UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED AMENDED REPORT
OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-05379
Name of Registrant: Royce Focus 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, 2002 - December 31, 2002
ITEM 1: REPORTS TO SHAREHOLDERS
ROYCE FOCUS TRUST, INC.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS DECEMBER 31, 2002
--------------------------------------------------------------------------------
COMMON STOCKS - 77.3%
SHARES VALUE
------ -----
CONSUMER PRODUCTS - 6.5%
Apparel and Shoes - 1.5%
Nautica Enterprises (a) 104,000 $ 1,155,440
--------------
Home Furnishing/Appliances - 1.1%
Natuzzi ADR (b) 83,800 851,408
--------------
Sports and Recreation - 3.0%
+CALLAWAY GOLF (c) 100,000 1,325,000
Monaco Coach (a) 61,350 1,015,342
--------------
2,340,342
--------------
Other Consumer Products - 0.9%
Oakley (a) 69,100 709,657
--------------
TOTAL (Cost $4,838,569) 5,056,847
==============
CONSUMER SERVICES - 4.6%
Direct Marketing - 1.9%
+NU SKIN ENTERPRISES CL. A 127,000 1,520,190
--------------
Retail Stores - 2.7%
Big Lots (a) 89,400 1,182,762
Charming Shoppes (a) 216,000 902,880
--------------
2,085,642
--------------
TOTAL (Cost $2,918,318) 3,605,832
==============
FINANCIAL INTERMEDIARIES - 6.8%
Insurance - 6.2%
PROASSURANCE (a) 124,255 2,609,355
WHITE MOUNTAINS INSURANCE GROUP (c) 4,000 1,292,000
Zenith National Insurance 39,800 936,096
--------------
4,837,451
--------------
Securities Brokers - 0.6%
E*TRADE Group (a,c) 100,000 486,000
--------------
TOTAL (Cost $3,274,573) 5,323,451
==============
FINANCIAL SERVICES - 2.3%
Insurance Brokers - 1.4%
Gallagher (Arthur J.) & Company 36,000 1,057,680
--------------
Investment Management - 0.9%
+U.S. Global Investors Cl. A (a) 295,605 723,937
--------------
TOTAL (Cost $913,723) 1,781,617
==============
HEALTH - 13.2%
Drugs and Biotech - 8.2%
+Antigenics (a,c) 90,000 921,600
+Emisphere Technologies (a) 200,000 696,000
+ENDO PHARMACEUTICALS HOLDINGS (a) 200,000 1,539,800
+Gene Logic (a) 89,000 559,810
Lexicon Genetics (a) 150,000 709,500
+Perrigo (a) 87,300 1,060,695
+VIVUS (a,c) 250,000 932,500
--------------
6,419,905
--------------
Health Services - 0.8%
Covance (a,c) 25,000 614,750
--------------
Personal Care - 2.0%
OCULAR SCIENCES (a) 100,000 1,552,000
--------------
Surgical Products and Devices - 2.2%
Arrow International 30,200 1,228,234
+VISX (a) 50,000 479,000
--------------
1,707,234
--------------
TOTAL (Cost $10,273,863) 10,293,889
==============
INDUSTRIAL PRODUCTS - 12.5%
Building Systems and Components - 3.0%
SIMPSON MANUFACTURING (a) 70,000 2,303,000
--------------
Construction Materials - 3.1%
FLORIDA ROCK INDUSTRIES 63,350 2,410,467
--------------
Machinery - 5.2%
LINCOLN ELECTRIC HOLDINGS 101,600 2,352,040
WOODWARD GOVERNOR 40,000 1,740,000
--------------
4,092,040
--------------
Other Industrial Products - 1.2%
Wescast Industries Cl. A 37,700 938,730
--------------
TOTAL (Cost $6,861,083) 9,744,237
==============
INDUSTRIAL SERVICES - 5.9%
Commercial Services - 3.7%
Carlisle Holdings (a) 400,000 1,100,000
CORNELL COMPANIES (a) 150,000 1,350,000
On Assignment (a) 50,000 426,000
