N-30D 1 e59183.htm

2002 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, LLC manages three closed-end funds: Royce Value Trust, the first small-cap value closed-end fund offering; Royce Micro-Cap Trust, the only micro-cap closed-end fund; and Royce Focus Trust, a closed-end fund that invests in a limited number of domestic companies. A closed-end fund is an investment company whose shares are listed on a stock exchange or are traded in the over-the-counter market. Like all investment companies, including open-end mutual funds, the assets of a closed-end fund are professionally managed in accordance with the investment objectives and policies approved by the fund’s Board of Directors. A closed-end fund raises cash for investment by issuing a fixed number of shares through initial and other public offerings which may include periodic rights offerings. Proceeds from the offerings are invested in an actively managed portfolio of securities. Investors wanting to buy or sell shares of a publicly traded closed-end fund after the offerings must do so on a stock exchange or the Nasdaq market, as with any publicly traded stock. This is in contrast to open-end mutual funds, where the fund sells and redeems its shares on a continuous basis. |
| A CLOSED-END FUND OFFERS SEVERAL DISTINCT ADVANTAGES NOT AVAILABLE FROM AN OPEN-END FUND STRUCTURE |

|  | • | Since a closed-end fund does not issue redeemable securities or offer its securities on a continuous basis, it does not need to liquidate securities or hold uninvested assets to meet investor demands for cash redemptions, as an open-end fund must. |  |
| • | In a closed-end fund, not having to meet investor redemption requests or invest at inopportune times is ideal for value managers who attempt to buy stocks when prices are depressed and sell securities when prices are high. |
| • | A closed-end fund may invest more freely in less liquid portfolio securities because it is not subject to potential stockholder redemption demands. This is particularly beneficial for Royce-managed closed-end funds, which invest in small- and micro-cap securities. |
| • | The fixed capital structure allows permanent leverage to be employed as a means to enhance capital appreciation potential. |
| • | Unlike open-end funds, our closed-end funds are able to distribute capital gains on a quarterly basis. Royce Value Trust and Royce Micro-Cap Trust have adopted a quarterly distribution policy for their common stock. |
| We believe that the closed-end fund structure is very suitable for the long-term investor who understands the benefits of a stable pool of capital. |
| WHY DIVIDEND REINVESTMENT IS IMPORTANT A very important component of an investor’s total return comes from the reinvestment of distributions. By reinvesting distributions, our investors can maintain an undiluted investment in a Fund. To get a fair idea of the impact of reinvested distributions, please see the charts on pages 13, 15 and 17. For additional information on the Funds’ Distribution Reinvestment and Cash Purchase Options and the benefits for stockholders, see page 11. |

THE ROYCE FUNDS

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

Letter to Our Stockholders: Unfinished Business . . . But the Style Remains the Same |  | 2
Small-Cap Market Cycle Performance |  | 9
History Since Inception |  | 10
Distribution Reinvestment and Cash Purchase Options |  | 11
Performance and Portfolio Review: Royce Value Trust, Royce Micro-Cap Trust and Royce Focus Trust |  | 12
Directors and Officers |  | 18
Stockholder Meeting Results |  | 19
Updates and Notes to Performance and Risk Information |  | 20
Schedules of Investments and Other Financial Statements |  | 21
Postscript: Bowled Over or Don’t Believe the Hype |  | Inside Back Cover

| NAV AVERAGE ANNUAL TOTAL RETURNS Through December 31, 2002
| FUND | 4TH QUARTER 2002* | JUL-DEC 2002* | 1-YEAR | 3-YEAR | 5-YEAR | SINCE INCEPTION | INCEPTION DATE
| Royce Value Trust | 8.17% | -15.63% | -15.61% | 4.27% | 5.52% | 10.81% | 11/26/86 |
| Royce Micro-Cap Trust | 8.10 | -18.44 | -13.80 | 5.66 | 4.99 | 10.39 | 12/14/93 |
| Royce Focus Trust | 8.70 | -12.86 | -12.50 | 5.21 | 3.37 | 6.64 | 11/1/96 | **
| Russell 2000 | 6.16 | -16.56 | -20.48 | -7.54 | -1.36 |  |  |
| Royce Value Trust’s 10-year NAV average annual total return for the period ended 12/31/02 was 10.59%.
* | Not annualized.
** | Date Royce & Associates, LLC assumed investment management responsibility.

|  | LETTER TO OUR STOCKHOLDERS
| Charles M. Royce, President Bear markets change things. While this may sound painfully obvious, it’s worth examining how a sustained period of poor stock market performance can affect the portfolio activities here at The Royce Funds. We do not alter anything about our approach. However, we do find that the kinds of stocks we would often not think about owning can become more attractive to some of our portfolio managers during down markets, a development that has been especially true in the severe bear market of the last three years. From our perspective, this is the upside to bear markets: They create potential opportunities for future growth. Buying such companies is seed work for what we hope will grow into a profitable harvest. (continued on page 4) |  |  | Surviving a Bear Market UNFINISHED BUSINESS B y any measure, 2002 was a memorable year. Unfortunately, most of the things that we are likely to associate with it are the same things that many of us would just as soon forget. The prospect of war, the ongoing threat of terrorism, scandals in the boardroom and at the altar, an uncertain economy and, of course, a staggering stock market, all made 2002 both unforgettable and unpleasant. Just as remarkable is the unsettled nature of it all. While it would have been asking a lot for any of these events to resolve themselves tidily before the end of December, the past year seemed to hold more than its share of unfinished business. Certainly neither the economy nor the stock market has yet established a definitive direction. As a result, we seem to have entered what might best be described as an age of anxiety in contrast to the era of unbridled optimism that marked the late ’90s. After all, 2001 was also a year characterized by general apprehension (exacerbated by the attacks of September 11), economic queasiness and a poor-performing stock market. In any case, the current period is one that cannot end quickly enough for most investors, who at this time last year were already tired of trying to survive the bear market that began in March 2000.
2 | THE ROYCE FUNDS ANNUAL REPORT 2002 |  |

2002 offered little to lift their spirits. Scattered signs of life in the first quarter were snuffed out by second-quarter losses. Following an all-too-brief late summer rally, stock prices bottomed out yet again in mid-October. Frankly, we thought that by the end of July, the stage was set for the market to begin to recover. At that time, the bear market was already more than two years old and the decline in value for equities was already significant. Trillions of dollars had been lost. In addition, there seemed to be widespread, final acceptance that the stock market was facing the wrenching aftermath of a speculative bubble in the wake of the Internet stock boom. Yet prices continued to fall and the upswing that began in August amounted to very little gain for the market as a whole. Most disappointing of all for value investors like ourselves was the gradual absorption of value stocks into the general downward trend. Perhaps, as noted stock trader Martha Stewart might say, “it’s a good thing” that value lasted as long as it did, but from our perspective, negative returns are never good, even if they are sooner or later inevitable. The market did recover a bit from the October 9th low through mid-December, although the last two weeks of the year saw more selling, which dampened the effect of a promising fourth-quarter rally. What factors drove the market’s brief pops and deep crashes? To the general sense of unease, economic and otherwise, we can add the hoped-for increases in capital spending that stubbornly refused to materialize, the ongoing cloudy earnings picture and the weakening dollar that shook some nervous investors right out of the market. What will it take for discouraged investors to return to stocks? That remains an open question. The unfinished business from 2002 makes trying to figure out what might happen next especially challenging. However, we maintain that there are more positive signals than negative ones for the stock market, and that the worst is behind us.
The unfinished business from 2002 makes trying to figure out what might happen next especially challenging. However, we still maintain that there are more positive signals than negative ones for the stock market, and that the worst is behind us.
THE MARKET WITHOUT QUALITIES Still, investors’ frustrations are readily understood. For the first time in 60 years, stock market returns for the S&P 500 declined for a third consecutive year. The loss from March 2000 through the end of 2002 was the worst since the watershed bear market of 1973–4. Although the small-cap Russell 2000 managed to avoid joining the S&P 500 and Nasdaq in the three-straight-years-with-negative-returns club, it too posted negative average annual total returns for the one-, three- and five-year periods ended 12/31/02 (though it has outperformed the latter two indices in each of these three periods). 2002 also marked the third consecutive year in which the small-cap index bested its larger siblings. Yet while small-caps continued to enjoy the performance advantage that they grabbed when the current bear market first arrived, this advantage offered scant consolation, as 2002 saw them succumb to the same double-digit negative return disease that afflicted larger-cap indices. The

THE ROYCE FUNDS ANNUAL REPORT 2002 | 3

| In an absolute sense, there is no such thing as a value stock or a growth stock. As stock prices decline, the valuation picture can change radically. What were once considered “growth” companies often begin to trade at prices that fall below our estimate of their intrinsic worth. These companies might be excluded from a traditional value investor’s radar screen. Technology and biotech stocks provide two good current examples. Where another value investor sees companies in industries that may be too risky, we see companies whose potential growth — both as stocks and businesses — and attractive stock price make the risks worthwhile. For example, two years ago Whitney George began to purchase Emisphere Technologies, a biotech company whose price at the end of 2002 was approximately $3.50 per share. The company has more than $2 per share in cash. He believes that its high cash stake adds some near-term “margin of safety,” which is critically important when investing in more volatile industries whose companies normally don’t meet the metrics (continued on page 6) |  |  | LETTER TO OUR STOCKHOLDERS Russell 2000 was down 20.5% versus declines of 22.1% for the S&P 500 and 31.5% for the Nasdaq Composite. In a year that held very little positive news for equities, both the Russell 2000 and S&P 500 declined in eight out of 12 months, and the Nasdaq in nine. From a small-cap perspective, the fact that the asset class has thus far been a bear-market leader is noteworthy, if also somewhat logical in light of large-cap’s domination during the latter part of the ’90s when high-octane returns were the norm for large-caps and many Technology issues.One additional factor in small-cap’s favor may have been the extra attention being paid to accounting issues in the current climate. Small-cap companies generally have single-line businesses with more transparent accounting that may have been more attractive — or at least less objectionable — to scrutiny-prone investors. Obviously this could not spare many small-cap stocks from some exposure to the bear’s claws, but we think that it offered small-caps some help in the down market and also may be a boon when the environment for equities improves. VALUE DE MILO In a bear market, especially one as severe and long-lasting as this one, the expectation is that value should preserve capital more effectively than growth, and in that respect 2002 did not disappoint. Within small-cap, the Russell 2000 Value index was ahead of the Russell 2000 Growth index in three out of four quarters and for the full year, in which it lost 11.4% versus a loss of 30.3% for small-cap growth. More impressive was the advantage that the small-cap value index held over growth from the small-cap market peak on 3/9/00 through 12/31/02, up 18.6% versus growth’s decline of 62.4%. In addition, the Russell 2000 Value index outpaced its growth counterpart from the 2002 small-cap market peak in April through the end of the year, -22.8% versus -30.0%. Also notable is small-cap value’s performance in the short period from the small-cap trough on 10/9/02 through 12/31/02. In a period in which it might be thought that the style would lag considerably, small-cap value has so far held its own, with a 16.3% return versus 19.0% for small-cap growth. These market cycle relative return comparisons are important because we think that they demonstrate the all-weather qualities of value investing. While 2002 was a dismal year by nearly every measure, small-cap value managed not to capitulate to the lengthy bear market until this year’s second quarter. It then generally suffered the same slings and arrows of outrageous fortune that most other equities did, but by losing less and having previously gained while growth and many large-caps were limping, its longer-term returns look relatively strong. We think it’s important to mention that better bear market performance can play a critical role in building solid absolute long-term returns.
ROYCE REQUIEM It was a year of negative returns for The Royce Funds featured in this report. While our value approach helped the funds to avoid some of the sharper swoons of the market taken as a whole, the year was nonetheless a disappointment for us. Each Fund outperformed the
4 | THE ROYCE FUNDS ANNUAL REPORT 2002 |  |  |  |

Russell 2000 in 2002, as well as from the small-cap market peak on 3/9/00 through 12/31/02. In addition, each Fund then in existence beat the Russell 2000 for the three-, five-, 10-year and respective since inception periods ended 12/31/02. But this is bittersweet news to us. Although we always seek to beat the Russell 2000, relative performance is not the yardstick by which we ultimately wish to be measured. What counts most for us as a firm is strong absolute performance, and 2002 was for the most part absolutely miserable. Any year in which we generally fail to produce positive returns is a bad one.
We still believe that many of the companies that we purchased throughout the year are quality businesses, even many of those that suffered precipitous drops through July and subsequent declines in the autumn downturn. In fact, we sometimes bought more shares in the face of the fall plunge. While our confidence in most of these firms is undimmed and our patience remains strong, admittedly the bear has hung around longer than we would have thought. Then again, we are the same people who insisted that large-cap returns couldn’t go much higher back in 1998, so our market timing skills remain perfectly intact and perfectly wrong.
While our value approach helped the Funds to avoid some of the sharper swoons of the market taken as a whole, the year was nonetheless a disappointment for us in general. Each Fund outperformed the Russell 2000 in 2002, as well as from the small-cap market peak on 3/9/00 through 12/31/02. However, what counts most for us as a firm is strong absolute performance, and 2002 was for the most part absolutely miserable.
Fortunately, our approach does not rest on the idea that we can pick market tops or bottoms. Our value approach takes us to places that the market has abandoned. There are always companies in distressed industries that we feel have been unduly punished, and that’s where we most often sought values in 2002. We believe that we can find excellent bargains in companies whose prices have hit hard times because businesses are often poorly understood and because the market’s reaction to what may be temporary adversity often goes to extremes. As we are feeling modestly bullish about the stock market, we are hopeful that all of our portfolios can rebound from 2002’s tough times in the coming year.

THE ROYCE FUNDS ANNUAL REPORT 2002 | 5

|  | LETTER TO OUR STOCKHOLDERS
| of value investors. In addition, the company’s attractive niche business in genetic technology and its capable, intelligent management should enable it, in his opinion, to become a profitable leader in its field over the long term. He believes that the firm’s stock price will recover either when the market for its products and services improves or when the stock market rebounds. Although its stock price has declined since we first began to buy it, he is content to hold it. In fact, he bought more in the October downturn, and the company is now represented in several Royce-managed portfolios. Chuck Royce, always on the lookout for conservatively capitalized Technology firms, found Technitrol, a manufacturer of electronic components, electrical contacts and assemblies for computers back in 1999. He was initially attracted to the company’s superb record of high returns, steady earnings growth and attractive debt-to-equity ratio. After meeting with its management, he believed that the company was well-run and (continued on page 8) |  |  | AN UNFINISHED MARKET ... An intrepid investor may well ask what informs our sense that equity returns will improve. As always, we appeal to the past to get a sense of what the future might hold. We looked at monthly trailing three-year average annual total return periods of 5% or less for the Russell 2000. We then examined each five-year period that followed. We should point out that three-year periods with average annual total returns of 5% or less have not been the historical norm for the Russell 2000. From the inception of the index on 12/31/78 through 12/31/97 (all of the periods with subsequent five-year returns), there have been 190 monthly trailing three-year return periods, but in only 14 of these periods did the Russell 2000 provide an average annual total return of less than 5%. In the subsequent five-year periods, average annual total returns for the Russell 2000 were 10% or higher in all but one instance (see the table below). In six out of the 14 periods, subsequent five-year average annual total return periods were higher than 15%.
| RUSSELL 2000 LOW RETURN PERIODS Three-Year and Subsequent Five-Year Annualized Results
| THREE-YEAR PERIOD ENDED | RUSSELL 2000 3-YEAR RETURN | RUSSELL 2000 SUBSEQUENT 5-YEAR RETURN | RUSSELL 2000 VALUE SUBSEQUENT 5-YEAR RETURN |
| 3/31/89 | 4.3% | 11.7% | 12.7% |
| 6/30/89 | 4.8 | 9.5 | 11.0 |
| 1/31/90 | 2.7 | 12.0 | 13.3 |
| 2/28/90 | 1.0 | 12.2 | 13.6 |
| 3/31/90 | 1.4 | 11.7 | 13.0 |
| 4/30/90 | 1.2 | 12.9 | 14.5 |
| 5/31/90 | 3.7 | 11.8 | 13.8 |
| 6/30/90 | 2.9 | 12.9 | 14.6 |
| 7/31/90 | 0.3 | 15.2 | 16.5 |
| 8/31/90 | -5.3 | 19.0 | 20.2 |
| 9/30/90 | -7.6 | 21.7 | 22.7 |
| 10/31/90 | 2.2 | 22.1 | 23.4 |
| 8/31/92 | 4.1 | 19.4 | 21.1 |
| 9/30/92 | 4.8 | 20.5 | 22.2 |
|  |  |  | When investment style is taken into account, the results were even better for small-cap value investors. In each of the subsequent five-year periods shown in the table, the Russell 2000 Value index posted an average annual total return of 10% or higher, and the index’s average annual total return was 20% or higher in five out of the 14 periods. In addition, the value index outperformed the Russell 2000 Growth index in each of the 14 subsequent five-year periods. So while the last three years have been rough on investors, better times may lie ahead if history is inclined to repeat itself for small-cap investors.
6 | THE ROYCE FUNDS ANNUAL REPORT 2002 |  |

Trying to Clear the Market’s Hurdles ... BUT THE STYLE REMAINS THE SAME In our view, the importance of the data discussed previously lies less in its predictive acumen than in the convincing way it reinforces the idea that markets are cyclical. The ’90s were dominated by large-cap stocks while the current decade has thus far been led by smaller companies. We think that this leadership can continue through the more bullish phase that we may just now be entering. It’s worth noting that small-cap leadership has occurred in a bear market. The idea persists that small-caps are more vulnerable to market downturns, but in the current down market period they have held up much better than bigger companies. In the current uncertain slow-growth economy, our belief is that small-caps, being generally leaner and meaner, will prove more adaptable and better able to handle financial adversity than their larger counterparts. Another reason rests on our belief that simpler, single-line businesses with more transparent accounting are probably going to remain more attractive to investors for at least a few more years. We see this as a potential benefit to small-cap stocks. Ultimately, however, regardless of the advantages that may or may not accrue to small-cap stocks in the next few years, we will do what we always have — continue to look for what we

THE ROYCE FUNDS ANNUAL REPORT 2002 | 7

| highly disciplined. Recent scale backs in technology spending and a correspondingly sluggish market for computers have hurt both the earnings and stock price. His belief in the business’s long-term prospects still strong, Chuck nearly doubled his position in one closed-end portfolio in 2002. Aside from its recent earnings difficulties, he thinks that its financial characteristics remain sterling. However, because it resides in the more volatile Technology sector, many value investors would not give the stock a second look. Bear markets can make for seemingly strange bedfellows. While our approach has not changed, it may lead to the inclusion of certain types of companies not usually thought of as fare for value investors. Yet our process for identifying and investing in companies remains the same. The bear market has meant that the investment opportunities have shifted in some cases. Our approach remains centered on finding what we think are terrific companies at low prices. To our way of thinking, that continues to be what value investing is all about. |  |  | LETTER TO OUR SHAREHOLDERS think are terrific companies trading at low prices relative to our estimate of the company’s value as a business. For more than 25 years, whether times were good, bad or indifferent for equities, we have used the same approach. After all, our orientation was born in the teeth of the bear market of 1973-4. Difficult market periods sealed the lesson that capital preservation and risk management were as critical as capital growth, and that the three were significantly interrelated. The importance of absolute returns is absolute. If trying to manage the hurdles of the past year’s wildly volatile and downward sloping market offered us an un-requested refresher course, so be it. Some lessons can never be re-learned enough.
Difficult market periods sealed the lesson that capital preservation and risk management were as critical as capital growth, and that the three were significantly interrelated.
We appreciate your continued support.
Sincerely,
Charles M. Royce President | W. Whitney George Vice President | Jack E. Fockler, Jr. Vice President |
January 31, 2003
P.S. In keeping with 2002’s unfinished nature, three of our section headings in this letter refer to famous unfinished works. We slightly altered the title of Robert Musil’s novel The Man Without Qualities. The limb-less sculpture of Venus became “Value de Milo,” and Mozart’s Requiem lent its name to the section in which we discuss The Royce Funds’ performance.
8 | THE ROYCE FUNDS ANNUAL REPORT 2001 |  |

SMALL-CAP MARKET CYCLE PERFORMANCE
Since the Russell 2000’s inception in 1979, value has outperformed growth in five of the six full small-cap market cycles (defined as a move of 15% from a previous peak or trough). The last small-cap market cycle (4/21/98 – 3/9/00) was the exception. The current cycle represents what we believe is a return to a more historically typical performance pattern in that value has provided a significant advantage during the downturn (3/9/00 – 10/9/02) and through December 31, 2002.

|  |  |  | PEAK-TO-PEAK |  | PEAK-TO-TROUGH |  | TROUGH-TO-CURRENT |  | PEAK-TO-CURRENT |
|  |  |  | 4/21/98 – 3/9/00 |  | 3/9/00 – 10/9/02 |  | 10/9/02 – 12/31/02 |  | 3/9/00 – 12/31/02 |
|  | Russell 2000 |  | 26.3 | % |  | -44.1 | % |  | 17.6 | % |  | -34.3 | % |
|  | Russell 2000 Value |  | -12.7 |  |  | 2.0 |  |  | 16.3 |  |  | 18.6 |  |
|  | Russell 2000 Growth |  | 64.8 |  |  | -68.4 |  |  | 19.0 |  |  | -62.4 |  |
|  | NAV CUMULATIVE |  |  |  |  |  |  |  |  |  |  |  |  |
|  | TOTAL RETURN |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Royce Value Trust |  | 10.0 |  |  | -12.2 |  |  | 19.0 |  |  | 4.5 |  |
|  | Royce Micro-Cap Trust |  | 10.6 |  |  | -13.6 |  |  | 19.2 |  |  | 2.4 |  |
|  | Royce Focus Trust |  | -10.7 |  |  | -4.9 |  |  | 20.2 |  |  | 14.3 |  |

PEAK-TO-TROUGH: Not only did value outperform growth (as measured by the Russell 2000 style indices), but it provided positive performance during the downdraft. All three Royce Funds outperformed the Russell 2000 in this period.
TROUGH-TO-CURRENT: Through December 31, 2002, value kept pace with growth during the rally from the October low. All Royce Funds posted total returns of 19% or more during this period, outperforming the Russell 2000.
PEAK-TO-CURRENT: Through December 31, 2002, value maintained a sizeable lead over growth. Again, all three Royce Funds held performance advantages over the Russell 2000 (-34.3%) and all have provided positive performance.

THE ROYCE FUNDS ANNUAL REPORT 2002 | 9

HISTORY SINCE INCEPTION
The following table details the share accumulations by an initial investor in the Funds who reinvested all distributions (including fractional shares) and participated fully in primary subscriptions for each of the rights offerings. Full participation in distribution reinvestments and rights offerings can maximize the returns available to a long-term investor. This table should be read in conjunction with the Performance and Portfolio Reviews of the Funds.
HISTORY |  | AMOUNT INVESTED |  | PURCHASE PRICE* |  | SHARES |  | NAV VALUE** |  | MARKET VALUE**
Royce Value Trust |  |  |  |  |  |  |  |  |  |  |  |  |
11/26/86 |  | Initial Purchase | $ | 10,000 | $ | 10.000 | 1,000 | $ | 9,280 | $ | 10,000
10/15/87 |  | Distribution $0.30 |  |  |  | 7.000 | 42 |  |  |  |
12/31/87 |  | Distribution $0.22 |  |  |  | 7.125 | 32 |  | 8,578 |  | 7,250
12/27/88 |  | Distribution $0.51 |  |  |  | 8.625 | 63 |  | 10,529 |  | 9,238
9/22/89 |  | Rights Offering |  | 405 |  | 9.000 | 45 |  |  |  |
12/29/89 |  | Distribution $0.52 |  |  |  | 9.125 | 67 |  | 12,942 |  | 11,866
9/24/90 |  | Rights Offering |  | 457 |  | 7.375 | 62 |  |  |  |
12/31/90 |  | Distribution $0.32 |  |  |  | 8.000 | 52 |  | 11,713 |  | 11,074
9/23/91 |  | Rights Offering |  | 638 |  | 9.375 | 68 |  |  |  |
12/31/91 |  | Distribution $0.61 |  |  |  | 10.625 | 82 |  | 17,919 |  | 15,697
9/25/92 |  | Rights Offering |  | 825 |  | 11.000 | 75 |  |  |  |
12/31/92 |  | Distribution $0.90 |  |  |  | 12.500 | 114 |  | 21,999 |  | 20,874
9/27/93 |  | Rights Offering |  | 1,469 |  | 13.000 | 113 |  |  |  |
12/31/93 |  | Distribution $1.15 |  |  |  | 13.000 | 160 |  | 26,603 |  | 25,428
10/28/94 |  | Rights Offering |  | 1,103 |  | 11.250 | 98 |  |  |  |
12/19/94 |  | Distribution $1.05 |  |  |  | 11.375 | 191 |  | 27,939 |  | 24,905
11/3/95 |  | Rights Offering |  | 1,425 |  | 12.500 | 114 |  |  |  |
12/7/95 |  | Distribution $1.29 |  |  |  | 12.125 | 253 |  | 35,676 |  | 31,243
12/6/96 |  | Distribution $1.15 |  |  |  | 12.250 | 247 |  | 41,213 |  | 36,335
1997 |  | Annual distribution total $1.21 |  |  |  | 15.374 | 230 |  | 52,556 |  | 46,814
1998 |  | Annual distribution total $1.54 |  |  |  | 14.311 | 347 |  | 54,313 |  | 47,506
1999 |  | Annual distribution total $1.37 |  |  |  | 12.616 | 391 |  | 60,653 |  | 50,239
2000 |  | Annual distribution total $1.48 |  |  |  | 13.972 | 424 |  | 70,711 |  | 61,648
2001 |  | Annual distribution total $1.49 |  |  |  | 15.072 | 437 |  | 81,478 |  | 73,994
2002 |  | Annual distribution total $1.51 |  |  |  | 14.903 | 494 |  |  |  |
12/31/02 |  |  | $ | 16,322 |  |  |  |  | 5,202 |  | $ | 68,770 |  | $ | 68,927
Royce Micro-Cap Trust |  |  |  |  |  |  |  |  |  |  |  |  |
12/14/93 |  | Initial Purchase | $ | 7,500 | $ | 7.500 | 1,000 | $ | 7,250 | $ | 7,500
10/28/94 |  | Rights Offering |  | 1,400 |  | 7.000 | 200 |  |  |  |
12/19/94 |  | Distribution $0.05 |  |  |  | 6.750 | 9 |  | 9,163 |  | 8,462
12/7/95 |  | Distribution $0.36 |  |  |  | 7.500 | 58 |  | 11,264 |  | 10,136
12/6/96 |  | Distribution $0.80 |  |  |  | 7.625 | 133 |  | 13,132 |  | 11,550
12/5/97 |  | Distribution $1.00 |  |  |  | 10.000 | 140 |  | 16,694 |  | 15,593
12/7/98 |  | Distribution $0.29 |  |  |  | 8.625 | 52 |  | 16,016 |  | 14,129
12/6/99 |  | Distribution $0.27 |  |  |  | 8.781 | 49 |  | 18,051 |  | 14,769
12/6/00 |  | Distribution $1.72 |  |  |  | 8.469 | 333 |  | 20,016 |  | 17,026
12/6/01 |  | Distribution $0.57 |  |  |  | 9.880 | 114 |  | 24,701 |  | 21,924
2002 |  | Annual distribution total $0.80 |  |  |  | 9.518 | 180 |  |  |  |
12/31/02 |  |  | $ | 8,900 |  |  |  |  | 2,268 |  | $ | 21,297 |  | $ | 19,142
Royce Focus Trust |  |  |  |  |  |  |  |  |  |  |  |  |
10/31/96 |  | Initial Purchase | $ | 4,375 | $ | 4.375 | 1,000 | $ | 5,280 | $ | 4,375
12/31/96 |  |  |  |  |  |  |  |  | 5,520 |  | 4,594
12/5/97 |  | Distribution $0.53 |  |  |  | 5.250 | 101 |  | 6,650 |  | 5,574
12/31/98 |  |  |  |  |  |  |  |  | 6,199 |  | 5,367
12/6/99 |  | Distribution $0.145 |  |  |  | 4.750 | 34 |  | 6,742 |  | 5,356
12/6/00 |  | Distribution $0.34 |  |  |  | 5.563 | 69 |  | 8,151 |  | 6,848
12/6/01 |  | Distribution $0.14 |  |  |  | 6.010 | 28 |  | 8,969 |  | 8,193
12/6/02 |  | Distribution $0.09 |  |  |  | 5.640 | 19 |  |  |  |
12/31/02 |  |  | $ | 4,375 |  |  |  |  | 1,251 |  | $ | 7,844 |  | $ | 6,956

