (0.70 | ) | (0.34 | )
Total distributions to Common Stockholders | (0.27 | ) | (0.29 | ) | (1.00 | ) | (0.80 | ) | (0.36 | )
CAPITAL STOCK TRANSACTIONS:
Effect of reinvestment of distributions by Common Stockholders | (0.03 | ) | (0.02 | ) | (0.06 | ) | (0.12 | ) | (0.04 | )
Effect of Preferred Stock offering | — |  | — |  | (0.12 | ) | — |  | — |
Total capital stock transactions | (0.03 | ) | (0.02 | ) | (0.18 | ) | (0.12 | ) | (0.04 | )
NET ASSET VALUE, END OF PERIOD | $11.00 |  | $10.06 |  | $10.84 |  | $9.38 |  | $8.89 |
MARKET VALUE, END OF PERIOD | $9.00 |  | $8.875 |  | $10.125 |  | $8.25 |  | $8.00 |
TOTAL RETURN(a):
Net Asset Value | 12.7 | % | (4.1 | )% | 27.1 | % | 16.6 | % | 22.9 | %
Market Value | 4.5 | % | (9.4 | )% | 35.0 | % | 13.9 | % | 19.8 | %
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:
Total expenses (b,c) | 1.27 | % | 1.18 | % | 0.83 | % | 0.85 | % | 1.36 | %
Management fee expense | 0.91 | % | 0.80 | % | 0.40 | % | 0.47 | % | 0.77 | %
Other operating expenses | 0.36 | % | 0.38 | % | 0.43 | % | 0.38 | % | 0.59 | %
Net investment income | 1.20 | % | 1.21 | % | 1.77 | % | 0.88 | % | 0.26 | %
SUPPLEMENTAL DATA:
Net Assets, End of Period (in thousands) | $191,269 |  | $175,495 |  | $182,362 |  | $113,953 |  | $100,065 |
Portfolio Turnover Rate | 49 | % | 44 | % | 34 | % | 51 | % | 51 | %
PREFERRED STOCK:
Total shares outstanding | 1,600,000 |  | 1,600,000 |  | 1,600,000 |  | — |  | — |
Asset coverage per share | $119.54 |  | $109.68 |  | $113.98 |  | — |  | — |
Liquidation preference per share | $25.00 |  | $25.00 |  | $25.00 |  | — |  | — |
Average market value per share (d) | $24.67 |  | $25.40 |  | $25.56 |  | — |  | — |

(a) The Net Asset Value and Market Value Total Returns assume a continuous Common Stockholder who reinvested all net investment income dividends and capital gain distributions.

(b) Expense ratios based on total average net assets were 0.98%, 0.92%, 0.72% , 0.85% and 1.36% for the periods ended December 31, 1999, 1998, 1997, 1996 and 1995, respectively.

(c) Expense ratios based on average net assets applicable to Common Stockholders before waiver of fees by the investment adviser would have been 1.44% and 1.24% for the periods ended December 31, 1999 and 1998, respectively.

(d) The average of month-end market values during the period.

38 | The Royce Funds Annual Report 1999

ROYCE MICRO-CAP TRUST, INC. |
--- | ---
NOTES TO FINANCIAL STATEMENTS |

Summary of Significant Accounting Policies:

Royce Micro-Cap Trust, Inc. (the "Fund") was incorporated under the laws of the State of Maryland on September 9, 1993 as a diversified closed-end investment company. The Fund commenced operations on December 14, 1993.

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

Valuation of Investments:

Securities listed on an exchange or on the Nasdaq National Market System are valued on the basis of the last reported sale prior to the time the valuation is made or, if no sale is reported for such day, at their bid price for exchange-listed securities and at the average of their bid and asked prices for Nasdaq securities. Quotations are taken from the market where the security is primarily traded. Other over-the-counter securities for which market quotations are readily available are valued at their bid price. Securities for which market quotations are not readily available are valued at their fair value under procedures established 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.