--------------
2,876,000
--------------
Engineering and Construction - 2.2%
+DYCOM INDUSTRIES (a) 132,500 1,755,625
--------------
TOTAL (Cost $3,810,026) 4,631,625
==============
NATURAL RESOURCES - 13.1%
Energy Services - 1.7%
INPUT/OUTPUT (a) 300,000 1,275,000
--------------
Oil and Gas - 4.4%
TOM BROWN (a) 68,800 1,726,880
3TEC ENERGY (a) 120,000 1,702,800
--------------
3,429,680
--------------
Precious Metals and Mining - 7.0%
ANGLOGOLD ADR (b) 54,600 1,870,596
+GLAMIS GOLD (a,c) 150,000 1,701,000
+GOLDCORP 150,000 1,908,000
--------------
5,479,596
--------------
TOTAL (Cost $7,540,265) 10,184,276
==============
TECHNOLOGY - 12.4%
Aerospace/Defense - 0.4%
Curtiss-Wright 4,800 306,336
--------------
Components and Systems - 2.4%
Dionex (a) 20,000 594,200
Kronos (a) 12,750 471,623
+REMEC (a) 200,000 776,000
--------------
1,841,823
--------------
Distribution - 1.4%
Richardson Electronics (c) 129,000 1,117,140
--------------
THE ROYCE FUNDS ANNUAL REPORT 2002 | 45
ROYCE FOCUS TRUST, INC.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS DECEMBER 31, 2002
--------------------------------------------------------------------------------
SHARES VALUE
------ -----
TECHNOLOGY (CONTINUED)
IT Services - 2.7%
PEROT SYSTEMS CL. A (a) 133,600 $ 1,432,192
Syntel (a) 30,200 634,502
--------------
2,066,694
--------------
Semiconductors and Equipment - 0.8%
Exar (a) 50,000 620,000
--------------
Software - 2.6%
JDA Software Group (a,c) 70,000 676,200
+Lightspan (a) 669,500 703,644
+Transaction Systems Architects Cl. A (a) 100,000 650,000
--------------
2,029,844
--------------
Telecommunication - 2.0%
+ANAREN (a,c) 140,000 1,232,000
+Somera Communications (a,c) 130,000 351,000
--------------
1,583,000
--------------
TOTAL (Cost $9,079,144) 9,564,837
==============
TOTAL COMMON STOCKS
(Cost $49,509,564) 60,186,611
--------------
PRINCIPAL
AMOUNT
---------
CORPORATE BONDS - 2.9%
+E*TRADE Group 6.00%
Conv. Sub. Note due 2/1/07 $3,000,000 $ 2,250,000
--------------
TOTAL CORPORATE BONDS
(Cost $2,147,894) 2,250,000
==============
U.S. TREASURY OBLIGATIONS - 7.0%
U.S. Treasury Notes
7.25%, due 8/15/04 5,000,000 5,469,335
--------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $5,047,341) 5,469,335
==============
REPURCHASE AGREEMENT - 12.8%
State Street Bank & Trust Company,
0.50% dated 12/31/02, due 1/2/03,
maturity value $9,943,276
(collateralized by U.S. Treasury Notes,
5.00% due 8/15/11, valued at $10,145,560)
(Cost $9,943,000) 9,943,000
==============
TOTAL INVESTMENTS - 100.0%
(Cost $66,647,799) 77,848,946
CASH AND OTHER ASSETS
LESS LIABILITIES 107,020
PREFERRED STOCK (20,000,000)
--------------
NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS $ 57,955,966
==============
--------------------------------------------------------------------------------
(a) Non-income producing.
(b) American Depository Receipt.
(c) A portion of these securities were on loan at December 31, 2002. Total
market value of loaned securities at December 31, 2002 was $1,242,139.
(+) New additions in 2002.
BOLD INDICATES THE FUND'S LARGEST 20 EQUITY HOLDINGS IN TERMS OF
DECEMBER 31, 2002 MARKET VALUE.