* | Beginning with 1997 (RVT) and 2002 (OTCM) distribution, the purchase price on distributions is an average of the Fund’s full year distribution reinvestment cost.
** | Other than for initial purchase, values are stated as of December 31 of the year indicated, after reinvestment of distributions.
10 | THE ROYCE FUNDS ANNUAL REPORT 2002

DISTRIBUTION REINVESTMENT AND CASH PURCHASE OPTIONS FOR COMMON STOCKHOLDERS
| WHY SHOULD I REINVEST MY DISTRIBUTIONS? By reinvesting distributions, a stockholder can maintain an undiluted investment in the Fund. The regular reinvestment of distributions has a significant impact on stockholder returns. In contrast, the stockholder who takes distributions in cash is penalized when shares are issued below net asset value to other stockholders. HOW DOES THE REINVESTMENT OF DISTRIBUTIONS FROM THE ROYCE CLOSED-END FUNDS WORK? The Funds automatically issue shares in payment of distributions unless you indicate otherwise. The shares are issued at the lower of the market price or net asset value on the valuation date. HOW DOES THIS APPLY TO REGISTERED STOCKHOLDERS? If your shares are registered directly with a Fund, your distributions are automatically reinvested unless you have otherwise instructed the Funds’ transfer agent, EquiServe, in writing. A registered stockholder also has the option to receive the distribution in the form of a stock certificate or in cash if EquiServe is properly notified. WHAT IF MY SHARES ARE HELD BY A BROKERAGE FIRM OR A BANK? If your shares are held by a brokerage firm, bank, or other intermediary as the stockholder of record, you should contact your brokerage firm or bank to be certain that it is automatically reinvesting distributions on your behalf. If they are unable to reinvest distributions on your behalf, you should have your shares registered in your name in order to participate. WHAT OTHER FEATURES ARE AVAILABLE FOR REGISTERED STOCKHOLDERS? The Distribution Reinvestment and Cash Purchase Plans also allow registered stockholders to make optional cash purchases of shares of a Fund’s common stock directly through EquiServe on a monthly basis, and to deposit certificates representing your Fund shares with EquiServe for safekeeping. The Funds’ investment adviser is absorbing all commissions on optional cash purchases under the Plans through December 31, 2003. HOW DO THE PLANS WORK FOR REGISTERED STOCKHOLDERS? EquiServe maintains the accounts for registered stockholders in the Plans and sends written confirmation of all transactions in the account. Shares in the account of each participant will be held by EquiServe in non-certificatedform in the name of the participant, and each participant will be able to vote those shares at a stockholder meeting or by proxy. A participant may also send other stock certificates held by them to EquiServe to be held in non-certificated form. There is no service fee charged to participants for reinvesting distributions. If a participant elects to sell shares from a Plan account, EquiServe will deduct a $2.50 fee plus brokerage commissions from the sale transaction. If a nominee is the registered owner of your shares, the nominee will maintain the accounts on your behalf. HOW CAN I GET MORE INFORMATION ON THE PLANS? You can call an Investor Services Representative at (800) 221-4268 or you can request a copy of the Plan for your Fund from EquiServe. All correspondence (including notifications) should be directed to: [Name of Fund] Distribution Reinvestment and Cash Purchase Plan, c/o EquiServe, PO Box 43011, Providence, RI 02940-3011, telephone (800) 426-5523.

THE ROYCE FUNDS ANNUAL REPORT 2002 | 11

| ROYCE VALUE TRUST
| AVERAGE ANNUAL TOTAL RETURNS Through 12/31/02 |  | Chuck Royce |  | MANAGER’S DISCUSSION The bad news outweighed the good news for Royce Value Trust (RVT) in 2002. On both a market price and net asset value (NAV) basis, the Fund was up 8.2% in the fourth-quarter rally, outperforming each of its small-cap benchmarks, the Russell 2000 and the S&P 600.
| Fourth Quarter 2002* | 8.17% |
| July-December 2002* | -15.63 |
| 1-Year | -15.61 | For the full year, RVT beat the Russell 2000 on a market price and NAV basis, but trailed the S&P 600 on an NAV basis. The Fund was down 15.6% on an NAV basis and down 6.9% on a market price basis, versus a loss of 20.5% for the Russell 2000 and a loss of 14.7% for the S&P 600. In addition, RVT outperformed both of its benchmarks from the small-cap market peak on 3/9/00 through 12/31/02. The Fund was up 4.5% on an NAV basis and 27.3% on a market price basis for this period, compared to a loss of 34.3% for the Russell 2000 and a loss of 10.0% for the S&P 600. RVT also was ahead of its benchmarks for the three-, five-, 10-, 15-year and since inception (11/26/86) periods. The Fund’s average annual NAV total return since inception was 10.8%. The Fund’s long-term performance advantages notwithstanding, a year of negative returns is always a disappointment. While the Fund acquitted itself well in the first half, the difficult third quarter saw many value stocks finally succumb to the bear in the 2002 downturn that actually began in May. The rally that arrived late in the year offered too little too late in terms of RVT’s calendar-year performance. Holdings in the Technology sector (the Fund’s largest), felt the brunt of the bad market. We typically invest in “chicken” technology, volume-based businesses that are not reliant on the latest innovations in products and services, but that often see the benefit of such advances. Unfortunately, business has been difficult throughout the large and diverse Technology area, and the relative financial conservatism of our holdings could not shield them from the adverse effects of a third consecutive year of little to no technology spending on the part of businesses. In many cases, we took advantage of falling prices to increase existing positions. We built our position in Mentor Graphics after first buying shares in March. The company is engaged in electronic design automation (EDA) that provides software and hardware design tools that enable companies to send electronic products to market faster and more cost-effectively. We like its niche business and think that its long-term prospects are strong. Several information technology businesses remain highly attractive to us, including BearingPoint (formerly KPMG Consulting), a business consulting and systems integration company that we think will benefit from an industry recovery. We added to our stake in this company throughout 2002. Lattice Semiconductor has what we regard as terrific management and strong financial characteristics. The firm manufactures semiconductors known as programmable logic devices (PLDs), a business that we found more attractive than did customers and investors in 2002, as revenues fell along with its share price. We are confident that the company’s business and stock price can bounce back when its industry picks up. Holdings in the Health, Industrial Products and Financial Services sectors also suffered losses in 2002. Our strategy with these sectors was similar to Technology in that we sold some stocks in which we had lost confidence, but generally held on to or added to positions that lost money. We think that the Fund is well-positioned for the ongoing high volatility in the stock market.
| 3-Year | 4.27
| 5-Year | 5.52
| 10-Year | 10.59
| Since Inception (11/26/96) | 10.81
| * Not annualized.
| RISK/RETURN COMPARISON 3-Year Period ended 12/31/02 |
| Royce Value Trust (NAV) S&P 600 Russell 2000 | Average Annual Total Return 4.3% 0.6% -7.5% | Standard Deviation 21.6 22.5 23.6 | Return Efficiency* 0.20 0.03 -0.32 |
| * Return Efficiency is the average annual total return divided by the annualized standard deviation over a designated time period. Over the last three years, Royce Value Trust has outperformed the S&P 600 and the Russell 2000 on both an absolute and a risk-adjusted basis.
| CALENDAR YEAR NAV TOTAL RETURNS |
| Year 2002 2001 2000 1999 1998 1997 1996 1995 | RVT -15.6% 15.2 16.6 11.7 3.3 27.5 15.5 21.1 | Year 1994 1993 1992 1991 1990 1989 1988 1987 | RVT 0.1 17.3 19.3 38.4 -13.8 18.3 22.7 -7.7 |

12 | THE ROYCE FUNDS ANNUAL REPORT 2002

PERFORMANCE AND PORTFOLIO REVIEW
|  |  |  | PORTFOLIO DIAGNOSTICS |
| GOOD IDEAS THAT WORKED 2002 Net Realized and Unrealized Gain |  |  | Thor Industries — Like the little engine that could, this leading manufacturer of recreation vehicles and small- to mid-sized busses kept right on going through another profitable year. In June, we sold our shares in RVT’s portfolio as its price climbed. |  |  | Median Market Capitalization | $541 million |
| Thor Industries | $4,382,110 |  |  |  |  | Weighted Average P/B Ratio | 1.4x |
| AngloGold ADR | 3,696,221 |  |  |  | Weighted Average Yield | 0.8% |
| Hilb, Rogal & Hamilton | 2,529,135 |  |  |  | Fund Net Assets | $721 million |
|  | Ticketmaster Cl. B | 2,506,545 |  |  |  | Turnover Rate | 35% |
|  | Marvel Enterprises | 2,174,854 |  |  |  | Net Leverage† | 21% |
|  |  | Symbol – Market Price | RVT |
| AngloGold — Rising commodity prices helped this international mining company to enjoy a golden year in 2002. Its steadily rising price led us to reduce our position between May and November, though we still find much to like about this company. |  | – 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. |
|  | GOOD IDEAS AT THE TIME 2002 Net Realized and Unrealized Loss |  |  | Avnet — Its status as an industry leader and what we judged to be a sterling balance sheet initially drew us to this electronics distributor. We feel that both have been compromised, as the company began to make expensive acquisitions at the top of its business cycle, and its business has suffered in the current recession. However, we think that the firm may ultimately be able to turn things around, so we are holding on. |  |  | TOP 10 POSITIONS % of Net Assets |
|  |  |  |  |  |  | ProAssurance | 1.3 | %
|  | Avnet | $4,185,795 |  |  |  |  |  |
|  | Plexus | 3,646,019 |  |  |  | White Mountains Insurance Group | 1.1 |
|  | Emisphere Technologies | 3,487,270 |  |  |  | Arrow International | 1.0 |
|  | Mentor Graphics | 3,362,934 |  |  |  | Farmer Bros. | 0.9 |
|  | Allegiance Telecom | 3,315,755 |  |  |  | Ash Grove Cement Company Cl. B | 0.9 |
|  |  |  | Simpson Manufacturing | 0.9 |
| Plexus — This firm helps to bring products to market in the computer, medical, industrial, networking, telecommunications and transportation electronics industries. Its business and share price were in retreat in 2002, so we built our position throughout the year. |
| Florida Rock Industries | 0.8 |
| Allied Waste Industries | 0.8 |
| Lincoln Electric Holdings | 0.8 |
| Ritchie Bros. Auctioneers | 0.7 |
|  | PORTFOLIO SECTOR BREAKDOWN % of Net Assets
| Technology | 18.5 | %
| Industrial Products | 14.0 |
| Industrial Services | 12.8 |
| Financial Intermediaries | 10.0 |
| Health | 8.2 |
| Consumer Products | 7.4 |
| Natural Resources | 6.4 |
The regular reinvestment of distributions makes a difference! |  | Financial Services | 6.3 |
| 1 | Reflects the cumulative total return of an investment made by a stockholder who purchased one share at inception ($10.00 IPO) and then reinvested all annual distributions as indicated, and did not participate in rights offerings. |  |  |  |
| Consumer Services | 5.4 |
| 2 | Reflects the actual market price of one share as it has traded on the NYSE. |  | Miscellaneous | 4.9 |
|  | Bonds & Preferred Stocks | 0.3 |
| Treasuries, Cash & Cash Equivalents | 5.8 |
| CAPITAL STRUCTURE Publicly Traded Securities Outstanding at 12/31/02 at NAV or Liquidation Value
| 42.4 million shares of Common Stock | $561 million |
| 7.80% Cumulative Preferred Stock | $60 million |
| 7.30% Tax-Advantaged Cumulative Preferred Stock | $100 million |
THE ROYCE FUNDS ANNUAL REPORT 2002 | 13

| ROYCE MICRO-CAP TRUST
| NAV AVERAGE ANNUAL TOTAL RETURNS Through 12/31/02 |  | Chuck Royce |  | MANAGER’S DISCUSSION Perhaps due to their small size, it took a while for the bear market to catch up to many of the holdings in Royce Micro-Cap Trust’s (OTCM) portfolio, though when it did, it was unsparing. While the Fund was ahead of its small-cap benchmark, the Russell 2000 (+6.2%), in the fourth-quarter rally on both a net asset value (NAV) and market
| Fourth Quarter 2002* | 8.10% |
| July-December 2002* | -18.44 |
| 1-Year | -13.80 | price basis (+8.1% and +6.8%, respectively), the upturn was not enough to overcome a disappointing calendar-year performance. In 2002, OTCM was down 13.8% on an NAV basis and down 12.7% on a market price basis, in each case ahead of the Russell 2000’s loss of 20.5%. The Fund also stayed ahead of the benchmark from the small-cap market peak on 3/9/00 through 12/31/02, up 2.4% on an NAV basis versus a decline of 34.3% for the Russell 2000. In addition, OTCM outperformed the Russell 2000 on both an NAV and market price basis for the three-year, five-year and since inception (12/14/93) periods ended 12/31/02. The Fund’s average annual NAV total return since inception was 10.4%. Tough times for the Fund actually began in May, when the prices of many portfolio holdings began to slide. Matters only grew worse as summer turned to fall, and stock prices throughout the market made like leaves from the trees. Micro-cap stocks are generally viewed as among the most volatile of all equities, yet the asset class has held up remarkably well through the long bear market that began in March 2000, only beginning to feel the bite this past spring. This was particularly true of many of the Fund’s holdings, even in relatively more volatile areas such as Technology and Health. So while 2002 was not a good year from the standpoint of absolute performance, we have been pleased with the resiliency of many holdings through the overall stock market’s difficulties. In most cases, free-falling prices led us to additional purchases, especially from July through October, when the bear did most of its damage. Thus, we actually increased our exposure to Technology, the Fund’s largest and poorest-performing sector. Our expectation is that corporate spending on technological products and services is not likely to remain stagnant or in decline for a fourth consecutive year. In addition, many businesses fell to prices that, based on our evaluations of their private worth, were very attractive. We built our position in management and technology consultant DiamondCluster International as its price began to plummet in May because we like its core business. A similar level of confidence applies to REMEC, a firm that manufactures high frequency subsystems used for various wireless communications networks. We did not feel as assured about the long-term prospects for Internet gaming software maker CryptoLogic. In October, eBay acquired Internet payment processor, PayPal, the firm that enabled payment for much of CryptoLogic’s products. The online auction house had previously announced that it would no longer allow consumers to use PayPal for online gambling, which we felt would potentially crimp the market for CryptoLogic, so we cashed out of our position in August. We think that holdings in the Health sector, which also posted substantial net losses in the portfolio, have excellent turnaround potential when industries such as biotechnology eventually recover. In fact, we believe that many positions in the Fund’s widely diversified portfolio of micro-cap stocks currently stand in good stead for the ongoing volatile stock market.
| 3-Year | 5.66
| 5-Year | 4.99
| Since Inception (12/14/93) | 10.39
| * Not annualized.
| RISK/RETURN COMPARISON 3-Year Period ended 12/31/02 |
| Royce Value Trust (NAV) Russell 2000 | Average Annual Total Return 5.7% -7.5% | Standard Deviation 23.5 23.6 | Return Efficiency* 0.24 -0.32 |
| * Return Efficiency is the average annual total return divided by the annualized standard deviation over a designated time period. Over the last three years, Royce Micro-Cap Trust has outperformed the Russell 2000 on both an absolute and a risk-adjusted basis.
| CALENDAR YEAR NAV TOTAL RETURNS |
| Year 2002 2001 2000 1999 1998 1997 1996 1995 1994 |  |  | OTCM -13.8% 23.4 10.9 12.7 -4.1 27.1 16.6 22.9 5.0 |

14 | THE ROYCE FUNDS ANNUAL REPORT 2002

PERFORMANCE AND PORTFOLIO REVIEW
|  |  |  | PORTFOLIO DIAGNOSTICS |
| GOOD IDEAS THAT WORKED 2002 Net Realized and Unrealized Gain |  |  | Strategic Distribution — Cost-cutting was in vogue for many companies in 2002, which helped push the price of this maintenance, repair and operating (MRO) supply services provider higher and higher. We trimmed our position between June and November, but still hold a good-sized stake in this well-managed company. |  |  | Median Market Capitalization | $194 million |
| Strategic Distribution | $1,592,121 |  |  |  |  | Weighted Average P/B Ratio | 1.2x |
| Ducommun | 1,100,713 |  |  |  | Weighted Average Yield | 0.4% |
| Thor Industries | 1,070,909 |  |  |  | Fund Net Assets | $208 million |
|  | Syntel | 1,030,381 |  |  |  | Turnover Rate | 39% |
|  | Sapient Corporation | 993,787 |  |  |  | Net Leverage† | 18% |
|  |  | Symbol – Market Price | OTCM |
| Ducommun — Although its price fell off from its early summer highs, some timely selling allowed us to hang on to net gains in this military aircraft manufacturer. Its business has slowed down, but our high regard for management has us holding on to a large position. |  | – NAV | XOTCX |
† | Net leverage is the percentage, in excess of 100%, of the total value of equity type investments, divided by net assets, excluding preferred stock. |
|  | GOOD IDEAS AT THE TIME 2002 Net Realized and Unrealized Loss |  |  | Answerthink — Our once-high confidence suffered a decline as precipitous as the stock price of this internet media services consultant. Ongoing losses, a very difficult industry environment and a management shuffle all contributed to our decision to sell our shares in the Fund’s portfolio in September. |  |  | TOP 10 POSITIONS % of Net Assets |
|  | Answerthink | $1,333,277 |  |  |  | Delta Apparel | 1.3 | %
|  | Ascent Media Group Cl. A | 1,119,676 |  |  |  | Seneca Foods | 1.2 |
|  | CryptoLogic | 1,080,360 |  |  |  | 800 JR Cigar | 1.2 |
|  | Lexicon Genetics | 990,521 |  |  |  | Sapient Corporation | 1.1 |
|  | New Horizons Worldwide | 963,275 |  |  |  | Young Innovations | 1.1 |
|  |  |  | Matthews International Cl. A | 1.0 |
| Ascent Media Group Cl. A — Formerly Liberty Livewire, our opinion of this interactive Internet audio and video company changed just before its name did in November, although not for that reason. We simply grew frustrated enough by its descending share price to sell our position in October. |
| ProAssurance | 1.0 |
| NYMAGIC | 1.0 |
| Ocular Sciences | 1.0 |
| Syntel | 0.9 |
|  | PORTFOLIO SECTOR BREAKDOWN % of Net Assets
| Technology | 22.3 | %
| Industrial Products | 13.4 |
| Industrial Services | 12.7 |
| Health | 10.3 |
| Consumer Products | 9.6 |
| Natural Resources | 8.3 |
| Financial Intermediaries | 6.4 |
The regular reinvestment of distributions makes a difference! |  | Consumer Services | 4.1 |
| 1 | Reflects the cumulative total return of an investment made by a stockholder who purchased one share at inception ($7.50 IPO) and then reinvested distributions as indicated, and did not participate in the 1994 rights offering. |  |  |  |
| Financial Services | 2.7 |
| 2 | Reflects the actual market price of one share as it has traded on the Nasdaq. |  | Diversified Investment Companies | 0.3 |
|  | Miscellaneous | 4.9 |
| Preferred Stocks | 0.5 |
| Treasuries, Cash & Cash Equivalents | 4.5 |
| CAPITAL STRUCTURE Publicly Traded Securities Outstanding at 12/31/02 at NAV or Liquidation Value
| 17.8 million shares of Common Stock | $168 million |
| 7.75% Cumulative Preferred Stock | $40 million |
THE ROYCE FUNDS ANNUAL REPORT 2002 | 15

| ROYCE FOCUS TRUST
| NAV AVERAGE ANNUAL TOTAL RETURNS Through 12/31/02 |  | Whitney George |  | MANAGER’S DISCUSSION In 2002, the focus was on purchasing what we thought were attractively priced companies in Royce Focus Trust’s (FUND) concentrated portfolio of small- and micro-cap stocks. We would have preferred that we could also focus on these companies’ rising stock prices, but that was not the case. The Fund did well in the fourth-quarter rally, up 8.7% on a net asset value (NAV) basis and up 6.6% on a market price basis versus
| Fourth Quarter 2002* | 8.70% |
| July-December 2002* | -12.86 |
| 1-Year | -12.50 | a 6.2% gain for its benchmark, the Russell 2000, but the upturn was not enough to undo the damage that the bear wrought during the second and third quarters when many portfolio holdings first began to feel its bite. For the calendar year, FUND was down 12.5% on an NAV basis and down 15.1% on a market price basis, both returns ahead of the Russell 2000’s decline of 20.5% for the same period. The longer-term picture was somewhat more encouraging. From the small-cap market peak on 3/9/00 through 12/31/02, the Fund was up 14.3% on an NAV basis versus a loss of 34.3% for the benchmark. In addition, FUND outperformed the Russell 2000 on an NAV and market price basis for the three-year, five-year and since inception of our management (11/1/96) periods ended 12/31/02. Holdings in the Technology sector posted the largest net losses for the year. Although we do not anticipate an overwhelmingly tech-dominated stock market in the coming years (like that of the late ’90s), we feel sure that it will remain a vital part of the global economy. In any case, we expect to be able to find what we believe are well-run companies with solid financial characteristics. We built our position in information technology consultant Syntel because we think that its core business is very attractive. While we reduced our position in September, we still like the balance sheet and core business of Somera Communications, a company that de-installs then sells telecommunications equipment in the after market. While its industry continues to struggle, its business has seen modest improvements recently that inspire our confidence. Health was another sector hit hard with losses in 2002 that we think has terrific recovery potential. The price of Lexicon Genetics fell through most of 2002, yet we have high hopes for its gene knockout technology, which is designed to discover the physiological functions and medical uses of genes. We also estimate that its approximately $300 million facilities, $100 million in cash and increasing revenues bolster its value. Another healthcare business that we like is contact lens manufacturer Ocular Sciences. The firm recently endured what we see as a minor earnings disappointment, which did little to alter our strong view of the firm’s business. New top holding, online brokerage and banking specialist E*TRADE Group, is a company that we think has moved successfully from online stock buying to offering an array of financial services. We like its long-term prospects and were content to keep buying in a poor market for financial stocks. Seismic data acquisition product manufacturer Input/Output has what we believe is strong management and financial characteristics. Its stock price remained underground for much of 2002, so we added to our position throughout the year. While we were not happy with the Fund’s showing in 2002, we think that its focused portfolio is well-positioned for the currently volatile stock market.
| 3-Year | 5.21
| 5-Year | 3.37
| Since Inception (11/1/96)† | 6.64
| * Not annualized. † Royce & Associates assumed investment management responsibility for the Fund on 11/1/96.
| RISK/RETURN COMPARISON 3-Year Period ended 12/31/02 |
| Royce Value Trust (NAV) Russell 2000 | Average Annual Total Return 5.2% -7.5% | Standard Deviation 21.9 23.6 | Return Efficiency* 0.24 -0.32 |
| * Return Efficiency is the average annual total return divided by the annualized standard deviation over a designated time period. Over the last three years, Royce Focus Trust has outperformed the Russell 2000 on both an absolute and a risk-adjusted basis.
| CALENDAR YEAR NAV TOTAL RETURNS |
| Year 2002 2001 2000 1999 1998 1997 |  |  | FUND -12.5% 10.0 20.9 8.7 -6.8 20.5 |

16 | THE ROYCE FUNDS ANNUAL REPORT 2002

PERFORMANCE AND PORTFOLIO REVIEW
|  |  |  | PORTFOLIO DIAGNOSTICS |
| GOOD IDEAS THAT WORKED 2002 Net Realized and Unrealized Gain |  |  | AngloGold — Rising commodity prices helped this international mining company to enjoy a golden year in 2002. Its steadily rising price led us to sell our position between September and December, though we still find much to like about this company, including its dividend. Thor Industries — Like the micro-cap engine that could, this leading manufacturer of recreation vehicles and small- to midsized buses kept right on going. We sold our shares |  |  | Median Market Capitalization | $629 million |
| AngloGold ADR | $1,486,543 |  |  |  |  | Weighted Average P/B Ratio | 1.5x |
| Thor Industries | 866,779 |  |  |  | Weighted Average Yield | 0.6% |
| Syntel | 584,054 |  |  |  | Fund Net Assets | $78 million |
|  | Covance | 540,542 |  |  |  | Turnover Rate | 61% |
|  | Goldcorp | 525,210 |  |  |  | Net Leverage† | 8% |
| in the Fund’s portfolio in June amidst steadily climbing prices. |  | Symbol – Market Price | FUND |
|  |  | – NAV | XFUNX |
† | Net leverage is the percentage, in excess of 100%, of the total value of equity type investments, divided by net assets, excluding preferred stock. |
|  | GOOD IDEAS AT THE TIME 2002 Net Realized and Unrealized Loss |  |  | Gene Logic — This company possesses what we think is a highly valuable and extensive database of healthy and diseased human tissue and other genetic material that allows medical professionals a potentially greater understanding of changing DNA structures. It has been losing money, but remains highly attractive to us because its stock was trading at approximately its cash per share value for much of the latter part of 2002, which means that the market was valuing its unique business at close to zero. We think that it’s potentially worth much more, so we added to our stake. |  |  | TOP 10 POSITIONS % of Net Assets |
|  | Gene Logic | $1,226,391 |  |  |  | E*TRADE Group | 3.5 | %
|  | Perot Systems Cl. A | 1,188,164 |  |  |  | ProAssurance | 3.3 |
|  | Lexicon Genetics | 1,009,633 |  |  |  | Florida Rock Industries | 3.1 |
|  | E*TRADE Group | 937,780 |  |  |  | Lincoln Electric Holdings | 3.0 |
|  | Avnet | 926,176 |  |  |  | Simpson Manufacturing | 3.0 |
|  |  |  | GoldCorp | 2.4 |
| Perot Systems — The stock price of this leading information technology consultant slipped as it tried to shake off industry difficulties and deal with allegations of energy price fixing in California. During the slide, we built our position a bit because we like its management and core business. |
| AngloGold ADR | 2.4 |
| Dycom Industries | 2.3 |
| Woodward Governor | 2.2 |
| Tom Brown | 2.2 |
|  | PORTFOLIO SECTOR BREAKDOWN % of Net Assets
| Health | 13.2 | %
| Natural Resources | 13.1 |
| Industrial Products | 12.5 |
| Technology | 12.3 |
| Financial Intermediaries | 6.8 |
| Consumer Products | 6.5 |
| Industrial Services | 5.9 |
|  | Consumer Services | 4.6 |
| 1 | Royce & Associates assumed investment management responsibility for the Fund on 11/1/96. |  |  |  |
| 2 | Reflects the cumulative total return experience of a continuous common stockholder who reinvested all distributions. |  | Financial Services | 2.3 |
| 3 | Reflects the actual market price of one share as it has traded on the Nasdaq. |  |  |  |
| Bonds | 2.9 |
|  |  |  |  |  |  |  |  | Treasuries, Cash & Cash Equivalents | 19.9 |
|  |  |  |  |  |  |  |  | CAPITAL STRUCTURE Publicly Traded Securities Outstanding at 12/31/02 at NAV or Liquidation Value
|  |  |  |  |  |  |  |  | 9.2 million shares of Common Stock | $58 million |
|  |  |  |  |  |  |  |  | 7.45% Cumulative Preferred Stock | $20 million |
THE ROYCE FUNDS ANNUAL REPORT 2002 | 17

