Annual Royce Investment Partners Update—Royce
article , video 02-23-2021

U.S. Small Cap Analysts' Brief

 

SCHEDULES OF INVESTMENTS

ROYCE CAPITAL FUND - MICRO-CAP PORTFOLIO
MARCH 31, 2020 (UNAUDITED)

 

    SHARES   VALUE
COMMON STOCKS – 98.0%                
                 
Communication Services – 2.1%                
Entertainment - 1.1%                
Gaia Cl. A 1     116,600     $ 1,035,408  
Interactive Media & Services - 0.8%                
QuinStreet 1     99,800       803,390  
Media - 0.2%                
Marchex Cl. B 1                
      126,100       182,845  
Total             2,021,643  
                 
Consumer Discretionary – 7.8%                
Auto Components - 2.2%                
Fox Factory Holding 1,2     16,000       672,000  
Stoneridge 1     64,100       1,073,675  
Unique Fabricating 1     173,300       405,522  
              2,151,197  
Diversified Consumer Services - 0.4%                
Collectors Universe     27,000       423,090  
Hotels, Restaurants & Leisure - 1.0%                
Century Casinos 1     192,100       462,961  
Cheesecake Factory     12,600       215,208  
Lindblad Expeditions Holdings 1     83,300       347,361  
              1,025,530  
Household Durables - 0.4%                
Lovesac Company (The) 1,2     64,000       373,120  
Internet & Direct Marketing Retail - 0.8%                
Rubicon Project (The) 1     131,900       732,045  
Leisure Products - 0.6%                
MasterCraft Boat Holdings 1,2     80,117       584,854  
Specialty Retail - 1.9%                
Citi Trends     61,086       543,666  
OneWater Marine Cl. A 1     49,800       380,970  
Shoe Carnival     47,100       978,267  
              1,902,903  
Textiles, Apparel & Luxury Goods - 0.5%                
Vera Bradley 1     122,200       503,464  
Total             7,696,203  
                 
Consumer Staples – 0.2%                
Beverages - 0.2%                
Eastside Distilling 1                
      131,200       152,192  
Total             152,192  
                 
Energy  – 2.2%                
Energy Equipment & Services - 1.4%                
Natural Gas Services Group 1     89,600       399,616  
Newpark Resources 1     227,400       203,978  
Pason Systems     85,300       378,828  
Profire Energy 1                
      527,729       415,639  
              1,398,061  
Oil, Gas & Consumable Fuels - 0.8%        
Ardmore Shipping     154,800       812,700  
Total             2,210,761  
                 
Financials – 15.8%                
Banks - 6.8%                
Allegiance Bancshares     29,400       708,834  
BayCom Corporation 1     54,282       654,098  
Caribbean Investment Holdings     1,751,547       554,490  
County Bancorp     54,100       1,000,850  
HarborOne Bancorp 1     134,691       1,014,223  
HomeTrust Bancshares     44,700       711,624  
Howard Bancorp 1     28,100       305,166  
Investar Holding     63,000       804,510  
Midway Investments 1,3     1,751,577       0  
Professional Holding Cl. A 1     14,600       232,870  
TriState Capital Holdings 1     73,172       707,574  
              6,694,239  
Capital Markets - 4.6%                
B. Riley Financial     70,700       1,302,294  
Canaccord Genuity Group     222,500       684,591  
INTL FCStone 1     24,000       870,240  
Silvercrest Asset Management Group Cl. A     90,300       854,238  
Sprott     490,600       798,319  
              4,509,682  
Diversified Financial Services - 0.3%                
Waterloo Investment Holdings 1,3     1,302,000       325,500  
Insurance - 0.6%                
Benefytt Technologies Cl. A 1,2     28,000       626,920  
Thrifts & Mortgage Finance - 3.5%                
Meridian Bancorp     41,900       470,118  
PCSB Financial     66,500       930,335  
Territorial Bancorp     41,900       1,028,645  
Western New England Bancorp     154,654       1,045,461  
              3,474,559  
Total             15,630,900  
                 