INCOME TAX INFORMATION: The cost of total investments for Federal income tax
purposes was $66,972,929. At December 31, 2002, net unrealized appreciation for
all securities was $10,876,017, consisting of aggregate gross unrealized
appreciation of $14,442,522 and aggregate gross unrealized depreciation of
$3,566,505. The primary differences in book and tax basis cost is the timing of
the recognition of losses on securities sold and amortization of discount for
book and tax purposes.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
46 | THE ROYCE FUNDS ANNUAL REPORT 2002
ROYCE FOCUS TRUST, INC.
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2002
--------------------------------------------------------------------------------
ASSETS:
Investments at value (identified cost $56,704,799) $67,905,946
Repurchase agreement (at cost and value) 9,943,000
Cash 333
Collateral from brokers on securities loaned 1,295,145
Receivable for dividends and interest 240,052
Prepaid expenses 2,423
--------------------------------------------------------------------------------
Total Assets 79,386,899
--------------------------------------------------------------------------------
LIABILITIES:
Payable for collateral on securities loaned 1,295,145
Payable for investment advisory fee 49,620
Preferred dividends accrued but not yet declared 33,112
Accrued expenses 53,056
--------------------------------------------------------------------------------
Total Liabilities 1,430,933
--------------------------------------------------------------------------------
PREFERRED STOCK:
7.45% Cumulative Preferred Stock - $0.001 par value,
$25 liquidation value per share; 800,000 shares outstanding 20,000,000
--------------------------------------------------------------------------------
Total Preferred Stock 20,000,000
--------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS $57,955,966
================================================================================
ANALYSIS OF NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:
Par value of Common Stock - $0.001 per share;
9,241,025 shares outstanding (100,000,000 shares authorized) $ 9,241
Additional paid-in capital 45,713,027
Accumulated net realized gain on investments 1,065,663
Net unrealized appreciation on investments 11,201,147
Preferred dividends accrued but not yet declared (33,112)
--------------------------------------------------------------------------------
Net Assets applicable to Common Stockholders
(net asset value per share - $6.27) $57,955,966
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
Year ended Year ended
December 31, December 31,
2002 2001
------------ ------------
INVESTMENT OPERATIONS:
Net investment income (loss) $ (103,396) $ 431,263
Net realized gain on investments 1,317,847 2,603,772
Net change in unrealized appreciation
on investments (8,047,125) 4,458,997
--------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from investment operations (6,832,674) 7,494,032
--------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income (272,620) (321,840)
Net realized gain on investments (1,217,380) (1,168,160)
--------------------------------------------------------------------------------
Total distributions to Preferred Stockholders (1,490,000) (1,490,000)
--------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
APPLICABLE TO COMMON STOCKHOLDERS
RESULTING FROM INVESTMENT OPERATIONS (8,322,674) 6,004,032
================================================================================
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income (150,865) (272,127)
Net realized gain on investments (673,654) (987,720)
--------------------------------------------------------------------------------
Total distributions to Common Stockholders (824,519) (1,259,847)
--------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
Reinvestment of distributions to Common
Stockholders 449,516 976,135
--------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE
TO COMMON STOCKHOLDERS (8,697,677) 5,720,320
NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:
Beginning of year 66,653,643 60,933,323
--------------------------------------------------------------------------------
End of year (including undistributed net
investment income of $423,485 in 2001) $57,955,966 $66,653,643
================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ROYCE FUNDS ANNUAL REPORT 2002 | 47
ROYCE FOCUS TRUST, INC.
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2002
--------------------------------------------------------------------------------
INVESTMENT INCOME:
Income:
Interest $ 684,730
Dividends 400,374
--------------------------------------------------------------------------------
Total income 1,085,104
--------------------------------------------------------------------------------
Expenses:
Investment advisory fees 833,072
Stockholder meeting costs 212,505
Custody and transfer agent fees 73,880
Professional fees 34,460
Stockholder reports 37,213
Directors' fees 34,053
Administrative and office facilities expenses 21,538
Other expenses 59,038
--------------------------------------------------------------------------------
Total expenses 1,305,759
Fees waived by investment adviser (117,259)
--------------------------------------------------------------------------------
Net expenses 1,188,500
--------------------------------------------------------------------------------
Net investment income (loss) (103,396)
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 1,317,847
Net change in unrealized appreciation on investments (8,047,125)
--------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (6,729,278)
--------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM INVESTMENT OPERATIONS (6,832,674)
================================================================================
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS (1,490,000)
================================================================================
NET DECREASE IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS
RESULTING FROM INVESTMENT OPERATIONS $(8,322,674)
================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
48 | THE ROYCE FUNDS ANNUAL REPORT 2002
ROYCE FOCUS TRUST, INC.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
This table is presented to show selected data for a share of Common Stock
outstanding throughout each period, and to assist stockholders in evaluating the
Fund's performance for the periods presented.
