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, 2005 – December 31, 2005

Item 1: Reports to Shareholders






 


 A N N U A L  R E V I E W 
Royce Value Trust A N D
  R E P O R T  T O  S T O C K H O L D E R S
Royce Micro-Cap Trust    
2005  
  Royce Focus Trust





www.roycefunds.com
































   
     
TheRoyceFund
     
VALUE INVESTING IN SMALL COMPANIES FOR MORE THAN 30 YEARS
       
       
       
       



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 on a stock exchange or are traded in the over-the-counter market. Like all investment companies, including open-end mutual funds, the assets of a closed-end fund are professionally managed in accordance with the investment objectives and policies approved by the fund’s Board of Directors. A closed-end fund raises cash for investment by issuing a fixed number of shares through initial and other public offerings that may include periodic rights offerings. Proceeds from the offerings are invested in an actively managed portfolio of securities. Investors wanting to buy or sell shares of a publicly traded closed-end fund after the offerings must do so on a stock exchange or the Nasdaq market, as with any publicly traded stock. This is in contrast to open-end mutual funds, 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
 
 
Since a closed-end fund does not issue redeemable securities or offer its securities on a continuous basis, it does not need to liquidate securities or hold uninvested assets to meet investor demands for cash redemptions, as an open-end fund must.
 
 
 
In a closed-end fund, not having to meet investor redemption requests or invest at inopportune times is ideal for value managers who attempt to buy stocks when prices are depressed and sell securities when prices are high.
 
 
 
A closed-end fund may invest more freely in less liquid portfolio securities because it is not subject to potential stockholder redemption demands. This is particularly beneficial for Royce-managed closed-end funds, which invest in small- and micro-cap securities.
 
 
 
The fixed capital structure allows permanent leverage to be employed as a means to enhance capital appreciation potential.
 
 
 
Unlike Royce’s open-end funds, our closed-end funds are able to distribute capital gains on a quarterly basis. Each of the Funds has adopted a quarterly distribution policy for its common stock.
 
 

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

  WHY DIVIDEND REINVESTMENT IS IMPORTANT
 
 
A very important component of an investor’s total return comes from the reinvestment of distributions. By reinvesting distributions, our investors can maintain an undiluted investment in a Fund. To get a fair idea of the impact of reinvested distributions, please see the charts on pages 13, 15 and 17. For additional information on the Funds’ Distribution Reinvestment and Cash Purchase Options and the benefits for stockholders, please see page 19 or visit our website at www.roycefunds.com.
 



TABLE OF CONTENTS    


Annual Review
   

Performance Table   2  

Letter to Our Stockholders   3  

Online Update
  10  

     

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.







       
       
       
      PERFORMANCE TABLE 
     
 


Charles M. Royce, President
      AVERAGE ANNUAL NAV TOTAL RETURNS Through December 31, 2005
   
 
 
 
Royce
Value Trust
 
Royce
Micro-Cap Trust
 
Royce
Focus Trust
 
Russell
2000
      Fourth Quarter 2005*   2.68 %   -0.31 %   5.98 %   1.13 %
   
      July - December 2005* 10.66     8.26     20.91     5.88  
   
      One-Year 8.41     6.75     13.31     4.55  


Here at The Royce Funds, we talk
a lot about earnings, the profits a
company has after expenses, taxes
and other costs have been
deducted from revenues. As the
principal source of long-term
shareholder returns, earnings are a
critical element in gauging the
success of a business. To get a
sense of their significance, even a
value-oriented portfolio manager
such as our own Buzz Zaino likes
to joke, “We’re all growth
investors, because ultimately we’re
all looking for earnings growth.”
Of course, one may contrast Buzz’s
remark with the in-house example
of Charlie Dreifus, who is more
than happy to find companies with
steady, but not necessarily
growing (and certainly not fast-
growing) earnings, yet there is
no denying that earnings are
arguably the most critical sign of
a company’s well-being.



Continued on Page 4...
   
      Three-Year 22.83     25.38     31.22     22.13  
   
      Five-Year 12.50     15.96     16.82     8.22  
   
      10-Year 13.57     14.06     n/a     9.26  
   
      Since Inception 12.62     13.94     14.12        
   
      Inception Date 11/26/86       12/14/93        11/1/96**         
   
   
 * Not annualized.
** Date Royce & Associates, LLC assumed investment management responsibility for the Fund.

Royce Value Trust’s average annual NAV total return for the 15-year period ended 12/31/05 was 15.22%. 
   
   
       IMPORTANT PERFORMANCE AND RISK INFORMATION
     
   
All performance information in this Review reflects past performance, is presented on a total return basis and reflects the reinvestment of distributions. Past performance is no guarantee of future results. Performance information does not reflect the deduction of taxes that a stockholder would pay on distributions or on the sale of Fund shares. 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, 2005, 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, 2005 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.

        2 | THIS PAGE IS NOT PART OF THE
             2005 REPORT TO SHAREHOLDERS



 





LETTER TO OUR STOCKHOLDERS



It’s Not Unusual. . . But It’s Not Quite Normal, Either

There is an old curse, said to be of Chinese or Scottish origin, which states, “May you live in interesting times.” Anyone who has been an equity investor over the last 10 years has more than qualified for the curse of living through a decade of noteworthy days. It began uneventfully enough, with a move to large-cap stocks in the mid-’90s. Internet stock mania then took hold. This feverish activity was attended by an insistence that the stock market was in a new era, one appropriate for the imminent arrival of a new millennium, in which all of the old rules about valuation and how to measure the success of a business were being quickly and thoroughly recast. Value investors were among those whose relatively ordinary returns between 1996 and 1999 consigned them to the trash heap of the market’s new order, the investment equivalent of dinosaurs destined for extinction. Yet the ’90s ended, and the new era began, with a stubborn assertion of one of the oldest rules of equity investing known to human kind, namely that markets are cyclical. The Internet bubble burst in 2000, which led to arguably the most interesting six years of the last 10 for the U.S. stock market.
     Along with Y2K hysteria, the collapse of Internet stock prices heralded a series of events that helped keep equity returns underwater—or just barely above the surface—through the end of 2005. In fact, the period that spans 2000 through 2005 may be best thought of as a testament to the remarkable resilience of the stock market. Consider the following list of events that run the gamut from calamitous to criminal: The terrorist attacks of September 2001; accounting scandals and revelations of fraud that brought down more than a couple of corporate Goliaths; mutual fund trading scandals; war with Iraq; subsequent terrorist strikes in Israel, Indonesia, Madrid and London; record trade and budget deficits; natural disasters



Last year was the first time since we began to prognosticate low returns in 2003 that both small- and large-cap performance, regardless of style, ended the year in the low single digits.




THIS PAGE IS NOT PART OF THE 2005 REPORT TO STOCKHOLDERS | 3
 
 



 





However, our portfolio managers
occasionally buy shares of small-
and micro-cap companies that
have been enduring earnings
disappointments or have ceased to
post any earnings at all. An
investor may well ask why we would
make such purchases: If earnings
are so important, why would we
risk buying shares of a company
whose earnings are depressed or
nonexistent? How can a company
satisfy our exacting security
selection criteria if it’s missing such
a crucial element? The apparent
contradiction is resolved in part by
another in our endless series of
reminders that we always invest
with a long-term perspective.


Most of our security analyses begin
with the balance sheet. We carefully
scrutinize a company’s underlying
assets, which are the ultimate source
of earnings, while also looking
closely at its liabilities, the claims
parties other than the shareholders
have on assets. If the assets are in
healthy proportion to the liabilities,
that gives us confidence that future
earnings can be produced, even if
there are no current earnings.



Continued on Page 6...


   

LETTER TO OUR STOCKHOLDERS


in Asia, Louisiana, Mississippi and Texas; skyrocketing energy prices; and ongoing political controversies. Far from capitulating to each new, dispiriting development, the market managed to move forward. Returns across styles and asset classes were generally unspectacular (though in certain cases, such as small-cap value’s, they were strong on an absolute and relative basis), but in general they avoided outright disaster, even in the more difficult, negative-return years of 2000 and 2002.
     We continue to believe that the downturn earlier in 2005 marked the end of the market working through these various difficulties that took place during the last several years. Indeed, 2005 may ultimately be remarkable for its unremarkable nature, for its relatively low, but positive, returns. It will also go down as the year in which a six-year period of small-cap outperformance came to an end, though to what degree that will matter in the future remains to be seen. In a year in which little seemed to take investors by surprise, the most unexpected element may have been that one of our overall market predictions (finally) proved to be accurate. Since 2003, we have been unswerving in our conviction that the market had entered a low-return mode, but the success of our own and similar small-cap investment approaches made our predictive remarks inaccurate. Last year was the first time since we began to prognosticate low returns that both small- and large-cap performance, regardless of style, ended the year in the low single digits. We suspect that this means that the stock market has returned to more historically typical, if not normal, behavior after a decade of tumult. However, our reasons have nothing to do with the low returns themselves or the anomalous accuracy of our forecast.

Looming Large
When the subject is the perennially unpredictable stock market, we are fully aware of the danger of words such as “typical” or “normal,” terms that are difficult to define with precision in any context. Another danger is that “normal” markets often represent a transitional stage between bull and bear extremes. In addition, the farther out one looks from the 10-year period ended 12/31/05, long-term average annual returns for both small- and large-cap stocks reach into the low-to-mid teens, not the single-digit positive returns of 2005. Having issued these caveats, we think that the market has returned to more historically typical behavior, and the reason has to do with the narrowing of the gap between large- and small-cap results in the past year.
     For the first calendar year since 1998, large-cap stocks, as measured by the S&P 500, outperformed small-cap, as measured by the Russell 2000, but the advantage was slight. The S&P 500 was up 4.9% in 2005 versus 4.6% for the Russell 2000 (and 1.4% for the Tech-heavy Nasdaq Composite). The last time that small-cap enjoyed more than five consecutive years of outperformance was between 1975 and 1983. The recently concluded phase of small-cap

        4 | THIS PAGE IS NOT PART OF THE
             2005 REPORT TO STOCKHOLDERS



   






outperformance followed the period in which the Russell 2000 underperformed the S&P 500 in five out of six years. Perhaps unsurprisingly, small-caps (as measured by the CRSP 6-10) also underperformed the S&P 500 for four of the five years prior to the 1975-1983 reversal.
     Small-cap significantly outpaced large-cap from the 2005 market low on April 28, with the Russell 2000 up 18.1% versus 10.6% for the S&P 500. The Russell 2000 also led in months of positive returns (February, May, June, July, September and November). Equally compelling from our perspective was the stronger performance for large-caps during the negative or flat performance months of January, March, April, August, October and December, a development that we felt revealed nascent large-cap leadership. We have long believed that where investors turn when stock prices are falling is a very telling sign, so large-cap’s advantage during 2005’s downdrafts indicated to us that investors were more confident in larger stocks. We expect that large-cap will continue to lead in the short and possibly intermediate terms, though we see no reason for small-cap investors to fret. Over long-term time periods, we anticipate that small-cap will continue to perform well, though probably without the substantial outperformance spreads that we have seen over the last six years.



Over long-term time periods, we anticipate that small-cap will continue to perform well, though probably without the substantial outperformance spreads that we have seen over the last six years.



Long-Term Values
Another instance of narrowing spreads could be seen within small-cap in the one- and three-year average annual total returns ended 12/31/05 for the Russell 2000 Value and Growth indices. In each period the Russell 2000 Value index beat its growth counterpart, but the results were close. For the one-year period ended 12/31/05, both indices posted low returns: value was up 4.7% versus 4.2% for growth. For the three-year period, the Russell 2000 Value index gained 23.2% versus 20.9% for the Russell 2000 Growth index. However, the longer-term edge fell more dramatically in small-cap value’s favor. The upshot was that small-cap value owned a performance edge over small-cap growth for the one-, three-, five-, 10-, 15-, 20-and 25-year periods ended 12/31/05, an impressive run of outperformance that was bolstered by the Russell 2000 Value index outflanking the Russell 2000 Growth index in five of the last six calendar years (trailing slightly during 2003’s surging small-cap rally) (see table below). This long-term advantage came primarily from small-cap value’s formidable edge in the current decade to date (+131.9% versus -13.2%), which has seen both up and down markets.

  RUSSELL 2000 VALUE VERSUS RUSSELL 2000 GROWTH
 
Calendar-Year Returns: 2000-2005
      Russell   Russell       Russell   Russell
 
 
 
2000 Value
 
2000 Growth
 
 
 
2000 Value
 
2000 Growth
 
2000
 
22.8
%
 
-22.4
%
 
2003
 
46.0
%
 
48.5
%
 
2001
 
14.0
 
 
-9.2
 
 
2004
 
22.3
 
 
14.3
 
  2002   -11.4     -30.3     2005   4.7     4.2  


THIS PAGE IS NOT PART OF THE 2005 REPORT TO SHAREHOLDERS | 5
 
 



 





Our objective when looking at a
company’s earnings picture is to
understand “normalized earnings”
over long-term time periods.
Industries usually move in very
particular, though not always
consistently predictable, business
cycles. By focusing on normalized
earnings, we are trying to filter out
the effects of short-term earnings
surprises, whether they are
negative or positive. Our long-term
investment horizon and thorough
research process peer beyond
the ebb and flow of near-term
events in an attempt to discover
long-term opportunities.

In general, we seek businesses that
have a solid-to-strong earnings
history. A record of profitability is
critical when trying to assess both
the current financial health and the
long-term prospects for a business
that has fallen on hard times. In
fact, it may be one of the more
telling indications that a company’s
woes are likely to be temporary. We
are willing to endure the short-term
difficulties of what we believe is a
high-quality company struggling
with stalled profits, provided that



Continued on Page 8...


   

LETTER TO OUR STOCKHOLDERS


     Looking back at 2005’s second half and forward to 2006, one might expect growth to continue to lead during updrafts, or at least during up quarters. In fact, we would not be surprised to see small-cap growth assume a leadership role in the coming months, but we suspect that its advantage will be small and its reign relatively short. The Russell 2000 Growth index led the Russell 2000 Value index in the third and fourth quarters of 2005 as well as from the 2005 market low on April 28, so one could argue that small-cap growth’s leadership phase is already underway. In any event, we think that small-cap value is likely to retain its long-term performance edge over small-cap growth, though we do not expect the former to dominate the way that it did over the last six years. We also do not anticipate a return to the late ‘90s, when the Russell 2000 Growth index led in most short- and even some long-term periods. As with small- and large-cap stocks, we think that small-cap value and growth should be subject to frequent leadership rotation and low, but positive returns.

This Round to Royce
Energy stocks were the dominant market sector in 2005 across all asset classes and investment styles. The industry’s preeminent performance status helped each of our closed-end Funds to post strong absolute and relative returns in the calendar year. We began looking more closely at the industry in 2003, when forecasts of lower oil and gas commodity prices caused the stock prices of many energy companies to fall. While energy was clearly the most dynamic area, our closed-end portfolios also saw impressive gains in the Industrial and/or Financial sectors, as well as in Technology stocks, some of which enjoyed a resurgence in 2005’s second half. As we first noted in July of last year, 2005 was unlike 2003, a year in which micro-caps dominated, and 2004, a year that saw stronger small-cap results. Both small- and micro-cap oriented portfolios enjoyed success in 2005, and individual gains and losses were more the result of stock (and sector) selection as opposed to capitalization.
     On both a net asset value (NAV) and market price basis, all three closed-end Funds outperformed the Russell 2000 for the one-year period ended 12/31/05. The year’s second half saw each Fund make an impressive comeback after subpar first-half performances in 2005. The results were just as encouraging for the three-year and five-year periods ended 12/31/05, in which Royce Value Trust, Micro-Cap Trust and Focus Trust each outpaced the Russell 2000 with double-digit average annual NAV and market price total returns. When looking at the 10-year period ended 12/31/05, the same advantage held for Royce Value Trust and Micro-Cap Trust, our two closed-end Funds with more than 10 years of history. All three Funds outperformed the Russell 2000 from the small-cap market peak on 3/9/00 through 12/31/05. They also were ahead of the small-cap index from the small-cap market trough on 10/9/02 through 12/31/05, three impressive instances of mostly bull-market

        6 | THIS PAGE IS NOT PART OF THE
             2005 REPORT TO STOCKHOLDERS



   





outperformance. While we would love for each of our Funds to continue to outpace the small-cap benchmark in most short- and long-term performance periods, we realize that such a feat is impossible, and are happy to hold a greater advantage over long-term and market cycle performance periods, which we believe offer a sterner test of a portfolio’s merits.



While we would love for each of our Funds to continue to outpace the small-cap benchmark in most short- and long-term performance periods, we realize that such a feat is impossible, and are happy to hold a greater advantage over long-term and market cycle performance periods, which we believe offer a sterner test of a portfolio’s merits.



Lake Wobegone, Not Lake Placid

Although most equity indices enjoyed positive returns in 2005, few made new highs, two exceptions being the Russell 2000 Value index, which made its new high in August, and the Russell 2000 index, which reached a new peak in December. The past few years saw undeniable improvement in overall equity results, yet several major market indices remained substantially shy of the peaks that they established in March 2000: the Russell 2000 Growth index (-33.5%), S&P 500 (-10.4%) and Nasdaq Composite (-56.3%) all failed to surpass their March 2000 highs. Of course, these figures may indicate nothing more than the timeliness of the likely shift in overall market leadership from small- to large-cap, and an analogous change within small-cap from value to growth. It’s also worth pointing out that, despite the relatively paltry returns of 2005, the three-year average annual total returns for both the S&P 500 and Russell 2000 were rather impressive on both an absolute and a relative basis, especially compared to the five-year returns for the periods ended 12/31/05 (see table at left). It occurs to us that the last three years felt remarkably different from the beginning of the current decade, a time in which low or negative large-cap returns were a source



THIS PAGE IS NOT PART OF THE 2005 REPORT TO STOCKHOLDERS | 7
 
 



   

LETTER TO OUR STOCKHOLDERS


  our estimate of the company’s
long-term prospects is positive.
This is especially true with cyclical
businesses that regularly go through
the ups and downs of their
industry. The “downs” are often
synonymous with earnings trouble.
The company’s actions at such
times are critical: Is management
buying back stock? Does the firm
have sufficient cash reserves to
successfully deal with adversity?
If so, our confidence is bolstered.
If not, we generally look elsewhere.

In addition, few events make
investors more emotional than
earnings trouble. An earnings
disappointment can create a wave
of selling that drives a stock price
down to levels that meet our value
criteria. In many cases over the
years, we have waited patiently
for a particular company’s stock
price to fall so that we could begin
to build a position. Our years of
experience have brought home again
and again the lesson that even the
best businesses have occasional
trouble. When they do, we try to
use other investors’ reactions to
our advantage by purchasing shares
at prices that we find attractive.
   

of constant frustration for many investors. The picture becomes even more interesting on viewing the 10-year average annual total returns for the S&P 500 and Russell 2000. After the whirlwind of the last 10 years, we’re not sure if investors will find it surprising or predictable that these results for the 10-year period ended 12/31/05 were nearly identical: 9.3% for the Russell 2000 and 9.1% for the S&P 500.

We may look back on 2005 as the year in which everything changed. However, we want to emphasize again that the most significant changes may not be the shifts in leadership to large-cap in general and to small-cap growth within our investment universe (though they are certainly important). The critical move from our perspective has been the narrowing of the performance spread between asset classes and styles. We simply do not think it’s likely any time soon that any asset class or investment approach will dominate the way that small-cap value did between 2000 and 2005 or that large-cap did between 1995 and 1999. Low returns, however, do not equate to a lack of volatility. The Russell 2000’s positive return in 2005 was not achieved in a straight line, as volatility was quite apparent throughout most of last year. The Russell 2000 posted eight directional high-to-low and/or low-to-high moves of at least 5% in the last 12 months, resulting in two significant declines that were each followed by strong rallies.










     
     
     
     
     
     
     
     
     

        8 | THIS PAGE IS NOT PART OF THE
             2005 REPORT TO STOCKHOLDERS



   






Navigating the Narrows
With our expectation that leadership rotation between asset categories and styles should be the order of the day and that performance advantages should remain slim, we do not see particularly hard times ahead for small-cap and/or small-cap value. Regardless of what the future brings, it’s important to mention that our approach is not heavily invested in how the rest of the world defines value. In the past five years of terrific small-cap value performance, we continued to scrutinize those areas that were not enjoying the benefits of value’s good fortune, such as Health and Technology. This may seem counterintuitive, even contradictory, but the essence of value investing remains finding what we regard as high-quality companies whose stocks are trading at discounts to our estimate of their worth as businesses. This entails searching in areas that others are ignoring. Markets are always changing, but this aspect of our approach remains the same.
     We appreciate your continued support.


           
Sincerely,          
           
     
           
Charles M. Royce   W. Whitney George   Jack E. Fockler, Jr.  
President   Vice President   Vice President  
           
January 31, 2006          
           


The critical move from our perspective has been the narrowing of the performance spread between asset classes and styles. We simply do not think it’s likely that any asset class or investment approach will dominate the way that small-cap value did between 2000 and 2005 or that large-cap did between 1995 and 1999.