Foreign Currency:

The Fund does not isolate that portion of the results of operations which result from changes in foreign exchange rates on investments from the portion arising from changes in market prices of securities held. Such fluctuations are included with net realized and unrealized gains and losses on investments.

Net realized foreign exchange gains or losses arise from currency gains or losses realized between the trade and settlement dates on securities transactions and from the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities, including investments in securities, as a result of changes in the exchange rates.

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 payable on or after July 1, 1999. The deferred fees remain invested in certain Royce Funds until distributed in accordance with the agreement.

Taxes:

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

Distributions:

Distributions to Common Stockholders are recorded on the ex-dividend date and paid annually in December. Distributions to Preferred Stockholders are recorded on an accrual basis and paid quarterly. Distributions are determined in accordance with income tax regulations that may differ from generally accepted accounting principles. 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 inter-est). 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.

39 | The Royce Funds Annual Report 1999

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

Capital Stock:

The Fund currently has 1,600,000 shares of 7.75% Cumulative Preferred Stock outstanding. The stock has a liquidation preference of $25.00 per share.

Under the Investment Company Act of 1940, the Fund is required to maintain an asset coverage of at least 200% for the Preferred Stock. In addition, pursuant to the Rating Agency Guidelines established by Moody's, the Fund is required to maintain a certain discounted asset coverage. The Fund has met these requirements since issuing the Preferred Stock.

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

The Fund issued 291,429 and 334,780 shares of Common Stock as reinvestment of distributions by Common Stockholders for the years ended December 31, 1999 and 1998, respectively.

Investment Advisory Agreement:

As compensation for its services under the Investment Advisory Agreement, Royce & Associates, Inc. ("Royce") receives a fee comprised of a basic fee ("Basic Fee") and an adjustment to the Basic Fee based on the investment performance of the Fund in relation to the investment record of the Russell 2000 for certain prescribed performance periods, as described below.

The Basic Fee is a monthly fee equal to 1/12 of 1% (1% on an annualized basis) of the average of the month-end net assets of the Fund for the rolling 36-month period ending with such month. The Basic Fee for each month is increased or decreased at the rate of 1/12 of .05% for each percentage point that the investment performance of the Fund exceeds, or is exceeded by, the percentage change in the investment record of the Russell 2000 for the performance period by more than two percentage points. The performance period for each such month was from January 1, 1997 to the most recent month-end, until the Investment Advisory Agreement had been in effect for 36 full calendar months, when the performance period became 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 would be payable if the investment performance of the Fund exceeded 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 would be payable if the percentage change in the investment record of the Russell 2000 exceeded the investment performance of the Fund by 12 or more percentage points for the performance period.

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

For the year ended December 31, 1999, the Fund accrued and paid Royce advisory fees totaling $1,211,025, which is net of $226,575 voluntarily waived by Royce.

Administration Agreement:

Under an Administration Agreement with the Fund, Mitchell Hutchins Asset Management Inc. (the "Administrator") served as the Administrator, and performed or assisted in certain aspects of the Fund's operations. The Agreement was terminated effective September 30, 1999. As compensation for its services, the Administrator was paid an annual fee, payable monthly, of $50,000 plus .05% on the first $125 million of the Fund's average daily net assets, and .03% of average daily net assets exceeding $125 million.

Purchases and Sales of Investment Securities:

For the year ended December 31, 1999, the cost of purchases and the proceeds from sales of investment securities, other than short-term securities, amounted to $91,600,193 and $78,901,102, respectively.