Years ended December 31,
------------------------------------------------------------------
2002 2001 2000 1999 1998
----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $7.28 $6.77 $5.94 $5.63 $6.04
----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS:
Net investment income (loss) (0.01) 0.05 0.12 0.08 0.12
Net realized and unrealized gain (loss) on investments (0.74) 0.79 1.26 0.58 (0.35)
----------------------------------------------------------------------------------------------------------------------------------
Total investment operations (0.75) 0.84 1.38 0.66 (0.23)
----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
Net investment income (0.03) (0.04) (0.03) (0.01) (0.16)
Net realized gain on investments (0.13) (0.13) (0.14) (0.17) (0.02)
----------------------------------------------------------------------------------------------------------------------------------
Total distributions to Preferred Stockholders (0.16) (0.17) (0.17) (0.18) (0.18)
----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
APPLICABLE TO COMMON STOCKHOLDERS
RESULTING FROM INVESTMENT OPERATIONS (0.91) 0.67 1.21 0.48 (0.41)
----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
Net investment income (0.02) (0.03) (0.06) (0.01) -
Net realized gain on investments (0.07) (0.11) (0.28) (0.14) -
----------------------------------------------------------------------------------------------------------------------------------
Total distributions to Common Stockholders (0.09) (0.14) (0.34) (0.15) -
----------------------------------------------------------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
Effect of reinvestment of distributions by Common Stockholders (0.01) (0.02) (0.04) (0.02) -
----------------------------------------------------------------------------------------------------------------------------------
Total capital stock transactions (0.01) (0.02) (0.04) (0.02) -
----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $6.27 $7.28 $6.77 $5.94 $5.63
==================================================================================================================================
MARKET VALUE, END OF PERIOD $5.56 $6.65 $5.69 $4.72 $4.88
==================================================================================================================================
TOTAL RETURN (a):
Market Value (15.1)% 19.7% 27.9% (0.3)% (3.7)%
Net Asset Value (12.5)% 10.0% 20.9% 8.7% (6.8)%
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO
COMMON STOCKHOLDERS:
Total expenses (b,c) 1.88% 1.47% 1.44% 1.51% 1.62%
Management fee expense 1.13% 1.11% 1.00% 1.00% 1.14%
Other operating expenses 0.75% 0.36% 0.44% 0.51% 0.48%
Net investment income (loss) (0.16)% 0.70% 1.93% 1.47% 1.95%
SUPPLEMENTAL DATA:
Net Assets Applicable to Common Stockholders, End of Period
(in thousands) $57,956 $66,654 $60,933 $51,003 $47,457
Liquidation Value of Preferred Stock, End of Period
(in thousands) $20,000 $20,000 $20,000 $20,000 $20,000
Portfolio Turnover Rate 61% 54% 69% 60% 90%
PREFERRED STOCK:
Total shares outstanding 800,000 800,000 800,000 800,000 800,000
Asset coverage per share $97.44 $108.32 $101.17 $88.75 $84.32
Liquidation preference per share $25.00 $25.00 $25.00 $25.00 $25.00
Average market value per share (d) $25.64 $25.09 $22.23 $24.00 $25.16
==================================================================================================================================
(a) The Market Value Total Return is calculated assuming a purchase of Common
Stock on the opening of the first business day and a sale on the closing of
the last business day of each period reported. Dividends and distributions,
if any, are assumed for the purposes of this calculation, to be reinvested
at prices obtained under the Fund's Distribution Reinvestment and Cash
Purchase Plan. Net Asset Value Total Return is calculated on the same basis,
except that the Fund's net asset value is used on the purchase and sale
dates instead of market value.