THIS PAGE IS NOT PART OF THE 2005 REPORT TO STOCKHOLDERS  |  9
 
 



ONLINE UPDATE

 
Visit the New RoyceFunds.com
 
Here are just a few of our new features:
 


10  |  THIS PAGE IS NOT PART OF THE 2005 REPORT TO STOCKHOLDERS
 
 



TABLE OF CONTENTS    

     
Annual Report to Stockholders    

Managers’ Discussion of Fund Performance    
     

Royce Value Trust

  12

Royce Micro-Cap Fund

  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 Fund

  35

Royce Focus Trust

  49

Directors and Officers   58

Other Important Information   59

Stockholder Meeting Results   60



THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS  |  11
 
 



ROYCE VALUE TRUST


AVERAGE ANNUAL NAV TOTAL RETURNS
Through 12/31/05

 
Manager’s Discussion
After struggling in the difficult first half, Royce Value Trust (RVT) came back strong in the second half of 2005, which gave a much-needed boost to its calendar-year results. RVT was up 8.4% on a net asset value (NAV) basis and 7.0% on a market price basis in 2005, versus gains of 4.6% for the Russell 2000 and 7.7% for the S&P 600. The Fund thus outperformed each of its small-cap benchmarks on an NAV basis during 2005 and trailed the S&P 600 by only a narrow margin on a market price basis. Although both small-cap indices were ahead of the Fund in the early stages of the dynamic rally that began with the interim small-cap market low on 4/28/05, RVT more than made up for its late start. The Fund gained 7.8% on an NAV basis and 7.5% on a market price basis in the third quarter, ahead of both the Russell 2000 (+4.7%) and the S&P 600 (+5.4%). In the fourth quarter, RVT’s NAV (+2.7%) and market price (+3.2%) returns were also ahead of the Russell 2000 (+1.1%) and the S&P 600 (+0.4%).
      Strong second-half NAV results helped RVT not only to achieve a performance edge over market cycle and other long-term periods, but to also provide terrific NAV returns on an absolute basis. From the small-cap market peak on 3/9/00 through 12/31/05, RVT gained 93.7% versus 19.7% for the Russell 2000 and 65.0% for the S&P 600. In the mostly upmarket phase running from the small-cap market trough on 10/9/02 through 12/31/05, RVT was up 120.5%, versus 114.2% for the Russell 2000 and 111.6% for the S&P 600. The Fund also beat its small-cap benchmarks on an NAV basis for the one-, three-, five-, 10-, 15-year and since inception (11/26/86) periods ended 12/31/05, while on a market price basis, the Fund outperformed for each of those periods with the exception of the one-year interval. RVT’s average annual NAV total return since inception was 12.6%.
      Of the Fund’s 11 equity sectors, nine showed net gains in 2005. The bulk of the losses were confined to the Consumer Products sector. That area held the Fund’s top loser, The Boyd’s Collection, a collectibles company whose shares we sold in October on news that the firm was filing for reorganization under Chapter 11, ending a mostly dismal five-year experience with the stock. Another significant loser on a dollar basis was Willbros Group, a private contractor that provides construction, engineering and specialty services primarily to the oil and gas industry. While the company’s business mostly grew in 2005, the results of an internal investigation (itself the result of a previous shake-up in upper management) led the company to restate earnings for 2002, 2003, 2004 and the first two fiscal quarters of 2005. We sold some shares during 2005, but we held a position at the end of the year because by November the company seemed to have put a good deal of its difficulties behind it.
      Elsewhere in the Natural Resources sector, the news was mostly very positive. As the sector that holds the portfolio’s energy stocks, the dominant industry in the market for the 18-month period ended 12/31/05, this was hardly a surprise. It was the Fund’s top net-gaining sector in 2005, followed by Industrial Services, Industrial Products and Technology. In contrast to Natural Resources, the latter sector’s net gains for the year were somewhat unexpected, the result of a strong fourth-quarter comeback. We have owned shares of contract oil and gas well

Fourth Quarter 2005*

  2.68 %

July - December 2005*

  10.66 %

One-Year

              8.41  

Three-Year

              22.83  

Five-Year

              12.50  

10-Year

              13.57  

15-Year

              15.22  

Since Inception (11/26/86)

  12.62  

*Not annualized.
                   

CALENDAR YEAR NAV TOTAL RETURNS


Year

  RVT     Year     RVT  

2005

  8.4 %   1996     15.5 %

2004

  21.4     1995     21.1  

2003

  40.8     1994     0.1  

2002

  -15.6     1993     17.3  

2001

  15.2     1992     19.3  

2000

  16.6     1991     38.4  

1999

  11.7     1990     -13.8  

1998

  3.3     1989     18.3  

1997

  27.5     1988     22.7  

                   

TOP 10 POSITIONS
% of Net Assets Applicable
to Common Stockholders


Alliance Capital
Management Holding L.P.

  1.9 %

Ritchie Bros. Auctioneers

  1.3  

SEACOR Holdings

  1.0  

Apollo Investment

  1.0  

Simpson Manufacturing

  0.9  

Ash Grove Cement Company Cl.B

  0.9  

Cimarex Energy

  0.9  

Sotheby's Holdings Cl. A

  0.9  

Newport Corporation

  0.8  

Forward Air

  0.8  
All performance information in this Report reflects past performance, is presented on a total return basis and reflects the reinvestment of distributions. Past performance is no guarantee of future results. Investment return and 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 Funds’ P/E ratio calculations exclude companies with zero or negative earnings.
                   

PORTFOLIO SECTOR BREAKDOWN
% of Net Assets Applicable
to Common Stockholders


Technology

  22.5 %

Industrial Products

  17.1  

Industrial Services

  13.3  

Financial Services

  9.8  

Natural Resources

  9.4  

Financial Intermediaries

  8.8  

Health

  8.0  

Consumer Services

  5.8  

Consumer Products

  5.0  

Utilities

  0.2  

Diversified Investment
Companies

  0.1  

Miscellaneous

  4.9  

Bonds & Preferred Stocks

  0.3  

Cash and Cash Equivalents

  16.1  

12  |  THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS



Performance and Portfolio Review


                         
                  PORTFOLIO DIAGNOSTICS
  GOOD IDEAS THAT WORKED  
driller Helmerich & Payne since 1998, though our experience with the firm goes all the way back to RVT’s inception. In 2005, the firm benefited from rising oil and gas prices, its own growing business and minimal damage in the aftermath of Katrina and Rita to its rigs located in the Gulf of Mexico. We reduced our position at rising share prices between February and October. Pharmaceutical company Elan Corporation ran into difficulties with a multiple sclerosis drug, Tysabri, that it produces with another firm, Biogen. Prospects for the drug’s eventual use began to improve during the fall, especially in the aftermath of an announcement in December that an FDA advisory panel would review the drug in March 2006. Its share price received a healthy shot based on
    Average Market Capitalization $1,049 million  
  2005 Net Realized and Unrealized Gain    
  Helmerich & Payne   $4,642,059         Weighted Average P/E Ratio 19.9x*  

   
  Alliance Capital             Weighted Average P/B Ratio 2.2x  
  Management Holding L.P.   4,376,806      

      Weighted Average Yield 0.9%  
  Energy Conversion Devices   3,305,802      

      Fund Net Assets $1,032 million  
  Plexus Corporation   3,267,758      

      Turnover Rate 31%  
  Elan Corporation   3,196,564      
        Net Leverage 5%  
this news. In Technology, Energy Conversion Devices saw its growing business and approach toward profitability interest investors. A newer position in the portfolio, we were drawn to its conservative balance sheet and interesting niche business of developing alternative energy products and technology. Plexus Corporation provides a variety of technological services, including product development, material procurement and distribution, for several industries.
 
    Symbol
  Market Price
  NAV
RVT
XRVTX
 
           
Its stock price rose in 2005 primarily because of improved earnings, but our overall experience with the company, which goes back to 2001, was still not profitable as of 12/31/05.
  *
Excludes 15% of portfolio holdings with zero or negative earnings as of 12/31/05.
  GOOD IDEAS AT THE TIME    

Net leverage is the percentage, in excess of 100%, of the total value of equity type investments, divided by net assets, applicable to Common Stockholders.
  2005 Net Realized and Unrealized Loss      
  Boyd’s Collection (The)   $2,259,734          

        CAPITAL STRUCTURE
  Willbros Group   2,248,754           Publicly Traded Securities Outstanding at

        12/31/05 at NAV or Liquidation Value
  PXRE Group   2,040,250           54.7 million shares    

        of Common Stock $1,032 million  
  PRG-Schultz International   1,975,935        

        5.90% Cumulative    
  MacDermid   1,967,852           Preferred Stock $220 million  
                         
                  RISK/RETURN COMPARISON
Three-Year Period Ended 12/31/05
      Average Annual Total Return
Standard
Deviation

Return
Efficiency*
    RVT (NAV) 22.8% 14.8 1.54
 
    S&P 600 22.4 14.0 1.60
 
    Russell 2000 22.1 15.3 1.44
  *
Return Efficiency is the average annual total return divided by the annualized standard deviation over a designated time period.
 
 
 
 
 
 
 
 
1 Reflects the cumulative total return of an investment made by a stockholder who purchased one share at inception ($10.00 IPO) and then reinvested all annual distributions as indicated, and fully participated in primary subscriptions of the Fund’s rights offerings.
2 Reflects the actual market price of one share as it has traded on the NYSE.
 
 
 
 
 
 
 
   
   
   

       
    THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS  |  13



ROYCE MICRO-CAP TRUST


AVERAGE ANNUAL NAV TOTAL RETURNS
Through 12/31/05

 
Manager’s Discussion
Royce Micro-Cap Trust (RMT) gained 6.8% on a net asset value (NAV) basis and 8.9% on a market price basis in 2005, in each case ahead of its small-cap benchmark, the Russell 2000, which was up 4.6% for the same period. When the stock market began to turn around following the interim small-cap market trough on 4/28/05, the Fund arrived a little late to the dance, but soon began to tear up the floor. RMT was up 8.6% on an NAV basis during the third quarter (+5.1% on a market price basis), outpacing the Russell 2000’s 4.7% return. NAV results cooled off in the fourth quarter. The Fund was down 0.3%, though its market price result was strong, up 8.8% versus 1.1% for the Russell 2000. The performance spread between RMT’s NAV and market price returns during the fourth quarter was the largest in eight years and third largest since the Fund’s inception in December 1993.
     While short-term outperformance is always welcome, we place much greater importance on long-term and market cycle NAV returns on an absolute and relative basis. Therefore, we were very pleased that the Fund beat the small-cap index from the small-cap market peak on 3/9/00 through 12/31/05, gaining 101.9% versus 19.7% for the Russell 2000. Arguably more impressive (though not any more significant) was RMT outperforming its small-cap benchmark from the small-cap market trough on 10/9/02 through 12/31/05 with a return of 133.7% versus a gain of 114.2% for the Russell 2000. In addition, the Fund was ahead of the small-cap index on both an NAV and market price basis for the one-, three-, five-, 10-year and since inception (12/14/93) periods ended 12/31/05. RMT’s average annual NAV total return since inception was 13.9%.
     Seven of the Fund’s 10 equity sectors posted net gains in 2005, with Natural Resources (home to RMT’s holdings in energy) and Industrial Products leading the way on a dollar basis. Energy stocks topped all other areas of the stock market for the year, so terrific performance for portfolio holdings in that industry was no surprise. We first built a position in domestic oil and gas company Gulfport Energy between March and August 2004, before its price began a significant climb. Rising oil and gas prices and increased production led to record earnings for the fiscal year 2004 and a surging share price in 2005. We sold off our remaining position in September after beginning to take gains at rising stock prices in May. Top-ten position Dril-Quip makes offshore drilling and production equipment. Its conservative balance sheet and solid earnings first attracted our interest in 1998. Rising oil and gas prices helped its earnings to improve, which in turn played a role in the company’s mostly soaring share price in 2005. We trimmed our position in January, August and September. The Fund’s top gainer in 2005 came from Industrial Products. Sun Hydraulics manufactures high-performance industrial valves and manifolds. Strong earnings seemed to attract investors. We were just as pleased by the firm’s decision to use profits to remove debt from an already strong balance sheet. We took some gains in February and July.
     The Fund’s largest sector, Technology, was a net loser in 2005. TransAct Technologies makes specialized parts and printers used to produce ATM receipts, lottery tickets and other items. A

Fourth Quarter 2005*

  -0.31 %

July - December 2005*

  8.26  

One-Year

              6.75  

Three-Year

              25.38  

Five-Year

              15.96  

10-Year

              14.06  

Since Inception (12/14/93)

  13.94  

*Not annualized.
                   

CALENDAR YEAR NAV TOTAL RETURNS


Year

  RMT     Year     RMT  

2005

  6.8 %   1999     12.7 %

2004

  18.7     1998     -4.1  

2003

  55.6     1997     27.1  

2002

  -13.8     1996     16.6  

2001

  23.4     1995     22.9  

2000

  10.9     1994     5.0  

                   

TOP 10 POSITIONS
% of Net Assets Applicable
to Common Stockholders


ASA Bermuda

  1.5 %

Transaction Systems
Architects Cl. A

  1.4  

HomeFed Corporation

  1.3  

Universal Truckload Services

  1.2  

Abigail Adams National Bancorp

  1.2  

Seneca Foods

  1.2  

TriZetto Group (The)

  1.1  

Covansys Corporation

  1.1  

Pason Systems

  1.0  

Dril-Quip

  1.0  
All performance information in this Report reflects past performance, is presented on a total return basis and reflects the reinvestment of distributions. Past performance is no guarantee of future results. Investment return and 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 Funds’ P/E ratio calculations exclude companies with zero or negative earnings.
                   

PORTFOLIO SECTOR BREAKDOWN
% of Net Assets Applicable
to Common Stockholders


Technology

  25.4 %

Industrial Products

  16.0  

Industrial Services

  13.7  

Health

  14.7  

Natural Resources

  9.5  

Financial Intermediaries

  7.0  

Consumer Products

  5.7  

Consumer Services

  5.5  

Financial Services

  3.0  

Diversified Investment
Companies

  2.1  

Miscellaneous

  4.8  

Preferred Stock

  0.5  

Cash and Cash Equivalents

  12.5  

14  |  THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS



Performance and Portfolio Review


                         
                  PORTFOLIO DIAGNOSTICS
  GOOD IDEAS THAT WORKED  
decline in domestic gambling early in 2005 hurt sales and sent its share price on a downward slope, which only grew steeper when the firm became embroiled in a patent dispute shortly afterward. We held a small position at the end of the year, mainly because the firm remains conservatively capitalized. We chose to hold a good-sized position in IT business consultant Sapient Corporation at the end of the year, in spite of difficult times for its stock price. Our view at year-end was that the firm possesses a strong balance sheet and an attractive core business. It also remained profitable in 2005, though its growth was slower than many investors seemed to expect. Two gainers in Technology were also top-ten holdings: The TriZetto
    Average Market Capitalization $275 million  
  2005 Net Realized and Unrealized Gain    
  Sun Hydraulics   $2,185,808         Weighted Average P/E Ratio 19.2x*  

   
  Gulfport Energy   1,595,152         Weighted Average P/B Ratio 1.9x  

   
  Dril-Quip   1,473,127         Weighted Average Yield 0.8%  

   
  TriZetto Group (The)   1,388,940         Fund Net Assets $294 million  

   
  PICO Holdings   1,360,942         Turnover Rate 46%  
             
        Net Leverage 8%  
TriZetto Group, which creates specialized software and Internet portals to help healthcare firms improve their business procedures, benefited from strong earnings. Transaction processing software manufacturer Transaction Systems Architects made an acquisition of a similar business, restructured its business units for greater in-house efficiency and enjoyed steadily improving earnings. Outside the Technology sector, Aceto Corporation, a specialty chemical maker
 
    Symbol
  Market Price
  NAV
RMT
XOTCX
 
           
and distributor, was plagued by declining growth rates, shrinking margins and plummeting pricing. We took some losses during 2005, but at December 31 still thought that a turnaround could eventually materialize.
  *
Excludes 17% of portfolio holdings with zero or negative earnings as of 12/31/05.
  GOOD IDEAS AT THE TIME    

Net leverage is the percentage, in excess of 100%, of the total value of equity type investments, divided by net assets, applicable to Common Stockholders.
  2005 Net Realized and Unrealized Loss      
  Aceto Corporation   $1,625,478        

      CAPITAL STRUCTURE
  Sapient Corporation   1,110,000         Publicly Traded Securities Outstanding at

        12/31/05 at NAV or Liquidation Value
  TransAct Technologies   1,057,956           21.9 million shares    

        of Common Stock $294 million  
  DiamondCluster International   1,011,354        

        6.00% Cumulative    
  PRG-Schultz International   808,741           Preferred Stock $60 million  

                         
                  RISK/RETURN COMPARISON
Three-Year Period Ended 12/31/05
      Average Annual Total Return
Standard Deviation

Return Efficiency*
    RMT (NAV) 25.4% 15.3 1.66
 
    Russell 2000 22.1 15.3 1.44
  *
Return Efficiency is the average annual total return divided by the annualized standard deviation over a designated time period.
 
 
 
 
 
 
 
 
1 Reflects the cumulative total return of an investment made by a stockholder who purchased one share at inception ($7.50 IPO) and then reinvested distributions as indicated, and fully participated in the primary subscription of the 1994 rights offering.
2 Reflects the actual market price of one share as it traded on the Nasdaq, and, beginning on 12/1/03, on the NYSE.
 
 
 
 
 
 
 
   
   
   

       
    THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS  |  15



ROYCE FOCUS TRUST


AVERAGE ANNUAL NAV TOTAL RETURNS
Through 12/31/05

 
Manager’s Discussion
Although each of our closed-end funds enjoyed impressive second-half rebounds during 2005, the award for “2005’s Comeback Fund of the Year” would have to go to Royce Focus Trust (FUND). The Fund was up 13.3% on a net asset value (NAV) basis and 3.0% on a market price basis during 2005. FUND’s small-cap benchmark, the Russell 2000, was up 4.6% for the same period, giving the Fund the performance edge on an NAV basis, but trailing the small-cap benchmark on a market price basis. Although one would never know it by looking at the Fund’s negative second-quarter returns, the market began to rally following the interim small-cap market trough on 4/28/05. Still, FUND was able to overcome its tardy participation in the burgeoning rally with terrific third- and fourth-quarter returns on both an NAV and market price basis. The Fund gained 14.1% on an NAV basis and 16.3% on a market price basis compared to a 4.7% gain for the Russell 2000 during the third quarter. Although returns for stocks as a whole were generally lower in the fourth quarter, FUND gained 6.0% on an NAV basis and 5.7% on a market price basis, while the Russell 2000 was up 1.1%.
     While the Fund’s NAV performance in 2005 was warmly welcomed, our attention is more focused on market cycle and other long-term time periods, where we seek strong returns on both an absolute and relative basis. From the small-cap market peak on 3/9/00 through 12/31/05, FUND trounced the Russell 2000, up 158.3% versus 19.7% for the benchmark. The Fund also handily outpaced the small-cap index from the small-cap market trough on 10/9/02 through 12/31/05, up 171.6% versus 114.2%. Our value approach admittedly makes outperformance from market peaks somewhat unsurprising, but it’s understandable if a performance edge during a generally more bullish period raises an eyebrow or two. For our part, we were very pleased with the results for both periods. The Fund also outperformed the Russell 2000 on an NAV basis for the one-, three-, five-year and since inception of our management (11/1/96) periods ended 12/31/05, and beat the benchmark on a market price basis for each of these intervals except the one-year period. FUND’s average annual NAV total return since inception was 14.1%.
     Short-term performance is not something that we typically give much attention, but we were struck by how thoroughly the Fund’s results turned around in 2005’s second half. In the year’s first six months, eight of nine equity sectors showed net losses; for the 12-month period ended 12/31/05, only two were in the red. Of the six sectors that went from net losses to net gains, Natural Resources led, thanks to the ongoing dominance of energy stocks in the market as a whole, a move fueled by rising oil and natural gas prices. Canadian energy services company Trican Well Service manufactures piping and drilling equipment and provides oil well completion, maintenance and repair services. The firm posted record revenues and job activity in 2005’s fiscal third quarter, boosted by strong business in Canada and overseas. Even after taking gains at various times between March and December, it was a top-ten holding at December 31. We made similar trims beginning in April to another top-ten position, Ensign Energy Services, which provides contract well drilling and other services for the oil and natural

Fourth Quarter 2005*

  5.98 %

July - December 2005*

  20.91  

One-Year

              13.31  

Three-Year

              31.22  

Five-Year

              16.82  

Since Inception (11/1/96)

  14.12  
* Not annualized.
† Royce & Associates assumed investment management    responsibility for the Fund on 11/1/96.
                   

CALENDAR YEAR NAV TOTAL RETURNS


Year

  RFT     Year     RFT  

2005

  13.3 %   2000     20.9 %

2004

  29.2     1999     8.7  

2003

  54.3     1998     -6.8  

2002

  -12.5     1997     20.5  

2001

  10.0              
                   

TOP 10 POSITIONS
% of Net Assets Applicable
to Common Stockholders


New Zealand
Government 6.50% Bond

  4.8 %

Athena Neurosciences
Finance 7.25% Bond

  4.1  

IPSCO

  3.8  

Canadian Government 3.00% Bond

  3.7  

Endo Pharmaceuticals Holdings

  3.2  

Simpson Manufacturing

  3.0  

Glamis Gold

  2.9  

Ensign Energy Services

  2.8  

Thor Industries

  2.8  

Trican Well Service

  2.7  
All performance information in this Report reflects past performance, is presented on a total return basis and reflects the reinvestment of distributions. Past performance is no guarantee of future results. Investment return and 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 Funds’ P/E ratio calculations exclude companies with zero or negative earnings.
                   