Transactions in Shares of Affiliated Companies:

An "Affiliated Company", as defined in the Investment Company Act of 1940, is a company in which a Fund owns 5% or more of the company's outstanding voting securities. The Fund effected the following transactions in shares of such companies during the year ended December 31, 1999:

|  | Purchases |  | Sales |
Affiliated Company |  | Shares |  | Cost |  | Shares |  | Cost |  | Realized Gain/Loss |  | Dividend Income
Art's-Way Manufacturing |  | — |  | — |  | 124,000 |  | $894,413 |  | $(505,965) |  | —
Business Resource Group |  | 315,000 |  | $1,596,469 |  | — |  | — |  | — |  | —
Smithfield Companies (The) |  | — |  | — |  | — |  | — |  | — |  | $28,196

40 | The Royce Funds Annual Report 1999

ROYCE MICRO-CAP TRUST, INC. |
--- | ---
REPORT OF INDEPENDENT AUDITORS |

To the Board of Directors and Stockholders of Royce Micro-Cap Trust, Inc.

We have audited the accompanying statement of assets and liabilities of Royce Micro-Cap Trust, Inc., including the schedule of investments, as of December 31, 1999, and the related statement of operations for the year then ended, and the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for periods indicated thereon. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 1999, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above and audited by us present fairly, in all material respects, the financial position of Royce Micro-Cap Trust, Inc. at December 31, 1999, the results of its operations for the year then ended, and the changes in its net assets for each of the two years in the period then ended and the financial highlights for periods presented, in conformity with generally accepted accounting principles.

TAIT, WELLER & BAKER

Philadelphia, PA
January 28, 2000

41 | The Royce Funds Annual Report 1999

ROYCE FOCUS TRUST, INC. |

SCHEDULE OF INVESTMENTS | DECEMBER 31, 1999

COMMON STOCKS — 80.7%

| SHARES |  | VALUE
--- | --- | --- | ---
Consumer Products—3.2%
Sports and Recreation—3.2%
Oakley* | 407,800 |  | $2,268,388
Consumer Services—6.8%
Retail Stores—6.8%
Charming Shoppes* | 725,100 |  | 4,803,787
Financial Intermediaries—6.3%
Insurance—6.3%
Medical Assurance* | 71,600 |  | 1,517,025
White Mountains Insurance Group | 10,000 |  | 1,205,000
Zenith National Insurance | 84,800 |  | 1,749,000
|  |  | 4,471,025
Financial Services—9.3%
Information and Processing—1.9%
Duff & Phelps Credit Rating | 15,000 |  | 1,334,063
Insurance Brokers—7.4%
Blanch (E.W.) Holdings | 30,000 |  | 1,837,500
Gallagher (Arthur J.) & Co. | 52,800 |  | 3,418,800
|  |  | 5,256,300
|  |  | 6,590,363
Health—3.7%
Surgical Products and Devices—3.7%
Arrow International | 90,700 |  | 2,630,300
Industrial Products—13.7%
Building Systems and Components—3.0%
Simpson Manufacturing* | 48,600 |  | 2,126,250
Construction Materials—4.6%
Florida Rock Industries | 95,000 |  | 3,271,562
Machinery—4.2%
Lincoln Electric Holdings | 145,400 |  | 2,998,875
Pumps, Valves and Bearings—1.9%
Kaydon Corporation | 50,000 |  | 1,340,625
|  |  | 9,737,312
Industrial Services—13.3%
Commercial Services—2.0%
Carlisle Holdings* | 120,800 |  | 1,449,600
Engineering and Construction—4.9%
Morrison Knudsen* | 442,100 |  | 3,453,906
Printing—4.6%
New England Business Service | 135,000 |  | 3,299,063
Transportation and Logistics—1.8%
Circle International Group | 56,200 |  | 1,250,450
|  |  | 9,453,019
Natural Resources—9.5%
Energy Services—5.1%
Input/Output* | 320,000 |  | 1,620,000
Nabors Industries* | 64,800 |  | 2,004,750
|  |  | 3,624,750
Gold—2.7%
Anglogold ADR+ | 74,100 |  | 1,903,444
Oil and Gas—1.7%
Tom Brown* | 93,800 |  | 1,254,575
|  |  | 6,782,769
Technology—14.9%
Aerospace/Defense—1.6%
Curtiss-Wright | 30,300 |  | 1,117,312
Distribution—4.8%
Avnet | 31,919 |  | 1,931,100
Richardson Electronics | 193,000 |  | 1,447,500
|  |  | 3,378,600
Software/Services—4.7%
Comdisco | 84,900 |  | 3,162,525
National Computer Systems | 5,000 |  | 188,125
|  |  | 3,350,650
Telecommunication—3.8%
Plantronics* | 38,000 |  | 2,719,375
|  |  | 10,565,937
TOTAL COMMON STOCKS
(Cost $48,145,489) |  |  | 57,302,900

