UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
   
FORM N-CSR
   
CERTIFIED SHAREHOLDER REPORT
OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
   
Investment Company Act file number: 811-04875
   
Name of Registrant: Royce Value Trust, Inc.
   
Address of Registrant: 1414 Avenue of the Americas
New York, NY 10019
   
Name and address of agent for service: John E. Denneen, Esquire
  1414 Avenue of the Americas
  New York, NY 10019
   
Registrant’s telephone number, including area code: (212) 486-1445
Date of fiscal year end: December 31
Date of reporting period: January 1, 2008 – December 31, 2008
   
   
Item 1. Reports to Shareholders.  
   






   
 



Royce Value Trust



Royce Micro-Cap Trust



Royce Focus Trust
































 
ANNUAL
REVIEW AND REPORT

TO STOCKHOLDERS
 
 
 
 


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 primarily small-cap companies.


A closed-end fund is an investment company whose shares are listed and traded on a stock exchange. 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 that may include shelf offerings and 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, as with any publicly traded stock. This is in contrast to open-end mutual funds, in which 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

n  
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.
  n  
The fixed capital structure allows permanent leverage to be employed as a means to enhance capital appreciation potential.
 
               
n  
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.
  n  
Unlike Royce’s open-end funds, our closed-end funds are able to distribute capital gains on a quarterly basis. Each of the Funds had a quarterly distribution policy for its common stock in 2008.
 
               
n  
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.
 
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, please see page 19 or visit our website at www.roycefunds.com.



This page is not part of the 2008 Annual Report to Stockholders



Table of Contents    

Annual Review    

Performance Table   2
     
Letter to Our Stockholders   3
     
Small-Cap Market Cycle Performance   10
     
Postscript: Where Were You When...?   Inside Back Cover

     
Annual Report to Stockholders   11
     


For more than 30 years, we have used a value approach to invest in smaller-cap securities. We focus primarily on the quality of a company’s balance sheet, its ability to generate free cash flow and other measures of profitability or sound financial condition. At times, we may also look at other factors, such as a company’s unrecognized asset values, its future growth prospects or its turnaround potential following an earnings disappointment or other business difficulties. We then use these factors to assess the company’s current worth, basing the assessment on either 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.

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Performance Table  


NAV Average Annual Total Returns Through December 31, 2008

      Royce   Royce   Royce      
 
 
 
Value Trust
 
Micro-Cap Trust
 
Focus Trust
 
Russell 2000
 
Fourth Quarter 2008*
  -32.89 %   -33.68 %   -30.46 %   -26.12 %

  July-December 2008*   -38.43     -38.23     -43.99     -26.94  

  One-Year   -45.62     -45.45     -42.71     -33.79  

  Three-Year   -11.95     -12.40     -9.36     -8.29  

  Five-Year   -2.12     -3.16     1.83     -0.93  

  10-Year   4.82     5.83     7.90     3.02  

  15-Year   7.52     8.14     n.a.     5.89  

  20-Year   9.24     n.a.     n.a.     7.86  

  Since Inception   8.95     8.13     7.86     —    

  Inception Date   11/26/86   12/14/93   11/1/96**   —    


Important Performance and Risk Information
All performance information in this Review and Report reflects past performance, is presented on a total return basis and reflects the reinvestment of distributions. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate, so that shares may be worth more or less than their original cost when sold. Current performance may be higher or lower than performance quoted. Current month-end performance may be obtained at www.roycefunds.com. The Royce Funds invest primarily in securities of small-cap and/or micro-cap companies, which may involve considerably more risk than investments in securities of larger-cap companies.

The thoughts expressed in this Review and Report to Stockholders concerning recent market movements and future prospects for small-company stocks are solely the opinion of Royce at December 31, 2008, 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, 2008 and are subject to change at any time without notice. There can be no assurance that securities mentioned in this Review and Report to Stockholders will be included in any Royce-managed portfolio in the future.


*   Not annualized.
**   Date Royce & Associates, LLC assumed investment management responsibility for the Fund.

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Letter to Our Stockholders      

     
     
A Series Of Unfortunate Events      
       
Each crisis...has its unique individual features—the nature of the shock, the object of speculation, the form of credit expansion, the ingenuity of the swindlers, and the nature of the incident that touches off revulsion. But if one may borrow a French phrase, the more something changes, the more it remains the same. Details proliferate; structure abides.
–Charles P. Kindelberger, Manias, Panics and Crashes: A History of Financial Crises

     
In our 2008 Semiannual Review and Report we observed, “The first six months of 2008 gave even the most serene investor cause for anxiety, if not panic.” We wrote those words in July, two months before the word “bailout” had entered our collective lexicon. It was a time when Lehman Brothers was a major investment bank, AIG was a highly respected insurance business and only a few people were concerned about the prospects for the U.S. auto industry. Bear Stearns was at that point the only significant corporate casualty. Ah, the good old days. However, there was a whiff of dread in the air, with most of the fear coalescing around the impact of a rapidly contracting credit market and a declining real estate market, both exacerbated by the ominous effects of record defaults in subprime
    
So while we took ample advantage of what we thought were excellent opportunities in 2008—particularly in the fourth quarter—we remain profoundly disappointed in our showing during this most disconcertingly memorable year.
       

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Ultimately, asset management is a
numbers game, and the numbers that
matter most are performance numbers.
Success or failure is measured in
returns, which are analogous to the
final score in a sporting event. So
while investing and sports are
dominated by performance, the study
of how successful performance is
achieved, and how it may best be
maintained have also become
increasingly critical topics,
particularly among management
teams in either field concerned with
creating long-term winners.

With the stock market enduring—at
the most generous estimate—the
equivalent of a disastrous, injury-
riddled season, we thought that it was
worth looking at some of the related
numbers that help to tell the story
of what has been happening over
the last 18 months in our smaller-
company universe, especially now
that the playing field has grown
significantly larger.

As the market approached its 2008
lows, for example, a story first
reported by Reuters on November 19th
revealed some interesting numbers
within the S&P 500 index. One
hundred and one companies in the
large-cap index at that time were




Continued on page 6...
   
Letter to Our Stockholders

mortgages and troubles with the wildly complicated securities that housed them. There were also concerns about the sluggish economy and the stumbling stock market.
     All of this, of course, began to worsen quickly and radically in mid-September with a succession of collapses, near-collapses and restructurings that began with the sale of Merrill Lynch to Bank of America, the bankruptcy of Lehman Brothers and the narrow escape of AIG from a similar fate, courtesy of a government-sponsored financial rescue plan. Other financial institutions quickly lobbied for the same privilege, as worries about the global financial system seizing up led to the enactment of the Troubled Assets Relief Program (TARP) in early October, which provided up to $700 billion for firms at risk. The stock market, in a dramatic swoon, initially took its cues from the still-contracted credit market, paying little heed to the federal government’s efforts to stabilize the system and reduce the pain. An interim low for equities was not reached until November 20, more than a month after the passage of the Emergency Economic Stabilization Act of 2008 (of which TARP is a part). And, in spite of a short-term rally from that November low through the end of December, the year lurched toward its end with plenty of volatile days when the major indices closed in the red.
     So much has changed, yet we find ourselves going about our business in much the same manner as always. We are humbled by the fact that we saw so little of it coming. Some kind of correction for smaller companies looked inevitable to us as early as 2006, but crisis did not seem like a sure thing as late as Labor Day of 2008. We have certainly been chastened by our inability to find enough companies capable of withstanding this historically severe bear market. One of our chief sources of collective pride over the years was our portfolios’ generally strong records in down markets. With a few notable exceptions, that was simply not the case in 2008. So while we took ample advantage of what we thought were excellent opportunities—particularly in the fourth quarter—we remain profoundly disappointed in our showing during this most disconcertingly memorable year.

A Journal Of The Plague Year
Of course, we were not alone in posting uninspiring results. The ongoing horserace between small- and large-cap stocks, as measured by the Russell 2000 and S&P 500, respectively, offered no real winner in 2008, only varying levels of painful negative returns. That said, the Russell 2000 received 2008’s dubious distinction award. The small-cap index’s -33.8% calendar-year return—its worst ever—outpaced the S&P 500’s -37.0% result, as well as the more tech-heavy Nasdaq Composite’s -40.5% performance, the global MSCI EAFE’s (Europe, Australasia and Far East) -43.4% mark and the MSCI World Small Core’s -41.9% showing. Little else in any investment category provided positive returns in 2008, with the exception of a few municipal-bond indices. Losses were considerable across several asset groups. Domestic and international equities of every size, commodities and real estate all endured declines in excess of 30% in 2008.


 
       

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      The relative advantage for smaller domestic stocks was built in the year’s second and third quarters, especially the latter, a period in which the Russell 2000 fell 1.1% while the S&P 500 declined 8.4%. During the fourth quarter’s decline, the Russell 2000 gave back a portion of its edge, falling 26.1% versus a loss of 21.9% for its large-cap counterpart. It was the worst quarterly showing for either index since the fourth quarter of 1987. Recent market cycle results were also discouraging. From the Russell 2000’s recent peak on 7/13/07 through the trough on 11/20/08, the small-cap index lost 54.1%. The S&P 500 declined 50.7% from its 2007 performance peak on 10/9/07 through 11/20/08. The longer-term picture was equally dispiriting. Three-and five-year returns ended 12/31/08 were negative for both the Russell 2000 and S&P 500. Ten-year returns for the S&P 500 were also negative, and among the worst in the long history of the large-cap index. These longer-term returns offer particularly compelling evidence of just how devastating the current bear market has been.
  None of us can see around corners, and no one can say with any assurance what will happen next, which is why the most informed, seemingly insightful forecasts can soon look short-sighted.
      In the context of such poor results, it makes sense that few people commented on, or even noticed, the otherwise dynamic rally that followed the trough on 11/20/08 through the year’s end, a period that saw the Russell 2000 gain 30.0% versus a gain of 20.5% for the S&P 500. Always a bit skeptical about short-term rallies, we were actually more encouraged by the fact that a system was put in place, both here and in other developed nations, to aid financial firms in trouble. While we may not have seen the last of financial institutions failing, there was a growing steadiness to the market’s behavior as the fourth quarter came to a close. We really cannot expect any long-term recovery until we achieve systemic stability. The credit market has not yet recovered, but it did show some signs of life, with the LIBOR spread contracting as the year ended. One other key component, though not technically a sign of stability, is the unpredictable nature of markets and economies. None of us can see around corners, and no one can say with any assurance what will happen next, which is why the most informed, seemingly insightful forecasts can soon look short-sighted.
   
The Waste Land    
In 2007 and through the first six months of 2008, small-cap value stocks, as measured by the Russell 2000 Value index, underperformed small-cap growth stocks, as measured by the Russell 2000 Growth index. This followed a seven-year period of performance dominance
   

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trading for less than $10 per share, a
list that included former market cap
behemoths such as Ford Motor,

Starbucks, Citigroup and Xerox. The
$10 mark was notable not simply as a
gauge of lost value, but also because
many institutions do not like to buy
shares of companies trading for less
than $10 a share.


As the year rushed to its close,
the market’s movements were
uncommonly (and increasingly)
violent as well. The S&P 500 moved up
or down more than 5% during
intraday trading seven times between
2000 and 2006, and only three times
from the beginning of 2008 through
the end of September. However, from
October 1 through December 31, 2008
,
there were 31 days in which the large-cap
index moved in excess of 5%
.
(Source: Bloomberg)

The current bear market for smaller
companies is now more than seventeen
months old and counting. At the
small-cap market low on November 20
,
2008, 59% of the constituents in the
Russell 2000 were trading for less than
$10 a share. As of the same date, 51%
of the companies in the small-cap
index sported market caps less than
$250 million, while only 6% were
greater than $1 billion. Within the
S&P 500, there were not only 105
companies trading for less than $10 a
share, but, incredibly, 24% of the
index was small-cap by our definition—
companies with a market cap of up
to $2.5 billion. In fact, 49% of the
large-cap index’s constituents had
market caps less than $5 billion
.
(Source: FactSet)


Continued on page 8...

 
 


                           
                           
Letter to Our Stockholders

for small-cap value stocks that began in earnest with the previous small-cap market peak on 3/9/00. As long-time believers in the power of reversion to the mean, we thought that small-cap growth’s overall advantage in the 18-month period that ended on 7/15/08 made sense considering that small-cap value stocks had been the superior performers between 2000 and 2006. When it was clear to us by mid-October 2008 that the stock market was in not just a bear market but an historically awful one, we were not sure how matters would shake out within the smaller stock universe. However, we did feel sure that, regardless of either style’s ultimate advantage in 2008, each calendar-year return would be dismal.
     The Russell 2000 Value index declined 28.9% versus a loss of 38.5% for the Russell 2000 Growth index in 2008. The first signs of a shift back to small-cap value, at least in the short term, can be seen in 2008’s first quarter (-6.5% versus -12.8%), although the Russell 2000 Value index then lost ground to its small-cap growth sibling in the second quarter (-3.6% versus +4.5%). Outperformance for small-cap value was more consistent in the second half of 2008, with advantages over small-cap growth in both the third (+5.0% versus -7.0%) and fourth quarters (-24.9% versus -27.5%).
     The performance advantage for the Russell 2000 Value index also held during recent market-cycle periods, although in each instance its edge was slight and mostly attributable to second-half results in 2008. From the small-cap peak on 7/13/07 through 12/31/08, small-cap value was down 39.4% versus a loss of 41.8% for small-cap growth. Both indices have thus been mauled badly by the bear. In the short-term rally from the small-cap trough on 11/20/08 through 12/31/08, small-cap value gained 31.3% versus 28.6% for its small-cap growth counterpart. Small-cap value’s slender advantage in both the decline and the rally within the current market cycle is preferable to underperformance, but stands out more as an example that this bear has shown no mercy, save to a tiny handful of stocks.

Cold Comfort Farm
The same observation could be made from looking at the calendar-year results for the three portfolios in this Review and Report, which all lent support to the accuracy of the old adage that in a real bear market, no stock is spared. We were highly disappointed that Royce Value Trust, Royce Micro-Cap Trust and Royce Focus Trust all underperformed their small-cap benchmark, the Russell 2000, in 2008. Our dissatisfaction was magnified by the fact that for each portfolio we have historically managed far better in difficult markets only to come up substantially short in this particularly challenging one. For all of our closed-end funds, 2008 provided the worst absolute returns since each one’s respective inception. The fact that many other funds in the industry posted similarly dreary results offers little comfort.
     Losses were sizeable across each Fund’s equity sector and industry groups, regardless of the respective portfolio’s market capitalization focus or specific investment approach. In

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fact, there was little disparity among calendar-year results as a whole, though the story grew more varied at the company, industry or sector level. Each Fund’s use of leverage also magnified net losses in 2008. However, we were pleased that all three closed-end Royce funds outperformed the Russell 2000 for the 10-year period ended 12/31/08. (Discussion of each Fund’s performance begins on page 12.)
   
     
Been Down So Long It Looks Like Up To Me
What, exactly, happened? How did a group of mostly veteran portfolio managers at a firm that has taken great pride in the historical down market performance of its portfolios fare so poorly in a bear market? In large part, it has been the nature of this particular bear, which has clawed deeply at every area in nearly every stock market covering the globe. And its savagery has been deep and wide, owing to the near-catastrophic economic circumstances that have been its compatriots. From the first stirrings of the housing crisis in 2006 through our first look at a large-scale economic stimulus plan in January 2009, the news has been unremittingly bad, including a global financial system that barely avoided a massive failure to function between mid-September and mid-November. This last crisis took place in the midst of a deepening recession. In such an uncertain environment, it was simply not possible for stock markets to perform their historically typical role of confidently looking forward and gauging the prospects of success for businesses.
     We had also been wondering for some time if the correction which followed the bursting Internet bubble in 2000 was less severe than such a heady and irrational bull market quite deserved. While we were perfectly content to enjoy strong absolute and relative returns for our funds from 2000 to 2007 (especially since we were relatively unscathed by much of the Internet mania), we also— somewhat nervously—believed that many valuations throughout the market remained too high. It seemed to us that the decline which stretched from early 2000 through October 2002 for both small- and large-cap stocks, while undoubtedly unpleasant, was
  We have always taken our responsibility as risk managers very seriously. To therefore see so much panic-driven, indiscriminate selling has been very painful for us. To watch those stocks suffer as much as all the rest really tested our commitment to our approach.

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Steven DeSanctis of Merrill Lynch
pointed out in a November report that
"all small cap sectors have fallen more
than their previous bear market
averages, with three now down over
60%." All of this suggests a wider and
wider pool of potential opportunities
for bargain-conscious small-cap value
investors like ourselves. If one is
cautiously optimistic about the long-term
prospects for stocks—as we are—
then this must be good news, yes?

The answer is complicated. Having
more choices is not always a good
thing. More importantly, our portfolio
managers have learned over the years
that most stocks are cheap for very
good reasons. The current bear market
will scarcely alter that truth by having
punished nearly all companies with
nearly equal force. With the expanded
number of both smaller companies and
cheap stocks, it becomes even more
critical for us to exercise strict
discipline in building our portfolios.
As we are always more interested in
long-term success, we have become
even more exacting in our selection
process. We see that as the best way to
lay the foundation for recovery from
this historically difficult market.

  Letter to Our Stockholders


relatively benign considering the excesses that history has previously demanded be wrung out of stock prices following a bubble. Yet we saw no serious downturn in the equity markets until 2008, when it was accompanied by far-reaching crises on several other fronts. In retrospect, it is no longer so shocking that investors panicked as they did, selling anything and everything without regard to company quality, valuation, or long-term outlook.
       When we select securities for our portfolios, we look for quality, for attributes that we believe will help a given company survive when times are bad and flourish when they are good. Characteristics such as a strong balance sheet and the ability to generate free cash flow indicate a business that is equipped with the necessary resources to withstand a downturn in its industry and/or a more widespread economic slowdown. Carrying little or no debt and having ample cash generally give a company the necessary resilience to make it through tough times. Our preference for cash-rich, low-leverage companies comes from years of ongoing research into which kinds of businesses endure and which ones wither. However, when investors began to flee equities in September, these tools of cautious risk management offered no bulwark against the stampede of liquidation that grew frighteningly intense in the first two weeks of October and lasted into November.

The Audacity Of Hope
Witnessing the punishment that was inflicted on the stock prices of what we regard as well-run, high-quality businesses has been one of the worst parts of the downturn, particularly as much of the sell-off was driven by the deleveraging activities of hedge funds and other financial institutions covering shorts and dealing with fallout from the



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mortgage crisis. We have always taken our responsibility as risk managers very seriously. To therefore see so much panic-driven, indiscriminate selling has been very painful for us. To watch those stocks suffer as much as all the rest really tested our commitment to our approach.
       Each bear market is different—for example, the current situation is more global in scope than the crisis in 1973-4, which was itself distinguished by stagflation, the oil embargo and the creation of the misery index. Common ground exists in that each period has been marked by controversial wars, the departure of an unpopular president and uncertainty about the future of the U.S. economy. What is perhaps most interesting is how our country’s eventual recovery from both the Great Depression and the recession of the Seventies may be fueling some tempered optimism about our current period. While there is definitely a lot of pessimism in the media and elsewhere about the economy, we also think there is a sense that, however difficult our challenges are in the months and years ahead, we are capable as a nation of meeting them and ultimately succeeding.
       We think that we may be approaching the worst phase of this very painful recession. Not anticipating same-store sales declines in the 20% range next year at this time, we believe that late in 2009 we may be seeing scattered signs of an economic comeback, one of which may be a stock market showing signs of a recovery. The current valuation picture lends some support to this idea. Overall valuations for smaller companies finished 2008 at levels not seen in nearly two decades. While shorter-term returns may continue to be lackluster, we believe that historical performance patterns for stocks should return to the market. This will be good news for two reasons: The first would be the very fact of positive movement in the markets again (and post-bear-market results have historically been robust); the second would be the stock market playing its traditional role of looking forward and seeing signs of an economy on the mend. Or at least that is our audacious hope.
  We believe that late in 2009 we may be seeing scattered signs of an economic comeback, one of which may be a stock market showing signs of a recovery. The current valuation picture lends some support to this idea. Overall valuations for smaller companies finished 2008 at levels not seen in nearly two decades.
     

Sincerely,
             
               
                
Charles M. Royce   W. Whitney George   Jack E. Fockler, Jr.      
President   Vice President   Vice President      
               
               
January 31, 2008              

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Small-Cap Market Cycle Performance

We believe strongly in the idea that a long-term investment perspective is crucial for determining the success of a particular investment approach. Flourishing in an up market is wonderful. Surviving a bear market by losing less (or not at all) is at least as good. However, the true test of a portfolio’s mettle is performance over full market cycle periods, which include both up and down market periods. We believe that providing full market cycle results is more appropriate even than showing three- to five-year standardized returns because the latter periods may not include the up and down phases that constitute a full market cycle.

Since the Russell 2000’s inception on 12/31/78, value—as measured by the Russell 2000 Value Index—outperformed growth—as measured by the Russell 2000 Growth Index—in six of the small-cap index’s eight full market cycles. The most recently concluded cycle, which ran from 3/9/00 through 7/13/07, was the longest in the index’s history, and represented what we believe was a return to more historically typical performance in that value provided a significant advantage during its downturn (3/9/00–10/9/02) and for the full cycle. In contrast, the new market cycle that began on 7/13/07 has so far favored growth over value, an unsurprising development when one considers how thoroughly value dominated growth in the previous full cycle.

Peak-to-Peak
For the full cycle, value provided a sizeable margin over growth, which finished the period with a loss. Each of our closed-end funds held a sizeable performance advantage over the Russell 2000 on both an NAV (net asset value) and market price basis. On an NAV basis, Royce Focus Trust (+264.2%) was our best performer by a wide margin, followed by Royce Micro-Cap Trust (+175.9%) and Royce Value Trust (+161.3%).

Peak-to-Current
During the difficult, volatile period ended 12/31/08, both value and growth posted similarly negative returns. (While the Russell 2000 seemed to regain its footing after hitting a low in March, events in the financial markets preceding the September 30, 2008 quarter-end caused the index to decline significantly in the fourth quarter, dropping to a cyclical-year low on 11/20/08.) The index then recovered significantly, gaining 30.0% from 11/20/08 through 12/31/08.

Each of our closed-end funds trailed the index during the decline, while both Royce Focus Trust and Royce Value Trust outperformed during the short rally from 11/20/08 through 12/31/08.
 
   ROYCE FUNDS NAV TOTAL RETURNS VS. RUSSELL 2000 INDEX:
   MARKET CYCLE RESULTS

  Peak-to-Peak
3/9/00-7/13/07
  Peak-to-Trough
7/13/07-11/20/08
  Trough-to-Current
11/20/08-12/31/08
 
Russell 2000   54.9 %       -54.1 %       30.0 %

Russell 2000 Value   189.5       -53.8       31.3  

Russell 2000 Growth   -14.8       -54.8       28.6  

Royce Value Trust   161.3       -62.8       35.9  

Royce Micro-Cap Trust   175.9       -61.6       28.0  

Royce Focus Trust   264.2       -62.7       42.3  


The thoughts concerning recent market movements and future prospects for smaller-company stocks are solely those of Royce & Associates and, of course, there can be no assurance with regard to future market movements. Smaller-company stocks may involve considerably more risk than larger-cap stocks. Past performance is no guarantee of future results. See page 2 for important performance information for all of the above funds.

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Table of Contents


Annual Report to Stockholders  

   
Managers’ Discussions of Fund Performance  
   
Royce Value Trust 12
   
Royce Micro-Cap Trust 14
   
Royce Focus Trust 16
   
History Since Inception 18
   
Distribution Reinvestment and Cash Purchase Options 19
   
Schedules of Investments and Other Financial Statements  
   
Royce Value Trust 20
   
Royce Micro-Cap Trust 37
   
Royce Focus Trust 52
   
Notes to Performance and Other Important Information 62
   
Directors and Officers 64



Beginning with this Review and Report, the Funds’ “Good Ideas That Worked” and “Good Ideas At The Time” tables list each Fund’s top contributors and detractors to performance as measured by contribution to return, instead of net impact in U.S. dollars we have noted in the past. This figure more accurately represents the percentage, up or down, that a security contributed to the Fund’s total return for the period.


2008 Annual Report to Stockholders   |  11



     
   
 

   

 
  AVERAGE ANNUAL NAV TOTAL RETURNS
Through 12/31/08
 
 
 
  Fourth Quarter 2008*   -32.89 %  
 
 
  July-December 2008*   -38.43    
 
 
  One-Year         -45.62    
 
 
  Three-Year         -11.95    
 
 
  Five-Year         -2.12    
 
 
  10-Year         4.82    
 
 
  15-Year         7.52    
 
 
  20-Year         9.24    
 
 
  Since Inception (11/26/86)         8.95    
 
 
  * Not annualized  
         
  CALENDAR YEAR NAV TOTAL RETURNS  
 

 
  Year   RVT     Year     RVT    
 
 
  2008   -45.6 %   1999     11.7 %  
 
 
  2007   5.0     1998     3.3    
 
 
  2006   19.5     1997     27.5    
 
 
  2005   8.4     1996     15.5    
 
 
  2004   21.4     1995     21.6    
 
 
  2003   40.8     1994     0.1    
 
 
  2002   -15.6     1993     17.3    
 
 
  2001   15.2     1992     19.3    
 
 
  2000   16.6     1991     38.4    
 
 
                     
  TOP 10 POSITIONS
% of Net Assets Applicable
to Common Stockholders
 
 
 
  Ritchie Bros. Auctioneers   2.0 %  
 
 
  Ash Grove Cement Cl. B   1.8    
 
 
  Weyco Group   1.7    
 
 
  Landauer   1.4    
 
 
  SEACOR Holdings   1.4    
 
 
  Adaptec   1.4    
 
 
  Simpson Manufacturing   1.3    
 
 
  AllianceBernstein Holding L.P.   1.1    
 
 
  Forward Air   1.1    
 
 
  ManTech International Cl. A   1.1    
 
 
                     
  PORTFOLIO SECTOR BREAKDOWN
% of Net Assets Applicable
to Common Stockholders
 
 
 
  Industrial Products   23.2 %  
 
 
  Technology   21.0    
 
 
  Industrial Services   19.0    
 
 
  Financial Intermediaries   17.6    
 
 
  Financial Services   13.9    
 
 
  Natural Resources   8.8    
 
 
  Consumer Products   8.1    
 
 
  Health   7.4    
 
 
  Consumer Services   4.4    
 
 
  Diversified Investment Companies   0.6    
 
 
  Utilities   0.4    
 
 
  Miscellaneous   4.8    
 
 
  Preferred Stocks   0.5    
 
 
  Cash and Cash Equivalents   6.8    
 
 
     





Royce Value Trust

Manager’s Discussion
Royce Value Trust’s (RVT) diversified portfolio of small- and micro-cap stocks underperformed both of its benchmarks in 2008—a very discouraging year. The Fund declined 45.6% on a net asset value (NAV) basis, and 48.3% on a market price basis, compared with losses of 33.8% for the Russell 2000 and 31.1% for the S&P SmallCap 600 for the same period. During the first half, RVT declined 11.7% on an NAV basis and 10.7% based on its market price, compared with respective losses of 9.4% and 7.1% for the Russell 2000 and S&P 600.
     RVT continued to underperform in the third quarter, down 8.3% on an NAV basis and down 12.6% based on market price, compared with declines of 1.1% for the Russell 2000 and 0.9% for the S&P 600. However, it was not until the fourth quarter that things turned truly awful: RVT’s NAV fell 32.9% and its market price dropped 33.7% for that period, compared with the Russell 2000 and S&P 600, which posted losses of 26.1% and 25.2%, respectively. As a result of its recent negative performance, the Fund paid no management fee for the last three months of 2008, as its rolling 36-month return for each month-ending period was negative.
     The market cycle that began with the new small-cap peak in July 2007 has thus far been rough going. From 7/13/07 through 12/31/08, the Fund was down 49.4% on an NAV basis and fell 53.7% on a market price basis versus a loss of 40.4% for the Russell 2000 and 38.5% for the S&P 600. We did take a bit of consolation from the Fund’s performance in the dynamic, short-term rally that ended 2008. From the small-cap low on 11/20/08 through 12/31/08, the Russell 2000 climbed 30.0% and the S&P 600 rose 29.4% while RVT gained 35.9% on an NAV basis and 53.6% on a market price basis.
     We have always believed that performance over longer-term periods is the most meaningful gauge of the portfolio’s merits. From the previous small-cap market peak on 3/9/00 through 12/31/08, the Fund outperformed its benchmarks. During this period, RVT gained 32.2% on an NAV basis and 43.8% on a market price basis compared to a gain of 30.7% for the S&P 600 and a loss of 7.7% for the Russell 2000. The Fund also outperformed both of its benchmarks on an NAV basis for the 10-, 15-, 20-year and since inception (11/26/86) periods ended 12/31/08 and on a market price basis for the 20-year, and since inception intervals.
      All of the Fund’s equity sectors sustained sizeable net losses in 2008, with the most significant coming from Technology, Industrial Products, Financial Services and Financial Intermediaries. The Fund’s use of leverage also detracted from performance. Investors have been shying away from much of small-cap tech since before the word “subprime” became well known, a development that grew worse in the second half of 2008, as both the economy

       GOOD IDEAS THAT WORKED
   Top Contributors to 2008 Performance*
   

    Weyco Group   0.31%
   
    Landauer   0.27   
   
    Schnitzer Steel Industries Cl. A   0.21   
   
    Charming Shoppes   0.15   
   
    Simpson Manufacturing   0.14   
   
    *Includes dividends    
           
           
Important Performance and Risk Information
All performance information reflects past performance, is presented on a total return basis and reflects the reinvestment of distributions. Past performance is no guarantee of future results. Current performance may be higher or lower than performance quoted. Returns as of the recent month-end may be obtained at www.roycefunds.com. The market price of the Fund’s shares will fluctuate, so that shares may be worth more or less than their original cost when sold. The Fund invests primarily in securities of small- and micro-cap companies, which may involve considerably more risk than investing in a more diversified portfolio of larger-cap companies.