DIRECTORS AND OFFICERS
All Directors and Officers may be reached c/o The Royce Funds, 1414 Avenue of the Americas, New York, NY 10019

NAME AND POSITION: Charles M. Royce (63), Director * and President |  | NAME AND POSITION: David L. Meister (63), Director
Term Expires: 2003 |  | Tenure: Since 1986 (RVT), 1993 |  | Term Expires: 2003 |  | Tenure: Since 1986 (RVT), 1993
|  | (OTCM), 1996 (FUND) |  |  |  | (OTCM), 1996 (FUND)
No. of Funds Overseen: 17 |  | Non-Royce Directorships: None |  | No. of Funds Overseen: 17 |  | Non-Royce Directorships: None
Principal Occupation(s) During Past Five Years: President and Chief Investment Officer of Royce & Associates, LLC (“Royce”), the Funds’ investment adviser. |  | Principal Occupation(s) During Past Five Years: Chairman and Chief Executive Officer of The Tennis Channel (since June 2000). Chief Executive Officer of Seniorlife.com (from December 1999 to May 2000). Mr. Meister’s prior business experience includes having served as a consultant to the communications industry, President of Financial News Network, Senior Vice President of HBO, President of Time-Life Films and Head of Broadcasting for Major League Baseball.
NAME AND POSITION: Mark R. Fetting (48), Director * |
Term Expires: 2004 |  | Tenure: Since 2001 |
No. of Funds Overseen: 17 |  | Non-Royce Directorships: None |  |
Principal Occupation(s) During Past Five Years: Executive Vice President of Legg Mason, Inc.; Division President and Senior Officer, Prudential Financial Group, Inc. and related companies, including Fund Boards and consulting services to subsidiary companies (from 1991 to 2000). Mr. Fetting’s prior business experience includes having served as Partner, Greenwich Associates and Vice President, T. Rowe Price Group, Inc. |  | NAME AND POSITION: G. Peter O’Brien (57), Director
| Term Expires: 2003 |  | Tenure: Since 2001
| No. of Funds Overseen: 17 |  | Non-Royce Directorships: None
| Principal Occupation(s) During Past Five Years: Trustee of Colgate University; Director of Renaissance Capital Greenwich Funds; Vice President of Hill House, Inc.; Director/Trustee of certain Legg Mason retail funds; Managing Director/Equity Capital Markets Group of Merrill Lynch & Co. (from 1971 to 1999).
NAME AND POSITION: Donald R. Dwight (71), Director |  |
Term Expires: 2005 |  | Tenure: Since 1998 |  | NAME AND POSITION: John D. Diederich (51), Vice President and Treasurer Tenure: Since 1997 Principal Occupation(s) During Past Five Years: Managing Director and Chief Operating Officer of Royce (since October 2001); Director of Administration of the Funds since April 1993. NAME AND POSITION: Jack E. Fockler (44), Jr., Vice President Tenure: Since 1995 (RVT), 1995 (OTCM), 1996 (FUND) Principal Occupation(s) During Past Five Years: Managing Director (since April 1997) and Vice President of Royce, having been employed by Royce since October 1989. NAME AND POSITION: W. Whitney George (44), Vice President Tenure: Since 1995 (RVT), 1995 (OTCM), 1996 (FUND) Principal Occupation(s) During Past Five Years: Managing Director (since April 1997) and Vice President of Royce, having been employed by Royce since October 1991. NAME AND POSITION: Daniel A. O’Byrne (40), Vice President and Assistant Secretary Tenure: Since 1994 (RVT), 1994 (OTCM), 1996 (FUND) Principal Occupation(s) During Past Five Years: Vice President of Royce (since May 1994), having been employed by Royce since October 1986. NAME AND POSITION: John E. Denneen (35), Secretary Tenure: 1996-2001 and Since April 2002 Principal Occupation(s) During Past Five Years: General Counsel(Deputy General Counsel prior to 2003), Principal, Chief Compliance Officer and Secretary of Royce and Principal of Credit Suisse First Boston Private Equity (2001-2002).
No. of Funds Overseen: 17 |  | Non-Royce Directorships: Trustee of the registered investment companies constituting the 94 Eaton Vance Funds |
Principal Occupation(s) During Past Five Years: President of Dwight Partners, Inc., corporate communications consultant; Chairman (from 1982 to March 1998) and Chairman Emeritus (since March 1998) of Newspapers of New England, Inc. Mr. Dwight’s prior experience includes having served as Lieutenant Governor of the Commonwealth of Massachusetts and as President and Publisher of Minneapolis Star and Tribune Company. |
NAME AND POSITION: Richard M. Galkin (64), Director |
Term Expires: 2004 |  | Tenure: Since 1986 (RVT), 1993 |
|  | (OTCM), 1996 (FUND) |
No. of Funds Overseen: 17 |  | Non-Royce Directorships: None |
Principal Occupation(s) During Past Five Years: Private investor. Mr. Galkin’s prior business experience includes having served as President of Richard M. Galkin Associates, Inc., telecommunications consultants, President of Manhattan Cable Television (a subsidiary of Time, Inc.), President of Haverhills Inc. (another Time, Inc. subsidiary), President of Rhode Island Cable Television and Senior Vice President of Satellite Television Corp. (a subsidiary of Comsat). |
NAME AND POSITION: Stephen L. Isaacs (63), Director |
Term Expires: 2005 (RVT), 2005 | Tenure: Since 1986 (RVT), 1993 |
(OTCM), 2003 (FUND) |  | (OTCM), 1996 (FUND) |
No. of Funds Overseen: 17 |  | Non-Royce Directorships: None |
Principal Occupation(s) During Past Five Years: President of The Center for Health and Social Policy (since September 1996); President of Health Policy Associates, Inc., consultants; and Director of Columbia University Development Law and Policy Program and Professor at Columbia University (until August 1996). |
NAME AND POSITION: William L. Koke (68), Director |
Term Expires: 2003 (RVT), 2003 | Tenure: Since 2001 (RVT), 2001 |
(OTCM), 2005 (FUND) |  | (OTCM), 1997 (FUND) |
No. of Funds Overseen: 17 |  | Non-Royce Directorships: None |
Principal Occupation(s) During Past Five Years: Financial planner with Shoreline Financial Consultants. Mr. Koke’s prior business experience includes having served as Director of Financial Relations of SONAT, Inc., Treasurer of Ward Foods, Inc. and President of CFC, Inc. |
* Interested Director.

18 | THE ROYCE FUNDS ANNUAL REPORT 2002

STOCKHOLDER MEETING RESULTS
At the 2002 Annual Meeting of Stockholders held on September 30, 2002, the Fund’s stockholders elected the board of directors, consisting of (a) Charles M. Royce, (b) Donald R. Dwight, (c) Mark R. Fetting, (d) Richard M. Galkin, (e) Stephen L. Isaacs, (f) William L. Koke, (g) David L. Meister and (h) G. Peter O’Brien.

ROYCE VALUE TRUST, INC.
|  |  | COMMON STOCK AND PREFERRED STOCK VOTING TOGETHER AS A SINGLE CLASS |  | PREFERRED STOCK VOTING AS A SEPARATE CLASS
|  |  | VOTES FOR |  | VOTES AGAINST |  | VOTES ABSTAINED |  | VOTES FOR |  | VOTES AGAINST |  | VOTES ABSTAINED
| (a) |  | 42,116,316 |  | n.a. |  | 248,327 |  | n.a. |  | n.a. |  | n.a.
| (b) |  | 42,071,435 |  | n.a. |  | 293,209 |  | n.a. |  | n.a. |  | n.a.
| (c) |  | 42,059,328 |  | n.a. |  | 305,316 |  | n.a. |  | n.a. |  | n.a.
| (d) |  | 42,092,536 |  | n.a. |  | 272,108 |  | n.a. |  | n.a. |  | n.a.
| (e) |  | 42,088,353 |  | n.a. |  | 276,591 |  | n.a. |  | n.a. |  | n.a.
| (f) |  | n.a. |  | n.a. |  | n.a. |  | 5,498,806 |  | n.a. |  | 45,594
| (g) |  | n.a. |  | n.a. |  | n.a. |  | 5,488,318 |  | n.a. |  | 56,082
| (h) |  | 42,109,489 |  | n.a. |  | 255,155 |  | n.a. |  | n.a. |  | n.a.

ROYCE MICRO-CAP TRUST, INC.
|  |  | COMMON STOCK AND PREFERRED STOCK VOTING TOGETHER AS A SINGLE CLASS |  | PREFERRED STOCK VOTING AS A SEPARATE CLASS
|  |  | VOTES FOR |  | VOTES AGAINST |  | VOTES ABSTAINED |  | VOTES FOR |  | VOTES AGAINST |  | VOTES ABSTAINED
| (a) |  | 17,082,875 |  | n.a. |  | 382,935 |  | n.a. |  | n.a. |  | n.a.
| (b) |  | 17,277,274 |  | n.a. |  | 188,536 |  | n.a. |  | n.a. |  | n.a.
| (c) |  | 17,028,087 |  | n.a. |  | 437,723 |  | n.a. |  | n.a. |  | n.a.
| (d) |  | 17,281,068 |  | n.a. |  | 184,742 |  | n.a. |  | n.a. |  | n.a.
| (e) |  | 17,280,653 |  | n.a. |  | 185,157 |  | n.a. |  | n.a. |  | n.a.
| (f) |  | n.a. |  | n.a. |  | n.a. |  | 1,535,130 |  | n.a. |  | 37,378
| (g) |  | n.a. |  | n.a. |  | n.a. |  | 1,535,030 |  | n.a. |  | 37,478
| (h) |  | 17,293,432 |  | n.a. |  | 172,378 |  | n.a. |  | n.a. |  | n.a.

ROYCE FOCUS TRUST, INC.
|  |  | COMMON STOCK AND PREFERRED STOCK VOTING TOGETHER AS A SINGLE CLASS |  | PREFERRED STOCK VOTING AS A SEPARATE CLASS
|  |  | VOTES FOR |  | VOTES AGAINST |  | VOTES ABSTAINED |  | VOTES FOR |  | VOTES AGAINST |  | VOTES ABSTAINED
| (a) |  | 8,586,612 |  | n.a. |  | 64,486 |  | n.a. |  | n.a. |  | n.a.
| (b) |  | 8,568,182 |  | n.a. |  | 82,916 |  | n.a. |  | n.a. |  | n.a.
| (c) |  | 8,569,716 |  | n.a. |  | 81,382 |  | n.a. |  | n.a. |  | n.a.
| (d) |  | 8,567,782 |  | n.a. |  | 83,316 |  | n.a. |  | n.a. |  | n.a.
| (e) |  | n.a. |  | n.a. |  | n.a. |  | 753,466 |  | n.a. |  | 21,417
| (f) |  | 8,573,882 |  | n.a. |  | 77,216 |  | n.a. |  | n.a. |  | n.a.
| (g) |  | n.a. |  | n.a. |  | n.a. |  | 753,066 |  | n.a. |  | 21,817
| (h) |  | 8,575,311 |  | n.a. |  | 75,787 |  | n.a. |  | n.a. |  | n.a.

Corporate Governance Measures
At their December 2002 regular meetings, the Boards of Directors of Royce Value Trust, Royce Micro-Cap Trust and Royce Focus Trust each adopted certain corporate governance measures. Specifically, the six Directors of each Fund who are elected jointly by holders of Common Stock and Preferred Stock are now divided into three equal classes. Directors will be elected to staggered three year terms with initial terms expiring in 2003, 2004 or 2005. In addition, each Fund’s Bylaws were amended to permit stockholders to call a Special Meeting of Stockholders, and to submit a proposal or Board nomination at a regularly scheduled Annual Meeting of Stockholders, only if certain additional procedural requirements (including longer advance notice requirements) are met. Stockholders must provide advance notice of proposals or nominations to the Fund not less than 90 nor more than 120 days prior to the first anniversary of the date of the preceding year’s mailing of the notice of Annual Meeting to Stockholders. Advance notice of proposals or nominations must be provided to each Fund between May 8, 2003 and June 7, 2003 in connection with the 2003 Annual Meeting of Stockholders.

THE ROYCE FUNDS ANNUAL REPORT 2002 | 19

UPDATES AND NOTES TO PERFORMANCE AND RISK INFORMATION
| AUTHORIZED SHARE TRANSACTIONS
| Each of Royce Value Trust, Royce Micro-Cap Trust and Royce Focus Trust may repurchase up to 300,000 shares of its common stock and up to 10% of the issued and outstanding shares of each series of its preferred stock during the year ending December 31, 2003. Any such repurchases would take place at then prevailing prices in the open market or in other transactions. Common stock repurchases would be effected at a price per share that is less than the share’s then current net asset value, and preferred stock repurchases would be effected at a price per share that is less than the share’s liquidation value. Royce Value Trust, Royce Micro-Cap Trust and Royce Focus Trust are also authorized to offer their common stockholders an opportunity to subscribe for additional shares of their common stock through rights offerings at a price per share that may be less than the share’s then current net asset value. The timing and terms of any such offerings are within each Board’s discretion.
|  | NOTES TO PERFORMANCE AND RISK INFORMATION All performance information is presented on a total return basis and reflects the reinvestment of distributions for an investor who did not participate in the Funds’ rights offerings. Participation in rights offerings has historically had a modest positive impact on a participating stockholder’s total return. Past performance is no guarantee of future results. Share prices will fluctuate, so that shares may be worth more or less than their original cost when sold. Royce closed-end funds invest primarily in securities of small-cap and/or micro-cap companies that may involve considerably more risk than investments in securities of larger-cap companies. The thoughts expressed in this report concerning recent market movements and future prospects for small-cap company stocks are solely those of Royce, and, of course, historical market trends are not necessarily indicative of future market movements. Statements regarding the future prospects for particular securities held in the Funds’ portfolios and Royce’s investment intentions with respect to those securities reflect Royce’s opinions as of December 31, 2002, and are subject to change at any time without notice. There can be no assurance that securities mentioned in this report will be included in any Royce-managed portfolio in the future. Standard deviation is a statistical measure within which a fund’s total returns have varied over time. The greater the standard deviation, the greater a fund’s volatility. The Russell 2000, Russell 2000 Value, Russell 2000 Growth, Nasdaq Composite, 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. |

20 | THE ROYCE FUNDS ANNUAL REPORT 2002

THE ROYCE FUNDS

Schedules of Investments and Other Financial Statements
| Royce Value Trust | 22-33 |
| Royce Micro-Cap Trust | 34-44 |
| Royce Focus Trust | 45-52 |

THE ROYCE FUNDS ANNUAL REPORT 2002 | 21

ROYCE VALUE TRUST, INC.
SCHEDULE OF INVESTMENTS | DECEMBER 31, 2002
COMMON STOCKS – 93.9% |  |  |  |  |  |  |  |  |  |
| SHARES |  |  | VALUE |  |  | SHARES |  |  | VALUE
Consumer Products – 7.4% |  |  |  |  |  | Restaurants/Lodgings – 1.0% |  |  |  |
Apparel and Shoes – 2.6% |  |  |  |  |  | †Benihana Cl. A a,d | 2,500 |  | $ | 33,750
Jones Apparel Group a | 81,500 |  | $ | 2,888,360 |  | Four Seasons Hotels | 80,000 |  |  | 2,260,000
K-Swiss Cl. A | 119,000 |  |  | 2,583,490 |  | IHOP Corporation a | 161,700 |  |  | 3,880,800
Nautica Enterprises a | 85,700 |  |  | 952,127 |  | Prime Hospitality a | 106,100 |  |  | 864,715
Oshkosh B’Gosh Cl. A | 104,300 |  |  | 2,925,615 |  | Ryan’s Family Steak Houses a | 40,900 |  |  | 464,215
Polo Ralph Lauren Cl. A a | 150,000 |  |  | 3,264,000 |  |  |  |  |
Timberland Company Cl. A a | 15,000 |  |  | 534,150 |  |  |  |  |  | 7,503,480
Weyco Group | 127,664 |  |  | 4,381,428 |  |  |  |  |
Wolverine World Wide | 99,400 |  |  | 1,501,934 |  | Retail Stores – 2.5% |  |  |  |
|  |  |  |  | Big Lots a | 307,200 |  |  | 4,064,256
|  |  |  | 19,031,104 |  | Charming Shoppes a,d | 753,400 |  |  | 3,149,212
|  |  |  |  | Claire’s Stores | 127,700 |  |  | 2,818,339
Collectibles – 0.3% |  |  |  |  |  | Payless ShoeSource a | 93,200 |  |  | 4,797,004
The Boyds Collection a,d | 210,100 |  |  | 1,397,165 |  | Stein Mart a | 192,800 |  |  | 1,176,080
Enesco Group a | 117,200 |  |  | 829,776 |  | Urban Outfitters a | 83,800 |  |  | 1,975,166
|  |  |  | 2,226,941 |  |  |  |  |  | 17,980,057
Food/Beverage/Tobacco – 0.6% |  |  |  |  |  | Other Consumer Services – 1.1% |  |  |  |
800 JR Cigar a,e | 172,400 |  |  | 2,241,200 |  | ITT Educational Services a | 120,000 |  |  | 2,826,000
Hain Celestial Group a | 37,800 |  |  | 574,560 |  | Sotheby’s Holdings Cl. A a | 500,200 |  |  | 4,501,800
Hershey Creamery | 709 |  |  | 1,311,650 |  | Strayer Education | 10,000 |  |  | 575,000
|  |  |  | 4,127,410 |  |  |  |  |  | 7,902,800
Home Furnishing/Appliances – 1.0% |  |  |  |  |  | Total (Cost $39,910,757) |  |  |  | 39,016,129
Bassett Furniture Industries | 116,675 |  |  | 1,670,786 |  |  |  |  |
Falcon Products a | 377,000 |  |  | 1,526,850 |  | Financial Intermediaries – 10.0% |  |  |  |
La-Z-Boy d | 68,200 |  |  | 1,635,436 |  | Banking – 2.2% |  |  |  |
Lifetime Hoan | 295,327 |  |  | 1,408,710 |  | BOK Financial a | 121,904 |  |  | 3,948,471
Natuzzi ADR b | 62,200 |  |  | 631,952 |  | Farmers & Merchants Bank of Long Beach | 1,266 |  |  | 4,000,560
|  |  |  |  | First National Bank Alaska | 2,130 |  |  | 2,886,150
|  |  |  | 6,873,734 |  | Mechanics Bank | 200 |  |  | 3,320,000
|  |  |  |  | Oriental Financial Group | 63,800 |  |  | 1,568,204
Publishing – 0.6% |  |  |  |  |  |  |  |  |
Marvel Enterprises a | 304,400 |  |  | 2,733,512 |  |  |  |  |  | 15,723,385
Scholastic Corporation a | 35,000 |  |  | 1,258,250 |  |  |  |  |
|  |  |  |  | Insurance – 7.4% |  |  |  |
|  |  |  | 3,991,762 |  | Argonaut Group | 187,000 |  |  | 2,758,250
|  |  |  |  | Erie Indemnity Company Cl. A d | 107,900 |  |  | 3,912,454
Sports and Recreation – 1.2% |  |  |  |  |  | Everest Re Group | 25,300 |  |  | 1,399,090
Callaway Golf | 35,000 |  |  | 463,750 |  | Fidelity National Financial | 13,275 |  |  | 435,818
Coachmen Industries | 67,700 |  |  | 1,069,660 |  | First American | 31,700 |  |  | 703,740
Fleetwood Enterprises a,d | 234,300 |  |  | 1,839,255 |  | Leucadia National | 57,900 |  |  | 2,160,249
Monaco Coach a | 123,950 |  |  | 2,051,372 |  | Markel Corporation a | 4,200 |  |  | 863,100
Sturm, Ruger & Co. | 258,400 |  |  | 2,472,888 |  | NYMAGIC a | 60,200 |  |  | 1,170,890
Thor Industries d | 22,100 |  |  | 760,903 |  | Navigators Group a | 83,200 |  |  | 1,909,440
|  |  |  |  | †PICO Holdings a | 151,100 |  |  | 2,029,273
|  |  |  | 8,657,828 |  | PMA Capital Cl. A d | 241,700 |  |  | 3,463,561
|  |  |  |  | PXRE Group | 176,551 |  |  | 4,325,499
Other Consumer Products – 1.1% |  |  |  |  |  | The Phoenix Companies | 81,900 |  |  | 622,440
Burnham Corporation Cl. B | 18,000 |  |  | 648,000 |  | ProAssurance a | 430,170 |  |  | 9,033,570
Fossil a | 15,000 |  |  | 305,100 |  | RLI | 118,724 |  |  | 3,312,400
Lazare Kaplan International a | 103,600 |  |  | 563,584 |  | Reinsurance Group of America d | 30,000 |  |  | 812,400
Matthews International Cl. A | 196,000 |  |  | 4,376,876 |  | Trenwick Group d | 212,260 |  |  | 152,827
Oakley a | 175,000 |  |  | 1,797,250 |  | Wesco Financial | 11,990 |  |  | 3,716,301
Scotts (The) Cl. A a | 10,000 |  |  | 490,400 |  | White Mountains Insurance Group d | 25,600 |  |  | 8,268,800
|  |  |  |  | Zenith National Insurance | 106,900 |  |  | 2,514,288
|  |  |  | 8,181,210 |  |  |  |  |
|  |  |  |  |  |  |  |  | 53,564,390
Total (Cost $39,087,482) |  |  |  | 53,089,989 |  |  |  |  |
|  |  |  |  | Securities Brokers – 0.4% |  |  |  |
Consumer Services – 5.4% |  |  |  |  |  | E*TRADE Group a | 575,000 |  |  | 2,794,500
Leisure/Entertainment – 0.8% |  |  |  |  |  |  |  |  |
Ascent Media Group Cl. A a | 380,900 |  |  | 426,608 |  | Total (Cost $48,682,808) |  |  |  | 72,082,275
Corus Entertainment Cl. B a | 22,000 |  |  | 262,900 |  |  |  |  |
Hasbro | 50,000 |  |  | 577,500 |  | Financial Services – 6.3% |  |  |  |
Hearst-Argyle Television a | 11,000 |  |  | 265,210 |  | Information and Processing – 2.0% |  |  |  |
†Magna Entertainment Cl. A a,d | 140,800 |  |  | 872,960 |  | †Advent Software a,d | 33,000 |  |  | 449,790
Shuffle Master a,d | 15,000 |  |  | 286,650 |  | BARRA a,d | 42,200 |  |  | 1,279,926
Ticketmaster Cl. B a | 121,200 |  |  | 2,571,864 |  | eFunds Corporation a | 177,675 |  |  | 1,618,619
†TiVo a,d | 70,000 |  |  | 366,100 |  | †FactSet Research Systems d | 140,000 |  |  | 3,957,800
|  |  |  | 5,629,792 |  |  |  |  |  |

22 | THE ROYCE FUNDS ANNUAL REPORT 2002

ROYCE VALUE TRUST, INC.
SCHEDULE OF INVESTMENTS | DECEMBER 31, 2002
| SHARES |  |  | VALUE |  |  | SHARES |  |  | VALUE
Financial Services (continued) |  |  |  |  |  | Gentiva Health Services a | 30,150 |  | $ | 265,621
Information and Processing (continued) |  |  |  |  |  | Health Management Associates Cl. A | 27,400 |  |  | 490,460
Fair, Isaac and Co. | 5,190 |  | $ | 221,613 |  | Lincare Holdings a | 24,600 |  |  | 777,852
Global Payments | 61,500 |  |  | 1,968,615 |  | Manor Care a | 38,300 |  |  | 712,763
Moody’s Corporation | 50,000 |  |  | 2,064,500 |  | MedQuist a | 73,893 |  |  | 1,497,072
National Processing a | 20,000 |  |  | 321,000 |  |  |  |  |
SEI Investments | 93,200 |  |  | 2,533,176 |  |  |  |  |  | 7,006,861
|  |  |  | 14,415,039 |  | Personal Care – 0.6% |  |  |  |
|  |  |  |  | Ocular Sciences a,d | 177,500 |  |  | 2,754,800
Insurance Brokers – 1.4% |  |  |  |  |  | Regis | 57,200 |  |  | 1,486,628
Brown & Brown | 20,000 |  |  | 646,400 |  |  |  |  |
Crawford & Co. Cl. A | 297,350 |  |  | 1,219,135 |  |  |  |  |  | 4,241,428
Crawford & Co. Cl. B | 75,300 |  |  | 376,500 |  |  |  |  |
Gallagher (Arthur J.) & Company | 106,200 |  |  | 3,120,156 |  | Surgical Products and Devices – 3.0% |  |  |  |
Hilb, Rogal & Hamilton | 115,350 |  |  | 4,717,815 |  | Arrow International d | 180,600 |  |  | 7,345,002
|  |  |  |  | CONMED a | 38,500 |  |  | 754,215
|  |  |  | 10,080,006 |  | Datascope | 37,000 |  |  | 917,637
|  |  |  |  | Diagnostic Products Corporation | 25,000 |  |  | 965,500
Investment Management – 2.7% |  |  |  |  |  | Haemonetics a,d | 92,900 |  |  | 1,993,634
Affiliated Managers Group a,d | 60,000 |  |  | 3,018,000 |  | Invacare | 100,000 |  |  | 3,330,000
Alliance Capital Management Holding L.P. d | 139,000 |  |  | 4,309,000 |  | Novoste a,d | 66,500 |  |  | 480,130
BKF Capital Group a | 94,000 |  |  | 1,659,100 |  | STERIS a | 48,600 |  |  | 1,178,550
BlackRock Cl. A a | 35,000 |  |  | 1,379,000 |  | Varian Medical Systems a | 75,800 |  |  | 3,759,680
Eaton Vance d | 80,200 |  |  | 2,265,650 |  | Zoll Medical a | 20,200 |  |  | 720,534
Federated Investors Cl. B | 15,000 |  |  | 380,550 |  |  |  |  |
John Nuveen Company Cl. A | 119,200 |  |  | 3,021,720 |  |  |  |  |  | 21,444,882
†Neuberger Berman | 105,000 |  |  | 3,516,450 |  |  |  |  |
|  |  |  |  | Total (Cost $54,015,112) |  |  |  | 59,529,280
|  |  |  | 19,549,470 |  |  |  |  |
|  |  |  |  | Industrial Products – 14.0% |  |  |  |
Other Financial Services – 0.2% |  |  |  |  |  | Building Systems and Components – 1.2% |  |  |  |
PRG-Schultz International a | 123,800 |  |  | 1,101,820 |  | Decker Manufacturing | 6,022 |  |  | 218,298
|  |  |  |  | Preformed Line Products Company | 131,600 |  |  | 2,193,772
Total (Cost $33,842,910) |  |  |  | 45,146,335 |  | Simpson Manufacturing a | 190,400 |  |  | 6,264,160
Health – 8.2% |  |  |  |  |  |  |  |  |  | 8,676,230
Commercial Services – 1.6% |  |  |  |  |  |  |  |  |
IDEXX Laboratories a | 104,100 |  |  | 3,466,530 |  | Construction Materials – 1.9% |  |  |  |
PAREXEL International a | 277,700 |  |  | 3,051,923 |  | Ash Grove Cement Company Cl. B | 50,518 |  |  | 6,377,897
Pharmaceutical Product Development a | 10,000 |  |  | 292,700 |  | Florida Rock Industries | 158,800 |  |  | 6,042,340
Quintiles Transnational a | 180,300 |  |  | 2,181,630 |  | Oregon Steel Mills a | 247,900 |  |  | 996,558
Sybron Dental Specialties a | 21,000 |  |  | 311,850 |  |  |  |  |
The TriZetto Group a | 190,200 |  |  | 1,167,828 |  |  |  |  |  | 13,416,795
Young Innovations a | 57,550 |  |  | 1,339,188 |  |  |  |  |
|  |  |  |  | Industrial Components – 1.5% |  |  |  |
|  |  |  | 11,811,649 |  | Bel Fuse Cl. A a | 6,300 |  |  | 114,030
|  |  |  |  | Belden d | 47,800 |  |  | 727,516
Drugs and Biotech – 2.1% |  |  |  |  |  | Donaldson Company | 26,000 |  |  | 936,000
Abgenix a | 38,000 |  |  | 280,060 |  | Kaydon Corporation | 161,200 |  |  | 3,419,052
Affymetrix a | 86,600 |  |  | 1,982,274 |  | Penn Engineering & Manufacturing | 251,600 |  |  | 2,679,540
†Albany Molecular Research a,d | 40,000 |  |  | 591,640 |  | Penn Engineering & Manufacturing Cl. A | 77,600 |  |  | 869,120
Antigenics a,d | 38,500 |  |  | 394,240 |  | PerkinElmer | 135,000 |  |  | 1,113,750
Applera Corporation- |  |  |  |  |  | Powell Industries a | 32,400 |  |  | 553,360
Celera Genomics Group a,d | 199,200 |  |  | 1,902,360 |  | Woodhead Industries | 45,400 |  |  | 513,020
Biopure Corporation Cl. A a,d | 43,200 |  |  | 160,704 |  |  |  |  |
BioSource International a | 1,600 |  |  | 9,582 |  |  |  |  |  | 10,925,388
Celgene Corporation a | 40,000 |  |  | 858,800 |  |  |  |  |
Cerus Corporation a,d | 21,700 |  |  | 466,550 |  | Machinery – 3.3% |  |  |  |
Chiron Corporation a,d | 21,800 |  |  | 819,680 |  | Coherent a | 233,700 |  |  | 4,662,315
Gene Logic a | 308,100 |  |  | 1,937,949 |  | Federal Signal d | 58,600 |  |  | 1,138,012
Genzyme Corporation – General Division a | 28,000 |  |  | 827,960 |  | Graco | 26,550 |  |  | 760,658
IDEC Pharmaceuticals | 28,100 |  |  | 932,077 |  | Lincoln Electric Holdings | 237,880 |  |  | 5,506,922
Lexicon Genetics a | 256,200 |  |  | 1,211,826 |  | National Instruments a,d | 41,100 |  |  | 1,335,339
Millennium Pharmaceuticals a | 24,000 |  |  | 190,560 |  | Nordson Corporation | 172,200 |  |  | 4,275,726
Perrigo a,d | 169,900 |  |  | 2,064,285 |  | Oshkosh Truck | 5,000 |  |  | 307,500
Shire Pharmaceuticals Group ADR a,b,d | 20,853 |  |  | 393,913 |  | PAXAR a | 175,100 |  |  | 2,582,725
|  |  |  |  | Woodward Governor | 83,600 |  |  | 3,636,600
|  |  |  | 15,024,460 |  |  |  |  |
|  |  |  |  |  |  |  |  | 24,205,797
Health Services – 0.9% |  |  |  |  |  |  |  |  |
Covance a | 132,700 |  |  | 3,263,093 |  | Paper and Packaging – 0.4% |  |  |  |
|  |  |  |  |  | Peak International a | 408,400 |  |  | 1,547,836
|  |  |  |  |  | Sealed Air a | 34,000 |  |  | 1,268,200
|  |  |  |  |  |  |  |  |  | 2,816,036