(b) Expense ratios based on total average net assets including liquidation value
of Preferred Stock were 1.43%, 1.11%, 1.05%, 1.06% and 1.16% for the periods
ended December 31, 2002, 2001, 2000, 1999 and 1998, respectively.
(c) Expense ratios based on average net assets applicable to Common Stockholders
before waiver of fees by the investment adviser would have been 2.06%,
1.69%, 1.81%, 1.93% and 1.88% for the periods ended December 31, 2002, 2001,
2000, 1999 and 1998, respectively.
(d) The average of month-end market values during the period.
THE ROYCE FUNDS ANNUAL REPORT 2002 | 49
ROYCE FOCUS TRUST, INC.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Royce Focus Trust, Inc. (the "Fund") is a diversified closed-end
investment company. The Fund commenced operations on March 2, 1988 and Royce
& Associates,LLC ("Royce") assumed investment management responsibility for
the Fund on November 1, 1996.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts
of income and expenses during the reporting period. Actual results could
differ from those estimates.
VALUATION OF INVESTMENTS:
Securities listed on an exchange or on the Nasdaq National Market
System (NMS) are valued on the basis of the last reported sale prior to
the time the valuation is made or, if no sale is reported for such day,
at their bid price for exchange-listed securities and at the average of
their bid and asked prices for Nasdaq NMS securities. Quotations are
taken from the market where the security is primarily traded. Other
over-the-counter securities for which market quotations are readily
available are valued at their bid price. Securities for which market
quotations are not readily available are valued at their fair value under
procedures established by the Fund's Board of Directors. Bonds and other
fixed income securities may be valued by reference to other securities
with comparable ratings, interest rates and maturities, using established
independent pricing services.
INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME:
Investment transactions are accounted for on the trade date. Dividend
income is recorded on the ex-dividend date and any non-cash dividend income
is recorded at the fair market value of the securities received. Interest
income is recorded on the accrual basis. Realized gains and losses from
investment transactions are determined on the basis of identified cost for
book and tax purposes.
EXPENSES:
The Fund incurs direct and indirect expenses. Expenses directly
attributable to the Fund are charged to the Fund's operations, while expenses
applicable to more than one of the Royce Funds are allocated in an equitable
manner. Allocated personnel and occupancy costs related to The Royce Funds
are included in administrative and office facilities expenses. The Fund has
adopted a deferred fee agreement that allows the Fund's Directors to defer
the receipt of all or a portion of Directors' Fees otherwise payable. The
deferred fees remain invested in certain Royce Funds until distributed in
accordance with the agreement.
TAXES:
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the extent
that it distributes substantially all of its taxable income for its fiscal
year. The Schedule of Investments includes information regarding income taxes
under the caption "Income Tax Information".
DISTRIBUTIONS:
Distributions to Common Stockholders are recorded on the ex-dividend date
and paid annually in December. Distributions to Preferred Stockholders are
recorded on an accrual basis and paid quarterly. Distributions are determined
in accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America. Permanent book
and tax basis differences relating to stockholder distributions will result
in reclassifications within the capital accounts. Undistributed net
investment income may include temporary book and tax basis differences, which
will reverse in a subsequent period. Any taxable income or gain remaining
undistributed at fiscal year end is distributed in the following year.
REPURCHASE AGREEMENTS:
The Fund enters into repurchase agreements with respect to its portfolio
securities solely with State Street Bank and Trust Company ("SSB&T"), the
custodian of its assets. The Fund restricts repurchase agreements to
maturities of no more than seven days. Securities pledged as collateral for
repurchase agreements, which are held by SSB&T until maturity of the
repurchase agreements, are marked-to-market daily and maintained at a value
at least equal to the principal amount of the repurchase agreement (including
accrued interest). Repurchase agreements could involve certain risks in the
event of default or insolvency of SSB&T, including possible delays or
restrictions upon the ability of the Fund to dispose of the underlying
securities.