             12  |  2008 Annual Report to Stockholders




 
 
 
Performance and Portfolio Review



and market worsened. Analog semiconductor maker Diodes struggled with a significant hit to earnings in the third quarter, a loss caused in large part by an acquisition. We continued to appreciate its conservative balance sheet and the potential for a rebound in its business, which at year end was mired in an epic slump.
     In the Industrial Products sector, notable losses came from the machinery industry, though holdings in the miscellaneous manufacturing category were also substantial detractors. Laser-based welding and cutting products maker Rofin-Sinar Technologies continues to be profitable, conservatively capitalized and, in our view, very well managed. Investors were inclined to disagree, so we built our position modestly in November. In the Health sector, biopharmaceutical services company PAREXEL International saw its share price suffer after revising guidance in October. A grim outlook for pharmaceutical research companies prompted the revision. The industry is dependent on spending by drugmakers, spending which has contracted severely in the recession.
     
     Not surprisingly, Financial Services was also a significant detractor, especially in the investment management area and information and processing industry. The loss leader in the sector was asset manager AllianceBernstein Holding, a company with which we are very familiar. During the first half of 2008, its share price slipped after the company revised its earnings guidance for fiscal 2007 early in 2008. It then began to fall more precipitously in the wake of the cataclysmic developments of September, such as the Lehman Brothers’ bankruptcy. In our estimate, the firm remains very well-run—earnings are positive (albeit lower than many analysts were expecting), and it pays a dividend. We continue to have faith in the long-term prospects for this and other financial companies with long records of success. The year was troublesome for a long-time holding in the Industrial Services sector, Sotheby’s. We have long admired its preeminent position in the high-end auction market. However, recent earnings have been disappointing and, considering that purchases of fine art are discretionary and easily postponed in a difficult economy, we concluded 2008 pondering what our next move with the stock might be.

GOOD IDEAS AT THE TIME
Top Detractors to 2008 Performance*

 
 

 
AllianceBernstein Holding L.P. -1.13%  

 
Sotheby’s -0.70     

 
PAREXEL International -0.63     

 
ION Geophysical -0.56     

 
Diodes -0.53     

 
*Net of dividends  
   



1Reflects the cumulative total return of an investment made by a stockholder who purchased one share at inception ($10.00 IPO), reinvested all annual distributions as indicated and fully participated in primary subscriptions of the Fund’s rights offerings.
2Reflects the actual market price of one share as it traded on the NYSE.
 
 
     
     
  FUND INFORMATION AND
PORTFOLIO DIAGNOSTICS
 
 
 
  Average Market Capitalization* $727 million     
 
 
  Weighted Average P/E Ratio** 11.4x    
 
 
  Weighted Average P/B Ratio 0.7x     
 
 
  Weighted Average Portfolio Yield 1.9%     
 
 
  Fund Net Assets $823 million     
 
 
  Net Leverage 30%     
 
 
  Turnover Rate 25%     
 
 
  Symbol    
      Market Price RVT     
      NAV XRVTX     
 
 
   * Geometrically calculated  
     
 

**The Fund’s P/E ratio calculation excludes companies with zero or negative earnings (13% of portfolio holdings as of 12/31/08).

 
     
 

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

 
     
  CAPITAL STRUCTURE
Publicly Traded Securities Outstanding
at 12/31/08 at NAV or Liquidation Value
 
 
 
  64.4 million shares
of Common Stock
$603 million  
 
 
  5.90% Cumulative
Preferred Stock
$220 million  
 
 
     
   
     


2008 Annual Report to Stockholders  |  13                  




     
   
 

   

 
  AVERAGE ANNUAL NAV TOTAL RETURNS
Through 12/31/08
 
 
 
  Fourth Quarter 2008*   -33.68 %  
 
 
  July-December 2008*   -38.23    
 
 
  One-Year         -45.45    
 
 
  Three-Year         -12.40    
 
 
  Five-Year         -3.16    
 
 
  10-Year         5.83    
 
 
  15-Year         8.14    
 
 
  Since Inception (12/14/93)         8.13    
 
 
  * Not annualized  
         
  CALENDAR YEAR NAV TOTAL RETURNS  
 

 
  Year   RMT     Year     RMT    
 
 
  2008   -45.5 %   2000     10.9 %  
 
 
  2007   0.6     1999     12.7    
 
 
  2006   22.5     1998     -4.1    
 
 
  2005   6.8     1997     27.1    
 
 
  2004   18.7     1996     16.6    
 
 
  2003   55.5     1995     22.9    
 
 
  2002   -13.8     1994     5.0    
 
 
  2001   23.4                
 
 
                     
  TOP 10 POSITIONS
% of Net Assets Applicable
to Common Stockholders
 
 
 
  Seneca Foods   2.2 %  
 
 
  Pegasystems   1.9    
 
 
  Pason Systems   1.4    
 
 
  AAON   1.3    
 
 
  Sapient Corporation   1.3    
 
 
  Fauquier Bankshares   1.2    
 
 
  eResearch Technology   1.2    
 
 
  Green Mountain Coffee Roasters   1.2    
 
 
  Exactech   1.1    
 
 
  Universal Truckload Services   1.1    
 
 
                     
  PORTFOLIO SECTOR BREAKDOWN
% of Net Assets Applicable
to Common Stockholders
 
 
 
  Technology   21.3 %  
 
 
  Industrial Products   20.1    
 
 
  Industrial Services   15.2    
 
 
  Financial Intermediaries   13.2    
 
 
  Health   13.1    
 
 
  Natural Resources   10.9    
 
 
  Consumer Products   8.7    
 
 
  Financial Services   7.2    
 
 
  Consumer Services   5.0    
 
 
  Diversified Investment Companies   0.9    
 
 
  Miscellaneous   5.0    
 
 
  Preferred Stock   0.8    
 
 
  Cash and Cash Equivalents   13.9    
 
 
     





Royce Micro-Cap Trust

Manager’s Discussion
The performance of Royce Micro-Cap Trust’s (RMT) diversified portfolio of micro-cap stocks was truly disappointing in 2008, especially as the Fund substantially underperformed its benchmark, the Russell 2000. RMT declined 45.5% on a net asset value (NAV) basis, and 45.8% on a market price basis in 2008, compared to a loss of 33.8% for the Russell 2000 and a loss of 39.8% for the Russell Microcap Index for the same period. During the first half, RMT’s results were negative, but in the same ballpark as its benchmark; the Fund fell 11.7% on an NAV basis and 7.9% based on its market price, compared with a loss of 9.4% for the Russell 2000 and a decline of 15.5% for the Russell Microcap index.
     In the third quarter, RMT’s performance continued to underwhelm. The Fund was down 6.9% on an NAV basis and down 13.0% on a market price basis compared to respective losses of 1.1% and 0.8% for the benchmark and the micro-cap index. Still, it was not until the fourth quarter that results turned downright dreadful: RMT’s NAV fell 33.7% and its market price dropped 32.4% between September and December versus a 26.1% decline for the Russell 2000 and a 28.1% loss for the Russell Microcap index. Much of that price plummet came in October, when the Fund fell 24.1% and 22.3% based on NAV and market price, respectively.
     The market cycle that began with the new small-cap peak in July 2007 has so far been rough going. From the recent small-cap peak on 7/13/07 through 12/31/08, the Fund was down 50.8% on an NAV basis and fell 56.2% on a market price basis versus a loss of 40.4% for the Russell 2000. During this same period, the micro-cap index fell 47.8%. From the small-cap low on 11/20/08 through 12/31/08, the Russell 2000 climbed 30.0% and the Russell Microcap index gained 24.9%, while RMT was up 28.0% on an NAV basis and 49.9% on a market price basis.
     We have always believed that performance over longer-term periods is the most meaningful gauge of the portfolio’s merits. From the previous small-cap market peak on 3/9/00 through 12/31/08, the Fund outperformed its benchmark. During this period, RMT gained 35.7% on an NAV basis and 43.2% on a market price basis compared to a loss of 7.7% for the Russell 2000. (Data for the Russell Microcap index only goes back to 2002.) The Fund also outperformed its benchmark on both an NAV and market price basis for the 10-year, 15-year and since inception (12/14/93) periods ended 12/31/08.
     All of the Fund’s equity sectors sustained net losses in 2008, with the most significant coming from Technology, followed by Industrial Products, Health, Natural Resources and

       GOOD IDEAS THAT WORKED
   Top Contributors to 2008 Performance*
   

    Charming Shoppes   0.32%
   
    Trex Company   0.27   
   
    Weyco Group   0.26   
   
    Aceto Corporation   0.18   
   
    AAON   0.17   
   
    *Includes dividends    
           
           
Important Performance and Risk Information
All performance information reflects past performance, is presented on a total return basis and reflects the reinvestment of distributions. Past performance is no guarantee of future results. Current performance may be higher or lower than performance quoted. Returns as of the recent month-end may be obtained at www.roycefunds.com. The market price of the Fund’s shares will fluctuate, so that shares may be worth more or less than their original cost when sold. The Fund normally invests in micro-cap companies, which may involve considerably more risk than investing in a more diversified portfolio of larger-cap companies.

             14  |  2008 Annual Report to Stockholders




   
 
Performance and Portfolio Review

 
Industrial Services. The portfolio’s use of leverage also exacerbated net losses.The Technology sector had been struggling prior to the market’s dramatic second-half fall, and the recession has only made matters worse as businesses begin cutting back or cancelling plans for spending. At the industry level within the sector, the most substantial net losses came from semiconductor and equipment companies. The recession has only lengthened what was already an uncommonly long and negative business cycle for this area of small- and micro-cap tech. The unhappy result has been ongoing negative sentiment that showed no signs of abating at the end of 2008. Similar recessionary woes plagued IT Services holdings, where Sapient Corporation and Computer Task Group turned in large net losses, as well as those in telecommunications and the components and systems industry.
     Elsewhere at the industry level, substantial declines came from the medical products and devices, energy services, commercial services, banking, investment management, machinery, industrial components and miscellaneous manufacturing industries. Late in the year, we increased our stake in cleaning solutions and services business, Tennant Company. Its dynamic management, focus on environmentally friendly products and smart cost-cutting efforts all influenced our decision, as did its tumbling share price. The strong balance sheet and promising niche business of rubber and plastic goods maker Deswell Industries also led us to buy more shares as its stock price wilted. We chose to modestly build our position in Endeavour Financial. The firm was involved in two troubled industries in 2008—Endeavour is a financial advisory company that specializes in helping smaller natural resources businesses across the globe. At the end of the year, we liked its management and its potential to rebound. Monaco Coach Corporation, a recreational vehicle manufacturer, was another disappointment, though we continued to hold the position that we built during the first half. Its stock was hurt by rising gas prices in the first half, and beaten down in the second as more consumers set aside big-ticket discretionary purchases. Net losses posted in the calendar third quarter preceded steep declines in its share price.

GOOD IDEAS AT THE TIME
Top Detractors to 2008 Performance*
 
 

Tennant Company   -0.77 %

Endeavour Financial   -0.73  

Deswell Industries   -0.62  

Sapient Corporation   -0.60  

Computer Task Group   -0.54  

*Net of dividends      
 



 
1Reflects the cumulative total return of an investment made by a stockholder who purchased one share at inception ($7.50 IPO), reinvested distributions as indicated and fully participated in the primary subscription of the 1994 rights offering.
2Reflects the actual market price of one share as it traded on the NYSE and, prior to 12/1/03, on Nasdaq.
                             
                             
                             
  FUND INFORMATION AND
PORTFOLIO DIAGNOSTICS
 
 
 
  Average Market Capitalization*   $203 million  
 
 
  Weighted Average P/E Ratio**   10.6x  
 
 
  Weighted Average P/B Ratio   0.9x  
 
 
  Weighted Average Portfolio Yield   1.4%  
 
 
  Fund Net Assets   $230 million  
 
 
  Net Leverage   21%  
 
 
  Turnover Rate   42%  
 
 
  Symbol      
 

Market Price

  RMT  
 

NAV

  XOTCX  
 
 
 
  *Geometrically calculated

 
 
**The Fund’s P/E ratio calculation excludes companies with zero or negative earnings (23% of portfolio holdings as of 12/31/08).

 
 
  Net leverage is the percentage, in excess of 100%, of the total value of equity type investments, divided by net assets, excluding preferred stock.
 
     
  CAPITAL STRUCTURE
Publicly Traded Securities Outstanding at 12/31/08 at NAV or Liquidation Value
 
 
 
  26.6 million shares of Common Stock     $170 million  
 
 
  6.00% Cumulative Preferred Stock     $60 million  
 
 
 
 
     
   
     


2008 Annual Report to Stockholders   |  15   




                   
                   
                   
  AVERAGE ANNUAL NAV TOTAL RETURNS
Through 12/31/08
 
 
 
  Fourth Quarter 2008*   -30.46 %  
 
 
  July-December 2008*   -43.99    
 
 
  One-Year   -42.71    
 
 
  Three-Year   -9.36    
 
 
  Five-Year   1.83    
 
 
  10-Year   7.90    
 
 
  Since Inception (11/1/96)   7.86    
 
 
  * Not annualized        
 
†Royce & Associates assumed investment management responsibility for the Fund on 11/1/96.
 
                   
  CALENDAR YEAR NAV TOTAL RETURNS  
 
 
  Year      FUND        Year        FUND  
 
 
  2008 -42.7 %   2002   -12.5 %  
 
 
  2007 12.2     2001   10.0    
 
 
  2006 16.3     2000   20.9    
 
 
  2005 13.3     1999   8.7    
 
 
  2004 29.2     1998   -6.8    
 
 
  2003 54.3     1997   20.5    
 
 
                   
  TOP 10 POSITIONS
% of Net Assets Applicable to Common Stockholders
 
 
 
  Kennedy-Wilson Conv.   7.9 %  
 
 
  Endo Pharmaceuticals Holdings   3.9    
 
 
  Pan American Silver   3.7    
 
 
  Sims Group ADR   3.4    
 
 
  Lincoln Electric Holdings   3.3    
 
 
  Knight Capital Group Cl. A   3.1    
 
 
  Alamos Gold   2.9    
 
 
  Unit Corporation   2.9    
 
 
  Ensign Energy Services   2.9    
 
 
  Schnitzer Steel Industries Cl. A   2.8    
 
 
                   
  PORTFOLIO SECTOR BREAKDOWN
% of Net Assets Applicable to Common Stockholders
 
 
 
  Natural Resources   26.9 %  
 
 
  Industrial Products   25.0    
 
 
  Consumer Products   10.8    
 
 
  Technology   10.2    
 
 
  Industrial Services   9.3    
 
 
  Health   5.3    
 
 
  Financial Intermediaries   4.6    
 
 
  Financial Services   4.0    
 
 
  Consumer Services   1.5    
 
 
  Preferred Stock   7.9    
 
 
  Cash and Cash Equivalents   21.5    
 
 
     
     


 
 
Royce Focus Trust

 
Manager’s Discussion
Although our contrarian bent served Royce Focus Trust (FUND) very well in the first half of 2008, it failed to produce much of value in the year’s more tumultuous second half. For the calendar year, the Fund lost 42.7% on a net asset value (NAV) basis and 44.9% on a market price basis, in both cases well behind the 33.8% loss for its small-cap benchmark, the Russell 2000, during the same period. After beating the Russell 2000 and posting positive returns on both an NAV and market price basis between January and June, the Fund struggled mightily from July through the end of the year, a collapse initially spurred by losses in the Natural Resources and, to a lesser degree, Industrial Products sectors, the same areas that contributed most to first-half gains.
     FUND fell 19.5% on an NAV basis and 12.9% on a market price basis in the third quarter versus a loss of only 1.1% for its small-cap benchmark. As the bear market intensified in mid-September, the Fund continued to give way, losing 30.5% on an NAV basis and 37.7% on a market price basis in the fourth quarter, a period in which the Russell 2000 declined 26.1%. The Fund’s use of leverage also helped to detract from performance. Needless to say, the year was an enormous disappointment, especially as it followed five consecutive years of strong absolute calendar-year NAV returns.

     The market cycle that began with the new small-cap peak in July 2007 has thus far not been kind. From 7/13/07 through 12/31/08, the Fund was down 47.0% on an NAV basis and fell 49.2% on a market price basis versus a loss of 40.4% for its small-cap benchmark. The only bright spot was the Fund’s commanding outperformance of the Russell 2000 in the dynamic, short-term rally that ended 2008. From the small-cap low on 11/20/08 through 12/31/08, the small-cap index climbed 30.0% while FUND gained 42.3% on an NAV basis and 38.8% on a market price basis.
 
   GOOD IDEAS THAT WORKED
   Top Contributors to 2008 Performance *

Alamos Gold   0.85 %

Knight Capital Group Cl. A   0.65  

Endo Pharmaceuticals Holdings   0.62  

Sprott   0.52  

Metal Management   0.44  

*Includes dividends      
 
     We have always believed that performance over longer-term periods provides a more meaningful gauge of the portfolio’s merits. From the previous small-cap market peak on 3/9/00 through 12/31/08, the Fund significantly bested its benchmark on both an NAV and market price basis. During this period, FUND gained 93.2% on an NAV basis and 123.1% on a market price basis compared to a loss of 7.7% for the Russell 2000. The Fund also outpaced its benchmark for the five-year, 10-year and since inception of our management (11/1/96) periods ended 12/31/08.
     The Natural Resources sector was by far the most significant detractor to performance, with the energy services industry the loss leader. When oil prices began to tumble late in
 
Important Performance and Risk Information
All performance information reflects past performance, is presented on a total return basis and reflects the reinvestment of distributions. Past performance is no guarantee of future results. Current performance may be higher or lower than performance quoted. Returns as of the recent month-end may be obtained at www.roycefunds.com. The market price of the Fund’s shares will fluctuate, so that shares may be worth more or less than their original cost when sold. The Fund normally invests primarily in small-cap companies, which may involve considerably more risk than investing in a more diversified portfolio of larger-cap companies.

   16   |   2008 Annual Report to Stockholders



 
 
Performance and Portfolio Review

 
the summer, the deflation began to hurt the performance of many of the Fund’s holdings in energy companies. While an unwelcome development, we took the long view and acted to build or hold positions in those companies that enjoyed our highest regard, as we believe that energy prices should eventually recover. As the share prices of certain holdings plummeted to levels that we deemed attractive, we began to buy. Major Drilling Group International is an exploratory driller mostly for gold, copper and zinc. It has a strong balance sheet and solid management, both of which should help it to survive ongoing slowdowns in its business. We first purchased shares of Trican Well Service in 2004, attracted to this Canadian firm’s strong balance sheet and profitable businesses of pressure pump manufacture and oil well maintenance services. Our high opinion of its business has not changed. Tesco Corporation makes top drives and conventional casing devices for oil rigs and also owns a proprietary technology that allows rig operators to drill more quickly and efficiently. Its low debt, positive earnings and strong niche business made the decision to buy more a simple one. Unit Corporation, a contract drilling company with its own oil and natural gas exploration business, was one of the Fund’s top contributors during the first half as the company benefited earlier in the year from increased production in both its oil and natural gas business. Its stock price then plummeted with the rapid descent of oil prices. We modestly increased our stake in October. Elsewhere in the sector, we held preferred stock of real estate company Kennedy-Wilson, as we liked its coupon and the company’s aggressive buys of distressed real estate that we think could eventually increase in value.

GOOD IDEAS AT THE TIME
Top Detractors to 2008 Performance*
 
      We had a sterling long-term outlook for steel companies at the end of 2008, prompting us to build positions in steel companies that endured rough times in the second half of 2008, including Sims Group, Schnitzer Steel Industries and Kennametal. Other old favorites in which we increased our respective stakes included Endo Pharmaceuticals Holdings, Pan American Silver and Alamos Gold.

Endeavour Financial   -2.67 %

Major Drilling Group International   -2.07  

Trican Well Service   -1.88  

Tesco Corporation   -1.83  

Kennedy-Wilson Conv.   -1.81  

*Net of dividends      
 
 
1Royce & Associates assumed investment management responsibility for the Fund on 11/1/96.
2Reflects the cumulative total return experience of a continuous common stockholder who reinvested all distributions as indicated and fully participated in the primary subscription of the 2005 rights offering.
3Reflects the actual market price of one share as it traded on Nasdaq.
                             
                             
                             
  FUND INFORMATION AND
PORTFOLIO DIAGNOSTICS
 
 
 
  Average Market Capitalization*   $794 million  
 
 
  Weighted Average P/E Ratio**   7.8x  
 
 
  Weighted Average P/B Ratio   1.3x  
 
 
  Weighted Average Portfolio Yield   1.9%  
 
 
  Fund Net Assets   $118 million  
 
 
  Net Leverage   6%  
 
 
  Turnover Rate   51%  
 
 
  Symbol      
 

Market Price

  FUND  
 

NAV

  XFUNX  
 
 
 
  *Geometrically calculated

 
 
**The Fund’s P/E ratio calculation excludes companies with zero or negative earnings (13% of portfolio holdings as of 12/31/08).
 
 
Net leverage is the percentage, in excess of 100%, of the total value of equity type investments, divided by net assets, excluding preferred stock.
 
     
  CAPITAL STRUCTURE
Publicly Traded Securities Outstanding at 12/31/08 at NAV or Liquidation Value
 
 
 
  19.5 million shares of Common Stock $93 million  
 
 
  6.00% Cumulative Preferred Stock  $25 million  
 
 
     
 
     


2008 Annual Report to Stockholders   |  17   




History Since Inception


The following table details the share accumulations by an initial investor in the Funds who reinvested all distributions (including fractional shares) and participated fully in primary subscriptions for each of the rights offerings. Full participation in distribution reinvestments and rights offerings can maximize the returns available to a long-term investor. This table should be read in conjunction with the Performance and Portfolio Reviews of the Funds.
          Amount     Purchase         NAV     Market  
  History     Invested     Price*   Shares     Value**     Value**  
Royce Value Trust                              
11/26/86   Initial Purchase   $ 10,000   $ 10.000   1,000   $ 9,280   $ 10,000  
10/15/87   Distribution $0.30           7.000   42              
12/31/87   Distribution $0.22           7.125   32     8,578     7,250  
12/27/88   Distribution $0.51           8.625   63     10,529     9,238  
9/22/89   Rights Offering     405     9.000   45              
12/29/89   Distribution $0.52           9.125   67     12,942     11,866  
9/24/90   Rights Offering     457     7.375   62              
12/31/90   Distribution $0.32           8.000   52     11,713     11,074  
9/23/91   Rights Offering     638     9.375   68              
12/31/91   Distribution $0.61           10.625   82     17,919     15,697  
9/25/92   Rights Offering     825     11.000   75              
12/31/92   Distribution $0.90           12.500   114     21,999     20,874  
9/27/93   Rights Offering     1,469     13.000   113              
12/31/93   Distribution $1.15           13.000   160     26,603     25,428  
10/28/94   Rights Offering     1,103     11.250   98              
12/19/94   Distribution $1.05           11.375   191     27,939     24,905  
11/3/95   Rights Offering     1,425     12.500   114              
12/7/95   Distribution $1.29           12.125   253     35,676     31,243  
12/6/96   Distribution $1.15           12.250   247     41,213     36,335  
1997   Annual distribution total $1.21           15.374   230     52,556     46,814  
1998   Annual distribution total $1.54           14.311   347     54,313     47,506  
1999   Annual distribution total $1.37           12.616   391     60,653     50,239  
2000   Annual distribution total $1.48           13.972   424     70,711     61,648  
2001   Annual distribution total $1.49           15.072   437     81,478     73,994  
2002   Annual distribution total $1.51           14.903   494     68,770     68,927  
1/28/03   Rights Offering     5,600     10.770   520              
2003   Annual distribution total $1.30           14.582   516     106,216     107,339  
2004   Annual distribution total $1.55           17.604   568     128,955     139,094  
2005   Annual distribution total $1.61           18.739   604     139,808     148,773  
2006   Annual distribution total $1.78           19.696   693     167,063     179,945  
2007   Annual distribution total $1.85           19.687   787     175,469     165,158  
2008   Annual distribution total $1.72           12.307   1,294              

12/31/08       $ 21,922         10,183   $ 95,415   $ 85,435  

Royce Micro-Cap Trust                              
12/14/93   Initial Purchase   $ 7,500   $ 7.500   1,000   $ 7,250   $ 7,500  
10/28/94   Rights Offering     1,400     7.000   200              
12/19/94   Distribution $0.05           6.750   9     9,163     8,462  
12/7/95   Distribution $0.36           7.500   58     11,264     10,136  
12/6/96   Distribution $0.80           7.625   133     13,132     11,550  
12/5/97   Distribution $1.00           10.000   140     16,694     15,593  
12/7/98   Distribution $0.29           8.625   52     16,016     14,129  
12/6/99   Distribution $0.27           8.781   49     18,051     14,769  
12/6/00   Distribution $1.72           8.469   333     20,016     17,026  
12/6/01   Distribution $0.57           9.880   114     24,701     21,924  
2002   Annual distribution total $0.80           9.518   180     21,297     19,142  
2003   Annual distribution total $0.92           10.004   217     33,125     31,311  
2004   Annual distribution total $1.33           13.350   257     39,320     41,788  
2005   Annual distribution total $1.85           13.848   383     41,969     45,500  
2006   Annual distribution total $1.55           14.246   354     51,385     57,647  
2007   Annual distribution total $1.35           13.584   357     51,709     45,802  
2008   Annual distribution total $1.19           8.237   578              

12/31/08       $ 8,900         4,414   $ 28,205   $ 24,807  

Royce Focus Trust                              
10/31/96   Initial Purchase   $ 4,375   $ 4.375   1,000   $ 5,280   $ 4,375  
12/31/96                         5,520     4,594  
12/5/97   Distribution $0.53           5.250   101     6,650     5,574  
12/31/98                         6,199     5,367  
12/6/99   Distribution $0.145           4.750   34     6,742     5,356  
12/6/00   Distribution $0.34           5.563   69     8,151     6,848  
12/6/01   Distribution $0.14           6.010   28     8,969     8,193  
12/6/02   Distribution $0.09           5.640   19     7,844     6,956  
12/8/03   Distribution $0.62           8.250   94     12,105     11,406  
2004   Annual distribution total $1.74           9.325   259     15,639     16,794  
5/6/05   Rights offering     2,669     8.340   320              
2005   Annual distribution total $1.21           9.470   249     21,208     20,709  
2006   Annual distribution total $1.57           9.860   357     24,668     27,020  
2007   Annual distribution total $2.01           9.159   573     27,679     27,834  
2008   Annual distribution total $0.47           6.535   228              

12/31/08       $ 7,044         3,331   $ 15,856   $ 15,323  


* Beginning with the 1997 (RVT), 2002 (RMT) and 2004 (FUND) distributions, the purchase price of distributions is a weighted average of the distribution reinvestment prices for the year.
** Other than for initial purchase, values are stated as of December 31 of the year indicated, after reinvestment of distributions.