| PRINCIPAL AMOUNT
--- | ---
U.S. TREASURY OBLIGATIONS—18.1%
U.S. Treasury Notes
6.125%, due 12/31/01 | $4,000,000 |  | 3,991,240
5.75%, due 10/31/02 | 5,000,000 |  | 4,931,250
6.00%, due 8/15/04 | 4,000,000 |  | 3,937,480
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $13,026,250) |  |  | 12,859,970

42 | The Royce Funds Annual Report 1999

ROYCE FOCUS TRUST, INC. |

SCHEDULE OF INVESTMENTS | DECEMBER 31, 1999

|  | VALUE |
--- | --- | --- | ---
REPURCHASE AGREEMENT—1.4%
State Street Bank & Trust Company, 2.50% dated 12/31/99, due 1/3/00, maturity value $979,204 (collateralized by U.S. Treasury Bonds, 8.00% due 11/15/21, valued at $1,001,875) (Cost $979,000) |  | $ 979,000 |

TOTAL INVESTMENTS—100.2%
(Cost $62,150,739) |  | $71,141,870 |
LIABILITIES LESS CASH AND OTHER ASSETS—(0.2%) |  | (138,447 | )
NET ASSETS—100.0% |  | $71,003,423 |

* Non income producing.
+ American Depository Receipt.

INCOME TAX INFORMATION: The cost of total investments for Federal income tax puposes was $62,197,980. At December 31, 1999, net unrealized appreciation for all securities was $8,943,890, consisting of aggregate gross unrealized appreciation of $12,762,264 and aggregate gross unrealized depreciation of $3,818,374. The Fund designated $1,820,974 as a capital gain dividend for the purpose of its dividend paid deduction.

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

####

43 | The Royce Funds Annual Report 1999

ROYCE FOCUS TRUST, INC. |

STATEMENT OF ASSETS AND LIABILITIES | DECEMBER 31, 1999

ASSETS:
Investments at value (identified cost $61,171,739) | $70,162,870 |
Repurchase agreement (at cost and value) | 979,000 |
Cash | 310 |
Receivable for dividends and interest | 201,877 |
Prepaid expenses | 2,477 |
Total Assets | 71,346,534 |
LIABILITIES:
Payable for investments purchased | 205,652 |
Payable for investment advisory fee | 40,722 |
Preferred dividends accrued but not yet declared | 33,112 |
Accrued expenses | 63,625 |
Total Liabilities | 343,111 |
Net Assets | $71,003,423 |
Net Assets applicable to Preferred Stock at a liquidation value of $25 per share | $20,000,000 |
Net Assets applicable to Common Stock (net asset value per share—$5.94) | $51,003,423 |
SUMMARY OF STOCKHOLDERS' EQUITY:
7.45% Cumulative Preferred Stock--par value $0.001 per share; 800,000 shares outstanding | $ 800 |
Common Stock--par value $0.001 per share; 8,584,506 shares outstanding (100,000,000 shares authorized) | 8,585 |
Additional paid-in capital | 62,139,076 |
Undistributed net investment income | 690,366 |
Accumulated net realized loss on investments | (793,423 | )
Net unrealized appreciation on investments | 8,991,131 |
Preferred dividends accrued but not yet declared | (33,112 | )
Net Assets | $71,003,423 |