THE ROYCE FUNDS ANNUAL REPORT 2002 | 23

ROYCE VALUE TRUST, INC.
SCHEDULE OF INVESTMENTS | DECEMBER 31, 2002
|  | SHARES |  |  | VALUE |  |  |  | SHARES |  |  | VALUE
Industrial Products (continued) |  |  |  |  |  |  | Spherion Corporation a |  | 109,000 |  | $ | 730,300
Pumps, Valves and Bearings – 0.8% |  |  |  |  |  |  | †TRC Companies a,d |  | 52,000 |  |  | 682,760
Baldor Electric d |  | 62,900 |  | $ | 1,242,275 |  | TMP Worldwide a |  | 149,000 |  |  | 1,685,190
ConBraCo Industries a |  | 7,630 |  |  | 572,250 |  | West Corporation a |  | 75,000 |  |  | 1,245,000
Denison International ADR a,b |  | 89,400 |  |  | 1,430,400 |  |  |  |  |  |
Franklin Electric |  | 23,600 |  |  | 1,133,036 |  |  |  |  |  |  | 29,714,027
NN |  | 127,100 |  |  | 1,269,729 |  |  |  |  |  |
|  |  |  |  |  | Engineering and Construction – 0.4% |  |  |  |  |
|  |  |  |  | 5,647,690 |  | Clayton Homes d |  | 25,000 |  |  | 304,500
|  |  |  |  |  | EMCOR Group a |  | 15,000 |  |  | 795,150
Specialty Chemicals and Materials – 1.2% |  |  |  |  |  |  | Jacobs Engineering Group a,d |  | 20,000 |  |  | 712,000
Arch Chemicals |  | 38,200 |  |  | 697,150 |  | McDermott International a |  | 71,000 |  |  | 310,980
CFC International a |  | 123,500 |  |  | 549,575 |  | Washington Group International a |  | 50,000 |  |  | 797,500
Hawkins |  | 301,278 |  |  | 2,708,489 |  |  |  |  |  |
MacDermid |  | 211,631 |  |  | 4,835,768 |  |  |  |  |  |  | 2,920,130
|  |  |  |  | 8,790,982 |  | Food/Tobacco Processors – 1.3% |  |  |  |  |
|  |  |  |  |  | Farmer Bros. |  | 22,000 |  |  | 6,798,000
Textiles – 0.3% |  |  |  |  |  |  | MGP Ingredients |  | 321,200 |  |  | 2,505,360
Fab Industries a |  | 67,700 |  |  | 551,755 |  |  |  |  |  |
Unifi a |  | 265,100 |  |  | 1,391,775 |  |  |  |  |  |  | 9,303,360
|  |  |  |  | 1,943,530 |  | Industrial Distribution – 1.0% |  |  |  |  |
|  |  |  |  |  | Central Steel & Wire |  | 3,699 |  |  | 1,764,423
Other Industrial Products – 3.4% |  |  |  |  |  |  | Ritchie Bros. Auctioneers a,d |  | 155,200 |  |  | 5,020,720
BHA Group Holdings a |  | 187,252 |  |  | 3,211,372 |  |  |  |  |  |
Brady Corporation Cl. A |  | 79,400 |  |  | 2,647,990 |  |  |  |  |  |  | 6,785,143
Diebold |  | 100,000 |  |  | 4,122,000 |  |  |  |  |  |
IMPCO Technologies a,d |  | 15,500 |  |  | 72,695 |  | Printing – 1.5% |  |  |  |  |
Kimball International Cl. B |  | 334,880 |  |  | 4,772,040 |  | Bowne & Co. |  | 383,100 |  |  | 4,578,045
Maxwell Technologies a,d |  | 26,500 |  |  | 160,325 |  | Ennis Business Forms |  | 62,700 |  |  | 728,574
Myers Industries |  | 52,727 |  |  | 564,179 |  | Moore Corporation a |  | 90,700 |  |  | 825,370
Peerless Mfg. a,c |  | 158,600 |  |  | 1,316,380 |  | New England Business Service |  | 178,300 |  |  | 4,350,520
Steelcase Cl. A |  | 82,500 |  |  | 904,200 |  |  |  |  |  |
Trinity Industries d |  | 20,000 |  |  | 379,200 |  |  |  |  |  |  | 10,482,509
Velcro Industries |  | 525,800 |  |  | 4,811,070 |  |  |  |  |  |
Wescast Industries Cl. A |  | 56,000 |  |  | 1,394,400 |  | Transportation and Logistics – 3.1% |  |  |  |  |
|  |  |  |  |  | Airborne |  | 100,000 |  |  | 1,483,000
|  |  |  |  | 24,355,851 |  | AirNet Systems a |  | 219,000 |  |  | 1,077,480
|  |  |  |  |  | Atlas Air Worldwide Holdings a,d |  | 165,000 |  |  | 249,150
Total (Cost $73,264,335) |  |  |  |  | 100,778,299 |  | C. H. Robinson Worldwide |  | 40,000 |  |  | 1,248,000
|  |  |  |  |  | CNF |  | 62,600 |  |  | 2,080,824
|  |  |  |  |  |  | Continental Airlines Cl. B a,d |  | 150,000 |  |  | 1,087,500
Industrial Services – 12.8% |  |  |  |  |  |  | EGL a |  | 198,525 |  |  | 2,828,981
Advertising/Publishing – 0.8% |  |  |  |  |  |  | †Forward Air a |  | 95,000 |  |  | 1,843,950
Catalina Marketing a,d |  | 60,000 |  |  | 1,110,000 |  | Frozen Food Express Industries a |  | 306,635 |  |  | 796,331
Grey Global Group |  | 3,817 |  |  | 2,332,569 |  | Hub Group Cl. A a |  | 77,000 |  |  | 369,600
Interpublic Group of Companies |  | 180,000 |  |  | 2,534,400 |  | Landstar System a,d |  | 35,800 |  |  | 2,089,288
|  |  |  |  |  | Patriot Transportation Holding a |  | 136,300 |  |  | 3,775,510
|  |  |  |  | 5,976,969 |  | Pittston Brink’s Group |  | 137,278 |  |  | 2,536,897
|  |  |  |  |  | UTI Worldwide d |  | 45,000 |  |  | 1,181,250
Commercial Services – 4.1% |  |  |  |  |  |  |  |  |  |  |
ABM Industries |  | 119,200 |  |  | 1,847,600 |  |  |  |  |  |  | 22,647,761
Allied Waste Industries a |  | 594,800 |  |  | 5,948,000 |  |  |  |  |  |
Carlisle Holdings a |  | 204,900 |  |  | 563,475 |  | Other Industrial Services – 0.6% |  |  |  |  |
Central Parking |  | 89,200 |  |  | 1,682,312 |  | Landauer |  | 117,900 |  |  | 4,097,025
†Convergys Corporation a |  | 144,000 |  |  | 2,181,600 |  | Republic Services a |  | 18,600 |  |  | 390,228
Cornell Companies a,d |  | 124,400 |  |  | 1,119,600 |  |  |  |  |  |
iGATE Corporation a |  | 139,500 |  |  | 365,490 |  |  |  |  |  |  | 4,487,253
Iron Mountain a |  | 127,450 |  |  | 4,207,125 |  |  |  |  |  |
Korn/Ferry International a |  | 87,400 |  |  | 653,752 |  | Total (Cost $81,661,251) |  |  |  |  | 92,317,152
Learning Tree International a,d |  | 53,400 |  |  | 731,580 |  |  |  |  |  |
MPS Group a |  | 294,300 |  |  | 1,630,422 |  |  |  |  |  |  |
Manpower |  | 55,800 |  |  | 1,780,020 |  | Natural Resources – 6.4% |  |  |  |  |
†Metro One Telecommunications a,d |  | 25,000 |  |  | 161,250 |  | Energy Services – 2.4% |  |  |  |  |
New Horizons Worldwide a |  | 136,500 |  |  | 539,175 |  | Carbo Ceramics |  | 105,600 |  |  | 3,558,720
On Assignment a |  | 78,800 |  |  | 671,376 |  | ENSCO International |  | 6,443 |  |  | 189,746
RemedyTemp Cl. A a |  | 78,500 |  |  | 1,099,000 |  | Global Industries a |  | 119,500 |  |  | 498,315
†Renaissance Learning a,d |  | 10,000 |  |  | 189,000 |  | Helmerich & Payne |  | 98,400 |  |  | 2,746,344
|  |  |  |  |  |  | Input/Output a |  | 540,100 |  |  | 2,295,425
|  |  |  |  |  |  | Precision Drilling a |  | 37,500 |  |  | 1,220,250
|  |  |  |  |  |  | Tidewater |  | 21,600 |  |  | 671,760
|  |  |  |  |  |  | †Universal Compression Holdings a |  | 115,000 |  |  | 2,199,950
|  |  |  |  |  |  | Willbros Group a |  | 460,600 |  |  | 3,786,132
|  |  |  |  |  |  |  |  |  |  |  | 17,166,642

24 | THE ROYCE FUNDS ANNUAL REPORT 2002

ROYCE VALUE TRUST, INC.
SCHEDULE OF INVESTMENTS | DECEMBER 31, 2002
| SHARES |  |  | VALUE |  |  | SHARES |  |  | VALUE
Natural Resources (continued) |  |  |  |  |  | Zebra Technologies Cl. A a | 62,500 |  | $ | 3,581,250
Oil and Gas – 2.0% |  |  |  |  |  |  |  |  |
Tom Brown a | 76,000 |  | $ | 1,907,600 |  |  |  |  |  | 37,697,998
†Cimarex Energy a | 138,170 |  |  | 2,473,243 |  |  |  |  |
Denbury Resources a | 402,600 |  |  | 4,549,380 |  | Distribution – 2.4% |  |  |  |
EOG Resources d | 5,000 |  |  | 199,600 |  | Anixter International a | 41,900 |  |  | 974,175
Holly Corporation | 20,000 |  |  | 437,000 |  | Arrow Electronics a | 326,100 |  |  | 4,170,819
Husky Energy | 75,000 |  |  | 781,952 |  | Avnet a | 405,355 |  |  | 4,389,995
PetroCorp a | 155,400 |  |  | 1,592,850 |  | Benchmark Electronics a,d | 45,400 |  |  | 1,301,164
3TEC Energy a | 124,200 |  |  | 1,762,398 |  | Plexus a | 269,600 |  |  | 2,367,088
Toreador Resources a | 100,300 |  |  | 251,753 |  | Tech Data a | 151,500 |  |  | 4,084,440
Vintage Petroleum | 48,300 |  |  | 509,565 |  |  |  |  |
|  |  |  |  |  |  |  |  | 17,287,681
|  |  |  | 14,465,341 |  |  |  |  |
|  |  |  |  | Internet Software and Services – 0.5% |  |  |  |
Precious Metals and Mining – 0.8% |  |  |  |  |  | CNET Networks a | 379,400 |  |  | 1,028,174
AngloGold ADR b | 111,900 |  |  | 3,833,694 |  | CryptoLogic a,d | 202,000 |  |  | 955,460
†Glamis Gold a,d | 70,000 |  |  | 793,800 |  | DoubleClick a | 196,700 |  |  | 1,113,322
Gold Fields ADR b | 57,800 |  |  | 806,888 |  | RealNetworks a | 85,400 |  |  | 325,374
MK Gold a | 517,900 |  |  | 220,108 |  | Vastera a | 15,000 |  |  | 84,765
|  |  |  | 5,654,490 |  |  |  |  |  | 3,507,095
Real Estate – 1.2% |  |  |  |  |  | IT Services – 3.7% |  |  |  |
Alico | 52,000 |  |  | 1,383,200 |  | American Management Systems a | 331,900 |  |  | 3,979,481
Chelsea Property Group | 55,000 |  |  | 1,832,050 |  | Answerthink a | 655,000 |  |  | 1,637,500
Consolidated-Tomoka Land | 13,564 |  |  | 261,107 |  | †BearingPoint a | 340,000 |  |  | 2,346,000
Public Storage | 45,000 |  |  | 1,453,950 |  | CGI Group Cl. A a,d | 106,700 |  |  | 466,279
Trammell Crow Company a | 432,400 |  |  | 3,891,600 |  | Covansys Corporation a | 251,600 |  |  | 945,513
|  |  |  |  | DiamondCluster International Cl. A a | 233,900 |  |  | 734,446
|  |  |  | 8,821,907 |  | Forrester Research a | 91,500 |  |  | 1,424,655
|  |  |  |  | Gartner Cl. A a | 166,000 |  |  | 1,527,200
Total (Cost $36,026,788) |  |  |  | 46,108,380 |  | Keane a | 467,000 |  |  | 4,198,330
|  |  |  |  | MAXIMUS a,d | 88,000 |  |  | 2,296,800
Technology – 18.5% |  |  |  |  |  | Perot Systems Cl. A a | 115,100 |  |  | 1,233,872
Aerospace/Defense – 1.2% |  |  |  |  |  | QRS Corporation a | 57,500 |  |  | 379,500
Curtiss-Wright d | 58,300 |  |  | 3,720,706 |  | Sapient Corporation a,d | 1,099,400 |  |  | 2,253,770
Ducommun a | 182,300 |  |  | 2,889,455 |  | Syntel a | 65,300 |  |  | 1,371,953
Herley Industries a | 30,000 |  |  | 522,240 |  | Unisys Corporation a | 215,000 |  |  | 2,128,500
Integral Systems a | 74,800 |  |  | 1,499,740 |  |  |  |  |
|  |  |  |  |  |  |  |  | 26,923,799
|  |  |  | 8,632,141 |  |  |  |  |
|  |  |  |  | Semiconductors and Equipment – 2.2% |  |  |  |
Components and Systems – 5.2% |  |  |  |  |  | BE Semiconductor Industries a | 58,000 |  |  | 255,200
Adaptec a | 99,500 |  |  | 562,175 |  | Credence Systems a | 10,600 |  |  | 98,898
Advanced Digital Information a | 90,000 |  |  | 603,900 |  | Cymer a,d | 14,500 |  |  | 467,625
American Power Conversion a,d | 231,200 |  |  | 3,502,680 |  | DuPont Photomasks a | 35,000 |  |  | 813,750
Analogic | 5,000 |  |  | 251,440 |  | Electroglas a,d | 281,700 |  |  | 433,818
Cognex Corporation a | 163,400 |  |  | 3,011,462 |  | Exar a | 87,300 |  |  | 1,082,520
DDi Corporation a | 20,000 |  |  | 4,400 |  | Fairchild Semiconductor Cl. A a | 175,000 |  |  | 1,874,250
Dionex a | 96,000 |  |  | 2,852,160 |  | Helix Technology | 51,900 |  |  | 581,280
Excel Technology a | 168,500 |  |  | 3,014,465 |  | †Integrated Circuit Systems a | 140,600 |  |  | 2,565,950
Imation Corporation a | 35,700 |  |  | 1,252,356 |  | Intevac a | 191,850 |  |  | 765,482
InFocus Corporation a | 79,000 |  |  | 486,640 |  | Kulicke & Soffa Industries a,d | 105,800 |  |  | 605,176
KEMET a | 135,000 |  |  | 1,179,900 |  | Lam Research a | 45,000 |  |  | 486,000
Kronos a | 35,850 |  |  | 1,326,092 |  | Lattice Semiconductor a | 264,000 |  |  | 2,315,280
Newport a,d | 102,600 |  |  | 1,288,656 |  | Mentor Graphics a | 225,700 |  |  | 1,774,002
Pemstar a,d | 245,000 |  |  | 553,700 |  | National Semiconductor a | 23,200 |  |  | 348,232
Perceptron a | 397,400 |  |  | 854,410 |  | Novellus Systems a | 12,000 |  |  | 336,960
Radiant Systems a | 57,500 |  |  | 553,725 |  | NVIDIA Corporation a,d | 35,000 |  |  | 402,850
Rainbow Technologies a | 116,900 |  |  | 838,173 |  | Veeco Instruments a,d | 65,000 |  |  | 751,400
REMEC a | 214,200 |  |  | 831,096 |  |  |  |  |
Scitex a | 245,700 |  |  | 346,437 |  |  |  |  |  | 15,958,673
Storage Technology a | 90,000 |  |  | 1,927,800 |  |  |  |  |
Symbol Technologies | 304,900 |  |  | 2,506,278 |  | Software – 1.8% |  |  |  |
TTM Technologies a | 280,500 |  |  | 928,175 |  | Adobe Systems | 30,000 |  |  | 744,030
Technitrol | 285,900 |  |  | 4,614,426 |  | ANSYS a,d | 45,500 |  |  | 919,100
Vishay Intertechnology a | 73,900 |  |  | 826,202 |  | Aspen Technology a,d | 27,100 |  |  | 76,693
|  |  |  |  |  | Autodesk | 251,000 |  |  | 3,589,300
|  |  |  |  |  | Business Objects ADR a,d | 25,500 |  |  | 382,500

THE ROYCE FUNDS ANNUAL REPORT 2002 | 25

ROYCE VALUE TRUST, INC.
SCHEDULE OF INVESTMENTS | DECEMBER 31, 2002
|  | SHARES |  | VALUE |  |  |  | SHARES |  | VALUE
Technology (continued) |  |  |  |  |  |  | PREFERRED STOCKS – 0.1% |  |  |  |  |  |
Software (continued) |  |  |  |  |  |  | †Aristotle Corporation 11.00% Conv. |  |  | 4,800 |  | $ | 38,160
JDA Software Group a |  | 149,900 |  | $ | 1,448,034 |  | SVB Capital I 8.25% |  |  | 20,000 |  |  | 484,000
MRO Software a |  | 46,000 |  |  | 558,670 |  |  |  |  |  |  |
MSC.Software a |  | 42,600 |  |  | 328,872 |  | TOTAL PREFERRED STOCKS |  |  |  |  |  |
Macromedia a |  | 61,600 |  |  | 656,040 |  | (Cost $531,005) |  |  |  |  |  | 522,160
Manugistics Group a,d |  | 49,200 |  |  | 118,080 |  |  |  |  |  |  |
Novell a |  | 90,000 |  |  | 300,600 |  |  |  |  |  |  |  |
Phoenix Technologies a |  | 40,900 |  |  | 235,993 |  |  |  | PRINCIPAL |  |  |
Progress Software a |  | 50,500 |  |  | 653,975 |  |  |  | AMOUNT |  |  |
SPSS a |  | 107,500 |  |  | 1,503,925 |  |  |  |  |  |  |
Transaction Systems Architects Cl. A a |  | 237,300 |  |  | 1,542,450 |  | CORPORATE BONDS – 0.2% |  |  |  |  |  |
|  |  |  |  |  | Dixie Group 7.00% |  |  |  |  |  |
|  |  |  |  | 13,058,262 |  | Conv. Sub. Deb. due 5/15/12 |  | $ | 584,000 |  |  | 297,840
|  |  |  |  |  | Richardson Electronics 7.25% c |  |  |  |  |  |
Telecommunications – 1.5% |  |  |  |  |  |  | Conv. Sub. Deb. due 12/15/06 |  |  | 1,319,000 |  |  | 1,055,200
ADC Telecommunications a |  | 113,000 |  |  | 236,170 |  |  |  |  |  |  |
†ADTRAN a,d |  | 40,000 |  |  | 1,316,000 |  | TOTAL CORPORATE BONDS |  |  |  |  |  |
Allegiance Telecom a,d |  | 2,516,700 |  |  | 1,686,189 |  | (Cost $1,555,818) |  |  |  |  |  | 1,353,040
†Andrew Corporation a,d |  | 30,000 |  |  | 308,400 |  |  |  |  |  |  |
Globecomm Systems a |  | 243,700 |  |  | 913,875 |  | U.S. TREASURY OBLIGATIONS – 4.3% |  |  |  |  |  |
IDT Corporation a |  | 25,000 |  |  | 432,250 |  | U.S. Treasury Notes |  |  |  |  |  |
IDT Corporation Cl. B a |  | 40,000 |  |  | 620,400 |  | 4.25%, due 3/31/03 |  |  | 25,000,000 |  |  | 25,185,550
Inet Technologies a |  | 65,000 |  |  | 396,500 |  | †7.50%, due 2/15/05 |  |  | 5,000,000 |  |  | 5,606,640
Level 3 Communications a,d |  | 488,400 |  |  | 2,393,160 |  |  |  |  |  |  |
Liberty Satellite & Technology Cl. A a,d |  | 116,530 |  |  | 308,804 |  | TOTAL U.S. TREASURY OBLIGATIONS |  |  |  |  |  |
PECO II a |  | 93,600 |  |  | 59,904 |  | (Cost $30,461,424) |  |  |  |  |  | 30,792,190
Plantronics a |  | 55,100 |  |  | 833,663 |  |  |  |  |  |  |
Time Warner Telecom Cl. A a,d |  | 242,000 |  |  | 510,620 |  | REPURCHASE AGREEMENT – 1.2% |  |  |  |  |  |
†Tollgrade Communications a,d |  | 35,500 |  |  | 416,415 |  | State Street Bank & Trust Company, |  |  |  |  |  |
|  |  |  |  |  | 0.50% dated 12/31/02, due |  |  |  |  |  |
|  |  |  |  | 10,432,350 |  | 1/2/03, Maturity value $8,646,240 |  |  |  |  |  |
|  |  |  |  |  | (collateralized by U.S. Treasury |  |  |  |  |  |
Total (Cost $161,093,372) |  |  |  |  | 133,497,999 |  | Bonds, 6.00% due 2/15/26, valued at $8,820,698) |  |  |  |  |  |
|  |  |  |  |  | (Cost $8,646,000) |  |  |  |  |  | 8,646,000
Miscellaneous – 4.9% |  |  |  |  |  |  |  |  |  |  |  |
Total (Cost $39,674,965) |  |  |  |  | 35,529,837 |  | TOTAL INVESTMENTS – 99.7% |  |  |  |  |  |
|  |  |  |  |  | (Cost $648,454,027) |  |  |  |  |  | 718,409,065
TOTAL COMMON STOCKS |  |  |  |  |  |  |  |  |  |  |  |  |
(Cost $607,259,780) |  |  |  |  | 677,095,675 |  | CASH AND OTHER ASSETS |  |  |  |  |  |
|  |  |  |  |  | LESS LIABILITIES – 0.3% |  |  |  |  |  | 2,366,558
|  |  |  |  |  |  | NET ASSETS – 100.0% |  |  |  |  | $ | 720,775,623

a | Non-income producing.
b | American Depository Receipt.
c | At December 31, 2002, the Fund owned 5% or more of the Company’s outstanding voting securities thereby making the Company an Affiliated Company as that term is defined in the Investment Company Act of 1940.
d | A portion of these securities were on loan at December 31, 2002. Total market value of loaned securities at December 31, 2002 was $23,072,285.
e | A security for which market quotations are no longer readily available represents 0.3% of net assets. This security has been valued at its fair value under procedures established by the Fund’s Board of Directors.
† | New additions in 2002.
| Bold indicates the Fund’s largest 20 equity holdings in terms of December 31, 2001 market value.
INCOME TAX INFORMATION: The cost of total investments for Federal income tax purposes was $652,067,259. At December 31, 2002, net unrealized appreciation for all securities was $66,341,806, consisting of aggregate gross unrealized appreciation of $170,833,078 and aggregate gross unrealized depreciation of $104,491,272. The primary differences in book and tax basis cost is the timing of the recognition of losses on securities sold and amortization of discount for book and tax purposes.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