18  |  2008 Annual Report to Stockholders




Distribution Reinvestment and Cash Purchase Options


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, Computershare, in writing. A registered stockholder also has the option to receive the distribution in the form of a stock certificate or in cash if Computershare 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 Computershare on a monthly basis, and to deposit certificates representing your Fund shares with Computershare for safekeeping. The Funds’ investment adviser is absorbing all commissions on optional cash purchases under the Plans through December 31, 2009.
How do the Plans work for registered stockholders?
Computershare 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 Computershare 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 Computershare 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, Computershare 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 Computershare. All correspondence (including notifications) should be directed to: [Name of Fund] Distribution Reinvestment and Cash Purchase Plan, c/o Computershare, PO Box 43010, Providence, RI 02940-3010, telephone (800) 426-5523.

2008 Annual Report to Stockholders  |  19




Royce Value Trust



Schedule of Investments


    SHARES   VALUE  
             

COMMON STOCKS – 129.2%

           
             

Consumer Products – 8.1%

           

Apparel, Shoes and Accessories - 2.7%

           

Columbia Sportswear

  34,600   $ 1,223,802  

Delta Apparel a,b

  605,560     2,210,294  

K-Swiss Cl. A

  160,000     1,824,000  

Lazare Kaplan International b

  103,600     432,012  

Timberland Company (The) Cl. A b

  17,500     202,125  

Weyco Group

  307,992     10,179,136  
       
 
          16,071,369  
       
 

Collectibles - 0.3%

           

Leapfrog Enterprises Cl. A b

  175,000     612,500  

Russ Berrie & Company b

  417,000     1,238,490  
       
 
          1,850,990  
       
 

Consumer Electronics - 1.0%

           

Dolby Laboratories Cl. A b

  153,900     5,041,764  

DTS b

  64,100     1,176,235  
       
 
          6,217,999  
       
 

Food/Beverage/Tobacco - 0.8%

           

B&G Foods (Units)

  120,100     1,243,035  

B&G Foods Cl. A

  51,300     277,020  

Hershey Creamery

  709     1,293,925  

Seneca Foods Cl. A b

  80,000     1,672,800  

Seneca Foods Cl. B b,c

  13,251     318,024  
       
 
          4,804,804  
       
 

Health, Beauty and Nutrition - 0.0%

           

Nutraceutical International b

  22,800     175,332  
       
 

Home Furnishing and Appliances - 2.1%

           

Aaron Rents

  4,500     119,790  

American Woodmark

  123,335     2,248,397  

Ekornes

  100,000     967,349  

Ethan Allen Interiors

  65,800     945,546  

Hunter Douglas

  36,000     1,184,229  

Kimball International Cl. B

  286,180     2,464,010  

La-Z-Boy

  68,200     147,994  

Mohawk Industries b

  102,200     4,391,534  

Universal Electronics b

  10,000     162,200  
       
 
          12,631,049  
       
 

Sports and Recreation - 1.2%

           

Beneteau

  108,000     1,021,812  

Coachmen Industries b,c

  47,700     87,768  

RC2 Corporation b

  132,600     1,414,842  

Sturm, Ruger & Company b

  272,900     1,629,213  

Thor Industries

  110,900     1,461,662  

Winnebago Industries

  247,500     1,492,425  
       
 
          7,107,722  
       
 

Total (Cost $57,257,786)

        48,859,265  
       
 

Consumer Services – 4.4%

           

Direct Marketing - 0.4%

           

Manutan International

  20,500     885,588  

Takkt

  153,000     1,713,289  
       
 
          2,598,877  
       
 
    SHARES   VALUE  
             

Consumer Services (continued)

           

Leisure and Entertainment - 0.0%

           

Shanda Interactive Entertainment ADR b,c

  2,500   $ 80,900  

Shuffle Master b

  15,000     74,400  
       
 
          155,300  
       
 

Media and Broadcasting - 0.1%

           

Ascent Media Cl. B b,c,d

  1,830     39,967  

Cox Radio Cl. A b

  23,000     138,230  

Discovery Communications Cl. B b,c

  18,300     273,951  

Discovery Communications Cl. C b

  18,300     245,037  
       
 
          697,185  
       
 

Online Commerce - 0.0%

           

CryptoLogic

  200     458  
       
 

Restaurants and Lodgings - 1.0%

           

Benihana b

  3,300     6,930  

CEC Entertainment b

  116,000     2,813,000  

Steak n Shake b

  198,000     1,178,100  

Tim Hortons

  65,000     1,874,600  
       
 
          5,872,630  
       
 

Retail Stores - 2.9%

           

AnnTaylor Stores b

  50,000     288,500  

Bulgari

  250,000     1,560,870  

CarMax (b,c)

  160,000     1,260,800  

Charming Shoppes b,c

  922,800     2,251,632  

Children’s Place Retail Stores b

  13,670     296,366  

Dress Barn (The) b

  287,280     3,085,387  

Gander Mountain b

  53,300     124,189  

Lewis Group

  385,000     2,011,032  

Pier 1 Imports b

  626,200     231,694  

Stein Mart b

  182,800     206,564  

Tiffany & Co.

  208,700     4,931,581  

West Marine b

  131,100     555,864  

Wet Seal (The) Cl. A b

  162,000     481,140  
       
 
          17,285,619  
       
 

Total (Cost $42,861,293)

        26,610,069  
       
 

Diversified Investment Companies – 0.6%

           

Closed-End Funds - 0.6%

           

Central Fund of Canada Cl. A

  211,500     2,373,030  

KKR Private Equity Investors L.P. b

  105,000     370,047  

Kohlberg Capital

  209,884     763,978  
       
 

Total (Cost $7,042,067)

        3,507,055  
       
 

Financial Intermediaries – 17.6%

           

Banking - 6.3%

           

Abigail Adams National Bancorp

  160,500     402,855  

Ameriana Bancorp

  40,000     223,200  

Banca Finnat Euramerica

  720,000     511,213  

Bank of N.T. Butterfield & Son

  450,175     4,704,329  

Bank Sarasin & Cie Cl. B

  24,860     742,656  

Banque Privee Edmond de Rothschild

  23     574,634  

BB Holdings b

  289,400     772,853  

BOK Financial

  74,827     3,023,011  

Boston Private Financial Holdings

  203,000     1,388,520  

Cadence Financial

  40,300     187,798  

20  |  2008 Annual Report to Stockholders   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.



December 31, 2008



 


    SHARES   VALUE  
             

Financial Intermediaries (continued)

           

Banking (continued)

           

Center Bancorp

  66,811   $ 546,514  

Centrue Financial

  82,200     507,174  

CFS Bancorp

  265,000     1,033,500  

CNB Financial

  11,116     112,827  

Colonial BancGroup (The) c

  25,000     51,750  

Commercial National Financial

  54,900     796,599  

Farmers & Merchants Bank of Long Beach

  1,200     4,596,000  

Fauquier Bankshares

  160,800     2,050,200  

Hawthorn Bancshares

  44,400     765,456  

Heritage Financial

  20,615     252,534  

HopFed Bancorp

  104,500     1,149,500  

Jefferson Bancshares

  32,226     261,353  

Kearny Financial

  60,862     779,034  

Mechanics Bank (The)

  200     2,500,000  

Nexity Financial b

  109,999     71,499  

Old Point Financial

  25,000     478,250  

Peapack-Gladstone Financial

  10,000     266,400  

Peoples Community Bancorp b,c

  179,310     35,862  

Timberland Bancorp a

  469,200     3,495,540  

Tompkins Financial

  9,645     558,928  

Vontobel Holding

  20,400     428,605  

W Holding Company

  18,708     192,692  

Whitney Holding

  41,500     663,585  

Wilber Corporation (The)

  105,900     736,005  

Wilmington Trust

  143,500     3,191,440  

Yadkin Valley Financial

  3,800     54,150  
       
 
          38,106,466  
       
 

Insurance - 7.2%

           

Alleghany Corporation b

  22,644     6,385,608  

Argo Group International Holdings b

  64,751     2,196,354  

Aspen Insurance Holdings

  64,000     1,552,000  

CNA Surety b

  130,600     2,507,520  

Enstar Group b

  26,000     1,537,640  

Erie Indemnity Cl. A

  114,500     4,308,635  

First American

  20,000     577,800  

Greenlight Capital Re Cl. A b

  131,100     1,702,989  

Hilltop Holdings b

  415,400     4,045,996  

Independence Holding

  317,658     1,146,745  

IPC Holdings

  27,000     807,300  

LandAmerica Financial Group c

  10,000     750  

Leucadia National b

  54,940     1,087,812  

Montpelier Re Holdings

  66,000     1,108,140  

NYMAGIC

  232,200     4,423,410  

Old Republic International

  20,000     238,400  

ProAssurance Corporation b

  8,070     425,935  

RLI

  99,724     6,099,120  

Stewart Information Services

  100,000     2,349,000  

Wesco Financial

  3,750     1,079,625  
       
 
          43,580,779  
       
 

Real Estate Investment Trusts - 0.0%

           

Gladstone Commercial

  34,700     294,950  
       
 

Securities Brokers - 3.7%

           

Broadpoint Securities Group b,c

  200,100     594,297  
    SHARES   VALUE  
             

Financial Intermediaries (continued)

           

Securities Brokers (continued)

           

Close Brothers Group

  43,000   $ 329,783  

Cowen Group b

  32,000     199,680  

D. Carnegie & Co. d

  14,000     0  

DundeeWealth

  33,300     158,610  

E*TRADE Financial b,c

  75,000     86,250  

Egyptian Financial Group-Hermes Holding GDR

  57,900     347,400  

Evercore Partners Cl. A

  308,500     3,853,165  

HQ

  44,000     333,178  

Interactive Brokers Group Cl. A b

  26,850     480,346  

Investcorp Bank GDR

  27,000     81,000  

Investment Technology Group b

  30,400     690,688  

KBW b,c

  70,058     1,611,334  

LaBranche & Co b

  137,000     656,230  

Lazard Cl. A

  203,900     6,063,986  

MF Global b,c

  145,500     296,820  

Oppenheimer Holdings Cl. A

  30,000     386,400  

optionsXpress Holdings

  53,000     708,080  

Phatra Securities

  775,000     268,952  

Piper Jaffray b

  105,700     4,202,632  

Shinko Securities

  492,300     1,078,814  
       
 
          22,427,645  
       
 

Securities Exchanges - 0.1%

           

MarketAxess Holdings b

  67,000     546,720  
       
 

Other Financial Intermediaries - 0.3%

           

KKR Financial Holdings

  481,404     760,618  

NASDAQ OMX Group b

  30,000     741,300  
       
 
          1,501,918  
       
 

Total (Cost $142,821,113)

        106,458,478  
       
 

Financial Services – 13.9%

           

Diversified Financial Services - 0.9%

           

AmeriCredit Corporation b,c

  18,870     144,167  

Discover Financial Services

  10,000     95,300  

Encore Capital Group b,c

  88,000     633,600  

Municipal Mortgage & Equity c

  40,300     10,881  

Ocwen Financial b,c

  173,600     1,593,648  

World Acceptance b,c

  133,700     2,641,912  
       
 
          5,119,508  
       
 

Information and Processing - 2.4%

           

Broadridge Financial Solutions

  30,000     376,200  

Interactive Data

  134,300     3,311,838  

MoneyGram International b

  428,500     432,785  

Morningstar b,c

  119,800     4,252,900  

MSCI Cl. A b

  67,100     1,191,696  

Paychex

  10,000     262,800  

PRG-Schultz International b

  14,420     58,834  

SEI Investments

  286,800     4,505,628  
       
 
          14,392,681  
       
 

Insurance Brokers - 1.8%

           

Brown & Brown

  183,700     3,839,330  

Crawford & Company Cl. A b

  289,200     1,949,208  

Crawford & Company Cl. B b,c

  162,300     2,359,842  

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.   2008 Annual Report to Stockholders  |  21



Royce Value Trust



Schedule of Investments


    SHARES   VALUE  
             

Financial Services (continued)

           

Insurance Brokers (continued)

           

Gallagher (Arthur J.) & Co.

  111,200   $ 2,881,192  
       
 
          11,029,572  
       
 

Investment Management - 7.3%

           

A.F.P. Provida ADR

  22,100     301,444  

Affiliated Managers Group b

  56,300     2,360,096  

AllianceBernstein Holding L.P.

  333,100     6,925,149  

AP Alternative Assets L.P.

  233,200     280,436  

Ashmore Group

  170,000     327,618  

Australian Wealth Management

  505,000     390,814  

Azimut Holding

  76,700     413,131  

BKF Capital Group

  227,050     181,640  

Calamos Asset Management Cl. A

  45,000     333,000  

CapMan Cl. B

  632,000     842,051  

Coronation Fund Managers

  526,000     265,200  

Deutsche Beteiligungs

  103,605     1,785,546  

Eaton Vance

  172,800     3,630,528  

Endeavour Financial

  150,000     207,776  

Equity Trustees

  33,202     305,559  

F&C Asset Management

  60,000     50,415  

Federated Investors Cl. B

  245,700     4,167,072  

Fiducian Portfolio Services

  227,000     200,996  

GAMCO Investors Cl. A

  125,075     3,417,049  

GIMV

  27,000     1,169,684  

GP Investments BDR b

  15,000     35,636  

JAFCO

  37,300     953,536  

MVC Capital

  424,200     4,653,474  

New Star Asset Management Group

  126,500     3,478  

Onex Corporation

  50,000     736,735  

Perpetual

  12,700     331,153  

Pzena Investment Management Cl. A c

  238,700     1,007,314  

Rathbone Brothers

  35,400     426,588  

RHJ International b

  177,500     868,720  

Schroders

  168,890     2,109,088  

SHUAA Capital

  485,000     132,043  

SPARX Group

  7,220     1,107,263  

Tasmanian Perpetual Trustees

  152,000     302,027  

Trust Company

  97,283     329,129  

Value Partners Group

  715,000     229,953  

Waddell & Reed Financial Cl. A

  200,000     3,092,000  
       
 
          43,873,341  
       
 

Special Purpose Acquisition Corporation - 0.6%

           

Alternative Asset Management Acquisition (Units) b

  250,000     2,282,500  

Cockleshell b

  337,644     259,714  

Prospect Acquisition (Units) b

  150,000     1,336,500  
       
 
          3,878,714  
       
 

Specialty Finance - 0.9%

           

Credit Acceptance b,c

  214,601     2,940,034  

MCG Capital

  157,715     111,977  

NGP Capital Resources

  50,000     418,500  

Portfolio Recovery Associates b

  62,100     2,101,464  
       
 
          5,571,975  
       
 

Total (Cost $135,295,877)

        83,865,791  
       
 
    SHARES   VALUE  
             

Health – 7.4%

           

Commercial Services - 0.6%

           

PAREXEL International b

  384,400   $ 3,732,524  
       
 

Drugs and Biotech - 1.8%

           

Affymetrix b

  10,000     29,900  

American Oriental Bioengineering b,c

  19,000     129,010  

Biovail Corporation

  41,200     389,340  

BMP Sunstone b,c

  5,000     27,850  

Endo Pharmaceuticals Holdings b

  191,800     4,963,784  

Human Genome Sciences b,c

  90,000     190,800  

K-V Pharmaceutical Cl. A b,c

  51,500     148,320  

Medicines Company (The) b

  20,000     294,600  

Mylan b,c

  52,200     516,258  

Myriad Genetics b

  50,000     3,313,000  

Ore Pharmaceuticals b,c

  117,980     56,630  

Pharmacyclics b

  383,000     302,570  

QLT b

  114,070     274,909  

Sinovac Biotech b,c

  53,200     73,416  

Sunesis Pharmaceuticals b,c

  552,000     182,160  

Tongjitang Chinese Medicines ADR b,c

  31,700     95,100  
       
 
          10,987,647  
       
 

Health Services - 1.9%

           

Advisory Board (The) b,c

  120,000     2,676,000  

Albany Molecular Research b

  85,000     827,900  

Chem Rx (Units) b

  280,000     182,000  

Cross Country Healthcare b

  30,000     263,700  

Gentiva Health Services b

  30,150     882,189  

HMS Holdings b

  50,000     1,576,000  

Lincare Holdings b

  52,562     1,415,495  

MedQuist

  73,893     151,480  

On Assignment b

  375,400     2,128,518  

PharmaNet Development Group b,c

  10,000     9,100  

Res-Care b

  65,460     983,209  

WellCare Health Plans b

  5,000     64,300  
       
 
          11,159,891  
       
 

Medical Products and Devices - 3.1%

           

Allied Healthcare Products b

  180,512     525,290  

Atrion Corporation

  15,750     1,529,325  

Bruker Corporation b

  370,200     1,495,608  

CONMED Corporation b

  81,500     1,951,110  

Fielmann

  25,000     1,627,441  

Golden Meditech b

  200,000     27,180  

IDEXX Laboratories b,c

  164,600     5,938,768  

STERIS Corporation

  98,600     2,355,554  

Straumann Holding

  6,700     1,180,137  

Urologix b,c

  445,500     245,025  

Young Innovations

  62,550     963,270  

Zoll Medical b

  40,400     763,156  
       
 
          18,601,864  
       
 

Total (Cost $45,073,135)

        44,481,926  
       
 

Industrial Products – 23.2%

           

Automotive - 2.1%

           

Copart b

  153,100     4,162,789  

Fuel Systems Solutions b

  22,500     737,100  

International Textile Group b

  85,000     3,400  

22  |  2008 Annual Report to Stockholders   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.



December 31, 2008



 


    SHARES   VALUE  
             

Industrial Products (continued)

           

Automotive (continued)

           

LKQ Corporation b,c

  375,000   $ 4,372,500  

Nokian Renkaat

  82,000     919,362  

SORL Auto Parts b,c

  53,400     85,440  

Superior Industries International

  98,400     1,035,168  

WABCO Holdings

  98,800     1,560,052  

Wonder Auto Technology b,c

  29,600     116,032  
       
 
          12,991,843  
       
 

Building Systems and Components - 2.4%

           

Armstrong World Industries

  71,000     1,535,020  

Decker Manufacturing

  6,022     111,407  

Heywood Williams Group b

  958,837     56,935  

NCI Building Systems b

  13,900     226,570  

Preformed Line Products

  91,600     4,217,264  

Simpson Manufacturing

  283,400     7,867,184  

Somfy

  3,000     476,762  
       
 
          14,491,142  
       
 

Construction Materials - 2.3%

           

Ash Grove Cement Cl. B

  50,518     10,608,780  

Owens Corning b

  25,000     432,500  

Pretoria Portland Cement

  287,240     979,717  

United Rentals b

  144,943     1,321,880  

USG Corporation b

  50,000     402,000  
       
 
          13,744,877  
       
 

Industrial Components - 2.2%

           

CLARCOR

  113,500     3,765,930  

Donaldson Company

  92,800     3,122,720  

GrafTech International b

  64,790     539,053  

II-VI b

  13,500     257,715  

Mueller Water Products Cl. A

  72,500     609,000  

PerkinElmer

  185,800     2,584,478  

Powell Industries b

  92,400     2,681,448  
       
 
          13,560,344  
       
 

Machinery - 5.3%

           

Astec Industries b

  25,000     783,250  

Baldor Electric

  62,900     1,122,765  

Burnham Holdings Cl. A

  117,964     996,796  

Burnham Holdings Cl. B

  36,000     304,200  

Franklin Electric

  104,600     2,940,306  

Hardinge

  26,193     106,082  

Intermec b

  23,000     305,440  

Jinpan International

  15,500     224,905  

Lincoln Electric Holdings

  117,180     5,967,977  

Manitou BF

  121,500     1,379,081  

Nordson Corporation

  162,200     5,237,438  

OSG Corporation

  20,000     170,525  

Rofin-Sinar Technologies b

  286,000     5,885,880  

Takatori Corporation

  40,000     105,874  

Williams Controls b

  37,499     272,993  

Woodward Governor

  274,600     6,321,292  
       
 
          32,124,804  
       
 

Metal Fabrication and Distribution - 2.3%

           

Central Steel & Wire

  6,062     3,515,960  

Commercial Metals

  36,600     434,442  
    SHARES   VALUE  
             

Industrial Products (continued)

           

Metal Fabrication and Distribution (continued)

           

CompX International Cl. A

  185,300   $ 978,384  

Fushi Copperweld b,c

  23,200     122,264  

Gerdau Ameristeel

  61,100     370,266  

NN

  197,100     451,359  

RBC Bearings b,c

  45,000     912,600  

Reliance Steel & Aluminum

  25,920     516,845  

Schnitzer Steel Industries Cl. A

  100,000     3,765,000  

Sims Group ADR

  238,175     2,958,133  
       
 
          14,025,253  
       
 

Miscellaneous Manufacturing - 2.9%

           

Barnes Group

  20,000     290,000  

Brady Corporation Cl. A

  168,400     4,033,180  

Broadwind Energy b,c

  20,000     90,000  

Matthews International Cl. A

  50,000     1,834,000  

Mettler-Toledo International b

  28,700     1,934,380  

PMFG b

  383,200     3,663,392  

Rational

  15,000     1,779,635  

Raven Industries

  86,200     2,077,420  

Semperit AG Holding

  44,500     733,184  

Synalloy Corporation

  198,800     954,240  
       
 
          17,389,431  
       
 

Paper and Packaging - 0.3%

           

Mayr-Melnhof Karton

  28,000     1,980,324  
       
 

Pumps, Valves and Bearings - 1.2%

           

Graco

  143,625     3,408,221  

IDEX Corporation

  54,000     1,304,100  

Pfeiffer Vacuum Technology

  34,595     2,290,727  
       
 
          7,003,048  
       
 

Specialty Chemicals and Materials - 1.9%

           

Aceto Corporation

  261,910     2,621,719  

American Vanguard

  26,666     311,992  

Cabot Corporation

  191,000     2,922,300  

Hawkins

  206,878     3,163,165  

Migao Corporation b

  22,000     101,579  

New Oriental Energy & Chemical b,c

  1,000     930  

Schulman (A.)

  150,100     2,551,700  
       
 
          11,673,385  
       
 

Textiles - 0.1%

           

Unifi b

  125,100     352,782  
       
 

Other Industrial Products - 0.2%

           

Harbin Electric b,c

  12,700     101,473  

Vacon

  33,500     861,121  
       
 
          962,594  
       
 

Total (Cost $118,250,976)

        140,299,827  
       
 

Industrial Services – 19.0%

           

Advertising and Publishing - 0.4%

           

Focus Media Holding ADR b,c

  70,000     636,300  

Lamar Advertising Cl. A b

  51,000     640,560  

MDC Partners Cl. A b

  60,000     182,400  

Sun-Times Media Group Cl. A b

  180,000     9,000  

ValueClick b

  145,000     991,800  

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.   2008 Annual Report to Stockholders  |  23



Royce Value Trust



Schedule of Investments


    SHARES   VALUE  
             

Industrial Services (continued)

           

Advertising and Publishing (continued)

           

Voyager Learning b

  150,000   $ 195,000  
       
 
          2,655,060  
       
 

Commercial Services - 10.8%

           

Animal Health International b

  30,000     63,900  

Canadian Solar b,c

  50,000     323,000  

ChinaCast Education b

  28,000     71,680  

Convergys Corporation b

  121,000     775,610  

Corinthian Colleges b

  106,500     1,743,405  

CRA International b

  79,287     2,135,199  

Diamond Management & Technology Consultants

  80,400     338,484  

Forrester Research b

  40,300     1,136,863  

Gartner b

  213,000     3,797,790  

Global Sources b

  3,697     20,149  

Hackett Group b

  655,000     1,912,600  

Hewitt Associates Cl. A b

  205,720     5,838,334  

ITT Educational Services b

  23,000     2,184,540  

Landauer

  117,900     8,642,070  

Learning Tree International b

  53,400     454,968  

Manpower

  62,600     2,127,774  

ManTech International Cl. A b

  119,400     6,470,286  

MAXIMUS

  127,900     4,490,569  

Michael Page International

  365,000     1,136,006  

Monster Worldwide b

  24,800     299,832  

MPS Group b

  564,600     4,251,438  

New Horizons Worldwide b

  228,600     116,586  

Ritchie Bros. Auctioneers

  550,200     11,785,284  

Robert Half International

  65,500     1,363,710  

Sotheby’s

  371,600     3,303,524  

Spherion Corporation b

  62,800     138,788  

TRC Companies b

  3,600     6,984  

Wright Express b

  30,000     378,000  
       
 
          65,307,373  
       
 

Engineering and Construction - 1.4%

           

Desarrolladora Homex ADR b,c

  14,100     321,903  

Fleetwood Enterprises b

  234,300     23,430  

HLS Systems International b,c

  59,470     167,111  

Integrated Electrical Services b

  355,400     3,113,304  

KBR

  180,000     2,736,000  

NVR b

  5,000     2,281,250  
       
 
          8,642,998  
       
 

Food, Tobacco and Agriculture - 0.2%

           

Agria Corporation ADR b

  25,000     37,250  

Alico

  27,000     1,106,730  

MGP Ingredients

  127,400     85,358  

Origin Agritech b

  97,500     198,900  

Zhongpin b

  6,900     82,800  
       
 
          1,511,038  
       
 

Industrial Distribution - 1.1%

           

Chindex International b

  3,100     24,645  

Lawson Products

  161,431     3,688,698  

MSC Industrial Direct Cl. A

  74,300     2,736,469  
       
 
          6,449,812  
       
 
    SHARES   VALUE  
             

Industrial Services (continued)

           

Printing - 0.1%

           

Bowne & Co.