PORTFOLIO SECTOR BREAKDOWN
% of Net Assets Applicable
to Common Stockholders


Industrial Products

  21.8 %

Natural Resources

  19.8  

Technology

  11.9  

Health

  9.5  

Consumer Products

  6.3  

Industrial Services

  5.5  

Financial Services

  3.7  

Financial Intermediaries

  3.3  

Consumer Services

  3.3  

Bonds

  13.5  

Treasuries, Cash and
Cash Equivalents

  18.9  

16  |  THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS




Performance and Portfolio Review


                         
                  PORTFOLIO DIAGNOSTICS
  GOOD IDEAS THAT WORKED  
gas industry, primarily in western Canada and the Rocky Mountain U.S. Its expanding business in South America contributed to its record third-quarter revenues in fiscal 2005.
     The bull market for energy stocks helped two holdings in the Industrial Products sector. Canadian steel producing and fabricating company IPSCO makes pipes for oil and gas drilling companies, which helped its share price to climb in 2005. We were drawn to its pristine balance sheet and steady earnings at a time during the summer of 2004 when steel prices were recovering. It was the Fund’s largest equity holding at the end of 2005. Pason Systems creates specialized software and other drilling instrumentation products for the oil and gas
    Average Market Capitalization $1,600 million  
  2005 Net Realized and Unrealized Gain    
  Trican Well Service   $3,945,382         Weighted Average P/E Ratio 16.7x  

   
  IPSCO   2,759,583         Weighted Average P/B Ratio 2.9x  

   
  Elan Corporation   2,405,404         Weighted Average Yield 1.4%  

   
  Ensign Energy Services   2,346,857         Fund Net Assets $143 million  

   
  U.S. Global Investors Cl. A   2,025,460         Turnover Rate 42%  
             
        Net Leverage* 0%  
industry. Its energy-related business, two-for-one stock split, positive cash flow, growing earnings and record fiscal third-quarter revenues all played a role in its soaring stock price during 2005.
     Net losses on the sector level came from Consumer Services and Industrial Services. In terms of individual positions, Lexicon Genetics posted the most significant dollar-based loss. The firm specializes in proprietary gene
 
    Symbol
  Market Price
  NAV
FUND
XFUNX
 
           
knockout technology used in the treatment of diseases. Our high regard for the company’s business and its conservative capitalization led us to add to our stake in 2005, even as its growing revenues did little to attract other investors. With Hecla Mining Company, we chose to take our losses and move on. A rare loser among precious metals and mining companies in 2005, its business was hampered by exposure to a politically uncertain situation in Venezuela and rising mining costs.
  *
Net leverage is the percentage, in excess of 100%, of the total value of equity type investments, divided by net assets applicable to Common Stockholders.
  GOOD IDEAS AT THE TIME    
  2005 Net Realized and Unrealized Loss    
  Lexicon Genetics   $1,311,698                

      CAPITAL STRUCTURE
  Hecla Mining Company   1,183,369         Publicly Traded Securities Outstanding at

      12/31/05 at NAV or Liquidation Value
  Nu Skin Enterprises Cl. A   977,903         14.7 million shares    

      of Common Stock $143 million  
  Pier 1 Imports   899,300      

      6.00% Cumulative    
  Orchid Cellmark   585,052         Preferred Stock $25 million  

                         
                  RISK/RETURN COMPARISON
Three-Year Period Ended 12/31/05
      Average Annual Total Return
Standard Deviation

Return Efficiency*
    FUND (NAV) 31.2% 16.2 1.93
 
    Russell 2000 22.1 15.3 1.44
  *
Return Efficiency is the average annual total return divided by the annualized standard deviation over a designated time period.
 
 
 
 
 
 
 
 
1 Royce & Associates assumed investment management responsibility for the Fund on 11/1/96.
2 Reflects the cumulative total return experience of a continuous common stockholder who reinvested all distributions as indicated, and fully participated in the primary subscription of the 2005 rights offering.
3 Reflects the actual market price of one share as it has traded on the Nasdaq.
 
 
 
 
 
 
 
   
   
   

       
    THE ROYCE FUNDS 2005 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            

12/31/05       $ 21,922         7,409   $ 139,808   $ 148,773

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            

12/31/05       $ 8,900         3,125   $ 41,969   $ 45,500

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            

12/31/05       $ 7,044         2,173   $ 21,208   $ 20,709

*  
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  |  THE ROYCE FUNDS 2005 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, 2006.

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.


THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS  |  19



ROYCE VALUE TRUST



Schedule of Investments


      SHARES       VALUE         SHARES       VALUE  
                                     

COMMON STOCKS – 104.9%

                 

Restaurants and Lodgings - 0.9%

               
                   

Benihana Cl. Aa

    6,600     $ 152,064  

Consumer Products – 5.0%

                 

CEC Entertainmenta,c

    121,400       4,132,456  

Apparel and Shoes - 2.1%

                 

IHOP Corporation

    93,400       4,381,394  

Brown Shoe Company

    15,000     $ 636,450    

Jack in the Boxa

    2,000       69,860  

Columbia Sportswear Companya,c

    34,600       1,651,458    

Ryan’s Restaurant Groupa,c

    7,200       86,832  

Jones Apparel Group

    81,500       2,503,680    

Steak n Shake Company (The)a

    70,000       1,186,500  

K-Swiss Cl. A

    105,000       3,406,200                

Oakley

    94,900       1,394,081                   10,009,106  

Polo Ralph Lauren Cl. A

    68,200       3,828,748                

Tandy Brands Accessories

    16,900       202,800    

Retail Stores - 2.6%

               

Timberland Company Cl. Aa

    60,000       1,953,000    

BJ’s Wholesale Cluba,c

    30,100       889,756  

Tommy Hilfigera

    50,000       812,000    

Big Lotsa

    255,300       3,066,153  

Weyco Group

    307,992       5,882,647    

CarMax a,c

    103,000       2,851,040  
           
 

Children’s Place Retail Storesa

    13,000       642,460  
              22,271,064    

Claire’s Stores

    189,800       5,545,956  
           
 

Cost Plusa,c

    83,700       1,435,455  

Collectibles - 0.1%

                 

DSW Cl. Aa,c

    10,000       262,200  

Enesco Groupa

    174,800       321,632    

GameStop Corporation Cl. Aa,c

    52,300       1,664,186  
           
 

Gander Mountain Companya,c

    53,300       315,536  

Food/Beverage/Tobacco - 0.3%

                 

Hot Topica

    86,400       1,231,200  

Hain Celestial Groupa,c

    37,800       799,848    

Krispy Kreme Doughnutsa,c

    102,000       585,480  

Hershey Creamery Company

    709       1,418,000    

99 Cents Only Storesa,c

    95,000       993,700  

Lancaster Colony

    16,900       626,145    

Payless ShoeSourcea

    109,600       2,750,960  
           
 

Stein Mart

    142,800       2,591,820  
              2,843,993    

Urban Outfittersa

    47,000       1,189,570  
           
 

West Marinea,c

    31,100       434,778  

Home Furnishing and Appliances - 0.2%

                 

Wet Seal (The) Cl. Aa,c

    162,000       719,280  

Ethan Allen Interiors

    35,800       1,307,774                

La-Z-Boy

    68,200       924,792                   27,169,530  
           
             
              2,232,566    

Other Consumer Services - 1.9%

               
           
 

Coinstar a

    39,000       890,370  

Publishing - 0.3%

                 

Corinthian Collegesa,c

    130,800       1,540,824  

Scholastic Corporationa

    130,000       3,706,300    

ITT Educational Servicesa

    106,000       6,265,660  
           
 

MoneyGram International

    74,900       1,953,392  

Sports and Recreation - 0.4%

                 

Sotheby’s Holdings Cl. Aa

    485,200       8,908,272  

Coachmen Industries

    47,700       563,337                

Monaco Coach

    161,050       2,141,965                   19,558,518  

Nautilus

    2,000       37,320                

Thor Industries

    26,100       1,045,827     Total (Cost $44,149,071)             59,566,141  
           
             
              3,788,449    

Diversified Investment Companies – 0.1%

               
           
 

Closed-End Mutual Funds - 0.1%

               

Other Consumer Products - 1.6%

                 

Central Fund of Canada Cl. A

    191,500       1,304,115  

Blyth

    14,700       307,965                

Burnham Holdings Cl. B

    36,000       770,400     Total (Cost $1,039,679)             1,304,115  

Dorel Industries Cl. Ba,c

    22,000       523,600                

Fossil a,c

    82,800       1,781,028    

Financial Intermediaries – 8.8%

               

Lazare Kaplan Internationala

    103,600       815,332    

Banking - 3.0%

               

Leapfrog Enterprisesa,c

    175,000       2,038,750    

BOK Financial

    129,327       5,875,326  

Matthews International Cl. A

    166,000       6,044,060    

CFS Bancorp

    260,000       3,718,000  

RC2 Corporationa

    132,600       4,709,952    

Citizens Bancorp

    3,500       73,675  
           
 

Exchange National Bancshares

    50,400       1,486,800  
              16,991,087    

Farmers & Merchants Bank of Long Beach

    1,266       7,241,520  
           
 

Heritage Financial

    12,915       315,384  
Total (Cost $32,481,446)             52,155,091    

HopFed Bancorp

    25,000       396,250  
           
 

Jefferson Bancshares

    25,000       341,250  

Consumer Services – 5.8%

                 

Mechanics Bank

    200       3,700,000  

Direct Marketing - 0.1%

                 

Mercantile Bankshares

    20,000       1,128,800  

FTD Groupa

    50,000       519,500    

NBC Capital

    30,300       720,837  
           
 

NetBank

    70,000       502,600  

Leisure and Entertainment - 0.2%

                 

Old Point Financial

    20,000       590,000  

Gemstar-TV Guide Internationala

    201,100       524,871    

Partners Trust Financial Group

    100,000       1,205,000  

Hasbro

    50,000       1,009,000    

Sun Bancorpa

    42,000       829,500  

Shuffle Mastera,c

    15,000       377,100    

Tompkins Trustco

    15,950       714,560  

Steiner Leisurea

    2,100       74,676                      
           
                   
              1,985,647                      
           
                   

Media and Broadcasting - 0.1%

                                   

Cox Radio Cl. Aa

    23,000       323,840                      
           
                   

20  |  THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.



DECEMBER 31, 2005



 


      SHARES       VALUE           SHARES       VALUE  
                                     

Financial Intermediaries (continued)

                 

Apollo Investment

    567,109     $ 10,168,264  

Banking (continued)

                 

BKF Capital Group

    7,500       142,125  

Whitney Holding

    40,500     $ 1,116,180    

Eaton Vance

    140,400       3,841,344  

Wilber Corporation

    31,700       343,945    

Federated Investors Cl. B

    121,900       4,515,176  

Wilmington Trust

    31,000       1,206,210    

GAMCO Investors Cl. A

    168,600       7,339,158  

Yadkin Valley Bank & Trust Company

    3,800       55,860    

MCG Capital

    138,000       2,013,420  
           
 

MVC Capital

    353,900       3,772,574  
              31,561,697    

National Financial Partners

    22,000       1,156,100  
           
 

Nuveen Investments Cl. A

    138,600       5,907,132  

Insurance - 4.7%

                             

Alleghany Corporationa

    10,880       3,089,920                   58,801,912  

Argonaut Groupa,c

    99,600       3,263,892                

Aspen Insurance Holdings

    68,000       1,609,560    

Other Financial Services - 0.8%

               

Commerce Group

    44,500       2,548,960    

CharterMac

    59,600       1,262,328  

Erie Indemnity Company Cl. A

    139,900       7,442,680    

Credit Acceptancea,c

    60,000       966,000  

IPC Holdings

    27,000       739,260    

International Securities Exchange Cl. Aa,c

    75,000       2,064,000  

Leucadia National

    43,221       2,051,269    

MarketAxess Holdingsa

    67,000       765,810  

Markel Corporationa,c

    4,200       1,331,610    

Municipal Mortgage & Equity

    40,300       1,040,949  

Montpelier Re Holdingsa

    66,000       1,247,400    

Nasdaq Stock Marketa,c

    25,000       879,500  

NYMAGIC

    85,200       2,112,108    

PRG-Schultz Internationala

    247,000       150,670  

Navigators Groupa

    83,200       3,628,352    

Van der Moolen Holding ADR

    21,000       149,940  

Ohio Casualty

    107,000       3,030,240    

World Acceptancea

    21,700       618,450  

Phoenix Companies (The)

    81,900       1,117,116                

ProAssurance Corporationa

    38,070       1,851,725                   7,897,647  

PXRE Group

    166,551       2,158,501                

RLI

    99,724       4,973,236     Total (Cost $71,306,125)             101,182,165  

21st Century Insurance Group

    62,000       1,003,160                

U.S.I. Holdingsa

    40,000       550,800    

Health – 8.0%

               

Wesco Financial

    7,740       2,979,900    

Commercial Services - 0.9%

               

Zenith National Insurance

    38,550       1,777,926    

First Consulting Groupa

    560,900       3,292,483  
           
 

PAREXEL Internationala

    313,700       6,355,562  
              48,507,615                
           
                9,648,045  

Real Estate Investment Trusts - 0.1%

                             

Gladstone Commercial

    30,000       494,700    

Drugs and Biotech - 2.7%

               
           
 

Affymetrix a,c

    49,100       2,344,525  

Securities Brokers - 0.9%

                 

Andrx Corporationa,c

    34,900       574,803  

E*TRADE Financiala

    152,400       3,179,064    

Antigenics a,c

    99,300       472,668  

First Albany

    350,100       2,433,195    

Cephalon a,c

    4,900       317,226  

Investment Technology Groupa

    30,400       1,077,376    

Cerus Corporationa

    21,700       220,255  

Knight Capital Group Cl. Aa,c

    229,700       2,271,733    

Connetics Corporationa,c

    14,300       206,635  
           
 

DUSA Pharmaceuticalsa,c

    79,700       858,369  
              8,961,368    

Elan Corporation ADRa,c

    292,100       4,068,953  
           
 

Endo Pharmaceuticals Holdingsa,c

    256,200       7,752,612  

Other Financial Intermediaries - 0.1%

                 

Gene Logica

    365,000       1,222,750  

Archipelago Holdingsa,c

    17,400       865,998    

Hi-Tech Pharmacala

    1,100       48,719  
           
 

Hollis-Eden Pharmaceuticalsa,c

    44,000       212,960  
Total (Cost $55,982,131)             90,391,378    

Human Genome Sciencesa,c

    90,000       770,400  
           
 

K-V Pharmaceutical Company Cl. Aa

    47,000       968,200  

Financial Services – 9.8%

                 

Medicines Company (The)a,c

    20,000       349,000  

Information and Processing - 2.2%

                 

Millennium Pharmaceuticalsa,c

    100,000       970,000  

Advent Softwarea

    116,800       3,376,688    

Myriad Geneticsa,c

    50,000       1,040,000  

eFunds Corporationa,c

    126,875       2,973,950    

Perrigo Company

    186,750       2,784,442  

FactSet Research Systems

    35,350       1,455,006    

QLTa,c

    1,000       6,360  

Global Payments

    137,000       6,385,570    

SFBC Internationala,c

    10,000       160,100  

Interactive Data

    134,300       3,049,953    

Shire ADR

    20,853       808,888  

SEI Investments Company

    141,200       5,224,400    

Telika,c

    73,000       1,240,270  
           
 

VIVUSa

    163,300       483,368  
              22,465,567                
           
                27,881,503  

Insurance Brokers - 1.1%

                             

Crawford & Company Cl. A

    289,200       1,677,360    

Health Services - 1.2%

               

Crawford & Company Cl. B

    162,300       934,848    

Albany Molecular Researcha

    85,000       1,032,750  

Gallagher (Arthur J.) & Company

    111,200       3,433,856    

Covance a,c

    52,700       2,558,585  

Hilb Rogal & Hobbs Company

    155,050       5,970,975    

Cross Country Healthcarea

    30,000       533,400  
           
 

Eclipsys Corporationa,c

    20,000       378,600  
              12,017,039    

Gentiva Health Servicesa

    30,150       444,411  
           
                   

Investment Management - 5.7%

                                   

Alliance Capital Management Holding L.P.

    353,100       19,946,619                      

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.   THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS   |  21




ROYCE VALUE TRUST

                               
                               

      Schedule of Investments

                               
  SHARES     VALUE       SHARES      VALUE  
                          

Health (continued)

           

C & D Technologies

345,700   $ 2,634,234  
Health Services (continued)            

Donaldson Company

92,800     2,951,040  

HMS Holdingsa

50,000   $ 382,500    

GrafTech Internationala,c

155,000     964,100  

Lincare Holdingsa,c

34,600     1,450,086    

Intermagnetics Generala,c

4,350     138,765  

MedQuista

73,893     897,800    

PerkinElmer

135,000     3,180,600  

National Home Health Care

20,000     195,200    

Powell Industriesa,c

92,400     1,659,504  

On Assignmenta

425,400     4,641,114    

Woodhead Industries

45,400     629,698  

Quovadxa

3,000     7,230          
 
     
            16,454,881  
        12,521,676          
 
     
    Machinery - 5.5%          
Medical Products and Devices - 2.9%            

Baldor Electric

62,900     1,613,385  

Allied Healthcare Productsa

197,700     1,134,798    

Coherenta,c

238,500     7,078,680  

Arrow International

195,728     5,674,155    

Federal Signal

58,600     879,586  

ArthroCare Corporationa,c

10,000     421,400    

Franklin Electric

84,200     3,329,268  

Bruker BioSciencesa

380,200     1,847,772    

Graco

96,825     3,532,176  

CONMED Corporationa

81,500     1,928,290    

Hardinge

309,300     5,335,425  

Datascope

12,000     396,600    

IDEX Corporation

36,000     1,479,960  

Diagnostic Products

25,000     1,213,750    

Lincoln Electric Holdings

203,680     8,077,949  

IDEXX Laboratoriesa,c

79,000     5,686,420    

National Instruments

56,400     1,807,620  

Invacare Corporation

88,000     2,771,120    

Nordson Corporation

172,200     6,975,822  

Novoste Corporationa

16,625     37,074    

PAXAR Corporationa,c

273,100     5,360,953  

STERIS Corporation

98,600     2,466,972    

Rofin-Sinar Technologiesa

128,000     5,564,160  

Thoratec Corporationa

2,000     41,380    

T-3 Energy Servicesa

128,110     1,243,436  

Varian Medical Systemsa

61,600     3,100,944    

UNOVAa,c

3,000     101,400  

Young Innovations

62,550     2,131,704    

Woodward Governor Company

51,600     4,438,116  

Zoll Medicala

20,200     508,838          
 
     
            56,817,936  
        29,361,217          
 
     
    Metal Fabrication and Distribution - 2.1%          
Personal Care - 0.3%            

Commercial Metals Company

36,000     1,351,440  

Helen of Troya,c

86,600     1,395,126    

CompX International Cl. A

292,300     4,682,646  

Inter Parfums

500     8,980    

IPSCO

14,500     1,203,210  

Nutraceutical Internationala

22,800     308,940    

Kaydon Corporation

208,700     6,707,618  

USANA Health Sciencesa,c

39,000     1,496,040    

NN

127,100     1,347,260  
     
   

Novamerican Steela

10,800     425,099  
        3,209,086    

Oregon Steel Millsa,c

158,100     4,651,302  
     
   

Schnitzer Steel Industries Cl. A

34,000     1,040,060  

Total (Cost $55,353,224)

      82,621,527          
 
     
            21,408,635  

Industrial Products – 17.1%

                 
 
Automotive - 0.8%             Paper and Packaging - 0.1%          

CLARCOR

83,500     2,480,785    

Peak Internationala

408,400     1,082,260  

LKQ Corporationa

128,000     4,431,360          
 

Quantam Fuel Systems Technologies

            Pumps, Valves and Bearings - 0.2%          

Worldwidea,c

15,500     41,540    

Conbraco Industriesa

7,630     2,151,660  

Superior Industries International

52,000     1,157,520          
 
     
    Specialty Chemicals and Materials - 1.8%          
        8,111,205    

Aceto Corporation

1,050     6,909  
     
   

Bairnco Corporation

43,000     374,960  
Building Systems and Components - 1.3%            

Balchem Corporation

7,500     223,575  

Decker Manufacturing

6,022     216,792    

CFC Internationala

99,000     1,390,059  

Preformed Line Products Company

91,600     3,919,564    

Cabot Corporation

56,500     2,022,700  

Simpson Manufacturing

250,800     9,116,580    

Hawkins

206,878     2,894,223  
     
   

Lydalla

35,500     289,325  
        13,252,936    

MacDermid

259,831     7,249,285  
     
   

Schulman (A.)

183,100     3,940,312  
Construction Materials - 1.6%            

Sensient Technologies

22,000     393,800  

Ash Grove Cement Company Cl. B

50,518     9,093,240          
 

ElkCorp

48,000     1,615,680             18,785,148  

Florida Rock Industries

25,475     1,249,803          
 

Heywood Williams Groupa

958,837     1,670,301     Textiles - 0.1%          

Synalloy Corporationa,b

345,000     3,610,080    

Unifia

165,100     501,904  
     
         
 
        17,239,104     Other Industrial Products - 2.0%          
     
   

Brady Corporation Cl. A

228,800     8,277,984  
Industrial Components - 1.6%            

Diebold

85,000     3,230,000  

AMETEK

86,000     3,658,440    

Kimball International Cl. B

437,380     4,649,349  

Barnes Group

2,000     66,000                

Bel Fuse Cl. A

22,900     572,500                


22  |  THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.




DECEMBER 31, 2005

                               
                               

 

                               
  SHARES     VALUE       SHARES      VALUE  

Industrial Products (continued)

            Printing - 0.1%          
Other Industrial Products (continued)            

Bowne & Co.

