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

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT
OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-04875

Name of Registrant: Royce Value Trust, Inc.

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

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

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

Item 1: Reports to Shareholders









2003 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. Each of the Funds has adopted a quarterly distribution policy for its common stock.

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

    
 
 
   
WHY DIVIDEND REINVESTMENT IS IMPORTANT
A very important component of an investor’s total return comes from the reinvestment of distributions. By reinvesting distributions, our investors can maintain an undiluted investment in a Fund. To get a fair idea of the impact of reinvested distributions, please see the charts on pages 13, 15 and 17. For additional information on the Funds’ Distribution Reinvestment and Cash Purchase Options and the benefits for stockholders, see page 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: Curb Your Enthusiasm 		  2  
Small-Cap Market Cycle Performance   10  
History Since Inception   11  
Performance and Portfolio Review:
Royce Value Trust, Royce Micro-Cap Trust and Royce Focus Trust		   12  
Distribution Reinvestment and Cash Purchase Options   18  
Directors and Officers   19  
Notes to Performance and Statistical Information   20  
Schedules of Investments and Other Financial Statements   21  
Postscript: Handi-capping   Inside Back Cover  

  NAV AVERAGE ANNUAL TOTAL RETURNS Through December 31, 2003
  FUND   4TH QUARTER
2003* 		  JUL-DEC
2003* 		  1-YEAR   3-YEAR   5-YEAR   10-YEAR   SINCE INCEPTION   INCEPTION DATE
  Royce Value Trust   13.38 %   23.75 %   40.80 %   11.04 %   12.25 %   12.64     12.37 %   11/26/86  
  Royce Micro-Cap Trust   15.58     30.36     55.55     18.28     15.64     14.27     14.22     12/14/93  
  Royce Focus Trust   16.44     30.06     54.33     14.11     14.34     n.a.     12.28     11/1/96 **
  Russell 2000   14.52     24.92     47.25     6.27     7.13     9.47              
  Royce Value Trust’s 15-year NAV average annual total return for the period ended 12/31/03 was 13.27%.
  The Funds’ recent performance was achieved during a period of high returns for small- and micro-cap stocks, and it is not likely that this level of returns will continue in the future.
* Not annualized.
** Date Royce & Associates, LLC assumed investment management responsibility.
   




   

 

Charles M. Royce, President

Although none of our closed-end funds concentrate solely on dividend-paying stocks, we think highly of the value of dividends here at The Royce Funds. We think that the old adage of Ben Graham and David Dodd, that the primary purpose of a business is to pay dividends to its owners, in many ways still holds true today. Why do we and two of the Founding Fathers of value investing put so much stock in the payment of dividends? The most obvious reason is that, with rare exceptions, companies that pay dividends are almost always profitable businesses. Companies can choose to reinvest their earnings, pay them out as dividends or reinvest a portion and pay out the rest, but the fact remains that payment of a dividend is an important measure of profitability.

(continued on page 4)		     LETTER TO OUR STOCKHOLDERS


CURB YOUR ENTHUSIASM
2003 will likely enter the annals of stock market history as one of the more successful years for equities in recent times. Unlike the days of stratospheric returns for large-cap and/or Technology issues that characterized the late ‘90s, the past year embraced large and small stocks alike, a tide of more or less steadily rising prices that seemed to lift nearly every boat which the market deemed seaworthy. Such a year was especially welcome to investors following the long and dreary bear market that began in March 2000. Yet to many observers, this long-anticipated recovery emerged slowly, almost subtly, from the wings of the bear’s prolonged turn on the equity stage. The rebound actually began in early October 2002, when the major indices — the S&P 500, Russell 2000 and Nasdaq Composite — reached their most recent lows. Yet 2002 was a year of negative performance for the majority of stocks, and the brief rally that carried the market through October and November fizzled in December and did not regain its momentum until March of 2003.
     Much of this can be attributed to a sluggish economy and the anxious days preceding the war with Iraq. The initial reports out of Baghdad seemed to indicate that our military’s efforts were not meeting with the unqualified success that many of us had expected. Yet once it became clear that these reports were erroneous and that the U.S. was on its way to a relatively fast victory, the stock market responded generously. For each index, April and May were two of the three strongest performing months of 2003. By fall, news of strong GDP growth and stable levels of unemployment provided any additional fuel that may have been needed to


2 |   THE ROYCE FUNDS ANNUAL REPORT 2003

  



keep the rally running, and run it did, right through the beginning of 2004. Even the stunning news of illegal and unethical profiteering on the part of certain mutual fund companies that permitted late trading and market timing did not slow the market’s furious ascent. The only unanswered questions appeared to be, how much longer would the rally run and how much higher would returns climb before a correction occurred?
     With the economy seeming to grow stronger each day, the international situation stabilizing somewhat (at least as of this writing) and reports of new mutual fund scandals subsiding (for now, anyway), we would understand anyone who felt that the past fifteen months have heralded only the beginning of an extended period of high returns. We simply would not agree. Like many experienced value investors, we habitually get a little tense whenever stock market returns run up virtually unimpeded for months at a time. It simply goes against the grain of what we have learned in three-plus decades of investing. We are not calling for a return to the bear market environment that lasted from March 2000 through October 2002, but we also do not see the direction of the market racing consistently upward. Just as we argued at the end of last year that the market was not as bad as it looked, we would now submit that the market is not quite as vigorous as it appears. We think that it is entirely rational to be exuberant about 2003’s high returns, but that similar sentiments should not apply to 2004 and beyond because no one really knows what the market’s next move will be. So before the heralds rush forth announcing that all is well because the bears (and the folks delivering subpoenas) have all left the building, we would advise investors to curb their enthusiasm.

SMALLVILLE
     We are aware — and not unhappily — that a look at both the short- and long-term returns for small-cap stocks through the end of 2003 may make our plea to curb one’s enthusiasm sound a bit silly. Our asset class once again finished the year ahead of its large-cap counterpart, with the Russell 2000 up 47.3% versus 28.7% for the S&P 500. It marked the fifth consecutive year that the Russell 2000 outperformed the S&P 500, in spite of the fact that 2003 was the large-cap index’s best calendar year of performance since 1998. The small-cap index also held a performance advantage over its large-cap sibling from the October 2002 market lows and for the three-year and five-year periods ended 12/31/03. The resurgent equity market gave a boost to the Nasdaq Composite as well. It bested both the S&P 500 and the Russell 2000 in 2003 with a 50.0% return.
     The rally has so far favored two kinds of stocks that historically have not been the first coursers out of the gate at the onset of a bull market — Technology and micro-cap stocks. Their strong performances, especially the latter’s, helped the Russell 2000 to enjoy its best calendar-year performance since the index’s inception on 12/31/78.


So before the heralds rush forth announcing that all is well because the bears (and the folks delivering subpoenas) have all left the building, we would advise investors to curb their enthusiasm.

THE ROYCE FUNDS ANNUAL REPORT 2003 |   3
 


 





Another reason for our affection is that consistent dividend payouts help to reduce volatility by providing an investor with a steady stream of income. This is arguably a more significant benefit for small-cap stocks than it is for their larger siblings because the diminutive stature of small companies often makes them inherently more volatile. We also believe that having money upfront, or cash in hand, offers advantages as well. While this is true in any market climate, it can be especially crucial in low- or negative-return environments when stock prices are stalling or tumbling.

Within the realm of small-cap stocks, the search for dividend-paying companies can be quite interesting because many small-cap investors have been led to believe that such companies cannot be found. Investors (especially institutional investors) utilizing a dividend-discount model — those searching for “total return,” or a combination of long-term growth and current income — are trained to look almost

(continued on page 6)


    

LETTER TO OUR STOCKHOLDERS

While this was terrific news for small-cap investors like ourselves, we are somewhat leery of the reversal of what we regard as the typical order of market rallies. Although Technology stocks suffered more than any other equity sector during the bear market — making them arguably ripe for a rally — it does not stand to reason that their previous travails made it necessary for them to lead a subsequent rebound for stocks. Most bear markets have ended with a flight to quality. Historically, investors begin to flock, sometimes slowly, to companies with solid records of earnings or other indicators of underlying quality. We are not sure what has made the current rally unique in this regard, but its peculiar start is another reason why we think that we have not entered a sustainable period of high returns for stocks.

EVERYBODY LOVES VALUE
      One might expect that a rally led by two of the more volatile segments of the market would mean bad news for value stocks, even those in the micro-cap sector. We are happy to report that this was not quite the case in 2003. Tech and micro-cap led the way, but equities as a whole performed well. Value stocks began to come on later in the year, especially in the fourth quarter, in which the Russell 2000 Value index outpaced the Russell 2000 Growth index, 16.4% versus 12.7%. This strong fourth-quarter push allowed the small-cap value index to narrow the performance gap with growth, as small-cap value was up 46.0% in 2003 versus 48.5% for small-cap growth. Small-cap growth’s outperformance period included an unusual first quarter in which returns for both indices were negative. If one needed any further proof that 2003 was an odd year, we would call their attention to the fact that small-cap value lost ground to growth in the first quarter decline and then gained ground against it during the fourth quarter upswing. Strange days indeed.
     As dubious as we are about the long-term viability of the current rally, we were cheered by the strong showing turned in by small-cap value stocks late in the year and throughout the 15-month rally. In fact, stretching back to the early days of the bear market in March 2000, small-cap value has performed well both on an absolute and relative basis. From the small-cap market peak on 3/9/00 through 12/31/03, the Russell 2000 Value index was up 73.1% versus a loss of 44.2% for the Russell 2000 Growth index. Although better down market returns in the bear-market period between March 2000 and October 2002 were a critical component of small-cap value’s edge during the current market cycle, perhaps equally important has been small-cap value’s participation in the rally. From the small-cap market low on 10/9/02 through 12/31/03, the Russell 2000 Value index was up 69.8% versus a gain of 76.7% for its growth counterpart, which means that during this time, small-cap value captured 91% of small-cap growth’s upward surge. The strong down-market performance of small-cap value combined with the competitive returns that it has turned in during the market’s recovery helped small-cap value to hold a performance edge for the three-, five-, 10-, 15-, 20- and 25 -year periods ended 12/31/03.

4 |   THE ROYCE FUNDS ANNUAL REPORT 2003

   


STILL STANDING
     Small-cap value’s solid performance benefited The Royce Funds, as did healthy returns by Technology and micro-cap stocks. In fact, each portfolio’s relative weightings in micro-caps, Technology stocks and more traditional value issues greatly influenced 2003’s returns. Micro-Cap Trust and Focus Trust — portfolios with relatively heavier weightings in at least one of the first two areas — enjoyed the highest calendar-year returns and outperformed the Russell 2000 for the year. However, we were very pleased with the performance of all three of our closed-end funds in 2003. Although besting the benchmark remains a worthy goal for each portfolio, we would rather see strong absolute performances for the funds, and 2003 provided plenty of that. More importantly from our perspective, all of The Royce Funds in this report outperformed the Russell 2000 from its peak on 3/9/00, as well as for the applicable three-, five- and 10-year periods ended 12/31/03. We are more interested in the long-term and full market-cycle performance picture because we believe that these periods, which include both up and down market phases, more accurately reflect the success or failure of a particular investment vehicle or approach.

 

If one needed any further proof that 2003 was an odd year, we would call their attention to the fact that small-cap value lost ground to growth in the first quarter decline and then gained ground against it during the fourth quarter upswing. Strange days indeed.


THE ROYCE FUNDS ANNUAL REPORT 2003 |   5
 


   

LETTER TO OUR STOCKHOLDERS
 
exclusively among mid- and large-cap stocks. However, as we have often pointed out, the small-cap universe provides fertile ground for yield-loving equity investors. As of 12/31/03, of the approximately 7,300 companies with market capitalizations less than $2 billion, more than 1,500 pay dividends and more than 900 of those have yields of 2% or greater (Source: FactSet).

One might ask why a small company would choose to pay dividends. Wouldn’t that business be better off reinvesting its profits? The truth is that many small companies earn more than they need in terms of reinvestment in the business. This excess profit is known as free cash flow, which is one of the key qualitative components that we look for in any company, along with strong balance sheets and an established record of earnings. A company has several choices as to what it does with these funds: It can hold on to the cash, use it to purchase shares of its own stock or pay it out to shareholders in the form of dividends.

(continued on page 8)		    

     In our view, 2003 offered a good reason for taking the long view. A wildly successful year by nearly any measure, it was also an exceptional year for more than the reasons normally implied by that term. While our Funds certainly profited from the market’s favor toward micro-caps, Technology and other issues, we remain somewhat cynical about the nature of the recent rally. Seeing many of our holdings appreciate in price was gratifying, but we cannot avoid the suspicion that prices rose primarily for what we would argue were all the wrong reasons — speculation as opposed to investment, a low-interest rate environment (which made investment options in fixed income securities look far less attractive relative to equities) and a post-bear-market euphoria that seemed to push prices higher and higher while scant attention was being paid to underlying quality. We were surprised to see speculative stocks do so well from the October 2002 bottom through the end of 2003, though it was somewhat gratifying to see some companies with stronger earnings begin to participate late in the year.