  68,100   $ 400,428  
       
 

Transportation and Logistics - 5.0%

           

Alexander & Baldwin

  60,000     1,503,600  

C. H. Robinson Worldwide

  50,000     2,751,500  

Forward Air

  269,750     6,546,832  

Frozen Food Express Industries

  286,635     1,628,087  

Hub Group Cl. A b

  174,400     4,626,832  

Landstar System

  96,200     3,696,966  

Patriot Transportation Holding b

  70,986     4,973,989  

Universal Truckload Services b

  115,100     1,629,816  

UTI Worldwide

  175,000     2,509,500  
       
 
          29,867,122  
       
 

Total (Cost $101,412,946)

        114,833,831  
       
 

Natural Resources – 8.8%

           

Energy Services - 4.3%

           

Cal Dive International b,c

  50,000     325,500  

CARBO Ceramics

  135,200     4,803,656  

Core Laboratories

  10,000     598,600  

Ensign Energy Services

  225,100     2,410,549  

Exterran Holdings b

  103,600     2,206,680  

Global Industries b,c

  54,500     190,205  

Helix Energy Solutions Group b

  34,226     247,796  

Helmerich & Payne

  53,700     1,221,675  

ION Geophysical b,c

  464,500     1,593,235  

RPC

  25,000     244,000  

SEACOR Holdings b,c

  127,300     8,484,545  

TETRA Technologies b,c

  68,000     330,480  

Willbros Group b

  103,800     879,186  

World Fuel Services

  60,000     2,220,000  

Yingli Green Energy Holding ADR b,c

  7,200     43,920  
       
 
          25,800,027  
       
 

Oil and Gas - 1.1%

           

Bill Barrett b

  50,000     1,056,500  

Carrizo Oil & Gas b

  41,700     671,370  

Cimarex Energy

  155,490     4,164,022  

Edge Petroleum b,c

  326,900     51,977  

Penn Virginia

  22,880     594,423  

PetroCorp b,d

  61,400     0  

Storm Cat Energy b,c,d

  330,800     0  

W&T Offshore

  25,000     358,000  
       
 
          6,896,292  
       
 

Precious Metals and Mining - 2.0%

           

Centerra Gold b

  30,000     107,898  

Etruscan Resources b

  745,900     314,190  

Gammon Gold b

  198,300     1,084,701  

Golden Star Resources b,c

  350,000     350,000  

Harry Winston Diamond

  10,000     45,900  

Hecla Mining b

  528,600     1,480,080  

IAMGOLD Corporation

  335,620     2,050,638  

Kimber Resources b,c

  560,000     280,000  

Kinross Gold

  40,286     742,068  

New Gold b

  640,000     915,200  

Northam Platinum

  463,000     1,040,643  

24  |  2008 Annual Report to Stockholders   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.



December 31, 2008



 


    SHARES   VALUE  
             

Natural Resources (continued)

           

Precious Metals and Mining (continued)

           

Northgate Minerals b

  140,000   $ 116,200  

NovaGold Resources b,c

  70,000     104,300  

Pan American Silver b

  41,000     699,870  

Royal Gold

  34,400     1,692,824  

Yamana Gold

  113,525     876,413  
       
 
          11,900,925  
       
 

Real Estate - 1.4%

           

Consolidated-Tomoka Land

  13,564     518,009  

PICO Holdings b

  75,200     1,998,816  

St. Joe Company (The) b,c

  164,100     3,990,912  

Tejon Ranch b,c

  70,000     1,731,800  
       
 
          8,239,537  
       
 

Total (Cost $60,285,142)

        52,836,781  
       
 

Technology – 21.0%

           

Aerospace and Defense - 1.7%

           

AerCap Holdings b

  45,000     135,450  

Astronics Corporation b

  65,500     582,950  

Ducommun

  117,200     1,957,240  

HEICO Corporation

  133,700     5,191,571  

HEICO Corporation Cl. A

  38,600     1,117,856  

Hexcel Corporation b

  47,500     351,025  

Integral Systems b

  79,752     961,012  
       
 
          10,297,104  
       
 

Components and Systems - 5.4%

           

Analogic Corporation

  40,135     1,094,883  

Belden

  57,800     1,206,864  

Benchmark Electronics b

  208,200     2,658,714  

Checkpoint Systems b

  56,060     551,630  

China Security & Surveillance Technology b,c

  6,000     26,580  

Diebold

  73,600     2,067,424  

Dionex Corporation b

  81,000     3,632,850  

Electronics for Imaging b

  25,000     239,000  

Energy Conversion Devices b,c

  84,500     2,130,245  

Hutchinson Technology b,c

  97,500     339,300  

KEMET Corporation b

  95,600     25,812  

Lexmark International Cl. A b

  4,000     107,600  

Methode Electronics

  50,000     337,000  

Newport Corporation b

  592,200     4,015,116  

Perceptron b

  357,700     1,205,449  

Plexus Corporation b

  300,700     5,096,865  

Richardson Electronics

  520,712     1,536,100  

Technitrol

  261,200     908,976  

Vaisala Cl. A

  96,000     2,974,993  

Vishay Intertechnology b

  186,000     636,120  

Zebra Technologies Cl. A b

  76,525     1,550,397  
       
 
          32,341,918  
       
 

Distribution - 0.7%

           

Agilysys

  165,125     708,386  

Anixter International b

  61,795     1,861,266  

China 3C Group b

  41,600     29,120  
    SHARES   VALUE  
             

Technology (continued)

           

Distribution (continued)

           

Tech Data b

  86,500   $ 1,543,160  
       
 
          4,141,932  
       
 

Internet Software and Services - 0.6%

           

CyberSource Corporation b,c

  10,000     119,900  

DealerTrack Holdings b

  55,000     653,950  

EarthLink b

  55,200     373,152  

j2 Global Communications b

  43,420     870,137  

Jupitermedia Corporation b

  525,000     194,250  

Lionbridge Technologies b

  37,500     46,875  

NetEase.com ADR b

  3,700     81,770  

Perficient b

  10,000     47,800  

RealNetworks b

  245,400     866,262  

SkyTerra Communications b

  62,200     111,338  

SupportSoft b

  220,000     490,600  
       
 
          3,856,034  
       
 

IT Services - 2.5%

           

Alten b

  43,500     925,486  

Black Box

  67,300     1,757,876  

Computer Task Group b

  251,100     808,542  

DST Systems b,c

  5,000     189,900  

Metavante Technologies b

  20,000     322,200  

Sapient Corporation b

  806,602     3,581,313  

SRA International Cl. A b

  213,300     3,679,425  

Syntel

  152,679     3,529,938  

Total System Services

  25,000     350,000  

Yucheng Technologies b,c

  15,400     112,266  
       
 
          15,256,946  
       
 

Semiconductors and Equipment - 3.4%

           

Actions Semiconductor ADR b

  54,700     88,067  

BE Semiconductor Industries b,c

  58,000     121,800  

Brooks Automation b

  5,152     29,933  

CEVA b

  31,666     221,662  

Cognex Corporation

  236,200     3,495,760  

Coherent b

  243,500     5,225,510  

Diodes b

  297,450     1,802,547  

DSP Group b

  164,500     1,319,290  

Exar Corporation b

  232,576     1,551,282  

Fairchild Semiconductor International b

  51,200     250,368  

Himax Technologies ADR

  80,500     128,800  

Image Sensing Systems b

  8,310     52,935  

International Rectifier b

  120,000     1,620,000  

Intevac b,c

  57,450     291,271  

Kulicke & Soffa Industries b

  105,800     179,860  

Novellus Systems b

  12,000     148,080  

Power Integrations

  49,000     974,120  

Sanmina-SCI Corporation b

  200,000     94,000  

Semitool b

  50,000     152,500  

TTM Technologies b

  221,400     1,153,494  

Varian b

  2,000     67,020  

Veeco Instruments b

  65,000     412,100  

Vimicro International ADR b

  270,000     591,300  

Virage Logic b

  120,000     358,800  
       
 
          20,330,499  
       
 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.   2008 Annual Report to Stockholders  |  25



Royce Value Trust



Schedule of Investments


    SHARES   VALUE  
             

Technology (continued)

           

Software - 4.1%

           

ACI Worldwide b

  233,150   $ 3,707,085  

Adobe Systems b

  5,000     106,450  

Advent Software b,c

  162,900     3,253,113  

ANSYS b

  100,000     2,789,000  

Aspen Technology b

  42,100     305,225  

Avid Technology b,c

  141,000     1,538,310  

Borland Software b

  280,000     294,000  

China Fire & Security Group b

  6,300     42,903  

Epicor Software b

  79,900     383,520  

JDA Software Group b

  99,900     1,311,687  

MSC.Software b

  50,000     334,000  

National Instruments

  82,900     2,019,444  

Net 1 UEPS Technologies b

  50,000     685,000  

Pegasystems

  44,200     546,312  

PLATO Learning b

  149,642     179,570  

Radiant Systems b,c

  32,500     109,525  

Renaissance Learning

  15,000     134,850  

SPSS b

  179,600     4,842,016  

Sybase b

  57,600     1,426,752  

Teradata Corporation b

  35,000     519,050  

THQ b

  20,000     83,800  

Verint Systems b

  40,000     268,000  
       
 
          24,879,612  
       
 

Telecommunications - 2.6%

           

Adaptec b

  2,484,100     8,197,530  

ADTRAN

  65,000     967,200  

Catapult Communications b

  87,100     572,247  

China GrenTech ADR b

  15,900     19,080  

China Mobile Media Technology b

  160,200     1,458  

Cogent Communications Group b,c

  204,200     1,333,426  

Cogo Group b

  41,200     200,232  

Globalstar b,c

  50,000     10,000  

Globecomm Systems b

  233,700     1,283,013  

IDT Corporation b

  25,000     8,750  

IDT Corporation Cl. B b

  215,000     86,000  

Level 3 Communications b,c

  401,341     280,939  

Livewire Mobile b

  380,000     41,268  

Sonus Networks b,c

  454,000     717,320  

Sycamore Networks b

  221,000     594,490  

Tandberg

  92,500     1,018,244  

Tollgrade Communications b

  20,000     95,600  

UTStarcom b

  43,700     80,845  

Zhone Technologies b

  1,120,000     92,960  
       
 
          15,600,602  
       
 

Total (Cost $187,626,588)

        126,704,647  
       
 

Utilities – 0.4%

           

CH Energy Group

  44,500     2,286,855  
       
 

Total (Cost $1,994,916)

        2,286,855  
       
 

Miscellaneous e – 4.8%

           

Total (Cost $48,073,534)

        28,718,323  
       
 
    SHARES   VALUE  
             

TOTAL COMMON STOCKS

           

(Cost $947,995,373)

      $ 779,462,848  
       
 

PREFERRED STOCKS – 0.5%

           

Duratex

  182,400     1,155,064  

Seneca Foods Conv. b,d

  85,000     1,599,615  
       
 

TOTAL PREFERRED STOCKS

           

(Cost $4,237,076)

        2,754,679  
       
 

REPURCHASE AGREEMENT – 6.7%

           
State Street Bank & Trust Company,            

0.01% dated 12/31/08, due 1/2/09,

           

maturity value $40,306,022 (collateralized

           

by obligations of various U.S. Government

           

Agencies, valued at $42,000,000)

           

(Cost $40,306,000)

        40,306,000  
       
 

COLLATERAL RECEIVED FOR SECURITIES LOANED – 4.2%

           
Money Market Funds            

Federated Government Obligations Fund

           

(7 day yield-0.9626%)

           

(Cost $25,611,719)

        25,611,719  
       
 

TOTAL INVESTMENTS – 140.6%

           

(Cost $1,018,150,168)

        848,135,246  
             

LIABILITIES LESS CASH AND OTHER ASSETS – (4.1)%

        (24,901,184 )
             

PREFERRED STOCK – (36.5)%

        (220,000,000 )
       
 

NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS – 100.0%

      $ 603,234,062  
       
 

26  |  2008 Annual Report to Stockholders   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.



December 31, 2008



 



  New additions in 2008.
a   At December 31, 2008, 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. See notes to financial statements.
b   Non-income producing.
c   All or a portion of these securities were on loan at December 31, 2008. Total market value of loaned securities at December 31, 2008 was $24,753,879.
d   Securities for which market quotations are not readily available represent 0.3% of net assets. These securities have been valued at their fair value under procedures established by the Fund’s Board of Directors.
e   Includes securities first acquired in 2008 and less than 1% of net assets applicable to Common Stockholders.
    Bold indicates the Fund’s 20 largest equity holdings in terms of December 31, 2008 market value.
     
TAX INFORMATION: The cost of total investments for Federal income tax purposes was $1,016,798,879. At December 31, 2008, net unrealized depreciation for all securities was $(168,663,633) consisting of aggregate gross unrealized appreciation of $169,819,127 and aggregate gross unrealized depreciation of $338,482,760. The primary difference in book and tax basis cost is the timing of the recognition of partnership income and losses on securities sold.


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.   2008 Annual Report to Stockholders  |  27



Royce Value Trust

December 31, 2008


Statement of Assets and Liabilities


         

ASSETS:

       
Investments at value (including collateral on loaned securities)*        

Non-Affiliated Companies (cost $967,808,566)

  $ 802,123,412  

Affiliated Companies (cost $10,035,602)

    5,705,834  

Total investments at value     807,829,246  
Repurchase agreements (at cost and value)     40,306,000  
Cash and foreign currency     3,672  
Receivable for investments sold     24,973  
Receivable for dividends and interest     1,015,366  
Prepaid expenses and other assets     252,241  

Total Assets

    849,431,498  

LIABILITIES:

       
Payable for collateral on loaned securities     25,611,719  
Payable for investments purchased     18,637  
Preferred dividends accrued but not yet declared     288,446  
Accrued expenses     278,634  

Total Liabilities

    26,197,436  

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

  $ 603,234,062  

ANALYSIS OF NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:

       
Common Stock paid-in capital - $0.001 par value per share; 64,376,396 shares outstanding (150,000,000 shares authorized)   $ 794,414,227  
Undistributed net investment income (loss)     3,331,228  
Accumulated net realized gain (loss) on investments and foreign currency     (24,204,439 )
Net unrealized appreciation (depreciation) on investments and foreign currency     (170,018,505 )
Preferred dividends accrued but not yet declared     (288,449 )

Net Assets applicable to Common Stockholders (net asset value per share - $9.37)

  $ 603,234,062  

*Investments at identified cost (including $25,611,719 of collateral on loaned securities)   $ 977,844,168  
Market value of loaned securities     24,753,879  

28  |  2008 Annual Report to Stockholders   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.



Royce Value Trust

Year Ended December 31, 2008



Statement of Operations


INVESTMENT INCOME:

       
Income:        

Dividends*

       

Non-Affiliated Companies

  $ 18,615,440  

Affiliated Companies

    206,448  

Interest

    1,610,852  

Securities lending

    1,492,157  

Total income     21,924,897  

Expenses:        

Investment advisory fees

    11,933,825  

Stockholder reports

    463,812  

Custody and transfer agent fees

    241,830  

Directors’ fees

    119,262  

Administrative and office facilities expenses

    113,379  

Professional fees

    63,338  

Other expenses

    135,631  

Total expenses     13,071,077  
Compensating balance credits     (3,748 )

Net expenses     13,067,329  

Net investment income (loss)     8,857,568  

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:

       
Net realized gain (loss) on investments and foreign currency        

Non-Affiliated Companies

    41,802,074  

Affiliated Companies

     
Net change in unrealized appreciation (depreciation) on investments and foreign currency     (567,740,312 )

Net realized and unrealized gain (loss) on investments and foreign currency     (525,938,238 )

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

    (517,080,670 )

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS

    (12,980,000 )

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

  $ (530,060,670 )
* Net of foreign withholding tax of $512,191.        

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.   2008 Annual Report to Stockholders  |  29



Royce Value Trust


Statement of Changes in Net Assets


    Year ended   Year ended
    12/31/08   12/31/07
INVESTMENT OPERATIONS:                
Net investment income (loss)   $ 8,857,568     $ 5,297,518  
Net realized gain (loss) on investments and foreign currency     41,802,074       121,683,331  
Net change in unrealized appreciation (depreciation) on investments and foreign currency     (567,740,312 )     (56,217,996 )

Net increase (decrease) in net assets resulting from investment operations     (517,080,670 )     70,762,853  

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:                
Net investment income     (621,668 )     (613,954 )
Net realized gain on investments and foreign currency     (12,358,332 )     (12,366,046 )

Total distributions to Preferred Stockholders     (12,980,000 )     (12,980,000 )

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

RESULTING FROM INVESTMENT OPERATIONS

    (530,060,670 )     57,782,853  

DISTRIBUTIONS TO COMMON STOCKHOLDERS:                
Net investment income     (3,638,680 )     (5,095,420 )
Net realized gain on investments and foreign currency     (72,334,389 )     (102,630,144 )
Return of capital     (29,418,267 )      

Total distributions to Common Stockholders     (105,391,336 )     (107,725,564 )

CAPITAL SHARE TRANSACTIONS:                
Reinvestment of distributions to Common Stockholders     54,016,743       54,184,473  

Total capital stock transactions     54,016,743       54,184,473  

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS     (581,435,263 )     4,241,762  

NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:                

Beginning of year

    1,184,669,325       1,180,427,563  

End of year (including undistributed net investment income (loss) of $3,331,228 at 12/31/08 and

               

$(156,056) at 12/31/07)

  $ 603,234,062     $ 1,184,669,325  

30  |  2008 Annual Report to Stockholders   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.




Royce Value Trust


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,
   
      2008       2007       2006       2005       2004  

NET ASSET VALUE, BEGINNING OF PERIOD   $ 19.74     $ 20.62     $ 18.87     $ 18.95     $ 17.03  

INVESTMENT OPERATIONS:                                        

Net investment income (loss)

    0.14       0.09       0.13       0.01       (0.08 )

Net realized and unrealized gain (loss) on investments and

                                       

foreign currency

    (8.50 )     1.13       3.63       1.75       3.81  

Total investment operations

    (8.36 )     1.22       3.76       1.76       3.73  

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:                                        

Net investment income

    (0.01 )     (0.01 )     (0.02 )    
     
 

Net realized gain on investments and foreign currency

    (0.20 )     (0.21 )     (0.21 )     (0.24 )     (0.26 )

Total distributions to Preferred Stockholders

    (0.21 )     (0.22 )     (0.23 )     (0.24 )     (0.26 )

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON                                        

STOCKHOLDERS RESULTING FROM INVESTMENT OPERATIONS

    (8.57 )     1.00       3.53       1.52       3.47  

DISTRIBUTIONS TO COMMON STOCKHOLDERS:                                        

Net investment income

    (0.06 )     (0.09 )     (0.14 )    
     
 

Net realized gain on investments and foreign currency

    (1.18 )     (1.76 )     (1.64 )     (1.61 )     (1.55 )

Return of capital

    (0.48 )    
     
     
     
 

Total distributions to Common Stockholders

    (1.72 )     (1.85 )     (1.78 )     (1.61 )     (1.55 )

CAPITAL STOCK TRANSACTIONS:                                        

Effect of reinvestment of distributions by Common Stockholders

    (0.08 )     (0.03 )     (0.00 )     0.01       0.00  

Total capital stock transactions

    (0.08 )     (0.03 )     (0.00 )     0.01       0.00  

NET ASSET VALUE, END OF PERIOD   $ 9.37     $ 19.74     $ 20.62     $ 18.87     $ 18.95  

MARKET VALUE, END OF PERIOD   $ 8.39     $ 18.58     $ 22.21     $ 20.08     $ 20.44  

TOTAL RETURN (a):                                        
Market Value     (48.27 )%     (8.21 )%     20.96 %     6.95 %     29.60 %
Net Asset Value     (45.62 )%     5.04 %     19.50 %     8.41 %     21.42 %
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO                                        

COMMON STOCKHOLDERS:

                                       
Total expenses (b,c)     1.39 %     1.38 %     1.29 %     1.49 %     1.51 %

Management fee expense (d)

    1.27 %     1.29 %     1.20 %     1.37 %     1.39 %

Other operating expenses

    0.12 %     0.09 %     0.09 %     0.12 %     0.12 %
Net investment income (loss)     0.94 %     0.43 %     0.62 %     0.03 %     (0.50 )%
SUPPLEMENTAL DATA:                                        
Net Assets Applicable to Common Stockholders,                                        

End of Period (in thousands)

  $ 603,234     $ 1,184,669     $ 1,180,428     $ 1,032,120     $ 993,304  
Liquidation Value of Preferred Stock,                                        

End of Period (in thousands)

  $ 220,000     $ 220,000     $ 220,000     $ 220,000     $ 220,000  
Portfolio Turnover Rate     25 %     26 %     21 %     31 %     30 %
PREFERRED STOCK:                                        
Total shares outstanding     8,800,000       8,800,000       8,800,000       8,800,000       8,800,000  
Asset coverage per share   $ 93.55     $ 159.62     $ 159.14     $ 142.29     $ 137.88  
Liquidation preference per share   $ 25.00     $ 25.00     $ 25.00     $ 25.00     $ 25.00  
Average market value per share (e):                                        

5.90% Cumulative

  $ 22.51     $ 23.68     $ 23.95     $ 24.75     $ 24.50  


(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 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 1.13%, 1.17%, 1.08%, 1.22%, and 1.21% for the years ended December 31, 2008, 2007, 2006, 2005 and 2004, respectively.
(c) Expense ratios based on average net assets applicable to Common Stockholders before earnings credits would have been 1.39%, 1.38%, 1.29%, 1.49% and 1.51% for the years ended December 31, 2008, 2007, 2006, 2005 and 2004, respectively.
(d) The management fee is calculated based on average net assets over a rolling 60-month basis, while the above ratios of management fee expenses are based on the average net assets applicable to Common Stockholders over a 12-month basis.
(e) The average of month-end market values during the period that the Preferred Stock was outstanding.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.   2008 Annual Report to Stockholders  |  31




Royce Value Trust


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 (NYSE) (generally 4:00 p.m. Eastern time) on the valuation date. Securities that trade on an exchange, and securities traded on Nasdaq’s Electronic Bulletin Board, are valued at their last reported sales price or Nasdaq official closing price taken from the primary market in which each security trades or, if no sale is reported for such day, at their bid price. Other over-the-counter securities for which market quotations are readily available are valued at their highest bid price, except in the case of some bonds and other fixed income securities which may be valued by reference to other securities with comparable ratings, interest rates and maturities, using established independent pricing services. 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. In addition, if, between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and may make the closing price unreliable, the Fund may fair value the security. The Fund uses an independent pricing service to provide fair value estimates for relevant non-U.S. equity securities on days when the U.S. market volatility exceeds a certain threshold. This pricing service uses proprietary correlations it has developed between the movement of prices of non-U.S. equity securities and indices of U.S.-traded securities, futures contracts and other indications to estimate the fair value of relevant non-U.S. securities. When fair value pricing is employed, the prices of securities used by the Fund may differ from quoted or published prices for the same security. Investments in money market funds are valued at net asset value per share.

     Various inputs are used in determining the value of the Fund’s investments, as noted above. These inputs are summarized in the three broad levels below:
          Level 1 – quoted prices in active markets for identical securities
          Level 2 – other significant observable inputs (including quoted prices for similar securities, foreign securities that may be fair valued and repurchase agreements)
          Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)
     The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
     The following is a summary of the inputs used to value the Fund’s investments as of December 31, 2008:

Level 1     Level 2     Level 3     Total

$683,102,957     $163,392,707     $1,639,582     $848,135,246

Level 3 Reconciliation:                  
      Change in unrealized appreciation            
Balance as of 12/31/07     (depreciation)     Purchases     Balance as of 12/31/08

$1,816,875     $(604,318)     $427,025     $1,639,582

Repurchase Agreements:
     The Fund may enter into repurchase agreements with institutions that the Fund’s investment adviser has determined are creditworthy. The Fund restricts repurchase agreements to maturities of no more than seven days. Securities pledged as collateral for repurchase agreements, which are held 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 the counter-party, including possible delays or restrictions upon the ability of the Fund to dispose of its underlying securities.

Foreign Currency:
     The Fund values its non-U.S. securities in U.S. dollars daily at the prevailing foreign currency exchange rates as quoted by a major bank. The effects of changes in foreign exchange rates on investments and other assets and liabilities are included with net realized and unrealized gains and losses on investments.
     Net realized foreign exchange gains or losses arise from sales and maturities of short-term securities, sales of foreign currencies, expiration of currency forward contracts, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities, including investments in securities at the end of the reporting period, as a result of changes in foreign currency exchange rates.


32  |  2008 Annual Report to Stockholders    




Royce Value Trust


Notes to Financial Statements (continued)

Securities Lending:
     The Fund loans securities to qualified institutional investors for the purpose of realizing additional income. Collateral on all securities loaned for the Fund is accepted in cash and cash equivalents and invested temporarily by the custodian. The collateral maintained is at least 100% of the current market value of the loaned securities. The market value of the loaned securities is determined at the close of business of the Fund and any additional required collateral is delivered to the Fund on the next business day. The Fund retains the risk of any loss on the securities on loan as well as incurring the potential loss on investments purchased with cash collateral received for securities lending.


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 “Tax Information”.


Distributions:
     In 2008, the Fund paid quarterly distributions on the Fund’s Common Stock 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 accrued daily and paid quarterly and distributions to Common Stockholders are recorded on ex-dividend date. 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 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.

Investment Transactions and Related Investment Income:
     Investment transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date. Non-cash dividend income is recorded at the fair market value of the securities received. Interest income is recorded on an accrual basis. Premium and discounts on debt securities are amortized using the effective yield-to-maturity method. 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 equitably. Allocated administrative 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 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.

Compensating Balance Credits:
     The Fund has an arrangement with its custodian bank, whereby a portion of the custodian’s fee is paid indirectly by credits earned on the Fund’s cash on deposit with the bank. This deposit arrangement is an alternative to purchasing overnight investments. Conversely, the Fund pays interest to the custodian on any cash overdrafts, to the extent they are not offset by credits earned on positive cash balances.


Capital Stock:
     The Fund issued 4,367,983 and 2,749,591 shares of Common Stock as reinvestment of distributions by Common Stockholders for the years ended December 31, 2008 and 2007, respectively.
     At December 31, 2008, 8,800,000 shares of 5.90% Cumulative Preferred Stock were outstanding. Commencing October 9, 2008 and thereafter, the Fund, at its option, may redeem the Cumulative Preferred Stock, in whole or in part, at the redemption price. The Cumulative Preferred Stock is classified outside of permanent equity (net assets applicable to Common Stockholders) in the accompanying financial statements in accordance with Emerging Issues Task Force (EITF) Topic D-98, Classification and Measurement of Redeemable Securities, that requires preferred securities that are redeemable for cash or other assets 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.
     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 Cumulative Preferred Stock.


    2008 Annual Report to Stockholders  |  33




Royce Value Trust


Notes to Financial Statements (continued)

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 SmallCap 600 Index (“S&P 600").
     The Basic Fee is a monthly fee equal to 1/12 of 1% (1% on an annualized basis) of the average of the Fund’s month-end net assets applicable to Common Stockholders, plus the liquidation value of Preferred Stock, for the rolling 60-month period ending with such month (the “performance period”). The Basic Fee for each month is increased or decreased at the rate of 1/12 of .05% for each percentage point that the investment performance of the Fund exceeds, or is exceeded by, the percentage change in the investment record of the S&P 600 for the performance period by more than two percentage points. The performance period for each such month is a rolling 60-month period ending with such month. The maximum increase or decrease in the Basic Fee for any month may not exceed 1/12 of .5%. Accordingly, for each month, the maximum monthly fee rate as adjusted for performance is 1/12 of 1.5% and is payable if the investment performance of the Fund exceeds the percentage change in the investment record of the 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’s dividend rate.
     The Fund had negative investment performance for three rolling 36-month periods in 2008 and accordingly received no advisory fee for those months. For the remaining nine months in 2008, the Fund’s investment performance for the rolling 60-month periods ranged from 18% above to 8% below the investment performance of the S&P 600. Accordingly, the net investment advisory fee consisted of a Basic Fee of $9,323,477 and a net upward adjustment of $2,610,348 for the performance of the Fund relative to that of the S&P 600. For the year ended December 31, 2008, the Fund accrued and paid Royce advisory fees totaling $11,933,825.