68,100   $ 1,010,604  

Maxwell Technologiesa

21,500   $ 304,655          
 

Myers Industries

30,499     444,675     Transportation and Logistics - 3.8%          

Peerless Manufacturinga,b

158,600     2,775,500    

Alexander & Baldwin

60,000     3,254,400  

Steelcase Cl. A

50,000     791,500    

Atlas Air Worldwide Holdingsa

29,000     1,290,500  
     
   

C. H. Robinson Worldwide

80,000     2,962,400  
        20,473,663    

Continental Airlines Cl. Ba,c

100,000     2,130,000  
     
   

EGLa,c

123,125     4,625,806  

Total (Cost $105,116,347)

      176,279,332    

Forward Air

234,750     8,603,587  
     
   

Frozen Food Express Industriesa,c

286,635     3,161,584  

Industrial Services – 13.3%

           

Hub Group Cl. Aa

87,200     3,082,520  
Advertising and Publishing - 0.7%            

Landstar System

11,200     467,488  

Interpublic Group of Companiesa

510,000     4,921,500    

Patriot Transportation Holdinga

96,300     6,247,944  

Lamar Advertising Company Cl. Aa

24,000     1,107,360    

UTI Worldwide

35,000     3,249,400  

ValueClicka,c

45,000     814,950          
 
     
            39,075,629  
        6,843,810          
 
     
    Other Industrial Services - 0.5%          
Commercial Services - 4.7%            

Landauer

117,900     5,434,011  

ABM Industries

134,800     2,635,340          
 

Aaron Rents

4,500     94,860    

Total (Cost $78,612,248)

      137,016,560  

Allied Waste Industriesa

188,800     1,650,112          
 

BB Holdings

194,900     1,319,473    

Natural Resources – 9.4%

         

Central Parking

18,300     251,076     Energy Services - 3.1%          

Convergys Corporationa

121,000     1,917,850    

Atwood Oceanicsa,c

14,700     1,147,041  

Coparta,c

158,100     3,645,786    

Carbo Ceramics

148,400     8,387,568  

First Advantage Cl. Aa,c

5,000     133,550    

Core Laboratoriesa,c

10,000     373,600  

Hewitt Associates Cl. Aa,c

104,000     2,913,040    

ENSCO International

6,443     285,747  

Iron Mountaina,c

181,175     7,649,209    

Global Industriesa

54,500     618,575  

Laureate Educationa,c

75,000     3,938,250    

Hanover Compressor Companya,c

160,000     2,257,600  

Learning Tree Internationala,c

53,400     685,122    

Helmerich & Payne

62,300     3,856,993  

MPS Groupa

564,600     7,718,082    

Input/Outputa

669,100     4,703,773  

Manpower

105,800     4,919,700    

Key Energy Servicesa

10,000     134,700  

Monster Worldwidea

64,000     2,612,480    

TETRA Technologiesa,c

43,000     1,312,360  

New Horizons Worldwidea

228,600     157,734    

Tidewater

14,000     622,440  

RemedyTemp Cl. Aa

160,700     1,486,475    

Universal Compression Holdingsa,c

105,000     4,317,600  

Renaissance Learning

15,000     283,650    

Veritas DGCa

5,000     177,450  

Reynolds & Reynolds Company Cl. A

27,000     757,890    

W-H Energy Servicesa

33,800     1,118,104  

Rollins

130,500     2,572,155    

Willbros Groupa,c

207,600     2,997,744  

Spherion Corporationa

53,000     530,530          
 

TRC Companiesa

3,600     39,420             32,311,295  

Viad Corporation

9,025     264,703          
 

Wright Expressa,c

30,000     660,000     Oil and Gas - 3.2%          
     
   

Bill Barretta,c

50,000     1,930,500  
        48,836,487    

Cimarex Energya

208,990     8,988,660  
     
   

Houston Exploration Company (The)a,c

50,000     2,640,000  
Engineering and Construction - 1.4%            

Penn Virginia

23,300     1,337,420  

Dycom Industriesa,c

66,000     1,452,000    

Pioneer Drilling Companya,c

65,800     1,179,794  

Fleetwood Enterprisesa

234,300     2,893,605    

Plains Exploration & Production Companya,c

76,500     3,039,345  

Foster Wheelera

21,000     772,380    

Pogo Producing Company

1,700     84,677  

Insituform Technologies Cl. Aa,c

174,300     3,376,191    

Remington Oil & Gasa

78,500     2,865,250  

Jacobs Engineering Groupa

10,000     678,700    

SEACOR Holdingsa,c

153,500     10,453,350  

Washington Group Internationalc

100,000     5,297,000    

Stone Energya

18,500     842,305  
     
         
 
        14,469,876             33,361,301  
     
         
 
Food and Tobacco Processors - 0.4%             Precious Metals and Mining - 2.2%          

MGP Ingredients

216,400     2,553,520    

Agnico-Eagle Mines

66,500     1,314,040  

Seneca Foods Cl. Aa

59,400     1,143,450    

Apex Silver Minesa

38,500     612,150  

Seneca Foods Cl. Ba

10,900     198,925    

Bema Golda

300,000     873,000  
     
   

Etruscan Resourcesa

675,900     930,311  
        3,895,895    

Gammon Lake Resourcesa

206,300     2,454,970  
     
   

Glamis Golda

237,000     6,512,760  
Industrial Distribution - 1.7%            

Golden Star Resourcesa

135,000     356,400  

Central Steel & Wire

5,634     3,222,648    

Hecla Mining Companya

598,000     2,427,880  

Ritchie Bros. Auctioneers

310,400     13,114,400    

IAMGOLD Corporation

220,000     1,720,400  

Strategic Distributiona

115,000     1,113,200                
     
               
        17,450,248                
     
               
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS  |  23




ROYCE VALUE TRUST

                               
                               

      Schedule of Investments

                               
  SHARES     VALUE       SHARES      VALUE  
                          

Natural Resources (continued)

           

Vishay Intertechnologya,c

186,000   $ 2,559,360  
Precious Metals and Mining (continued)            

Western Digitala,c

5,000     93,050  

Ivanhoe Minesa,c

140,000   $ 1,006,600    

Zebra Technologies Cl. Aa

76,525     3,279,096  

Meridian Golda,c

128,500     2,810,295          
 

Miramar Mininga

245,000     612,500             71,794,622  

Pan American Silvera,c

46,000     866,180          
 

Stillwater Mining Companya,c

10,780     124,725     Distribution - 1.9%          
     
   

Agilysys

165,125     3,008,578  
        22,622,211    

Anixter International

78,900     3,086,568  
     
   

Benchmark Electronicsa

138,800     4,667,844  
Real Estate - 0.7%            

Brightpointa,c

33,500     928,955  

Alico

27,000     1,220,130    

Solectron Coporationa

1,140,000     4,172,400  

CB Richard Ellis Group Cl. Aa

70,000     4,119,500    

Tech Dataa,c

86,500     3,432,320  

Consolidated-Tomoka Land

13,564     961,688          
 

Trammell Crow Companya,c

46,500     1,192,725             19,296,665  
     
         
 
        7,494,043     Internet Software and Services - 1.1%          
     
   

Arbinet-thexchangea,c

87,200     611,272  
Other Natural Resources - 0.2%            

CNET Networksa,c

155,400     2,282,826  

PICO Holdingsa

55,200     1,780,752    

CryptoLogic

137,000     2,683,830  
     
   

CyberSource Corporationa,c

10,000     66,000  

Total (Cost $57,309,057)

      97,569,602    

eResearch Technologya,c

72,000     1,087,200  
     
   

Internet Security Systemsa

40,000     838,000  

Technology – 22.5%

           

Lionbridge Technologiesa

37,500     263,250  
Aerospace and Defense - 0.8%            

RSA Securitya,c

14,000     157,220  

Allied Defense Group (The)a

45,700     1,040,589    

RealNetworksa,c

245,400     1,904,304  

Armor Holdingsa,c

33,000     1,407,450    

S1 Corporationa,c

20,000     87,000  

Astronics Corporationa

52,400     555,440    

Satyam Computer Services ADR

20,000     731,800  

Ducommuna

117,200     2,503,392    

SupportSofta

170,000     717,400  

Herley Industriesa

2,000     33,020          
 

Hexcel Corporationa,c

72,800     1,314,040             11,430,102  

Integral Systems

49,800     939,228          
 
     
    IT Services - 4.0%          
        7,793,159    

answerthinka

655,000     2,783,750  
     
   

BearingPointa,c

649,000     5,101,140  
Components and Systems - 7.0%            

Black Box

47,000     2,226,860  

Adapteca,c

167,000     971,940    

CACI International Cl. Aa

10,000     573,800  

American Power Conversion

151,200     3,326,400    

CGI Group Cl. Aa

136,700     1,101,802  

Analogic Corporation

40,900     1,957,065    

CIBERa,c

10,000     66,000  

Belden CDT

57,800     1,412,054    

Cogent Communications Groupa,c

55,000     301,950  

Checkpoint Systemsa

52,000     1,281,800    

Computer Task Groupa

101,100     399,345  

Dionex Corporationa

81,000     3,975,480    

Covansys Corporationa

238,900     3,251,429  

Electronics for Imaginga,c

25,000     665,250    

DiamondCluster Internationala

80,400     638,376  

Energy Conversion Devicesa,c

146,300     5,961,725    

Forrester Researcha

40,300     755,625  

Excel Technologya,c

168,500     4,006,930    

Gartner Cl. Aa

126,000     1,625,400  

Hutchinson Technologya,c

42,800     1,217,660    

Keanea

443,000     4,877,430  

Imation Corporation

15,700     723,299    

MAXIMUS

127,900     4,692,651  

InFocus Corporationa

245,800     985,658    

Perot Systems Cl. Aa

165,100     2,334,514  

KEMET Corporationa

95,600     675,892    

Sapient Corporationa,c

731,602     4,162,815  

Kronosa

38,775     1,623,121    

Syntel

152,679     3,180,304  

Methode Electronics

50,000     498,500    

TriZetto Group (The)a,c

215,200     3,656,248  

Metrologic Instrumentsa,c

15,000     288,900          
 

Newport Corporationa,c

642,200     8,695,388             41,729,439  

On Track Innovationsa,c

40,000     547,200          
 

Perceptrona

397,400     2,813,592     Semiconductors and Equipment - 2.3%          

Plexus Corporationa,c

325,700     7,406,418    

BE Semiconductor Industriesa,c

58,000     269,700  

Power-Onea

10,000     60,200    

Brooks Automationa

53,000     664,090  

REMECa

143,387     182,101    

Cabot Microelectronicsa

131,200     3,848,096  

Radiant Systemsa

32,500     395,200    

CEVAa

31,666     198,229  

Richardson Electronics

201,000     1,457,250    

Cognex Corporation

55,300     1,663,977  

SafeNeta,c

36,240     1,167,653    

Conexant Systemsa,c

11,980     27,075  

Symbol Technologies

99,389     1,274,167    

Credence Systemsa,c

53,600     373,056  

TTM Technologiesa

221,400     2,081,160    

Cymera,c

14,500     514,895  

Technitrol

322,400     5,513,040    

DSP Groupa

115,000     2,881,900  

Tektronix

159,680     4,504,573    

DTSa

64,100     948,680  

UQM Technologiesa,c

50,000     193,500    

Exar Corporationa

181,976     2,278,340  


24  |  THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.




DECEMBER 31, 2005

                               
                               

 

                               
  SHARES     VALUE       SHARES      VALUE  

Technology (continued)

           

Utilities – 0.2%

         
Semiconductors and Equipment (continued)            

CH Energy Group

44,500   $ 2,042,550  

Fairchild Semiconductor

           

Southern Uniona

11,576     273,541  

International Cl. Aa,c

51,200   $ 865,792          
 

International Rectifiera,c

20,000     638,000    

Total (Cost $2,127,413)

      2,316,091  

Intevaca,c

57,450     758,340          
 

Kulicke & Soffa Industriesa,c

105,800     935,272    

Miscellaneous (e) – 4.9%

         

MEMC Electronic Materialsa,c

36,000     798,120    

Total (Cost $47,892,514)

      50,516,897  

Novellus Systemsa,c

53,800     1,297,656          
 

OmniVision Technologiesa

38,800     774,448    

TOTAL COMMON STOCKS

         

Sanmina-SCI Corporationa

100,000     426,000    

(Cost $722,347,336)

      1,082,864,290  

Semitoola

50,000     544,000          
 

Silicon Storage Technologya

88,900     448,945    

PREFERRED STOCKS – 0.2%

         

Staktek Holdingsa

184,700     1,374,168    

Aristotle Corporation 11.00% Conv.

4,800     37,440  

Veeco Instrumentsa

65,000     1,126,450    

Seneca Foods Conv.a

100     1,900  
     
   

Seneca Foods Conv.a,d

85,000     1,472,625  
        23,655,229          
 
     
   

TOTAL PREFERRED STOCKS

         
Software - 2.8%            

(Cost $1,311,958)

      1,511,965  

Adobe Systems

71,207     2,631,811          
 

ANSYSa,c

20,000     853,800      

PRINCIPAL

       

Aspen Technologya

27,100     212,735      

AMOUNT

       

Business Objects ADRa

20,500     828,405    

CORPORATE BONDS – 0.1%

         

Dendrite Internationala,c

35,000     504,350    

Athena Neurosciences Finance 7.25%

         

iPassa,c

268,400     1,760,704    

Senior Note due 2/21/08

$1,000,000     976,250  

JDA Software Groupa

99,900     1,699,299    

Dixie Group 7.00%

         

MRO Softwarea,c

46,000     645,840    

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

445,000     427,200  

ManTech International Cl. Aa,c

119,400     3,326,484          
 

Manugistics Groupa,c

49,200     86,100    

TOTAL CORPORATE BONDS

         

Novella

20,000     176,600    

(Cost $1,213,707)

      1,403,450  

PLATO Learninga

149,642     1,188,157          
 

Progress Softwarea

30,500     865,590    

REPURCHASE AGREEMENTS – 16.2%

         

SPSSa

179,600     5,555,028     State Street Bank & Trust Company,          

Sybasea,c

82,600     1,805,636    

4.10% dated 12/30/05, due 1/3/06,

         

Transaction Systems Architects Cl. Aa

203,150     5,848,689    

maturity value $82,000,339 (collateralized

         

Verint Systemsa,c

40,000     1,378,800    

by obligations of various U.S. Government

         
     
   

Agencies, valued at $84,015,178)

         
        29,368,028    

(Cost $81,963,000)

      81,963,000  
     
         
 
Telecommunications - 2.6%             Lehman Brothers (Tri-Party),          

ADTRAN

65,000     1,933,100    

4.05% dated 12/30/05, due 1/3/06,

         

Broadwing Corporationa

1,000     6,050    

maturity value $85,038,250 (collateralized

         

Catapult Communicationsa,c

75,100     1,110,729    

by obligations of various U.S. Government

         

China Techfaith Wireless Communication

           

Agencies, valued at $86,742,959)

         

Technology ADRa,c

100,000     1,349,990    

(Cost $85,000,000)

      85,000,000  

Covad Communications Groupa,c

35,000     34,300          
 

Foundry Networksa,c

373,400     5,156,654    

TOTAL REPURCHASE AGREEMENTS

         

Globecomm Systemsa,c

233,700     1,441,929    

(Cost $166,963,000)

      166,963,000  

IDT Corporationa

25,000     289,000          
 

IDT Corporation Cl. Ba,c

65,000     760,500    

COLLATERAL RECEIVED FOR SECURITIES LOANED – 7.1%

       

Level 3 Communicationsa,c

200,000     574,000     U.S. Treasury Bonds          

PECO IIa,c

93,600     167,544    

5.25%-8.125% due 8/15/19-5/15/30

      286,945  

Polycoma,c

95,000     1,453,500     Money Market Funds          

Scientific-Atlanta

117,300     5,052,111    

State Street Navigator Securities Lending

         

Time Warner Telecom Cl. Aa,c

179,000     1,763,150    

Prime Portfolio

      73,215,181  

Tollgrade Communicationsa

20,000     218,600          
 

USA Mobilityc

84,500     2,342,340    

TOTAL COLLATERAL RECEIVED FOR

         

West Corporationa

75,000     3,161,250    

SECURITIES LOANED

         

Yak Communicationsa,c

20,000     63,400    

(Cost $73,502,126)

      73,502,126  
     
         
 
        26,878,147                
     
               

Total (Cost $170,978,081)

      231,945,391                
     
               
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS  |  25





ROYCE VALUE TRUST


DECEMBER 31, 2005

                               
                               

    Schedule of Investments

                               
    VALUE  
TOTAL INVESTMENTS – 128.5%      

(Cost $965,338,127)

$ 1,326,244,831  
       
LIABILITIES LESS CASH      

AND OTHER ASSETS – (7.2)%

  (74,124,745 )
       
PREFERRED STOCK – (21.3)%   (220,000,000 )
 
 
NET ASSETS APPLICABLE TO      

COMMON STOCKHOLDERS – 100.0%

$ 1,032,120,086  
 
 

a   Non-income producing.
b   At December 31, 2005, 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.
c   A portion of these securities were on loan at December 31, 2005. Total market value of loaned securities at December 31, 2005 was $71,476,901.
d   A security for which market quotations are no longer readily available represents 0.1% of net assets. This security has been valued at its fair value under procedures established by the Fund’s Board of Directors.
e   Includes securities first acquired in 2005 and less than 1% of net assets applicable to Common Stockholders.
  New additions in 2005.
    Bold indicates the Fund’s largest 20 equity holdings in terms of December 31, 2005 market value.

INCOME TAX INFORMATION: The cost of total investments for Federal income tax purposes was $967,562,248. At December 31, 2005, net unrealized appreciation for all securities was $358,682,583, consisting of aggregate gross unrealized appreciation of $390,700,568 and aggregate gross unrealized depreciation of $32,017,985. The primary differences in book and tax basis cost is the timing of the recognition of losses on securities sold and unrealized gains on investments in Passive Foreign Investment Companies.


26  |  THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.




ROYCE VALUE TRUST


DECEMBER 31, 2005

                               
                               

    Statement of Assets and Liabilities

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

Non-Affiliates (Cost $795,757,459)

  $ 1,152,896,251  

Affiliated Companies (Cost $2,617,668)

    6,385,580  

Total investments at value     1,159,281,831  
Repurchase agreements (at cost and value)     166,963,000  
Cash     1,137,297  
Receivable for investments sold     4,883,179  
Receivable for dividends and interest     782,662  
Prepaid expenses     29,550  

Total Assets

    1,333,077,519  

LIABILITIES:        
Payable for collateral on loaned securities     73,502,126  
Payable for investments purchased     5,583,642  
Payable for investment advisory fee     1,204,581  
Preferred dividends accrued but not yet declared     288,452  
Accrued expenses     378,632  

Total Liabilities

    80,957,433  

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   $ 1,032,120,086  

ANALYSIS OF NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:        
Common Stock paid-in capital – $0.001 par value per share; 54,710,798 shares outstanding (150,000,000 shares authorized)   $ 664,322,777  
Undistributed net investment income (loss)     321,412  
Accumulated net realized gain (loss) on investments     6,857,642  
Net unrealized appreciation (depreciation) on investments     360,906,704  
Preferred dividends accrued but not yet declared     (288,449 )

Net Assets applicable to Common Stockholders (net asset value per share – $18.87)

  $ 1,032,120,086  

*Investments at identified cost (including $73,502,126 of collateral on loaned securities)   $ 798,375,127  

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS  |  27




ROYCE VALUE TRUST   YEAR ENDED DECEMBER 31, 2005



Statement of Operations


INVESTMENT INCOME:        
Income:        

Dividends

       

Non-Affiliates

  $ 11,526,693  

Interest

    2,999,575  

Securities lending

    297,885  

Total income     14,824,153  

Expenses:        

Investment advisory fees

    13,360,367  

Stockholder reports

    478,219  

Custody and transfer agent fees

    275,453  

Directors’ fees

    114,805  

Administrative and office facilities expenses

    99,404  

Professional fees

    54,394  

Other expenses

    120,099  

Total expenses     14,502,741  

Net investment income (loss)     321,412  

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:        
Net realized gain (loss) on investments        

Non-Affiliates

    104,573,195  

Affiliated Companies

    (5,394,384 )
Net change in unrealized appreciation (depreciation) on investments     (4,983,024 )

Net realized and unrealized gain (loss) on investments     94,195,787  

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

    94,517,199  

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS     (12,980,000 )

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

  $ 81,537,199  


28   |   THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.



ROYCE VALUE TRUST    



Statement of Changes in Net Assets



      Year ended       Year ended  
      12/31/05       12/31/04  

INVESTMENT OPERATIONS:                
Net investment income (loss)   $ 321,412     $ (4,450,007 )
Net realized gain (loss) on investments     99,178,811       108,080,947  
Net change in unrealized appreciation (depreciation) on investments     (4,983,024 )     87,658,900  

Net increase (decrease) in net assets resulting from investment operations     94,517,199       191,289,840  

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:                
Net realized gain on investments     (12,980,000 )     (12,980,000 )

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

    81,537,199       178,309,840  

DISTRIBUTIONS TO COMMON STOCKHOLDERS:                
Net realized gain on investments     (85,780,292 )     (78,920,089 )

Total distributions to Common Stockholders     (85,780,292 )     (78,920,089 )

CAPITAL STOCK TRANSACTIONS:                
Reinvestment of distributions to Common Stockholders     43,058,750       43,141,563  

Total capital stock transactions     43,058,750       43,141,563  

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS     38,815,657       142,531,314  

NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:                

Beginning of year

    993,304,429       850,773,115  

End of year (including undistributed net investment income of $321,412 at 12/31/05)

  $ 1,032,120,086     $ 993,304,429  


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.   THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS   |   29



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,
   
      2005       2004       2003       2002       2001  

NET ASSET VALUE, BEGINNING OF PERIOD     $18.95       $17.03       $13.22       $17.31       $16.56  

INVESTMENT OPERATIONS:                                        

Net investment income (loss)

    0.01       (0.08 )     (0.05 )     (0.02 )     0.05  

Net realized and unrealized gain (loss) on investments

    1.75       3.81       5.64       (2.25 )     2.58  

Total investment operations

    1.76       3.73       5.59       (2.27 )     2.63  

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:                                        

Net investment income

                      (0.01 )     (0.01 )

Net realized gain on investments

    (0.24 )     (0.26 )     (0.26 )     (0.28 )     (0.30 )

Total distributions to Preferred Stockholders

    (0.24 )     (0.26 )     (0.26 )     (0.29 )     (0.31 )

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

    1.52       3.47       5.33       (2.56 )     2.32  

DISTRIBUTIONS TO COMMON STOCKHOLDERS:                                        

Net investment income

                      (0.07 )     (0.05 )

Net realized gain on investments

    (1.61 )     (1.55 )     (1.30 )     (1.44 )     (1.44 )

Total distributions to Common Stockholders

    (1.61 )     (1.55 )     (1.30 )     (1.51 )     (1.49 )

CAPITAL STOCK TRANSACTIONS:                                        

Effect of reinvestment of distributions by Common Stockholders

    0.01       0.00       (0.00 )     (0.02 )     (0.08 )

Effect of rights offering and Preferred Stock offering

                (0.22 )            

Total capital stock transactions

    0.01       0.00       (0.22 )     (0.02 )     (0.08 )

NET ASSET VALUE, END OF PERIOD     $18.87       $18.95       $17.03       $13.22       $17.31  

MARKET VALUE, END OF PERIOD     $20.08       $20.44       $17.21       $13.25       $15.72  

TOTAL RETURN (a):                                        
Market Value     6.95 %     29.60 %     41.96 %     (6.87 )%     20.03 %
Net Asset Value     8.41 %     21.42 %     40.80 %     (15.61 )%     15.23 %

RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:

                                       
Total expenses (b,c)     1.49 %     1.51 %     1.49 %     1.72 %     1.61 %

Management fee expense

    1.37 %     1.39 %     1.34 %     1.56 %     1.45 %

Other operating expenses

    0.12 %     0.12 %     0.15 %     0.16 %     0.16 %
Net investment income (loss)     0.03 %     (0.50 )%     (0.36 )%     (0.09 )%     0.35 %
SUPPLEMENTAL DATA:                                        
Net Assets Applicable to Common Stockholders,                                        

End of Period (in thousands)

    $1,032,120       $993,304       $850,773       $560,776       $689,141  
Liquidation Value of Preferred Stock,                                        

End of Period (in thousands)

    $220,000       $220,000       $220,000       $160,000       $160,000  
Portfolio Turnover Rate     31 %     30 %     23 %     35 %     30 %
PREFERRED STOCK:                                        
Total shares outstanding     8,800,000       8,800,000       8,800,000       6,400,000       6,400,000  
Asset coverage per share     $142.29       $137.88       $121.68       $112.62       $132.68  
Liquidation preference per share     $25.00       $25.00       $25.00       $25.00       $25.00  
Average market value per share (d):                                        

5.90% Cumulative

    $24.75       $24.50       $25.04              

7.80% Cumulative

                $25.87       $26.37       $25.70  

7.30% Tax-Advantaged Cumulative

                $25.53       $25.82       $25.37  

(a)   The Market Value Total Return is calculated assuming a purchase of Common Stock on the opening of the first business day and a sale on the closing of the last business day of each period reported. Dividends and distributions, if any, are assumed for the purposes of this calculation to be reinvested at prices obtained under the Fund’s Distribution Reinvestment and Cash Purchase Plan. Net Asset Value Total Return is calculated on the same basis, except that the Fund’s net asset value is used on the purchase and sale dates instead of market value.
(b)   Expense ratios based on total average net assets including liquidation value of Preferred Stock were 1.22%, 1.21%, 1.19%, 1.38% and 1.30% for the periods ended December 31, 2005, 2004, 2003, 2002 and 2001, respectively.
(c)   Expense ratios based on average net assets applicable to Common Stockholders before waiver of fees by the investment adviser would have been 1.62%, 1.82% and 1.65% for the periods ended December 31, 2003, 2002 and 2001, respectively.
(d)   The average of month-end market values during the period that the Preferred Stock was outstanding.