Health Care – 14.5%                
Biotechnology - 2.9%                
BioSpecifics Technologies 1     15,600       882,492  
CareDx 1     8,600       187,738  
Dynavax Technologies 1     129,100       455,723  
Zealand Pharma 1     38,158       1,315,543  
              2,841,496  
Health Care Equipment & Supplies - 7.6%                
Apyx Medical 1     88,900       319,151  
AtriCure 1     36,900       1,239,471  
Chembio Diagnostics 1     186,600       955,392  
CryoLife 1     40,489       685,074  
Mesa Laboratories     4,700       1,062,623  
Misonix 1     21,600       203,472  
OrthoPediatrics Corporation 1,2     37,000       1,466,680  
Profound Medical 1     63,200       608,064  
Surmodics 1     27,878       928,895  
              7,468,822  
Health Care Providers & Services - 0.0%        
Sharps Compliance 1     5,600       44,464  
Life Sciences Tools & Services - 3.3%                
Harvard Bioscience 1     376,668       832,436  
NeoGenomics 1     51,100       1,410,871  
Quanterix Corporation 1     54,300       997,491  
              3,240,798  
Pharmaceuticals - 0.7%                
Axsome Therapeutics 1     12,200       717,726  
Total             14,313,306  
                 
Industrials – 22.5%                
Aerospace & Defense - 0.7%                
Astronics Corporation 1     31,026       284,819  
CPI Aerostructures 1     174,544       392,724  
              677,543  
Airlines - 0.1%                
Hawaiian Holdings     11,200       116,928  
Commercial Services & Supplies - 1.7%                
Acme United     44,965       911,441  
Heritage-Crystal Clean 1     47,334       768,704  
              1,680,145  
Construction & Engineering - 5.3%                
Ameresco Cl. A 1     80,700       1,374,321  
Construction Partners Cl. A 1,2     82,100       1,386,669  
IES Holdings 1     19,000       335,350  
Northwest Pipe 1     60,100       1,337,225  
NV5 Global 1     18,200       751,478  
              5,185,043  
Electrical Equipment - 1.5%                
American Superconductor 1     138,100       756,788  
Encore Wire     17,000       713,830  
              1,470,618  
Industrial Conglomerates - 0.4%                
Raven Industries     17,000       360,910  
Machinery - 5.8%                
Alimak Group     80,300       708,186  
CIRCOR International 1     36,700       426,821  
Graham Corporation     78,620       1,014,198  
Luxfer Holdings     59,600       842,744  
Porvair     149,900       940,725  
Spartan Motors     67,700       874,007  
Wabash National     88,500       638,970  
Westport Fuel Systems 1     345,300       324,893  
              5,770,544  
Marine - 1.2%                
Clarkson 1     42,000       1,203,418  
Professional Services - 4.4%                
CRA International     22,106       738,562  
Forrester Research 1     8,900       260,147  
GP Strategies 1     98,608       641,938  
Heidrick & Struggles International     44,400       999,000  
Kforce     30,200       772,214  
Resources Connection     84,754       929,751  
              4,341,612  
Trading Companies & Distributors - 1.4%        
Lawson Products 1     27,200       726,784  
Transcat 1     25,300       670,450  
              1,397,234  
Total             22,203,995  
                 