Purchases and Sales of Investment Securities:
     For the year ended December 31, 2008, the cost of purchases and proceeds from sales of investment securities, other than short-term securities and collateral received for securities loaned, amounted to $274,536,990 and $313,191,405, respectively.

Distributions to Stockholders:

  The tax character of distributions paid to common stockholders
during 2008 and 2007 was as follows:
    The tax character of distributions paid to preferred stockholders
during 2008 and 2007 was as follows:
 
   
  Distributions paid from:     2008       2007     Distributions paid from:     2008       2007  
  Ordinary income   $ 4,477,547     $ 16,137,291     Ordinary income   $ 764,989     $ 1,944,404  
  Long-term capital gain     71,495,522       91,588,273     Long-term capital gain     12,215,011       11,035,596  
  Return of capital     29,418,267       -     Return of capital     -       -  
     
       
 
      $ 105,391,336     $ 107,725,564         $ 12,980,000     $ 12,980,000  
 
   
 
  As of December 31, 2008, the tax basis components of distributable earnings included in stockholders’ equity were as follows:
 
                     
  Undistributed net investment income             -                      
  Undistributed long-term capital gain             -                      
  Unrealized depreciation           $ (168,667,216 )                    
  Post October currency loss*             (22,224,500 )                    
  Accrued preferred distributions             (288,449 )                    
         
                     
              $ (191,180,165 )                    
 
                     
*
Under the current tax law, capital losses, foreign currency losses and losses realized on Passive Foreign Investment Companies after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. As of December 31, 2008, the Fund had $22,224,500 of post October losses.

     The difference between book and tax basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral on wash sales, partnership investments and the unrealized gains on Passive Foreign Investment Companies.


34  |  2008 Annual Report to Stockholders    




Royce Value Trust


Notes to Financial Statements (continued)


Distributions to Stockholders (continued):
     For financial reporting purposes, capital accounts and distributions to stockholders are adjusted to reflect the tax character of permanent book/tax differences. These differences are primarily due to differing treatments of income and gains on various investment securities and foreign currency transactions held by the Fund, timing differences and different characterization of distributions made by the Fund. For the year ended December 31, 2008, 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 Net     Accumulated Net     Paid-in  
Investment Income     Realized Gain (Loss)     Capital  
$(1,109,936)     $1,431,470     $(321,534)  


Transactions in 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 at any time during the period. The Fund effected the following transactions in shares of such companies for the year ended December 31, 2008:

      Shares   Market Value   Cost of   Cost of   Realized   Dividend   Shares   Market Value
Affiliated Company     12/31/07   12/31/07   Purchases   Sales   Gain (Loss)   Income   12/31/08   12/31/08
Delta Apparel       580,760     $ 4,152,434     $ 168,149       -       -       -       605,560     $ 2,210,294  
Timberland Bancorp       469,200       5,714,856       -       -       -     $ 206,448       469,200       3,495,540  
              $ 9,867,290                       -     $ 206,448             $ 5,705,834  

    2008 Annual Report to Stockholders  |  35




Royce Value Trust


Report of Independent Registered Public Accounting Firm

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

We have audited the accompanying statement of assets and liabilities of Royce Value Trust, Inc., (“Fund”) including the schedule of investments, as of December 31, 2008, and the related statement of operations for the year then ended, and the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2008, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Royce Value Trust, Inc. at December 31, 2008, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.

                                                                                                                                                                                                                TAIT, WELLER, & BAKER LLP


Philadelphia, Pennsylvania
February 24, 2009


36  |  2008 Annual Report to Stockholders    




Royce Micro-Cap Trust   December 31, 2008


Schedule of Investments

  SHARES     VALUE
COMMON STOCKS – 120.6%            
             
Consumer Products – 8.7%            
Apparel, Shoes and Accessories - 2.1%            

Frederick’s of Hollywood Group a

  121,804     $ 30,451

Kleinert’s a,b

  14,200       0

Lazare Kaplan International a

  136,700       570,039

Movado Group

  84,400       792,516

Steven Madden a

  13,000       277,160

True Religion Apparel a

  15,200       189,088

Weyco Group

  48,000       1,586,400

Yamato International

  40,000       194,067
         
            3,639,721
         
Collectibles - 0.0%            

Leapfrog Enterprises Cl. A a

  15,700       54,950
         
Consumer Electronics - 0.3%            

DTS a

  26,000       477,100
         
Food/Beverage/Tobacco - 2.5%            

Green Mountain Coffee Roasters a,c

  50,800       1,965,960

Seneca Foods Cl. A a

  62,500       1,306,875

Seneca Foods Cl. B a,c

  42,500       1,020,000
         
            4,292,835
         
Health, Beauty and Nutrition - 0.3%            

NutriSystem

  35,000       510,650
         
Home Furnishing and Appliances - 2.8%            

American Woodmark

  100,000       1,823,000

Flexsteel Industries

  203,500       1,361,415

Helen of Troy a

  20,000       347,200

Natuzzi ADR a

  409,800       983,520

Universal Electronics a

  13,500       218,970
         
            4,734,105
         
Household Products/Wares - 0.2%            

A.T. Cross Company Cl. A a

  93,248       259,229
         
Sports and Recreation - 0.5%            

Cybex International a

  61,700       113,528

Monaco Coach c

  314,950       160,624

Sturm, Ruger & Company a,c

  88,583       528,841
         
            802,993
         
Total (Cost $17,048,389)           14,771,583
         
             
Consumer Services - 5.0%            
Online Commerce - 0.5%            

Alloy a

  41,502       175,553

CryptoLogic

  88,300       202,207

Knot (The) a,c

  35,600       296,192

Stamps.com a

  12,900       126,807
         
            800,759
         
Restaurants and Lodgings - 0.1%            

Benihana Cl. A a

  77,000       161,700

Cosi a

  30,200       8,728

Jamba a

  168,700       72,541
         
            242,969
         
Retail Stores - 4.3%            

America’s Car-Mart a

  116,000       1,601,960

Build-A-Bear Workshop a,c

  88,100       428,166
  SHARES     VALUE
Consumer Services (continued)            
Retail Stores (continued)            

Cato Corporation (The) Cl. A

  68,100     $ 1,028,310

Charming Shoppes a

  526,200       1,283,928

Cost Plus a

  136,500       128,037

Dover Saddlery a

  5,756       7,713

DSW Cl. A a,c

  26,900       335,174

Eddie Bauer Holdings a

  25,000       12,750

Lumber Liquidators a

  125,700       1,327,392

Pacific Sunwear of California a

  40,000       63,600

Stein Mart a

  178,900       202,157

West Marine a,c

  211,000       894,640
         
            7,313,827
         
Other Consumer Services - 0.1%            

Shutterfly a,c

  20,000       139,800
         
Total (Cost $13,025,714)           8,497,355
         
Diversified Investment Companies – 0.9%            
Closed-End Funds - 0.9%            

Central Fund of Canada Cl. A

  141,700       1,589,874
         
Total (Cost $570,878)           1,589,874
         
Financial Intermediaries – 13.2%            
Banking - 6.7%            

Alliance Bancorp, Inc. of Pennsylvania

  50,420       378,150

B of I Holding a,c

  100,000       475,000

BB Holdings a

  380,000       1,014,803

Cass Information Systems

  23,000       700,580

Centrue Financial

  46,600       287,522

CFS Bancorp

  75,000       292,500

Chemung Financial

  40,000       800,000

CNB Financial

  30,000       304,500

Commercial National Financial

  20,000       290,200

Fauquier Bankshares

  160,067       2,040,854

Financial Institutions

  36,000       516,600

First Bancorp

  40,200       799,578

HopFed Bancorp

  61,000       671,000

Lakeland Financial

  45,000       1,071,900

LCNB Corporation

  30,000       270,000

Meta Financial Group

  44,800       403,200

Wilber Corporation (The)

  148,150       1,029,643
         
            11,346,030
         
Insurance - 2.1%            

CRM Holdings a

  124,000       210,800

First Acceptance a

  258,405       749,374

Hilltop Holdings a

  121,400       1,182,436

Independence Holding

  95,800       345,838

NYMAGIC

  61,858       1,178,395
         
            3,666,843
         
Real Estate Investment Trusts - 0.3%            

Vestin Realty Mortgage II c

  144,230       454,325
         
Securities Brokers - 3.1%            

Cowen Group a

  123,600       771,264

Diamond Hill Investment Group

  8,000       520,000

Evercore Partners Cl. A

  13,600       169,864

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.   2008 Annual Report to Stockholders  |  37



Royce Micro-Cap Trust    


Schedule of Investments

  SHARES     VALUE
Financial Intermediaries (continued)            
Securities Brokers (continued)            

FBR Capital Markets a,c

  350,600     $ 1,703,916

International Assets Holding a,c

  14,950       128,271

Sanders Morris Harris Group

  199,000       1,192,010

Thomas Weisel Partners Group a,c

  172,700       815,144
         
            5,300,469
         
Securities Exchanges - 1.0%            

Bolsa Mexicana de Valores a

  948,500       684,912

MarketAxess Holdings a

  123,700       1,009,392
         
            1,694,304
         
Total (Cost $30,726,925)           22,461,971
         
Financial Services – 7.2%            
Diversified Financial Services - 1.0%            

Encore Capital Group a

  98,000       705,600

FCStone Group a,c

  18,000       79,740

World Acceptance a

  47,951       947,512
         
            1,732,852
         
Information and Processing - 0.8%            

Value Line

  40,887       1,411,419
         
Insurance Brokers - 0.1%            

Western Financial Group

  148,000       216,995
         
Investment Management - 3.6%            

BKF Capital Group

  387,000       309,600

Dundee Corporation Cl. A a

  140,200       687,088

Endeavour Financial

  340,900       472,206

Epoch Holding Corporation

  196,500       1,491,435

JZ Capital Partners

  70,000       48,824

MVC Capital

  136,200       1,494,114

Queen City Investments

  948       758,400

Sceptre Investment Counsel

  78,000       338,032

U.S. Global Investors Cl. A

  91,500       447,435
         
            6,047,134
         
Special Purpose Acquisition Corporation - 1.3%            

Cockleshell a

  465,300       357,907

Prospect Acquisition (Units) a

  50,000       445,500

Shellshock a

  42,200       33,673

Shermen WSC Acquisition a

  220,000       1,265,000
         
            2,102,080
         
Specialty Finance - 0.4%            

ASTA Funding

  22,800       62,016

MRU Holdings a

  130,800       5,258

NGP Capital Resources

  68,080       569,830
         
            637,104
         
Total (Cost $16,269,207)           12,147,584
         
Health – 13.1%            
Commercial Services - 0.2%            

PDI a

  96,800       388,168
         
Drugs and Biotech - 1.9%            

Allos Therapeutics a

  53,600       328,032

Anadys Pharmaceuticals a,c

  210,400       330,328

BioCryst Pharmaceuticals a,c

  200,000       274,000

Caraco Pharmaceutical Laboratories a

  59,000       349,280
  SHARES     VALUE
Health (continued)            
Drugs and Biotech (continued)            

Cardiome Pharma a

  18,800     $ 85,540

GenVec a,c

  140,000       60,200

Hi-Tech Pharmacal a

  35,000       193,900

Infinity Pharmaceuticals a

  4,100       32,759

Lexicon Pharmaceuticals a,c

  80,000       112,000

Momenta Pharmaceuticals a,c

  62,500       725,000

Seattle Genetics a

  39,000       348,660

Sinovac Biotech a,c

  75,000       103,500

Strategic Diagnostics a

  173,138       154,093

Theragenics Corporation a

  145,800       170,586
         
            3,267,878
         
Health Services - 4.8%            

Advisory Board (The) a

  51,700       1,152,910

Air Methods a

  43,800       700,362

Albany Molecular Research a

  15,000       146,100

Computer Programs and Systems

  12,800       343,040

CorVel Corporation a

  40,125       881,948

eResearch Technology a

  302,000       2,002,260

Gentiva Health Services a

  23,000       672,980

HMS Holdings a

  25,100       791,152

On Assignment a

  41,100       233,037

PharMerica Corporation a

  40,000       626,800

Sun Healthcare Group a

  41,000       362,850

U.S. Physical Therapy a

  10,000       133,300
         
            8,046,739
         
Medical Products and Devices - 6.2%            

ABIOMED a,c

  15,000       246,300

Allied Healthcare Products a

  226,798       659,982

Atrion Corporation

  4,000       388,400

CAS Medical Systems a

  62,600       121,444

Cerus Corporation a

  38,600       27,020

Cutera a

  22,800       202,236

Cynosure Cl. A a

  16,500       150,645

Del Global Technologies a

  461,301       286,007

Exactech a

  115,000       1,936,600

Kensey Nash a

  23,650       459,046

Medical Action Industries a

  125,250       1,252,500

Merit Medical Systems a

  5,900       105,787

NMT Medical a,c

  228,500       217,075

Orthofix International a

  30,800       472,164

Palomar Medical Technologies a

  18,000       207,540

SenoRx a

  40,100       93,834

Syneron Medical a

  80,400       670,536

Synovis Life Technologies a

  20,000       374,800

Utah Medical Products

  42,300       928,485

Virtual Radiologic a,c

  92,000       780,160

Young Innovations

  61,450       946,330
         
            10,526,891
         
Total (Cost $25,264,175)           22,229,676
         
Industrial Products – 20.1%            
Automotive - 0.6%            

ATC Technology a

  11,200       163,856

SORL Auto Parts a,c

  75,000       120,000

38  |  2008 Annual Report to Stockholders   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.



    December 31, 2008


 

  SHARES     VALUE
Industrial Products (continued)            
Automotive (continued)            

Strattec Security

  1,000     $ 16,450

US Auto Parts Network a

  330,900       459,951

Wonder Auto Technology a,c

  50,100       196,392
         
            956,649
         
Building Systems and Components - 2.1%            

AAON

  109,500       2,286,360

Bunka Shutter

  90,000       392,326

LSI Industries

  142,663       980,095
         
            3,658,781
         
Construction Materials - 2.8%            

Ash Grove Cement

  8,000       1,680,000

Monarch Cement

  50,410       1,414,001

Trex Company a

  102,000       1,678,920
         
            4,772,921
         
Industrial Components - 1.3%            

Deswell Industriesd

  824,371       1,096,413

Planar Systems a

  172,000       104,920

Powell Industries a

  26,800       777,736

Tech/Ops Sevcon

  76,200       198,882
         
            2,177,951
         
Machinery - 4.8%            

Active Power a,c

  187,500       60,000

Alamo Group

  37,000       553,150

Astec Industries a

  30,000       939,900

Burnham Holdings Cl. a

  95,000       802,750

Columbus McKinnon a

  12,300       167,895

Eastern Company (The)

  39,750       341,850

Flow International a

  65,000       157,300

FreightCar America

  13,000       237,510

Hardinge

  210,000       850,500

Hurco Companies a

  54,266       651,192

Jinpan International

  22,900       332,279

Kadant a

  16,600       223,768

K-Tron International a

  1,500       119,850

Mueller (Paul) Company

  9,650       293,843

Sun Hydraulics

  58,425       1,100,727

Tennant Company

  92,300       1,421,420
         
            8,253,934
         
Metal Fabrication and Distribution - 2.8%            

Central Steel & Wire

  1,088       631,040

CompX International Cl. a

  107,000       564,960

Encore Wire

  15,000       284,400

Fushi Copperweld a

  54,300       286,161

Ladish Company a

  45,000       623,250

Metalico a,c

  26,000       40,300

NN

  114,300       261,747

Olympic Steel

  10,000       203,700

RTI International Metals a

  130,900       1,873,179
         
            4,768,737
         
Miscellaneous Manufacturing - 2.9%            

PMFG a

  168,800       1,613,728

Quixote Corporation

  245,400       1,595,100

Raven Industries

  58,400       1,407,440
  SHARES     VALUE
Industrial Products (continued)            
Miscellaneous Manufacturing (continued)            

Synalloy Corporation

  58,200     $ 279,360
         
            4,895,628
         
Pumps, Valves and Bearings - 0.2%            

CIRCOR International

  14,000       385,000
         
Specialty Chemicals and Materials - 2.3%            

Aceto Corporation

  72,219       722,912

Balchem Corporation

  42,250       1,052,448

Hawkins

  118,167       1,806,773

Park Electrochemical

  17,400       329,904
         
            3,912,037
         
Textiles - 0.2%            

Unifi a

  100,000       282,000
         
Other Industrial Products - 0.1%            

Research Frontiers a,c

  50,000       108,500
         
Total (Cost $35,851,233)           34,172,138
         
             
Industrial Services – 15.2%            
Advertising and Publishing - 0.1%            

Voyager Learning a

  125,000       162,500
         
Commercial Services - 5.5%            

Acacia Research-Acacia Technologies a

  127,950       388,968

Administaff

  41,000       888,880

Canadian Solar a,c

  25,000       161,500

CBIZ a

  87,000       752,550

CDI Corporation

  9,000       116,460

Diamond Management & Technology

           

Consultants

  138,100       581,401

Exponent a

  58,400       1,756,672

Forrester Research a

  61,000       1,720,810

Heritage-Crystal Clean a

  54,372       625,278

Hudson Highland Group a

  9,700       32,495

Kforce a

  55,000       422,400

Lincoln Educational Services a

  10,452       138,489

Rentrak Corporation a

  13,300       156,807

Spherion Corporation a

  290,200       641,342

Volt Information Sciences a

  52,800       381,744

Waste Services a

  90,034       592,424
         
            9,358,220
         
Engineering and Construction - 2.7%            

Cavco Industries a

  9,400       252,766

Hill International a

  20,000       140,800

HLS Systems International a,c

  196,027       550,836

Insituform Technologies Cl. A a

  56,400       1,110,516

Integrated Electrical Services a

  132,000       1,156,320

Skyline Corporation

  32,100       641,679

Sterling Construction a

  43,300       802,782
         
            4,655,699
         
Food, Tobacco and Agriculture - 1.5%            

Cal-Maine Foods

  22,500       645,750

Farmer Bros.

  42,400       1,057,456

Hanfeng Evergreen a

  51,100       233,044

ML Macadamia Orchards L.P. a

  120,200       228,380

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.   2008 Annual Report to Stockholders  |  39



Royce Micro-Cap Trust    


Schedule of Investments

  SHARES     VALUE
Industrial Services (continued)            
Food, Tobacco and Agriculture (continued)            

Origin Agritech a

  211,088     $ 430,619
         
            2,595,249
         
Industrial Distribution - 1.0%            

Houston Wire & Cable

  40,375       375,891

Lawson Products

  43,800       1,000,830

Toshin Group

  20,000       246,828
         
            1,623,549
         
Printing - 1.1%            

Bowne & Co.

  66,500       391,020

Courier Corporation

  30,450       545,055

Multi-Color Corporation

  31,200       493,584

Schawk

  38,900       445,794
         
            1,875,453
         
Transportation and Logistics - 3.2%            

Euroseas

  38,000       163,400

Forward Air

  50,700       1,230,489

Frozen Food Express Industries

  82,000       465,760

Marten Transport a

  13,550       256,908

Patriot Transportation Holding a

  19,000       1,331,330

Universal Truckload Services a

  134,200       1,900,272
         
            5,348,159
         
Other Industrial Services - 0.1%            

American Ecology

  6,000       121,380
         
Total (Cost $28,498,915)           25,740,209
         
Natural Resources – 10.9%            
Energy Services - 4.3%            

Boots & Coots International Well Control a

  200,000       236,000

CE Franklin a

  63,650       160,398

Dawson Geophysical a

  53,213       947,723

Dril-Quip a

  45,000       922,950

Gulf Island Fabrication

  4,116       59,312

ION Geophysical a

  93,500       320,705

OYO Geospace a,c

  7,130       124,561

Pason Systems

  209,200       2,380,932

Pioneer Drilling a

  57,500       320,275

T-3 Energy Services a

  4,150       39,176

Tesco Corporation a

  50,000       357,000

Willbros Group a

  146,800       1,243,396

World Energy Solutions a

  729,200       209,693
         
            7,322,121
         
Oil and Gas - 0.6%            

Approach Resources a

  12,000       87,720

GeoMet a,c

  75,000       129,000

Harvest Natural Resources a,c

  30,000       129,000

Nuvista Energy a

  96,800       676,698

PetroCorp a,b

  104,200       0
         
            1,022,418
         
Precious Metals and Mining - 2.4%            

Allied Nevada Gold a

  123,700       625,922

Aurizon Mines a

  197,000       638,280

Brush Engineered Materials a,c

  50,800       646,176
  SHARES     VALUE
Natural Resources (continued)            
Precious Metals and Mining (continued)            

Chesapeake Gold a

  20,000     $ 51,519

Duluth Metals a

  171,400       42,347

Exeter Resource a,c

  210,000       409,500

Gammon Gold a

  83,836       458,583

Golden Star Resources a,c

  168,100       168,100

Horsehead Holding a

  13,800       64,860

Midway Gold a

  345,000       164,884

Minefinders Corporation a

  36,000       185,400

New Gold a

  141,200       201,916

Northgate Minerals a

  270,000       224,100

Seabridge Gold a,c

  16,700       218,436

Vista Gold a,c

  50,000       56,000
         
            4,156,023
         
Real Estate - 3.6%            

Avatar Holdings a,c

  43,104       1,143,118

Consolidated-Tomoka Land

  32,100       1,225,899

Kennedy-Wilson a

  21,500       731,000

PICO Holdings a

  45,700       1,214,706

Pope Resources L.P.

  39,100       778,090

Tejon Ranch a

  37,000       915,380

ZipRealty a

  25,000       66,250
         
            6,074,443
         
Total (Cost $19,523,584)           18,575,005
         
Technology – 21.3%            
Aerospace and Defense - 2.6%            

Astronics Corporation a

  26,400       234,960

Ducommun

  72,100       1,204,070

HEICO Corporation

  33,600       1,304,688

HEICO Corporation Cl. A

  12,100       350,416

Integral Systems a

  83,420       1,005,211

SIFCO Industries a

  45,800       272,510
         
            4,371,855
         
Components and Systems - 3.2%            

Aladdin Knowledge Systems a

  27,300       168,168

CSP a

  122,581       364,066

Evans & Sutherland Computer a

  96,272       57,763

Frequency Electronics a

  220,000       627,000

InFocus Corporation a

  90,000       71,010

Measurement Specialties a

  20,000       139,000

Methode Electronics

  156,400       1,054,136

Newport Corporation a

  55,900       379,002

OPTEX Company

  35,000       314,889

Richardson Electronics

  265,900       784,405

Rimage Corporation a

  20,000       268,200

SCM Microsystems a,c

  30,000       67,500

Spectrum Control a

  27,090       166,333

Technitrol

  178,100       619,788

TransAct Technologies a

  78,600       360,774
         
            5,442,034
         
Distribution - 0.3%            

Agilysys

  90,000       386,100

40  |  2008 Annual Report to Stockholders   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.



    December 31, 2008


 

  SHARES     VALUE
Technology (continued)            
Distribution (continued)            

ScanSource a,c

  7,600     $ 146,452
         
            532,552
         
Internet Software and Services - 1.0%            

ActivIdentity Corporation a

  68,400       122,436

AsiaInfo Holdings a

  52,500       621,600

iPass a

  140,000       170,800

Marchex Cl. B

  103,000       600,490

RealNetworks a

  40,000       141,200

Website Pros a

  18,050       66,063
         
            1,722,589
         
IT Services - 3.8%            

Computer Task Group a

  311,100       1,001,742

iGATE Corporation a

  283,400       1,844,934

Sapient Corporation a

  500,000       2,220,000

Syntel

  54,300       1,255,416

Yucheng Technologies a,c

  20,500       149,445
         
            6,471,537
         
Semiconductors and Equipment - 3.5%            

Actions Semiconductor ADR a

  69,450       111,815

Advanced Energy Industries a

  19,300       192,035

ANADIGICS a

  137,300       203,204

CEVA a

  47,534       332,738

Cohu

  17,900       217,485

CyberOptics Corporation a

  20,000       104,000

Exar Corporation a

  121,208       808,457

Ikanos Communications a

  63,900       80,514

Intevac a,c

  40,550       205,589

Mattson Technology a

  44,900       63,309

Melco Holdings

  30,000       309,050

Micrel

  100,000       731,000

Microtune a

  350,000       714,000

PLX Technology a

  80,000       137,600

Rubicon Technology a,c

  7,500       31,950

Sigma Designs a,c

  7,400       70,300

SiRF Technology Holdings a,c

  20,600       26,368

Trident Microsystems a

  71,300       134,757

TTM Technologies a

  159,500       830,995

Virage Logic a

  180,000       538,200

Zarlink Semiconductor a

  160,600       35,332
         
            5,878,698
         
Software - 4.9%            

ACI Worldwide a

  97,600       1,551,840

American Software Cl. a

  84,200       395,740

Bottomline Technologies a

  28,600       203,060

Fundtech a

  51,000       353,940

OpenTV Cl. A a

  108,400       133,332

PAR Technology a

  88,900       493,395

Pegasystems

  257,500       3,182,700

Phoenix Technologies a,c

  32,310       113,085

PLATO Learning a

  160,000       192,000

SourceForge a,c

  600,000       540,000

SPSS a

  44,600       1,202,416
         
            8,361,508
         
  SHARES     VALUE
Technology (continued)            
Telecommunications - 2.0%            

Anaren a

  44,800     $ 535,360

Atlantic Tele-Network

  4,100       108,855

Ceragon Networks a,c

  18,700       94,435

Cogo Group a

  87,700       426,222

Diguang International Development a

  300,000       18,300

Globecomm Systems a

  22,730       124,787

NETGEAR a

  30,000       342,300

Novatel Wireless a

  35,500       164,720

PC-Tel

  44,100       289,737

ViaSat a

  46,812       1,127,233

Westell Technologies Cl. A a,c

  160,000       42,400

Zhone Technologies a

  1,031,600       85,623
         
            3,359,972
         
Total (Cost $39,168,542)           36,140,745
         
Miscellaneous e – 5.0%            
Total (Cost $9,609,237)           8,486,732
         
TOTAL COMMON STOCKS            

(Cost $235,556,799)

          204,812,872
         
PREFERRED STOCK – 0.8%            
Seneca Foods Conv. a            
(Cost $943,607)   75,409       1,349,821
         
REPURCHASE AGREEMENT – 14.0%            

State Street Bank & Trust Company, 0.01% dated 12/31/08, due 1/2/09, maturity value $23,802,013 (collateralized by obligations of various U.S. Government Agencies, valued at $26,508,000)
(Cost $23,802,000)

          23,802,000
         
COLLATERAL RECEIVED FOR SECURITIES LOANED – 4.6%            
Money Market Funds            

Federated Government Obligations Fund

           

(7 day yield-0.9626%)

           

(Cost $7,767,873)

          7,767,873
         
TOTAL INVESTMENTS – 140.0%            

(Cost $268,070,279)

          237,732,566
             

LIABILITIES LESS CASH AND OTHER ASSETS – (4.7)%

          (7,878,135 )
             
PREFERRED STOCK – (35.3)%           (60,000,000 )
         

NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS – 100.0%

        $ 169,854,431
         


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.   2008 Annual Report to Stockholders  |  41



Royce Micro-Cap Trust   December 31, 2008


Schedule of Investments


  New additions in 2008.
     
a   Non-income producing.
     
b   Securities for which market quotations are not readily available represent 0.0% of net assets. These securities have been valued at their fair value under procedures established by the Fund’s Board of Directors.
     
c   All or a portion of these securities were on loan at December 31, 2008. Total market value of loaned securities at December 31, 2008 was $7,597,831.
     
d   At December 31, 2008, 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. See notes to financial statements.
     
e   Includes securities first acquired in 2008 and less than 1% of net assets applicable to Common Stockholders.
     