30   |   THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS  



ROYCE VALUE TRUST   DECEMBER 31, 2005



Notes to Financial Statements


Summary of Significant Accounting Policies:
      Royce Value Trust, Inc. (“the Fund”) was incorporated under the laws of the State of Maryland on July 1, 1986 as a diversified closed-end investment company. The Fund commenced operations on November 26, 1986.
      The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

Valuation of Investments:
      Securities are valued as of the close of trading on the New York Stock Exchange (generally 4:00 p.m. Eastern time) on the valuation date. Securities that trade on an exchange or Nasdaq are valued at their last reported sales price 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 bid price. Securities for which market quotations are not readily available are valued at their fair value under procedures established by the Fund’s Board of Directors. Bonds and other fixed income securities may be valued by reference to other securities with comparable ratings, interest rates and maturities, using established independent pricing services.

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

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

Taxes:
      As a qualified regulated investment company under Subchapter M of the Internal Revenue Code, the Fund is not subject to income taxes to the extent that it distributes substantially all of its taxable income for its
 

fiscal year. The Schedule of Investments includes information regarding income taxes under the caption “Income Tax Information”.

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

Repurchase Agreements:
      The Fund 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 the underlying securities.

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

Capital Stock:
      The Fund issued 2,294,908 and 2,459,541 shares of Common Stock as reinvestment of distributions by Common Stockholders for the years ended December 31, 2005 and 2004, respectively.

THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS  |  31



ROYCE VALUE TRUST    



Notes to Financial Statements (continued)


      At December 31, 2005, 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.

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.
      For the 12 rolling 60-month periods ending in 2005, the investment performance of the Fund exceeded the investment performance of the S&P 600 by 7% to 23%. Accordingly, the investment advisory fee consisted of a Basic Fee of $9,219,099 and an upward adjustment of $4,141,268 for performance of the Fund above that of the S&P 600. For the year ended December 31, 2005, the Fund accrued and paid Royce advisory fees totaling $13,360,367.
      The Fund paid Legg Mason Wood Walker, Incorporated, (“Legg Mason”), an affiliate of Royce, $4,408 in brokerage commissions for security transactions during the year ended December 31, 2005.

32  |  THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS



    DECEMBER 31, 2005



 


Distributions to Stockholders:
    The tax character of distributions paid to stockholders during 2005 and 2004 was as follows:


Distributions paid from:

  2005     2004  

Ordinary income

$ 11,811,731   $  

Long-term capital gain

  86,948,561     91,900,089  
 
  $ 98,760,292   $ 91,900,089  

    As of December 31, 2005, the tax basis components of distributable earnings included in stockholders’ equity were as follows:


Undistributed net investment income

  $ 1,599,418  

Undistributed long-term capital gain

    7,803,757  

Unrealized appreciation

    358,682,583  

Accrued preferred distributions

    (288,449 )
 
    $ 367,797,309  

    The difference between book basis and tax basis unrealized appreciation is attributable primarily to the tax deferral on wash sales and the unrealized gains on investments in 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. For the year ended December 31, 2005, the Fund recorded the following permanent reclassifications, which relate primarily to the current net operating losses. Results of operations and net assets were not affected by these reclassifications.


  Undistributed   Accumulated    
  Net Investment   Net Realized   Paid-in
  Income   Gain (Loss)   Capital
 
 
 
  $     $ (178,960 )   $ 178,960  


Purchases and Sales of Investment Securities:
    For the year ended December 31, 2005, the cost of purchases and proceeds from sales of investment securities, other than short-term securities and collateral received for securities loaned, amounted to $350,628,407 and $495,640,973, respectively.

Transactions in Shares of Affiliated Companies:
    An “Affiliated Company”, as defined in the Investment Company Act of 1940, is a company in which a Fund owns 5% or more of the company’s outstanding voting securities. The Fund effected the following transactions in shares of such companies during the year ended December 31, 2005:

  Shares   Market Value   Cost of   Cost of   Realized     Dividend   Shares   Market Value
    Affiliated Company 12/31/04   12/31/04   Purchases   Sales   Gain (Loss)     Income   12/31/05   12/31/05

Falcon Products*   941,600     $ 197,736           $ 5,418,871     $ (5,394,384 )                      
Peerless Manufacturing   158,600       2,299,700                                 158,600     $ 2,775,500
Synalloy Corporation   345,000       3,415,500                                   345,000       3,610,080

          $ 5,912,936                     $ (5,394,384 )                   $ 6,385,580

* Not an Affiliated Company at December 31, 2005.

THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS  |  33



ROYCE VALUE TRUST    



Report of Independent Registered Public Accounting Firm


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

     We have audited the accompanying statement of assets and liabilities of Royce Value Trust, Inc. (“Fund”), including the schedule of investments, as of December 31, 2005, and the related statement of operations for the year then ended, and the statement of changes in net assets for the two years in the period then ended and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
     We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (U.S.). 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. We were not engaged to perform an audit of the Fund’s 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 and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian and brokers or by other appropriate audit 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 audit provides a reasonable basis for our opinion.
     In our opinion, the financial statements and financial highlights referred to above and audited by us present fairly, in all material respects, the financial position of Royce Value Trust, Inc. at December 31, 2005, 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, PA
January 20, 2006

34  |  THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS



ROYCE MICRO-CAP TRUST   DECEMBER 31, 2005



Schedule of Investments


    SHARES     VALUE       SHARES     VALUE
COMMON STOCKS – 107.4%             Restaurants and Lodgings - 0.1%          
             

Benihana Cl. Aa

  800   $ 18,432
Consumer Products – 5.7%            

California Pizza Kitchena,b

  2,100     67,137
Apparel and Shoes - 2.4%                    

Cherokee

  42,300   $ 1,454,697             85,569

Delta Apparel

  146,400     2,276,520          

Hartmarx Corporationa,b

  50,000     390,500   Retail Stores - 4.3%          

Kleinert’sa,d

  14,200     0  

A.C. Moore Arts & Craftsa,b

  7,600     110,580

Steven Madden

  14,500     423,835  

America’s Car-Marta,b

  113,000     1,866,760

Marisa Christinaa,b

  76,600     46,726  

Buckle (The)

  35,500     1,144,520

Skechers U.S.A. Cl. Aa

  10,000     153,200  

Cachea

  3,200     55,424

Stride Rite

  10,000     135,600  

Casual Male Retail Groupa

  2,000     12,260

Weyco Group

  120,000     2,292,000  

Cato Corporation Cl. A

  71,850     1,541,182
       
 

Charlotte Russe Holdinga,b

  1,700     35,411
          7,173,078  

Cost Plusa,b

  31,477     539,831
       
 

Deb Shops

  19,900     591,627
Collectibles - 0.4%            

La Senza Corporation

  99,900     1,632,844

Topps Company (The)

  148,500     1,103,355  

Shoe Carnivala

  11,000     241,120
       
 

Stein Mart

  148,900     2,702,535
Food/Beverage/Tobacco - 0.4%            

United Retail Groupa

  60,600     796,890

Green Mountain Coffee Roastersa,b

  26,600     1,079,960  

West Marinea,b

  74,000     1,034,520

Nutrition 21a

  40,000     25,680  

Wild Oats Marketsa,b

  32,000     386,560
       
         
          1,105,640             12,692,064
       
           
Home Furnishing and Appliances - 0.4%             Other Consumer Services - 0.4%          

Lifetime Brands

  52,554     1,086,291  

Ambassadors Group

  15,000     343,350

Stanley Furniture Company

  5,000     115,900  

Ambassadors International

  6,100     94,550
       
 

Autobytela,b

  20,000     98,800
          1,202,191  

Escala Groupa,b

  26,000     527,280
       
         
Publishing - 0.1%                       1,063,980

Educational Development

  10,600     85,860          
       
  Total (Cost $9,486,837)         16,107,698
Sports and Recreation - 0.6%                    

Monaco Coach

  73,900     982,870   Diversified Investment Companies – 2.1%          

National R.V. Holdingsa

  31,800     200,022   Closed-End Mutual Funds - 2.1%          

Orange 21a,b

  7,400     28,120  

ASA Bermuda

  81,500     4,483,315

Sturm, Ruger & Company

  95,000     665,950  

Central Fund of Canada Cl. A

  237,000     1,613,970
       
         
          1,876,962   Total (Cost $4,055,600)         6,097,285
       
         
Other Consumer Products - 1.4%             Financial Intermediaries – 7.0%          

Burnham Holdings Cl. A

  79,500     1,701,300   Banking - 3.0%          

Cobra Electronicsa

  10,000     133,700  

Abigail Adams National Bancorpc

  244,400     3,421,624

Cross (A. T.) Company Cl. Aa

  100,000     405,000  

Arrow Financial

  14,322     374,520

JAKKS Pacifica

  30,000     628,200  

Bancorp (The)a,b

  51,380     873,460

Lazare Kaplan Internationala

  151,700     1,193,879  

Eurobancsharesa,b

  32,000     453,440

Sonic Solutionsa,b

  6,000     90,660  

First National Lincoln

  40,200     706,837
       
 

FirstBank NW

  4,930     156,873
          4,152,739  

Lakeland Financial

  22,500     908,550
       
 

Meta Financial Group

  44,800     907,200
Total (Cost $11,686,794)         16,699,825  

Queen City Investmentsa

  948     801,060
       
 

Sterling Bancorp

  22,869     451,205
Consumer Services – 5.5%                    
Direct Marketing - 0.1%                       9,054,769

Sportsman’s Guide (The)a

  6,000     143,100          

ValueVision Media Cl. Aa,b

  5,000     63,000   Insurance - 3.1%          
       
 

American Safety Insurance Holdingsa

  20,000     334,600
          206,100  

Argonaut Groupa

  30,900     1,012,593
       
 

First Acceptancea

  258,405     2,658,987
Leisure and Entertainment - 0.1%            

Independence Holding

  33,534     655,590

IMAX Corporationa,b

  25,000     176,500  

NYMAGIC

  65,400     1,621,266

Mikohn Gaminga,b

  9,500     93,765  

Navigators Groupa

  37,200     1,622,292

Multimedia Gamesa,b

  5,000     46,250  

Quanta Capital Holdingsa

  100,000     510,000

Singing Machine Company (The)a,b

  5,000     1,850  

Wellington Underwriting

  444,712     742,174

TiVoa,b

  20,000     102,400          
       
            9,157,502
          420,765          
       
             
Media and Broadcasting - 0.5%                        

Nelson (Thomas)

  28,300     697,595              

Outdoor Channel Holdingsa,b

  69,750     941,625              
       
             
          1,639,220              
       
             

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.   THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS   |   35



ROYCE MICRO-CAP TRUST    



Schedule of Investments


    SHARES     VALUE       SHARES     VALUE
                         
Financial Intermediaries (continued)            

Monogram Biosciencesa,b

  55,000   $ 102,850
Real Estate Investment Trusts - 0.3%            

Myriad Geneticsa,b

  26,500     551,200

Bimini Mortgage Management Cl. A

  99,000   $ 895,950  

Nabi Biopharmaceuticalsa,b

  5,000     16,900
       
 

Nastech Pharmaceutical Companya,b

  3,700     54,464
Securities Brokers - 0.5%            

Neurogen Corporationa,b

  30,000     197,700

First Albany

  45,000     312,750  

Nuveloa

  52,000     421,720

Sanders Morris Harris Group

  21,000     344,190  

Oncolytics Biotecha,b

  41,000     191,060

Stifel Financiala,b

  21,233     798,148  

Orchid Cellmarka,b

  78,000     592,800
         
 

Pharmacopeia Drug Discoverya,b

  25,000     89,000
          1,455,088  

Pharmacyclicsa

  138,000     489,900
       
 

SFBC Internationala,b

  25,000     400,250
Other Financial Intermediaries - 0.1%            

Sangamo BioSciencesa

  10,000     40,300

Electronic Clearing Housea

  20,000     199,400  

Senesco Technologiesa,b

  25,000     35,500
       
 

Tercicaa,b

  61,900     443,823
Total (Cost $14,925,618)         20,762,709  

Theragenics Corporationa

  145,800     440,316
       
 

Trimerisa,b

  30,000     344,700
Financial Services – 3.0%                    
Investment Management - 2.4%                       14,212,815

ADDENDA Capital

  48,000     1,298,636          

Epoch Holdinga

  218,300     1,287,970   Health Services - 2.0%          

International Assets Holdinga

  169,000     1,537,900  

ATC Healthcare Cl. Aa

  35,000     11,550

MVC Capital

  211,200     2,251,392  

Albany Molecular Researcha,b

  40,000     486,000

NGP Capital Resources Company

  50,000     656,500  

Bio-Imaging Technologiesa,b

  42,400     135,680
       
 

Covalent Groupa

  25,000     54,500
          7,032,398  

Gentiva Health Servicesa

  23,000     339,020
       
 

HMS Holdingsa

  71,900     550,035
Other Financial Services - 0.6%            

Horizon Healtha

  50,000     1,131,500

Clark

  20,900     276,925  

MedCath Corporationa,b

  18,000     333,900

MarketAxess Holdingsa

  123,700     1,413,891  

Mediware Information Systemsa

  70,000     842,800

MicroFinancial

  10,000     39,400  

National Home Health Care

  18,078     176,441
       
 

On Assignmenta

  80,100     873,891
          1,730,216  

Quovadxa

  5,000     12,050
       
 

RehabCare Groupa

  22,000     444,400
Total (Cost $7,377,970)         8,762,614  

Sun Healthcare Groupa

  51,000     337,110
       
 

U.S. Physical Therapya

  10,000     184,700
Health – 14.7%                    
Commercial Services -1.4%                       5,913,577

Discovery Partners Internationala

  35,000     92,750          

First Consulting Groupa

  274,700     1,612,489   Medical Products and Devices - 5.8%          

ICON ADRa

  800     32,912  

Adeza Biomedicala,b

  20,000     421,000

PAREXEL Internationala,b

  121,400     2,459,564  

Allied Healthcare Productsa

  253,500     1,455,090
       
 

AngioDynamicsa,b

  14,000     357,420
          4,197,715  

Anika Therapeuticsa

  24,000     280,560
       
 

Bruker BioSciencesa,b

  187,200     909,792
Drugs and Biotech - 4.9%            

Caliper Life Sciencesa

  52,100     306,348

Allos Therapeuticsa,b

  233,600     502,240  

Cardiac Sciencea

  29,947     271,020

Alnylam Pharmaceuticalsa,b

  3,800     50,768  

CONMED Corporationa,b

  3,900     92,274

Anormeda

  280,600     1,164,490  

Del Global Technologiesa

  168,279     546,907

Antigenicsa,b

  70,000     333,200  

EPIX Pharmaceuticalsa,b

  49,000     197,960

Axonyxa

  50,000     41,500  

Endologixa

  7,500     51,750

Barrier Therapeuticsa,b

  14,300     117,260  

Exactecha,b

  113,200     1,295,008

CancerVax Corporationa,b

  43,000     59,340  

Kensey Nasha,b

  28,000     616,840

Caraco Pharmaceutical Laboratoriesa

  125,450     1,126,541  

Medical Action Industriesa

  83,500     1,706,740

Cardiome Pharmaa

  56,000     565,600  

Merit Medical Systemsa,b

  5,700     69,198

Cell Genesysa,b

  58,000     343,940  

Molecular Devicesa,b

  25,500     737,715

Cerus Corporationa

  84,600     858,690  

NMT Medicala

  19,500     312,000

CollaGenex Pharmaceuticalsa,b

  25,000     301,750  

Neurometrixa,b

  21,500     586,520

Dendreon Corporationa,b

  10,000     54,200  

Orthofix Internationala

  28,000     1,116,920

Durect Corporationa

  44,100     223,587  

OrthoLogic Corporationa

  85,000     416,500

DUSA Pharmaceuticalsa

  26,400     284,328  

PLC Systemsa

  105,200     52,600

Emisphere Technologiesa

  163,200     708,288  

Possis Medicala,b

  29,900     297,505

Gene Logica

  241,579     809,290  

Schick Technologiesa

  25,000     823,975

Genitope Corporationa,b

  3,000     23,850              

Geron Corporationa,b

  6,000     51,660              

ImmunoGena,b

  44,000     225,720              

Mannkind Corporationa,b

  42,000     472,920              

Maxygena,b

  5,000     37,550              

Momenta Pharmaceuticalsa,b

  65,500     1,443,620              

36   |   THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.



    DECEMBER 31, 2005



 


    SHARES     VALUE       SHARES     VALUE
                         
Health (continued)            

Lindsay Manufacturing

  10,000   $ 192,300
Medical Products and Devices (continued)            

MTS Systems

  10,000     346,400

Synovis Life Technologiesa,b

  23,000   $ 230,690  

Mueller (Paul) Company

  9,650     272,613

Urologixa,b

  127,000     490,220  

Pason Systems

  121,200     3,013,188

Utah Medical Products

  42,300     1,355,292  

Sun Hydraulics

  38,950     752,903

Young Innovations

  61,450     2,094,216  

Tennant Company

  44,100     2,293,200
       
         
          17,092,060             13,916,826
       
         
Personal Care - 0.6%             Metal Fabrication and Distribution - 1.9%          

CCA Industries

  51,040     472,120  

Aleris Internationala,b

  4,075     131,378

Helen of Troya,b

  20,000     322,200  

Encore Wirea,b

  15,000     341,400

Lifeline Systemsa,b

  20,050     733,028  

Harris Steel Group

  50,000     1,122,629

Nutraceutical Internationala

  15,000     203,250  

Haynes Internationala

  23,800     559,300
       
 

Insteel Industries

  56,000     927,360
          1,730,598  

NN

  176,900     1,875,140
       
 

Novamerican Steela

  2,500     98,403
Total (Cost $32,672,334)         43,146,765  

Oregon Steel Millsa

  3,300     97,086
       
 

Universal Stainless & Alloy Productsa

  36,100     541,500
Industrial Products – 16.0%                    
Automotive - 0.7%                       5,694,196

IMPCO Technologiesa,b

  30,500     156,465          

LKQ Corporationa

  5,700     197,334   Paper and Packaging - 0.1%          

Spartan Motors

  2,800     28,812  

Mod-Pac Corporationa,b

  23,200     260,768

Strattec Securitya

  28,300     1,143,886          

Wescast Industries Cl. A

  37,900     572,844   Pumps, Valves and Bearings - 0.2%          
       
 

CIRCOR International

  28,000     718,480
          2,099,341          
       
  Specialty Chemicals and Materials - 2.0%          
Building Systems and Components - 1.4%            

Aceto Corporation

  334,419     2,200,477

Aaona

  58,100     1,041,152  

Balchem Corporation

  15,000     447,150

AZZa

  45,600     822,624  

CFC Internationala,b

  40,600     570,065

Craftmade International

  30,000     600,300  

Hawkins

  122,667     1,716,111

Flanders Corporationa,b

  46,000     559,360  

NuCo2a,b

  20,000     557,600

LSI Industries

  63,812     999,296  

Park Electrochemical

  10,000     259,800

Modtech Holdingsa

  3,800     35,492          
       
            5,751,203
          4,058,224          
       
  Textiles - 0.1%          
Construction Materials - 1.5%            

Fab Industriesd

  56,400     177,660

Ash Grove Cement Company

  8,000     1,440,000          

Monarch Cement

  50,410     1,166,992   Other Industrial Products - 1.9%          

Synalloy Corporationa

  171,000     1,789,344  

Color Kineticsa,b

  50,000     719,500
       
 

Eastern Company (The)

  26,500     517,015
          4,396,336  

Maxwell Technologiesa

  15,300     216,801
       
 

Myers Industries

  32,276     470,584
Industrial Components - 1.5%            

Peerless Manufacturinga

  42,200     738,500

American Superconductera,b

  67,000     527,290  

Quixote Corporation

  35,500     702,900

Bel Fuse Cl. A

  55,200     1,380,000  

Raven Industries

  73,000     2,106,050

C & D Technologies

  53,000     403,860          

Ladish Companya

  10,000     223,500             5,471,350

Plug Powera,b

  1,370     7,028          

Powell Industriesa,b

  50,300     903,388   Total (Cost $33,903,554)         46,946,543

Scientific Technologiesa

  10,700     45,703          

Tech/Ops Sevcon

  76,200     415,290   Industrial Services – 13.7%          

II-VIa

  20,000     357,400   Advertising and Publishing - 0.2%          

Woodhead Industries

  10,000     138,700  

Greenfield Onlinea,b

  20,000     117,200
       
 

NetRatingsa

  50,000     616,500
          4,402,159          
       
            733,700
Machinery - 4.7%                    

Alamo Group

  38,600     791,300   Commercial Services - 5.4%          

Ampco-Pittsburgh

  96,900     1,406,019  

Administaff

  10,000     420,500

Astec Industriesa

  40,200     1,312,932  

American Bank Note Holographicsa

  242,200     1,501,640

Global Power Equipment Groupa,b

  55,100     249,052  

BB Holdings

  390,000     2,640,300

Gorman-Rupp Company

  3,375     74,621  

CBIZa,b

  87,000     523,740

Hardinge

  117,000     2,018,250  

Collectors Universea

  11,700     188,604

Hurco Companiesa,b

  31,400     967,748  

CorVel Corporationa,b

  28,450     540,266

Keithley Instruments

  14,000     195,720  

Exponenta

  68,300     1,938,354

LeCroy Corporationa

  2,000     30,580  

Geo Group (The)a

  51,200     1,174,016
             

iGATE Corporationa,b

  273,400     1,328,724

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.   THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS   |   37



ROYCE MICRO-CAP TRUST    



Schedule of Investments


    SHARES   VALUE       SHARES   VALUE
                         

Industrial Services (continued)

             

Other Industrial Services - 0.3%

           

Commercial Services (continued)

             

Landauer

  21,300   $ 981,717  

Kforcea,b

  55,000   $ 613,800    

Teama

  2,200     46,442  

NCO Groupa,b

  20,000     338,400            
 

PDIa

  15,200     205,200               1,028,159  

RCM Technologiesa

  85,100     434,010            
 

Renaissance Learning

  2,365     44,722    

Total (Cost $23,380,147)

        40,222,186  

SM&Aa,b

  31,300     257,599            
 

Senomyxa,b

  47,000     569,640    

Natural Resources – 9.5%

           

Stanteca

  2,819     96,128    

Energy Services - 3.4%

           

TRC Companiesa,b

  5,600     61,320    

Calfrac Well Services

  1,000     34,668  

Volt Information Sciencesa,b

  64,100     1,219,182    

Carbo Ceramics

  18,750     1,059,750  

Westaffa

  362,500     1,794,375    

Conrad Industriesa

  154,000     261,800  
       
   

Dawson Geophysicala

  3,400     104,788  
          15,890,520    

Dril-Quipa,b

  62,500     2,950,000  
       
   

Enerflex Systems

  5,000     115,446  

Engineering and Construction - 1.0%

             

Gulf Island Fabrication

  45,400     1,103,674  

Devcon Internationala,b

  21,700     224,378    

GulfMark Offshorea,b

  65,200     1,931,224  

Insituform Technologies Cl. Aa,b

  80,300     1,555,411    

Input/Outputa,b

  118,500     833,055  

Skyline Corporation

  32,100     1,168,440    

Valley National Gases

  30,100     589,960  
       
   

Willbros Groupa,b

  77,500     1,119,100  
          2,948,229            
 
       
              10,103,465  

Food and Tobacco Processors - 1.2%

                     
 

Galaxy Nutritional Foodsa

  159,450     199,313    

Oil and Gas - 2.5%

           

ML Macadamia Orchards L.P.