STATEMENTS OF CHANGES IN NET ASSETS |

| Year ended December 31, 1999 |  | Year ended December 31, 1998 |
--- | --- | --- | --- | ---
INVESTMENT OPERATIONS:
Net investment income | $ 690,366 |  | $ 991,047 |
Net realized gain (loss) on investments | (786,044 | ) | 1,937,257 |
Net change in unrealized appreciation on investments | 5,599,612 |  | (4,873,694 | )
Net increase (decrease) in net assets from investment operations | 5,503,934 |  | (1,945,390 | )
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income | (89,608 | ) | (1,343,086 | )
Net realized gain on investments | (1,400,392 | ) | (146,914 | )
Total distributions to Preferred Stockholders | (1,490,000 | ) | (1,490,000 | )
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income | (73,455 | ) | — |
Net realized gain on investments | (1,147,941 | ) | — |
Total distributions to Common Stockholders | (1,221,396 | ) | — |
CAPITAL STOCK TRANSACTIONS:
Reinvestment of distributions to Common Stockholders | 753,514 |  | — |
NET INCREASE (DECREASE) IN NET ASSETS | 3,546,052 |  | (3,435,390 | )
NET ASSETS:
Beginning of year | 67,457,371 |  | 70,892,761 |
End of year (including undistributed net investment income of $690,366 and $136,580, respectively) | $71,003,423 |  | $67,457,371 |

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

44 | The Royce Funds Annual Report 1999

ROYCE FOCUS TRUST, INC. |

STATEMENT OF OPERATIONS | YEAR ENDED DECEMBER 31, 1999

INVESTMENT INCOME:
Income:
Dividends | $ 634,991 |
Interest | 761,791 |
Total Income | 1,396,782 |
Expenses:
Investment advisory fees | 668,522 |
Custodian and transfer agent fees | 72,519 |
Stockholder reports | 46,813 |
Administrative and office facilities expenses | 30,975 |
Professional fees | 29,183 |
Directors' fees | 20,393 |
Other expenses | 38,013 |
Total Expenses | 906,418 |
Fees Waived by Investment Adviser | (200,002 | )
Net Expenses | 706,416 |
Net Investment Income | 690,366 |
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments | (786,044 | )
Net change in unrealized appreciation on investments | 5,599,612 |
Net realized and unrealized gain on investments | 4,813,568 |
NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS | $5,503,934 |