    Bold indicates the Fund’s 20 largest equity holdings in terms of December 31, 2008 market value.
     
TAX INFORMATION: The cost of total investments for Federal income tax purposes was $270,194,192. At December 31, 2008, net unrealized depreciation for all securities was $(32,461,626), consisting of aggregate gross unrealized appreciation of $42,385,436 and aggregate gross unrealized depreciation of $74,847,062. The primary difference in book and tax basis cost is the timing of the recognition of losses on securities sold.


42  |  2008 Annual Report to Stockholders   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.



Royce Micro-Cap Trust   December 31, 2008


Statement of Assets and Liabilities


         
ASSETS:        
Investments at value (including collateral on loaned securities)*        

Non-Affiliated Companies (cost $241,337,838)

  $ 212,834,153  

Affiliated Companies (cost $2,980,441)

    1,096,413  

Total investments at value     213,930,566  
Repurchase agreements (at cost and value)     23,802,000  
Receivable for investments sold     269,341  
Receivable for dividends and interest     341,275  
Prepaid expenses and other assets     18,062  

Total Assets

    238,361,244  

LIABILITIES:        
Payable for collateral on loaned securities     7,767,873  
Payable to custodian for cash overdrawn and foreign currency     13,679  
Payable for investments purchased     381,935  
Payable for investment advisory fee     144,875  
Preferred dividends accrued but not yet declared     80,000  
Accrued expenses     118,451  

Total Liabilities

    8,506,813  

PREFERRED STOCK:        
6.00% Cumulative Preferred Stock - $0.001 par value, $25 liquidation value per share; 2,400,000 shares outstanding     60,000,000  

Total Preferred Stock

    60,000,000  

NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS   $ 169,854,431  

ANALYSIS OF NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:        
Common Stock paid-in capital - $ 0.001 par value per share; 26,577,014 shares outstanding (150,000,000 shares authorized)   $ 230,350,134  
Undistributed net investment income (loss)     (1,117,851 )
Accumulated net realized gain (loss) on investments and foreign currency     (28,960,872 )
Net unrealized appreciation (depreciation) on investments and foreign currency     (30,336,980 )
Preferred dividends accrued but not yet declared     (80,000 )

Net Assets applicable to Common Stockholders (net asset value per share - $6.39)

  $ 169,854,431  

*Investments at identified cost (including $7,767,873 of collateral on loaned securities)   $ 244,268,279  
Market value of loaned securities     7,597,831  

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.   2008 Annual Report to Stockholders  |  43




Royce Micro-Cap Trust   Year Ended December 31, 2008


Statement of Operations


         
INVESTMENT INCOME:        
Income:        

Dividends*

       

Non-Affiliated Companies

  $ 3,415,370  

Affiliated Companies

    425,961  

Interest

    227,741  

Securities lending

    469,698  

Total income     4,538,770  

Expenses:        

Investment advisory fees

    3,769,539  

Stockholder reports

    155,101  

Custody and transfer agent fees

    73,291  

Directors’ fees

    55,957  

Professional fees

    41,152  

Administrative and office facilities expenses

    31,868  

Other expenses

    75,582  

Total expenses     4,202,490  
Fees waived by investment adviser     (72,500 )

Net expenses     4,129,990  

Net investment income (loss)     408,780  

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:        
Net realized gain (loss) on investments and foreign currency        

Non-Affiliated Companies

    (5,682,129 )

Affiliated Companies

    (1,141,958 )
Net change in unrealized appreciation (depreciation) on investments and foreign currency     (138,088,528 )

Net realized and unrealized gain (loss) on investments and foreign currency     (144,912,615 )


NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM INVESTMENT OPERATIONS
    (144,503,835 )


DISTRIBUTIONS TO PREFERRED STOCKHOLDERS
    (3,600,000 )


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

RESULTING FROM INVESTMENT OPERATIONS

  $ (148,103,834 )
* Net of foreign withholding tax of $47,144.        

44  |  2008 Annual Report to Stockholders   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.




Royce Micro-Cap Trust


Statement of Changes in Net Assets


    Year ended   Year ended
    12/31/08   12/31/07
INVESTMENT OPERATIONS:                
Net investment income (loss)   $ 408,780     $ (234,430 )
Net realized gain (loss) on investments and foreign currency     (6,824,087 )     32,803,797  
Net change in unrealized appreciation (depreciation) on investments and foreign currency     (138,088,528 )     (27,184,286 )

Net increase (decrease) in net assets resulting from investment operations     (144,503,835 )     5,385,081  

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:                
Net investment income     (362,850 )     (224,280 )
Net realized gain on investments and foreign currency     (3,237,150 )     (3,375,720 )

Total distributions to Preferred Stockholders     (3,600,000 )     (3,600,000 )

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

RESULTING FROM INVESTMENT OPERATIONS

    (148,103,835 )     1,785,081  

DISTRIBUTIONS TO COMMON STOCKHOLDERS:                
Net investment income     (2,356,920 )     (1,991,543 )
Net realized gain on investments and foreign currency     (20,757,478 )     (29,975,444 )
Return of capital     (6,834,718 )     -  

Total distributions to Common Stockholders     (29,949,116 )     (31,966,987 )

CAPITAL SHARE TRANSACTIONS:                
Reinvestment of distributions to Common Stockholders     16,431,866       17,975,152  

Total capital stock transactions     16,431,866       17,975,152  

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS     (161,621,085 )     (12,206,754 )

NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:                

Beginning of year

    331,475,516       343,682,270  

End of year (including undistributed net investment income (loss) of $(1,117,851) at 12/31/08 and

               

$(1,435,509) at 12/31/07)

  $ 169,854,431     $ 331,475,516  

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.   2008 Annual Report to Stockholders  |  45




Royce Micro-Cap Trust  


   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,
   
    2008     2007     2006     2005     2004  

NET ASSET VALUE, BEGINNING OF PERIOD   $ 13.48     $ 14.77     $ 13.43     $ 14.34     $ 13.33  

INVESTMENT OPERATIONS:                                        

Net investment income (loss)

    0.02       (0.00 )     0.01       (0.03 )     (0.08 )

Net realized and unrealized gain (loss) on investments and

                                       

foreign currency

    (5.70 )     0.24       3.04       1.14       2.62  

Total investment operations

    (5.68 )     0.24       3.05       1.11       2.54  

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:                                        

Net investment income

    (0.01 )     (0.01 )     (0.02 )     –            –       

Net realized gain on investments and foreign currency

    (0.13 )     (0.14 )     (0.14 )     (0.17 )     (0.19 )

Total distributions to Preferred Stockholders

    (0.14 )     (0.15 )     (0.16 )     (0.17 )     (0.19 )

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON                                        

STOCKHOLDERS RESULTING FROM INVESTMENT OPERATIONS

    (5.82 )     0.09       2.89       0.94       2.35  

DISTRIBUTIONS TO COMMON STOCKHOLDERS:                                        

Net investment income

    (0.09 )     (0.08 )     (0.20 )     –            –       

Net realized gain on investments and foreign currency

    (0.83 )     (1.27 )     (1.35 )     (1.85 )     (1.33 )

Return of capital

    (0.27 )     –            –            –            –       

Total distributions to Common Stockholders

    (1.19 )     (1.35 )     (1.55 )     (1.85 )     (1.33 )

CAPITAL STOCK TRANSACTIONS:                                        

Effect of reinvestment of distributions by Common Stockholders

    (0.08 )     (0.03 )     (0.00 )     0.00       (0.01 )

Total capital stock transactions

    (0.08 )     (0.03 )     (0.00 )     0.00       (0.01 )

NET ASSET VALUE, END OF PERIOD   $ 6.39     $ 13.48     $ 14.77     $ 13.43     $ 14.34  

MARKET VALUE, END OF PERIOD   $ 5.62     $ 11.94     $ 16.57     $ 14.56     $ 15.24  

TOTAL RETURN (a):                                        
Market Value     (45.84 )%     (20.54 )%     26.72 %     8.90 %     33.44 %
Net Asset Value     (45.45 )%     0.64 %     22.46 %     6.75 %     18.69 %
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO                                        

COMMON STOCKHOLDERS:

                                       

Total expenses (b,c)

    1.55 %     1.56 %     1.64 %     1.63 %     1.62 %

Management fee expense (d)

    1.39 %     1.44 %     1.49 %     1.43 %     1.43 %

Other operating expenses

    0.16 %     0.12 %     0.15 %     0.20 %     0.19 %
Net investment income (loss)     0.15 %     (0.07 )%     0.05 %     (0.27 )%     (0.56 )%
SUPPLEMENTAL DATA:                                        
Net Assets Applicable to Common Stockholders,                                        

End of Period (in thousands)

  $ 169,854     $ 331,476     $ 343,682     $ 293,719     $ 290,364  
Liquidation Value of Preferred Stock,                                        

End of Period (in thousands)

  $ 60,000     $ 60,000     $ 60,000     $ 60,000     $ 60,000  
Portfolio Turnover Rate     42 %     41 %     34 %     46 %     32 %
PREFERRED STOCK:                                        
Total shares outstanding     2,400,000       2,400,000       2,400,000       2,400,000       2,400,000  
Asset coverage per share   $ 95.77     $ 163.11     $ 168.20     $ 147.38     $ 145.98  
Liquidation preference per share   $ 25.00     $ 25.00     $ 25.00     $ 25.00     $ 25.00  
Average market value per share (e):                                        

6.00% Cumulative

  $ 23.08     $ 24.06     $ 24.15     $ 24.97     $ 24.66  


(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 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 1.26%, 1.33%, 1.38%, 1.35% and 1.32% for the years ended December 31, 2008, 2007, 2006, 2005 and 2004, respectively.
(c) Expense ratios based on average net assets applicable to Common Stockholders before waiver of fees by the investment adviser would have been 1.58% for the year ended December 31, 2008; before waiver of fees and earnings credits would have been 1.58%, 1.56%, 1.64%, 1.63% and 1.62% for the years ended December 31, 2008, 2007, 2006, 2005 and 2004, respectively.
(d) The management fee is calculated based on average net assets over a rolling 36-month basis, while the above ratios of management fee expenses are based on the average net assets applicable to Common Stockholders over a 12-month basis.
(e) The average of month-end market values during the period that the Preferred Stock was outstanding.

46  |   2008 Annual Report to Stockholders   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.



Royce Micro-Cap Trust



Notes to Financial Statements

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

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

Valuation of Investments:
   Securities are valued as of the close of trading on the New York Stock Exchange (NYSE) (generally 4:00 p.m. Eastern time) on the valuation date. Securities that trade on an exchange, and securities traded on Nasdaq’s Electronic Bulletin Board, are valued at their last reported sales price or Nasdaq official closing price taken from the primary market in which each security trades or, if no sale is reported for such day, at their bid price. Other over-the-counter securities for which market quotations are readily available are valued at their highest bid price, except in the case of some bonds and other fixed income securities which may be valued by reference to other securities with comparable ratings, interest rates and maturities, using established independent pricing services. 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. In addition, if, between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and may make the closing price unreliable, the Fund may fair value the security. The Fund uses an independent pricing service to provide fair value estimates for relevant non-U.S. equity securities on days when the U.S. market volatility exceeds a certain threshold. This pricing service uses proprietary correlations it has developed between the movement of prices of non-U.S. equity securities and indices of U.S.-traded securities, futures contracts and other indications to estimate the fair value of relevant non-U.S. securities. When fair value pricing is employed, the prices of securities used by the Fund may differ from quoted or published prices for the same security. Investments in money market funds are valued at net asset value per share.
Various inputs are used in determining the value of the Fund’s investments, as noted above. These inputs are summarized in the three broad levels below:
Level 1 - quoted prices in active markets for identical securities
Level 2 - other significant observable inputs (including quoted prices for similar securities, foreign securities that may be fair valued and repurchase agreements)
Level 3 - significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used to value the Fund’s investments as of December 31, 2008:

  Level 1     Level 2     Level 3     Total
 
  $188,129,270     $49,603,296     $0     $237,732,566
 

Repurchase Agreements:
    The Fund may enter into repurchase agreements with institutions that the Fund’s investment adviser has determined are creditworthy. The Fund restricts repurchase agreements to maturities of no more than seven days. Securities pledged as collateral for repurchase agreements, which are held 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 the counter-party, including possible delays or restrictions upon the ability of the Fund to dispose of its underlying securities.

Foreign Currency:
   The Fund values its non-U.S. securities in U.S. dollars daily at the prevailing foreign currency exchange rates as quoted by a major bank. The effects of changes in foreign exchange rates on investments and other assets and liabilities are included with net realized and unrealized gains and losses on investments.
   Net realized foreign exchange gains or losses arise from sales and maturities of short-term securities, sales of foreign currencies, expiration of currency forward contracts, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities, including investments in securities at the end of the reporting period, as a result of changes in foreign currency exchange rates.

2008 Annual Report to Stockholders  |  47




Royce Micro-Cap Trust



Notes to Financial Statements (continued)

Securities Lending:
   The Fund loans securities to qualified institutional investors for the purpose of realizing additional income. Collateral on all securities loaned for the Fund is accepted in cash and cash equivalents and invested temporarily by the custodian. The collateral maintained is at least 100% of the current market value of the loaned securities. The market value of the loaned securities is determined at the close of business of the Fund and any additional required collateral is delivered to the Fund on the next business day. The Fund retains the risk of any loss on the securities on loan as well as incurring the potential loss on investments purchased with cash collateral received for securities lending.

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 “Tax Information”.

Distributions:
   In 2008, the Fund paid quarterly distributions on the Fund’s Common Stock 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 accrued daily and paid quarterly and distributions to Common Stockholders are recorded on ex-dividend date. 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 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.

Investment Transactions and Related Investment Income:
   Investment transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date. Non-cash dividend income is recorded at the fair market value of the securities received. Interest income is recorded on an accrual basis. Premium and discounts on debt securities are amortized using the effective yield-to-maturity method. 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 equitably. Allocated administrative 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 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.

Compensating Balance Credits:
   The Fund has an arrangement with its custodian bank, whereby a portion of the custodian’s fee is paid indirectly by credits earned on the Fund’s cash on deposit with the bank. This deposit arrangement is an alternative to purchasing overnight investments. Conversely, the Fund pays interest to the custodian on any cash overdrafts, to the extent they are not offset by credits earned on positive cash balances.

Capital Stock:
   The Fund issued 1,985,915 and 1,320,682 shares of Common Stock as reinvestment of distributions by Common Stockholders for the years ended December 31, 2008 and 2007, respectively.
   At December 31, 2008, 2,400,000 shares of 6.00% Cumulative Preferred Stock were outstanding. Commencing October 16, 2008 and thereafter, the Fund, at its option, may redeem the Cumulative Preferred Stock, in whole or in part, at the redemption price. The Cumulative Preferred Stock is classified outside of permanent equity (net assets applicable to Common Stockholders) in the accompanying financial statements in accordance with Emerging Issues Task Force (EITF) Topic D-98, Classification and Measurement of Redeemable Securities, that requires preferred securities that are redeemable for cash or other assets 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.
   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 Cumulative Preferred Stock.

48  |  2008 Annual Report to Stockholders





Royce Micro-Cap Trust



Notes to Financial Statements (continued)


Investment Advisory Agreement:
   As compensation for its services under the Investment Advisory Agreement, Royce & Associates, LLC (“Royce”) receives a fee comprised of a Basic Fee (“Basic Fee”) and an adjustment to the Basic Fee based on the investment performance of the Fund in relation to the investment record of the Russell 2000.
   The Basic Fee is a monthly fee equal to 1/12 of 1% (1% on an annualized basis) of the average of the Fund’s month-end net assets applicable to Common Stockholders, plus the liquidation value of Preferred Stock, for the rolling 36-month period ending with such month (the “performance period”). The Basic Fee for each month is increased or decreased at the rate of 1/12 of .05% for each percentage point that the investment performance of the Fund exceeds, or is exceeded by, the percentage change in the investment record of the Russell 2000 for the performance period by more than two percentage points. The performance period for each such month is a rolling 36-month period ending with such month. The maximum increase or decrease in the Basic Fee for any month may not exceed 1/12 of .5%. Accordingly, for each month, the maximum monthly fee rate as adjusted for performance is 1/12 of 1.5% and is payable if the investment performance of the Fund exceeds the percentage change in the investment record of the Russell 2000 by 12 or more percentage points for the performance period, and the minimum monthly fee rate as adjusted for performance is 1/12 of .5% and is payable if the percentage change in the investment record of the Russell 2000 exceeds the investment performance of the Fund by 12 or more percentage points for the performance period.
   Royce has voluntarily committed to waive the portion of its investment advisory fee attributable to an issue of the Fund’s Preferred Stock for any month in which the Fund’s average annual NAV total return since issuance of the Preferred Stock fails to exceed the applicable Preferred Stock’s dividend rate.
   For twelve rolling 36-month periods in 2008, the Fund’s investment performance ranged from 8% above to 11% below the investment performance of the Russell 2000. Additionally, the Fund waived a portion of its advisory fee ($72,500) attributable to issues of the Fund’s Preferred Stock for those months in which the Fund’s average annual NAV total return failed to exceed the applicable Preferred Stock’s dividend rate. Accordingly, the net investment advisory fee consisted of a Basic Fee of $3,843,974 and a net downward adjustment of $74,435 for the performance of the Fund relative to that of the Russell 2000. For the year ended December 31, 2008, the Fund accrued and paid Royce advisory fees totaling $3,697,039.

Purchases and Sales of Investment Securities:
   For the year ended December 31, 2008, the cost of purchases and proceeds from sales of investment securities, other than short-term securities and collateral received for securities loaned, amounted to $132,486,746 and $154,045,132, respectively.

Distributions to Stockholders:
  The tax character of distributions paid to common stockholders during 2008 and 2007 was as follows:     The tax character of distributions paid to preferred stockholders during 2008 and 2007 was as follows:
 
   
  Distributions paid from:     2008       2007     Distributions paid from:     2008       2007  
  Ordinary income   $ 2,356,920     $ 2,276,049     Ordinary income   $ 362,850     $ 256,320  
  Long-term capital gain     20,757,478       29,690,938     Long-term capital gain     3,237,150       3,343,680  
  Return of capital     6,834,718       -     Return of capital     -       -  
     
       
 
      $ 29,949,116     $ 31,966,987         $ 3,600,000     $ 3,600,000  
 
   
 
  As of December 31, 2008, tax basis components of distributable earnings included in stockholders’ equity were as follows:
 
                     
  Undistributed net investment income             -                      
  Undistributed long-term capital gain             -                      
  Unrealized depreciation           $ (32,460,893 )                    
  Post October currency loss*             (27,954,810 )                    
  Accrued preferred distributions             (80,000 )                    
         
                     
              $ (60,495,703 )                    
 
                     

 

*Under the current tax law, capital losses, foreign currency losses and losses realized on Passive Foreign Investment Companies after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. As of December 31, 2008, the Fund had $27,954,810 of post October losses.

   The difference between book and tax basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral on wash sales, partnership investments and the unrealized gains on Passive Foreign Investment Companies.

2008 Annual Report to Stockholders  |  49




Royce Micro-Cap Trust



Notes to Financial Statements (continued)


Distributions to Stockholders (continued):
   For financial reporting purposes, capital accounts and distributions to stockholders are adjusted to reflect the tax character of permanent book/tax differences. These differences are primarily due to differing treatments of income and gains on various investment securities and foreign currency transactions held by the Fund, timing differences and different characterization of distributions made by the Fund. For the year ended December 31, 2008, 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 Net     Accumulated Net       Paid-in  
    Investment Income     Realized Gain (Loss)       Capital  
    $2,628,648     $(1,328,956)       $(1,299,692)  
 
Transactions in 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 at any time during the period. The Fund effected the following transactions in shares of such companies for the year ended December 31, 2008:

      Shares   Market Value   Cost of   Cost of   Realized   Dividend   Shares   Market Value
Affiliated Company     12/31/07   12/31/07   Purchases   Sales   Gain (Loss)   Income   12/31/08   12/31/08
BKF Capital Group*       406,500     $ 902,430       -     $ 73,854     $ (32,865 )   $ 387,000                  
Deswell Industries       105,300       637,065     $ 2,042,162       -       -       38,961       824,371     $ 1,096,413  
Tapestry Pharmaceuticals*       815,600       244,680       13,272       1,113,549       (1,109,093 )     -                  
              $ 1,784,175                     $ (1,141,958 )   $ 425,961             $ 1,096,413  
*Not an Affiliated Company at December 31, 2008.

50  |  2008 Annual Report to Stockholders




Royce Micro-Cap Trust



Report of Independent Registered Public Accounting Firm


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

We have audited the accompanying statement of assets and liabilities of Royce Micro-Cap Trust, Inc., (“Fund”) including the schedule of investments, as of December 31, 2008, and the related statement of operations for the year then ended, and the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2008, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Royce Micro-Cap Trust, Inc. at December 31, 2008, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.


TAIT, WELLER, & BAKER LLP

Philadelphia, Pennsylvania
February 24, 2009

2008 Annual Report to Stockholders  |  51



Royce Focus Trust



Schedule of Investments


    SHARES   VALUE  
             

COMMON STOCKS - 97.6%

           
             

Consumer Products - 10.8%

           

Apparel, Shoes and Accessories - 3.0%

           

Fossil a

  100,000   $ 1,670,000  

Timberland Company (The) Cl. A a

  100,000     1,155,000  
       
 
          2,825,000  
       
 

Food/Beverage/Tobacco - 3.8%

           

Industrias Bachoco ADR

  100,000     1,450,000  

Sanderson Farms

  59,900     2,070,144  
       
 
          3,520,144  
       
 

Health, Beauty and Nutrition - 1.6%

           

Nu Skin Enterprises Cl. a

  140,000     1,460,200  
       
 

Sports and Recreation - 2.4%

           

Thor Industries

  120,000     1,581,600  

Winnebago Industries

  100,000     603,000  
       
 
          2,184,600  
       
 

Total (Cost $17,753,516)

        9,989,944  
       
 

Consumer Services - 1.5%

           

Retail Stores - 1.5%

           

Men’s Wearhouse (The)

  100,000     1,354,000  
       
 

Total (Cost $1,965,005)

        1,354,000  
       
 

Financial Intermediaries - 4.6%

           

Banking - 1.2%

           

BB Holdings a

  400,000     1,068,214  
       
 

Securities Brokers - 3.1%

           

Knight Capital Group Cl. A a

  180,000     2,907,000  
       
 

Other Financial Intermediaries - 0.3%

           

KKR Financial Holdings

  200,000     316,000  
       
 

Total (Cost $5,995,848)

        4,291,214  
       
 

Financial Services - 4.0%

           

Investment Management - 4.0%

           

Endeavour Financial

  600,000     831,105  

Sprott

  500,000     1,741,596  

U.S. Global Investors Cl. A

  226,000     1,105,140  
       
 

Total (Cost $9,028,479)

        3,677,841  
       
 

Health - 5.3%

           

Drugs and Biotech - 5.0%

           

Endo Pharmaceuticals Holdings a

  140,000     3,623,200  

Lexicon Pharmaceuticals a,b

  500,000     700,000  

ULURU a

  1,000,009     280,003  
       
 
          4,603,203  
       
 

Medical Products and Devices - 0.3%

           

Caliper Life Sciences a

  352,300     341,731  
       
 

Total (Cost $8,291,459)

        4,944,934  
       
 

Industrial Products - 25.0%

           

Building Systems and Components - 2.7%

           

Simpson Manufacturing

  90,000     2,498,400  
       
 
    SHARES   VALUE  
             

Industrial Products (continued)

           

Industrial Components - 0.9%

           

GrafTech International a

  100,000   $ 832,000  
       
 

Machinery - 5.3%

           

Lincoln Electric Holdings

  60,000     3,055,800  

Woodward Governor

  80,000     1,841,600  
       
 
          4,897,400  
       
 

Metal Fabrication and Distribution - 11.2%

           

Kennametal

  118,600     2,631,734  

Reliance Steel & Aluminum

  100,000     1,994,000  

Schnitzer Steel Industries Cl. A

  70,000     2,635,500  

Sims Group ADR

  250,000     3,105,000  
       
 
          10,366,234  
       
 

Miscellaneous Manufacturing - 1.3%

           

Rational

  10,000     1,186,423  
       
 

Pumps, Valves and Bearings - 3.6%

           

Gardner Denver a

  60,000     1,400,400  

Pfeiffer Vacuum Technology

  30,000     1,986,467  
       
 
          3,386,867  
       
 

Total (Cost $23,766,008)

        23,167,324  
       
 

Industrial Services - 9.3%

           

Commercial Services - 3.0%

           

CRA International a

  40,000     1,077,200  

Korn/Ferry International a

  150,000     1,713,000  
       
 
          2,790,200  
       
 

Food, Tobacco and Agriculture - 4.4%

           

CF Industries Holdings

  40,000     1,966,400  

Intrepid Potash a

  100,000     2,077,000  
       
 
          4,043,400  
       
 

Transportation and Logistics - 1.9%

           

Arkansas Best

  60,000     1,806,600  
       
 

Total (Cost $9,295,342)

        8,640,200  
       
 

Natural Resources - 26.9%

           

Energy Services - 12.2%

           

Ensign Energy Services

  250,000     2,677,197  

Major Drilling Group International

  120,000     1,215,067  

Pason Systems

  180,000     2,048,603  

Tesco Corporation a

  160,000     1,142,400  

Trican Well Service

  240,000     1,547,509  

Unit Corporation a

  100,300     2,680,016  
       
 
          11,310,792  
       
 

Precious Metals and Mining - 14.7%

           

Alamos Gold a

  380,000     2,693,398  

Allied Nevada Gold a

  350,000     1,771,000  

Gammon Gold a

  450,000     2,461,500  

Ivanhoe Mines a

  300,000     810,000  

Pan American Silver a

  200,000     3,414,000  

Silver Standard Resources a,b

  150,000     2,391,000  
       
 
          13,540,898  
       
 

Total (Cost $33,030,769)

        24,851,690  
       
 

52  |  2008 Annual Report to Stockholders   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.



December 31, 2008



 


    SHARES   VALUE  
             

Technology - 10.2%

           

Aerospace and Defense - 2.2%

           

Ceradyne a

  100,000   $ 2,031,000  
       
 

Components and Systems - 2.4%

           

MKS Instruments a

  150,000     2,218,500  
       
 

Semiconductors and Equipment - 3.7%

           

Lam Research a

  80,100     1,704,528  

Sigma Designs a

  180,200     1,711,900  
       
 
          3,416,428  
       
 

Telecommunications - 1.9%

           

ADTRAN

  120,000     1,785,600  
       
 

Total (Cost $15,192,916)

           
          9,451,528  
       
 

TOTAL COMMON STOCKS

           

(Cost $124,319,342)

        90,368,675  
       
 

PREFERRED STOCK - 7.9%

           

Kennedy-Wilson Conv.c,d

           

(Cost $9,000,000)

  9,000     7,285,707  
       
 
    VALUE  
         

REPURCHASE AGREEMENT - 21.6%

       

State Street Bank & Trust Company,

       

0.01% dated 12/31/08, due 1/2/09,

       

maturity value $19,959,011 (collateralized
by obligations of various U.S. Government
Agencies, valued at $20,462,518)
(Cost $19,959,000)

  $ 19,959,000  
   
 

COLLATERAL RECEIVED FOR SECURITIES

       

LOANED - 0.5%

       

Money Market Funds

       

Federated Government Obligations Fund
(7 day yield - 0.9626%)
(Cost $502,994)

    502,994  
   
 

TOTAL INVESTMENTS - 127.6%

       

(Cost $153,781,336)

    118,116,376  
         

LIABILITIES LESS CASH

       
         

AND OTHER ASSETS - (0.6)%

    (566,704 )

PREFERRED STOCK - (27.0)%

    (25,000,000 )
   
 

NET ASSETS APPLICABLE TO COMMON

       

STOCKHOLDERS - 100.0%

  $ 92,549,672  
   
 

New additions in 2008.
   
a Non-income producing.
   
b All or a portion of these securities were on loan at December 31, 2008. Total market value of loaned securties at December 31, 2008 was $507,033.
   
c

A security for which market quotations are not readily available represents 7.9% of net assets. This security has been valued at its fair value under procedures established by the Fund’s Board of Directors.

   
d

This security, and the common stock into which the security is convertible, are not and will not be registered under the Securities Act of 1933 and related rules (“restricted security”). Accordingly, such securities may not be offered, sold, transferred or delivered, directly or indirectly, unless (i) such shares are registered under the Securities Act and any other applicable state securities laws, or (ii) an exemption from registration under the Securities Act and any other applicable state securities laws is available.