Information Technology – 26.5%                
Communications Equipment - 1.8%                
Digi International 1     97,400       929,196  
EMCORE Corporation 1     206,800       463,232  
Harmonic 1     67,900       391,104  
              1,783,532  
Electronic Equipment, Instruments & Components - 7.1%                
Fabrinet 1     13,069       713,044  
FARO Technologies 1     23,100       1,027,950  
LightPath Technologies Cl. A 1     396,300       424,041  
Luna Innovations 1     123,600       760,140  
nLIGHT 1,2     60,900       638,841  
Novanta 1     8,600       686,968  
PAR Technology 1     39,600       509,256  
PC Connection     27,800       1,145,638  
Vishay Precision Group 1     51,700       1,038,136  
              6,944,014  
IT Services - 0.6%                
Cass Information Systems     16,148       567,764  
Semiconductors & Semiconductor Equipment - 14.2%                
Aehr Test Systems 1     398,300       665,161  
Axcelis Technologies 1     42,900       785,499  
AXT 1     252,800       811,488  
Brooks Automation     18,400       561,200  
Camtek     109,200       919,464  
Cohu     67,700       838,126  
CyberOptics Corporation 1     48,200       824,702  
Everspin Technologies 1     155,100       406,362  
Ichor Holdings 1     45,300       867,948  
NeoPhotonics Corporation 1     200,900       1,456,525  
Nova Measuring Instruments 1,2     42,000       1,371,300  
PDF Solutions 1     98,400       1,153,248  
Photronics 1     133,100       1,365,606  
Silicon Motion Technology ADR     26,900       986,154  
Ultra Clean Holdings 1     74,900       1,033,620  
              14,046,403  
Software - 2.4%                
Agilysys 1     57,100       953,570  
QAD Cl. A     35,000       1,397,550  
              2,351,120  
Technology Hardware, Storage & Peripherals - 0.4%                
AstroNova     53,400       414,384  
Total             26,107,217  
                 
Materials – 3.1%                
Chemicals - 0.8%                
FutureFuel Corporation     3,900       43,953  
Trecora Resources 1     133,200       792,540  
              836,493  
Metals & Mining - 2.3%        
Altius Minerals     78,900       397,499  
Haynes International     39,870       821,721  
Major Drilling Group International 1     299,700       606,939  
Universal Stainless & Alloy Products 1     53,700       414,027  
              2,240,186  
Total             3,076,679  
                 
Real Estate – 3.3%                
Equity Real Estate Investment Trusts (REITs) - 1.5%                
Community Healthcare Trust     13,500       516,780  
Postal Realty Trust Cl. A     58,400       923,888  
              1,440,668  
Real Estate Management & Development - 1.8%                
FRP Holdings 1     23,440       1,007,920  
Marcus & Millichap 1     29,900       810,290  
              1,818,210  
Total             3,258,878  
                 
TOTAL COMMON STOCKS                
(Cost $115,093,287)             96,671,774  
                 
REPURCHASE AGREEMENT – 1.2%                
Fixed Income Clearing Corporation,
0.00% dated 3/31/20, due 4/1/20,
maturity value $1,209,000 (collateralized
by obligations of various U.S. Government
Agencies, 1.375% due 10/15/22, valued at $1,236,278)
               
(Cost $1,209,000)             1,209,000  
                 
COLLATERAL RECEIVED FOR SECURITIES                
LOANED – 0.9%                
Money Market Funds                
Federated Government Obligations Fund                
(7 day yield-0.33%)                
(Cost $865,462)             865,462  
                 
TOTAL INVESTMENTS – 100.1%                
(Cost $117,167,749)             98,746,236  
                 
LIABILITIES LESS CASH                
AND OTHER ASSETS – (0.1)%             (90,627 )
                 
NET ASSETS – 100.0%           $ 98,655,609  

 

 

 

 

 

 

SCHEDULES OF INVESTMENTS

ROYCE CAPITAL FUND - SMALL-CAP PORTFOLIO
MARCH 31, 2020 (UNAUDITED)

 

    SHARES   VALUE
COMMON STOCKS – 92.9%                
                 
Communication Services – 1.5%                
Media - 1.5%                
Saga Communications Cl. A     94,777      $ 2,607,315  
Total             2,607,315  
                 
Consumer Discretionary – 12.0%                
Auto Components - 0.5%                
Gentex Corporation     42,416       939,939  
Hotels, Restaurants & Leisure - 1.5%                
Cheesecake Factory     33,000       563,640  
Hilton Grand Vacations 1     129,709       2,045,511  
              2,609,151  
Household Durables - 1.7%                
La-Z-Boy     40,386       829,932  
PulteGroup     94,350       2,105,892  
              2,935,824  
Leisure Products - 0.4%                
MasterCraft Boat Holdings 1     94,300       688,390  
Specialty Retail - 6.8%                
American Eagle Outfitters     313,165       2,489,662  
Caleres     181,417       943,368  
Designer Brands Cl. A     384,066       1,912,649  
OneWater Marine Cl. A 1     128,900       986,085  
Rent-A-Center     216,160       3,056,502  
Shoe Carnival     132,036       2,742,388  
              12,130,654  
Textiles, Apparel & Luxury Goods - 1.1%                
G-III Apparel Group 1     146,895       1,131,092  
Steven Madden     32,606       757,437  
              1,888,529  
Total             21,192,487  
                 