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

45 | The Royce Funds Annual Report 1999

ROYCE FOCUS TRUST, INC. |

FINANCIAL HIGHLIGHTS |

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

| Years ended December 31,
| 1999 |  | 1998 |  | 1997 |  | 1996 |  | 1995 |
NET ASSET VALUE, BEGINNING OF PERIOD | $5.63 |  | $6.04 |  | $5.52 |  | $5.09 |  | $4.70 |
INVESTMENT OPERATIONS:
Net investment income | 0.08 |  | 0.12 |  | 0.08 |  | 0.06 |  | 0.13 |
Net realized and unrealized gain (loss) on investments and foreign currency | 0.58 |  | (0.35 | ) | 1.12 |  | 0.35 |  | 0.36 |
Total investment operations | 0.66 |  | (0.23 | ) | 1.20 |  | 0.41 |  | 0.49 |
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income | (0.01 | ) | (0.16 | ) | — |  | — |  | — |
Net realized gain on investments and foreign currency | (0.17 | ) | (0.02 | ) | (0.01 | ) | — |  | — |
Total distributions to Preferred Stockholders | (0.18 | ) | (0.18 | ) | (0.01 | ) | — |  | — |
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income | (0.01 | ) | — |  | (0.12 | ) | — |  | (0.16 | )
Net realized gain on investments and foreign currency | (0.14 | ) | — |  | (0.41 | ) | — |  | (0.01 | )
Total distributions to Common Stockholders | (0.15 | ) | — |  | (0.53 | ) | — |  | (0.17 | )
CAPITAL STOCK TRANSACTIONS:
Effect of reinvestment of distributions by Common Stockholders | (0.02 | ) | — |  | (0.04 | ) | — |  | — |
Effect of Preferred Stock offering | — |  | — |  | (0.10 | ) | — |  | — |
Other Sources | — |  | — |  | — |  | 0.02 |  | 0.07 |
Total capital stock transactions | (0.02 | ) | — |  | (0.14 | ) | 0.02 |  | 0.07 |
NET ASSET VALUE, END OF PERIOD | $5.94 |  | $5.63 |  | $6.04 |  | $5.52 |  | $5.09 |
MARKET VALUE, END OF PERIOD | $4.72 |  | $4.88 |  | $5.06 |  | $4.59 |  | $4.19 |
TOTAL RETURN(a):
Net Asset Value (b) | 8.7 | % | (6.8 | )% | 20.5 | % | — |  | — |
Market Value | (0.3 | )% | (3.7 | )% | 21.3 | % | 9.6 | % | 22.3 | %
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:
Total expenses (c,d) | 1.51 | % | 1.62 | % | 0.94 | % | 1.91 | % | 2.14 | %
Management fee expense | 1.00 | % | 1.14 | % | 0.39 | % | 0.83 | % | 1.00 | %
Other operating expenses | 0.51 | % | 0.48 | % | 0.55 | % | 1.08 | % | 1.14 | %
Net investment income | 1.47 | % | 1.95 | % | 1.35 | % | 1.80 | % | 2.80 | %
SUPPLEMENTAL DATA:
Net Assets, End of Period (in thousands) | $71,003 |  | $67,457 |  | $70,893 |  | $44,154 |  | $41,385 |
Portfolio Turnover Rate | 60 | % | 90 | % | 74 | % | 159 | % | 76 | %
PREFERRED STOCK:
Total shares outstanding | 800,000 |  | 800,000 |  | 800,000 |  | — |  | — |
Asset coverage per share | $88.75 |  | $84.32 |  | $88.62 |  | — |  | — |
Liquidation preference per share | $25.00 |  | $25.00 |  | $25.00 |  | — |  | — |
Average market value per share (e) | $24.00 |  | $25.16 |  | $25.25 |  | — |  | — |

(a) The Net Asset Value and Market Value Total Returns assume a continuous Common Stockholder who reinvested all net investment income dividends and capital gain distributions.

(b) Net Asset Value Total Return is not available for years prior to 1997.

(c) Expense ratios based on total average net assets were 1.06%, 1.16%, 0.90% , 1.91% and 2.14% for the periods ended December 31, 1999, 1998, 1997, 1996 and 1995, respectively.

(d) Expense ratios based on average net assets applicable to Common Stockholders before waiver of fees by the investment adviser would have been 1.93%, 1.88%, 1.60% and 2.08% for the periods ended December 31, 1999, 1998, 1997 and 1996, respectively.

(e) The average of month-end market values during the period.

46 | The Royce Funds Annual Report 1999

ROYCE FOCUS TRUST, INC. |
--- | ---
NOTES TO FINANCIAL STATEMENTS |

Summary of Significant Accounting Policies:

Royce Focus Trust, Inc. (the "Fund") is a diversified closed-end investment company. Effective May 7, 1999, Royce Global Trust, Inc. changed its name to Royce Focus Trust, Inc. The Fund commenced operations on March 2, 1988. Royce & Associates, Inc. ("Royce") assumed investment management responsibility for the Fund on November 1, 1996.

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

Valuation of Investments:

Securities listed on an exchange or on the Nasdaq National Market System are valued on the basis of the last reported sale prior to the time the valuation is made or, if no sale is reported for such day, at their bid price for exchange-listed securities and at the average of their bid and asked prices for Nasdaq securities. Quotations are taken from the market where the security is primarily traded. Other over-the-counter securities for which market quotations are readily available are valued at their bid price. Securities for which market quotations are not readily available are valued at their fair value under procedures established 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 payable on or after July 1, 1999. The deferred fees remain invested in certain Royce Funds until distributed in accordance with the agreement.