   
  Bold indicates the Fund’s 20 largest equity holdings in terms of December 31, 2008 market value.

TAX INFORMATION: The cost of total investments for Federal income tax purposes was $153,506,367. At December 31, 2008, net unrealized depreciation for all securities was $(35,389,991), consisting of aggregate gross unrealized appreciation of $9,729,910 and aggregate gross unrealized depreciation of $45,119,901. The primary difference in book and tax basis cost is the timing of the recognition of losses on securities sold.



THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.   2008 Annual Report to Stockholders  |  53



Royce Focus Trust December 31, 2008


   Statement of Assets and Liabilities

ASSETS:        
Investments at value (including collateral on loaned securities)*   $ 98,157,376  
Repurchase agreements (at cost and value)     19,959,000  
Cash and foreign currency     311  
Receivable for dividends and interest     105,777  
Prepaid expenses and other assets     14,036  

Total Assets

    118,236,500  

LIABILITIES:        
Payable for collateral on loaned securities     502,994  
Payable for investment advisory fee     70,784  
Preferred dividends accrued but not yet declared     33,330  
Accrued expenses     79,720  

Total Liabilities

    686,828  

PREFERRED STOCK:        
6.00% Cumulative Preferred Stock - $0.001 par value, $25 liquidation value per share; 1,000,000 shares outstanding     25,000,000  

Total Preferred Stock

    25,000,000  

NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS   $ 92,549,672  

ANALYSIS OF NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:        
Common Stock paid-in capital - $0.001 par value per share; 19,459,915 shares outstanding (150,000,000 shares authorized)   $ 129,100,679  
Undistributed net investment income (loss)     273,411 )
Accumulated net realized gain (loss) on investments and foreign currency     (1,124,314 )
Net unrealized appreciation (depreciation) on investments and foreign currency     (35,666,771 )
Preferred dividends accrued but not yet declared     (33,333 )

Net Assets applicable to Common Stockholders (net asset value per share - $4.76)

  $ 92,549,672  

*Investments at identified cost (including $502,994 of collateral on loaned securities)   $ 133,822,336  
Market value of loaned securities     507,033  

54  |   2008 Annual Report to Stockholders   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.



Royce Focus Trust Year Ended December 31, 2008


   Statement of Operations

INVESTMENT INCOME:        
Income:        

Dividends*

  $ 2,002,195  

Interest**

    871,522  

Securities lending

    66,444  

Total income     2,940,161  

Expenses:        

Investment advisory fees

    1,677,432  

Stockholder reports

    94,261  

Custody and transfer agent fees

    62,032  

Professional fees

    36,235  

Directors’ fees

    27,797  

Administrative and office facilities expenses

    16,265  

Other expenses

    66,187  

Total expenses     1,980,209  
Compensating balance credits     (2,858 )
Fees waived by investment adviser     (62,842 )

Net expenses     1,914,509  

Net investment income (loss)     1,025,652  

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:        
Net realized gain (loss) on investments and foreign currency     4,693,291  
Net change in unrealized appreciation (depreciation) on investments and foreign currency     (74,225,556 )

Net realized and unrealized gain (loss) on investments and foreign currency     (69,532,265 )

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM INVESTMENT OPERATIONS     (68,506,613 )

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS     (1,500,000 )

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS RESULTING FROM INVESTMENT OPERATIONS   $ (70,006,613 )

*   Net of foreign withholding tax of $62,146.
**   Net of foreign withholding tax of $48,424.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.   2008 Annual Report to Stockholders  |  55



Royce Focus Trust  


   Statement of Changes in Net Assets

    Year ended   Year ended
    12/31/08   12/31/07
INVESTMENT OPERATIONS:                
Net investment income (loss)   $ 1,025,652     $ 1,988,494  
Net realized gain (loss) on investments and foreign currency     4,693,291       29,154,418  
Net change in unrealized appreciation (depreciation) on investments and foreign currency     (74,225,556 )     (10,391,522 )

Net increase (decrease) in net assets resulting from investment operations     (68,506,613 )     20,751,390  

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:                
Net investment income     (240,568 )     (331,350 )
Net realized gain on investments and foreign currency     (1,259,432 )     (1,168,650 )

Total distributions to Preferred Stockholders     (1,500,000 )     (1,500,000 )

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS                
   RESULTING FROM INVESTMENT OPERATIONS     (70,006,613 )     19,251,390  

DISTRIBUTIONS TO COMMON STOCKHOLDERS:                
Net investment income     (1,314,438 )     (7,385,265 )
Net realized gain on investments and foreign currency     (6,881,428 )     (26,047,361 )
Return of capital     (662,631 )      

Total distributions to Common Stockholders     (8,858,497 )     (33,432,626 )

CAPITAL SHARE TRANSACTIONS:                
Reinvestment of distributions to Common Stockholders     5,607,374       21,421,393  

Total capital stock transactions     5,607,374       21,421,393  

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS     (73,257,736 )     7,240,157  

NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:                

Beginning of year

    165,807,408       158,567,251  

End of year (including undistributed net investment income (loss) of $273,411 at 12/31/08 and $(4,782,842) at 12/31/07)

  $ 92,549,672     $ 165,807,408  

56  |   2008 Annual Report to Stockholders   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.



Royce Focus Trust  


   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,
   
      2008       2007       2006       2005       2004  

NET ASSET VALUE, BEGINNING OF PERIOD   $ 8.92     $ 9.75     $ 9.76     $ 9.75     $ 9.00  

INVESTMENT OPERATIONS:                                        

Net investment income (loss)

    0.07       0.15       0.16       0.06       0.02  

Net realized and unrealized gain (loss) on investments and foreign currency

    (3.67 )     1.12       1.50       1.44       2.63  

Total investment operations

    (3.60 )     1.27       1.66       1.50       2.65  

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:                                        

Net investment income

    (0.01 )     (0.02 )     (0.01 )     (0.01 )     (0.00 )

Net realized gain on investments and foreign currency

    (0.07 )     (0.07 )     (0.09 )     (0.11 )     (0.15 )

Total distributions to Preferred Stockholders

    (0.08 )     (0.09 )     (0.10 )     (0.12 )     (0.15 )

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS
   RESULTING FROM INVESTMENT OPERATIONS
    (3.68 )     1.18       1.56       1.38       2.50  

DISTRIBUTIONS TO COMMON STOCKHOLDERS:                                        

Net investment income

    (0.07 )     (0.44 )     (0.20 )     (0.06 )     (0.02 )

Net realized gain on investments and foreign currency

    (0.37 )     (1.57 )     (1.37 )     (1.15 )     (1.72 )

Return of capital

    (0.03 )     -          -          -          -     

Total distributions to Common Stockholders

    (0.47 )     (2.01 )     (1.57 )     (1.21 )     (1.74 )

CAPITAL STOCK TRANSACTIONS:                                        

Effect of reinvestment of distributions by Common Stockholders

    (0.01 )     (0.00 )     (0.00 )     (0.03 )     (0.01 )

Effect of rights offering and Preferred Stock offering

    -          -          -          (0.13 )     -     

Total capital stock transactions

    (0.01 )     (0.00 )     (0.00 )     (0.16 )     (0.01 )

NET ASSET VALUE, END OF PERIOD   $ 4.76     $ 8.92     $ 9.75     $ 9.76     $ 9.75  

MARKET VALUE, END OF PERIOD   $ 4.60     $ 8.97     $ 10.68     $ 9.53     $ 10.47  

TOTAL RETURN (a):                                        
Market Value     (44.94 )%     3.02 %     30.50 %     3.03 %     47.26 %
Net Asset Value     (42.71 )%     12.22 %     16.33 %     13.31 %     29.21 %
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:                                        
Total expenses (b,c)     1.34 %     1.31 %     1.36 %     1.48 %     1.53 %

Management fee expense

    1.13 %     1.14 %     1.16 %     1.21 %     1.27 %

Other operating expenses

    0.21 %     0.17 %     0.20 %     0.27 %     0.26 %
Net investment income (loss)     0.72 %     1.13 %     1.54 %     0.63 %     0.24 %
SUPPLEMENTAL DATA:                                        
Net Assets Applicable to Common Stockholders,                                        

End of Period (in thousands)

  $ 92,550     $ 165,807     $ 158,567     $ 143,244     $ 105,853  
Liquidation Value of Preferred Stock,                                        

End of Period (in thousands)

  $ 25,000     $ 25,000     $ 25,000     $ 25,000     $ 25,000  
Portfolio Turnover Rate     51 %     62 %     30 %     42 %     52 %
PREFERRED STOCK:                                        
Total shares outstanding     1,000,000       1,000,000       1,000,000       1,000,000       1,000,000  
Asset coverage per share   $ 117.55     $ 190.81     $ 183.57     $ 168.24     $ 130.85  
Liquidation preference per share   $ 25.00     $ 25.00     $ 25.00     $ 25.00     $ 25.00  
Average market value per share (d):                                        

6.00% Cumulative

  $ 22.89     $ 24.37     $ 24.98     $ 25.38     $ 24.83  


(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 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 1.14%, 1.15% 1.17%, 1.22% and 1.21% for the years ended December 31, 2008, 2007, 2006, 2005 and 2004, respectively.
(c)   Expense ratios based on average net assets applicable to Common Stockholders before waiver of fees by the investment adviser would have been 1.39% for the year ended December 31, 2008; before waiver of fees and earnings credits would have been 1.39%, 1.32%, 1.36%, 1.48% and 1.53% for the years ended December 31, 2008, 2007, 2006, 2005 and 2004, respectively.
(d)   The average of month-end market values during the period that the Preferred Stock was outstanding.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.   2008 Annual Report to Stockholders  |  57



Royce Focus Trust  

 
     Notes to Financial Statements

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

Valuation of Investments:
     Securities are valued as of the close of trading on the New York Stock Exchange (NYSE) (generally 4:00 p.m. Eastern time) on the valuation date. Securities that trade on an exchange, and securities traded on Nasdaq’s Electronic Bulletin Board, are valued at their last reported sales price or Nasdaq official closing price taken from the primary market in which each security trades or, if no sale is reported for such day, at their bid price. Other over-the-counter securities for which market quotations are readily available are valued at their highest bid price, except in the case of some bonds and other fixed income securities which may be valued by reference to other securities with comparable ratings, interest rates and maturities, using established independent pricing services. 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. In addition, if, between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and may make the closing price unreliable, the Fund may fair value the security. The Fund uses an independent pricing service to provide fair value estimates for relevant non-U.S. equity securities on days when the U.S. market volatility exceeds a certain threshold. This pricing service uses proprietary correlations it has developed between the movement of prices of non-U.S. equity securities and indices of U.S.-traded securities, futures contracts and other indications to estimate the fair value of relevant non-U.S. securities. When fair value pricing is employed, the prices of securities used by the Fund may differ from quoted or published prices for the same security. Investments in money market funds are valued at net asset value per share.

  Various inputs are used in determining the value of the Fund’s investments, as noted above. These inputs are summarized in the three broad levels below:
 

Level 1 – quoted prices in active markets for identical securities

 

Level 2 – other significant observable inputs (including quoted prices for similar securities, foreign securities that may be fair valued and repurchase agreements)

 

Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

  The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
                         
  The following is a summary of the inputs used to value the Fund’s investments as of December 31, 2008:
  Level 1     Level 2       Level 3     Total  
 
 
  $73,373,095     $37,457,574       $7,285,707     $118,116,376  
 
 
  Level 3 Reconciliation:                      
        Change in unrealized appreciation                
  Balance as of 12/31/07     (depreciation)       Purchases     Balance as of 12/31/08  
 
 
  $0     $(1,714,293)       $9,000,000     $7,285,707  
 
 

Repurchase Agreements:
     The Fund may enter into repurchase agreements with institutions that the Fund’s investment adviser has determined are creditworthy. The Fund restricts repurchase agreements to maturities of no more than seven days. Securities pledged as collateral for repurchase agreements, which are held 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 the counter-party, including possible delays or restrictions upon the ability of the Fund to dispose of its underlying securities.

Foreign Currency:
     The Fund values its non-U.S. securities in U.S. dollars daily at the prevailing foreign currency exchange rates as quoted by a major bank. The effects of changes in foreign exchange rates on investments and other assets and liabilities are included with net realized and unrealized gains and losses on investments.
     Net realized foreign exchange gains or losses arise from sales and maturities of short-term securities, sales of foreign currencies, expiration of currency forward contracts, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities, including investments in securities at the end of the reporting period, as a result of changes in foreign currency exchange rates.


58  |  2008 Annual Report to Stockholders



Royce Focus Trust  

 
     Notes to Financial Statements (continued)

Securities Lending:
     The Fund loans securities to qualified institutional investors for the purpose of realizing additional income. Collateral on all securities loaned for the Fund is accepted in cash and cash equivalents and invested temporarily by the custodian. The collateral maintained is at least 100% of the current market value of the loaned securities. The market value of the loaned securities is determined at the close of business of the Fund and any additional required collateral is delivered to the Fund on the next business day. The Fund retains the risk of any loss on the securities on loan as well as incurring the potential loss on investments purchased with cash collateral received for securities lending.

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 “Tax Information”.

Distributions:
     In 2008, the Fund paid quarterly distributions on the Fund’s Common Stock at the annual rate of 5% of the rolling average of the prior four calendar quarter-end NAVs of the Fund’s Common Stock, with the fourth quarter distribution being the greater of 1.25% of the rolling average or the distribution required by IRS regulations. Distributions to Preferred Stockholders are accrued daily and paid quarterly and distributions to Common Stockholders are recorded on ex-dividend date. 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 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.

Investment Transactions and Related Investment Income:
     Investment transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date. Non-cash dividend income is recorded at the fair market value of the securities received. Interest income is recorded on an accrual basis. Premium and discounts on debt securities are amortized using the effective yield-to-maturity method. 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 equitably. Allocated administrative 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 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.

Compensating Balance Credits:
     The Fund has an arrangement with its custodian bank, whereby a portion of the custodian’s fee is paid indirectly by credits earned on the Fund’s cash on deposit with the bank. This deposit arrangement is an alternative to purchasing overnight investments. Conversely, the Fund pays interest to the custodian on any cash overdrafts, to the extent they are not offset by credits earned on positive cash balances.

Capital Stock:
     The Fund issued 864,595 and 2,332,768 shares of Common Stock as reinvestment of distributions by Common Stockholders for the year ended December 31, 2008 and 2007, respectively.
     At December 31, 2008, 1,000,000 shares of 6.00% Cumulative Preferred Stock were outstanding. Commencing October 17, 2008 and thereafter, the Fund, at its option, may redeem the Cumulative Preferred Stock, in whole or in part, at the redemption price. The Cumulative Preferred Stock is classified outside of permanent equity (net assets applicable to Common Stockholders) in the accompanying financial statements in accordance with Emerging Issues Task Force (EITF) Topic D-98, Classification and Measurement of Redeemable Securities, that requires preferred securities that are redeemable for cash or other assets 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.
     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 Cumulative Preferred Stock.


2008 Annual Report to Stockholders   |  59



Royce Focus Trust  

 
     Notes to Financial Statements (continued)

Investment Advisory Agreement:
     The Investment Advisory Agreement between Royce and the Fund provides for fees to be paid at an annual rate of 1.0% of the Fund’s average daily net assets applicable to Common Stockholders plus the liquidation value of Preferred Stock. The Fund waived a portion of its advisory fee $(62,842) attributable to issues of the Fund’s Preferred Stock for those months in which the Fund’s average annual NAV total return failed to exceed the applicable Preferred Stock’s dividend rate. For the year ended December 31, 2008, the Fund accrued and paid Royce advisory fees totaling $1,614,590.

Purchases and Sales of Investment Securities:
     For the year ended December 31, 2008, the cost of purchases and proceeds from sales of investment securities, other than short-term securities and collateral received for securities loaned, amounted to $78,421,290 and $79,775,700, respectively.

Distributions to Stockholders:
  The tax character of distributions paid to common stockholders during 2008 and 2007 was as follows:   The tax character of distributions paid to preferred stockholders during 2008 and 2007 was as follows:
 
 
  Distributions paid from:     2008       2007     Distributions paid from:   2008     2007  
  Ordinary income   $ 1,314,438     $ 8,124,126     Ordinary income $ 240,568   $ 364,500  
  Long-term capital gain     6,881,428       25,308,500     Long-term capital gain   1,259,432     1,135,500  
  Return of capital     662,631       -     Return of capital   -     -  
     
   
      $ 8,858,497     $ 33,432,626       $ 1,500,000   $ 1,500,000  
 
 
                                   
  As of December 31, 2008, the tax basis components of distributable earnings included in stockholders’ equity were as follows:
 
               
  Undistributed net investment income             -                  
  Post October currency loss*           $ (1,125,872 )                
  Unrealized depreciation             (35,391,802 )                
  Accrued preferred distributions             (33,333 )                
     
               
              $ (36,551,007 )                
 
               
  *Under the current tax law, capital losses, foreign currency losses and losses realized on Passive Foreign Investment Companies after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. As of December 31, 2008, the Fund had $1,125,872 of post October losses.

     The difference between book and tax basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral on wash sales, partnership investments and the unrealized gains on Passive Foreign Investment Companies.
     For financial reporting purposes, capital accounts and distributions to stockholders are adjusted to reflect the tax character of permanent book/tax differences. These differences are primarily due to differing treatments of income and gains on various investment securities and foreign currency transactions held by the Fund, timing differences and different characterization of distributions made by the Fund. For the year ended December 31, 2008, 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 Net   Accumulated Net   Paid-in  
  Investment Income   Realized Gain (Loss)   Capital  
  $5,585,607   $(329,949)   $(5,255,658)  


60  |  2008 Annual Report to Stockholders



Royce Focus Trust  

 
     Report of Independent Registered Public Accounting Firm

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



We have audited the accompanying statement of assets and liabilities of Royce Focus Trust, Inc., (“Fund”) including the schedule of investments, as of December 31, 2008, and the related statement of operations for the year then ended, and the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2008, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Royce Focus Trust, Inc. at December 31, 2008, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.

     
    TAIT, WELLER, & BAKER LLP
     
Philadelphia, Pennsylvania    
February 24, 2009    

2008 Annual Report to Stockholders   |  61



Notes to Performance and Other Important Information  


The thoughts expressed in this Review and Report concerning recent market movements and future prospects for small company stocks are solely the opinion of Royce at December 31, 2008, 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, 2008 and are subject to change at any time without notice. There can be no assurance that securities mentioned in this Review and Report will be included in any Royce-managed portfolio in the future. The Funds invest primarily in securities of micro-, small- and mid-cap companies, that may involve considerably more risk than investments of larger-cap companies. All publicly released material information is always disclosed by the Funds on the website at www.roycefunds.com.
     The Russell 2000 is an index of domestic small-cap stocks. It measures the performance of the 2,000 smallest publicly traded U.S. companies in the Russell 3000 index. The Russell 2000 Value and Growth indices consist of the respective value and growth stocks within the Russell 2000 as determined by Russell Investments. The S&P 500 and S&P SmallCap 600 are indices of U.S. large- and small-cap stocks, respectively, selected by Standard & Poor’s based on market size, liquidity and industry grouping, among other factors. The Nasdaq Composite is an index of the more than 3,000 common equities listed on the Nasdaq stock exchange. Returns for the market indices used in this Review and Report were based on information supplied to Royce by Russell Investments 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 Review and 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 Review and 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.

Authorized Share Transactions
Royce Value Trust, Royce Micro-Cap Trust and Royce Focus Trust may each repurchase up to 5% of the issued and outstanding shares of its respective common stock and up to 10% of the issued and outstanding shares of its respective preferred stock during the year ending December 31, 2009. 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.


Annual Certifications

As required, the Funds have submitted to the New York Stock Exchange (“NYSE”) for Royce Value Trust and Royce Micro -Cap Trust and to Nasdaq for Royce Focus Trust, respectively, the annual certification of the Funds’ Chief Executive Officer that he is not aware of any violation of the NYSE’s or Nasdaq’s Corporate Governance listing standards. The Funds also have included the certification of the Funds’ Chief Executive Officer and Chief Financial Officer required by section 302 of the Sarbanes-Oxley Act of 2002 as exhibits to the Funds’ form N-CSR for the period ended December 31, 2008, filed with the Securities and Exchange Commission.


62  |  2008 Annual Report to Stockholders





  Proxy Voting  
  A copy of the policies and procedures that The Royce Funds use to determine how to vote proxies relating to portfolio securities and information regarding how each of The Royce Funds voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available, without charge, on The Royce Funds’ website at www.roycefunds.com, by calling 1-800-221-4268 (toll-free) and on the website of the Securities and Exchange Commission (“SEC”), at www.sec.gov.  
     
  Form N-Q Filing  
  The Funds file their complete schedules of investments with the SEC for the first and third quarters of each fiscal year on Form N -Q. The Funds’ Forms N-Q are available on The Royce Funds’ website at www.roycefunds.com and on the SEC’s website at www.sec.gov. The Funds’ Forms N -Q may also be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. To find out more about this public service , call the SEC at 1-800-732-0330. The Funds’ complete schedules of investments are updated quarterly, and are available at www.roycefunds.com.  


Royce Value Trust, Inc.          
At the 2008 Annual Meeting of Stockholders held on September 25, 2008, the Fund’s stockholders elected four Directors, consisting of:
 
 
VOTES FOR
 
VOTES WITHHELD
 

 * Donald R. Dwight

  64,764,901   1,141,039  

 * Stephen L. Isaacs

  64,841,589   1,064,351  

** William L. Koke

  8,185,226   151,801  

** David L. Meister

  8,188,143   148,884  

 * Common Stock and Preferred Stock voting together as a single class.          
** Preferred Stock voting as a separate class.          
           
Royce Micro-Cap Trust, Inc.          
At the 2008 Annual Meeting of Stockholders held on September 25, 2008, the Fund’s stockholders elected four Directors, consisting of:
 
 
VOTES FOR
 
VOTES WITHHELD
 

 * Donald R. Dwight

  24,399,143   428,360  

 * Stephen L. Isaacs

  24,407,313   420,290  

** William L. Koke

  2,217,864   38,804  

** David L. Meister

  2,210,364   46,304  

 * Common Stock and Preferred Stock voting together as a single class.          
** Preferred Stock voting as a separate class.          
           
Royce Focus Trust, Inc.          
At the 2008 Annual Meeting of Stockholders held on September 25, 2008, the Fund’s stockholders elected four Directors, consisting of:
 
 
VOTES FOR
 
VOTES WITHHELD
 

 * Donald R. Dwight

  16,408,582   236,886  

 * William L. Koke

  16,411,164   234,304  

** Stephen L. Isaacs

  919,928   7,289  

** David L. Meister

  919,928   7,289  

 * Common Stock and Preferred Stock voting together as a single class.          
** Preferred Stock voting as a separate class.          

2008 Annual Report to Stockholders   |  63



Directors and Officers


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

Charles M. Royce, Director*, President
Age: 69 | Number of Funds Overseen: 28 | Tenure: Since 1986
Non-Royce Directorships: Director of Technology Investment Capital Corp.

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

Mark R. Fetting, Director*
Age: 54 | Number of Funds Overseen: 42 | Tenure: Since 2001
Non-Royce Directorships: Director/Trustee of registered investment companies constituting the 14 Legg Mason Funds.

Principal Occupation(s) During Past Five Years: President, Chief Executive Officer and Director of Legg Mason, Inc.; Member of Board of Managers of Royce. Mr. Fetting’s prior business experience includes having served as Senior Executive Vice President of Legg Mason, Inc.; Division President and Senior Officer, Prudential Financial Group, Inc. and related companies; Partner, Greenwich Associates and Vice President, T. Rowe Price Group, Inc.

Donald R. Dwight, Director**
Age: 77 | Number of Funds Overseen: 28 | Tenure: Since 1998
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 a Trustee of the registered investment companies constituting the Eaton Vance Funds.

Richard M. Galkin, Director
Age: 70 | Number of Funds Overseen: 28 | Tenure: Since 1986
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).

Stephen L. Isaacs, Director
Age: 69 | Number of Funds Overseen: 28 | Tenure: Since 1989
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).

William L. Koke, Director
Age: 74 | Number of Funds Overseen: 28 | Tenure: Since 1996
Non-Royce Directorships: None

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

Arthur S. Mehlman, Director
Age: 66 | Number of Funds Overseen: 42 | Tenure: Since 2004
Non-Royce Directorships: Director/Trustee of registered investment companies constituting the 14 Legg Mason Funds and Director of Municipal Mortgage & Equity, LLC.

Principal Occupation(s) During Past Five Years: Director of The League for People with Disabilities, Inc.; Director of University of Maryland Foundation (non-profits). Formerly: Director of University of Maryland College Park Foundation (non-profit) (from 1998 to 2005); Partner, KPMG LLP (international accounting firm) (from 1972 to 2002); Director of Maryland Business Roundtable for Education (from July 1984 to June 2002).
David L. Meister, Director
Age: 69 | Number of Funds Overseen: 28 | Tenure: Since 1986
Non-Royce Directorships: None

Principal Occupation(s) During Past Five Years: Consultant. Chairman and Chief Executive Officer of The Tennis Channel (from June 2000 to March 2005). Mr. Meister’s prior business experience includes having served as Chief Executive Officer of Seniorlife.com, 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.

G. Peter O’Brien, Director
Age: 63 | Number of Funds Overseen: 42 | Tenure: Since 2001
Non-Royce Directorships: Director/Trustee of registered investment companies constituting the 14 Legg Mason Funds; Director of Technology Investment Capital Corp.

Principal Occupation(s) During Past Five Years: Trustee Emeritus of Colgate University (since 2005); Board Member of Hill House, Inc. (since 1999); Formerly: Trustee of Colgate University (from 1996 to 2005), President of Hill House, Inc. (from 2001 to 2005) and Managing Director/Equity Capital Markets Group of Merrill Lynch & Co. (from 1971 to 1999).

John D. Diederich, Vice President and Treasurer
Age: 57 | Tenure: Since 2001

Principal Occupation(s) During Past Five Years: Chief Operating Officer, Managing Director and member of the Board of Managers of Royce; Chief Financial Officer of Royce; Director of Administration of the Trust; and President of RFS, having been employed by Royce since April 1993.

Jack E. Fockler, Jr., Vice President
Age: 50 | Tenure: Since 1995

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

W. Whitney George, Vice President
Age: 50 | Tenure: Since 1995

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


Daniel A. O’Byrne, Vice President and Assistant Secretary
Age: 46 | Tenure: Since 1994

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

John E. Denneen, Secretary and Chief Legal Officer
Age: 41 | Tenure: 1996-2001 and Since April 2002

Principal Occupation(s) During Past Five Years: General Counsel, Principal, Chief Legal and Compliance Officer and Secretary of Royce; Secretary and Chief Legal Officer of The Royce Funds.