2. SECURITIES LENDING:
The Fund loans securities to qualified institutional investors for
the purpose of realizing additional income. This income is included in
interest income. Collateral on all securities loaned for the Fund is accepted
in cash and is invested temporarily, typically, and specifically at December
31, 2002, in a registered money market fund, by the custodian. The collateral
is equal to at least 100% of the current market value of the loaned
securities.
50 | THE ROYCE FUNDS ANNUAL REPORT 2002
ROYCE FOCUS TRUST, INC.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
3. CAPITAL STOCK:
The Fund currently has 800,000 shares of 7.45% Cumulative Preferred Stock
outstanding. The stock has a liquidation preference of $25.00 per share.
Under the Investment Company Act of 1940, the Fund is required to
maintain an asset coverage of at least 200% for the Preferred Stock. In
addition, pursuant to the Rating Agency Guidelines established by Moody's,
the Fund is required to maintain a certain discounted asset coverage. The
Fund has met these requirements since issuing the Preferred Stock.
The Fund is required to allocate long-term capital gain distributions
and other types of income proportionately to distributions made to holders of
shares of Common Stock and Preferred Stock. To the extent that distributions
on the shares of Preferred Stock are not paid from long-term capital gains,
net investment income or net short-term capital gains, they will represent a
return of capital.
The Fund issued 79,701 and 162,419 shares of Common Stock as reinvestment
of distributions by Common Stockholders for the years ended December 31, 2002
and 2001, respectively.
4. 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 liquidation value of Preferred
Stock. Royce has voluntarily committed to waive the portion of its investment
advisory fee attributable to the Fund's Preferred Stock for any month in
which the Fund's average annual NAV total return since issuance of the
Preferred Stock fails to exceed the Preferred Stock's dividend rate.
For the year ended December 31, 2002, the Fund accrued and paid Royce
advisory fees totaling $715,813, which is net of $117,259 voluntarily waived
by Royce.
5. DISTRIBUTIONS TO STOCKHOLDERS:
The tax character of distributions paid to stockholders during 2002
and 2001 was as follows:
---------------------------------------------------------------------
Distributions paid from: 2002 2001
---- ----
Ordinary income $ 423,485 $ 593,967
Long-term capital gain 1,891,034 2,155,880
---------- ----------
$2,314,519 $2,749,847
========== ==========
---------------------------------------------------------------------
As of December 31, 2002, the tax basis components of distributable
earnings included in stockholders' equity were as follows:
----------------------------------------------
Undistributed long-term gain $ 1,390,793
Unrealized appreciation 10,876,017
Accrued preferred distributions (33,112)
-----------
$12,233,698
===========
----------------------------------------------
6. PURCHASES AND SALES OF INVESTMENT SECURITIES:
For the year ended December 31, 2002, the cost of purchases and proceeds
from sales of investment securities, other than short-term securities,
amounted to $43,961,561 and $47,800,885, respectively.
7. PREFERRED STOCK PRESENTATION
To reflect recent accounting guidance from the Securities and Exchange
Commission, the Statement of Assets and Liabilities has been modified to
present the liquidation value of Preferred Stock below Liabilities and above
Net Assets Applicable to Common Stockholders. As revised, Preferred Stock is
no longer included as a component of net assets of the Fund. Likewise, the
Statement of Operations, the Statement of Changes in Net Assets, and the
Financial Highlights have been revised to show distributions to Preferred
Stockholders as a component of the net decrease in net assets applicable to
Common Stockholders resulting from investment operations. These
modifications do not change the amount of net assets applicable to Common
Stockholders, the net asset value per share of Common Stock, or the total
return per share of Common Stock.
THE ROYCE FUNDS ANNUAL REPORT 2002 | 51
ROYCE FOCUS TRUST, INC.
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
--------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF ROYCE FOCUS TRUST, INC.