26 | THE ROYCE FUNDS ANNUAL REPORT 2002

ROYCE VALUE TRUST, INC. |
STATEMENT OF ASSETS AND LIABILITIES | DECEMBER 31, 2002 |
ASSETS: |  |  |  |
Investments at value (identified cost $639,808,027) |  | $ | 709,763,065 |
Repurchase agreement (at cost and value) |  |  | 8,646,000 |
Cash |  |  | 32 |
Collateral from brokers on securities loaned |  |  | 25,147,370 |
Receivable for investments sold |  |  | 6,380,230 |
Receivable for dividends and interest |  |  | 1,011,806 |
Prepaid expenses |  |  | 23,624 |
Total Assets |  |  | 750,972,127 |
LIABILITIES: |  |  |  |
Payable for collateral on securities loaned |  |  | 25,147,370 |
Payable for investments purchased |  |  | 3,821,040 |
Payable for investment advisory fee |  |  | 802,926 |
Preferred dividends accrued but not yet declared |  |  | 266,225 |
Accrued expenses |  |  | 158,943 |
Total Liabilities |  |  | 30,196,504 |
Net Assets |  | $ | 720,775,623 |
ANALYSIS OF NET ASSETS: |  |  |  |
PREFERRED STOCK: |  |  |  |
Par value of 7.80% Cumulative Preferred Stock – $0.001 per share; 2,400,000 shares outstanding |  | $ | 2,400 |
Par value of 7.30% Tax-Advantaged Cumulative Preferred Stock – $0.001 per share; 4,000,000 shares outstanding |  |  | 4,000 |
Additional paid-in capital |  |  | 159,993,600 |
Net Assets applicable to Preferred Stock at a liquidation value of $25 per share |  |  | 160,000,000 |
COMMON STOCK: |  |  |  |
Par value of Common Stock – $0.001 per share; 42,417,362 shares outstanding (150,000,000 shares authorized) |  |  | 42,417 |
Additional paid-in capital |  |  | 494,857,539 |
Accumulated net realized gain (loss) on investments |  |  | (3,813,147 | )
Net unrealized appreciation on investments |  |  | 69,955,038 |
Preferred dividends accrued but not yet declared |  |  | (266,224 | )
Net Assets applicable to Common Stock (net asset value per share – $13.22) |  |  | 560,775,623 |
Net Assets |  | $ | 720,775,623 |
STATEMENTS OF CHANGES IN NET ASSETS |

|  | Year ended December 31, 2002 |  | Year ended December 31, 2002
INVESTMENT OPERATIONS: |  |  |  |  |  |  |  |
Net investment income (loss) |  | $ | (583,347 | ) |  | $ | 2,247,245 |
Net realized gain on investments |  |  | 62,933,497 |  |  |  | 53,961,553 |
Net change in unrealized appreciation on investments |  |  | (156,381,089 | ) |  |  | 46,195,029 |
Net increase (decrease) in net assets from investment operations |  |  | (94,030,939 | ) |  |  | 102,403,827 |
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS: |  |  |  |  |  |  |  |
Net investment income |  |  | (581,030 | ) |  |  | (370,182 | )
Net realized gain on investments |  |  | (11,398,970 | ) |  |  | (11,609,818 | )
Total distributions to Preferred Stockholders |  |  | (11,980,000 | ) |  |  | (11,980,000 | )
DISTRIBUTIONS TO COMMON STOCKHOLDERS: |  |  |  |  |  |  |  |
Net investment income |  |  | (2,981,664 | ) |  |  | (1,768,474 | )
Net realized gain on investments |  |  | (58,496,049 | ) |  |  | (55,464,014 | )
Total distributions to Common Stockholders |  |  | (61,477,713 | ) |  |  | (57,232,488 | )
CAPITAL STOCK TRANSACTIONS: |  |  |  |  |  |  |  |
Reinvestment of distributions to Common Stockholders |  |  | 39,123,307 |  |  |  | 32,687,267 |
NET INCREASE (DECREASE) IN NET ASSETS |  |  | (128,365,345 | ) |  |  | 65,878,606 |
NET ASSETS: |  |  |  |  |  |  |  |
Beginning of year |  |  | 849,140,968 |  |  |  | 783,262,362 |
End of year (including undistributed net investment income of $2,116,678 in 2001) |  | $ | 720,775,623 |  |  | $ | 849,140,968 |
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

THE ROYCE FUNDS ANNUAL REPORT 2002 | 27

ROYCE VALUE TRUST, INC. |
STATEMENT OF OPERATIONS | YEAR ENDED DECEMBER 31, 2002
INVESTMENT INCOME: |  |  |  |
Income: |  |  |  |
Dividends |  | $ | 7,614,855 |
Interest |  |  | 2,842,281 |
Total income |  |  | 10,457,136 |
Expenses: |  |  |  |
Investment advisory fees |  |  | 10,689,280 |
Stockholder reports |  |  | 306,974 |
Administrative and office facilities expenses |  |  | 210,877 |
Custody and transfer agent fees |  |  | 213,265 |
Directors’ fees |  |  | 115,005 |
Professional fees |  |  | 68,790 |
Other expenses |  |  | 101,360 |
Total expenses |  |  | 11,705,551 |
Fees waived by investment advisor |  |  | (665,068 | )
Net expenses |  |  | 11,040,483 |
Net investment income (loss) |  |  | (583,347 | )
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: |  |  |  |
Net realized gain on investments |  |  | 62,933,497 |
Net change in unrealized appreciation on investments |  |  | (156,381,089 | )
Net realized and unrealized gain (loss) on investments |  |  | (93,447,592 | )
NET DECREASE IN NET ASSETS FROM INVESTMENT OPERATIONS |  | $ | (94,030,939 | )
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

28 | THE ROYCE FUNDS ANNUAL REPORT 2002

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,
|  |  | 2002 |  |  |  | 2001 |  |  |  | 2000 |  |  |  | 1999 |  |  |  | 1998 |
NET ASSET VALUE, BEGINNING OF PERIOD |  |  | $17.31 |  |  |  | $16.56 |  |  |  | $15.77 |  |  |  | $15.72 |  |  |  | $16.91 |
INVESTMENT OPERATIONS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net investment income (loss) |  |  | (0.02 | ) |  |  | 0.05 |  |  |  | 0.18 |  |  |  | 0.26 |  |  |  | 0.17 |
Net realized and unrealized gain (loss) on investments |  |  | (2.25 | ) |  |  | 2.58 |  |  |  | 2.58 |  |  |  | 1.65 |  |  |  | 0.67 |
Total investment operations |  |  | (2.27 | ) |  |  | 2.63 |  |  |  | 2.76 |  |  |  | 1.91 |  |  |  | 0.84 |
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net investment income |  |  | (0.01 | ) |  |  | (0.01 | ) |  |  | (0.03 | ) |  |  | (0.04 | ) |  |  | (0.03 | )
Net realized gain on investments |  |  | (0.28 | ) |  |  | (0.30 | ) |  |  | (0.30 | ) |  |  | (0.32 | ) |  |  | (0.26 | )
Total distributions to Preferred Stockholders |  |  | (0.29 | ) |  |  | (0.31 | ) |  |  | (0.33 | ) |  |  | (0.36 | ) |  |  | (0.29 | )
DISTRIBUTIONS TO COMMON STOCKHOLDERS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net investment income |  |  | (0.07 | ) |  |  | (0.05 | ) |  |  | (0.13 | ) |  |  | (0.15 | ) |  |  | (0.16 | )
Net realized gain on investments |  |  | (1.44 | ) |  |  | (1.44 | ) |  |  | (1.35 | ) |  |  | (1.22 | ) |  |  | (1.38 | )
Total distributions to Common Stockholders |  |  | (1.51 | ) |  |  | (1.49 | ) |  |  | (1.48 | ) |  |  | (1.37 | ) |  |  | (1.54 | )
CAPITAL STOCK TRANSACTIONS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Effect of reinvestment of distributions by Common Stockholders |  |  | (0.02 | ) |  |  | (0.08 | ) |  |  | (0.16 | ) |  |  | (0.13 | ) |  |  | (0.09 | )
Effect of Preferred Stock offering |  |  | – |  |  |  | – |  |  |  | – |  |  |  | – |  |  |  | (0.11 | )
Total capital stock transactions |  |  | (0.02 | ) |  |  | (0.08 | ) |  |  | (0.16 | ) |  |  | (0.13 | ) |  |  | (0.20 | )
NET ASSET VALUE, END OF PERIOD |  |  | $13.22 |  |  |  | $17.31 |  |  |  | $16.56 |  |  |  | $15.77 |  |  |  | $15.72 |
MARKET VALUE, END OF PERIOD |  |  | $13.25 |  |  |  | $15.72 |  |  |  | $14.438 |  |  |  | $13.063 |  |  |  | $13.75 |
TOTAL RETURN (a): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Market Value |  |  | (6.9 | )% |  |  | 20.0 | % |  |  | 22.7 | % |  |  | 5.7 | % |  |  | 1.5 | %
Net Asset Value |  |  | (15.6 | )% |  |  | 15.2 | % |  |  | 16.6 | % |  |  | 11.7 | % |  |  | 3.3 | %
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total expenses (b,c) |  |  | 1.72 | % |  |  | 1.61 | % |  |  | 1.43 | % |  |  | 1.39 | % |  |  | 1.31 | %
Management fee expense |  |  | 1.56 | % |  |  | 1.45 | % |  |  | 1.25 | % |  |  | 1.18 | % |  |  | 1.10 | %
Other operating expenses |  |  | 0.16 | % |  |  | 0.16 | % |  |  | 0.18 | % |  |  | 0.21 | % |  |  | 0.21 | %
Net investment income (loss) |  |  | (0.09 | )% |  |  | 0.35 | % |  |  | 1.18 | % |  |  | 1.47 | % |  |  | 1.11 | %
SUPPLEMENTAL DATA: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net Assets, End of Period (in thousands) |  |  | $720,776 |  |  |  | $849,141 |  |  |  | $783,262 |  |  |  | $712,928 |  |  |  | $676,963 |
Portfolio Turnover Rate |  |  | 35 | % |  |  | 30 | % |  |  | 36 | % |  |  | 41 | % |  |  | 43 | %
PREFERRED STOCK: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total shares outstanding |  |  | 6,400,000 |  |  |  | 6,400,000 |  |  |  | 6,400,000 |  |  |  | 6,400,000 |  |  |  | 6,400,000 |
Asset coverage per share |  |  | $112.62 |  |  |  | $132.68 |  |  |  | $122.38 |  |  |  | $111.40 |  |  |  | $105.78 |
Liquidation preference per share |  |  | $25.00 |  |  |  | $25.00 |  |  |  | $25.00 |  |  |  | $25.00 |  |  |  | $25.00 |
Average market value per share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
7.80% Cumulative (d) |  |  | $26.37 |  |  |  | $25.70 |  |  |  | $23.44 |  |  |  | $24.98 |  |  |  | $25.91 |
7.30% Tax-Advantaged Cumulative (d) |  |  | $25.82 |  |  |  | $25.37 |  |  |  | $22.35 |  |  |  | $24.24 |  |  |  | $25.43 |

(a) | The Market Value Total Return is calculated assuming a purchase of Common Stock on the opening of the first business day and a sale on the closing of the last business day of each period reported. Dividends and distributions, if any, are assumed for the purposes of this calculation, to be reinvested at prices obtained under the Fund’s Distribution Reinvestment and Cash Purchase Plan. Net Asset Value Total Return is calculated on the same basis, except that the Fund’s net asset value is used on the purchase and sale dates instead of market value.
(b) | Expense ratios based on total average net assets were 1.38%, 1.30%, 1.12%, 1.06% and 1.06% for the periods ended December 31, 2002, 2001, 2000, 1999 and 1998, respectively.
(c) | Expense ratios based on average net assets applicable to Common Stockholders before waiver of fees by the investment adviser would have been 1.82%, 1.65%, 1.51%, 1.48% and 1.34% for the periods ended December 31, 2002, 2001, 2000, 1999 and 1998, respectively.
(d) | The average of month-end market values during the period.

THE ROYCE FUNDS ANNUAL REPORT 2002 | 29

ROYCE VALUE TRUST, INC. NOTES TO FINANCIAL STATEMENTS

Summary of Significant Accounting Policies:
| Royce Value Trust, Inc. (“the Fund”) was incorporated under the laws of the State of Maryland on July 1, 1986 as a diversified closed-end investment company. The Fund commenced operations on November 26, 1986. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
| Valuation of Investments:
| Securities listed on an exchange or on the Nasdaq National Market System (NMS) are valued on the basis of the last reported sale prior to the time the valuation is made or, if no sale is reported for such day, at their bid price for exchange-listed securities and at the average of their bid and asked prices for Nasdaq NMS securities. Quotations are taken from the market where the security is primarily traded. Other over-the-counter securities for which market quotations are readily available are valued at their bid price. Securities for which market quotations are not readily available are valued at their fair value under procedures established by the Fund’s Board of Directors. Bonds and other fixed income securities may be valued by reference to other securities with comparable ratings, interest rates and maturities, using established independent pricing services.
| Investment Transactions and Related Investment Income:
| Investment transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date and any non-cash dividend income is recorded at the fair market value of the securities received. Interest income is recorded on the accrual basis. Realized gains and losses from investment transactions are determined on the basis of identified cost for book and tax purposes.
| Expenses:
| The Fund incurs direct and indirect expenses. Expenses directly attributable to the Fund are charged to the Fund’s operations, while expenses applicable to more than one of the Royce Funds are allocated in an equitable manner. Allocated personnel and occupancy costs related to The Royce Funds are included in administrative and office facilities expenses. The Fund has adopted a deferred fee agreement that allows the Fund’s Directors to defer the receipt of all or a portion of Directors’ Fees otherwise payable. The deferred fees remain invested in certain Royce Funds until distributed in accordance with the agreement.
| Taxes:
| As a qualified regulated investment company under Subchapter M of the Internal Revenue Code, the Fund is not subject to income taxes to the extent that it distributes substantially all of its taxable income for its fiscal year. The Schedule of Investments includes information regarding income taxes under the caption “Income Tax Information”.
| Distributions:
| The Fund currently has a policy of paying quarterly distributions on the Fund’s Common Stock. Distributions are currently being made at the annual rate of 9% of the rolling average of the prior four calendar quarter-end NAVs of the Fund’s Common Stock, with the fourth quarter distribution being the greater of 2.25% of the rolling average or the distribution required by IRS regulations. Distributions to Preferred Stockholders are recorded on an accrual basis and paid quarterly. Distributions are determined in accordance with income tax regulations that may differ from accounting principles generally accepted in the United States of America. Permanent book and tax basis differences relating to stockholder distributions will result in reclassifications within the capital accounts. Undistributed net investment income may include temporary book and tax basis differences, which will reverse in a subsequent period. Any taxable income or gain remaining undistributed at fiscal year end is distributed in the following year.
| Repurchase Agreements:
| The Fund enters into repurchase agreements with respect to its portfolio securities solely with State Street Bank and Trust Company (“SSB&T”), the custodian of its assets. The Fund restricts repurchase agreements to maturities of no more than seven days. Securities pledged as collateral for repurchase agreements, which are held by SSB&T until maturity of the repurchase agreements, are marked-to-market daily and maintained at a value at least equal to the principal amount of the repurchase agreement (including accrued interest). Repurchase agreements could involve certain risks in the event of default or insolvency of SSB&T, including possible delays or restrictions upon the ability of the Fund to dispose of the underlying securities.

30 | THE ROYCE FUNDS ANNUAL REPORT 2002

ROYCE VALUE TRUST, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Securities Lending:
| The Fund loans securities to qualified institutional investors for the purpose of realizing additional income. This income is included in interest income. Collateral on all securities loaned for the Fund is accepted in cash and is invested temporarily, typically, and specifically at December 31, 2002, in a registered money market fund, by the custodian. The collateral is equal to at least 100% of the current market value of the loaned securities.
Capital Stock:
| The Fund currently has two issues of Preferred Stock outstanding: 7.80% Cumulative Preferred Stock and 7.30% Tax-Advantaged Cumulative Preferred Stock. Both issues of Preferred Stock have a liquidation preference of $25.00 per share.
| Under the Investment Company Act of 1940, the Fund is required to maintain an asset coverage of at least 200% for the Preferred Stock. In addition, pursuant to the Rating Agency Guidelines established by Moody’s, the Fund is required to maintain a certain discounted asset coverage. The Fund has met these requirements since issuing Preferred Stock.
| The Fund is required to allocate long-term capital gain distributions and other types of income proportionately to distributions made to holders of shares of Common Stock and Preferred Stock. To the extent that distributions are not 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 2,615,641 and 2,167,201 shares of Common Stock as reinvestment of distributions by Common Stockholders for the years ended December 31, 2002 and 2001, respectively.
Investment Advisory Agreement:
| As compensation for its services under the Investment Advisory Agreement, Royce & Associates, LLC (“Royce”) receives a fee comprised of a Basic Fee (“Basic Fee”) and an adjustment to the Basic Fee based on the investment performance of the Fund in relation to the investment record of the S&P 600 SmallCap Index (“S&P 600”).
| The Basic Fee is a monthly fee equal to 1/12 of 1% (1% on an annualized basis) of the average of the month-end net assets of the Fund for the rolling 60-month period ending with such month. The Basic Fee for each month is increased or decreased at the rate of 1/12 of .05% for each percentage point that the investment performance of the Fund exceeds, or is exceeded by, the percentage change in the investment record of the S&P 600 for the performance period by more than two percentage points. The maximum increase or decrease in the Basic Fee for any month may not exceed 1/12 of .5%. Accordingly, for each month, the maximum monthly fee rate as adjusted for performance is 1/12 of 1.5% and is payable if the investment performance of the Fund exceeds the percentage change in the investment record of the S&P 600 by 12 or more percentage points for the performance period, and the minimum monthly fee rate as adjusted for performance is 1/12 of .5% and is payable if the percentage change in the investment record of the S&P 600 exceeds the investment performance of the Fund by 12 or more percentage points for the performance period.
| Notwithstanding the foregoing, Royce is not entitled to receive any fee for any month when the investment performance of the Fund for the rolling 36-month period ending with such month is negative. In the event that the Fund’s investment performance for such a performance period is less than zero, Royce will not be required to refund to the Fund any fee earned in respect of any prior performance period.
| Royce has voluntarily committed to waive the portion of its investment advisory fee attributable to an issue of the Fund’s Preferred Stock for any month in which the Fund’s average annual NAV total return since issuance of the Preferred Stock fails to exceed the applicable Preferred Stock dividend rate.
| For the year ended December 31, 2002, the Fund accrued and paid Royce advisory fees totaling $10,024,212, which is net of $665,068 voluntarily waived by Royce.
Distributions to Stockholders:
| The tax character of distributions paid to stockholders during 2002 and 2001 was as follows:

|  | Distributions paid from: |  | 2002 |  | 2001 |
|  | Ordinary income |  | $ | 6,028,029 |  | $ | 16,631,761 |
|  | Long-term capital gain |  |  | 67,429,684 |  |  | 52,580,727 |
|  |  |  | $ | 73,457,713 |  | $ | 69,212,488 |
| As of December 31, 2002, the tax basis components of distributable earnings included in stockholders’ equity were as follows:
|  | Post October loss |  | $ | (199,915 | ) |  |  |
|  | Unrealized appreciation |  |  | 66,341,806 |  |  |  |
|  | Accrued preferred distributions |  |  | (266,224 | ) |  |  |
|  |  |  | $ | 65,875,667 |  |  |  |

THE ROYCE FUNDS ANNUAL REPORT 2002 | 31

ROYCE VALUE TRUST, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Purchases and Sales of Investment Securities:
| For the year ended December 31, 2002, the cost of purchases and proceeds from sales of investment securities, other than short-term securities, amounted to $290,458,749 and $274,219,404, 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, 2002:

| Purchases |  | Sales |  |  |  |  |  |  |
Affiliated Company |  | Shares |  |  |  | Cost |  | Shares |  |  |  | Cost |  | Realized Gain (Loss) |  |  | Dividend Income
Open Plan Systems |  | — |  |  |  | — |  | 376,000 |  |  | $ | 927,874 |  | $ | (924,114 | ) |  |  | —
PCD |  | 5,300 |  |  | $ | 2,756 |  | 482,900 |  |  |  | 2,705,721 |  |  | (2,659,433 | ) |  |  | —
Patriot Transportation Holdings |  | — |  |  |  | — |  | 30,000 |  |  |  | 558,200 |  |  | 100,805 |  |  |  | —
Peerless Mfg. |  | — |  |  |  | — |  | — |  |  |  | — |  |  | — |  |  |  | —
Richardson Electronics |  | 10,000 |  |  |  | 106,750 |  | 190,300 |  |  |  | 1,375,899 |  |  | (190,330 | ) |  |  | $22,036
Richardson Electronics |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
7.25% Conv. due 12/15/06 |  | — |  |  |  | — |  | — |  |  |  | — |  |  | — |  |  |  | —
RockShox |  | — |  |  |  | — |  | 1,141,400 |  |  |  | 537,508 |  |  | (69,534 | ) |  |  | —

32 | THE ROYCE FUNDS ANNUAL REPORT 2002

ROYCE VALUE TRUST, INC. 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, 2002, and the related statement of operations for the year then ended, and the statement of changes in net assets for the two years in the period then ended and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. 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, 2002, 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, 2002, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with generally accepted accounting principles.

| TAIT, WELLER & BAKER |

Philadelphia, PA January 15, 2003

THE ROYCE FUNDS ANNUAL REPORT 2002 | 33

ROYCE MICRO-CAP TRUST, INC.
SCHEDULE OF INVESTMENTS | DECEMBER 31, 2002
COMMON STOCKS – 95.0% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | SHARES |  | VALUE |  |  |  |  |  | SHARES |  | VALUE |
Consumer Products – 9.6% |  |  |  |  |  |  |  |  | Retail Stores – 3.0% |  |  |  |  |  |
Apparel and Shoes – 3.5% |  |  |  |  |  |  |  |  | Brookstone a |  | 23,000 |  | $ | 332,580 |
Ashworth a |  | 65,000 |  | $ | 416,000 |  |  |  | Buckle (The) a |  | 36,500 |  |  | 657,000 |
Delta Apparel |  | 176,800 |  |  | 2,722,720 |  |  |  | Cato Cl. A |  | 58,000 |  |  | 1,252,220 |
Kleinert’s a,e |  | 14,200 |  |  | 113,600 |  |  |  | Dress Barn (The) a |  | 53,660 |  |  | 713,678 |
Nautica Enterprises a |  | 107,600 |  |  | 1,195,436 |  |  |  | La Senza Corporation |  | 99,900 |  |  | 632,399 |
Oshkosh B’Gosh Cl. A |  | 37,000 |  |  | 1,037,850 |  |  |  | Stein Mart a |  | 285,200 |  |  | 1,739,720 |
Weyco Group |  | 48,400 |  |  | 1,661,088 |  |  |  | Wet Seal (The) Cl. A a |  | 73,000 |  |  | 785,553 |
|  |  |  |  | 7,146,694 |  |  |  |  |  |  |  |  | 6,113,150 |
Collectibles – 1.3% |  |  |  |  |  |  |  |  | Other Consumer Services – 0.5% |  |  |  |  |  |
The Boyds Collection a,d |  | 226,800 |  |  | 1,508,220 |  |  |  | Ambassadors International a |  | 6,100 |  |  | 54,839 |
Enesco Group a |  | 52,400 |  |  | 370,992 |  |  |  | E-LOAN a |  | 505,500 |  |  | 934,670 |
Topps Company (The) a,d |  | 101,000 |  |  | 878,700 |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  | 989,509 |
|  |  |  |  | 2,757,912 |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  | Total (Cost $7,048,154) |  |  |  |  | 8,433,197 |
Food/Beverage/Tobacco – 1.2% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
800 JR Cigar a,e |  | 193,000 |  |  | 2,509,000 |  |  |  | Diversified Investment Companies – 0.3% |  |  |  |
|  |  |  |  |  |  |  | Closed-End Mutual Funds – 0.3% |  |  |  |  |  |
Home Furnishing/Appliances – 0.4% |  |  |  |  |  |  |  |  | Central Fund of Canada Cl. A d |  | 140,000 |  |  | 667,800 |
Bassett Furniture Industries |  | 26,300 |  |  | 376,616 |  |  |  |  |  |  |  |  |  |
Lifetime Hoan |  | 109,854 |  |  | 524,004 |  |  |  | Total (Cost $554,082) |  |  |  |  | 667,800 |
|  |  |  |  | 900,620 |  |  |  | Financial Intermediaries – 6.4% |  |  |  |  |  |
|  |  |  |  |  |  |  | Banking – 0.4% |  |  |  |  |  |
Publishing – 0.5% |  |  |  |  |  |  |  |  | First Midwest Financial |  | 1,000 |  |  | 15,900 |
Information Holdings a |  | 35,000 |  |  | 543,200 |  |  |  | Queen City Investments |  | 948 |  |  | 437,976 |
Marvel Enterprises a |  | 42,700 |  |  | 383,446 |  |  |  | Sterling Bancorp |  | 14,520 |  |  | 382,166 |
|  |  |  |  | 926,646 |  |  |  |  |  |  |  |  | 836,042 |
Sports and Recreation – 0.8% |  |  |  |  |  |  |  |  | Insurance – 6.0% |  |  |  |  |  |
Lund International Holdings a |  | 362,950 |  |  | 471,835 |  |  |  | Arch Capital Group a |  | 25,700 |  |  | 801,069 |
Monaco Coach a |  | 65,900 |  |  | 1,090,645 |  |  |  | Argonaut Group |  | 30,900 |  |  | 455,775 |
†National R.V. Holdings a,d |  | 31,800 |  |  | 190,164 |  |  |  | Independence Holding |  | 36,630 |  |  | 786,446 |
|  |  |  |  |  |  |  | NYMAGIC a |  | 107,100 |  |  | 2,083,095 |
|  |  |  |  | 1,752,644 |  |  |  | Navigators Group a |  | 47,200 |  |  | 1,083,240 |
|  |  |  |  |  |  |  | PICO Holdings a |  | 82,200 |  |  | 1,103,946 |
Other Consumer Products – 1.9% |  |  |  |  |  |  |  |  | PXRE Group |  | 73,164 |  |  | 1,792,518 |
Cross (A.T.) & Company Cl. A a |  | 100,000 |  |  | 535,000 |  |  |  | Philadelphia Consolidated Holding a |  | 35,000 |  |  | 1,239,000 |
†JAKKS Pacific a |  | 35,000 |  |  | 471,450 |  |  |  | ProAssurance a |  | 99,900 |  |  | 2,097,900 |
Lazare Kaplan International a |  | 151,700 |  |  | 825,248 |  |  |  | Wellington Underwriting a |  | 444,712 |  |  | 572,611 |
Matthews International Cl. A |  | 96,000 |  |  | 2,143,776 |  |  |  | Zenith National Insurance |  | 19,100 |  |  | 449,232 |
|  |  |  |  | 3,975,474 |  |  |  |  |  |  |  |  | 12,464,832 |
Total (Cost $13,428,343) |  |  |  |  | 19,968,990 |  |  |  | Total (Cost $8,411,826) |  |  |  |  | 13,300,874 |
|  |  |  |  |  |  |  |  | Financial Services – 2.7% |  |  |  |  |  |
Consumer Services – 4.1% |  |  |  |  |  |  |  |  | Information and Processing – 0.7% |  |  |  |  |  |
Direct Marketing – 0.2% |  |  |  |  |  |  |  |  | †Fidelity National Information Solutions a |  | 65,668 |  |  | 1,132,773 |
†Blair |  | 15,000 |  |  | 349,800 |  |  |  | †InterCept a,d |  | 15,000 |  |  | 253,965 |
ValueVision Media Cl. A a |  | 5,000 |  |  | 74,900 |  |  |  | Multex.com a |  | 15,000 |  |  | 63,000 |
|  |  |  |  | 424,700 |  |  |  |  |  |  |  |  | 1,449,738 |
Leisure/Entertainment – 0.2% |  |  |  |  |  |  |  |  | Insurance Brokers – 0.6% |  |  |  |  |  |
ACTV a |  | 55,000 |  |  | 38,500 |  |  |  | Clark/Bardes a |  | 20,900 |  |  | 402,325 |
†Acres Gaming a |  | 66,000 |  |  | 349,140 |  |  |  | CorVel a |  | 18,750 |  |  | 670,313 |
TiVo a,d |  | 20,000 |  |  | 104,600 |  |  |  | Hilb, Rogal & Hamilton |  | 5,200 |  |  | 212,680 |
|  |  |  |  | 492,240 |  |  |  |  |  |  |  |  | 1,285,318 |
Restaurants/Lodgings – 0.2% |  |  |  |  |  |  |  |  | Investment Management – 0.3% |  |  |  |  |  |
Angelo and Maxie’s a |  | 3,333 |  |  | 11,499 |  |  |  | BKF Capital Group a |  | 27,700 |  |  | 488,905 |
Benihana Cl. A a |  | 21,470 |  |  | 289,845 |  |  |  |  |  |  |  |  |  |
Diedrich Coffee a |  | 32,350 |  |  | 112,254 |  |  |  |  |  |  |  |  |  |
|  |  |  |  | 413,598 |  |  |  |  |  |  |  |  |  |