Lisa Curcio, Chief Compliance Officer
Age: 49 | Tenure: Since 2004

Principal Occupation(s) During Past Five Years: Chief Compliance Officer of The Royce Funds (since October 2004); Compliance Officer of Royce (since June 2004); Vice President, The Bank of New York (from February 2001 to June 2004).

*   Interested Director
** Retired from the Funds’ Board of Directors effective January 1, 2009.

64   |   The Royce Funds 2008 Annual Report to Stockholders




Postscript: Where Were You When... ?


The assassination of John F. Kennedy, The Beatles’ first appearance on the Ed Sullivan Show, Neil Armstrong walking on the moon, Richard Nixon’s resignation, Elvis’s death, the fall of the Berlin Wall, the Tiananmen Square protests, 9/11: These represent a partial list of historical events that not only lead us to remember what we were doing when they occurred, but also compel us to ask of others, “Where were you when this happened?”

 

palpably during the first 10 trading days of October, as equity prices tumbled downward at record speed. Beginning in 2007, plenty of signs could be seen that stock prices were overdue for correction. However, we were astonished by the magnitude and velocity of the decline. Realizing that we were neither smart nor skilled enough to stop the inexorable march downward for our portfolios made it a sobering time. Having always prided ourselves on being effective risk managers and enjoying several funds’ long records of strong down market results, we were more than a little taken aback by the increasingly negative returns for even our most conservatively managed portfolios.

     It speaks to a need many of us have to engage others in creating a collective memory out of our own subjective experience, an effort to cultivate a shared sense of a past that stores enormous events that transcend the everyday. For many people in the investment business, certainly for all of us here at Royce, the events of the last few months—beginning in mid-September and continuing through the end of the year—more than qualify as this kind of experience. It’s doubtful that the travails of the stock market, which are, after all, merely part of the larger story of a global economy in crisis, have entered the popular imagination at large as a watershed event. However, they have worked their way into the minds of most of us who toil away in the financial markets as exactly this sort of happening.

   

     It’s an old Wall Street cliché that in a real bear market no stock is spared. Confronted with the stark reality of that statement during this past year, we asked ourselves what we might have done differently. The conclusion was not hard to reach. We are what we are—disciplined and conservative value investors in the smaller stock universe. For decades, our calling card has been not only our approach, but also that we stick with it regardless of market movements and trends. To change now would mean not being true to what we have always been. We still think that it’s best to be consistent, even as we understand how little comfort that offers to investors—ourselves included—who are probably still smarting from the sticker shock of their year-end statements.

     Of course, not all remarkable historical occurrences are seen as negative, though the stock market’s recent problems share traits with other dramatically difficult situations. As such, the precipitous declines of 2008 could not help but lead us to moments of reflection. Extraordinary times inevitably prompt questions about how things got this way, how they may have gone differently and how they might be avoided in the future.
     We have made no secret of our dismay at just how bad it has all been, and we have not been shy about the shock we felt, most

 

We are what we are—disciplined and conservative value investors in the smaller stock universe. For decades, our calling card has been not only our approach, but also that we stick with it regardless of market movements and trends. To change now would mean not being true to what we have always been.

 

     Along with 1907 and 1929, 2008 will enter the annals of stock market history as a truly disastrous year, as opposed to years such as 2002 or 1990 that were merely lousy. It enters our own history as easily the worst year that we have endured as a firm, one in which we will never forget where we were.


This page is not part of the 2008 Annual Report to Stockholders



 
   
   
   
   
   
   
 


Wealth Of Experience
With approximately $19 billion in open- and closed-end fund assets under management, Royce & Associates is committed to the same small-company investing principles that have served us well for more than 30 years. Charles M. Royce, our Chief Investment Officer, enjoys one of the longest tenures of any active mutual fund manager. Royce’s investment staff includes 14 Portfolio Managers, as well as seven assistant portfolio managers and analysts, and eight traders.


Multiple Funds, Common Focus
Our goal is to offer both individual and institutional investors the best available small-cap value portfolios. Unlike a lot of mutual fund groups with broad product offerings, we have chosen to concentrate on small-company value investing by providing investors with a range of funds that take full advantage of this large and diverse sector.


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


Co-Ownership Of Funds
It is important that our employees and shareholders share a common financial goal; our officers, employees and their families currently have approximately $74 million invested in The Royce Funds.
   
       
   
           
           
           
           
           
         
  1414 Avenue of the Americas | New York, NY 10019 | (800) 221-4268 | www.roycefunds.com    
           
   
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Item 2. Code(s) of Ethics. As of the end of the period covered by this report, the Registrant had adopted a code of ethics, as defined in Item 2 of Form N-CSR, applicable to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of this code of ethics is filed as an exhibit to this Form N-CSR. No substantive amendments were approved or waivers were granted to this code of ethics during the period covered by this report.

   
Item 3. Audit Committee Financial Expert.
   
(a)(1)

The Board of Directors of the Registrant has determined that it has an audit committee financial expert.

   
(a)(2)

Arthur S. Mehlman was designated by the Board of Directors as the Registrant’s Audit Committee Financial Expert, effective April 15, 2004. Mr. Mehlman is “independent” as defined under Item 3 of Form N-CSR.

   
Item 4. Principal Accountant Fees and Services.
     
(a)   Audit Fees:
    Year ended December 31, 2008 - $38,500
    Year ended December 31, 2007 - $35,500
     
(b)   Audit-Related Fees:
    Year ended December 31, 2008 - $1,500 – Preparation of reports to rating agency for Preferred Stock
    Year ended December 31, 2007 - $1,500 – Preparation of reports to rating agency for Preferred Stock
     
(c)   Tax Fees:
    Year ended December 31, 2008 - $6,500 - Preparation of tax returns
    Year ended December 31, 2007 - $6,000 - Preparation of tax returns
     
(d)   All Other Fees:
    Year ended December 31, 2008 - $0
    Year ended December 31, 2007 - $0
     

(e)(1)     Annual Pre-Approval: On an annual basis, the Registrant’s independent auditor submits to the Audit Committee a schedule of proposed audit, audit-related, tax and other non-audit services to be rendered to the Registrant and/or investment adviser(s) for the following year that require pre-approval by the Audit Committee. This schedule provides a description of each type of service that is expected to require pre-approval and the maximum fees that can be paid for each such service without further Audit Committee approval. The Audit Committee then reviews and determines whether to approve the types of scheduled services and the projected fees for them. Any subsequent revision to already pre-approved services or fees (including fee increases) are presented for consideration at the next regularly scheduled Audit Committee meeting, as needed.

 

              If subsequent to the annual pre-approval of services and fees by the Audit Committee, the Registrant or one of its affiliates determines that it would like to engage the Registrant’s independent auditor to perform a service not already pre-approved, the request is to be submitted to the Registrant’s Chief Financial Officer, and if he or she determines that the service fits within the independence guidelines (e.g., it is not a prohibited service), he or she will then arrange for a discussion of the proposed service and fee to be included on the agenda for the next regularly scheduled Audit Committee meeting so that pre-approval can be considered.

 

              Interim Pre-Approval: If, in the judgment of the Registrant’s Chief Financial Officer, a proposed engagement needs to commence before the next regularly scheduled Audit Committee meeting, he or she shall submit a written summary of the proposed engagement to all members of the Audit Committee, outlining the services, the estimated maximum cost, the category of the services (e.g., audit, audit-related, tax or other) and the rationale for engaging the Registrant’s independent auditor to perform the services. To the extent the proposed engagement involves audit, audit-related or tax services, any individual member of the Audit Committee who is an independent Board member is authorized to pre-approve the engagement. To the extent the proposed engagement involves non-audit services other than audit-related or tax, the Chairman of the Audit Committee is authorized to pre-approve the engagement. The Registrant’s Chief Financial Officer will arrange for this interim review and





coordinate with the appropriate member(s) of the Committee. The independent auditor may not commence the engagement under consideration until the Registrant’s Chief Financial Officer has informed the auditor in writing that pre-approval has been obtained from the Audit Committee or an individual member who is an independent Board member. The member of the Audit Committee who pre-approves any engagements in between regularly scheduled Audit Committee meetings is to report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next regularly scheduled meeting.

     
(e)(2)   Not Applicable
     
(f)   Not Applicable
     
(g)   Year ended December 31, 2008 - $8,000
    Year ended December 31, 2007 - $7,500
     
(h)   No such services were rendered during 2008 or 2007.
     

Item 5. Audit Committee of Listed Registrants. The Registrant has a separately designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. Richard M. Galkin, Stephen L. Isaacs, William L. Koke, Arthur S. Mehlman, David L. Meister and G. Peter O’Brien are members of the Registrant’s audit committee.

 
Item 6. Investments.
(a) See Item 1.

(b) Not applicable.

     
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.    
     
                 June 5, 2003,
  as amended through
December 1, 2008

Royce & Associates Proxy Voting Guidelines and Procedures
 
 

These procedures apply to Royce & Associates, LLC (“Royce”) and all funds and other client accounts for which it is responsible for voting proxies, including all open and closed-end registered investment companies (“The Royce Funds”), limited partnerships, limited liability companies, separate accounts, other accounts for which it acts as investment adviser and any accounts for which it acts as sub-adviser that have delegated proxy voting authority to Royce. The Boards of Trustees/Directors of The Royce Funds (the “Boards”) have delegated all proxy voting decisions to Royce subject to these policies and procedures.

 

Receipt of Proxy Material. Under the continuous oversight of the Head of Administration or his designee is responsible for monitoring receipt of all proxies and ensuring that proxies are received for all securities for which Royce has proxy voting responsibility. All proxy materials are logged in upon receipt by Royce’s Librarian

 

Voting of Proxies. Once proxy material has been logged in by Royce’s Librarian, it is then promptly reviewed by the designated Administrative Assistant to evaluate the issues presented. Regularly recurring matters are usually voted as recommended by the issuer’s board of directors or “management.” The Head of Administration or his designee, in consultation with the Chief Investment Officer, develops and updates a list of matters Royce treats as “regularly recurring” and is responsible for ensuring that the designated Administrative Assistant has an up-to-date list of these matters at all times, including instructions from Royce’s Chief Investment Officer on how to vote on those matters on behalf of Royce clients. Examples of “regularly recurring” matters include non-contested elections of directors and non-contested approval of independent auditors. Non-“regularly recurring” matters are brought to the attention of the portfolio manager(s) for the account(s) involved by the designated Administrative Assistant, and, after giving some consideration to advisories from Glass Lewis & Co., an independent research



firm, the portfolio manager directs that such matters be voted in a way that he or she believes should better protect or enhance the value of the investment. If the portfolio manager determines that information concerning any proxy requires analysis, is missing or incomplete, he or she then gives the proxy to an analyst or another portfolio manager for review and analysis.

 
  a.

     From time to time, it is possible that one Royce portfolio manager will decide (i) to vote shares held in client accounts he or she manages differently from the vote of another Royce portfolio manager whose client accounts hold the same security or (ii) to abstain from voting on behalf of client accounts he or she manages when another Royce portfolio manager is casting votes on behalf of other Royce client accounts.

     
   

The designated Administrative Assistant reviews all proxy votes collected from Royce’s portfolio managers prior to such votes being cast. If any difference exists among the voting instructions given by Royce’s portfolio managers, as described above, the designated Administrative Assistant then presents these proposed votes to the Head of Administration or his designee and the Chief Investment Officer. The Chief Investment Officer, after consulting with the relevant portfolio managers, either reconciles the votes or authorizes the casting of differing votes by different portfolio managers. The Head of Administration or his designee maintains a log of all votes for which different portfolio managers have cast differing votes, that describes the rationale for allowing such differing votes and contains the initials of both the Chief Investment Officer and Head of Administration or his designee allowing such differing votes. The Head of Administration or his designee performs a weekly review of all votes cast by Royce to confirm that any conflicting votes were properly handled in accordance with the above-described procedures.

     
  b.

     There are many circumstances that might cause Royce to vote against an issuer’s board of directors or “management” proposal. These would include, among others, excessive compensation, unusual management stock options, preferential voting and poison pills. The portfolio managers decide these issues on a case-by-case basis as described above.

     
  c.

     A portfolio manager may, on occasion, determine to abstain from voting a proxy or a specific proxy item when he or she concludes that the potential benefit of voting is outweighed by the cost, when it is not in the client account’s best interest to vote.

     
  d.      When a client has authorized Royce to vote proxies on its behalf, Royce will generally not accept instructions from the clients regarding how to vote proxies.
     
  e.

     If a security is on loan under The Royce Funds’ Securities Lending Program with State Street Bank and Trust Company (“Loaned Securities”), the Head of Administration or his designee will recall the Loaned Securities and request that they be delivered within the customary settlement period after the notice, to permit the exercise of their voting rights if the number of shares of the security on loan would have a material effect on The Royce Funds’ voting power at the up-coming stockholder meeting. A material effect is defined as any case where the Loaned Securities are 1% or more of a class of a company’s outstanding equity securities. Monthly, the Head of Administration or his designee will review the summary of this activity by State Street. A quarterly report detailing any exceptions that occur in recalling Loaned Securities will be given to the Boards.


Custodian banks are authorized to release all proxy ballots held for Royce client account portfolios to Glass Lewis & Co. for voting, utilizing the Viewpoint proxy voting platform. Substantially all portfolio companies utilize Broadridge to collect their proxy votes.

 

Under the continuous oversight of the Head of Administration or his designee, the designated Administrative Assistant is responsible for voting all proxies in a timely manner. Votes are returned to Broadridge using Viewpoint as ballots are received, generally two weeks before the scheduled meeting date. The issuer can thus see that the shares were voted, but the actual vote cast is not released to the company until 4pm on the day before the meeting. If proxies must be mailed, they go out at least ten business days before the meeting date.




Conflicts of Interest.   The designated Administrative Assistant reviews reports generated by Royce’s portfolio management system (“Quest PMS”) that set forth by record date, any security held in a Royce client account which is issued by a (i) public company that is, or a known affiliate of which is, a separate account client of Royce (including sub-advisory relationships), (ii) public company, or a known affiliate of a public company, that has invested in a privately-offered pooled vehicle managed by Royce or (iii) public company, or a known affiliate of a public company, by which the spouse of a Royce employee or an immediate family member of a Royce employee living in the household of such employee is employed, for the purpose of identifying any potential proxy votes that could present a conflict of interest for Royce. The Head of Administration or his designee develops and updates the list of such public companies or their known affiliates which is used by Quest PMS to generate these daily reports. This list also contains information regarding the source of any potential conflict relating to such companies. Potential conflicts identified on the “conflicts reports” are brought to the attention of the Head of Administration or his designee by the designated Administrative Assistant. An R&A Compliance Officer then reviews them to determine if business or personal relationships exist between Royce, its officers, managers or employees and the company that could present a material conflict of interest. Any such identified material conflicts are voted by Royce in accordance with the recommendation given by an independent third party research firm (Glass Lewis & Co.). The Head of Administration or his designee maintains a log of all such conflicts identified, the analysis of the conflict and the vote ultimately cast. Each entry in this log is signed by the Chief Investment Officer before the relevant votes are cast.

 

Recordkeeping.    A record of the issues and how they are voted is stored in the Viewpoint system. Copies of all physically executed proxy cards, all proxy statements and any other documents created or reviewed that are material to making a decision on how to vote proxies are retained in the Company File maintained by Royce’s Librarian.

 
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
(a)(1)  Portfolio Managers of Closed-End Management Investment Companies (information as of December 31, 2008)

Name

Title

Length of Service

Principal Occupation(s) During Past 5 Years

Charles M. Royce

President and member of the Board of Directors of the Registrant

Since 1986

President, Chief Investment Officer and member of the Board of Managers of Royce & Associates, LLC (“Royce”), investment adviser to the Registrant, Royce Focus Trust, Inc., Royce Micro-Cap Trust, Inc. (“RMT”), The Royce Fund and Royce Capital Fund (collectively, “The Royce Funds”).

Chris Flynn

Assistant Portfolio Manager*

Since April 1, 2007

Assistant Portfolio Manager of the Registrant (since April 1, 2007); and Principal, Assistant Portfolio Manager and Senior Analyst at Royce (since 1993).

Michael Hveem

Assistant Portfolio Manager*

Since April 1, 2007

Assistant Portfolio Manager of the Registrant (since April 1, 2007); Assistant Portfolio Manager at Royce (since April 1, 2007); and Senior Analyst at Royce (since 1999).

David Nadel

Assistant Portfolio Manager*

Since April 1, 2007

Assistant Portfolio Manager of the Registrant (since April 1, 2007); Portfolio Manager and Senior Analyst at Royce ( since 2006); Senior Portfolio Manager at Neuberger Berman Inc. (2004-2006); and Senior Analyst at Pequot Capital Management, Inc. (2001-2003).

  * Assistant Portfolio Managers may have investment discretion over a portion of the Registrant’s portfolio subject to the supervision of Registrant’s Portfolio Manager.



(a)(2) Other Accounts Managed by Portfolio Manager and Potential Conflicts of Interest (information as of December 31, 2008)
 

Other Accounts

Name of
Portfolio
Manager

Type of Account

Number
of
Accounts
Managed

Total
Assets
Managed

Number of
Accounts
Managed for which
Advisory Fee is
Performance-Based

Value of
Managed
Accounts for
which
Advisory Fee is
Performance
Based

Charles M. Royce

         
 

Registered investment companies

15

$11,130,136,901

5

$1,073,183,743

 

Private pooled investment vehicles

2

$22,296,000

2

$22,296,000

 

Other accounts*

11

$41,354,773

-

-

           

Chris Flynn

         
 

Registered investment companies

4

$4,422,984,845

2

$1,053,088,493

 

Private pooled investment vehicles

0

-

-

-

 

Other accounts*

0

-

-

-

           

Michael Hveem

         
 

Registered investment companies

1

$823,234,062

1

$823,234,062

 

Private pooled investment vehicles

0

-

-

-

 

Other accounts*

0

-

-

-

           

David Nadel

         
 

Registered investment companies

5

$1,450,727,587

2

$829,283,183

 

Private pooled investment vehicles

0

-

-

-

 

Other accounts*

0

-

-

-

*Other accounts include all other accounts managed by the Portfolio Manager in either a professional or personal capacity except for personal accounts subject to pre-approval and reporting requirements under the Registrant’s Rule 17j-1 Code of Ethics.
 
Conflicts of Interest
           The fact that a Portfolio Manager has day-to-day management responsibility for more than one client account may create actual, potential or only apparent conflicts of interest. For example, the Portfolio Manager may have an opportunity to purchase securities of limited availability. In this circumstance, the Portfolio Manager is expected to review each account’s investment guidelines, restrictions, tax considerations, cash balances, liquidity needs and other factors to determine the suitability of the investment for each account and to ensure that his managed accounts are treated equitably. The Portfolio Manager may also decide to purchase or sell the same security for multiple managed accounts at approximately the same time. To address any conflicts that this situation may create, the Portfolio Manager will generally combine managed account orders (i.e., enter a “bunched” order) in an effort to obtain best execution or a more favorable commission rate. In addition, if orders to buy or sell a security for multiple accounts managed by common Portfolio Managers on the same day are executed at different prices or commission rates, the transactions will generally



be allocated by Royce to each of such managed accounts at the weighted average execution price and commission. In circumstances where a pre-allocated bunched order is not completely filled, each account will normally receive a pro-rated portion of the securities based upon the account’s level of participation in the order. Royce may under certain circumstances allocate securities in a manner other than pro-rata if it determines that the allocation is fair and equitable under the circumstances and does not discriminate against any account.
 
            As described below, there is a revenue-based component of each Portfolio Manager’s Performance Bonus and the Portfolio Managers also receive a “Partners Pool” participation or a Firm Bonus based on revenues (adjusted for certain imputed expenses) generated by Royce. In addition, Charles M. Royce receives a bonus based on Royce’s retained pre-tax profits from operations. As a result, the Portfolio Managers may receive a greater relative benefit from activities that increase the value to Royce of The Royce Funds and/or other Royce client accounts, including, but not limited to, increases in sales of the Registrant’s shares and assets under management.
 
           Also, as described above, the Portfolio Managers generally manage more than one client account, including, among others, registered investment company accounts, separate accounts and private pooled accounts managed on behalf of institutions (e.g., pension funds, endowments and foundations) and for high-net-worth individuals. The appearance of a conflict of interest may arise where Royce has an incentive, such as a performance-based management fee (or any other variation in the level of fees payable by The Royce Funds or other Royce client accounts to Royce), which relates to the management of one or more of The Royce Funds or accounts with respect to which the Portfolio Manager has day-to-day management responsibilities. Except as described below, no Portfolio Manager’s compensation is tied to performance fees earned by Royce for the management of any one client account. Although bonuses and other compensation derived from Royce revenues and profits are impacted to some extent, the impact is relatively minor given the small percentage or Royce firm assets under management for which Royce received performance-measured compensation. Notwithstanding the above, the Performance Bonus paid to Charles M. Royce as Portfolio Manager of two registered investment company accounts (the Registrant and RMT) is based, in part, on performance-based fee revenues. The Registrant and RMT pay Royce a fulcrum fee that is adjusted up or down depending on the performance of that Fund relative to its benchmark index. In addition, three other registered investment company accounts managed by Mr. Royce, Royce Select Fund I, Royce Select Fund II and Royce SMid-Cap Select Fund, each pay Royce a performance-based fee.
 
           Finally, conflicts of interest may arise when a Portfolio Manager personally buys, holds or sells securities held or to be purchased or sold for the Registrant or other Royce client account or personally buys, holds or sells the shares of one or more of The Royce Funds. To address this, Royce has adopted a written Code of Ethics designed to prevent and detect personal trading activities that may interfere or conflict with client interests (including Registrant shareholders’ interests). Royce generally does not permit its Portfolio Managers to purchase small- or micro-cap securities in their personal investment portfolios.
 
           Royce and The Royce Funds have adopted certain compliance procedures which are designed to address the above-described types of conflicts. However, there is no guarantee that such procedures will detect each and every situation in which a conflict arises.

 



(a)(3) Description of Portfolio Manager Compensation Structure (information as of December 31, 2008)

           Royce seeks to maintain a compensation program that is competitively positioned to attract and retain high-caliber investment professionals. All Portfolio Managers receive from Royce a base salary, a Performance Bonus (generally the largest element of each Portfolio Manager’s compensation, with the exception of Charles M. Royce), a “Partners Pool” participation based primarily on registered investment company and other client account revenues generated by Royce and a benefits package. Portfolio Manager compensation is reviewed and may be modified from time to time as appropriate to reflect changes in the market, as well as to adjust the factors used to determine bonuses. Except as described below, each Portfolio Manager’s compensation consists of the following elements:
 
  -
BASE SALARY. Each Portfolio Manager is paid a base salary. In setting the base salary, Royce seeks to be competitive in light of the Portfolio Manager’s experience and responsibilities.
   
  -
PERFORMANCE BONUS. Each Portfolio Manager receives a quarterly Performance Bonus that is either asset-based, or revenue based and therefore in part based on the value of the accounts’ net assets, determined with reference to each of the registered investment company and other client accounts they are managing. The revenue used to determine the quarterly performance bonus received by Charles M. Royce that relates to each of the Registrant and RMT are performance-based fee revenues. For all Portfolio Managers, except as described below, the Performance Bonus applicable to the registered investment company accounts managed by the Portfolio Manager is subject to upward or downward adjustment or elimination based on a combination of 3-year and 5-year risk-adjusted pre-tax returns of such accounts relative to all small-cap objective funds with three years of history tracked by Morningstar (as of December 31, 2008 there were 344 such Funds tracked by Morningstar) and the 5-year absolute returns of such accounts relative to 5-year U.S. Treasury Notes. The Performance Bonus applicable to non-registered investment company accounts managed by a Portfolio Manager, and to Royce Select Fund I, Royce Select Fund II and Royce SMid-Cap Select Fund for Mr. Royce, is not subject to a performance-related adjustment.
 
           Payment of the Performance Bonus may be deferred as described below, and any amounts deferred are forfeitable, if the Portfolio Manager is terminated by Royce with or without cause or resigns. The amount of the deferred Performance Bonus will appreciate or depreciate during the deferral period, based on the total return performance of one or more Royce-managed registered investment company accounts selected by the Portfolio Manager at the beginning of the deferral period. The amount deferred will depend on the Portfolio Manager’s total direct, indirect beneficial and deferred unvested bonus investments in the Royce registered investment company account for which he or she is receiving portfolio management compensation.
  -
ROYCE “PARTNERS POOL.” Each Portfolio Manager, other than Charles M. Royce, as well as other senior firm employees, participates in a quarterly pool relating to Royce’s net operating revenues adjusted for some imputed expenses. A portion of this participation may be deferred for three years. The deferred portion is also forfeitable if the Portfolio Manager is terminated with or without cause or resigns and appreciates or depreciates during the deferral period based on the total return of a basket of registered investment company accounts managed by Royce.
   
  -
FIRM BONUS. Charles M. Royce receives a quarterly bonus based on Royce’s net revenues.
   
  -
BENEFIT PACKAGE. Each Portfolio Manager also receives benefits standard for all Royce employees, including health care and other insurance benefits, and participation in Royce’s 401(k) Plan and Money Purchase Pension Plan. From time to time, on a purely discretionary basis, Portfolio Managers may also receive options to acquire stock in Royce’s parent company, Legg Mason, Inc. Those options typically represent a relatively small portion of a Portfolio Manager’s overall compensation.
 
           Charles M. Royce, in addition to the above-described compensation, also receives a bonus based on Royce’s retained pre-tax operating profit. This bonus, along with the Performance Bonus and Firm Bonus, generally represents the most significant element of Mr. Royce’s compensation. A portion of the above-described compensation payable to Mr. Royce relates to his responsibilities as Royce’s Chief Executive Officer, Chief Investment Officer and President of The Royce Funds.
 
(a)(4) Dollar Range of Equity Securities in Registrant Beneficially Owned by Portfolio Manager (information as of December 31, 2008)



The following table shows the dollar range of the Registrant’s shares owned beneficially and of record by the Portfolio Managers, including investments by his immediate family members sharing the same household and amounts invested through retirement and deferred compensation plans.
 

Portfolio Manager

Dollar Range of Registrant’s Shares Beneficially Owned

Charles M. Royce

Over $1,000,000

Chris Flynn

  None

Michael Hveem

  None

David Nadel

  None
 
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not Applicable.
 
Item 10. Submission of Matters to a Vote of Security Holders. Not Applicable.
 
Item 11. Controls and Procedures.
 
(a) Disclosure Controls and Procedures. The Principal Executive and Financial Officers concluded that the Registrant’s Disclosure Controls and Procedures are effective based on their evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report.
 
(b) Internal Control over Financial Reporting. There were no significant changes in Registrant’s internal control over financial reporting or in other factors that could significantly affect this control subsequent to the date of the evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses during the second fiscal quarter of the period covered by this report.
 
Item 12. Exhibits. Attached hereto.
(a)(1)  The Registrant’s code of ethics pursuant to Item 2 of Form N-CSR.
 
(a)(2)  Separate certifications by the Registrant’s Principal Executive Officer and Principal Financial Officer as required by Rule 30a-2(a) under the Investment Company Act of 1940.
 
(a)(3)  Not Applicable
 
(b)  Separate certifications by the Registrant’s Principal Executive Officer and Principal Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(b) under the Investment Company Act of 1940.



Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
ROYCE VALUE TRUST, INC.
 
BY: /s/Charles M. Royce
      Charles M. Royce
       President
 
Date: March 4, 2009
 
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
ROYCE VALUE TRUST, INC.   ROYCE VALUE TRUST, INC.
     
BY: /s/Charles M. Royce   BY: /s/John D. Diederich
       Charles M. Royce         John D. Diederich
       President         Chief Financial Officer
     
Date: March 4, 2009 Date: March 4, 2009