Consumer Staples – 0.5%                
Food & Staples Retailing - 0.5%                
Village Super Market Cl. A     38,840       954,687  
Total             954,687  
                 
Energy – 2.4%                
Energy Equipment & Services - 1.3%                
DMC Global     32,306       743,361  
Helmerich & Payne     56,400       882,660  
Solaris Oilfield Infrastructure Cl. A     132,000       693,000  
              2,319,021  
Oil, Gas & Consumable Fuels - 1.1%                
                 
Bonanza Creek Energy 1     111,608       1,255,590  
Dorchester Minerals L.P.     32,200       299,782  
Penn Virginia 1,2     111,426       344,306  
              1,899,678  
Total             4,218,699  
                 
Financials – 28.4%                
Banks - 12.4%                
Ames National     143,419       2,932,919  
Camden National     87,794       2,761,121  
City Holding Company     39,060       2,598,662  
CNB Financial     137,849       2,601,211  
Codorus Valley Bancorp     61,843       995,672  
Financial Institutions     60,182       1,091,702  
Landmark Bancorp     41,420       844,968  
MidWestOne Financial Group     53,792       1,126,404  
National Bankshares     104,868       3,345,289  
Northrim BanCorp     85,381       2,305,287  
Unity Bancorp     112,954       1,321,562  
              21,924,797  
Capital Markets - 6.3%                
Evercore Cl. A     84,200       3,878,252  
Houlihan Lokey Cl. A     61,415       3,200,950  
Moelis & Company Cl. A     129,301       3,633,358  
Pzena Investment Management Cl. A     84,297       375,964  
              11,088,524  
Insurance - 3.6%                
James River Group Holdings     84,735       3,070,796  
Kingstone Companies     178,345       911,343  
Reinsurance Group of America     28,836       2,426,261  
              6,408,400  
Thrifts & Mortgage Finance - 6.1%                
Genworth MI Canada     124,250       2,760,817  
Southern Missouri Bancorp     56,467       1,370,454  
Timberland Bancorp     79,877       1,460,950  
TrustCo Bank Corp. NY     479,155       2,592,229  
WSFS Financial     105,200       2,621,584  
              10,806,034  
Total             50,227,755  
                 
Health Care – 5.0%                
Biotechnology - 1.4%                
Catalyst Pharmaceuticals 1,2     403,200       1,552,320  
Coherus BioSciences 1     57,012       924,735  
              2,477,055  
Health Care Providers & Services - 2.9%                
AMN Healthcare Services 1     39,709       2,295,577  
Ensign Group (The)     70,214       2,640,749  
Pennant Group 1     17,857       252,855  
              5,189,181  
Pharmaceuticals - 0.7%                
Supernus Pharmaceuticals 1     69,000       1,241,310  
Total             8,907,546  
                 
Industrials – 27.0%                
Aerospace & Defense - 2.9%                
Magellan Aerospace     275,700       1,275,355  
Vectrus 1     95,507       3,954,945  
              5,230,300  
         