34 | THE ROYCE FUNDS ANNUAL REPORT 2002

ROYCE MICRO-CAP TRUST, INC.
SCHEDULE OF INVESTMENTS | DECEMBER 31, 2002
|  | SHARES |  | VALUE |  |  |  |  |  | SHARES |  | VALUE |
Financial Services (continued) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other Financial Services – 1.1% |  |  |  |  |  |  |  |  | NMT Medical a,d |  | 44,000 |  | $ | 133,320 |
†LendingTree a,d |  | 55,000 |  | $ | 708,400 |  |  |  | Orthofix International a |  | 29,500 |  |  | 827,475 |
New Century Financial d |  | 5,000 |  |  | 126,950 |  |  |  | Osteotech a |  | 62,100 |  |  | 399,924 |
PRG-Schultz International a |  | 165,000 |  |  | 1,468,500 |  |  |  | PLC Systems a |  | 105,200 |  |  | 61,016 |
|  |  |  |  |  |  |  |  | †Utah Medical Products a |  | 42,300 |  |  | 807,930 |
|  |  |  |  | 2,303,850 |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  | 4,430,156 |
Total (Cost $3,493,521) |  |  |  |  | 5,527,811 |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  | Total (Cost $19,455,444) |  |  |  |  | 21,332,159 |
Health – 10.3% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial Services – 2.2% |  |  |  |  |  |  |  |  | Industrial Products – 13.4% |  |  |  |  |  |
ICON ADR a,d |  | 800 |  |  | 21,528 |  |  |  | Building Systems and Components – 2.1% |  |  |
PAREXEL International a |  | 134,400 |  |  | 1,477,056 |  |  |  | Juno Lighting a |  | 108,600 |  |  | 1,050,162 |
The TriZetto Group a |  | 149,000 |  |  | 914,860 |  |  |  | LSI Industries |  | 43,850 |  |  | 607,322 |
Young Innovations a |  | 93,850 |  |  | 2,183,889 |  |  |  | Simpson Manufacturing a |  | 55,200 |  |  | 1,816,080 |
|  |  |  |  |  |  |  |  | Skyline d |  | 32,100 |  |  | 946,950 |
|  |  |  |  | 4,597,333 |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  | 4,420,514 |
Drugs and Biotech – 3.7% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Antigenics a,d |  | 60,800 |  |  | 622,592 |  |  |  | Construction Materials – 2.0% |  |  |  |  |  |
Arena Pharmaceuticals a |  | 14,000 |  |  | 91,140 |  |  |  | Ash Grove Cement Company |  | 8,000 |  |  | 1,010,000 |
BioReliance a |  | 20,300 |  |  | 470,351 |  |  |  | Encore Wire a,d |  | 10,000 |  |  | 90,500 |
BioSource International a |  | 163,600 |  |  | 979,800 |  |  |  | Florida Rock Industries |  | 35,000 |  |  | 1,331,750 |
†Bruker Daltonics a,d |  | 200,300 |  |  | 973,458 |  |  |  | Monarch Cement |  | 50,410 |  |  | 887,216 |
Emisphere Technologies a |  | 362,900 |  |  | 1,262,892 |  |  |  | Synalloy Corporation a |  | 221,000 |  |  | 928,200 |
†Gene Logic a |  | 110,000 |  |  | 691,900 |  |  |  |  |  |  |  |  |  |
Geron a,d |  | 6,000 |  |  | 21,600 |  |  |  |  |  |  |  |  | 4,247,666 |
Lexicon Genetics a |  | 192,100 |  |  | 908,633 |  |  |  |  |  |  |  |  |  |
Martek Biosciences a,d |  | 33,800 |  |  | 850,408 |  |  |  | Industrial Components – 2.0% |  |  |  |  |  |
Myriad Genetics a,d |  | 5,000 |  |  | 73,000 |  |  |  | †Aaon a |  | 37,500 |  |  | 691,125 |
Sangamo BioSciences a |  | 10,000 |  |  | 30,100 |  |  |  | Bel Fuse Cl. A a,d |  | 52,600 |  |  | 952,060 |
3-Dimensional Pharmaceuticals a |  | 10,000 |  |  | 31,900 |  |  |  | Penn Engineering & Manufacturing |  | 56,600 |  |  | 602,790 |
ViroPharma a,d |  | 18,800 |  |  | 27,448 |  |  |  | Penn Engineering & Manufacturing Cl. A |  | 30,800 |  |  | 344,960 |
VIVUS a,d |  | 167,200 |  |  | 623,656 |  |  |  | †Powell Industries a |  | 85,800 |  |  | 1,465,378 |
|  |  |  |  |  |  |  |  | Scientific Technologies a |  | 10,700 |  |  | 53,489 |
|  |  |  |  | 7,658,878 |  |  |  | Woodhead Industries |  | 10,000 |  |  | 113,000 |
Health Services – 1.1% |  |  |  |  |  |  |  |  |  |  |  |  |  | 4,222,802 |
aaiPharma a,d |  | 47,000 |  |  | 658,940 |  |  |  |  |  |  |  |  |  |
Covalent Group a |  | 25,000 |  |  | 74,000 |  |  |  | Machinery – 1.3% |  |  |  |  |  |
MedCath Corporation a,d |  | 18,000 |  |  | 180,000 |  |  |  | Astec Industries a |  | 31,700 |  |  | 314,781 |
RehabCare Group a |  | 25,000 |  |  | 477,000 |  |  |  | †LeCroy Corporation a |  | 31,500 |  |  | 349,650 |
†SFBC International a |  | 30,000 |  |  | 389,400 |  |  |  | Lindsay Manufacturing |  | 10,000 |  |  | 214,000 |
Sierra Health Services a |  | 40,000 |  |  | 480,400 |  |  |  | Mueller (Paul) |  | 16,650 |  |  | 505,328 |
|  |  |  |  |  |  |  |  | †T-3 Energy Services a |  | 104,310 |  |  | 678,015 |
|  |  |  |  | 2,259,740 |  |  |  | Woodward Governor |  | 15,300 |  |  | 665,550 |
Personal Care – 1.2% |  |  |  |  |  |  |  |  |  |  |  |  |  | 2,727,324 |
†Inter Parfums |  | 46,200 |  |  | 357,588 |  |  |  |  |  |  |  |  |  |
Ocular Sciences a |  | 130,700 |  |  | 2,028,464 |  |  |  | Pumps, Valves and Bearings – 1.9% |  |  |  |  |  |
|  |  |  |  |  |  |  |  | Denison International ADR a,d |  | 113,500 |  |  | 1,816,000 |
|  |  |  |  | 2,386,052 |  |  |  | NN |  | 80,500 |  |  | 804,195 |
|  |  |  |  |  |  |  |  | Sun Hydraulics |  | 152,550 |  |  | 1,220,400 |
Surgical Products and Devices – 2.1% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Aksys a,d |  | 85,000 |  |  | 450,500 |  |  |  |  |  |  |  |  | 3,840,595 |
Allied Healthcare Products a |  | 258,400 |  |  | 710,600 |  |  |  |  |  |  |  |  |  |
†Cantel Medical a,d |  | 20,000 |  |  | 253,200 |  |  |  | Specialty Chemicals and Materials – 1.5% |  |  |
Cohesion Technologies a |  | 5,000 |  |  | 19,150 |  |  |  | Aceto |  | 58,421 |  |  | 932,983 |
CONMED a |  | 3,900 |  |  | 76,401 |  |  |  | Balchem |  | 10,000 |  |  | 243,000 |
Cyberonics a,d |  | 5,000 |  |  | 92,000 |  |  |  | CFC International a |  | 144,700 |  |  | 643,915 |
Exactech a |  | 25,000 |  |  | 486,000 |  |  |  | Hawkins |  | 122,667 |  |  | 1,102,776 |
Interpore International a |  | 17,600 |  |  | 112,640 |  |  |  | †NuCo2 a,d |  | 20,000 |  |  | 161,000 |
|  |  |  |  |  |  |  |  |  |  |  |  |  | 3,083,674 |

THE ROYCE FUNDS ANNUAL REPORT 2002 | 35

ROYCE MICRO-CAP TRUST, INC.
SCHEDULE OF INVESTMENTS | DECEMBER 31, 2002
|  | SHARES |  | VALUE |  |  |  |  |  | SHARES |  | VALUE |
Industrial Products (continued) |  |  |  |  |  |  |  |  | Lawson Products |  | 12,200 |  | $ | 377,956 |
Textiles – 0.3% |  |  |  |  |  |  |  |  | Strategic Distribution a |  | 104,690 |  |  | 1,329,563 |
Fab Industries a |  | 76,400 |  | $ | 622,660 |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  | 2,595,819 |
Other Industrial Products – 2.3% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
†Astronics a |  | 61,400 |  |  | 423,660 |  |  |  | Printing – 1.6% |  |  |  |  |  |
BHA Group Holdings a |  | 96,915 |  |  | 1,662,092 |  |  |  | Bowne & Co. |  | 110,000 |  |  | 1,314,500 |
Maxwell Technologies a |  | 15,300 |  |  | 92,565 |  |  |  | Ennis Business Forms |  | 11,200 |  |  | 130,144 |
Myers Industries |  | 29,342 |  |  | 313,959 |  |  |  | Moore Corporation a |  | 39,600 |  |  | 360,360 |
Peerless Mfg. a |  | 43,200 |  |  | 358,560 |  |  |  | New England Business Service |  | 52,900 |  |  | 1,290,760 |
Quixote |  | 12,500 |  |  | 225,750 |  |  |  | Schawk Cl. A |  | 21,300 |  |  | 211,083 |
Velcro Industries |  | 81,500 |  |  | 745,725 |  |  |  |  |  |  |  |  |  |
Wescast Industries Cl. A |  | 37,900 |  |  | 943,710 |  |  |  |  |  |  |  |  | 3,306,847 |
|  |  |  |  | 4,766,021 |  |  |  | Transportation and Logistics – 2.1% |  |  |  |  |  |
|  |  |  |  |  |  |  |  | AirNet Systems a |  | 119,700 |  |  | 588,924 |
Total (Cost $21,286,619) |  |  |  |  | 27,931,256 |  |  |  | EGL a |  | 42,100 |  |  | 599,925 |
|  |  |  |  |  |  |  |  | Forward Air a |  | 36,800 |  |  | 714,288 |
Industrial Services – 12.7% |  |  |  |  |  |  |  |  | Frozen Food Express Industries a |  | 227,500 |  |  | 590,818 |
Advertising/Publishing – 0.3% |  |  |  |  |  |  |  |  | Hawaiian Holdings a |  | 86,000 |  |  | 175,440 |
†Digital Generation Systems a |  | 320,900 |  |  | 343,363 |  |  |  | Hub Group Cl. A a |  | 6,500 |  |  | 31,200 |
†Modem Media Cl. A a |  | 141,200 |  |  | 367,120 |  |  |  | Knight Transportation a |  | 38,925 |  |  | 817,425 |
|  |  |  |  |  |  |  |  | Patriot Transportation Holding a |  | 27,700 |  |  | 767,290 |
|  |  |  |  | 710,483 |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  | 4,285,310 |
Commercial Services – 6.3% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
American Bank Note Holographics a |  | 257,200 |  |  | 180,040 |  |  |  | Total (Cost $24,678,088) |  |  |  |  | 26,424,763 |
Butler International a |  | 38,500 |  |  | 17,710 |  |  |  |  |  |  |  |  |  |
Carlisle Holdings a |  | 400,000 |  |  | 1,100,000 |  |  |  | Natural Resources – 8.3% |  |  |  |  |  |
Edgewater Technology a |  | 18,339 |  |  | 86,560 |  |  |  | Energy Services – 2.6% |  |  |  |  |  |
Exponent a |  | 63,200 |  |  | 928,345 |  |  |  | Carbo Ceramics |  | 33,600 |  |  | 1,132,320 |
iGATE Corporation a |  | 274,700 |  |  | 719,714 |  |  |  | Dril-Quip a |  | 42,700 |  |  | 721,630 |
Kforce a |  | 55,000 |  |  | 232,100 |  |  |  | GulfMark Offshore a |  | 69,200 |  |  | 1,020,700 |
Manufacturers Services a |  | 100,000 |  |  | 554,000 |  |  |  | Input/Output a |  | 193,500 |  |  | 822,375 |
NCO Group a |  | 20,000 |  |  | 319,000 |  |  |  | Lufkin Industries |  | 25,000 |  |  | 586,250 |
NIC a |  | 26,800 |  |  | 38,592 |  |  |  | MarkWest Hydrocarbon a |  | 15,200 |  |  | 86,640 |
National Service Industries |  | 92,800 |  |  | 666,304 |  |  |  | NATCO Group Cl. A a |  | 100,400 |  |  | 630,512 |
New Horizons Worldwide a |  | 282,000 |  |  | 1,113,900 |  |  |  | Valley National Gases a |  | 30,100 |  |  | 171,570 |
On Assignment a |  | 132,000 |  |  | 1,124,640 |  |  |  | Willbros Group a |  | 30,900 |  |  | 253,998 |
Pegasystems a |  | 65,000 |  |  | 332,150 |  |  |  |  |  |  |  |  |  |
†PLATO Learning a |  | 70,000 |  |  | 415,800 |  |  |  |  |  |  |  |  | 5,425,995 |
ProBusiness Services a |  | 10,000 |  |  | 100,000 |  |  |  |  |  |  |  |  |  |
RemedyTemp Cl. A a |  | 71,700 |  |  | 1,003,800 |  |  |  | Oil and Gas – 3.5% |  |  |  |  |  |
†TRC Companies a,d |  | 24,000 |  |  | 315,120 |  |  |  | Bonavista Petroleum a |  | 81,000 |  |  | 1,745,420 |
Tyler Technologies a |  | 50,000 |  |  | 208,500 |  |  |  | Denbury Resources a |  | 112,000 |  |  | 1,265,600 |
Volt Information Sciences a |  | 36,600 |  |  | 625,860 |  |  |  | Evergreen Resources a,d |  | 20,000 |  |  | 897,000 |
Wackenhut Corrections a |  | 164,800 |  |  | 1,830,928 |  |  |  | PetroCorp a |  | 171,200 |  |  | 1,754,800 |
†Watson Wyatt & Company Holdings Cl. A a |  | 15,000 |  |  | 326,250 |  |  |  | †Prima Energy a |  | 21,000 |  |  | 469,560 |
Westaff a |  | 362,500 |  |  | 906,250 |  |  |  | 3TEC Energy a,d |  | 51,075 |  |  | 724,754 |
|  |  |  |  |  |  |  |  | †Veritas DGC a |  | 51,300 |  |  | 405,270 |
|  |  |  |  | 13,145,563 |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  | 7,262,404 |
Food/Tobacco Processors – 1.1% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
MGP Ingredients |  | 96,122 |  |  | 749,752 |  |  |  | Precious Metals and Mining – 0.8% |  |  |  |  |  |
Seneca Foods Cl. A a |  | 58,500 |  |  | 863,753 |  |  |  | Apex Silver Mines a |  | 79,600 |  |  | 1,178,080 |
Seneca Foods Cl. B a |  | 47,200 |  |  | 767,236 |  |  |  | Brush Engineered Materials a |  | 15,500 |  |  | 85,250 |
|  |  |  |  |  |  |  |  | MK Gold a |  | 603,700 |  |  | 256,573 |
|  |  |  |  | 2,380,741 |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  | 1,519,903 |
Industrial Distribution – 1.3% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
†Central Steel & Wire |  | 1,200 |  |  | 572,400 |  |  |  | Real Estate – 1.4% |  |  |  |  |  |
Elamex a |  | 70,200 |  |  | 315,900 |  |  |  | HomeFed a |  | 998,521 |  |  | 1,447,855 |
|  |  |  |  |  |  |  |  | Liberte Investors |  | 346,800 |  |  | 1,494,708 |
|  |  |  |  |  |  |  |  |  |  |  |  |  | 2,942,563 |
|  |  |  |  |  |  |  |  | Total (Cost $10,833,191) |  |  |  |  | 17,150,865 |

36 | THE ROYCE FUNDS ANNUAL REPORT 2002

ROYCE MICRO-CAP TRUST, INC.
SCHEDULE OF INVESTMENTS | DECEMBER 31, 2002
|  | SHARES |  | VALUE |  |  |  |  |  | SHARES |  | VALUE |
Technology – 22.3% |  |  |  |  |  |  |  |  | Semiconductors and Equipment – 1.6% |  |  |  |  |  |
Aerospace/Defense – 2.4% |  |  |  |  |  |  |  |  | August Technology a |  | 60,000 |  | $ | 303,600 |
Ducommun a |  | 99,500 |  | $ | 1,577,075 |  |  |  | California Micro Devices a |  | 25,000 |  |  | 113,750 |
HEICO |  | 55,000 |  |  | 583,550 |  |  |  | Exar a |  | 48,500 |  |  | 601,400 |
Herley Industries a |  | 77,000 |  |  | 1,340,416 |  |  |  | FSI International a |  | 34,500 |  |  | 155,250 |
Integral Systems a |  | 58,300 |  |  | 1,168,915 |  |  |  | GlobespanVirata a |  | 40,000 |  |  | 176,400 |
Mesaba Holdings a |  | 51,600 |  |  | 315,792 |  |  |  | Helix Technology |  | 9,500 |  |  | 106,400 |
|  |  |  |  |  |  |  |  | Intevac a |  | 111,450 |  |  | 444,685 |
|  |  |  |  | 4,985,748 |  |  |  | Oak Technology a |  | 135,000 |  |  | 357,750 |
|  |  |  |  |  |  |  |  | Photronics a |  | 29,750 |  |  | 407,575 |
Components and Systems – 4.0% |  |  |  |  |  |  |  |  | Semitool a |  | 50,500 |  |  | 313,605 |
CSP a |  | 117,581 |  |  | 303,477 |  |  |  | Teradyne a |  | 13,604 |  |  | 176,988 |
Com21 a |  | 17,500 |  |  | 3,850 |  |  |  | Xicor a |  | 35,000 |  |  | 130,550 |
†Del Global Technologies a |  | 468,279 |  |  | 1,123,870 |  |  |  |  |  |  |  |  |  |
Excel Technology a |  | 97,900 |  |  | 1,751,431 |  |  |  |  |  |  |  |  | 3,287,953 |
Kronos a |  | 20,750 |  |  | 767,543 |  |  |  |  |  |  |  |  |  |
MOCON |  | 22,600 |  |  | 160,211 |  |  |  | Software – 3.2% |  |  |  |  |  |
Newport a |  | 45,000 |  |  | 565,200 |  |  |  | ANSYS a |  | 15,400 |  |  | 311,080 |
†OSI Systems a |  | 20,000 |  |  | 339,600 |  |  |  | Aladdin Knowledge Systems a |  | 27,300 |  |  | 70,680 |
PC-Tel a |  | 61,100 |  |  | 414,258 |  |  |  | Applix a |  | 20,000 |  |  | 21,600 |
Performance Technologies a |  | 24,750 |  |  | 80,685 |  |  |  | Aspen Technology a |  | 65,000 |  |  | 183,950 |
Rainbow Technologies a |  | 206,500 |  |  | 1,480,605 |  |  |  | †Chordiant Software a,d |  | 130,000 |  |  | 187,200 |
Read-Rite a |  | 5,000 |  |  | 1,750 |  |  |  | JDA Software Group a |  | 110,500 |  |  | 1,067,430 |
REMEC a |  | 246,500 |  |  | 956,420 |  |  |  | Lightspan a |  | 480,000 |  |  | 504,480 |
Spectrum Control a |  | 17,500 |  |  | 91,875 |  |  |  | MSC.Software a |  | 42,700 |  |  | 329,644 |
TransAct Technologies a |  | 68,200 |  |  | 323,268 |  |  |  | SCB Computer Technology a |  | 50,000 |  |  | 37,000 |
|  |  |  |  |  |  |  |  | SPSS a |  | 91,900 |  |  | 1,285,681 |
|  |  |  |  | 8,364,043 |  |  |  | Transaction Systems Architects Cl. A a |  | 155,100 |  |  | 1,008,150 |
|  |  |  |  |  |  |  |  | †Verity a |  | 120,000 |  |  | 1,606,920 |
Distribution – 2.2% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Bell Industries a |  | 85,700 |  |  | 137,120 |  |  |  |  |  |  |  |  | 6,613,815 |
Daisytek International a |  | 53,300 |  |  | 422,669 |  |  |  |  |  |  |  |  |  |
Jaco Electronics a |  | 38,000 |  |  | 104,500 |  |  |  | Telecommunication – 2.6% |  |  |  |  |  |
Nu Horizons Electronics a |  | 40,000 |  |  | 231,200 |  |  |  | †Allegiance Telecom a |  | 840,000 |  |  | 562,800 |
PC Connection a |  | 5,000 |  |  | 25,350 |  |  |  | †Anaren a,d |  | 109,000 |  |  | 959,200 |
Pioneer-Standard Electronics d |  | 120,000 |  |  | 1,101,600 |  |  |  | Brooktrout a |  | 28,400 |  |  | 150,520 |
†Plexus a |  | 80,000 |  |  | 702,400 |  |  |  | C-COR.net a,d |  | 5,000 |  |  | 16,600 |
Richardson Electronics |  | 206,600 |  |  | 1,789,156 |  |  |  | Captaris a |  | 30,000 |  |  | 72,000 |
|  |  |  |  |  |  |  |  | Computer Access Technology a |  | 48,000 |  |  | 119,520 |
|  |  |  |  | 4,513,995 |  |  |  | †Finisar Corporation a,d |  | 30,000 |  |  | 28,500 |
|  |  |  |  |  |  |  |  | Giga-tronics a |  | 3,200 |  |  | 4,480 |
Internet Software and Services – 1.3% |  |  |  |  |  |  |  |  | †Interland a,d |  | 25,000 |  |  | 32,500 |
Lionbridge Technologies a |  | 37,500 |  |  | 73,163 |  |  |  | †Level 3 Communications a,d |  | 84,300 |  |  | 413,070 |
†Overstock.com a,d |  | 30,000 |  |  | 390,000 |  |  |  | Liberty Satellite & Technology Cl. A a |  | 68,200 |  |  | 180,730 |
RealNetworks a |  | 65,700 |  |  | 250,317 |  |  |  | MetaSolv a |  | 26,100 |  |  | 35,757 |
Register.com a |  | 179,000 |  |  | 805,500 |  |  |  | Somera Communications a,d |  | 132,900 |  |  | 358,830 |
Stamps.com a |  | 185,000 |  |  | 863,950 |  |  |  | †SpectraLink Corporation a |  | 132,000 |  |  | 947,760 |
†United Online a,d |  | 15,000 |  |  | 239,115 |  |  |  | †Stratos Lightwave a,d |  | 5,760 |  |  | 25,338 |
|  |  |  |  |  |  |  |  | Technical Communications a,c |  | 96,700 |  |  | 34,812 |
|  |  |  |  | 2,622,045 |  |  |  | †Tollgrade Communications a,d |  | 36,500 |  |  | 428,145 |
|  |  |  |  |  |  |  |  | †ViaSat a,d |  | 98,200 |  |  | 1,133,228 |
IT Services – 5.0% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
CACI International Cl. A a |  | 10,000 |  |  | 356,400 |  |  |  |  |  |  |  |  | 5,503,790 |
CIBER a |  | 225,000 |  |  | 1,158,750 |  |  |  |  |  |  |  |  |  |
Computer Task Group a |  | 221,100 |  |  | 771,639 |  |  |  | Total (Cost $47,001,974) |  |  |  |  | 46,189,655 |
Covansys Corporation a |  | 242,500 |  |  | 911,315 |  |  |  |  |  |  |  |  |  |
DiamondCluster International Cl. A a |  | 255,000 |  |  | 800,700 |  |  |  | Miscellaneous – 4.9% |  |  |  |  |  |
Forrester Research a |  | 105,500 |  |  | 1,642,635 |  |  |  | Total (Cost $13,116,225) |  |  |  |  | 10,238,165 |
†Sapient Corporation a |  | 1,155,000 |  |  | 2,367,750 |  |  |  |  |  |  |  |  |  |
Syntel a |  | 87,700 |  |  | 1,842,577 |
Technology Solutions a |  | 50,000 |  |  | 54,500 |
Tier Technologies Cl. B a |  | 24,500 |  |  | 392,000 |
|  |  |  |  | 10,298,266 |

THE ROYCE FUNDS ANNUAL REPORT 2002 | 37

ROYCE MICRO-CAP TRUST, INC.
SCHEDULE OF INVESTMENTS | DECEMBER 31, 2002
|  | SHARES |  | VALUE |  |  |  |  | VALUE
TOTAL COMMON STOCKS |  |  |  |  |  |  |  | REPURCHASE AGREEMENT – 2.6% |  |  |  |  |
(Cost $169,307,467) |  |  |  |  | $ | 197,165,535 |  | State Street Bank & Trust Company, |  |  |  |  |
|  |  |  |  |  |  | 0.50% dated 12/31/02, due 1/2/03, |  |  |  |  |
|  |  |  |  |  |  |  | maturity value $5,429,151 |  |  |  |  |
PREFERRED STOCKS – 0.5% |  |  |  |  |  |  |  | (collateralized by U.S. Treasury Notes, |  |  |  |  |
Angelo and Maxie’s 10.00% Conv. |  |  | 6,991 |  |  | 14,681 |  | 5.00% due 8/15/11, valued at $5,539,531) |  |  |  |  |
Seneca Foods Conv. a |  |  | 75,409 |  |  | 919,990 |  | (Cost $5,429,000) |  |  | $ | 5,429,000 |
|  |  |  |  |  |  |  | TOTAL INVESTMENTS – 100.5% |  |  |  |  |
TOTAL PREFERRED STOCKS |  |  |  |  |  |  |  | (Cost $180,709,505) |  |  |  | 208,564,166 |
(Cost $957,998) |  |  |  |  |  | 934,671 |  |  |  |  |  |  |
|  |  |  |  |  |  | LIABILITIES LESS CASH |  |  |  |  |
|  |  |  |  |  |  |  | AND OTHER ASSETS – (0.5)% |  |  |  | (992,987 | )
|  | PRINCIPAL |  |  |  |  | NET ASSETS – 100.0% |  |  | $ | 207,571,179 |
|  | AMOUNT |  |  |  |  |  |  |  |  |
U.S. TREASURY OBLIGATIONS – 2.4% |  |  |  |  |  |  |  |  |  |  |  |  |
U.S Treasury Notes |  |  |  |  |  |  |  |  |  |  |  |  |
†1.875%, due 9/30/04 |  | $ | 5,000,000 |  |  | 5,034,960 |  |  |  |  |  |  |
TOTAL U.S. TREASURY OBLIGATIONS |  |  |  |  |  |  |  |  |  |  |  |  |
(Cost $5,015,040) |  |  |  |  |  | 5,034,960 |  |  |  |  |  |  |

a |  | Non-income producing. |  |
b |  | American Depository Receipt. |  |
c |  | At December 31, 2002, the Fund owned 5% or more of the Company’s outstanding voting securities thereby making the Company an Affiliated Company as that term is defined in the Investment Company Act of 1940. |  |
d |  | A portion of these securities were on loan at December 31, 2002. Total market value of loaned securities at December 31, 2002 was $4,495,930. |  |
e |  | Securities for which market quotations are no longer readily available represent 1.26% of net assets. These securities have been valued at their |  |
|  | fair value under procedures established by the Fund’s Board of Directors. |  |
† |  | New additions in 2002. |  |
|  | Bold indicates the Fund’s largest 20 equity holdings in terms of December 31, 2002 market value. |  |
INCOME TAX INFORMATION: The cost of total investments for Federal income tax purposes was $181,855,758. At December 31, 2002, net unrealized appreciation for all securities was $26,708,408, consisting of aggregate gross unrealized appreciation of $49,389,750 and aggregate gross unrealized depreciation of $22,681,342. The primary differences in book and tax basis cost is the timing of the recognition of losses on securities sold and amortization of discount for book and tax purposes.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