THE HISTORY CHANNEL PRESENTS...
     From a performance standpoint, small-cap has so far outpaced large-cap in the current decade. In recognizing this, we wondered what the decade-by-decade performance story had been historically for each asset class. This led us to an examination of stock-market returns from 1930 through 1999 to see what, if any, performance patterns emerged for small- and large-cap stocks. Although we realized that there were distinctive stories behind each ten-year period’s returns, both large- and small-cap stocks repeated a specific pattern that held true for every decade from the ‘30s through the ‘90s. During that 70-year period, large-cap stocks led


  CRSP SMALL-CAP DECILE COMPOSITES
Decade-by-Decade Cumulative Results
      CRSP 6-10   S&P 500   SPREAD
  1930s   47.6%   2.3%   45.4%
  1940s   328.9   138.7   190.2
  1950s   438.3   483.3   -45.0
  1960s   218.8   112.3   106.6
  1970s   150.1   76.5   73.6
  1980s   304.7   401.5   -96.8
  1990s   299.1   432.9   -133.8


in the high-return decades of the ‘50s, ‘80s and ‘90s, while small-caps were out in front during the low- or normal-return decades of the ‘30s, ‘40s, ‘60s and ‘70s. This pattern has been repeated so far in the current decade, with small-caps having held a significant performance

6 |   THE ROYCE FUNDS ANNUAL REPORT 2003

   



edge over large-caps in a decidedly low-return period for the market as a whole. In one final tidbit of asset-class trivia, we found that both asset classes enjoyed a lengthy period of outperformance during each decade. In fact, small-cap stocks had at least a six-year period of outperformance in every 10-year period (see chart below), including those in which they underperformed. This was the case even in the the ‘80s and ‘90s, decades typically thought of as dominated by large-caps.
 
 

      We do not expect small-caps to lead in every performance period or in every calendar year through decade’s end. In fact, we expect leadership to alternate between small- and large-caps, especially in the near term. Does this mean that small-caps may be at a disadvantage in the coming months? Not necessarily. At current price-to-earnings levels, significant price appreciation through multiple expansion would be much harder to come by. In the next phase of the market, we believe that returns will come via improving earnings, not multiple expansion. Given their economic leverage and the simplicity of their businesses, we believe that economic improvements should more directly affect small-caps’ bottom lines, which could put small-caps in a leading position vis-a-vis earnings growth.
     The potential upward movement of interest rates and their impact on P/E ratios is another area that would seem
 

In the next phase of the market, we believe that returns will come via improving earnings, not multiple expansion. Given their economic leverage and the simplicity of their businesses, we believe that economic improvements should more directly affect small-caps’ bottom lines, which could put small-caps in a leading position vis-a-vis earnings growth.

THE ROYCE FUNDS ANNUAL REPORT 2003 |   7
 


 





Certain small companies choose the latter, although for many years it was more common for firms to opt for one of the first two choices, regardless of their size. We think that this will change as a result of the new tax legislation passed earlier this year, which gives more favorable tax treatment to dividends, thus offering companies more of an impetus to pay them out. The effect of this legislation is only beginning to be felt, yet we expect that its consequences will be dramatic, long lasting and potentially beneficial to small-cap investors who like dividends.


    

LETTER TO OUR SHAREHOLDERS




Trying to Learn from History

to us to favor smaller companies. Although no one can accurately predict the path of interest rates, an increase after more than 20 years of overall decline seems reasonable, especially in a more robust economic environment. Rising interest rates are generally detrimental to equities as a whole. Since interest rates and P/E ratios tend to have an inverse relationship to each other, and larger companies generally have higher debt-to-capital ratios, an increase in interest rates would seemingly be more detrimental to larger companies because higher proportionate levels of debt would have a greater negative effect impact on their bottom lines. (As of 12/31/03, the composite debt-to-capital ratio for the S&P 500 was 49% versus 40% for the Russell 2000.)

 CLOSING BELL
      We continue to believe that the returns generated by the recent rally, while entirely welcome, represent a snapback for stock prices, not a comeback for high returns. The market’s dramatic upward move seems to us more of an anomalous event that occurred within the longer-term context of the current market cycle that began with a dramatic slide from the peak in March 2000. Most bull markets have begun with profitable companies taking the lead, while Technology and/or micro-cap stocks have followed in the later stages of the run-up. We find it especially peculiar in the aftermath of one of the biggest Technology rallies in history that these sectors led the recovery. Although any extended period of negative returns from this point seems unlikely to us in the near-term, we suspect that there may be a correction within the next several months during which we believe that we will see a move to quality companies with solid


8 |   THE ROYCE FUNDS ANNUAL REPORT 2003

   


earnings followed by a longer period of low, but generally positive returns. We would caution investors against thinking that 2003’s rubber-band response to the bear market means a return to the investment climate of the mid-to-late ‘90s. Of course, when it comes to investing, our temperament resembles Larry David’s cranky, fatalistic character on HBO’s Curb Your Enthusiasm. When bad times come, we more or less expect it; when good times arrive, we’re usually nervous, expecting it all to end soon.
     The last five years have provided ample doses of each, with giddy peaks and chilling lows. Through it all, we maintained the same disciplined approach that we have used for 30 years. Just as we were not idiots when small-cap value went out of style, we did not suddenly become endowed with genius when our approach became attractive again. The extremes of the last two market cycles serve best as a reminder that building wealth requires time and patience.
     We appreciate your continued support.


 
Sincerely,
       
 
     Charles M. Royce
          President		 W. Whitney George
Vice President		 Jack E. Fockler, Jr.
Vice President		  
       
       
January 31, 2004
       
       
       
       

The performance data and trends outlined in this presentation are presented for illustrative purposes only. The thoughts concerning recent market movements and future prospects for small-company stocks are solely those of Royce & Associates, and, of course, there can be no assurance with regard to future market movements. Small- and micro-cap stocks may involve considerably more risk than larger-cap stocks. Past performance is no guarantee of future results. Historical market trends are not necessarily indicative of future market movements. The (Center for Research in Security Prices) CRSP 6-10 is an unmanaged composite representing the bottom five deciles of stocks listed on the New York Stock Exchange, the American Stock Exchange and the Nasdaq National Market, based on market capitalization. The S&P 500 is an unmanaged index of domestic large-cap stocks. The Russell 2000, Russell 2000 Value and Russell 2000 Growth are unmanaged indices of domestic small-cap stocks.


THE ROYCE FUNDS ANNUAL REPORT 2003 |   9
 




SMALL-CAP MARKET CYCLE PERFORMANCE


Since the Russell 2000’s inception on 12/31/78, value outperformed growth in five of the six full small-cap market cycles (defined as a move of 15% from a previous peak or trough). The last small-cap market cycle (4/21/98 - 3/9/00) was the exception. The current cycle represents what we believe is a return to more historically typical performance in that value provided a significant advantage during the downturn (3/9/00 - 10/9/02) and through December 31, 2003.









        PRIOR
PEAK-TO-PEAK
4/21/98 – 3/9/00		   PEAK-TO-TROUGH
3/9/00 – 10/9/02		   TROUGH-TO-CURRENT
10/9/02 – 12/31/03		   PEAK-TO-CURRENT
3/9/00 – 12/31/03		   PRIOR
PEAK-TO-CURRENT
4/21/98 – 12/31/03		  
  Russell 2000   26.3 %   -44.1 %   73.1 %   -3.3 %   22.2 %
  Russell 2000 Value   -12.7     2.0     69.8     73.1     51.2  
  Russell 2000 Growth   64.8     -68.4     76.7     -44.2     -8.0  
  NAV CUMULATIVE
TOTAL RETURN		                              
  Royce Value Trust   10.0     -12.2     67.5     47.1     61.8  
  Royce Micro-Cap Trust   10.6     -13.6     85.4     59.3     76.3  
  Royce Focus Trust   -10.7     -4.9     85.5     76.4     57.6  



PEAK-TO-TROUGH: Not only did value outperform growth (as measured by the Russell 2000 style indices), it also provided positive performance during the downdraft. All three Royce Funds outperformed the Russell 2000 in this period.


TROUGH-TO-CURRENT: Through December 31, 2003, growth led value during the rally from the October low. All Royce Funds posted total returns of more than 65% during this period, with Royce Micro-Cap Trust and Royce Focus Trust outperforming the Russell 2000.


PEAK-TO-CURRENT: From March 9, 2000 through December 31, 2003, value maintained a sizeable lead over growth. Again, all three Royce Funds held performance advantages over the Russell 2000 (-3.3%) and all have provided positive performance. When current cycle returns are combined with those of the prior full market cycle, a period which includes both the pre-bubble rally and the ensuing bear market, value’s positive results compare favorably against growth’s negative results. During this period, all three Royce Funds outperformed the Russell 2000 Value’s 51.2% return.


10 |   THE ROYCE FUNDS ANNUAL REPORT 2003





HISTORY SINCE INCEPTION

The following table details the share accumulations by an initial investor in the Funds who reinvested all distributions (including fractional shares) and participated fully in primary subscriptions for each of the rights offerings. Full participation in distribution reinvestments and rights offerings can maximize the returns available to a long-term investor. This table should be read in conjunction with the Performance and Portfolio Reviews of the Funds.
 
  HISTORY     AMOUNT
INVESTED		   PURCHASE
PRICE*		   SHARES   NAV    
VALUE** 		   MARKET        
VALUE**       
Royce Value Trust                              
  11/26/86   Initial Purchase   $ 10,000   $ 10.000   1,000   $ 9,280   $ 10,000  
  10/15/87   Distribution $0.30           7.000   42              
  12/31/87   Distribution $0.22           7.125   32     8,578     7,250  
  12/27/88   Distribution $0.51           8.625   63     10,529     9,238  
  9/22/89   Rights Offering     405     9.000   45              
  12/29/89   Distribution $0.52           9.125   67     12,942     11,866  
  9/24/90   Rights Offering     457     7.375   62              
  12/31/90   Distribution $0.32           8.000   52     11,713     11,074  
  9/23/91   Rights Offering     638     9.375   68              
  12/31/91   Distribution $0.61           10.625   82     17,919     15,697  
  9/25/92   Rights Offering     825     11.000   75              
  12/31/92   Distribution $0.90           12.500   114     21,999     20,874  
  9/27/93   Rights Offering     1,469     13.000   113              
  12/31/93   Distribution $1.15           13.000   160     26,603     25,428  
  10/28/94   Rights Offering     1,103     11.250   98              
  12/19/94   Distribution $1.05           11.375   191     27,939     24,905  
  11/3/95   Rights Offering     1,425     12.500   114              
  12/7/95   Distribution $1.29           12.125   253     35,676     31,243  
  12/6/96   Distribution $1.15           12.250   247     41,213     36,335  
  1997   Annual distribution total $1.21           15.374   230     52,556     46,814  
  1998   Annual distribution total $1.54           14.311   347     54,313     47,506  
  1999   Annual distribution total $1.37           12.616   391     60,653     50,239  
  2000   Annual distribution total $1.48           13.972   424     70,711     61,648  
  2001   Annual distribution total $1.49           15.072   437     81,478     73,994  
  2002   Annual distribution total $1.51           14.903   494     68,770     68,927  
  1/28/03   Rights Offering     5,600     10.770   520              
  2003   Annual distribution total $1.30           14.582   516              
  12/31/03       $ 21,922         6,237   $ 106,216   $ 107,339  
Royce Micro-Cap Trust                              
  12/14/93   Initial Purchase   $ 7,500   $ 7.500   1,000   $ 7,250   $ 7,500  
  10/28/94   Rights Offering     1,400     7.000   200              
  12/19/94   Distribution $0.05           6.750   9     9,163     8,462  
  12/7/95   Distribution $0.36           7.500   58     11,264     10,136  
  12/6/96   Distribution $0.80           7.625   133     13,132     11,550  
  12/5/97   Distribution $1.00           10.000   140     16,694     15,593  
  12/7/98   Distribution $0.29           8.625   52     16,016     14,129  
  12/6/99   Distribution $0.27           8.781   49     18,051     14,769  
  12/6/00   Distribution $1.72           8.469   333     20,016     17,026  
  12/6/01   Distribution $0.57           9.880   114     24,701     21,924  
  2002   Annual distribution total $0.80           9.518   180     21,297     19,142  
  2003   Annual distribution total $0.92           10.004   217              
  12/31/03       $ 8,900         2,485   $ 33,125   $ 31,311  
Royce Focus Trust                              
  10/31/96   Initial Purchase   $ 4,375   $ 4.375   1,000   $ 5,280   $ 4,375  
  12/31/96                         5,520     4,594  
  12/5/97   Distribution $0.53           5.250   101     6,650     5,574  
  12/31/98                         6,199     5,367  
  12/6/99   Distribution $0.145           4.750   34     6,742     5,356  
  12/6/00   Distribution $0.34           5.563   69     8,151     6,848  
  12/6/01   Distribution $0.14           6.010   28     8,969     8,193  
  12/6/02   Distribution $0.09           5.640   19     7,844     6,956  
  12/8/03   Distribution $0.62           8.250   94              
  12/31/03       $ 4,375         1,345   $ 12,105   $ 11,406  
* Beginning with 1997 (RVT) and 2002 (RMT) 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.
 