We have audited the accompanying statement of assets and liabilities of
Royce Focus Trust, Inc., including the schedule of investments, as of December
31, 2002, and the related statement of operations for the year ended, and the
statement of changes in net assets for the two years in the period then ended
and the financial highlights for each of the five years in the period then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights. Our procedures
included confirmation of securities owned as of December 31, 2002, by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above and audited by us present fairly, in all material respects, the
financial position of Royce Focus Trust, Inc. at December 31, 2002, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended and the financial highlights for
each of the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
TAIT, WELLER & BAKER
Philadelphia, PA
January 15, 2003, except for Note 7, as to which the date is September 12, 2003
52 | THE ROYCE FUNDS ANNUAL REPORT 2002
ITEM 2: CODE(S) OF ETHICS - NOT APPLICABLE TO THIS AMENDED ANNUAL REPORT.
ITEM 3: AUDIT COMMITTEE FINANCIAL EXPERT - NOT APPLICABLE TO THIS AMENDED ANNUAL
REPORT.
ITEM 4: PRINCIPAL ACCOUNTANT FEES AND SERVICES - NOT APPLICABLE TO THIS AMENDED
ANNUAL REPORT.
ITEM 5: AUDIT COMMITTEE OF LISTED REGISTRANTS. NOT APPLICABLE TO THIS AMENDED
ANNUAL REPORT.
ITEM 6: RESERVED.
ITEM 7: DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES -
In June 2003, in response to rules adopted by the Commission, Royce
adopted written proxy voting policies and procedures (the "Proxy Voting
Procedures") for itself, the Fund, and all The Royce Funds and clients accounts
for which Royce is responsible for voting proxies. The Board of Directors of the
Fund has delegated all proxy voting decisions to Royce. In voting proxies, Royce
is guided by general fiduciary principles. Royce's goal is to act prudently,
solely in the best interest of the beneficial owners of the accounts it manages.
Royce attempts to consider all factors of its vote that could affect the value
of the investment and will vote proxies in the manner it believes will be
consistent with efforts to enhance and/or protect stockholder value.
Royce personnel are responsible for monitoring receipt of all proxies
and ensuring that proxies are received for all securities for which Royce has
proxy voting responsibility. Royce divides proxies into "regularly recurring"
and "non-regularly recurring" matters. Examples of regularly recurring matters
include non-contested elections of directors and non-contested approvals of
independent auditors. Regularly recurring matters are usually voted as
recommended by the issuer's board of directors or management. Non-regularly
recurring matters are brought to the attention of portfolio manager(s) for the
applicable account(s) and, after giving consideration to advisories provided by
an independent third party research firm, the portfolio manager(s) directs that
such matters be voted in a way that he believes should better protect or enhance
the value of the investment. If the portfolio manager determines that
information relating to a proxy requires additional analysis, is missing, or is
incomplete, the portfolio manager will give the proxy to an analyst or another
portfolio manager for review and analysis. Under certain circumstances, Royce
may vote against a proposal from the issuer's board of directors or management.
Royce's portfolio managers decide these issues on a case-by-case basis. A Royce
portfolio manager may, on occasion, decide to abstain from voting a proxy or a
specific proxy item when such person concludes that the potential benefit of
voting is outweighed by the cost or when it is not in the client's best interest
to vote.
In furtherance of Royce's goal to vote proxies in the best interests of
its clients, Royce follows specific procedures outlined in the Proxy Voting
Procedures to identify, assess and address material conflicts that may arise
between Royce's interests and those of its clients before voting proxies on
behalf of such clients. In the event such a material conflict of interest is
identified, the proxy will be voted by Royce in accordance with the
recommendation given by an independent third party research firm.
ITEM 8: RESERVED.
ITEM 9: 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 amended report.
(b) Internal Controls. There were no significant changes in Registrant's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
ITEM 10: EXHIBITS ATTACHED HERETO. (ATTACH CERTIFICATIONS AS EXHIBITS)
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 FOCUS TRUST, INC.
BY: /s/ Charles M. Royce
CHARLES M. ROYCE
PRESIDENT
Date: October 8, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this amended report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
ROYCE FOCUS TRUST, INC.
BY: /s/ Charles M. Royce
CHARLES M. ROYCE
PRESIDENT
Date: October 8, 2003
ROYCE FOCUS TRUST, INC.
BY: /s/ John D. Diederich
JOHN D. DIEDERICH
CHIEF FINANCIAL OFFICER
Date: October 8, 2003