  120,200     688,746    

ATP Oil & Gasa

  6,300     233,163  

Omega Proteina

  9,600     64,416    

Bonavista Energy Trust

  88,000     2,884,253  

Seneca Foods Cl. Aa,b

  62,500     1,203,125    

CE Franklina

  52,100     723,669  

Seneca Foods Cl. Ba

  42,500     775,625    

Cano Petroleuma

  115,200     887,040  

Sunoptaa

  90,000     473,400    

Contango Oil & Gas Companya

  10,000     114,400  
       
   

Edge Petroleuma

  3,500     87,185  
          3,404,625    

Nuvista Energya

  121,000     1,878,833  
       
   

Pioneer Drilling Companya

  9,200     164,956  

Industrial Distribution - 1.0%

             

Savanna Energy Servicesa

  2,500     61,508  

Central Steel & Wire

  2,437     1,393,964    

VAALCO Energya

  61,500     260,760  

Elamexa

  60,200     90,300            
 

Lawson Products

  19,500     735,930               7,295,767  

Strategic Distributiona

  59,690     577,799            
 
       
   

Precious Metals and Mining - 1.3%

           
          2,797,993    

Apex Silver Minesa

  76,100     1,209,990  
       
   

Aurizon Minesa

  237,000     357,870  

Printing - 1.0%

             

Brush Engineered Materialsa,b

  15,500     246,450  

Bowne & Co.

  66,500     986,860    

Gammon Lake Resourcesa

  23,000     273,700  

Champion Industries

  23,500     103,400    

Metallica Resourcesa

  281,300     523,218  

Courier Corporation

  22,950     788,103    

Minefinders Corporationa

  116,000     596,240  

Ennis

  9,700     176,249    

Nevsun Resourcesa

  5,000     10,450  

Schawk

  38,900     807,175    

Northern Orion Resourcesa

  53,400     176,754  
       
   

NovaGold Resourcesa,b

  13,400     121,940  
          2,861,787    

Spur Venturesa

  30,000     33,292  
       
   

Western Silvera

  11,800     132,868  

Transportation and Logistics - 3.6%

                     
 

AirNet Systemsa

  180,000     613,800               3,682,772  

Atlas Air Worldwide Holdingsa

  11,500     511,750            
 

Forward Air

  65,700     2,407,905    

Real Estate 1.3%

           

Frozen Food Express Industriesa

  92,000     1,014,760    

HomeFed Corporationa

  54,852     3,675,084  

Hub Group Cl. Aa

  11,000     388,850    

Kennedy-Wilsona

  21,500     290,250  

Knight Transportation

  31,500     652,995            
 

MAIR Holdingsa,b

  8,600     40,506               3,965,334  

Marten Transporta,b

  4,050     73,791            
 

Pacific CMAa,b

  200,000     130,000    

Other Natural Resources - 1.0%

           

Patriot Transportation Holdinga

  15,700     1,018,616    

PICO Holdingsa

  55,700     1,796,882  

Universal Truckload Servicesa

  154,200     3,546,600    

Pope Resources L.P.

  33,000     1,023,660  

Vitran Corporation Cl. Aa

  8,000     157,600            
 
       
              2,820,542  
          10,557,173            
 
       
   

Total (Cost $10,819,994)

        27,867,880  
                       
 

38  |  THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.



    DECEMBER 31, 2005



 


    SHARES   VALUE       SHARES   VALUE
                         

Technology – 25.4%

             

Provide Commercea

  5,000   $ 165,550  

Aerospace and Defense - 2.6%

             

RealNetworksa,b

  65,700     509,832  

Allied Defense Group (The)a

  60,900   $ 1,386,693    

Stamps.coma

  21,200     486,752  

Astronics Corporationa

  26,400     279,840    

Stellenta,b

  15,000     148,950  

Axsys Technologiesa,b

  4,700     84,365    

Varsity Groupa,b

  89,400     379,950  

Ducommuna

  84,500     1,804,920            
 

HEICO Corporation

  41,600     1,076,608               3,983,998  

HEICO Corporation Cl. A

  24,160     495,763            
 

Herley Industriesa,b

  81,000     1,337,310    

IT Services - 5.4%

           

Integral Systems

  58,500     1,103,310    

CIBERa,b

  182,662     1,205,569  

SIFCO Industriesa

  45,800     178,620    

Computer Task Groupa

  381,100     1,505,345  
       
   

Covansys Corporationa

  227,500     3,096,275  
          7,747,429    

DiamondCluster Internationala

  138,100     1,096,514  
       
   

Forrester Researcha

  105,500     1,978,125  

Components and Systems - 5.1%

             

Rainmaker Systemsa

  2,000     5,660  

Advanced Photonix Cl. Aa,b

  147,900     408,204    

Sapient Corporationa,b

  500,000     2,845,000  

Belden CDT

  15,000     366,450    

Syntel

  54,300     1,131,069  

CSPa

  122,581     849,486    

Tier Technologies Cl. Ba

  6,800     49,912  

Dot Hill Systemsa,b

  2,000     13,860    

TriZetto Group (The)a,b

  182,300     3,097,277  

Excel Technologya

  92,900     2,209,162            
 

Giga-tronicsa

  3,200     7,968               16,010,746  

Hypercom Corporationa,b

  50,000     319,500            
 

International DisplayWorksa,b

  108,500     644,490    

Semiconductors and Equipment - 2.2%

           

Kronosa,b

  17,375     727,318    

ADE Corporationa

  23,000     553,380  

Lowrance Electronics

  91,000     2,385,110    

Advanced Energy Industriesa,b

  48,800     577,304  

Merix Corporationa

  7,000     50,610    

California Micro Devicesa

  16,700     108,717  

Metrologic Instrumentsa,b

  2,900     55,854    

Cascade Microtecha

  5,000     63,000  

Mobility Electronicsa,b

  1,000     9,660    

Catalyst Semiconductora

  139,700     677,545  

MOCON

  15,600     145,392    

CyberOptics Corporationa,b

  39,800     536,504  

Neoware Systemsa,b

  2,600     60,580    

ESS Technologya,b

  25,000     85,750  

Performance Technologiesa,b

  117,250     960,277    

Electroglasa,b

  281,700     816,930  

Plexus Corporationa

  26,500     602,610    

Exar Corporationa

  41,208     515,924  

Richardson Electronics

  202,100     1,465,225    

Integrated Silicon Solutiona

  15,000     96,600  

Rimage Corporationa,b

  20,000     579,600    

Intevaca,b

  40,550     535,260  

SafeNeta

  11,781     379,584    

MIPS Technologiesa,b

  10,000     56,800  

SimpleTecha

  225,700     850,889    

PDF Solutionsa,b

  29,000     471,250  

TTM Technologiesa

  125,000     1,175,000    

Photronicsa,b

  29,750     448,035  

TransAct Technologiesa

  78,600     620,940    

QuickLogic Corporationa

  20,000     79,000  

Zomaxa

  20,000     41,600    

Rudolph Technologiesa,b

  38,000     489,440  
       
   

Semitoola,b

  25,500     277,440  
          14,929,369    

Virage Logica,b

  4,000     39,520  
       
   

White Electronic Designsa

  10,000     51,100  

Distribution - 0.8%

                     
 

Agilysys

  90,000     1,639,800               6,479,499  

Bell Industriesa

  85,700     223,677            
 

Jaco Electronicsa

  30,900     105,369    

Software - 4.9%

           

Nu Horizons Electronicsa

  40,000     404,000    

Aladdin Knowledge Systemsa

  43,300     745,626  

PC Malla,b

  6,000     33,960    

ANSYSa,b

  30,800     1,314,852  

Pomeroy IT Solutionsa

  6,900     57,615    

Applixa

  20,000     146,000  
       
   

ILOG ADRa,b

  35,000     604,800  
          2,464,421    

Indus Internationala,b

  19,200     60,288  
       
   

InterVideoa

  24,500     258,475  

Internet Software and Services - 1.4%

             

iPassa

  190,000     1,246,400  

Answers Corporationa,b

  4,100     47,015    

JDA Software Groupa,b

  59,500     1,012,095  

CryptoLogic

  24,900     487,791    

MSC.Softwarea

  12,700     215,900  

Digitasa,b

  98,840     1,237,477    

Majesco Entertainment Companya

  2,500     2,925  

eCOST.coma,b

  7,242     8,401    

MapInfoa,b

  5,000     63,050  

EDGAR Onlinea,b

  83,600     152,152    

McDATA Corporation Cl. Aa,b

  18,199     69,156  

Inforte Corporationa

  11,400     45,030    

MetaSolva

  5,800     16,820  

LookSmarta

  4,000     15,040    

MIND C.T.I.

  20,000     52,400  

MIVAa

  10,000     49,500    

Pegasystemsa

  320,200     2,340,662  

NICa

  26,800     165,088    

Phase Forwarda,b

  43,000     419,250  

Packeteera,b

  11,000     85,470                  

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.   THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS  |  39



ROYCE MICRO-CAP TRUST   DECEMBER 31, 2005



Schedule of Investments


    SHARES   VALUE       SHARES   VALUE
                         

Technology (continued)

             

TOTAL COMMON STOCKS

           

Software (continued)

             

(Cost $208,992,798)

      $ 315,599,914  

SPSSa

  41,800   $ 1,292,874            
 

SeaChange Internationala,b

  5,000     39,500    

PREFERRED STOCK – 0.5%

           

TeleCommunication Systems Cl. Aa,b

  158,600     348,920    

Seneca Foods Conv.a

  75,409     1,432,771  

Transaction Systems Architects Cl. Aa

  140,100     4,033,479            
 

Unica Corporationa,b

  7,500     90,375    

TOTAL PREFERRED STOCK

           
       
   

(Cost $943,607)

        1,432,771  
          14,373,847            
 
       
   

REPURCHASE AGREEMENT – 12.2%

           

Telecommunications - 3.0%

              State Street Bank & Trust Company,            

Anarena

  24,300     379,809    

4.10% dated 12/30/05, due 1/3/06,

           

C-COR.neta

  5,000     24,300    

maturity value $35,802,303 (collateralized

           

Captarisa

  67,800     250,182    

by obligations of various U.S. Government

           

Catapult Communicationsa,b

  5,000     73,950    

Agencies, valued at $36,685,000)

           

Centillium Communicationsa

  11,000     38,500    

(Cost $35,786,000)

        35,786,000  

Channell Commerciala

  71,100     352,940            
 

Communications Systems

  87,200     1,070,816    

COLLATERAL RECEIVED FOR SECURITIES LOANED – 9.2%

     

Ditech Communicationsa,b

  20,000     167,000     Money Market Funds            

Globecomm Systemsa

  6,300     38,871    

State Street Navigator Securities Lending

           

Intervoicea,b

  58,000     461,680    

Prime Portfolio

           

North Pittsburgh Systems

  15,700     296,259    

(Cost $26,979,986)

        26,979,986  

Novatel Wirelessa,b

  29,000     351,190            
 

PC-Tela

  47,100     412,596    

TOTAL INVESTMENTS – 129.3%

           

Powerwave Technologiesa,b

  20,315     255,360    

(Cost $272,702,391)

        379,798,671  

Radyne ComStreama

  47,000     684,790                  

SpectraLink Corporation

  57,000     676,590    

LIABILITIES LESS CASH

           

Symmetricoma,b

  87,482     740,973    

AND OTHER ASSETS – (8.9)%

        (26,079,474 )

ViaSata,b

  91,812     2,454,135                  
       
   

PREFERRED STOCK – (20.4)%

        (60,000,000 )
          8,729,941            
 
       
   

NET ASSETS APPLICABLE TO

           

Total (Cost $47,669,006)

        74,719,250    

COMMON STOCKHOLDERS – 100.0%

      $ 293,719,197  
       
           
 

Miscellaneous(e) – 4.8%

                           

Total (Cost $13,014,944)

        14,267,159                  
       
                 
                             


a   Non-income producing.
b   A portion of these securities were on loan at December 31, 2005. Total market value of loaned securities at December 31, 2005 was $25,935,486.
c   At December 31, 2005, the Fund owned 5% or more of the Company’s outstanding voting securities thereby making the Company an Affiliated Company as that term is defined in the Investment Company Act of 1940.
d   Securities for which market quotations are no longer readily available represent 0.06% 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 2005 and less than 1% of net assets applicable to Common Stockholders.
  New additions in 2005.
 
    Bold indicates the Fund’s largest 20 equity holdings in terms of December 31, 2005 market value.
     
INCOME TAX INFORMATION: The cost of total investments for Federal income tax purposes was $275,046,548. At December 31, 2005, net unrealized appreciation for all securities was $104,752,123, consisting of aggregate gross unrealized appreciation of $113,333,505 and aggregate gross unrealized depreciation of $8,581,382. The primary differences in book and tax basis cost is the timing of the recognition of losses on securities sold and unrealized gains on investments in Passive Foreign Investment Companies for book and tax purposes.


40  |  THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.



ROYCE MICRO-CAP TRUST   DECEMBER 31, 2005



Statement of Assets and Liabilities


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

Non-Affiliates (cost $233,005,991)

  $ 340,591,047  

Affiliated Companies (cost $3,910,400)

    3,421,624  

Total investments at value     344,012,671  
Repurchase agreement (at cost and value)     35,786,000  
Cash     2,450,888  
Receivable for investments sold     529,724  
Receivable for dividends and interest     277,573  
Prepaid expenses     8,651  

Total Assets

    383,065,507  

LIABILITIES:        
Payable for collateral on loaned securities     26,979,986  
Payable for investments purchased     1,743,648  
Payable for investment advisory fee     384,864  
Preferred dividends accrued but not yet declared     80,000  
Accrued expenses     157,812  

Total Liabilities

    29,346,310  

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   $ 293,719,197  

ANALYSIS OF NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:        
Common Stock paid-in capital – $0.001 par value per share; 21,869,051 shares outstanding (150,000,000 shares authorized)   $ 184,445,927  
Undistributed net investment income (loss)     (1,104 )
Accumulated net realized gain (loss) on investments     2,258,094  
Net unrealized appreciation (depreciation) on investments     107,096,280  
Preferred dividends accrued but not yet declared     (80,000 )

Net Assets applicable to Common Stockholders (net asset value per share – $13.43)

  $ 293,719,197  

*Investments at identified cost (including $26,979,986 of collateral on loaned securites)   $ 236,916,391  


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.   THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS  |  41



ROYCE MICRO-CAP TRUST   YEAR ENDED DECEMBER 31, 2005



Statement of Operations


INVESTMENT INCOME:        
Income:        

Dividends

       

Non-Affiliates

  $ 2,419,616  

Affiliated Companies

    30,550  

Interest

    1,325,185  

Securities lending

    140,630  

Total income     3,915,981  

Expenses:        

Investment advisory fees

    4,114,659  

Custody and transfer agent fees

    158,865  

Stockholder reports

    146,709  

Directors’ fees

    55,365  

Professional fees

    35,924  

Administrative and office facilities expenses

    29,054  

Other expenses

    138,614  

Total expenses     4,679,190  

Net investment income (loss)     (763,209 )

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:        
Net realized gain (loss) on investments        

Non-Affiliates

    37,754,245  
Net change in unrealized appreciation (depreciation) on investments     (14,066,144 )

Net realized and unrealized gain (loss) on investments     23,688,101  

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM INVESTMENT OPERATIONS     22,924,892  

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS     (3,600,000 )

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

RESULTING FROM INVESTMENT OPERATIONS

  $ 19,324,892  


42  |  THE ROYCE FUNDS 2005 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  
    12/31/05   12/31/04  

INVESTMENT OPERATIONS:                  
Net investment income (loss)   $ (763,209 )   $ (1,486,082 )  
Net realized gain (loss) on investments     37,754,245       25,396,860    
Net change in unrealized appreciation (depreciation) on investments     (14,066,144 )     26,164,677    

Net increase (decrease) in net assets resulting from investment operations     22,924,892       50,075,455    

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:                  
Net realized gain on investments     (3,600,000 )     (3,600,000 )  

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

    19,324,892       46,475,455    

DISTRIBUTIONS TO COMMON STOCKHOLDERS:                  
Net realized gain on investments     (38,452,900 )     (25,919,005 )  

Total distributions to Common Stockholders     (38,452,900 )     (25,919,005 )  

CAPITAL STOCK TRANSACTIONS:                  
Reinvestment of distributions to Common Stockholders     22,483,567       16,382,136    

Total capital stock transactions     22,483,567       16,382,136    

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS     3,355,559       36,938,586    

NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:                  

Beginning of year

    290,363,638       253,425,052    

End of year (including undistributed net investment income (loss) of $(1,104) at 12/31/05)

  $ 293,719,197     $ 290,363,638    


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.   THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS  |  43



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,
   
    2005   2004   2003   2002   2001

NET ASSET VALUE, BEGINNING OF PERIOD     $14.34       $13.33       $9.39       $11.83       $10.14  

INVESTMENT OPERATIONS:                                        

Net investment income (loss)

    (0.03 )     (0.08 )     (0.09 )     (0.13 )     (0.05 )

Net realized and unrealized gain (loss) on investments

    1.14       2.62       5.28       (1.29 )     2.57  

Total investment operations

    1.11       2.54       5.19       (1.42 )     2.52  

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:                                        

Net investment income

                             

Net realized gain on investments

    (0.17 )     (0.19 )     (0.18 )     (0.18 )     (0.19 )

Total distributions to Preferred Stockholders

    (0.17 )     (0.19 )     (0.18 )     (0.18 )     (0.19 )

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON                                  

STOCKHOLDERS RESULTING FROM INVESTMENT OPERATIONS

    0.94       2.35       5.01       (1.60 )     2.33  

DISTRIBUTIONS TO COMMON STOCKHOLDERS:                                        

Net investment income

                             

Net realized gain on investments

    (1.85 )     (1.33 )     (0.92 )     (0.80 )     (0.57 )

Total distributions to Common Stockholders

    (1.85 )     (1.33 )     (0.92 )     (0.80 )     (0.57 )

CAPITAL STOCK TRANSACTIONS:                                        

Effect of reinvestment of distributions by Common Stockholders

    0.00       (0.01 )     (0.04 )     (0.04 )     (0.07 )

Effect of Preferred Stock offering

                (0.11 )            

Total capital stock transactions

    0.00       (0.01 )     (0.15 )     (0.04 )     (0.07 )

NET ASSET VALUE, END OF PERIOD     $13.43       $14.34       $13.33       $9.39       $11.83  

MARKET VALUE, END OF PERIOD     $14.56       $15.24       $12.60       $8.44       $10.50  

TOTAL RETURN (a):                                        
Market Value     8.90 %     33.44 %     63.58 %     (12.70 )%     28.76 %
Net Asset Value     6.75 %     18.69 %     55.55 %     (13.80 )%     23.40 %
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO                                        

COMMON STOCKHOLDERS:

                                       
Total expenses (b,c)     1.63 %     1.62 %     1.82 %     1.96 %     1.78 %

Management fee expense

    1.43 %     1.43 %     1.59 %     1.59 %     1.57 %

Other operating expenses

    0.20 %     0.19 %     0.23 %     0.37 %     0.21 %
Net investment income (loss)     (0.27 )%     (0.56 )%     (0.82 )%     (1.23 )%     (0.43 )%
SUPPLEMENTAL DATA:                                        
Net Assets Applicable to Common Stockholders,                                        

End of Period (in thousands)

    $293,719       $290,364       $253,425       $167,571       $200,443  
Liquidation Value of Preferred Stock,                                        

End of Period (in thousands)

    $60,000       $60,000       $60,000       $40,000       $40,000  
Portfolio Turnover Rate     46 %     32 %     26 %     39 %     27 %
PREFERRED STOCK:                                        
Total shares outstanding     2,400,000       2,400,000       2,400,000       1,600,000       1,600,000  
Asset coverage per share     $147.38       $145.98       $130.59       $129.73       $150.28  
Liquidation preference per share     $25.00       $25.00       $25.00       $25.00       $25.00  
Average market value per share (d):                                        

6.00% Cumulative

    $24.97       $24.66       $25.37              

7.75% Cumulative

                $25.70       $25.91       $25.30  

(a)  
The Market Value Total Return is calculated assuming a purchase of Common Stock on the opening of the first business day and a sale on the closing of the last business day of each period reported. Dividends and distributions, if any, are assumed for the purposes of this calculation to be reinvested at prices obtained under the Fund’s Distribution Reinvestment and Cash Purchase Plan. Net Asset Value Total Return is calculated on the same basis, except that the Fund’s net asset value is used on the purchase and sale dates instead of market value.
(b)  
Expense ratios based on total average net assets including liquidation value of Preferred Stock were 1.35%, 1.32%, 1.49%, 1.62% and 1.46% for the periods ended December 31, 2005, 2004, 2003, 2002 and 2001, respectively.
(c)  
Expense ratios based on average net assets applicable to Common Stockholders before waiver of fees by the investment adviser would have been 1.92%, 2.04% and 1.81% for the periods ended December 31, 2003, 2002 and 2001, respectively.
(d)  
The average of month-end market values during the period that the Preferred Stock was outstanding.