THE ROYCE FUNDS ANNUAL REPORT 2003 |   11
 


ROYCE VALUE TRUST
                 
  AVERAGE ANNUAL TOTAL RETURNS
Through 12/31/03		  
MANAGER’S DISCUSSION
Royce Value Trust’s (RVT) diversified portfolio of small- and micro-cap stocks enjoyed a strong absolute return in 2003 on both a net asset value (NAV) and market price basis. The Fund was up 40.8% on an NAV basis and 42.0% on a market price basis. These performances trailed the calendar-year return of the small-cap oriented Russell 2000, which was up 47.3%, but were ahead of the small-cap S&P 600, which was up 38.8% in 2003. The fourth quarter saw further expansion of the market’s recovery, which has thus far been primarily driven by micro-caps and Technology stocks. RVT was up 13.4% on an NAV basis and 11.9% on a market price basis in the fourth quarter. Both returns were shy of the Fund’s benchmarks — the Russell 2000 was up 14.5% and the S&P 600 was up 14.8% in the fourth quarter. However, over longer-term and market cycle periods, RVT held the advantage over both indices. For the period ended 12/31/03, RVT was up 47.1% on an NAV basis from the small-cap market peak on 3/9/00, versus a gain of 24.9% for the S&P 600 and a loss of 3.3% for the Russell 2000. The Fund also outperformed both benchmarks on both an NAV and market price basis for the three-, five-, 10-, 15-year and since inception (11/26/86) periods. RVT’s average annual NAV total return since inception was 12.4%.
           Although positive performances could be found in all of the Fund’s sectors and industry groups, the gains of the Fund’s Technology holdings as a group made those of other sectors look rather modest. In many cases (including some of RVT’s holdings), Tech stock prices seemed to rise more in anticipation of increases in capital spending or of a business’s profitability than for actual increases in earnings or other, more tangible reasons. The considerable price appreciation of Tech stocks led us to reduce or sell off many positions in the sector. During the depths of the bear market in 2002, we substantially increased our position in business and technology consultant Sapient Corporation. Its revenues crept upward last fall, but its explosive gain prompted us to reduce our position from September through November. We initially liked the low price, balance sheet and niche business of specialty circuit board manufacturer TTM Technologies. Increased revenues and earnings, as well as Wall Street attention, led its price to levels beyond our expectations. We began to reduce our position in July. We think that Transaction Systems Architects has a terrific core business, which involves e-commerce and e-payment software. Its price soared in 2003, so we took some gains, but still held a good-sized stake at the end of the year.
          Elsewhere in the portfolio, solid gains came from a few old favorites. Number-one holding Simpson Manufacturing, which makes various connectors used in the construction industry, first attracted our attention in 1994. We have been happy to hold the stock for nearly a decade, and were very pleased to see investors make the connection between what we see as the firm’s sterling financial quality and its stock price in 2003. We first bought shares of grain and distillery product maker MGP Ingredients in 1988 and have owned shares almost continuously since. Its strong balance sheet and solid earnings seemed to attract more investors in 2003. MacDermid produces chemicals for metal and plastic finishing. We first bought shares in 1991 and were pleased to see what we regard as a well-run firm in a solid niche enjoy a strong 2003. In all three cases, we were content to hold large positions at the end of the year.
  Fourth Quarter 2003*   13.38%  
 
  July-December 2003*   23.75     
 
  1-Year   40.80     
 
  3-Year   11.04     
 
  5-Year   12.25     
 
  10-Year   12.64     
 
  15-Year   13.27     
 
  Since Inception (11/26/86)   12.37     
* Not annualized.      
         
  RISK/RETURN COMPARISON
3-Year Period ended 12/31/03		  
    Average Annual
Total Return		   Standard
Deviation		   Return
Efficiency*		  
 
  Royce Value Trust (NAV) 11.0%   24.7   0.45  
 
  S&P 600 8.1%   21.7   0.37  
 
  Russell 2000 6.3%   23.6   0.27   
*
Return Efficiency is the average annual total return divided by the annualized standard deviation over a designated time period.

Over the last three years, Royce Value Trust has outperformed the S&P 600 and the Russell 2000 on both an absolute and a risk-adjusted basis.
  
         
 
                   
  CALENDAR YEAR NAV TOTAL RETURNS    
  Year   RVT   Year      RVT    
   
  2003   40.8%   1995   21.1%    
   
  2002   -15.6      1994   0.1       
   
  2001   15.2      1993   17.3       
   
  2000   16.6      1992   19.3       
   
  1999   11.7      1991   38.4       
   
  1998   3.3      1990   -13.8       
   
  1997   27.5      1989   18.3       
   
  1996   15.5      1988   22.7       
 
12 |   THE ROYCE FUNDS ANNUAL REPORT 2003


PERFORMANCE AND PORTFOLIO REVIEW
                         
      PORTFOLIO DIAGNOSTICS
    GOOD IDEAS THAT WORKED  
Urban Outfitters — This merchandiser and specialty retail store operator enjoyed record sales, strong earnings and a two-for-one stock split in 2003, developments that seemed to keep investors buying its stock. We trimmed our position in October.
       Median Market Capitalization $915 million  
    2003 Net Realized and Unrealized Gain      
    Urban Outfitters $4,114,094           Weighted Average P/E Ratio 22.7x *
 
     
    E*TRADE Financial 3,950,478           Weighted Average P/B Ratio 2.0x  
 
     
    Sapient Corporation 3,800,268           Weighted Average Yield 0.7%  
 
     
   
Transaction Systems
             Fund Net Assets $851 million  
   
   Architects Cl. A
 3,727,877        
 
        Turnover Rate 23%  
    Velcro Industries 3,601,730       
 
E*TRADE Financial — Our decision to trim our position in this financial services firm was based solely on the impressive rise of its stock price. We have retained our high view of its management and its ability to make the transition from an internet-based discount brokerage to a low-cost leader in financial services.
       Net Leverage† 4%  
     
        Symbol - Market Price RVT  
       
- NAV
 XRVTX  
      *
Excludes 21% of the portfolio holdings with zero or negative earnings as of 12/31/03.
       
                  †
Net leverage is the percentage, in excess of 100%, of the total value of equity type investments, divided by net assets applicable to Common Stockholders.
    GOOD IDEAS AT THE TIME  
PMA Capital Cl. A — Our once-high confidence in this provider of property and casualty reinsurance withered in the face of what we felt was management’s inability to effectively steer the company through increasingly difficult times for its core business.
      
    2003 Net Realized and Unrealized Loss        
    PMA Capital Cl. A $2,185,376           TOP 10 POSITIONS
 
        % of Net Assets Applicable to
    Allegiance Telecom 1,538,391           Common Stockholders
 
        Simpson Manufacturing 1.1 %
    PRG-Schultz International 1,079,698        
 
        Ritchie Bros. Auctioneers 1.0  
    Payless ShoeSource 1,037,569        
 
        MacDermid 0.9  
   
Hilb, Rogal & Hamilton
          
       Company 843,191           Erie Indemnity Company Cl. A 0.8  
               
 
Allegiance Telecom — Our generally disappointing experience with this telecommunications service provider ended, sadly but perhaps mercifully, when we sold the last of our shares in December following an announcement of bankruptcy in May.
       Sotheby’s Holdings Cl. A 0.8  
     
        Arrow International 0.8  
     
       
White Mountains Insurance Group
 0.8  
                 
                    Technitrol 0.8  
 
    MGP Ingredients 0.8  
 
    Keane 0.8  
         
    PORTFOLIO SECTOR BREAKDOWN
    % of Net Assets Applicable to
Common Stockholders
    Technology 23.3 %
 
    Industrial Products 16.1  
 
    Industrial Services 13.7  
 
    Financial Intermediaries 10.4  
                 
The regular reinvestment of distributions makes a difference!     Health 10.0  
1 Reflects the cumulative performance of an investment made by a stockholder who purchased one share at inception ($10.00 IPO) and then reinvested all annual distributions as indicated, and fully participated in primary subscriptions of the Fund’s rights offerings.
2 Reflects the actual market price of one share as it has traded on the NYSE.
  
    Natural Resources 7.8  
 
    Consumer Products 7.3  
     
                    Consumer Services 5.6  
                 
                    Financial Services 5.6  
                 
                    Utilities 0.1  
                 
                    Miscellaneous 3.6  
                 
                    Bonds & Preferred Stock 0.3  
                 
                   
Treasuries, Cash & Cash Equivalents
 22.1  
                         
                    CAPITAL STRUCTURE
                    Publicly Traded Securities Outstanding
                    at 12/31/03 at NAV or Liquidation Value
                    50.0 million shares
of Common Stock		 $851 million  
                 
                    5.90% Cumulative
Preferred Stock		 $220 million  
 
THE ROYCE FUNDS ANNUAL REPORT 2003 |   13


ROYCE MICRO-CAP TRUST
                 
  NAV AVERAGE ANNUAL TOTAL RETURNS
Through 12/31/03		  
MANAGER’S DISCUSSION
Micro-cap stocks were among the market leaders in the rally that began in October 2002, a fact reflected in the calendar-year performance of Royce Micro-Cap Trust (RMT). In 2003, the Fund was up 55.6% on a net asset value (NAV) basis and 63.6% on a market price basis, in both instances ahead of its small-cap benchmark, the Russell 2000, which was up 47.3% for the same period. The Fund held on to its performance edge in the fourth quarter, as the rally broadened. RMT was up 15.6% on an NAV basis and 16.7% on a market price basis versus a gain of 14.5% for the Russell 2000. As strong a year as it was, we were even more pleased with the Fund’s performance over long-term and market-cycle periods. RMT outpaced the Russell 2000 from both the small-cap market peak on 3/9/00 (+59.3% versus -3.3%) and the small-cap market trough on 10/9/02 (+85.4% versus +73.1%) for the periods ended 12/31/03. The Fund also outperformed its benchmark on both an NAV basis and market price basis for the three-, five- 10-year and since inception (12/15/93) periods ended 12/31/03. RMT’s average annual NAV total return since inception was 14.2%.
          The Fund’s holdings in Technology made the largest positive impact on performance in 2003. We were ambivalent about the success of Tech stocks in the current rally. While they quite clearly boosted RMT’s performance and seemed to provide an impetus for the rally as a whole, we were concerned that many Tech firms finished the year with sizeable returns but without net profits (though some posted positive earnings late in the year). Investors seemed as enamored with potential as they were with more tangible measures of quality. Our strategy in RMT was to trim or reduce several top gainers in the sector because their prices had risen precipitously and we were unsure if they remained good values at their higher prices. The price of wireless telephone system manufacturer SpectraLink Corporation rose through September, when we sold a bit less than half of our position. We were attracted to its strong balance sheet and niche business. Another business that we like is information technology (IT) consultants, especially if they have little debt and talented management, which we judged to be the case with DiamondCluster International Corporation. Its price began to take off in April, prompting us to begin reducing our position. We were content to hold a large position in IT consultant Covansys Corporation at year-end. At one point in 2002, we nearly gave up on the company, but the combination of a smart acquisition in May 2002 and cost-cutting measures in 2003 seemed to help its stock price to recover.
          The business of iGATE Corporation, a staffing services company with a substantial business in Technology Consulting, was somewhat sluggish in 2003, yet investors seemed happy to invest in its potential ability to turn things around. We held a large position at the end of the year. During the dark days of the bear market in 2002, we built our position in top-ten holding Excel Technology, a firm that develops and manufactures laser systems and electro-optical components for industrial, scientific and medical uses. We were initially intrigued by its interesting business and low debt.
          The prospects for recessed- and track-lighting fixture designer Juno Lighting brightened in 2003 as its management paid down debt and made a series of moves that we thought were high-wattage decisions. Improved earnings and the announcement that it would be acquired in December 2003 seemed to help the stock price of BioReliance Corporation, a contract service organization that provides services for biomedical, biotechnology and pharmaceutical companies. We slightly reduced our position in November. We were happy to hold a good-sized stake in contact lens maker Ocular Sciences. The company continued to gain market share both domestically and internationally. We have long considered it a well-run, financially clear-sighted company.
  Fourth Quarter 2003*   15.58%  
 
  July-December 2003*   30.36     
 
  1-Year   55.55     
 
  3-Year   18.28     
 
  5-Year   15.64     
 
  10-Year   14.27     
 
  Since Inception (12/14/93)   14.22     
* Not annualized.      
         
  RISK/RETURN COMPARISON
3-Year Period ended 12/31/03		  
    Average Annual
Total Return		   Standard
Deviation		   Return
Efficiency*		  
 
  Royce Micro-Cap Trust (NAV) 18.3%   28.7   0.64  
 
  Russell 2000 6.3%   23.6   0.27  
*
Return Efficiency is the average annual total return divided by the annualized standard deviation over a designated time period.

Over the last three years, Royce Micro-Cap Trust has outperformed the Russell 2000 on both an absolute and a risk-adjusted basis.
  
         
 
                   
  CALENDAR YEAR NAV TOTAL RETURNS    
  Year             RMT    
   
  2003           55.6%    
   
  2002           -13.8       
   
  2001           23.4       
   
  2000           10.9       
   
  1999           12.7       
   
  1998           -4.1       
   
  1997           27.1       
   
  1996           16.6       
   
  1995           22.9       
   
  1994           5.0       
 
14 |   THE ROYCE FUNDS ANNUAL REPORT 2003


PERFORMANCE AND PORTFOLIO REVIEW
                         
      PORTFOLIO DIAGNOSTICS
    GOOD IDEAS THAT WORKED  
Sapient Corporation — We increased our stake in this business and technology consultant during the depths of the bear market in 2002. Its revenues crept upward last fall, but its explosive gain prompted us to begin reducing our position in June.
       Median Market Capitalization $264 million  
    2003 Net Realized and Unrealized Gain      
    Sapient Corporation $3,193,705           Weighted Average P/E Ratio 19.3x *
 
     
   
Transaction Systems
             Weighted Average P/B Ratio 1.7x  
   
   Architects Cl. A
 2,458,120        
 
        Weighted Average Yield 0.6%  
    Covansys Corporation 1,817,515        
 
        Fund Net Assets $253 million  
   
SpectraLink Corporation
 1,633,238        
 
        Turnover Rate 26%  
    iGATE Corporation 1,586,557        
 
Transaction Systems Architects Cl. A — The price of this e-commerce and e-payment software company skyrocketed in the second quarter and hasn’t shown signs of slowing down yet. We started to reduce our position in November at substantial gains, though we still thought very highly of its core business.
       Net Leverage† 3%  
     
        Symbol - Market Price RMT  
       
- NAV
 XOTCX  
      *
Excludes 29% of portfolio holdings with zero or negative earnings as of 12/31/03.
Net leverage is the percentage, in excess of 100%, of the total value of equity type investments, divided by net assets applicable to Common Stockholders.
      †
                   
    GOOD IDEAS AT THE TIME  
PRG-Schultz International — We were attracted to the dominant market share of this leader in the niche business of recovery audits for mid- to large-sized businesses. Its sluggish stock price performance led us to substantially build our position in 2003.
      