38 | THE ROYCE FUNDS ANNUAL REPORT 2002

ROYCE MICRO-CAP TRUST, INC. |  |
STATEMENT OF ASSETS AND LIABILITIES | DECEMBER 31, 2002 |
ASSETS: |  |  |  |  |  |  |  |
Investments at value (identified cost $175,280,505) |  |  |  |  |  | $ | 203,135,166 |
Repurchase agreement (at cost and value) |  |  |  |  |  |  | 5,429,000 |
Cash |  |  |  |  |  |  | 765 |
Collateral from brokers on securities loaned |  |  |  |  |  |  | 4,883,393 |
Receivable for investments sold |  |  |  |  |  |  | 73,603 |
Receivable for dividends and interest |  |  |  |  |  |  | 113,596 |
Prepaid expenses |  |  |  |  |  |  | 6,875 |
Total Assets |  |  |  |  |  |  | 213,642,398 |
LIABILITIES: |  |  |  |  |  |  |  |
Payable for collateral on securities loaned |  |  |  |  |  |  | 4,883,393 |
Payable for investments purchased |  |  |  |  |  |  | 812,735 |
Payable for investment advisory fee |  |  |  |  |  |  | 225,816 |
Preferred dividends accrued but not yet declared |  |  |  |  |  |  | 68,887 |
Accrued expenses |  |  |  |  |  |  | 80,388 |
Total Liabilities |  |  |  |  |  |  | 6,071,219 |
Net Assets |  |  |  |  |  | $ | 207,571,179 |
ANALYSIS OF NET ASSETS: |  |  |  |  |  |  |  |
PREFERRED STOCK: |  |  |  |  |  |  |  |
Par value of 7.75% Cumulative Preferred Stock – $0.001 per share; 1,600,000 shares outstanding |  |  |  |  |  | $ | 1,600 |
Additional paid-in capital |  |  |  |  |  |  | 39,998,400 |
Net Assets applicable to Preferred Stock at a liquidation value of $25 per share |  |  |  |  |  |  | 40,000,000 |
COMMON STOCK: |  |  |  |  |  |  |  |
Par value of Common Stock – $0.001 per share; 17,842,058 shares outstanding (150,000,000 shares authorized) |  |  |  |  |  |  | 17,842 |
Additional paid-in capital |  |  |  |  |  |  | 136,080,965 |
Accumulated net realized gain on investments |  |  |  |  |  |  | 3,686,600 |
Net unrealized appreciation on investments |  |  |  |  |  |  | 27,854,661 |
Preferred dividends accrued but not yet declared |  |  |  |  |  |  | (68,889 | )
Net Assets applicable to Common Stock (net asset value per share – $9.39) |  |  |  |  |  |  | 167,571,179 |
Net Assets |  |  |  |  |  | $ | 207,571,179 |
STATEMENTS OF CHANGES IN NET ASSETS |  |  |  |  |  |  |  |
|  | Year ended |  | Year ended
|  | December 31, |  | December 31,
|  | 2002 |  | 2001
INVESTMENT OPERATIONS: |  |  |  |  |  |  |  |
Net investment income (loss) |  | $ | (2,363,582 | ) |  | $ | (775,205 | )
Net realized gain on investments |  |  | 16,747,557 |  |  |  | 12,077,022 |
Net change in unrealized appreciation on investments |  |  | (38,936,315 | ) |  |  | 29,883,551 |
Net increase (decrease) in net assets from investment operations |  |  | (24,552,340 | ) |  |  | 41,185,368 |
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS: |  |  |  |  |  |  |  |
Net investment income |  |  | – |  |  |  | – |
Net realized gain on investments |  |  | (3,100,000 | ) |  |  | (3,100,000 | )
Total distributions to Preferred Stockholders |  |  | (3,100,000 | ) |  |  | (3,100,000 | )
DISTRIBUTIONS TO COMMON STOCKHOLDERS: |  |  |  |  |  |  |  |
Net investment income |  |  | – |  |  |  | – |
Net realized gain on investments |  |  | (13,769,198 | ) |  |  | (9,211,976 | )
Total distributions to Common Stockholders |  |  | (13,769,198 | ) |  |  | (9,211,976 | )
CAPITAL STOCK TRANSACTIONS: |  |  |  |  |  |  |  |
Reinvestment of distributions to Common Stockholders |  |  | 8,549,592 |  |  |  | 7,749,904 |
NET INCREASE (DECREASE) IN NET ASSETS |  |  | (32,871,946 | ) |  |  | 36,623,296 |
NET ASSETS: |  |  |  |  |  |  |  |
Beginning of year |  |  | 240,443,125 |  |  |  | 203,819,829 |
End of year |  | $ | 207,571,179 |  |  | $ | 240,443,125 |
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

THE ROYCE FUNDS ANNUAL REPORT 2002 | 39

ROYCE MICRO-CAP TRUST, INC. |  |
STATEMENT OF OPERATIONS | YEAR ENDED DECEMBER 31, 2002 |
INVESTMENT INCOME: |  |  |  |
Income: |  |  |  |
Dividends |  | $ | 1,031,310 |
Interest |  |  | 383,031 |
Total income |  |  | 1,414,341 |
Expenses: |  |  |  |
Investment advisory fees |  |  | 3,212,647 |
Stockholder meeting costs |  |  | 305,681 |
Custody and transfer agent fees |  |  | 123,117 |
Directors’ fees |  |  | 60,581 |
Administrative and office facilities expenses |  |  | 60,521 |
Stockholder reports |  |  | 55,912 |
Professional fees |  |  | 43,964 |
Other expenses |  |  | 65,500 |
Total expenses |  |  | 3,927,923 |
Fees waived by investment advisor |  |  | (150,000 | )
Net expenses |  |  | 3,777,923 |
Net investment income (loss) |  |  | (2,363,582 | )
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: |  |  |  |
Net realized gain on investments |  |  | 16,747,557 |
Net change in unrealized appreciation on investments |  |  | (38,936,315 | )
Net realized and unrealized gain (loss) on investments |  |  | (22,188,758 | )
NET DECREASE IN NET ASSETS FROM INVESTMENT OPERATIONS |  | $ | (24,552,340 | )
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

40 | THE ROYCE FUNDS ANNUAL REPORT 2002

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,
|  |  | 2002 |  |  | 2001 |  |  | 2000 |  |  | 1999 |  |  | 1998
NET ASSET VALUE, BEGINNING OF PERIOD |  |  | $11.83 |  |  |  | $10.14 |  |  |  | $11.00 |  |  |  | $10.06 |  |  |  | $10.84 |
INVESTMENT OPERATIONS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net investment income (loss) |  |  | (0.13 | ) |  |  | (0.05 | ) |  |  | 0.09 |  |  |  | 0.12 |  |  |  | 0.13 |
Net realized and unrealized gain (loss) on investments |  |  | (1.29 | ) |  |  | 2.57 |  |  |  | 1.23 |  |  |  | 1.35 |  |  |  | (0.36 | )
Total investment operations |  |  | (1.42 | ) |  |  | 2.52 |  |  |  | 1.32 |  |  |  | 1.47 |  |  |  | (0.23 | )
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net investment income |  |  | – |  |  |  | – |  |  |  | (0.01 | ) |  |  | (0.05 | ) |  |  | (0.06 | )
Net realized gain on investments |  |  | (0.18 | ) |  |  | (0.19 | ) |  |  | (0.22 | ) |  |  | (0.18 | ) |  |  | (0.18 | )
Total distributions to Preferred Stockholders |  |  | (0.18 | ) |  |  | (0.19 | ) |  |  | (0.23 | ) |  |  | (0.23 | ) |  |  | (0.24 | )
DISTRIBUTIONS TO COMMON STOCKHOLDERS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net investment income |  |  | – |  |  |  | – |  |  |  | (0.09 | ) |  |  | (0.06 | ) |  |  | (0.07 | )
Net realized gain on investments |  |  | (0.80 | ) |  |  | (0.57 | ) |  |  | (1.63 | ) |  |  | (0.21 | ) |  |  | (0.22 | )
Total distributions to Common Stockholders |  |  | (0.80 | ) |  |  | (0.57 | ) |  |  | (1.72 | ) |  |  | (0.27 | ) |  |  | (0.29 | )
CAPITAL STOCK TRANSACTIONS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Effect of reinvestment of distributions by Common Stockholders |  |  | (0.04 | ) |  |  | (0.07 | ) |  |  | (0.23 | ) |  |  | (0.03 | ) |  |  | (0.02 | )
Total capital stock transactions |  |  | (0.04 | ) |  |  | (0.07 | ) |  |  | (0.23 | ) |  |  | (0.03 | ) |  |  | (0.02 | )
NET ASSET VALUE, END OF PERIOD |  |  | $9.39 |  |  |  | $11.83 |  |  |  | $10.14 |  |  |  | $11.00 |  |  |  | $10.06 |
MARKET VALUE, END OF PERIOD |  |  | $8.44 |  |  |  | $10.50 |  |  |  | $8.625 |  |  |  | $9.00 |  |  |  | $8.875 |
TOTAL RETURN(a): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Market Value |  |  | (12.7 | )% |  |  | 28.8 | % |  |  | 15.3 | % |  |  | 4.5 | % |  |  | (9.4 | )%
Net Asset Value |  |  | (13.8 | )% |  |  | 23.4 | % |  |  | 10.9 | % |  |  | 12.7 | % |  |  | (4.1 | )%
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total expenses (b,c) |  |  | 1.96 | % |  |  | 1.78 | % |  |  | 1.32 | % |  |  | 1.27 | % |  |  | 1.18 | %
Management fee expense |  |  | 1.59 | % |  |  | 1.57 | % |  |  | 1.08 | % |  |  | 0.91 | % |  |  | 0.80 | %
Other operating expenses |  |  | 0.37 | % |  |  | 0.21 | % |  |  | 0.24 | % |  |  | 0.36 | % |  |  | 0.38 | %
Net investment income (loss) |  |  | (1.23 | )% |  |  | (0.43 | )% |  |  | 0.74 | % |  |  | 1.20 | % |  |  | 1.21 | %
SUPPLEMENTAL DATA: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net Assets, End of Period (in thousands) |  |  | $207,571 |  |  |  | $240,443 |  |  |  | $203,820 |  |  |  | $191,269 |  |  |  | $175,495 |
Portfolio Turnover Rate |  |  | 39 | % |  |  | 27 | % |  |  | 49 | % |  |  | 49 | % |  |  | 44 | %
PREFERRED STOCK: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total shares outstanding |  |  | 1,600,000 |  |  |  | 1,600,000 |  |  |  | 1,600,000 |  |  |  | 1,600,000 |  |  |  | 1,600,000 |
Asset coverage per share |  |  | $129.73 |  |  |  | $150.28 |  |  |  | $127.39 |  |  |  | $119.54 |  |  |  | $109.68 |
Liquidation preference per share |  |  | $25.00 |  |  |  | $25.00 |  |  |  | $25.00 |  |  |  | $25.00 |  |  |  | $25.00 |
Average market value per share (d) |  |  | $25.91 |  |  |  | $25.30 |  |  |  | $23.08 |  |  |  | $24.67 |  |  |  | $25.40 |
(a) The Market Value Total Return is calculated assuming a purchase of Common Stock on the opening of the first business day and a sale on the closing of the last business day of each period reported. Dividends and distributions, if any, are assumed for the purposes of this calculation, to be reinvested at prices obtained under the Fund’s Distribution Reinvestment and Cash Purchase Plan. Net Asset Value Total Return is calculated on the same basis, except that the Fund’s net asset value is used on the purchase and sale dates instead of market value.
(b) Expense ratios based on total average net assets were 1.62%, 1.46%, 1.06%, 0.98% and 0.92% for the periods ended December 31, 2002, 2001, 2000, 1999 and 1998, respectively.
(c) Expense ratios based on average net assets applicable to Common Stockholders before waiver of fees by the investment adviser would have been 2.04%, 1.81%, 1.44% and 1.24% for the periods ended December 31, 2002, 2001, 1999 and 1998, respectively.
(d) The average of month-end market values during the period.

THE ROYCE FUNDS ANNUAL REPORT 2002 | 41

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

Summary of Significant Accounting Policies:
| Royce Micro-Cap Trust, Inc. (the “Fund”) was incorporated under the laws of the State of Maryland on September 9, 1993 as a diversified closed-end investment company. The Fund commenced operations on December 14, 1993. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
| Valuation of Investments:
| Securities listed on an exchange or on the Nasdaq National Market System (NMS) are valued on the basis of the last reported sale prior to the time the valuation is made or, if no sale is reported for such day, at their bid price for exchange-listed securities and at the average of their bid and asked prices for Nasdaq NMS securities. Quotations are taken from the market where the security is primarily traded. Other over-the-counter securities for which market quotations are readily available are valued at their bid price. Securities for which market quotations are not readily available are valued at their fair value under procedures established by the Fund’s Board of Directors. Bonds and other fixed income securities may be valued by reference to other securities with comparable ratings, interest rates and maturities, using established independent pricing services.
| Investment Transactions and Related Investment Income:
| Investment transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date and any non-cash dividend income is recorded at the fair market value of the securities received. Interest income is recorded on the accrual basis. Realized gains and losses from investment transactions are determined on the basis of identified cost for book and tax purposes.
| Expenses:
| The Fund incurs direct and indirect expenses. Expenses directly attributable to the Fund are charged to the Fund’s operations, while expenses applicable to more than one of the Royce Funds are allocated in an equitable manner. Allocated personnel and occupancy costs related to The Royce Funds are included in administrative and office facilities expenses. The Fund has adopted a deferred fee agreement that allows the Fund’s Directors to defer the receipt of all or a portion of Directors’ Fees otherwise payable. The deferred fees remain invested in certain Royce Funds until distributed in accordance with the agreement.
| Taxes:
| As a qualified regulated investment company under Subchapter M of the Internal Revenue Code, the Fund is not subject to income taxes to the extent that it distributes substantially all of its taxable income for its fiscal year. The Schedule of Investments includes information regarding income taxes under the caption “Income Tax Information”.
| Distributions:
| Effective April 25, 2002, the Fund adopted a policy of paying quarterly distributions on the Fund’s Common Stock. Distributions are currently being made at the annual rate of 9% of the rolling average of the prior four calendar quarter-end NAVs of the Fund’s Common Stock, with the fourth quarter distribution being the greater of 2.25% of the rolling average or the distribution required by IRS regulations. Distributions to Preferred Stockholders are recorded on an accrual basis and paid quarterly. Distributions are determined in accordance with income tax regulations that may differ from accounting principles generally accepted in the United States of America. Permanent book and tax basis differences relating to stockholder distributions will result in reclassifications within the capital accounts. Undistributed net investment income may include temporary book and tax basis differences, which will reverse in a subsequent period. Any taxable income or gain remaining undistributed at fiscal year end is distributed in the following year.
| Repurchase Agreements:
| The Fund enters into repurchase agreements with respect to its portfolio securities solely with State Street Bank and Trust Company (“SSB&T”), the custodian of its assets. The Fund restricts repurchase agreements to maturities of no more than seven days. Securities pledged as collateral for repurchase agreements, which are held by SSB&T until maturity of the repurchase agreements, are marked-to-market daily and maintained at a value at least equal to the principal amount of the repurchase agreement (including accrued interest). Repurchase agreements could involve certain risks in the event of default or insolvency of SSB&T, including possible delays or restrictions upon the ability of the Fund to dispose of the underlying securities.
Securities Lending:
| The Fund loans securities to qualified institutional investors for the purpose of realizing additional income. This income is Included in interest income. Collateral on all securities loaned for the Fund is accepted in cash and is invested temporarily, Typically, and specifically at December 31, 2002, in a registered money market fund, by the custodian. The collateral is equal to at least 100% of the current market value of the loaned securities.

42 | THE ROYCE FUNDS ANNUAL REPORT 2002

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 distributions are not paid from long-term capital gains, net investment income or net short-term capital gains, they will represent a return of capital. The Fund issued 896,290 and 784,403 shares of Common Stock as reinvestment of distributions by Common Stockholders for the years ended December 31, 2002 and 2001, respectively.
Investment Advisory Agreement:
| As compensation for its services under the Investment Advisory Agreement, Royce & Associates, LLC (“Royce”) receives a fee comprised of a Basic Fee (“Basic Fee”) and an adjustment to the Basic Fee based on the investment performance of the Fund in relation to the investment record of the Russell 2000. The Basic Fee is a monthly fee equal to 1/12 of 1% (1% on an annualized basis) of the average of the month-end net assets of the Fund for the rolling 36-month period ending with such month. The Basic Fee for each month is increased or decreased at the rate of 1/12 of .05% for each percentage point that the investment performance of the Fund exceeds, or is exceeded by, the percentage change in the investment record of the Russell 2000 for the performance period by more than two percentage points. The performance period for each such month is a rolling 36-month period ending with such month. The maximum increase or decrease in the Basic Fee for any month may not exceed 1/12 of .5%. Accordingly, for each month, the maximum monthly fee rate as adjusted for performance is 1/12 of 1.5% and is payable if the investment performance of the Fund exceeds the percentage change in the investment record of the Russell 2000 by 12 or more percentage points for the performance period, and the minimum monthly fee rate as adjusted for performance is 1/12 of .5% and is payable if the percentage change in the investment record of the Russell 2000 exceeds the investment performance of the Fund by 12 or more percentage points for the performance period. Royce has voluntarily committed to waive the portion of its investment advisory fee attributable to the Fund’s Preferred Stock for any month in which the Fund’s average annual NAV total return since issuance of the Preferred Stock fails to exceed the Preferred Stock’s dividend rate. For the year ended December 31, 2002, the Fund accrued and paid Royce advisory fees totaling $3,062,647, which is net of $150,000 voluntarily waived by Royce.
Distributions to Stockholders:
| The tax character of distributions paid to stockholders during 2002 and 2001 was as follows:

|  | Distributions paid from: |  | 2002 |  | 2001 |
|  | Ordinary income |  | $ | — |  | $ | 3,817,946 |
|  | Long-term capital gain |  |  | 16,869,198 |  |  | 8,494,030 |
|  |  |  | $ | 16,869,198 |  | $ | 12,311,976 |
| As of December 31, 2002, the tax basis components of distributable earnings included in stockholders’ equity were as follows:
|  | Undistributed long-term gain |  | $ | 4,832,853 |  |  |  |
|  | Unrealized appreciation |  |  | 26,708,408 |  |  |  |
|  | Accrued preferred distributions |  |  | (68,889 | ) |  |  |
|  |  |  | $ | 31,472,372 |  |  |  |

THE ROYCE FUNDS ANNUAL REPORT 2002 | 43

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

Purchases and Sales of Investment Securities:
| For the year ended December 31, 2002, the cost of purchases and proceeds from sales of investment securities, other than short-term securities, amounted to $89,735,728 and $101,913,519, 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, 2002:

| Purchases |  | Sales |  |  |  |  |  |  |
Affiliated Company |  | Shares |  |  | Cost |  | Shares |  |  | Cost |  | Realized Gain (Loss) |  |  | Dividend Income
Strategic Distribution |  | 18,000 |  |  | $ | 109,695 |  | 122,000 |  |  | $ | 971,224 |  | $674,038 |  |  | —
Technical Communications |  | — |  |  |  | — |  | — |  |  |  | — |  | — |  |  | —

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, 2002, and the related statement of operations for the year ended, and the statement of changes in net assets for the two years in the period then ended and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. 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, 2002, 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, 2002, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with generally accepted accounting principles.

| TAIT, WELLER & BAKER |

Philadelphia, PA January 15, 2003

44 | THE ROYCE FUNDS ANNUAL REPORT 2002

ROYCE FOCUS TRUST, INC.
SCHEDULE OF INVESTMENTS | DECEMBER 31, 2002
COMMON STOCKS – 77.2%
|  | SHARES |  |  | VALUE |  |  |  |  |  | SHARES |  |  | VALUE
Consumer Products – 6.5% |  |  |  |  |  |  |  |  | Surgical Products and Devices – 2.2% |  |  |  |  |
Apparel and Shoes – 1.5% |  |  |  |  |  |  |  |  | Arrow International |  | 30,200 |  | $ | 1,228,234
Nautica Enterprises a |  | 104,000 |  | $ | 1,155,440 |  |  |  | †VISX a |  | 50,000 |  |  | 479,000
Home Furnishing/Appliances – 1.1% |  |  |  |  |  |  |  |  |  |  |  |  |  | 1,707,234
Natuzzi ADR b |  | 83,800 |  |  | 851,408 |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  | Total (Cost $10,273,863) |  |  |  |  | 10,293,889
Sports and Recreation – 3.0% |  |  |  |  |  |  |  |  |  |  |  |  |
†Callaway Golf c |  | 100,000 |  |  | 1,325,000 |  |  |  | Industrial Products – 12.5% |  |  |  |  |
Monaco Coach a |  | 61,350 |  |  | 1,015,342 |  |  |  | Building Systems and Components – 3.0% |  |  |  |  |
|  |  |  |  |  |  |  | Simpson Manufacturing a |  | 70,000 |  |  | 2,303,000
|  |  |  |  | 2,340,342 |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  | Construction Materials – 3.1% |  |  |  |  |
Other Consumer Products – 0.9% |  |  |  |  |  |  |  |  | Florida Rock Industries |  | 63,350 |  |  | 2,410,467
Oakley a |  | 69,100 |  |  | 709,657 |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  | Machinery – 5.2% |  |  |  |  |
Total (Cost $4,838,569) |  |  |  |  | 5,056,847 |  |  |  | Lincoln Electric Holdings |  | 101,600 |  |  | 2,352,040
|  |  |  |  |  |  |  | Woodward Governor |  | 40,000 |  |  | 1,740,000
Consumer Services – 4.6% |  |  |  |  |  |  |  |  |  |  |  |  |
Direct Marketing – 1.9% |  |  |  |  |  |  |  |  |  |  |  |  |  | 4,092,040
†Nu Skin Enterprises Cl. A |  | 127,000 |  |  | 1,520,190 |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  | Other Industrial Products – 1.2% |  |  |  |  |
Retail Stores – 2.7% |  |  |  |  |  |  |  |  | Wescast Industries Cl. A |  | 37,700 |  |  | 938,730
Big Lots a |  | 89,400 |  |  | 1,182,762 |  |  |  |  |  |  |  |
Charming Shoppes a |  | 216,000 |  |  | 902,880 |  |  |  | Total (Cost $6,861,083) |  |  |  |  | 9,744,237
|  |  |  |  | 2,085,642 |  |  |  | Industrial Services – 5.9% |  |  |  |  |
|  |  |  |  |  |  |  | Commercial Services – 3.7% |  |  |  |  |
Total (Cost $2,918,318) |  |  |  |  | 3,605,832 |  |  |  | Carlisle Holdings a |  | 400,000 |  |  | 1,100,000
|  |  |  |  |  |  |  | Cornell Companies a |  | 150,000 |  |  | 1,350,000
Financial Intermediaries – 6.8% |  |  |  |  |  |  |  |  | On Assignment a |  | 50,000 |  |  | 426,000
Insurance – 6.2% |  |  |  |  |  |  |  |  |  |  |  |  |
ProAssurance a |  | 124,255 |  |  | 2,609,355 |  |  |  |  |  |  |  |  | 2,876,000
White Mountains Insurance Group c |  | 4,000 |  |  | 1,292,000 |  |  |  |  |  |  |  |
Zenith National Insurance |  | 39,800 |  |  | 936,096 |  |  |  | Engineering and Construction – 2.2% |  |  |  |  |
|  |  |  |  |  |  |  | †Dycom Industries a |  | 132,500 |  |  | 1,755,625
|  |  |  |  | 4,837,451 |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  | Total (Cost $3,810,026) |  |  |  |  | 4,631,625
Securities Brokers – 0.6% |  |  |  |  |  |  |  |  |  |  |  |  |
E*TRADE Group a,c |  | 100,000 |  |  | 486,000 |  |  |  | Natural Resources – 13.1% |  |  |  |  |
|  |  |  |  |  |  |  | Energy Services – 1.7% |  |  |  |  |
Total (Cost $3,274,573) |  |  |  |  | 5,323,451 |  |  |  | Input/Output a |  | 300,000 |  |  | 1,275,000
Financial Services – 2.3% |  |  |  |  |  |  |  |  | Oil and Gas – 4.4% |  |  |  |  |
Insurance Brokers – 1.4% |  |  |  |  |  |  |  |  | Tom Brown a |  | 68,800 |  |  | 1,726,880
Gallagher (Arthur J.) & Company |  | 36,000 |  |  | 1,057,680 |  |  |  | 3TEC Energy a |  | 120,000 |  |  | 1,702,800
Investment Management – 0.9% |  |  |  |  |  |  |  |  |  |  |  |  |  | 3,429,680
†U.S. Global Investors Cl. A a |  | 295,605 |  |  | 723,937 |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  | Precious Metals and Mining – 7.0% |  |  |  |  |
Total (Cost $913,723) |  |  |  |  | 1,781,617 |  |  |  | AngloGold ADR b |  | 54,600 |  |  | 1,870,596
|  |  |  |  |  |  |  | †Glamis Gold a,c |  | 150,000 |  |  | 1,701,000
Health – 13.2% |  |  |  |  |  |  |  |  | †Goldcorp |  | 150,000 |  |  | 1,908,000
Drugs and Biotech – 8.2% |  |  |  |  |  |  |  |  |  |  |  |  |
†Antigenics a,c |  | 90,000 |  |  | 921,600 |  |  |  |  |  |  |  |  | 5,479,596
†Emisphere Technologies a |  | 200,000 |  |  | 696,000 |  |  |  |  |  |  |  |
†Endo Pharmaceuticals Holdings a |  | 200,000 |  |  | 1,539,800 |  |  |  | Total (Cost $7,540,265) |  |  |  |  | 10,184,276
†Gene Logic a |  | 89,000 |  |  | 559,810 |  |  |  |  |  |  |  |
Lexicon Genetics a |  | 150,000 |  |  | 709,500 |  |  |  | Technology – 12.3% |  |  |  |  |
†Perrigo a |  | 87,300 |  |  | 1,060,695 |  |  |  | Aerospace/Defense – 0.4% |  |  |  |  |
†VIVUS a,c |  | 250,000 |  |  | 932,500 |  |  |  | Curtiss-Wright |  | 4,800 |  |  | 306,336
|  |  |  |  | 6,419,905 |  |  |  | Components and Systems – 2.4% |  |  |  |  |
|  |  |  |  |  |  |  | Dionex a |  | 20,000 |  |  | 594,200
Health Services – 0.8% |  |  |  |  |  |  |  |  | Kronos a |  | 12,750 |  |  | 471,623
Covance a,c |  | 25,000 |  |  | 614,750 |  |  |  | †REMEC a |  | 200,000 |  |  | 776,000
Personal Care – 2.0% |  |  |  |  |  |  |  |  |  |  |  |  |  | 1,841,823
Ocular Sciences a |  | 100,000 |  |  | 1,552,000 |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  | Distribution – 1.4% |  |  |  |  |
|  |  |  |  |  |  |  |  | Richardson Electronics c |  | 129,000 |  |  | 1,117,140