Building Products - 0.3%        
Universal Forest Products     12,900       479,751  
Commercial Services & Supplies - 2.1%                
Herman Miller     28,303       628,326  
Kimball International Cl. B     237,582       2,829,602  
Knoll     30,900       318,888  
              3,776,816  
Construction & Engineering - 1.8%                
Comfort Systems USA     83,971       3,069,140  
MasTec 1     2,000       65,460  
              3,134,600  
Electrical Equipment - 0.5%                
EnerSys     17,287       856,052  
Machinery - 5.9%                
Alamo Group     10,807       959,446  
Commercial Vehicle Group 1     503,058       759,618  
Federal Signal     61,222       1,670,136  
Mayville Engineering 1     41,623       255,149  
Meritor 1     112,501       1,490,638  
Miller Industries     187,351       5,298,286  
              10,433,273  
Professional Services - 7.6%                
Heidrick & Struggles International     202,061       4,546,372  
Kforce     99,896       2,554,341  
Korn Ferry     124,407       3,025,578  
Resources Connection     136,880       1,501,574  
Robert Half International     47,564       1,795,541  
              13,423,406  
Road & Rail - 4.3%                
ArcBest     153,118       2,682,627  
Old Dominion Freight Line     10,506       1,379,018  
Saia 1     15,300       1,125,162  
Werner Enterprises     66,739       2,419,956  
              7,606,763  
Trading Companies & Distributors - 1.6%                
BMC Stock Holdings 1     161,932       2,871,055  
Total             47,812,016  
                 
Information Technology – 14.4%                
Electronic Equipment, Instruments & Components - 11.5%                
ePlus 1     8,771       549,240  
Fabrinet 1     38,902       2,122,493  
Insight Enterprises 1     101,152       4,261,534  
Methode Electronics     25,722       679,832  
PC Connection     121,303       4,998,897  
Plexus Corporation 1     2,400       130,944  
Sanmina Corporation 1     181,393       4,948,401  
Vishay Intertechnology     183,699       2,647,103  
              20,338,444  
IT Services - 0.1%                
Hackett Group (The)     7,807       99,305  
Semiconductors & Semiconductor Equipment - 2.8%                
Advanced Energy Industries 1     20,108       975,037  
Kulicke & Soffa Industries     141,426       2,951,560  
MKS Instruments     13,191       1,074,407  
              5,001,004  
Total             25,438,753  
         
Real Estate – 1.7%        
Real Estate Management & Development - 1.7%        
Marcus & Millichap 1     109,319       2,962,545  
Total             2,962,545  
                 
TOTAL COMMON STOCKS                
(Cost $217,766,575)             164,321,803  
                 
REPURCHASE AGREEMENT – 7.0%                
Fixed Income Clearing Corporation,
0.00% dated 3/31/20, due 4/1/20,
maturity value $12,358,000 (collateralized
by obligations of various U.S. Government
Agencies, 1.375% due 10/15/22, valued at $12,605,894)
               
(Cost $12,358,000)             12,358,000  
                 
COLLATERAL RECEIVED FOR SECURITIES                
LOANED – 0.0%                
Money Market Funds                
Federated Government Obligations Fund                
(7 day yield-0.33%)                
(Cost $67,068)             67,068  
                 
TOTAL INVESTMENTS – 99.9%                
(Cost $230,191,643)             176,746,871  
                 
CASH AND OTHER ASSETS                
LESS LIABILITIES – 0.1%             97,386  
                 
NET ASSETS – 100.0%           $ 176,844,257  
                 
ADR – American Depository Receipt

1Non-income producing.

2All or a portion of these securities were on loan at March 31, 2020.

3Securities for which market quotations are not readily available represent 0.3% of net assets for Royce Micro-Cap Portfolio. These securities have been valued at their fair value under procedures approved by the Fund’s Board of Trustees. These securities are defined as Level 3 securities due to the use of significant unobservable inputs in the determination of fair value.

 

Tax Information:

 

At March 31, 2020, net unrealized appreciation (depreciation) based on identified cost for tax purposes was as follows:

 

 

        Net Unrealized        
        Appreciation   Gross Unrealized
    Tax Basis Cost   (Depreciation)   Appreciation   Depreciation
Micro-Cap Portfolio   $ 117,194,439     $ (18,448,203 )   $ 15,314,551     $ 33,762,754  
Small-Cap Portfolio     232,611,353       (55,864,482 )     9,152,677       65,017,159  

 

 

The primary cause of the difference between book and tax basis cost is the timing of the recognition of losses on securities sold.