    2003 Net Realized and Unrealized Loss        
    PRG-Schultz International $808,519           TOP 10 POSITIONS
 
        % of Net Assets Applicable to
    The Boyds Collection 545,462           Common Stockholders
 
        Sapient Corporation 1.5 %
    Allegiance Telecom 492,474        
 
        Seneca Foods 1.4  
    On Assignment 418,440        
 
        Excel Technology 1.3  
   
Daisytek International
 415,052        
 


The Boyds Collection — Sales and earnings for this designer and importer of handcrafted collectibles and other specialty giftware products continued to decline in 2003. At year end, we were still re-evaluating our position.
      
Transaction Systems Architects Cl. A
1.3  
     
        Covansys Corporation 1.2  
     
        Juno Lighting 1.1  
     
        Denison International ADR 1.1  
                 
                    Delta Apparel 1.0  
 
    Richardson Electronics 1.0  
 
    800 JR Cigar 1.0  
         
    PORTFOLIO SECTOR BREAKDOWN
    % of Net Assets Applicable to
Common Stockholders
    Technology 26.7 %
 
    Industrial Products 14.8  
 
    Industrial Services 14.1  
 
    Health 11.1  
                 
The regular reinvestment of distributions makes a difference!     Natural Resources 9.1  
1
Reflects the cumulative performance of an investment made by a stockholder who purchased one share at inception ($7.50 IPO) and then reinvested distributions as indicated, and fully participated in primary subscription of the 1994 rights offerings.
  
      Consumer Products 9.0  
2
Reflects the actual market price of one share as it has traded on the Nasdaq and, beginning 12/1/03, on the NYSE.
  
      Financial Intermediaries 6.1  
                 
                    Consumer Services 5.1  
                 
                    Financial Services 1.0  
                 
                   
Diversified Investment Companies
 0.4  
                 
                    Miscellaneous 5.0  
                 
                    Preferred Stocks 0.5  
                 
                   
Treasuries, Cash & Cash Equivalents
 20.8  
                         
                    CAPITAL STRUCTURE
                    Publicly Traded Securities Outstanding
                    at 12/31/03 at NAV or Liquidation Value
                    19.0 million shares
of Common Stock		 $253 million  
                 
                    6.00% Cumulative
Preferred Stock		 $60 million  
 
THE ROYCE FUNDS ANNUAL REPORT 2003 |   15


ROYCE FOCUS TRUST
                 
  NAV AVERAGE ANNUAL TOTAL RETURNS
Through 12/31/03		  
MANAGER’S DISCUSSION
With a little extra help from Technology and micro-cap stocks, Royce Focus Trust enjoyed a strong year by almost any measure in 2003. On both a net asset value (NAV) and market price basis, the Fund posted its highest calendar-year return since Royce assumed its management on 11/1/96. FUND was up 54.3% on an NAV basis and 64.0% on a market price basis, both returns ahead of the Fund’s small-cap benchmark, the Russell 2000, which was up 47.3% in 2003. The fourth quarter saw further expansion of the rally beyond the more speculative issues that have been leading since the recovery began in October 2002. FUND stayed ahead of its benchmark in the fourth quarter, posting an NAV return of 16.4% and a market price return of 19.7%, versus a 14.5% return for the Russell 2000. We were even more pleased with the Fund’s results over market cycle and long-term performance periods. For the period ended 12/31/03, FUND was up 76.4% from the small-cap market peak on 3/9/00, versus a decline of 3.3% for the Russell 2000. The Fund also outperformed the benchmark for the one-, three-, five-year and since inception periods ended 12/31/03. FUND’s average annual NAV total return since inception was 12.3%.
          Portfolio holdings in the Technology sector made the greatest positive impact on the Fund’s performance. However, Tech did not dominate portfolio performance to the same degree that it did in the market as a whole (or in other Royce-managed portfolios), and we were pleased to see strong gains from companies in several sectors and industry groups. Of the Fund’s twenty top-performing stocks in 2003, only five were Tech stocks. We were attracted to two of these companies based on our belief that their respective well-established and profitable business relationships with the U.S. military could keep them growing profitably. Each suffered from a depressed stock price in 2002, in part because the significant retrenchment in technology spending occurred not long after they first made forays into more commercial ventures. In the fall of 2002, we built our position in REMEC, a manufacturer of various components for wireless communications, while we first bought shares of ViaSat, which provides broadband digital satellite communications and other wireless networking and signal processing equipment and services early in 2003. The price of each stock rose during the rally. We took gains in REMEC in 2003, though at year-end we thought that each remained a well-run company. Another firm in which we reduced our stake due to its fast-rising stock price was e-commerce and e-payment software company, Transaction Systems Architects. In mid-2002, new management came on board and shaped up the firm’s balance sheet, a move that focused our attention on what we already regarded as a potentially high-growth business. Although by the end of the year its price remained in orbit, we began to reduce our position in September at substantial gains.
          We first began to buy Endo Pharmaceuticals Holdings in FUND late in 2002. We liked its balance sheet, its high returns on capital, and the firm’s roster of products, which included both brand name and generic drugs. None of that has changed, except that the company’s cash flows were more robust in 2003 than we had expected. Although its stock price received a shot in the arm, we were content to hold a large position at the end of the year, thinking that the company still had room to grow. Our decision to trim our position in number-three holding E*TRADE Financial was based solely on the impressive rise of its stock price. We have retained our high view of its management and its ability to make the transition from an internet-based discount brokerage to a low-cost leader in financial services.
  Fourth Quarter 2003*   16.44%  
 
  July-December 2003*   30.06     
 
  1-Year   54.33     
 
  3-Year   14.11     
 
  5-Year   14.34     
 
  Since Inception (11/1/96)†   12.28     
* Not annualized.      
† Royce & Associates assumed investment management responsibility for the Fund on 11/1/96.  
         
  RISK/RETURN COMPARISON
3-Year Period ended 12/31/03		  
    Average Annual
Total Return		   Standard
Deviation		   Return
Efficiency*		  
 
  Royce Focus Trust (NAV) 14.1%   25.9   0.54  
 
  Russell 2000   6.3%   23.6   0.27   
*
Return Efficiency is the average annual total return divided by the annualized standard deviation over a designated time period.

Over the last three years, Royce Focus Trust has outperformed the Russell 2000 on both an absolute and a risk-adjusted basis.
  
         
 
           
  CALENDAR YEAR NAV TOTAL RETURNS    
  Year   FUND    
   
  2003   54.3%    
   
  2002   -12.5%    
   
  2001   10.0       
   
  2000   20.9       
   
  1999   8.7       
   
  1998   -6.8       
   
  1997   20.5       
 
16 |   THE ROYCE FUNDS ANNUAL REPORT 2003


PERFORMANCE AND PORTFOLIO REVIEW
                         
      PORTFOLIO DIAGNOSTICS
    GOOD IDEAS THAT WORKED  
TSX Group — A newer position that we first bought shortly after its initial public offering, this company owns and operates the Toronto Stock Exchange, North America’s third largest. It remains under-followed by domestic equity analysts. We built our position throughout
       Median Market Capitalization $1,121 million  
    2003 Net Realized and Unrealized Gain      
    TSX Group $2,183,572           Weighted Average P/E Ratio 22.8x *
 
     
    Winnebago Industries 2,007,800           Weighted Average P/B Ratio 2.4x  
 
     
    Endo Pharmaceuticals Holdings 1,796,980           Weighted Average Yield 0.5%  
 
     
    Transaction Systems             Fund Net Assets $87 million  
       Architects Cl. A 1,750,937        
 
        Turnover Rate 49%  
    Carlisle Holdings 1,353,000        
 
2003, attracted to the company’s increased earnings and technological innovations. We also received a favorable currency exchange benefit due to the weakening American dollar.


Winnebago Industries — Although we initiated our position in the Fund’s portfolio in March 2003, we have long liked the dominant market share and strong profit margins of this leading recreation vehicle manufacturer. The fact that the company has been using much of its free cash flow to buy back stock only adds to the list of attractive qualities.
       Net Leverage† 6%  
     
        Symbol - Market Price FUND  
       
- NAV
 XFUNX  
     
* Excludes 18% of portfolio holdings with zero or negative earnings as of 12/31/03.
† Net leverage is the percentage, in excess of 100%, of the total value of investments (excluding short-term), divided by net assets applicable to Common Stockholders.
     
     
     
                 
    GOOD IDEAS AT THE TIME  
Durect Corporation — Our once healthy confidence in this pharmaceuticals firm quickly turned ill last summer when it took on additional debt (and diluted the value of its stock) in the form of a large private placement of convertible debt securities. We sold our shares in August.
    
    2003 Net Realized and Unrealized Loss              
    Durect Corporation $437,744           TOP 10 POSITIONS
 
        % of Net Assets Applicable to
    Monaco Coach 232,987           Common Stockholders
 
       
New Zealand Government
6.5% Bond
 7.7 %
    Natuzzi ADR 198,018        
 
        TSX Group 4.6  
    Somera Communications 157,300        
 
        E*TRADE Financial 4.3  
    On Assignment 118,500        
                  Simpson Manufacturing 4.1  
                 
 
Monaco Coach — Thinking that its balance sheet was not as well-engineered as its more promising competitors, we sold our shares in January and February 2003, essentially upgrading (in our estimation) to Winnebago Industries.
       Nu Skin Enterprises Cl. A 3.9  
     
        Hecla Mining Company 3.3  
     
       
Endo Pharmaceuticals Holdings
 3.3  
                 
                    Goldcorp 3.3  
 
    Winnebago Industries 3.2  
 
    Alleghany Corporation 3.1  
         
    PORTFOLIO SECTOR BREAKDOWN
    % of Net Assets Applicable to
Common Stockholders
    Natural Resources 19.3 %
 
    Financial Intermediaries 14.2  
 
    Health 12.2  
 
    Technology 11.5  
                 
1  Royce & Associates assumed investment management responsibility for the Fund on 11/1/96.
2  Reflects the cumulative performance experience of a continuous common stockholder who reinvested all distributions.
3  Reflects the actual market price of one share as it has traded on the Nasdaq.
     Industrial Products 10.6  
 
    Consumer Products 9.6  
 
        Industrial Services 7.4  
                 
                    Consumer Services 6.3  
                 
                    Financial Services 4.1  
                 
                    Bonds 11.2  
                 
                   
Treasuries, Cash & Cash Equivalents
 22.3  
                         
                    CAPITAL STRUCTURE
                    Publicly Traded Securities Outstanding
                    at 12/31/03 at NAV or Liquidation Value
                    9.7 million shares
of Common Stock		 $87 million  
                 
                    6.00% Cumulative
Preferred Stock		 $25 million  
 
THE ROYCE FUNDS ANNUAL REPORT 2003 |   17


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

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

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

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

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

HOW DO THE PLANS WORK FOR REGISTERED STOCKHOLDERS?
        EquiServe maintains the accounts for registered stockholders in the Plans and sends written confirmation of all transactions in the account. Shares in the account of each participant will be held by EquiServe in non-certificated form in the name of the participant, and each participant will be able to vote those shares at a stockholder meeting or by proxy. A participant may also send other stock certificates held by them to EquiServe to be held in non-certificated form. There is no service fee charged to participants for reinvesting distributions. If a participant elects to sell shares from a Plan account, EquiServe will deduct a $2.50 fee plus brokerage commissions from the sale transaction. If a nominee is the registered owner of your shares, the nominee will maintain the accounts on your behalf.

HOW CAN I GET MORE INFORMATION ON THE PLANS?
        You can call an Investor Services Representative at (800) 221-4268 or you can request a copy of the Plan for your Fund from EquiServe. All correspondence (including notifications) should be directed to: [Name of Fund] Distribution Reinvestment and Cash Purchase Plan, c/o EquiServe, PO Box 43011, Providence, RI 02940-3011, telephone (800) 426-5523.


18 |   THE ROYCE FUNDS ANNUAL REPORT 2003


DIRECTORS AND OFFICERS

All Directors and Officers may be reached c/o The Royce Funds, 1414 Avenue of the Americas, New York, NY 10019
NAME AND POSITION: Charles M. Royce (64), Director* and President   NAME AND POSITION: David L. Meister (64), Director
Term Expires: 2003   Tenure: Since 1986 (RVT), 1993 (OTCM), 1996 (FUND)   Term Expires: 2003   Tenure: Since 1986 (RVT), 1993 (OTCM), 1996 (FUND)
No. of Funds Overseen: 19  
Non-Royce Directorships: Director of Technology Investment Capital Corp.
   No. of Funds Overseen: 19   Non-Royce Directorships: None

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

  

Principal Occupation(s) During Past Five Years: Chairman and Chief Executive Officer of The Tennis Channel (since June 2000). Chief Executive Officer of Seniorlife.com (from December 1999 to May 2000). Mr. Meister’s prior business experience includes having served as a consultant to the communications industry, President of Financial News Network, Senior Vice President of HBO, President of Time-Life Films and Head of Broadcasting for Major League Baseball.