44  |  THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS



ROYCE MICRO-CAP TRUST   DECEMBER 31, 2005



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 (generally 4:00 p.m. Eastern time) on the valuation date. Securities that trade on an exchange or Nasdaq are valued at their last reported sales price 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 bid price. Securities for which market quotations are not readily available are valued at their fair value under procedures established by the Fund’s Board of Directors. Bonds and other fixed income securities may be valued by reference to other securities with comparable ratings, interest rates and maturities, using established independent pricing services.

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

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

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

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

Repurchase Agreements:
     The Fund 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 the underlying securities.

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

Capital Stock:
     The Fund issued 1,625,665 and 1,228,046 shares of Common Stock as reinvestment of distributions by Common Stockholders for the years ended December 31, 2005 and 2004, respectively.

THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS  |  45



ROYCE MICRO-CAP TRUST    



Notes to Financial Statements (continued)


     At December 31, 2005, 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.


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 the 12 rolling 36-month periods ending in 2005, the investment performance of the Fund exceeded the investment performance of the Russell 2000 by 5% to 23%. Accordingly, the investment advisory fee consisted of a Basic Fee of $2,876,281 and an upward adjustment of $1,238,378 for performance of the Fund above that of the Russell 2000. For the year ended December 31, 2005, the Fund accrued and paid Royce advisory fees totaling $4,114,659.

46  |  THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS



    DECEMBER 31, 2005



 


Distributions to Stockholders:
     The tax character of distributions paid to stockholders during 2005 and 2004 was as follows:


 
  Distributions paid from:   2005   2004  
 
 
 

 

 
  Ordinary income   $ 4,022,315     $ 3,410,255    
  Long-term capital gain     38,030,585       26,108,750    
     
 
      $ 42,052,900     $ 29,519,005    

 

      As of December 31, 2005, the tax basis components of distributable earnings included in stockholders’ equity were as follows:


   
  Undistributed net investment income     $ 1,714,386      
  Undistributed long-term capital gain       2,887,865      
  Unrealized appreciation       104,752,123      
  Post October currency loss       (1,104 )    
  Accrued preferred distributions       (80,000 )    
       
   
        $ 109,273,270      

   

     The difference between book basis and tax basis unrealized appreciation is attributable primarily to the tax deferral on wash sales and the unrealized gains on investments in 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. For the year ended December 31, 2005, the Fund recorded the following permanent reclassifications, which relate primarily to the current net operating losses. Results of operations and net assets were not affected by these reclassifications.


 
  Undistributed   Accumulated            
  Net Investment   Net Realized   Paid-in    
  Income   Gain (Loss)   Capital    
 
 
 
   
  $ 762,105     $ (633,134 )   $ (128,971 )    

 

Purchases and Sales of Investment Securities:
     For the year ended December 31, 2005, the cost of purchases and proceeds from sales of investment securities, other than short-term securities and collateral received for securities loaned, amounted to $138,845,430 and $143,624,350, respectively.

Transactions in Shares of Affiliated Companies:
     An “Affiliated Company”, as defined in the Investment Company Act of 1940, is a company in which a Fund owns 5% or more of the company’s outstanding voting securities. The Fund effected the following transactions in shares of such companies during the year ended December 31, 2005:

    Shares   Market Value   Cost of   Cost of   Realized   Dividend   Shares     Market Value
Affiliated Company   12/31/04   12/31/04   Purchases   Sales   Gain (Loss)   Income   12/31/05     12/31/05

Abagail Adams National Bancorp       $ 3,910,400         $ 30,550     244,400     $ 3,421,624  

                        $ 30,550           $ 3,421,624  


THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS  |  47



ROYCE MICRO-CAP TRUST    



Report of Independent Registered Public Accounting Firm


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

     We have audited the accompanying statement of assets and liabilities of Royce Micro-Cap Trust, Inc. (“Fund”), including the schedule of investments, as of December 31, 2005, and the related statement of operations for the year then ended, and the statement of changes in net assets for the two years in the period then ended and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
     We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (U.S.). 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. We were not engaged to perform an audit of the Fund’s 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 and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2005, 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 audit provides a reasonable basis for our opinion.
     In our opinion, the financial statements and financial highlights referred to above and audited by us present fairly, in all material respects, the financial position of Royce Micro-Cap Trust, Inc. at December 31, 2005, 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, PA
January 20, 2006


48  |  THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS



ROYCE FOCUS TRUST   DECEMBER 31, 2005



      Schedule of Investments


    SHARES   VALUE       SHARES   VALUE
                     

COMMON STOCKS – 85.1%

             

Pason Systems

  100,000   $ 2,486,128  
               

Woodward Governor Company

  15,000     1,290,150  

Consumer Products – 6.3%

                     
 

Apparel and Shoes - 1.2%

                        6,750,778  

Timberland Company Cl. Aa,b

  50,000   $ 1,627,500            
 
       
   

Metal Fabrication and Distribution - 12.8%

           

Sports and Recreation - 5.1%

             

Harris Steel Group

  150,000     3,367,887  

Thor Industries

  100,000     4,007,000    

IPSCO

  65,000     5,393,700  

Winnebago Industries

  100,000     3,328,000    

Metal Management

  150,000     3,489,000  
       
   

Reliance Steel & Aluminum

  50,000     3,056,000  
          7,335,000    

Schnitzer Steel Industries Cl. A

  100,000     3,059,000  
       
           
 

Total (Cost $6,695,553)

        8,962,500               18,365,587  
       
           
 

Consumer Services – 3.3%

             

Total (Cost $16,295,295)

        31,195,465  

Direct Marketing - 2.5%

                     
 

Nu Skin Enterprises Cl. A

  200,000     3,516,000    

Industrial Services – 5.5%

           
       
   

Commercial Services - 1.2%

           

Other Consumer Services - 0.8%

             

BB Holdings

  250,000     1,692,500  

Corinthian Collegesa

  100,000     1,178,000            
 
       
   

Engineering and Construction - 1.9%

           

Total (Cost $3,889,690)

        4,694,000    

Dycom Industriesa,b

  120,000     2,640,000  
       
           
 

Financial Intermediaries – 3.3%

             

Transportation and Logistics - 2.4%

           

Insurance - 2.3%

             

Arkansas Best

  80,000     3,494,400  

Alleghany Corporationa

  7,500     2,130,000            
 

ProAssurance Corporationa,b

  25,000     1,216,000    

Total (Cost $5,486,466)

        7,826,900  
       
           
 
          3,346,000    

Natural Resources – 19.8%

           
       
   

Energy Services - 8.8%

           

Other Financial Intermediaries - 1.0%

             

Ensign Energy Services

  100,000     4,036,303  

TSX Group

  35,000     1,409,996    

Input/Output a,b

  250,000     1,757,500  
       
   

Tesco Corporationa

  160,000     2,960,000  

Total (Cost $2,038,496)

        4,755,996    

Trican Well Servicea

  80,000     3,853,929  
       
           
 

Financial Services – 3.7%

                        12,607,732  

Information and Processing - 2.4%

                     
 

eFunds Corporationa,b

  150,000     3,516,000    

Precious Metals and Mining - 11.0%

           
       
   

Gammon Lake Resourcesa

  100,000     1,190,000  

Investment Management - 1.3%

             

Glamis Golda

  150,000     4,122,000  

GAMCO Investors Cl. A

  41,500     1,806,495    

Ivanhoe Minesa,b

  400,000     2,876,000  
       
   

Meridian Golda,b

  120,000     2,624,400  

Total (Cost $3,678,413)

        5,322,495    

Pan American Silvera,b

  120,000     2,259,600  
       
   

Silver Standard Resourcesa,b

  180,000     2,755,800  

Health – 9.5%

                     
 

Drugs and Biotech - 8.0%

                        15,827,800  

Elan Corporation ADRa,b

  200,000     2,786,000            
 

Endo Pharmaceuticals Holdingsa,b

  150,000     4,539,000    

Total (Cost $15,532,480)

        28,435,532  

Lexicon Geneticsa,b

  400,000     1,460,000            
 

Myriad Geneticsa,b

  75,000     1,560,000    

Technology – 11.9%

           

Orchid Cellmarka,b

  150,000     1,140,000    

Components and Systems - 1.8%

           
       
   

Lowrance Electronics

  100,000     2,621,000  
          11,485,000            
 
       
   

Internet Software and Services - 1.9%

           

Medical Products and Devices - 1.5%

             

RealNetworksa,b

  350,000     2,716,000  

Caliper Life Sciencesa,b

  200,000     1,176,000            
 

Possis Medicala,b

  100,000     995,000    

IT Services - 0.9%

           
       
   

Syntel

  60,000     1,249,800  
          2,171,000            
 
       
   

Software - 4.9%

           

Total (Cost $10,286,605)

        13,656,000    

ManTech International Cl. Aa,b

  100,000     2,786,000  
       
   

PLATO Learninga,b

  160,000     1,270,400  

Industrial Products – 21.8%

             

Transaction Systems Architects Cl. Aa

  100,100     2,881,879  

Building Systems and Components - 3.1%

                     
 

Simpson Manufacturing

  120,000     4,362,000               6,938,279  
       
           
 

Construction Materials - 1.2%

             

Telecommunications - 2.4%

           

Florida Rock Industries

  35,000     1,717,100    

Foundry Networksa,b

  250,000     3,452,500  
       
           
 

Machinery - 4.7%

             

Total (Cost $12,073,536)

        16,977,579  

Lincoln Electric Holdings

  75,000     2,974,500            
 
               

TOTAL COMMON STOCKS

           
               

(Cost $75,976,534)

      $ 121,826,467  
                       
 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS  |  49



ROYCE FOCUS TRUST   DECEMBER 31, 2005



      Schedule of Investments


      PRINCIPAL                
      AMOUNT   VALUE           VALUE
                       

CORPORATE BONDS – 5.1%

               

REPURCHASE AGREEMENT – 11.7%

           

Athena Neurosciences Finance 7.25%

                State Street Bank & Trust Company,            

Senior Note due 2/21/08

  $ 6,000,000   $ 5,857,500    

4.10% dated 12/30/05, due 1/3/06,

           

E*TRADE Financial 6.00%

               

maturity value $16,757,631 (collateralized

           

Conv. Sub. Note due 2/1/07

    1,500,000     1,515,000    

by obligations of various U.S. Government

           
         
   

Agencies, valued at $17,172,625)

           

TOTAL CORPORATE BONDS

               

(Cost $16,750,000)

      $ 16,750,000  

(Cost $6,890,957)

          7,372,500            
 
         
   

COLLATERAL RECEIVED FOR SECURITIES LOANED – 13.5%

       

GOVERNMENT BONDS – 8.4%

                Money Market Funds            
(Principal Amount shown                

State Street Navigator Securities Lending

           
in local currency.)                

Prime Portfolio

        19,262,846  

Canadian Government Bond

                       
 

3.00% due 6/1/07

    6,150,000     5,230,132    

(Cost $19,262,846)

        19,262,846  

New Zealand Government Bond

                       
 

6.50% due 2/15/06

    10,000,000     6,824,030    

TOTAL INVESTMENTS – 130.7%

           
         
   

(Cost $140,080,099)

        187,210,115  

TOTAL GOVERNMENT BONDS

                             

(Cost $10,785,668)

          12,054,162    

LIABILITIES LESS CASH

           
         
   

AND OTHER ASSETS – (13.2)%

        (18,966,373 )

U.S. TREASURY OBLIGATIONS – 6.9%

                             
U.S Treasury Notes                

PREFERRED STOCK – (17.5)%

        (25,000,000 )

Treasury Inflation Index Protection

                       
 

Security 2.00% due 7/15/14

    10,000,000     9,944,140    

NET ASSETS APPLICABLE TO

           
         
   

COMMON STOCKHOLDERS – 100.0%

      $ 143,243,742  

TOTAL U.S TREASURY OBLIGATIONS

                       
 

(Cost $10,414,094)

          9,944,140                  
         
                 

a   Non-income producing.
b   A portion of these securities were on loan at December 31, 2005. Total market value of loaned securities at December 31, 2005 was $18,626,250.
  New additions in 2005.
 
    Bold indicates the Fund’s largest 20 equity holdings in terms of December 31, 2005, market value.
     
INCOME TAX INFORMATION: The cost of total investments for Federal income tax purposes was $140,968,473. At December 31, 2005, net unrealized appreciation for all securities was $46,241,642, consisting of aggregate gross unrealized appreciation of $47,933,493 and aggregate gross unrealized depreciation of $1,691,851. The primary differences in book and tax basis cost is the timing of the recognition of losses on securities sold and unrealized gains on investments in Passive Foreign Investment Companies for book and tax purposes.


50  |  THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.



ROYCE FOCUS TRUST   DECEMBER 31, 2005



Statement of Assets and Liabilities


ASSETS:

       
Investments at value (including collateral on loaned securities)*   $ 170,460,115  
Repurchase agreement (at cost and value)     16,750,000  
Cash     320  
Receivable for investments sold     3,224  
Receivable for dividends and interest     547,724  
Prepaid expenses     3,389  

Total Assets
    187,764,772  

LIABILITIES:

       
Payable for collateral on loaned securities     19,262,846  
Payable for investment advisory fee     142,998  
Preferred dividends accrued but not yet declared     33,333  
Accrued expenses     81,853  

Total Liabilities
    19,521,030  

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

  $ 143,243,742  

ANALYSIS OF NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:

       
Common Stock paid-in capital – $0.001 par value per share; 14,674,667 shares outstanding (100,000,000 shares authorized)   $ 92,368,072  
Undistributed net investment income (loss)     (55,839 )
Accumulated net realized gain (loss) on investments     3,834,826  
Net unrealized appreciation (depreciation) on investments     47,130,016  
Preferred dividends accrued but not yet declared     (33,333 )

Net Assets applicable to Common Stockholders (net asset value per share – $9.76)
  $ 143,243,742  

*Investments at identified cost (including $19,262,846 of collateral on loaned securities)   $ 123,330,099  


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS  |  51



ROYCE FOCUS TRUST   YEAR ENDED DECEMBER 31, 2005



Statement of Operations


INVESTMENT INCOME:

       
Income:        

Interest

  $ 1,819,666  

Dividends

    653,713  

Securities lending

    20,780  

Total income     2,494,159  

Expenses:        

Investment advisory fees

    1,436,054  

Custody and transfer agent fees

    88,136  

Stockholder reports

    69,804  

Professional fees

    28,333  

Directors’ fees

    20,347  

Administrative and office facilities expenses

    11,067  

Other expenses

    96,836  

Total expenses     1,750,577  

Net investment income (loss)     743,582  

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:

       
Net realized gain (loss) on investments     19,164,839  
Net change in unrealized appreciation (depreciation) on investments     1,922,287  

Net realized and unrealized gain (loss) on investments     21,087,126  

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

    21,830,708  

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS

    (1,500,000 )

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

       

RESULTING FROM INVESTMENT OPERATIONS

  $ 20,330,708  



52  |  THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.



ROYCE FOCUS TRUST    



Statement of Changes in Net Assets



      Year ended       Year ended  
      12/31/05       12/31/04  

                 

INVESTMENT OPERATIONS:

               
Net investment income (loss)   $ 743,582     $ 225,575  
Net realized gain (loss) on investments     19,164,839       16,972,445  
Net change in unrealized appreciation (depreciation) on investments     1,922,287       9,319,147  

Net increase (decrease) in net assets resulting from investment operations     21,830,708       26,517,167  

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:

               
Net investment income     (80,100 )     (21,150 )
Net realized gain on investments     (1,419,900 )     (1,478,850 )

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

    20,330,708       25,017,167  

DISTRIBUTIONS TO COMMON STOCKHOLDERS:

               
Net investment income     (853,787 )     (242,185 )
Net realized gain on investments     (15,134,720 )     (16,948,411 )

Total distributions to Common Stockholders     (15,988,507 )     (17,190,596 )

CAPITAL STOCK TRANSACTIONS:

               
Reinvestment of distributions to Common Stockholders     11,288,577       11,013,943  
Net proceeds from rights offering     21,760,372        

Total capital stock transactions     33,048,949       11,013,943  

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

    37,391,150       18,840,514  

NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:

               

Beginning of year

    105,852,592       87,012,078  

End of year (including undistributed net investment income (loss) of $(55,839) at 12/31/05

               

and $(15,000) at 12/31/04)

  $ 143,243,742     $ 105,852,592  


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS  |  53



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,
   
      2005       2004       2003       2002       2001  

NET ASSET VALUE, BEGINNING OF PERIOD

    $9.75       $9.00       $6.27       $7.28       $6.77  

INVESTMENT OPERATIONS:

                                       

Net investment income (loss)

    0.06       0.02       0.08       (0.01 )     0.05  

Net realized and unrealized gain (loss) on investments

    1.44       2.63       3.57       (0.74 )     0.79  

Total investment operations

    1.50       2.65       3.65       (0.75 )     0.84  

DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:

                                       

Net investment income

    (0.01 )     (0.00 )     (0.02 )     (0.03 )     (0.04 )

Net realized gain on investments

    (0.11 )     (0.15 )     (0.14 )     (0.13 )     (0.13 )

Total distributions to Preferred Stockholders

    (0.12 )     (0.15 )     (0.16 )     (0.16 )     (0.17 )

NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON

                                       

STOCKHOLDERS RESULTING FROM INVESTMENT OPERATIONS

    1.38       2.50       3.49       (0.91 )     0.67  

DISTRIBUTIONS TO COMMON STOCKHOLDERS:

                                       

Net investment income

    (0.06 )     (0.02 )     (0.06 )     (0.02 )     (0.03 )

Net realized gain on investments

    (1.15 )     (1.72 )     (0.56 )     (0.07 )     (0.11 )

Total distributions to Common Stockholders

    (1.21 )     (1.74 )     (0.62 )     (0.09 )     (0.14 )

CAPITAL STOCK TRANSACTIONS:

                                       

Effect of reinvestment of distributions by Common Stockholders

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

Effect of rights offering and Preferred Stock offering

    (0.13 )           (0.11 )            

Total capital stock transactions

    (0.16 )     (0.01 )     (0.14 )     (0.01 )     (0.02 )

NET ASSET VALUE, END OF PERIOD

    $9.76       $9.75       $9.00       $6.27       $7.28  

MARKET VALUE, END OF PERIOD

    $9.53       $10.47       $8.48       $5.56       $6.65  

TOTAL RETURN (a):

                                       
Market Value     3.03 %     47.26 %     63.98 %     (15.06 )%     19.65 %
Net Asset Value     13.31 %     29.21 %     54.33 %     (12.50 )%     10.04 %

RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO

                                       

COMMON STOCKHOLDERS:

                                       
Total expenses (b,c)     1.48 %     1.53 %     1.57 %     1.88 %     1.47 %

Management fee expense

    1.21 %     1.27 %     1.14 %     1.13 %     1.11 %

Other operating expenses

    0.27 %     0.26 %     0.43 %     0.75 %     0.36 %
Net investment income (loss)     0.63 %     0.24 %     1.07 %     (0.16 )%     0.70 %

SUPPLEMENTAL DATA:

                                       
Net Assets Applicable to Common Stockholders,                                        

End of Period (in thousands)

    $143,244       $105,853       $87,012       $57,956       $66,654  
Liquidation Value of Preferred Stock,                                        

End of Period (in thousands)

    $25,000       $25,000       $25,000       $20,000       $20,000  
Portfolio Turnover Rate     42 %     52 %     49 %     61 %     54 %

PREFERRED STOCK:

                                       
Total shares outstanding     1,000,000       1,000,000       1,000,000       800,000       800,000  
Asset coverage per share     $168.24       $130.85       $112.01       $97.44       $108.32  
Liquidation preference per share     $25.00       $25.00       $25.00       $25.00       $25.00  
Average market value per share (d):                                        

6.00% Cumulative

    $25.38       $24.83       $25.45              

7.45% Cumulative

                $25.53       $25.64       $25.09  

(a)  
The Market Value Total Return is calculated assuming a purchase of Common Stock on the opening of the first business day and a sale on the closing of the last business day of each period reported. Dividends and distributions, if any, are assumed for the purposes of this calculation to be reinvested at prices obtained under the Fund’s Distribution Reinvestment and Cash Purchase Plan. Net Asset Value Total Return is calculated on the same basis, except that the Fund’s net asset value is used on the purchase and sale dates instead of market value.
(b)  
Expense ratios based on total average net assets including liquidation value of Preferred Stock were 1.22%, 1.21%, 1.20%, 1.43% and 1.11% for the periods ended December 31, 2005, 2004, 2003, 2002 and 2001, respectively.
(c)  
Expense ratios based on average net assets applicable to Common Stockholders before waiver of fees by the investment adviser would have been 1.73%, 2.06% and 1.69% for the periods ended December 31, 2003, 2002 and 2001, respectively.
(d)   The average of month-end market values during the period that the preferred stock was outstanding.