Taxes:

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

Distributions:

Distributions to Common Stockholders are recorded on the ex-dividend date and paid annually in December. Distributions to Preferred Stockholders are recorded on an accrual basis and paid quarterly. Distributions are determined in accordance with income tax regulations that may differ from generally accepted accounting principles. Permanent book and tax basis differences relating to stockholder distributions will result in reclassifications within the capital accounts. Undistributed net investment income may include temporary book and tax basis differences, which will reverse in a subsequent period. Any taxable income or gain remaining undistributed at fiscal year end is distributed in the following year.

Repurchase Agreements:

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

Capital Stock:

The Fund currently has 800,000 shares of 7.45% Cumulative Preferred Stock outstanding. The stock has a liquidation preference of $25.00 per share.

Under the Investment Company Act of 1940, the Fund is required to maintain an asset coverage of at least 200% for the Preferred Stock. In addition, pursuant to the Rating Agency Guidelines established by Moody's, the Fund is required to maintain a certain discounted asset coverage. The Fund has met these requirements since issuing the Preferred Stock.

47 | The Royce Funds Annual Report 1999

ROYCE FOCUS TRUST, INC. |
--- | ---
NOTES TO FINANCIAL STATEMENTS (continued) |

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

The Fund issued 161,083 shares of Common Stock as reinvestment of distributions by Common Stockholders for the year ended December 31, 1999.

Investment Advisory Agreement:

The Investment Advisory Agreement between Royce and the Fund provides for fees to be paid at an annual rate of 1.0% of the average daily net assets of the Fund. Royce has voluntarily committed to waive the portion of its investment advisory fee attributable to the Fund's Preferred Stock for any month in which the Fund's average annual NAV total return since issuance of the Preferred Stock fails to exceed the Preferred Stock's dividend rate.

For the year ended December 31, 1999, the Fund accrued and paid Royce advisory fees totaling $468,520, which is net of $200,002 voluntarily waived by Royce.

Purchases and Sales of Investment Securities:

For the year ended December 31, 1999, the cost of purchases and proceeds from sales of investment securities, other than short-term securities, amounted to $41,072,228 and $38,151,336, respectively.

REPORT OF INDEPENDENT AUDITORS |
--- | ---

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

We have audited the accompanying statement of assets and liabilities of Royce Focus Trust, Inc., including the schedule of investments, as of December 31, 1999, and the related statement of operations for the year then ended, and the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for periods indicated thereon. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 1999, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above and audited by us present fairly, in all material respects, the financial position of Royce Focus Trust, Inc. at December 31, 1999, the results of its operations for the year then ended, and the changes in its net assets for each of the two years in the period then ended and the financial highlights for periods presented, in conformity with generally accepted accounting principles.

TAIT, WELLER & BAKER

Philadelphia, PA
January 28, 2000

48 | The Royce Funds Annual Report 1999

POSTSCRIPT |
--- | ---

THIS JUST IN ...

The advent of cable television, the proliferation of magazines and newsletters, and the increasing influence of the Internet have brought financial information closer to people than ever before. The effort to create a better educated investor is a great idea — one that we wholeheartedly support. We also think that, for the most part, the various media do a fine job of keeping the public informed about important financial events. At the cable networks, however, something seems to have gotten lost along the way. In their zeal to cover every price movement as an earth-shattering news event, they often get too caught up in short-term minutiae. Movement of an eighth of a point on a $100 stock is treated as something that can only be properly understood by market experts who seem to never agree on anything. Have they forgotten that information and opinion are not synonymous with knowledge? Exposure to this endless stream of instant analysis throughout the day does not automatically result in a smarter investor. What follows is a cheerfully exaggerated version of the kind of constant commentary that often appears on financial networks:

> 9:30 a.m.

> TERESA: Good Morning, I’m Teresa Bourse for Financial Update News Network. The Street is buzzing today with rumors that a major announcement is due regarding humongotech.com, the Internet services and technology company. Will it be another stock split? A merger, perhaps? Here’s FUNN market expert Phil Fulminate with the latest. Phil?