NAME AND POSITION: G. Peter O’Brien (58), Director

NAME AND POSITION: Mark R. Fetting (49), Director*		  
Term Expires: 2004   Tenure: Since 2001  
No. of Funds Overseen: 19  
Non-Royce Directorships: Director/Trustee of the registered investment companies constituting the 22 Legg Mason Funds.
  
Principal Occupation(s) During Past Five Years: Executive Vice President of Legg Mason, Inc.; Member of Board of Managers of Royce (since October 2001); Division President and Senior Officer, Prudential Financial Group, Inc. and related companies, including Fund Boards and consulting services to subsidiary companies (from 1991 to 2000). Mr. Fetting’s prior business experience includes having served as Partner, Greenwich Associates and Vice President, T. Rowe Price Group, Inc.
   Term Expires: 2003   Tenure: Since 2001
  No. of Funds Overseen: 19  
Non-Royce Directorships: Director/Trustee of registered investment companies constituting the 22 Legg Mason Funds; Director of Renaissance Capital Greenwich Fund and Director of Technology Investment Capital Corp.
 
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: John D. Diederich (52), Vice President and Treasurer
Tenure: Since 1997

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

NAME AND POSITION: Jack E. Fockler, Jr. (45), Vice President
Tenure: Since 1995 (RVT), 1995 (OTCM), 1996 (FUND)

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

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

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

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

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

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

Principal Occupation(s) During Past Five Years: General Counsel (Deputy General Counsel prior to 2003), Principal, Chief Compliance Officer and Secretary of Royce and Principal of Credit Suisse First Boston Private Equity (2001-2002).
 
 
NAME AND POSITION: Donald R. Dwight (72), Director  
Term Expires: 2005   Tenure: Since 1998  
No. of Funds Overseen: 19  

Non-Royce Directorships: None

  

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

  
NAME AND POSITION: Richard M. Galkin (65), Director  
Term Expires: 2004   Tenure: Since 1986 (RVT), 1993 (OTCM), 1996 (FUND)  
No. of Funds Overseen: 19   Non-Royce Directorships: None  

Principal Occupation(s) During Past Five Years: Private investor. Mr. Galkin’s prior business experience includes having served as President of Richard M. Galkin Associates, Inc., telecommunications consultants, President of Manhattan Cable Television (a subsidiary of Time, Inc.), President of Haverhills Inc. (another Time, Inc. subsidiary), President of Rhode Island Cable Television and Senior Vice President of Satellite Television Corp. (a subsidiary of Comsat).

  
NAME AND POSITION: Stephen L. Isaacs (64), Director  
Term Expires: 2005 (RVT), 2005 (OTCM), 2003 (FUND)   Tenure: Since 1986 (RVT), 1993 (OTCM), 1996 (FUND)  
No. of Funds Overseen: 19   Non-Royce Directorships: None  

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

  
NAME AND POSITION: William L. Koke (69), Director  
Term Expires: 2003 (RVT), 2003 (OTCM), 2005 (FUND)   Tenure: Since 2001 (RVT), 2001 (OTCM), 1997 (FUND)  
No. of Funds Overseen: 19   Non-Royce Directorships: None  

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

  
 
* Interested Director.

THE ROYCE FUNDS ANNUAL REPORT 2003 |   19


NOTES TO PERFORMANCE AND STATISTICAL INFORMATION
     
  AUTHORIZED SHARE TRANSACTIONS
     Each of Royce Value Trust, Royce Micro-Cap Trust and Royce Focus Trust may repurchase up to 300,000 shares of its common stock and up to 10% of the issued and outstanding shares of each series of its preferred stock during the year ending December 31, 2004. Any such repurchases would take place at then prevailing prices in the open market or in other transactions. Common stock repurchases would be effected at a price per share that is less than the share’s then current net asset value, and preferred stock repurchases would be effected at a price per share that is less than the share’s liquidation value.
     Royce Value Trust, Royce Micro-Cap Trust and Royce Focus Trust are also authorized to offer their common stockholders an opportunity to subscribe for additional shares of their common stock through rights offerings at a price per share that may be less than the share’s then current net asset value. The timing and terms of any such offerings are within each Board’s discretion.
  
     
 
NOTES TO PERFORMANCE AND STATISTICAL INFORMATION
     All performance information is presented on a total return basis and reflects the reinvestment of distributions. Past performance is no guarantee of future results or volatility. Investment return and principal value will fluctuate, so that shares may be worth more or less than their original cost when sold. The Royce Funds invest primarily in securities of small-cap and/or micro-cap companies that may involve considerably more risk than investments in securities of larger-cap companies. The thoughts expressed in this report concerning recent market movements and future prospects for small company stocks are solely the current opinion of Royce, and, of course, historical market trends are not necessarily indicative of future market movements. Statements regarding the future prospects for particular securities held in the Funds’ portfolios and Royce’s investment intentions with respect to those securities reflect Royce’s opinions as of December 31, 2003 and are subject to change at any time without notice. There can be no assurance that securities mentioned in this report will be included in any Royce-managed portfolio in the future.
     Standard deviation is a statistical measure within which a fund’s total returns have varied over time. The greater the standard deviation, the greater a fund’s volatility.
     The Russell 2000, Russell 2000 Value, Russell 2000 Growth, Nasdaq Composite and S&P 500 are unmanaged indices of domestic common stocks. CRSP (Center for Research in Security Pricing) divides the U.S. equity market into 10 deciles. Deciles 1-5 represent the largest domestic equity companies and deciles 6-10 represent the smallest. By way of comparison, the CRSP 1-5 would have similar capitalization parameters to the S&P 500 and the CRSP 6-10 would approximately match those of the Russell 2000. Returns for the market indices used in this report were based on information supplied to Royce by Frank Russell, CRSP and Morningstar. Royce has not independently verified the above described information. The Royce Funds is a service mark of The Royce Funds.

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

  

20 |   THE ROYCE FUNDS ANNUAL REPORT 2003



ROYCE VALUE TRUST, INC.

SCHEDULES OF INVESTMENTS
DECEMBER 31, 2003
COMMON STOCKS – 103.5%                        
    SHARES     VALUE       SHARES     VALUE
   
   
     
   
Consumer Products – 7.3%            
Jack in the Box a
   42,000   $ 897,120
Apparel and Shoes - 2.6%            
Prime Hospitality a
   106,100     1,082,220
Jones Apparel Group d
   81,500   $ 2,871,245  
Ryan’s Family Steak Houses a
   48,900     740,346
K-Swiss Cl. A
   160,000     3,849,600          
Oshkosh B’Gosh Cl. A d
   104,300     2,238,278             12,892,727
Polo Ralph Lauren Cl. A
   150,000     4,320,000          
Timberland Company Cl. A a
   30,000     1,562,100   Retail Stores - 2.4%          
Weyco Group
   153,996     5,181,811  
Big Lots a
   207,200     2,944,312
Wolverine World Wide
   84,400     1,720,072  
Charming Shoppes a,d
   584,400     3,155,760
       
 
Claire’s Stores
   109,800     2,068,632
          21,743,106  
†GameStop Corporation Cl. A a,d
   33,700     519,317
       
 
†Linens ’n Things a,d
   38,000     1,143,040
Collectibles - 0.2%            
Payless ShoeSource a,d
   289,600     3,880,640
The Boyds Collection a
   234,200     995,350  
Stein Mart a
   192,800     1,588,672
Enesco Group a
   47,200     487,104  
Urban Outfitters a,d
   152,600     5,653,830
       
         
          1,482,454             20,954,203
       
         
Food/Beverage/Tobacco - 0.7%             Other Consumer Services - 1.3%          
800 JR Cigar a,e
   172,400     2,241,200  
ITT Educational Services a
   85,000     3,992,450
Hain Celestial Group a
   37,800     877,338  
Sotheby’s Holdings Cl. A a,d
   510,200     6,969,332
Hershey Creamery Company d
   709     2,357,425          
Lancaster Colony
   16,900     763,204             10,961,782
       
         
          6,239,167   Total (Cost $35,118,163)         47,966,883
       
         
Home Furnishing/Appliances - 0.9%             Financial Intermediaries – 10.4%          
Bassett Furniture Industries
   116,675     1,925,137   Banking - 2.6%          
Falcon Products a,c
   761,600     3,351,040  
BOK Financial a
   125,561     4,861,722
La-Z-Boy d
   68,200     1,430,836  
Farmers & Merchants Bank of Long Beach
   1,266     5,570,400
Natuzzi ADR b
   118,700     1,196,496  
First National Bank Alaska
   2,130     4,760,550
       
 
Mechanics Bank
   200     3,760,000
          7,903,509  
Mercantile Bankshares d
   20,000     911,600
       
 
NetBank
   70,000     934,500
Publishing - 0.5%            
Oriental Financial Group
   49,225     1,265,083
Martha Stewart Living Omnimedia Cl. A a,d
 6,000     59,100          
Scholastic Corporation a,d
   130,000     4,425,200             22,063,855
       
         
          4,484,300   Insurance - 7.0%          
       
 
Alleghany Corporation a
   9,700     2,158,250
Sports and Recreation - 1.3%            
Argonaut Group a
   187,000     2,905,980
Callaway Golf
   35,000     589,750  
Baldwin & Lyons Cl. B
   21,200     594,872
Coachmen Industries
   47,700     863,847  
Commerce Group
   49,500     1,955,250
Fleetwood Enterprises a,d
   234,300     2,403,918  
Erie Indemnity Company Cl. A d
   169,900     7,200,362
Monaco Coach a
   141,050     3,356,990  
First American
   20,000     595,400
Oakley
   243,100     3,364,504  
Leucadia National
   51,500     2,374,150
Thor Industries
   12,100     680,262  
Markel Corporation a,d
   4,200     1,064,742
       
 
Montpelier Re Holdings
   53,000     1,945,100
          11,259,271  
NYMAGIC
   85,200     2,336,184
       
 
Navigators Group a
   83,200     2,568,384
Other Consumer Products - 1.1%            
PICO Holdings a
   179,400     2,811,198
Blyth
   54,700     1,762,434  
PMA Capital Cl. A d
   231,700     1,186,304
Burnham Corporation Cl. B
   18,000     900,000  
PXRE Group
   176,551     4,161,307
Fossil a
   15,000     420,150  
Philadelphia Consolidated Holding a,d
 35,000     1,709,050
Lazare Kaplan International a
   103,600     720,020  
The Phoenix Companies d
   81,900     986,076
Matthews International Cl. A d
   186,000     5,503,740  
ProAssurance Corporation a,d
   152,070     4,889,050
       
 
RLI
   122,724     4,597,241
          9,306,344  
Reinsurance Group of America d
   30,000     1,159,500
       
 
Wesco Financial d
   7,750     2,728,000
Total (Cost $39,042,960)         62,418,151  
White Mountains Insurance Group
 14,500     6,669,275
       
 
Zenith National Insurance
   96,900     3,154,095
Consumer Services – 5.6%                    
Leisure/Entertainment - 0.4%                       59,749,770
Gemstar-TV Guide International a,d
   215,100     1,086,255          
Hasbro
   50,000     1,064,000   Securities Brokers - 0.7%          
Magna Entertainment Cl. A a,d
   198,800     1,007,916  
E*TRADE Financial a
   360,000     4,554,000
       
 
†Investment Technology Group a,d
   20,000     323,000
          3,158,171  
Knight Trading Group a
   95,000     1,390,800
       
         
Restaurants/Lodgings - 1.5%                       6,267,800
Benihana Cl. A a
   57,500     738,875          
CEC Entertainment a
   30,000     1,421,700              
Four Seasons Hotels
   35,000     1,790,250              
IHOP Corporation
   161,700     6,222,216              
 
THE ROYCE FUNDS ANNUAL REPORT 2003 |   21
 



ROYCE VALUE TRUST, INC.