THE ROYCE FUNDS ANNUAL REPORT 2002 | 45

ROYCE FOCUS TRUST, INC.
SCHEDULE OF INVESTMENTS | DECEMBER 31, 2002
|  | SHARES |  |  | VALUE |  |  |  |  |  | PRINCIPAL AMOUNT |  |  | VALUE
Technology (continued) |  |  |  |  |  |  |  |  | CORPORATE BONDS – 2.9% |  |  |  |  |
IT Services – 2.7% |  |  |  |  |  |  |  |  | †E*TRADE Group 6.00% |  |  |  |  |
Perot Systems Cl. A a |  | 133,600 |  | $ | 1,432,192 |  |  |  | Conv. Sub. Note due 2/1/07 | $ | 3,000,000 |  | $ | 2,250,000
Syntel a |  | 30,200 |  |  | 634,502 |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  | TOTAL CORPORATE BONDS |  |  |  |  |
|  |  |  |  | 2,066,694 |  |  |  | (Cost $2,147,894) |  |  |  |  | 2,250,000
Semiconductors and Equipment – 0.8% |  |  |  |  |  |  |  |  | U.S. TREASURY OBLIGATIONS – 7.0% |  |  |  |  |
Exar a |  | 50,000 |  |  | 620,000 |  |  |  | U.S. Treasury Notes |  |  |  |  |
|  |  |  |  |  |  |  | 7.25%, due 8/15/04 |  | 5,000,000 |  |  | 5,469,335
Software – 2.6% |  |  |  |  |  |  |  |  |  |  |  |  |
JDA Software Group a,c |  | 70,000 |  |  | 676,200 |  |  |  | TOTAL U.S. TREASURY OBLIGATIONS |  |  |  |  |
†Lightspan a |  | 669,500 |  |  | 703,644 |  |  |  | (Cost $5,047,341) |  |  |  |  | 5,469,335
†Transaction Systems Architects Cl. A a |  | 100,000 |  |  | 650,000 |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  | REPURCHASE AGREEMENT – 12.8% |  |  |  |  |
|  |  |  |  | 2,029,844 |  |  |  | State Street Bank & Trust Company, |  |  |  |  |
|  |  |  |  |  |  |  | 0.50% dated 12/31/02, due 1/2/03, |  |  |  |  |
Telecommunication – 2.0% |  |  |  |  |  |  |  |  | maturity value $9,943,276 |  |  |  |  |
†Anaren a,c |  | 140,000 |  |  | 1,232,000 |  |  |  | (collateralized by U.S. Treasury Notes, |  |  |  |  |
†Somera Communications a,c |  | 130,000 |  |  | 351,000 |  |  |  | 5.00% due 8/15/11, valued at $10,145,560) |  |  |  |  |
|  |  |  |  |  |  |  | (Cost $9,943,000) |  |  |  |  | 9,943,000
|  |  |  |  | 1,583,000 |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  | TOTAL INVESTMENTS – 99.9% |  |  |  |  |
Total (Cost $9,079,144) |  |  |  |  | 9,564,837 |  |  |  | (Cost $66,647,799) |  |  |  |  | 77,848,946
TOTAL COMMON STOCKS |  |  |  |  |  |  |  |  | CASH AND OTHER ASSETS |  |  |  |  |
(Cost $49,509,564) |  |  |  |  | 60,186,611 |  |  |  | LESS LIABILITIES – 0.1% |  |  |  |  | 107,020
|  |  |  |  |  |  |  |  | NET ASSETS – 100% |  |  |  | $ | 77,955,966

a |  | Non-income producing.
b |  | American Depository Receipt.
c |  | A portion of these securities were on loan at December 31, 2002. Total market value of loaned securities at December 31, 2002 was $1,242,139.
† |  | New additions in 2002.
|  | Bold indicates the Fund’s largest 20 equity holdings in terms of December 31, 2002 market value.
INCOME TAX INFORMATION: The cost of total investments for Federal income tax purposes was $66,972,929. At December 31, 2002, net unrealized appreciation for all securities was $10,876,017, consisting of aggregate gross unrealized appreciation of $14,442,522 and aggregate gross unrealized depreciation of $3,566,505. The primary differences in book and tax basis cost is the timing of the recognition of losses on securities sold and amortization of discount for book and tax purposes.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

46 | THE ROYCE FUNDS ANNUAL REPORT 2002

ROYCE FOCUS TRUST, INC. |
STATEMENT OF ASSETS AND LIABILITIES | DECEMBER 31, 2002 |
ASSETS: |  |  |  |
Investments at value (identified cost $56,704,799) |  | $ | 67,905,946 |
Repurchase agreement (at cost and value) |  |  | 9,943,000 |
Cash |  |  | 333 |
Collateral from brokers on securities loaned |  |  | 1,295,145 |
Receivable for dividends and interest |  |  | 240,052 |
Prepaid expenses |  |  | 2,423 |
Total Assets |  |  | 79,386,899 |
LIABILITIES: |  |  |  |
Payable for collateral on securities loaned |  |  | 1,295,145 |
Payable for investment advisory fee |  |  | 49,620 |
Preferred dividends accrued but not yet declared |  |  | 33,112 |
Accrued expenses |  |  | 53,056 |
Total Liabilities |  |  | 1,430,933 |
Net Assets |  | $ | 77,955,966 |
ANALYSIS OF NET ASSETS: |  |  |  |
PREFERRED STOCK: |  |  |  |
Par value of 7.45% Cumulative Preferred Stock - $0.001 per share; 800,000 shares outstanding |  | $ | 800 |
Additional paid-in capital |  |  | 19,999,200 |
Net Assets applicable to Preferred Stock at a liquidation value of $25 per share |  |  | 20,000,000 |
COMMON STOCK: |  |  |  |
Par value of Common Stock - $0.001 per share; 9,241,025 shares outstanding (100,000,000 shares authorized) |  |  | 9,241 |
Additional paid-in capital |  |  | 45,713,027 |
Accumulated net realized gain on investments |  |  | 1,065,663 |
Net unrealized appreciation on investments |  |  | 11,201,147 |
Preferred dividends accrued but not yet declared |  |  | (33,112 | )
Net Assets applicable to Common Stock (net asset value per share -$6.27) |  |  | 57,955,966 |
Net Assets |  | $ | 77,955,966 |
STATEMENTS OF CHANGES IN NET ASSETS |

|  | Year ended December 31, 2002 |  | Year ended December 31, 2001
INVESTMENT OPERATIONS: |  |  |  |  |  |  |  |
Net investment income (loss) |  | $ | (103,396 | ) |  | $ | 431,263 |
Net realized gain on investments |  |  | 1,317,847 |  |  |  | 2,603,772 |
Net change in unrealized appreciation on investments |  |  | (8,047,125 | ) |  |  | 4,458,997 |
Net increase (decrease) in net assets from investment operations |  |  | (6,832,674 | ) |  |  | 7,494,032 |
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS: |  |  |  |  |  |  |  |
Net investment income |  |  | (272,620 | ) |  |  | (321,840 | )
Net realized gain on investments |  |  | (1,217,380 | ) |  |  | (1,168,160 | )
Total distributions to Preferred Stockholders |  |  | (1,490,000 | ) |  |  | (1,490,000 | )
DISTRIBUTIONS TO COMMON STOCKHOLDERS: |  |  |  |  |  |  |  |
Net investment income |  |  | (150,865 | ) |  |  | (272,127 | )
Net realized gain on investments |  |  | (673,654 | ) |  |  | (987,720 | )
Total distributions to Common Stockholders |  |  | (824,519 | ) |  |  | (1,259,847 | )
CAPITAL STOCK TRANSACTIONS: |  |  |  |  |  |  |  |
Reinvestment of distributions to Common Stockholders |  |  | 449,516 |  |  |  | 976,135 |
NET INCREASE (DECREASE) IN NET ASSETS |  |  | (8,697,677 | ) |  |  | 5,720,320 |
NET ASSETS: |  |  |  |  |  |  |  |
Beginning of year |  |  | 86,653,643 |  |  |  | 80,933,323 |
End of year (including undistributed net investment income of $423,485 in 2001) |  | $ | 77,955,966 |  |  | $ | 86,653,643 |
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

THE ROYCE FUNDS ANNUAL REPORT 2002 | 47

ROYCE FOCUS TRUST, INC.
STATEMENT OF OPERATIONS | YEAR ENDED DECEMBER 31, 2002
INVESTMENT INCOME: |  |  |  |
Income: |  |  |  |
Interest |  | $ | 684,730 |
Dividends |  |  | 400,374 |
Total income |  |  | 1,085,104 |
Expenses: |  |  |  |
Investment advisory fees |  |  | 833,072 |
Stockholder meeting costs |  |  | 212,505 |
Custody and transfer agent fees |  |  | 73,880 |
Professional fees |  |  | 34,460 |
Stockholder reports |  |  | 37,213 |
Directors’ fees |  |  | 34,053 |
Administrative and office facilities expenses |  |  | 21,538 |
Other expenses |  |  | 59,038 |
Total expenses |  |  | 1,305,759 |
Fees waived by investment adviser |  |  | (117,259 | )
Net expenses |  |  | 1,188,500 |
Net investment income (loss) |  |  | (103,396 | )
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: |  |  |  |
Net realized gain on investments |  |  | 1,317,847 |
Net change in unrealized appreciation on investments |  |  | (8,047,125 | )
Net realized and unrealized gain (loss) on investments |  |  | (6,729,278 | )
NET DECREASE IN NET ASSETS FROM INVESTMENT OPERATIONS |  | $ | (6,832,674 | )
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

48 | THE ROYCE FUNDS ANNUAL REPORT 2002

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,
|  |  | 2002 |  |  |  | 2001 |  |  |  | 2000 |  |  |  | 1999 |  |  |  | 1998 |
NET ASSET VALUE, BEGINNING OF PERIOD |  |  | $7.28 |  |  |  | $6.77 |  |  |  | $5.94 |  |  |  | $5.63 |  |  |  | $6.04 |
INVESTMENT OPERATIONS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net investment income (loss) |  |  | (0.01 | ) |  |  | 0.05 |  |  |  | 0.12 |  |  |  | 0.08 |  |  |  | 0.12 |
Net realized and unrealized gain (loss) on investments |  |  | (0.74 | ) |  |  | 0.79 |  |  |  | 1.26 |  |  |  | 0.58 |  |  |  | (0.35 | )
Total investment operations |  |  | (0.75 | ) |  |  | 0.84 |  |  |  | 1.38 |  |  |  | 0.66 |  |  |  | (0.23 | )
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net investment income |  |  | (0.03 | ) |  |  | (0.04 | ) |  |  | (0.03 | ) |  |  | (0.01 | ) |  |  | (0.16 | )
Net realized gain on investments |  |  | (0.13 | ) |  |  | (0.13 | ) |  |  | (0.14 | ) |  |  | (0.17 | ) |  |  | (0.02 | )
Total distributions to Preferred Stockholders |  |  | (0.16 | ) |  |  | (0.17 | ) |  |  | (0.17 | ) |  |  | (0.18 | ) |  |  | (0.18 | )
DISTRIBUTIONS TO COMMON STOCKHOLDERS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net investment income |  |  | (0.02 | ) |  |  | (0.03 | ) |  |  | (0.06 | ) |  |  | (0.01 | ) |  |  | — |
Net realized gain on investments |  |  | (0.07 | ) |  |  | (0.11 | ) |  |  | (0.28 | ) |  |  | (0.14 | ) |  |  | — |
Total distributions to Common Stockholders |  |  | (0.09 | ) |  |  | (0.14 | ) |  |  | (0.34 | ) |  |  | (0.15 | ) |  |  | — |
CAPITAL STOCK TRANSACTIONS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Effect of reinvestment of distributions by Common Stockholders |  |  | (0.01 | ) |  |  | (0.02 | ) |  |  | (0.04 | ) |  |  | (0.02 | ) |  |  | — |
Total capital stock transactions |  |  | (0.01 | ) |  |  | (0.02 | ) |  |  | (0.04 | ) |  |  | (0.02 | ) |  |  | — |
NET ASSET VALUE, END OF PERIOD |  |  | $6.27 |  |  |  | $7.28 |  |  |  | $6.77 |  |  |  | $5.94 |  |  |  | $5.63 |
MARKET VALUE, END OF PERIOD |  |  | $5.56 |  |  |  | $6.65 |  |  |  | $5.69 |  |  |  | $4.72 |  |  |  | $4.88 |
TOTAL RETURN (a): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Market Value |  |  | (15.1 | )% |  |  | 19.7 | % |  |  | 27.9 | % |  |  | (0.3 | )% |  |  | (3.7 | )%
Net Asset Value |  |  | (12.5 | )% |  |  | 10.0 | % |  |  | 20.9 | % |  |  | 8.7 | % |  |  | (6.8 | )%
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total expenses (b,c) |  |  | 1.88 | % |  |  | 1.47 | % |  |  | 1.44 | % |  |  | 1.51 | % |  |  | 1.62 | %
Management fee expense |  |  | 1.13 | % |  |  | 1.11 | % |  |  | 1.00 | % |  |  | 1.00 | % |  |  | 1.14 | %
Other operating expenses |  |  | 0.75 | % |  |  | 0.36 | % |  |  | 0.44 | % |  |  | 0.51 | % |  |  | 0.48 | %
Net investment income (loss) |  |  | (0.16 | )% |  |  | 0.70 | % |  |  | 1.93 | % |  |  | 1.47 | % |  |  | 1.95 | %
SUPPLEMENTAL DATA: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net Assets, End of Period (in thousands) |  |  | $77,956 |  |  |  | $86,654 |  |  |  | $80,933 |  |  |  | $71,003 |  |  |  | $67,457 |
Portfolio Turnover Rate |  |  | 61 | % |  |  | 54 | % |  |  | 69 | % |  |  | 60 | % |  |  | 90 | %
PREFERRED STOCK: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total shares outstanding |  |  | 800,000 |  |  |  | 800,000 |  |  |  | 800,000 |  |  |  | 800,000 |  |  |  | 800,000 |
Asset coverage per share |  |  | $97.44 |  |  |  | $108.32 |  |  |  | $101.17 |  |  |  | $88.75 |  |  |  | $84.32 |
Liquidation preference per share |  |  | $25.00 |  |  |  | $25.00 |  |  |  | $25.00 |  |  |  | $25.00 |  |  |  | $25.00 |
Average market value per share (d) |  |  | $25.64 |  |  |  | $25.09 |  |  |  | $22.23 |  |  |  | $24.00 |  |  |  | $25.16 |

(a) | The Market Value Total Return is calculated assuming a purchase of Common Stock on the opening of the first business day and a sale on the closing of the last business day of each period reported. Dividends and distributions, if any, are assumed for the purposes of this calculation, to be reinvested at prices obtained under the Fund’s Distribution Reinvestment and Cash Purchase Plan. Net Asset Value Total Return is calculated on the same basis, except that the Fund’s net asset value is used on the purchase and sale dates instead of market value.
(b) | Expense ratios based on total average net assets were 1.43%, 1.11%, 1.05%, 1.06% and 1.16% for the periods ended December 31, 2002, 2001, 2000, 1999 and 1998, respectively.
(c) | Expense ratios based on average net assets applicable to Common Stockholders before waiver of fees by the investment adviser would have been 2.06%, 1.69%, 1.81%, 1.93% and 1.88% for the periods ended December 31, 2002, 2001, 2000, 1999 and 1998, respectively.
(d) | The average of month-end market values during the period.

THE ROYCE FUNDS ANNUAL REPORT 2002 | 49

ROYCE FOCUS TRUST, INC. NOTES TO FINANCIAL STATEMENTS

Summary of Significant Accounting Policies:
| Royce Focus Trust, Inc. (the “Fund”) is a diversified closed-end investment company. The Fund commenced operations on March 2, 1988 and Royce & Associates, LLC (“Royce”) assumed investment management responsibility for the Fund on November 1, 1996. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
| Valuation of Investments:
| Securities listed on an exchange or on the Nasdaq National Market System (NMS) are valued on the basis of the last reported sale prior to the time the valuation is made or, if no sale is reported for such day, at their bid price for exchange-listed securities and at the average of their bid and asked prices for Nasdaq NMS securities. Quotations are taken from the market where the security is primarily traded. Other over-the-counter securities for which market quotations are readily available are valued at their bid price. Securities for which market quotations are not readily available are valued at their fair value under procedures established by the Fund’s Board of Directors. Bonds and other fixed income securities may be valued by reference to other securities with comparable ratings, interest rates and maturities, using established independent pricing services.
| Investment Transactions and Related Investment Income:
| Investment transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date and any non-cash dividend income is recorded at the fair market value of the securities received. Interest income is recorded on the accrual basis. Realized gains and losses from investment transactions are determined on the basis of identified cost for book and tax purposes.
| Expenses:
| The Fund incurs direct and indirect expenses. Expenses directly attributable to the Fund are charged to the Fund’s operations, while expenses applicable to more than one of the Royce Funds are allocated in an equitable manner. Allocated personnel and occupancy costs related to The Royce Funds are included in administrative and office facilities expenses. The Fund has adopted a deferred fee agreement that allows the Fund’s Directors to defer the receipt of all or a portion of Directors’ Fees otherwise payable. The deferred fees remain invested in certain Royce Funds until distributed in accordance with the agreement.
| Taxes:
| As a qualified regulated investment company under Subchapter M of the Internal Revenue Code, the Fund is not subject to income taxes to the extent that it distributes substantially all of its taxable income for its fiscal year. The Schedule of Investments includes information regarding income taxes under the caption “Income Tax Information”.
| Distributions:
| Distributions to Common Stockholders are recorded on the ex-dividend date and paid annually in December. Distributions to Preferred Stockholders are recorded on an accrual basis and paid quarterly. Distributions are determined in accordance with income tax regulations that may differ from accounting principles generally accepted in the United States of America. Permanent book and tax basis differences relating to stockholder distributions will result in reclassifications within the capital accounts. Undistributed net investment income may include temporary book and tax basis differences, which will reverse in a subsequent period. Any taxable income or gain remaining undistributed at fiscal year end is distributed in the following year.
| Repurchase Agreements:
| The Fund enters into repurchase agreements with respect to its portfolio securities solely with State Street Bank and Trust Company (“SSB&T”), the custodian of its assets. The Fund restricts repurchase agreements to maturities of no more than seven days. Securities pledged as collateral for repurchase agreements, which are held by SSB&T until maturity of the repurchase agreements, are marked-to-market daily and maintained at a value at least equal to the principal amount of the repurchase agreement (including accrued interest). Repurchase agreements could involve certain risks in the event of default or insolvency of SSB&T, including possible delays or restrictions upon the ability of the Fund to dispose of the underlying securities.
Securities Lending:
| The Fund loans securities to qualified institutional investors for the purpose of realizing additional income. This income is included in interest income. Collateral on all securities loaned for the Fund is accepted in cash and is invested temporarily, typically, and specifically at December 31, 2002, in a registered money market fund, by the custodian. The collateral is equal to at least 100% of the current market value of the loaned securities.

50 | THE ROYCE FUNDS ANNUAL REPORT 2002

ROYCE FOCUS TRUST, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Capital Stock:
| The Fund currently has 800,000 shares of 7.45% Cumulative Preferred Stock outstanding. The stock has a liquidation preference of $25.00 per share. Under the Investment Company Act of 1940, the Fund is required to maintain an asset coverage of at least 200% for the Preferred Stock. In addition, pursuant to the Rating Agency Guidelines established by Moody’s, the Fund is required to maintain a certain discounted asset coverage. The Fund has met these requirements since issuing the Preferred Stock. The Fund is required to allocate long-term capital gain distributions and other types of income proportionately to distributions made to holders of shares of Common Stock and Preferred Stock. To the extent that distributions 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 79,701 and 162,419 shares of Common Stock as reinvestment of distributions by Common Stockholders for the years ended December 31, 2002 and 2001, respectively.
Investment Advisory Agreement:
| The Investment Advisory Agreement between Royce and the Fund provides for fees to be paid at an annual rate of 1.0% of the average daily net assets of the Fund. Royce has voluntarily committed to waive the portion of its investment advisory fee attributable to the Fund’s Preferred Stock for any month in which the Fund’s average annual NAV total return since issuance of the Preferred Stock fails to exceed the Preferred Stock’s dividend rate. For the year ended December 31, 2002, the Fund accrued and paid Royce advisory fees totaling $715,813, which is net of $117,259 voluntarily waived by Royce.
Distributions to Stockholders:
| The tax character of distributions paid to stockholders during 2002 and 2001 was as follows:

|  | Distributions paid from: |  | 2002 |  | 2001 |
|  | Ordinary income |  | $ | 423,485 |  | $ | 593,967 |
|  | Long-term capital gain |  |  | 1,891,034 |  |  | 2,155,880 |
|  |  |  | $ | 2,314,519 |  | $ | 2,749,847 |
| As of December 31, 2002, the tax basis components of distributable earnings included in stockholders’ equity were as follows:
|  | Undistributed long-term gain |  | $ | 1,390,793 |  |  |  |
|  | Unrealized appreciation |  |  | 10,876,017 |  |  |  |
|  | Accrued preferred distributions |  |  | (33,112 | ) |  |  |
|  |  |  | $ | 12,233,698 |  |  |  |

Purchases and Sales of Investment Securities:
| For the year ended December 31, 2002, the cost of purchases and proceeds from sales of investment securities, other than short-term securities, amounted to $43,961,561 and $47,800,885, respectively.

THE ROYCE FUNDS ANNUAL REPORT 2002 | 51

ROYCE FOCUS TRUST, INC. REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Stockholders of Royce Focus Trust, Inc. We have audited the accompanying statement of assets and liabilities of Royce Focus Trust, Inc., including the schedule of investments, as of December 31, 2002, and the related statement of operations for the year ended, and the statement of changes in net assets for the two years in the period then ended and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. 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, 2002, 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, 2002, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with generally accepted accounting principles.

| TAIT, WELLER & BAKER |

Philadelphia, PA January 15, 2003

52 | THE ROYCE FUNDS ANNUAL REPORT 2002

POSTSCRIPT
| BOWLED OVER OR DON’T BELIEVE THE HYPE This time of year marks not only the end of the holiday season, but also the merciful conclusion of the College Bowl season. Rather than utilize a logical and sensible playoff system as other college and all professional team sports do, the NCAA continues to allow an increasing number of football games that only makes choosing the best team or teams in the country a muddled prospect at best. The 2002-03 season featured no less than 56 teams playing in 28 contests that stretched from the hallowed New Orleans Bowl on December 17 — featuring the storied squads of North Texas and Cincinnati — through January 3, when Ohio State squared off against Miami in what most observers agree was the true championship game. But the problems with the bowl game system go far beyond the mediocre teams competing in meaningless games for the sake of raking in a few extra dollars. More serious is the lack of any playoffs and a true championship game. The absence of playoffs results in the famously complicated process during the end of the college football season in which a host of computer screens and models, which would confound even the most tech-savvy stock analyst, are deployed to determine just who the best teams are. And, of course, many of them disagree. Sponsors of the bowl system insist that this is part of the fun and, besides, it’s tradition. The rankings also create more problems than they settle. Team A beat Team B, but lost to Team C, who beat Team B, and don’t even think about bringing Team D into the mix because they beat Team A, but lost to B and tied C. So who’s Number One? There’s usually no universal answer. Which might be what the people who run the inaptly named Bowl Championship Series want. As long as no clear winner emerges, sponsors can claim that their bowl game participants are really the best, despite what the various other ranking systems say. It’s left to sports fans to argue endlessly, year after year, about who the best teams were until a playoff system is put in place. We see the same problem everywhere. Each pain reliever on the market — the varieties of aspirin, ibuprofen, or acetaminophen — insists that it is the best, or comes out with a new version that contains 10% more of what we all thought it was full of in the first place. Every brand of laundry detergent removes the tough stains better than every other brand, and Pepsi tastes better than Coke, or is it the other way around? For years, the investment world has experienced its own version of the same problem. The search for unbiased research information on stocks has too often and for too long been a fruitless quest. This was made abundantly clear this past December when the nation’s largest securities firms agreed to pay fines totalling $1.4 billion in response to charges that they had misled the investment public with often phony research, extolling the virtues of several stocks that they knew were of dubious quality (Remember all those can’t miss Internet stocks from the late ’90s?). Our commitment to independent research has helped us to avoid some of these problems. When evaluating companies, we have generally preferred to keep our own counsel. The vast majority of our research is performed in house. We typically use outside research sources to gain background information or to confirm information that we’ve already compiled. Our portfolio managers and analysts pore over financial statements and reports, often generating debate about the virtues of a given company’s business, balance sheet, management, growth potential, or ability to recover from financial and/or economic adversity. As value investors, our habit has been to remain insulated from the hype that affects so much of the investment world, and in fact we have profited at times from the hard fall and subsequent rebound of former Wall Street darlings that survived for a profitable second act. Even then, however, we chose to rely on our own judgement. When attempting to determine the quality of a stock, we would rather have ourselves to blame instead of the investment equivalent of one of those third-party computer models that picks the “real” college football champion. Just as arguments about the best college football team, or soft drink, or laundry detergent can only be made more impossible to settle with more hype, we think it’s better to stick to what we think we do best — using our own resources to find what we think are great small- and micro-cap companies.

|  | The Royce Funds 1414 AVENUE OF THE AMERICAS • NEW YORK, NY 10019 (l-r) Whitney George, Buzz Zaino, Chuck Royce, Jack Fockler, Charlie Dreifus WEALTH OF EXPERIENCE With approximately $8.3 billion in total assets under management, Royce & Associates is committed to the same small-company investing principles that have served us well for more than 25 years. Charles M. Royce, our Chief Investment Officer, enjoys one of the longest tenures of any active mutual fund manager. He is supported by a senior staff that includes four Portfolio Managers and a Managing Director, as well as nine analysts and five traders. MULTIPLE FUNDS, COMMON FOCUS Our goal is to offer both individual and institutional investors the best available small-cap value portfolios. Unlike a lot of fund groups with broad product offerings, we have chosen to concentrate on small-company value investing by providing investors with a range of funds that take full advantage of this large and diverse sector. CONSISTENT DISCIPLINE Our approach emphasizes paying close attention to risk and maintaining the same discipline, regardless of market movements and trends. The price we pay for a security must be significantly below our appraisal of its current worth. This requires a thorough analysis of the financial and business dynamics of an enterprise, as though we were purchasing the entire company. CO-OWNERSHIP OF FUNDS It is important that our employees and shareholders share a common financial goal; our officers, employees and their affiliates currently have approximately $42 million invested in The Royce Funds. |  |
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