54  |  THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS
 



ROYCE FOCUS TRUST   DECEMBER 31, 2005



Notes to Financial Statements


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

Valuation of Investments:
      Securities are valued as of the close of trading on the New York Stock Exchange (generally 4:00 p.m. Eastern time) on the valuation date. Securities that trade on an exchange or Nasdaq are valued at their last reported sales price 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 bid price. Securities for which market quotations are not readily available are valued at their fair value under procedures established by the Fund’s Board of Directors. Bonds and other fixed income securities may be valued by reference to other securities with comparable ratings, interest rates and maturities, using established independent pricing services.

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

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

Taxes:
      As a qualified regulated investment company under Subchapter M of the Internal Revenue Code, the Fund is not subject to income taxes to the extent that it distributes substantially all of its taxable income for its
 

fiscal year. The Schedule of Investments includes information regarding income taxes under the caption “Income Tax Information”.

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

Repurchase Agreements:
      The Fund 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 the underlying securities.

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

Capital Stock:
      The Fund issued 1,191,399 and 1,182,493 shares of Common Stock as reinvestment of distributions by Common Stockholders for the years ended December 31, 2005 and 2004, respectively.

THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS  |  55



ROYCE FOCUS TRUST   DECEMBER 31, 2005



Notes to Financial Statements (continued)


      On June 10, 2005, the Fund completed a rights offering of Common Stock to its stockholders at the rate of one common share for each 5 rights held by stockholders of record on May 6, 2005. The rights offering was fully subscribed, resulting in the issuance of 2,627,397 common shares at a price of $8.34, and proceeds of $21,912,491 to the Fund prior to the deduction of expenses of $152,119. The net asset value per share of the Fund’s Common Stock was reduced by approximately $0.13 per share as a result of the issuance.
      At December 31, 2005, 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.

Investment Advisory Agreement:
      The Investment Advisory Agreement between Royce and the Fund provides for fees to be paid at an annual rate of 1.0% of the Fund’s average daily net assets applicable to Common Stockholders plus the liquidation value of Preferred Stock. Royce has voluntarily committed to waive the portion of its investment advisory fee attributable to an issue of the Fund’s Preferred Stock for any month in which the Fund’s average annual NAV total return since issuance of the Preferred Stock fails to exceed the applicable Preferred Stock’s dividend rate. For the year ended December 31, 2005, the Fund accrued and paid Royce advisory fees totaling $1,436,054.

Distributions to Stockholders:
    The tax character of distributions paid to stockholders during 2005 and 2004 was as follows:


Distributions paid from:

  2005     2004  

Ordinary income

$ 1,682,395   $ 263,335  

Long-term capital gain

  15,806,112     18,427,261  
 
  $ 17,488,507   $ 18,690,596  

    As of December 31, 2005, the tax basis components of distributable earnings included in stockholders’ equity were as follows:


Undistributed net investment income

  $ 536,514  

Undistributed long-term capital gain

    4,130,847  

Unrealized appreciation

    46,241,642  

Accrued preferred distributions

    (33,333 )
   
    $ 50,875,670  

    The difference between book basis and tax basis unrealized appreciation is attributable primarily to the tax deferral on wash sales and the unrealized gains on investments in 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. For the year ended December 31, 2005, the Fund recorded the following permanent reclassifications, which relate primarily to the current net operating losses. Results of operations and net assets were not affected by these reclassifications.


  Undistributed   Accumulated    
  Net Investment   Net Realized   Paid-in
  Income   Gain (Loss)   Capital
 
 
 
  $ 149,466     $ (149,466 )   $  


Purchases and Sales of Investment Securities:
    For the year ended December 31, 2005, the cost of purchases and proceeds from sales of investment securities, other than short-term securities and collateral received for securities loaned, amounted to $55,157,207 and $54,393,314, respectively.


56  |  THE ROYCE FUNDS 2005 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.

     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, 2005, and the related statement of operations for the year then ended, and the statement of changes in net assets for the two years in the period then ended and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
     We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (U.S.). 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. We were not engaged to perform an audit of the Fund’s 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 and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
     In our opinion, the financial statements and financial highlights referred to above and audited by us present fairly, in all material respects, the financial position of Royce Focus Trust, Inc. at December 31, 2005, 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, PA

January 20, 2006

THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS  |  57




DIRECTORS AND OFFICERS


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

NAME AND POSITION: Charles M. Royce (66), Director* and President
Term Expires: 2006                            Tenure: Since 1986 (RVT), 1993 (RMT), 1996 (FUND)
Number of Funds Overseen: 23         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”) (since October 2001), the Trust’s investment adviser.

NAME AND POSITION: Mark R. Fetting (51), Director*
Term Expires: 2007        Tenure: Since 2001                    
Number of Funds Overseen: 46**      Non-Royce Directorships: None
**Director/Trustee of all Royce Funds consisting of 23 portfolios; Director/Trustee of the Legg Mason Family of Funds consisting of 23 portfolios.

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



NAME AND POSITION: Donald R. Dwight (74), Director
Term Expires: 2008                            Tenure: Since 1998
Number of Funds Overseen: 23         Non-Royce Directorships: None

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

NAME AND POSITION: Richard M. Galkin (67), Director
Term Expires: 2007                             Tenure: Since 1986 (RVT), 1993 (RMT), 1996 (FUND)
Number of Funds Overseen: 23         Non-Royce Directorships: None

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

NAME AND POSITION: Stephen L. Isaacs (66), Director
Term Expires: 2008 (RVT), 2008        Tenure: Since 1986 (RVT), 1993
(RMT), 2006 (FUND)                            (RMT), 1996 (FUND)
Number of Funds Overseen: 23         Non-Royce Directorships: None

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

NAME AND POSITION: William L. Koke (71), Director
Term Expires: 2006 (RVT), 2006        Tenure: Since 2001 (RVT), 2001
(RMT), 2008 (FUND)                             (RMT), 1997 (FUND)
Number of Funds Overseen: 23         Non-Royce Directorships: None

Principal Occupation(s) During Past Five Years: Private Investor. Mr. Koke’s prior business experience includes having served as Director of Financial Relations of SONAT, Inc., Treasurer of Ward Foods, Inc. and President of CFC, Inc.
  NAME AND POSITION: Arthur S. Mehlman (64), Director
Term Expires: 2007                            Tenure: Since 2004
Number of Funds Overseen: 46**      Non-Royce Directorships: Director of Municipal Mortgage & Equity, LLC.
**Director/Trustee of all Royce Funds consisting of 23 portfolios; Director/Trustee of the Legg Mason Family of Funds consisting of 23 portfolios.

Principal Occupation(s) During Past Five Years: Director of The League for People with Disabilities, Inc.; Director of University of Maryland Foundation and University of Maryland College Park Foundation (nonprofits). Formerly Partner, KPMG LLP (international accounting firm) (1972-2002). Director of Maryland Business Roundtable for Education (July 1984–June 2002).

NAME AND POSITION: David L. Meister (66), Director
Term Expires: 2006                            Tenure: Since 1986 (RVT), 1993
(RMT), 1996 (FUND)
Number of Funds Overseen: 23         Non-Royce Directorships: None

Principal Occupation(s) During Past Five Years: Private Investor. Chairman and Chief Executive Officer of The Tennis Channel (June 2000–March 2005). Chief Executive Officer of Seniorlife.com (from December 1999 to May 2000). Mr. Meister’s prior business experience includes having served as a consultant to the communications industry, President of Financial News Network, Senior Vice President of HBO, President of Time-Life Films and Head of Broadcasting for Major League Baseball.

NAME AND POSITION: G. Peter O’Brien (60), Director
Term Expires: 2006                            Tenure: Since 2001
Number of Funds Overseen: 46**      Non-Royce Directorships: Director of Technology Investment Capital Corp.
**Director/Trustee of all Royce Funds consisting of 23 portfolios; Director/ Trustee of the Legg Mason Fmaily of Funds consisting of 23 portfolios.

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



NAME AND POSITION: John D. Diederich (54), Vice President and Treasurer
Tenure: Since 1997
Principal Occupation(s) During Past Five Years: Managing Director, Chief Operating Officer and Member of Board of Managers of Royce (since October 2001); Director of Administration of the Funds since April 1993.

NAME AND POSITION: Jack E. Fockler, Jr. (47), Vice President
Tenure: Since 1995 (RVT), 1995 (RMT), 1996 (FUND)
Principal Occupation(s) During Past Five Years: Managing Director and Vice President of Royce, having been employed by Royce since October 1989.

NAME AND POSITION: W. Whitney George (47), Vice President
Tenure: Since 1995 (RVT), 1995 (RMT), 1996 (FUND)
Principal Occupation(s) During Past Five Years: Managing Director and Vice President of Royce, having been employed by Royce since October 1991.

NAME AND POSITION: Daniel A. O’Byrne (43), Vice President and Assistant Secretary
Tenure: Since 1994 (RVT), 1994 (RMT), 1996 (FUND)
Principal Occupation(s) During Past Five Years: Vice President of Royce, having been employed by Royce since October 1986.

NAME AND POSITION: John E. Denneen (38), Secretary
Tenure: 1996-2001 and Since April 2002
Principal Occupation(s) During Past Five Years: General Counsel (Deputy General Counsel prior to 2003), Principal, Chief Legal and Compliance Officer and Secretary of Royce (1996-2001 and since April 2002); Principal of Credit Suisse First Boston Private Equity (2001-2002).


* Interested Director.

58  |  THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS



NOTES TO PERFORMANCE AND OTHER IMPORTANT INFORMATION    


     The thoughts expressed in this Report concerning recent market movements and future prospects for small company stocks are solely the opinion of Royce at December 31, 2005, 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, 2005 and are subject to change at any time without notice. There can be no assurance that securities mentioned in this Report will be included in any Royce-managed portfolio in the future. The Funds invest primarily in securities of mid-, small- and micro-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.
     Standard deviation is a statistical measure within which a fund’s total returns have varied over time. The greater the standard deviation, the greater a fund’s volatility. The Funds’ P/E ratio calculations exclude companies with zero or negative earnings.
     The Russell 2000, Russell 2000 Value, Russell 2000 Growth, Nasdaq Composite, S&P 500 and S&P 600 are unmanaged indices of domestic common stocks. CRSP (Center for Research in Security Pricing) equally divides the companies listed on the NYSE into 10 deciles based on market capitalization. Deciles 1-5 represent the largest domestic equity companies and deciles 6-10 represent the smallest. CRSP then sorts all listed domestic equity companies based on these market cap ranges. By way of comparison, the CRSP 1-5 would have similar capitalization parameters to the S&P 500 and the CRSP 6-10 would approximately match those of the Russell 2000. Returns for the market indices used in this Report were based on information supplied to Royce by Frank Russell and Morningstar. Royce has not independently verified the above described information. The Royce Funds is a service mark of The Royce Funds.

Forward-Looking Statements
This material contains forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve risks and uncertainties, including, among others, statements as to:

   the Funds’ future operating results
   the prospects of the Funds’ portfolio companies
   the impact of investments that the Funds have made or may make
   the dependence of the Funds’ future success on the general economy and its impact on the companies and industries in which the Funds invest, and
   the ability of the Funds’ portfolio companies to achieve their objectives.

     This Report uses words such as “anticipates,” “believes,” “expects,” “future,” “intends,” and similar expressions to identify forward-looking statements. Actual results may differ materially from those projected in the forward-looking statements for any reason.
     The Royce Funds have based the forward-looking statements included in this Report on information available to us on the date of the report, and we assume no obligation to update any such forward-looking statements. Although The Royce Funds undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make through future stockholder communications or reports.

Authorized Share Transactions
     Royce Value Trust, Royce Micro-Cap Trust and Royce Focus Trust may each repurchase up to 300,000 shares of its respective common stock and up to 10% of the issued and outstanding shares of its respective preferred stock during the year ending December 31, 2006. 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.

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.

THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS  |  59



NOTES TO PERFORMANCE AND OTHER IMPORTANT INFORMATION (CONTINUED)    


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.

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, 2005, filed with the Securities and Exchange Commission.

Royce Value Trust, Inc.
     At the 2005 Annual Meeting of Stockholders held on September 29, 2005, the Fund’s stockholders elected four Directors, consisting of:

        Votes For   Votes Abstained

*   Donald R. Dwight     55,341,521     524,245  

*   Stephen L. Isaacs     55,442,757     423,009  

**   William L. Koke     7,494,598     67,784  

**   David L. Meister     7,482,620     79,762  

*   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 2005 Annual Meeting of Stockholders held on September 29, 2005, the Fund’s stockholders elected four Directors, consisting of:

        Votes For   Votes Abstained

*   Donald R. Dwight     21,354,815       181,227  

*   Stephen L. Isaacs     21,362,901       173,141  

**   William L. Koke     1,951,681       18,351  

**   David L. Meister     1,952,481       17,551  

*   Common Stock and Preferred Stock Voting Together as a Single Class
**   Preferred Stock Voting as a Separate Class

Royce Focus Trust, Inc.
At the 2005 Annual Meeting of Stockholders held on September 29, 2005, the Fund’s stockholders elected four Directors, consisting of:

        Votes For   Votes Abstained

*   Donald R. Dwight     12,467,299       123,891  

**   Stephen L. Isaacs     920,921       4,780  

*   William L. Koke     12,723,349       118,841  

**   David L. Meister     920,521       5,180  

*   Common Stock and Preferred Stock Voting Together as a Single Class
**   Preferred Stock Voting as a Separate Class

60  |  THE ROYCE FUNDS 2005 REPORT TO STOCKHOLDERS




POSTSCRIPT

Our Favorite Things

By the time that stockholders and other interested parties are reading this Annual Review and Report to Stockholders, the presents have all been opened, the tree has been taken down and the decorations have been stored away until next year’s holiday season. However, each year we begin preparing the Report and reflecting on the year long before, right in the midst of the holiday season. As December winds to a close, and we look back on the year that will soon be over, our thoughts are invariably mixed with the spirit of the holiday season. This is how the following verses came to be written in December 2005. They are a combination of holiday spirit and another enjoyable year doing the things that we love–helping you to build wealth with our time-tested, disciplined approach to small-cap investing. So, we humbly present our version of a holiday treat, with sincerest apologies to Rodgers and Hammerstein, Julie Andrews and John Coltrane.

Royce’s Holiday Tune (Sung to the Tune of “My Favorite Things”)

Well-run small companies selling for peanuts,
Balance sheets so pure they don’t need much clean-up,
Cash flow, good management, lots of earnings—
These are a few of our favorite things.

Micro-cap businesses Wall Street’s not heard of,
Research ‘til midnight until we feel sure of
A firm that is debt-free and high-returning—
These are a few of our favorite things.

People who sell at the first sign of trouble,
Bargain-priced stocks from the burst of a bubble,
Prices dropped so low they make our hearts sing—
These are a few of our favorite things

Financial statements that tell a good story,
Transparent accounting that won’t make us sorry,
Prices that bottom out from missed earnings—
These are a few of our favorite things

When the price stalls
As the bell rings,
When returns are bad,
We simply remember our favorite things,
And then we don’t feel so sad.

THIS PAGE IS NOT PART OF THE 2005 REPORT TO STOCKHOLDERS



 
   

 

The RoyceFunds


Wealth Of Experience
With approximately $22.4 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 six other Portfolio Managers, as well as eight assistant portfolio managers and analysts, and six 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 $108 million invested in The Royce Funds.

 

   

 
    General Information
Additional Report Copies
and Fund Inquiries
(800) 221-4268


Computershare
Transfer Agent and Registrar
(800) 426-5523
 
Broker/Dealer Services
For Fund Materials and Performance Updates,
(800) 59-ROYCE (597-6923)


Advisor Services
For Fund Materials, Performance Updates
or Account Inquiries
(800) 33-ROYCE (337-6923)
   

 
    www.roycefunds.com    
   
 
 

CE-REP-1205

 
   


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, 2005 - $33,000
    Year ended December 31, 2004 - $31,000
     
(b)   Audit-Related Fees:
    Year ended December 31, 2005 - $1,500 – Preparation of reports to rating agency for Preferred Stock
    Year ended December 31, 2004 - $1,500 – Preparation of reports to rating agency for Preferred Stock
     
(c)   Tax Fees:
    Year ended December 31, 2005 - $2,500 - Preparation of tax returns
    Year ended December 31, 2004 - $2,500 - Preparation of tax returns
     
(d)   All Other Fees:
    Year ended December 31, 2005 - $2,500 – Agreed upon procedures report relating to investment advisory fee calculation
    Year ended December 31, 2004 - $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, 2005 - $11,500
    Year ended December 31, 2004 - $4,000
     
(h)   No such services were rendered during 2005 or 2004.

Item 5: 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. Donald R. Dwight, 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: Not Applicable.

Item 7:

  June 5, 2003
As amended on April 14, 2005

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 directly or indirectly delegated proxy voting authority to Royce. The Boards of Trustees/Directors of The Royce Funds have delegated all proxy voting decisions to Royce, and in the case of Royce Technology Value Fund, to JHC Capital Management subject to these policies and procedures.

Receipt of Proxy Material.    Under the continuous oversight of the Head of Administration, an Administrative Assistant designated by him 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, 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 “Proxy Master” (a service provided by Institutional Shareholder Services),


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 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 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 allowing such differing votes. The Head of Administration 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, poison pills, etc. 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 the designated Administrative Assistant 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.

Custodian banks are authorized to release all shares held for Royce client account portfolios to Automated Data Processing Corporation (“ADP”) for voting, utilizing ADP’s “Proxy Edge” software system. Substantially all portfolio companies utilize ADP to collect their proxy votes. However, for the limited number of portfolio companies that do not utilize ADP, Royce attempts to register at least a portion of its clients holdings as a physical shareholder in order to ensure its receipt of a physical proxy.

Under the continuous oversight of the Head of Administration, the designated Administrative Assistant is responsible for voting all proxies in a timely manner. Votes are returned to ADP using Proxy Edge 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 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 by the designated Administrative Assistant, who 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 (Institutional Shareholder Services). The Head of Administration 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 Proxy Edge 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: (a)(1) Portfolio Managers of Closed-End Management Investment Companies (information as of March 8, 2006)

   Name    Title    Length of Service    Principal Occupation(s) During Past 5 Years
   Charles M. Royce    President, Chief
   Investment Officer and
   member of the Board of
   Managers of Royce &
   Associates, LLC and its
   predecessor, Royce &
   Associates, Inc.
    (collectively, “Royce”)
   Since 1972
President, Chief Investment Officer and member of the Board of Managers of Royce, the Registrant’s investment adviser; Director and President of the Registrant, Royce Micro-Cap Trust, Inc. (“RMT”) and Royce Focus Trust, Inc. (“RFT”), closed-end diversified management investment companies of which Royce is the investment adviser; Trustee and President of The Royce Fund (“TRF”) and Royce Capital Fund (“RCF”), open-end diversified management investment companies of which Royce is the investment adviser (the Registrant, RMT, RFT, TRF, and RCF collectively, “The Royce Funds”); Secretary and sole director of Royce Fund Services, Inc., a wholly-owned subsidiary of Royce and the distributor of the TRF’s shares; and managing general partner of Royce Management Company, the general partner of various private investment limited partnerships until October 2001.
       

(a)(2) Other Accounts Managed by Portfolio Manager and Potential Conflicts of Interest (information as of December 31, 2005)

Other Accounts
   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
   Registered investment companies    11    $14,108,049,219    4    $1,632,203,240
   Private pooled investment vehicles    5    $122,237,742    3    $54,129,612
   Other accounts*    14    $76,418,164    -    -

*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 the 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 the same Portfolio Manager 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 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 the Portfolio Manager’s Performance Bonus and the Portfolio Manager also receives a Firm Bonus based on revenues (adjusted for certain imputed expenses) generated by Royce. In addition, the Portfolio Manager receives a bonus based on Royce’s retained pre-tax profits from operations. As a result, the Portfolio Manager 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 Manager generally manages 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 performancebased 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. The Performance Bonus paid to the Portfolio Manager for 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, two other registered investment company accounts managed by the Portfolio Manager, Royce Select Fund I and Royce Select Fund II, each pay Royce a performance-based fee.

Finally, conflicts of interest may arise when the 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, 2005)

Royce seeks to maintain a compensation program that is competitively positioned to attract and retain high-caliber investment professionals. The Portfolio Manager receives from Royce a base salary, a Performance Bonus and a benefits package. The Portfolio Manager’s 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. The Portfolio Manager’s compensation consists of the following elements:

-  
BASE SALARY.   The 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.  The 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 managed by him. The revenue used to determine the quarterly performance bonus received by the Portfolio Manager that relates to each of the Registrant and RMT are performance-based fee revenues. 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, 2005 there were 390 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 the Portfolio Manager, and to Royce Select Fund I and Royce Select Fund II, 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.

-  
FIRM BONUS.   The Portfolio Manager receives a quarterly bonus based on Royce’s net revenues.
     
-  
BENEFIT PACKAGE.   The 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, the Portfolio Manager 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.

The Portfolio Manager, 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 the Portfolio Manager’s compensation. A portion of the above-described compensation payable to the Portfolio Manager 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, 2005)

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

Dollar Range of Registrant’s Shares Beneficially Owned
Over $1,000,000

Item 9: Not Applicable.



Item 10: 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 8, 2006

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.

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

Date: March 8, 2006

ROYCE VALUE TRUST, INC.

BY: /s/John D. Diederich
 
  John D. Diederich
  Chief Financial Officer

Date: March 8, 2006