SCHEDULES OF INVESTMENTS
DECEMBER 31, 2003
                         
    SHARES     VALUE       SHARES     VALUE
   
   
     
   
Financial Intermediaries (continued)            
Chiron Corporation a,d
   21,800   $ 1,242,382
Other Financial Intermediaries - 0.1%            
DUSA Pharmaceuticals a
   79,700     402,485
Chicago Mercantile Exchange
   10,000   $ 723,600  
Endo Pharmaceuticals Holdings a
   184,200     3,547,692
       
 
Genzyme Corporation a
   28,000     1,381,520
Total (Cost $52,286,851)         88,805,025  
Human Genome Sciences a
   90,000     1,192,500
       
 
Invitrogen Corporation a
   40,000     2,800,000
Financial Services – 5.6%            
Lexicon Genetics a
   523,300     3,082,237
Information and Processing - 2.1%            
Millennium Pharmaceuticals a
   50,000     933,500
Barra d
   42,200     1,497,678  
Perrigo Company d
   169,900     2,670,828
eFunds Corporation a
   207,775     3,604,896  
Shire Pharmaceuticals Group ADR a,b,d
 20,853     605,780
FactSet Research Systems d
   110,000     4,203,100          
Global Payments d
   68,500     3,227,720             25,742,869
Moody’s Corporation
   30,000     1,816,500          
National Processing a
   20,000     471,000   Health Services - 1.2%          
SEI Investments
   93,200     2,839,804  
Accredo Health a
   8,705     275,165
       
 
Albany Molecular Research a,d
   89,000     1,336,780
          17,660,698  
Gentiva Health Services a
   30,150     381,096
       
 
Health Management Associates Cl. A
   27,400     657,600
Insurance Brokers - 1.2%            
†IMPATH a,d
   164,000     623,200
Crawford & Co. Cl. A d
   289,100     2,049,719  
Lincare Holdings a
   34,600     1,039,038
Crawford & Co. Cl. B
   60,300     425,718  
Manor Care d
   58,300     2,015,431
Gallagher (Arthur J.) & Company
   86,200     2,800,638  
MedQuist a
   73,893     1,186,722
Hilb, Rogal & Hamilton Company
   155,050     4,972,454  
On Assignment a
   425,200     2,215,292
       
 
Quovadx a,d
   173,400     849,660
          10,248,529          
       
            10,579,984
Investment Management - 1.9%                    
Alliance Capital Management Holding L.P. d
   135,000     4,556,250   Personal Care - 0.7%          
BKF Capital Group a
   35,700     881,076  
Ocular Sciences a
   152,500     4,378,275
BlackRock Cl. A d
   25,000     1,327,750  
Regis
   37,200     1,470,144
Eaton Vance d
   70,200     2,572,128          
†Gabelli Asset Management Cl. A d
   93,100     3,705,380             5,848,419
Nuveen Investments Cl. A
   119,200     3,177,872          
       
  Surgical Products and Devices - 2.6%          
          16,220,456  
Allied Healthcare Products a
   60,000     231,000
       
 
Arrow International
   272,200     6,799,556
Other Financial Services - 0.4%            
CONMED Corporation a
   81,500     1,939,700
PRG-Schultz International a,d
   556,200     2,725,380  
Datascope
   34,000     1,218,900
Van der Moolen Holding ADR b
   49,000     425,810  
Diagnostic Products d
   25,000     1,147,750
       
 
Haemonetics a
   77,900     1,861,031
          3,151,190  
Invacare
   88,000     3,552,560
       
 
Novoste a,d
   66,500     318,535
Total (Cost $34,938,083)         47,280,873  
STERIS a
   48,600     1,098,360
       
 
Varian Medical Systems a
   40,800     2,819,280
Health – 10.0%            
Zoll Medical a
   20,200     716,696
Commercial Services - 2.5%                    
Covance a,d
   122,700     3,288,360             21,703,368
First Consulting Group a
   495,900     2,791,917          
Gene Logic a
   340,100     1,765,119   Total (Cost $64,253,178)         85,109,268
IDEXX Laboratories a
   98,000     4,535,440          
PAREXEL International a,d
   277,700     4,515,402   Industrial Products – 16.1%          
Pharmaceutical Product Development a
 10,000     269,700   Automotive - 0.1%          
Sybron Dental Specialties a
   21,000     590,100  
CLARCOR
   22,000     970,200
The TriZetto Group a,d
   190,200     1,226,790  
IMPCO Technologies a,d
   15,500     135,160
Young Innovations
   62,550     2,251,800  
Quantam Fuel Systems
          
       
 
Technologies Worldwide a
   15,500     124,620
          21,234,628          
       
            1,229,980
Drugs and Biotech - 3.0%                    
Abgenix a
   38,000     473,480   Building Systems and Components - 1.5%      
Affymetrix a,d
   81,800     2,013,098  
Decker Manufacturing
   6,022     196,919
Antigenics a,d
   38,500     435,820  
Preformed Line Products Company
   131,600     3,786,132
Applera Corporation- Celera
            
Simpson Manufacturing a,d
   180,400     9,175,144
Genomics Group a
   199,200     2,770,872          
Biopure Corporation Cl. A a,d
   18,200     43,316             13,158,195
BioSource International a
   1,600     10,832          
Celgene Corporation a,d
   40,000     1,800,800   Construction Materials - 1.7%          
Cephalon a,d
   4,900     237,209  
Ash Grove Cement Company Cl. B
 50,518     5,961,124
Cerus Corporation a
   21,700     98,518  
ElkCorp d
   27,000     720,900
 
22 |   THE ROYCE FUNDS ANNUAL REPORT 2003
 



ROYCE VALUE TRUST, INC.

SCHEDULES OF INVESTMENTS
DECEMBER 31, 2003
                         
    SHARES     VALUE       SHARES     VALUE
   
   
     
   
Industrial Products (continued)            
Maxwell Technologies a
   21,500   $ 152,650
Construction Materials (continued)            
Myers Industries
   52,727     639,051
Florida Rock Industries
   85,800   $ 4,706,130  
Peerless Mfg. a,c
   158,600     2,045,940
†Martin Marietta Materials d
   8,000     375,760  
Steelcase Cl. A
   82,500     1,184,700
Synalloy Corporation a,c
   345,000     2,387,400  
Trinity Industries
   20,000     616,800
       
         
          14,151,314             28,137,788
       
         
Industrial Components - 2.2%             Total (Cost $85,356,675)         137,330,015
AMETEK
   43,000     2,075,180          
Bel Fuse Cl. A
   53,200     1,590,680   Industrial Services – 13.7%          
Belden
   97,800     2,062,602   Advertising/Publishing - 0.4%          
C & D Technologies
   50,000     958,500  
Catalina Marketing a,d
   60,000     1,209,600
Donaldson Company
   26,000     1,538,160  
Interpublic Group of Companies a
 155,000     2,418,000
Penn Engineering & Manufacturing
 251,600     4,787,948          
Penn Engineering & Manufacturing Cl. A
 77,600     1,311,440             3,627,600
PerkinElmer
   135,000     2,304,450          
Powell Industries a
   57,400     1,099,210   Commercial Services - 5.3%          
Woodhead Industries d
   45,400     767,260  
ABM Industries
   179,800     3,130,318
       
 
†Administaff a,d
   37,500     651,750
          18,495,430  
Allied Waste Industries a
   188,800     2,620,544
       
 
Carlisle Holdings a
   194,900     1,198,635
Machinery - 3.9%            
Central Parking
   171,400     2,559,002
Coherent a,d
   208,700     4,967,060  
Convergys Corporation a
   149,000     2,601,540
Federal Signal
   58,600     1,026,672  
†DeVry a,d
   25,000     628,250
Graco
   64,550     2,588,455  
Hewitt Associates Cl. A a
   40,000     1,196,000
IDEX Corporation
   24,000     998,160  
†Hudson Highland Group a,d
   50,549     1,205,594
Lincoln Electric Holdings
   237,880     5,885,151  
iGATE Corporation a
   116,500     914,525
National Instruments
   47,600     2,164,372  
Iron Mountain a,d
   127,450     5,039,373
Nordson Corporation
   172,200     5,946,066  
Korn/Ferry International a,d
   140,700     1,876,938
Oshkosh Truck
   15,000     765,450  
Learning Tree International a,d
   53,400     928,626
PAXAR Corporation a
   333,100     4,463,540  
MPS Group a,d
   609,500     5,698,825
Woodward Governor Company
   73,600     4,182,688  
Manpower
   55,800     2,627,064
       
 
Metro One Telecommunications a,d
 25,000     65,000
          32,987,614  
Monster Worldwide a
   79,000     1,734,840
       
 
New Horizons Worldwide a
   277,500     1,578,697
Paper and Packaging - 0.3%            
Pemstar a,d
   223,000     733,670
Peak International a
   408,400     2,287,040  
RemedyTemp Cl. A a
   62,500     681,875
       
 
Renaissance Learning a,d
   15,000     361,200
Pumps, Valves and Bearings - 0.6%            
Reynolds & Reynolds Company Cl. A
   52,000     1,510,600
Baldor Electric
   62,900     1,437,265  
Spherion Corporation a,d
   49,000     479,710
ConBraCo Industries a
   7,630     648,550  
TRC Companies a,d
   28,000     589,680
Denison International ADR a,b
   79,400     1,897,660  
United Stationers a,d
   18,000     736,560
Franklin Electric
   23,600     1,427,564  
Watson Wyatt & Company
          
       
 
Holdings Cl. A a,d
   77,400     1,869,210
          5,411,039  
West Corporation a,d
   75,000     1,742,250
       
         
Specialty Chemicals and Materials - 1.3%                   44,960,276
Arch Chemicals
   38,200     980,212          
CFC International a
   123,500     654,550   Engineering and Construction - 1.0%      
Hawkins
   136,878     1,910,817  
EMCOR Group a,d
   22,000     965,800
MacDermid
   226,631     7,759,845  
Insituform Technologies Cl. A a,d
   160,000     2,640,000
       
 
Jacobs Engineering Group a
   10,000     480,100
          11,305,424  
McDermott International a
   71,000     848,450
       
 
Washington Group International a
 100,000     3,397,000
Steel/Metal Fabrication & Distribution - 1.0%                
Commercial Metals Company
   5,000     152,000             8,331,350
Kaydon Corporation d
   208,700     5,392,808          
NN
   127,100     1,600,189   Food/Tobacco Processors - 1.3%          
Oregon Steel Mills a
   247,900     1,440,299  
Farmer Bros.
   15,000     4,668,750
       
 
MGP Ingredients c
   417,322     6,572,822
          8,585,296          
       
            11,241,572
Textiles - 0.2%                    
Unifi a
   245,100     1,580,895   Industrial Distribution - 1.3%          
       
 
Central Steel & Wire
   3,799     1,500,605
Other Industrial Products - 3.3%            
Ritchie Bros. Auctioneers
   155,200     8,241,120
Albany International Cl. A
   45,500     1,542,450  
Strategic Distribution
   115,000     1,611,150
BHA Group Holdings
   187,252     4,709,388          
Brady Corporation Cl. A
   139,400     5,680,550             11,352,875
Diebold d
   100,000     5,387,000          
Kimball International Cl. B
   397,380     6,179,259              
 
THE ROYCE FUNDS ANNUAL REPORT 2003 |   23
 



ROYCE VALUE TRUST, INC.

SCHEDULE OF INVESTMENTS
DECEMBER 31, 2003
    SHARES     VALUE       SHARES     VALUE
   
   
     
   
Industrial Services (continued)
            
Gold Fields ADR b
   57,800   $ 805,732
Printing - 0.7%
            
Hecla Mining Company a,d
   198,000     1,641,420
Bowne & Co.
   68,100   $ 923,436  
MK Gold a
   517,900     787,208
Ennis Business Forms
   62,700     959,310  
Stillwater Mining a
   52,296     500,473
Moore Wallace a
   90,700     1,698,811          
New England Business Service
   68,800     2,029,600             8,033,963
       
         
          5,611,157  

Real Estate - 1.2%

          
       
 
Alico
   52,000     1,807,520
Transportation and Logistics - 3.1%
            
Chelsea Property Group
   20,000     1,096,200
AirNet Systems a
   219,000     825,630  
Consolidated-Tomoka Land
   13,564     443,543
Alexander & Baldwin
   60,000     2,021,400  
Public Storage
   25,000     1,084,750
Brink’s Company (The) d
   137,278     3,103,856  
Trammell Crow Company a
   412,400     5,464,300
C. H. Robinson Worldwide
   40,000     1,516,400          
Continental Airlines Cl. B a,d
   100,000     1,627,000             9,896,313
EGL a
   173,125     3,040,075          
Forward Air a
   166,500     4,578,750  

Total (Cost $46,347,366)

         66,092,653
Frozen Food Express Industries a
   306,635     2,036,056          
Hub Group Cl. A a
   77,000     1,658,580  

Technology – 23.3%

          
Landstar System a
   33,600     1,278,144  

Aerospace/Defense - 0.9%

          
Patriot Transportation Holding a
   101,300     3,342,900  
†Armor Holdings a,d
   28,000     736,680
UTI Worldwide d
   45,000     1,706,850  
Curtiss-Wright d
   86,600     3,897,866
       
 
Ducommun a
   117,200     2,619,420
          26,735,641  
Herley Industries a
   2,000     41,400
       
         
Other Industrial Services - 0.6%
                       7,295,366
Landauer
   117,900     4,807,962          
       
 

Components and Systems - 6.4%

          
Total (Cost $81,161,608)         116,668,433  
Adaptec a
   99,500     878,585
       
 
American Power Conversion d
   161,200     3,941,340
Natural Resources – 7.8%
            
Analogic Corporation
   13,000     533,000
Energy Services - 3.3%
            
Dionex Corporation a,d
   89,000     4,095,780
Atwood Oceanics a,d
   19,700     629,218  
Excel Technology a
   168,500     5,536,910
Carbo Ceramics
   105,600     5,412,000  
Imation Corporation
   15,700     551,855
Core Laboratories a
   91,200     1,522,128  
InFocus Corporation a
   79,000     764,720
ENSCO International
   6,443     175,056  
†Iomega Corporation d
   35,000     209,300
Global Industries a
   119,500     615,425  
KEMET Corporation a,d
   90,000     1,232,100
Hanover Compressor Company a,d
   175,000     1,951,250  
Kronos a,d
   38,775     1,535,878
Helmerich & Payne
   156,400     4,368,252  
Methode Electronics Cl. A
   50,000     611,500
Hydril Company a
   25,000     598,250  
Newport Corporation a,d
   102,600     1,695,978
Input/Output a,d
   540,100     2,435,851  
Perceptron a
   397,400     3,020,240
Precision Drilling a
   32,500     1,419,600  
Plexus Corporation a
   252,600     4,337,142
TETRA Technologies a
   51,000     1,236,240  
Radiant Systems a
   32,500     273,325
Tidewater
   21,600     645,408  
Rainbow Technologies a
   96,900     1,091,094
Universal Compression Holdings a
   115,000     3,008,400  
REMEC a,d
   189,200     1,591,172
Veritas DGC a
   123,000     1,289,040  
Scitex a
   245,700     1,238,328
Willbros Group a
   242,600     2,916,052  
Symbol Technologies
   233,600     3,945,504
       