> PHIL: Terry, FUNN viewers may recall that I recommended this stock two years ago, at the time of its Initial Public Offering. This is a high-quality company with a major Internet presence whose stock has nowhere to go but up.

> 9:51 a.m.

> TERESA: After-hours trading and endless gossip have resulted in a surprising opening for humongotech.com — the stock opened at $120 per share, down 6 points. Let’s go now to Steve deBear for additional insight into what has to be a shocking opening for many investors.

> STEVE: Shocking for some, Teresa, but not to me. This stock is a dog that’s been barking for some time. Call me old-fashioned, but no earnings means "Beware of the Dog."

> 10:29 a.m.

> TERESA: This just in, humongotech.com has just jumped a point, to $121.

> PHIL: In today’s lightning-paced New Economy, you simply cannot keep a strong company like this down for long. The market is showing us that right now.

> 11:45 a.m.

> TERESA: We’re getting word now that the stock is up again, a full five points, to $126.

> PHIL: That’s not surprising — the sky’s the only limit for humongotech.com.

> 1:17 p.m.

> TERESA: Humongotech.com is on its way to a dazzling day, currently at $154. Any comments, Steve?

> STEVE: A sure sign that the bubble is about to burst. No bull can run forever. I may have been wrong about this in 1996. Okay, and in 1997, too. In 1998, my bear market prediction was more premature than inaccurate, but this time it’s really true.

> 3:17 p.m.

> TERESA: Humongotech.com, a market favorite well into afternoon trading until around 2:30, is struggling to rally after some brisk selling dragged it down to its current price of $128.

> PHIL: I think that this is actually a good sign, a sign that timid investors are getting out and the stock’s true believers are hanging around and hanging tough. This is a terrific stock, and I think it’s poised for a big run-up in the next few days.

> 4:02 p.m.

> TERESA: What a day for humongotech.com. A disappointing opening, followed by some furious buying, then a late flurry of even more furious selling on the heels of less-than-optimistic comments by analysts at Great Bull Brokerage. When the smoke cleared, the stock closed unchanged at $126 per share. Please stay tuned for our post-market analysis, folks.

> [GRAPHIC: Computer monitor displaying newscaster of "FUNN" network]

THE
ROYCE
FUNDS

ONE OF THE INDUSTRY’S MOST EXPERIENCED AND
HIGHLY RESPECTED SMALL–COMPANY VALUE MANAGERS

Charles M. Royce, who has been our primary portfolio manager since 1973, enjoys one of the longest tenures of any active mutual fund manager. Today, with $3 billion in total assets under management, Royce & Associates remains an independent firm committed to the same principles that have served us well for more than 25 years.

MULTIPLE FUNDS, COMMON FOCUS

Over the years, we have chosen to concentrate on small-company value investing. Chuck Royce and his team provide investors with a range of funds that take full advantage of the large and diverse small-cap sector. Our goal is to offer both individual and institutional investors the best available small-cap value portfolios.

CONSISTENT DISCIPLINE

We cultivated our approach by paying close attention to risk and by always 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 worth. This requires a thorough analysis of the financial and operating dynamics of a business, as though we were purchasing the entire company.

CO-OWNERSHIP OF FUNDS

    As part of this commitment, it is important that our employees and shareholders share a common financial goal; our officers, employees and their families currently have approximately $39 million
     invested in The Royce Funds.

THE ROYCE FUNDS
1414 AVENUE OF THE AMERICAS, NEW YORK NY 10019

GENERAL INFORMATION Additional Report Copies (800) 221-4268 | BROKER/DEALER SERVICES For Fund Materials and Performance Updates (800) 59-ROYCE (597-6923)
STATE STREET BANK AND TRUST COMPANY Custodian, Transfer Agent and Registrar (800) 426-5523 | ADVISOR SERVICES For Fund Materials, Performance Updates, Transactions or Account Inquiries (800) 33-ROYCE (337-6923)

www.roycefunds.com
funds@roycenet.com