 
TTM Technologies a
   154,500     2,607,960
          28,222,170  
Technitrol a
   318,900     6,613,986
       
 
Tektronix
   65,000     2,054,000
Oil and Gas - 2.3%
            
Vishay Intertechnology a
   65,900     1,509,110
Tom Brown a
   125,500     4,047,375  
Zebra Technologies Cl. A a
   74,350     4,934,610
†Chesapeake Energy d
   82,000     1,113,560          
Cimarex Energy a,d
   138,170     3,687,757             54,803,417
Denbury Resources a
   174,100     2,421,731          
EOG Resources
   5,000     230,850  

Distribution - 1.4%

          
Husky Energy
   85,000     1,543,661  
Anixter International a,d
   41,900     1,084,372
PetroCorp a
   61,400     826,444  
Arrow Electronics a,d
   114,700     2,654,158
Prima Energy a
   43,000     1,511,880  
Avnet a
   92,355     2,000,409
SEACOR SMIT a
   83,500     3,509,505  
Insight Enterprises a
   46,000     864,800
Toreador Resources a
   100,300     466,395  
Tech Data a
   134,500     5,338,305
Vintage Petroleum
   48,300     581,049          
       
            11,942,044
          19,940,207          
       
 

Internet Software and Services - 0.9%

          
Precious Metals and Mining - 1.0%
            
CNET Networks a,d
   155,400     1,059,828
AngloGold ADR b,d
   49,900     2,330,330  
CryptoLogic
   202,000     2,404,002
Glamis Gold a
   115,000     1,968,800  
CyberSource Corporation a,d
   10,000     51,600
             
DoubleClick a,d
   166,700     1,703,674
 
24 |   THE ROYCE FUNDS ANNUAL REPORT 2003
 



ROYCE VALUE TRUST, INC.

SCHEDULE OF INVESTMENTS
DECEMBER 31, 2003
    SHARES     VALUE         SHARES     VALUE
   
   
       
   
Technology (continued)
            
Integral Systems
     59,800   $ 1,286,896
Internet Software and Services (continued)
      
JDA Software Group a
     64,900     1,071,499
EarthLink a
   122,700   $ 1,227,000  
MRO Software a
     46,000     619,160
RealNetworks a,d
   85,400     487,634  
Macromedia a,d
     51,600     920,544
†Satyam Computer Services ADR b
   20,000     586,600  
†ManTech International Cl. A a,d
     65,000     1,621,750
Stamps.com a
   58,300     361,460  
Manugistics Group a,d
     49,200     307,500
Vastera a
   15,000     60,000  
Novell a
     96,000     1,009,920
       
 
Progress Software a
     30,500     624,030
          7,941,798  
SPSS a,d
     107,500     1,922,100
       
 
Transaction Systems Architects Cl. A a
     212,300     4,804,349
IT Services - 6.0%
                      
American Management Systems a,d
   331,900     5,001,733               18,179,009
Answerthink a
   655,000     3,635,250            
BearingPoint a,d
   482,100     4,864,389  
Telecommunication - 1.4%
            
†Black Box d
   47,000     2,165,290  
ADC Telecommunications a,d
     113,000     335,610
CIBER a,d
   70,000     606,200  
Andrew Corporation a
     30,000     345,300
Covansys Corporation a
   251,600     2,767,600  
Catapult Communications a
     75,100     1,088,950
DiamondCluster International Cl. A a,d
   137,800     1,405,560  
†Covad Communications Group a,d
 213,000     766,800
Forrester Research a,d
   91,500     1,635,105  
Globecomm Systems a,d
     233,700     1,110,075
Gartner Cl. A a,d
   291,000     3,291,210  
IDT Corporation a
     25,000     553,750
CGI Group Cl. A a
   106,700     666,875  
IDT Corporation Cl. B a,d
     40,000     925,200
Keane a
   443,000     6,485,520  
Inet Technologies a
     65,000     780,000
MAXIMUS a,d
   107,400     4,202,562  
Level 3 Communications a,d
     388,400     2,213,880
Perot Systems Cl. A a
   165,100     2,225,548  
PECO II a
     93,600     104,926
QRS Corporation a
   57,500     466,900  
Plantronics a,d
     55,100     1,799,015
Sapient Corporation a
   944,400     5,288,640  
Time Warner Telecom Cl. A a
     179,000     1,813,270
Syntel
   72,400     1,789,004            
Unisys Corporation a,d
   325,000     4,826,250               11,836,776
       
           
          51,323,636  
Total (Cost $139,099,913)
           198,827,922
       
           
Semiconductors and Equipment - 4.2%
            
Utilities – 0.1%
            
Artisan Components a,d
   15,000     307,500  
Southern Union a
     10,500     193,200
BE Semiconductor Industries a
   58,000     492,420            
Cabot Microelectronics a
   125,000     6,125,000  
Total (Cost $132,500)
           193,200
CEVA a,d
   31,666     329,326            
Cognex Corporation
   118,400     3,343,616  
Miscellaneous – 3.6%
            
Credence Systems a,d
   10,600     139,496  
Total (Cost $25,222,259)
           30,284,076
Cymer a,d
   14,500     669,755            
DSP Group a
   115,000     2,864,650  
TOTAL COMMON STOCKS
            
DuPont Photomasks a,d
   35,000     844,900  
(Cost $602,959,556)
           880,976,499
Electroglas a,d
   281,700     1,028,205            
Exar Corporation a
   69,400     1,185,352  
PREFERRED STOCK – 0.1%
            
Fairchild Semiconductor Cl. A a
   66,200     1,653,014  
Aristotle Corporation 11.00% Conv.
     4,800     36,720
GlobespanVirata a
   76,000     446,880            
Helix Technology
   36,900     759,402  
TOTAL PREFERRED STOCK
            
Integrated Circuit Systems a
   75,000     2,136,750  
(Cost $31,005)
           36,720
Intevac a
   109,050     1,538,696            
Kulicke & Soffa Industries a
   105,800     1,521,404         PRINCIPAL      
Lattice Semiconductor a,d
   254,000     2,458,720         AMOUNT      
Mentor Graphics a
   225,700     3,281,678        
     
National Semiconductor a
   38,200     1,505,462  
CORPORATE BONDS – 0.2%
            
Novellus Systems a
   12,000     504,600  
Dixie Group 7.00%
            
Semitool a
   50,000     536,050  
Conv. Sub. Deb. due 5/15/12
   $ 537,000     472,560
Veeco Instruments a,d
   65,000     1,833,000  
Richardson Electronics 7.25%
            
       
 
Conv. Sub. Deb. due 12/15/06
     1,319,000     1,213,480
          35,505,876            
       
 
TOTAL CORPORATE BONDS
            
Software - 2.1%
            
(Cost $1,570,870)
           1,686,040
ANSYS a
   10,000     397,000            
Aspen Technology a,d
   27,100     278,046  
U.S. TREASURY OBLIGATIONS – 3.2%
      
Autodesk
   106,000     2,605,480  
U.S. Treasury Notes
            
Business Objects ADR a,b,d
   20,500     710,735  
5.625%, due 2/15/06
     25,000,000     26,942,375
                       
             
TOTAL U.S. TREASURY OBLIGATIONS
      
             
(Cost $26,849,375)
           26,942,375
                       
 
THE ROYCE FUNDS ANNUAL REPORT 2003 |   25
 



ROYCE VALUE TRUST, INC.

SCHEDULE OF INVESTMENTS
DECEMBER 31, 2003
      VALUE         VALUE  
     
       
 

REPURCHASE AGREEMENT – 19.0%

        

Money Market Funds

        

State Street Bank & Trust Company,

        

State Street Navigator Securities Lending

        

0.30% dated 12/31/03, due 1/2/04,

        

Prime Portfolio

   $ 70,716,012  

maturity value $162,203,703 (collateralized

            
 

by U.S. Treasury Bonds, 0.00% due 3/25/04

        

Total (Cost $70,768,029)

     70,768,029  

and U.S. Treasury Notes, 1.50%-1.75%

            
 

due 12/31/04-7/31/05, valued at $165,454,825)

        

TOTAL INVESTMENTS – 134.3%

        

(Cost $162,201,000)

  $ 162,201,000  

(Cost $864,379,835)

    1,142,610,663  
   
           

COLLATERAL RECEIVED FOR SECURITIES LOANED – 8.3%

  

LIABILITIES LESS CASH

        

U.S. Treasury Bonds

        

AND OTHER ASSETS – (8.4)%

     (71,837,548 )

10.375%-12.00% due 11/15/12-8/15/13

     42,769            

U.S. Treasury Notes

        

PREFERRED STOCK – (25.9)%

     (220,000,000 )

2.125%-3.875% due 5/31/04-7/15/12

     5,623      
 

U.S. Treasury Bills

        

NET ASSETS APPLICABLE TO

        

due 2/5/04

     3,625  

COMMON STOCKHOLDERS – 100.0%

   $ 850,773,115  
             
 

a Non-income producing.
b American Depository Receipt.
c At December 31, 2003, the Fund owned 5% or more of the Company’s outstanding voting securities thereby making the Company an Affiliated Company as that term is defined in the Investment Company Act of 1940. The market value and cost of the affiliates at December 31, 2003 was $18,656,762 and $15,311,408, respectively.
d A portion of these securities were on loan at December 31, 2003. Total market value of loaned securities at December 31, 2003 was $67,367,384.
e A security for which market quotations are no longer readily available represents 0.3% of net assets. This security has been valued at its fair value under procedures established by the Fund’s Board of Directors.
† New additions in 2003.
  Bold indicates the Fund’s largest 20 equity holdings in terms of December 31, 2003 market value.

INCOME TAX INFORMATION: The cost of total investments for Federal income tax purposes was $867,973,689. At December 31, 2003, net unrealized appreciation for all securities was $274,636,974, consisting of aggregate gross unrealized appreciation of $317,612,471 and aggregate gross unrealized depreciation of $42,975,497. 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 2003		    
 



ROYCE VALUE TRUST, INC.
       
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2003  
ASSETS:      

Investments at value (cost $702,178,835) – including $70,768,029 of collateral on loaned securities

 $ 980,409,663  

Repurchase agreement (at cost and value)

   162,201,000  

Cash

   204,977  

Receivable for investments sold

   763,629  

Receivable for dividends and interest

   1,008,448  

Prepaid expenses

   20,856  

Total Assets

   1,144,608,573  
LIABILITIES:      

Payable for collateral on loaned securities

   70,768,029  

Payable for investments purchased

   1,612,603  

Payable for investment advisory fee

   977,568  

Preferred dividends accrued but not yet declared

   288,449  

Accrued expenses

   188,809  

Total Liabilities

   73,835,458  
PREFERRED STOCK:      

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

   220,000,000  

Total Preferred Stock

   220,000,000  
NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS $ 850,773,115  
ANALYSIS OF NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:      

Common Stock paid-in capital – $0.001 par value per share; 49,956,349 shares outstanding (150,000,000 shares authorized)

 $ 577,693,079  

Accumulated net realized loss on investments

   (4,862,343 )

Net unrealized appreciation on investments

   278,230,828  

Preferred dividends accrued but not yet declared

   (288,449 )

Net Assets applicable to Common Stockholders (net asset value per share – $17.03)

 $ 850,773,115  
 
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
 
THE ROYCE FUNDS ANNUAL REPORT 2003 |   27
 



ROYCE VALUE TRUST, INC.
 
STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2003  
INVESTMENT INCOME:      

Income:

      

Dividends

 $ 6,586,470  

Interest

   1,147,303  

Securities lending

   139,448  

Total income

   7,873,221  

Expenses:

      

Investment advisory fees

   10,196,974  

Stockholder reports

   354,471  

Custody and transfer agent fees

   221,988  

Administrative and office facilities expenses

   113,988  

Professional fees

   110,794  

Directors’ fees

   103,168  

Other expenses

   131,674  

Total expenses

   11,233,057  

Fees waived by investment advisor

   (866,667 )

Net expenses

   10,366,390  

Net investment loss

   (2,493,169 )
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:      

Net realized gain on investments

   74,989,675  

Net change in unrealized appreciation on investments

   208,275,790  

Net realized and unrealized gain on investments

   283,265,465  
NET INCREASE IN NET ASSETS RESULTING FROM INVESTMENT OPERATIONS   280,772,296  
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS   (12,274,332 )

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

$ 268,497,964  
 
STATEMENT OF CHANGES IN NET ASSETS              
  Year ended   Year ended
  December 31,   December 31,
  2003   2002
 
 

INVESTMENT OPERATIONS:

              

Net investment loss

 $ (2,493,169 )   $ (583,347 )

Net realized gain on investments

   74,989,675       62,933,497  

Net change in unrealized appreciation on investments

   208,275,790       (156,381,089 )

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

   280,772,296       (94,030,939 )
               

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:

              

Net investment income

   –       (581,030 )

Net realized gain on investments

   (12,252,107 )     (11,398,970 )

Quarterly distributions accrued but not yet declared

   (22,225 )     –  

Total distributions to Preferred Stockholders

   (12,274,332 )     (11,980,000 )

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

   268,497,964       (106,010,939 )

DISTRIBUTIONS TO COMMON STOCKHOLDERS:

              

Net investment income

   –       (2,981,664 )

Net realized gain on investments

   (61,293,595 )     (58,496,049 )

Total distributions to Common Stockholders

   (61,293,595 )     (61,477,713 )

CAPITAL STOCK TRANSACTIONS:

              

Net proceeds from rights offering

   54,487,617       –  

Offering costs from issuance of Preferred Stock

   (7,261,800 )     –  

Reinvestment of distributions to Common Stockholders

   35,567,306       39,123,307  

Total capital stock transactions

   82,793,123       39,123,307  

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS

   289,997,492       (128,365,345 )

NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:

              

Beginning of year

   560,775,623       689,140,968  

End of year

 $ 850,773,115     $ 560,775,623  
 
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
 
 
28 |   THE ROYCE FUNDS ANNUAL REPORT 2003
 



ROYCE VALUE TRUST, INC.

FINANCIAL HIGHLIGHTS
This table is presented to show selected data for a share of Common Stock outstanding throughout each period, and to assist stockholders in evaluating the Fund’s performance for the periods presented.
  Years ended December 31,
 
    2003         2002         2001         2000         1999  

NET ASSET VALUE, BEGINNING OF PERIOD

   $13.22         $17.31         $16.56         $15.77         $15.72  

INVESTMENT OPERATIONS:

                                              

Net investment income (loss)

   (0.05 )       (0.02 )       0.05         0.18         0.26  

Net realized and unrealized gain (loss) on investments

   5.64         (2.25 )       2.58         2.58         1.65  

Total investment operations

   5.59         (2.27 )       2.63         2.76         1.91  

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:

                                              

Net investment income

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

Net realized gain on investments

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

Total distributions to Preferred Stockholders

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

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

   5.33         (2.56 )       2.32         2.43         1.55  

DISTRIBUTIONS TO COMMON STOCKHOLDERS:

                                              

Net investment income

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

Net realized gain on investments

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

Total distributions to Common Stockholders

   (1.30 )       (1.51 )       (1.49 )       (1.48 )       (1.37 )

CAPITAL STOCK TRANSACTIONS:

                                              

Effect of reinvestment of distributions by Common Stockholders

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

Effect of rights offering and Preferred Stock offering

   (0.22 )       –         –         –         –  

Total capital stock transactions

   (0.22 )       (0.02 )       (0.08 )       (0.16 )       (0.13 )

NET ASSET VALUE, END OF PERIOD

   $17.03         $13.22         $17.31         $16.56         $15.77  

MARKET VALUE, END OF PERIOD

   $17.21         $13.25         $15.72         $14.438         $13.063  

TOTAL RETURN (a):

                                              

Market Value

   42.0 %       (6.9 )%       20.0 %       22.7 %       5.7 %

Net Asset Value

   40.8 %       (15.6 )%       15.2 %       16.6 %       11.7 %

RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:

                                              

Total expenses (b,c)

   1.49 %       1.72 %       1.61 %       1.43 %       1.39 %

Management fee expense

   1.34 %       1.56 %       1.45 %       1.25 %       1.18 %

Other operating expenses

   0.15 %       0.16 %       0.16 %       0.18 %       0.21 %

Net investment income (loss)

   (0.36 )%       (0.09 )%       0.35 %       1.18 %       1.47 %

SUPPLEMENTAL DATA:

                                              

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

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

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

   $220,000         $160,000         $160,000         $160,000         $160,000  

Portfolio Turnover Rate

   23 %       35 %       30 %       36 %       41 %

PREFERRED STOCK:

                                              

Total shares outstanding

   8,800,000         6,400,000         6,400,000         6,400,000         6,400,000  

Asset coverage per share

   $121.68         $112.62         $132.68         $122.38         $111.40  

Liquidation preference per share

   $25.00         $25.00         $25.00         $25.00         $25.00  

Average market value per share (d):

                                              

5.90% Cumulative

   $25.04         –         –         –         –  

7.80% Cumulative

   $25.87         $26.37         $25.70         $23.44         $24.98  

7.30% Tax-Advantaged Cumulative

   $25.53         $25.82         $25.37         $22.35         $24.24  
(a)   The Market Value Total Return is calculated assuming a purchase of Common Stock on the opening of the first business day and a sale on the closing of the last business day of each period reported. Dividends and distributions, if any, are assumed for the purposes of this calculation, to be reinvested at prices obtained under the Fund’s Distribution Reinvestment and Cash Purchase Plan. Net Asset Value Total Return is calculated on the same basis, except that the Fund’s net asset value is used on the purchase and sale dates instead of market value.
(b)   Expense ratios based on total average net assets including liquidation value of Preferred Stock were 1.19%, 1.38%, 1.30%, 1.12% and 1.06% for the periods ended December 31, 2003, 2002, 2001, 2000 and 1999, respectively.
(c)   Expense ratios based on average net assets applicable to Common Stockholders before waiver of fees by the investment adviser would have been 1.62%, 1.82%, 1.65%, 1.51% and 1.48% for the periods ended December 31, 2003, 2002, 2001, 2000 and 1999, respectively.
(d)   The average of month-end market values during the period that the preferred stock was outstanding.
THE ROYCE FUNDS ANNUAL REPORT 2003 |   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 are valued as of the close of trading on the New York Stock Exchange (generally 4:00 p.m. Eastern time) on the valuation date. Securities that trade on an exchange or Nasdaq are valued at their last reported sales price taken from the primary market in which each security trades or, if no sale is reported for such day, at their bid price. Other over-the-counter securities for which market quotations are readily available are valued at their bid price. Securities for which market quotations are not readily available are valued at their fair value under procedures established by the Fund’s Board of Directors. Bonds and other fixed income securities may be valued by reference to other securities with comparable ratings, interest rates and maturities, using established independent pricing services.

Investment Transactions and Related Investment Income:
      Investment transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date and any non-cash dividend income is recorded at the fair market value of the securities received. Interest income is recorded on the accrual basis. Realized gains and losses from investment transactions are determined on the basis of identified cost for book and tax purposes.

Expenses:
      The Fund incurs direct and indirect expenses. Expenses directly attributable to the Fund are charged to the Fund’s operations, while expenses applicable to more than one of the Royce Funds are allocated in an equitable manner. Allocated personnel and occupancy costs related to The Royce Funds are included in administrative and office facilities expenses. The Fund has adopted a deferred fee agreement that allows the Fund’s Directors to defer the receipt of all or a portion of Directors’ Fees otherwise payable. The deferred fees are invested in certain Royce Funds until distributed in accordance with the agreement.

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

Distributions:
      The Fund currently has a policy of paying quarterly distributions on the Fund’s Common Stock. Distributions are currently being made at the annual rate of 9% of the rolling average of the prior four calendar quarter-end NAVs of the Fund’s Common Stock, with the fourth quarter distribution being the greater of 2.25% of the rolling average or the distribution required by IRS regulations. Distributions to Preferred Stockholders are recorded on an accrual basis and paid quarterly. The Fund is required to allocate long-term capital gain distributions and other types of income proportionately to distributions made to holders of shares of Common Stock and Preferred Stock. To the extent that distributions are not paid from long-term capital gains, net investment income or net short-term capital gains, they will represent a return of capital. Distributions are determined in accordance with income tax regulations that may differ from accounting principles generally accepted in the United States of America. Permanent book and tax basis differences relating to stockholder distributions will result in reclassifications within the capital accounts. Undistributed net investment income may include temporary book and tax basis differences, which will reverse in a subsequent period. Any taxable income or gain remaining undistributed at fiscal year end is distributed in the following year.

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

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

30 |   THE ROYCE FUNDS ANNUAL REPORT 2003
 



ROYCE VALUE TRUST, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
Capital Stock:
 
      The Fund issued 2,448,904 and 2,615,641 shares of Common Stock as reinvestment of distributions by Common Stockholders for the years ended December 31, 2003 and 2002, respectively.
      On March 10, 2003, the Fund completed a rights offering of Common Stock to its stockholders at the rate of one common share for each 10 rights held by stockholders of record on January 28, 2003. The rights offering was fully subscribed, resulting in the issuance of 5,090,083 common shares at a price of $10.77, and proceeds of $54,820,194 to the Fund prior to the deduction of estimated expenses of $332,577. The net asset value per share of the Fund’s Common Stock was reduced by approximately $0.07 per share as a result of the issuance.
      On October 10, 2003, the Fund redeemed all (2,400,000 shares) of its then outstanding 7.80% Cumulative Preferred Stock at the redemption price of $25.00 per share plus accumulated and unpaid dividends through the redemption date of $0.0975 per share, and all (4,000,000 shares) of its outstanding 7.30% Tax-Advantaged Cumulative Preferred Stock at the redemption price of $25.00 per share plus accumulated and unpaid dividends through the redemption date of $0.09125 per share. On October 9, 2003, the Fund received net proceeds of $213,070,000 (after underwriting discounts of $6,930,000 and before estimated offering expenses of $331,800) from the public offering of 8,800,000 shares of 5.90% Cumulative Preferred Stock. Commencing October 9, 2008 and thereafter, the Fund, at its option, may redeem the 5.90% Cumulative Preferred Stock, in whole or in part, at the redemption price.
      At December 31, 2003, 8,800,000 shares of the 5.90% Cumulative Preferred Stock were outstanding. The Fund is required to meet certain asset coverage tests with respect to the Cumulative Preferred Stock as required by the 1940 Act. In addition, pursuant to the Rating Agency Guidelines established by Moody’s, the Fund is required to maintain a certain discounted asset coverage. If the Fund fails to meet these requirements and does not correct such failure, the Fund may be required to redeem, in part or in full, the Cumulative Preferred Stock at a redemption price of $25.00 per share plus an amount equal to the accumulated and unpaid dividends, whether or not declared on such shares, in order to meet these requirements. Additionally, failure to meet the foregoing asset coverage requirements could restrict the Fund’s ability to pay dividends to Common Stockholders and could lead to sales of portfolio securities at inopportune times. The Fund has met these requirements since issuing the Preferred Stock.
      Under Emerging Issues Task Force (EITF) Topic D-98, Classification and Measurement of Redeemable Securities, preferred securities that are redeemable for cash or other assets are to be classified outside of permanent equity to the extent that the redemption is at a fixed or determinable price and at the option of the holder or upon the occurrence of an event that is not solely within the control of the issuer. Subject to the guidance of the EITF, the Fund’s Cumulative Preferred Stock has been reclassified outside of permanent equity (net assets applicable to Common Stockholders) in the accompanying financial statements.

Investment Advisory Agreement:
 
      As compensation for its services under the Investment Advisory Agreement, Royce & Associates, LLC (“Royce”) receives a fee comprised of a Basic Fee (“Basic Fee”) and an adjustment to the Basic Fee based on the investment performance of the Fund in relation to the investment record of the S&P 600 SmallCap Index (“S&P 600”).
       The Basic Fee is a monthly fee equal to 1/12 of 1% (1% on an annualized basis) of the average of the Fund’s month-end net assets applicable to Common Stockholders plus the liquidation value of Preferred Stock for the rolling 60-month period ending with such month. The 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, 2003 the Fund accrued and paid Royce advisory fees totaling $9,330,307, which is net of $866,667 voluntarily waived by Royce.

THE ROYCE FUNDS ANNUAL REPORT 2003 |   31
 



ROYCE VALUE TRUST, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
Distributions to Stockholders:
The tax character of distributions paid to stockholders during 2003 and 2002 was as follows:
 
Distributions paid from:
 2003   2002
 
 
Ordinary income
 $ 1,416,811   $ 6,028,029
Long-term capital gain
   72,128,891     67,429,684
 
 
  $ 73,545,702   $ 73,457,713
 
 
As of December 31, 2003, the tax basis components of distributable earnings included in stockholders’ equity were as follows:
   
Post October loss
 $ (2,394,565 )    
Undistributed long-term capital gain
   1,126,076      
Unrealized appreciation
   274,636,974      
Accrued preferred distributions
   (288,449 )    
 
     
  $ 273,080,036      
 
     
     
Under current tax law, capital losses realized after October 31 and prior to the Fund’s fiscal year end may be deferred, as occuring on the first day of the following fiscal year.
For financial reporting purposes, capital accounts and distributions to shareholders are adjusted to reflect the tax character of permanent book / tax differences. For the year ended December 31, 2003, the Fund recorded the following permanent reclassifications, which relate primarily to the current net operating losses. Results of operations and net assets were not affected by these reclassifications.
 
  Undistributed   Accumulated      
  Net Investment   Net Realized   Paid-in  
  Income   Gain (Loss)   Capital  
 
 
 
 
  $ 2,493,169     $ (2,493,169 )   $ —    
 
Purchases and Sales of Investment Securities:
For the year ended December 31, 2003, the cost of purchases and proceeds from sales of investment securities, other than short-term securities, amounted to $183,043,350 and $265,871,410, 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, 2003:
 
Affiliated Company   Market Value
12/31/02		   Purchases   Sales   Realized and
Unrealized Gain (Loss)		   Dividend Income   Market Value
12/31/03
 
 
 
 
 
 
Ascent Media Group Cl. A   $