 

Valuation of Investments:  

Investment transactions are accounted for on the trade date. Securities are valued as of the close of trading on the New York Stock Exchange (NYSE) (generally 4:00 p.m. Eastern time) on the valuation date. Securities that trade on an exchange, and securities traded on Nasdaq’s Electronic Bulletin Board, are valued at their last reported sales price or Nasdaq official closing price taken from the primary market in which each security trades or, if no sale is reported for such day, at their highest bid price. Other over-the-counter securities for which market quotations are readily available are valued at their highest bid price, except in the case of some bonds and other fixed income securities which may be valued by reference to other securities with comparable ratings, interest rates and maturities, using established independent pricing services. The Funds value their non-U.S. dollar denominated securities in U.S. dollars daily at the prevailing foreign currency exchange rates as quoted by a major bank. Securities for which market quotations are not readily available are valued at their fair value in accordance with the provisions of the 1940 Act, under procedures approved by the Trust’s Board of Trustees, and are reported as Level 3 securities. As a general principle, the fair value of a security is the amount which the Fund might reasonably expect to receive for the security upon its current sale. However, in light of the judgment involved in fair valuations, there can be no assurance that a fair value assigned to a particular security will be the amount which the Fund might be able to receive upon its current sale. In addition, if, between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and may make the closing price unreliable, a Fund may fair value the security. The Funds use an independent pricing service to provide fair value estimates for relevant non-U.S. equity securities on days when the U.S. market volatility exceeds a certain threshold. This pricing service uses proprietary correlations it has developed between the movement of prices of non-U.S. equity securities and indices of U.S.-traded securities, futures contracts and other indications to estimate the fair value of relevant non-U.S. securities. When fair value pricing is employed, the prices of securities used by a Fund may differ from quoted or published prices for the same security. Investments in money market funds are valued at net asset value per share.

 

 

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

  Level 1 – quoted prices in active markets for identical securities.
  Level 2 – other significant observable inputs (including quoted prices for similar securities, foreign securities that may be fair valued and repurchase agreements). The table below includes all Level 2 securities. Level 2 securities with values based on quoted prices for similar securities would be noted in the Schedules of Investments.
  Level 3 – significant unobservable inputs (including last trade price before trading was suspended, or at a discount thereto for lack of marketability or otherwise, market price information regarding other securities, information received from the company and/or published documents, including SEC filings and financial statements, or other publicly available information).

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used to value each Fund’s investments as of March 31, 2020. For a detailed breakout of common stocks by sector classification, please refer to the Schedules of Investments. 

                 
    Level 1     Level 2     Level 3     Total  
Micro-Cap Portfolio                                
Common Stocks   $ 91,623,911     $ 4,722,363     $ 325,500     $ 96,671,774  
Repurchase Agreement     –        1,209,000             1,209,000  
Money Market Fund/Collateral Received for                                
Securities Loaned     865,462                   865,462  
Small-Cap Portfolio                                
Common Stocks     164,321,803                   164,321,803  
Repurchase Agreement           12,358,000             12,358,000  
Money Market Fund/Collateral Received for                                
Securities Loaned     67,068                   67,068  

 

Level 3 Reconciliation:        

 

    Balance as of
12/31/19
  Realized
Gain (Loss)
  Unrealized
Gain (Loss)
  Balance as of
3/31/20
Micro-Cap Portfolio                                
Common Stocks     $390,600       $–         $(65,100)       $325,500  

  

The following table summarizes the valuation techniques used and unobservable inputs approved by the Valuation Committee to determine the fair value of certain Level 3 investments. The table does not include Level 3 investments with values derived utilizing prices from prior transactions or third party pricing information with adjustments (e.g. broker quotes, pricing services, net asset values).

 

 

                        Impact to Valuation
    Fair Value at     Valuation   Unobservable         From an Increase in
    3/31/20     Technique(s)   Input(s)   Range Average     Input1
Micro-Cap Portfolio                            
Common Stocks     $325,500     Discounted Present Value
Balance Sheet Analysis
  Liquidity Discount     30%-40%     Decrease

 

1This column represents the directional change in the fair value of the Level 3 investments that would result in an increase from the corresponding unobservable input. A decrease to the unobservable input would have the opposite effect. Significant increases and decreases in these unobservable inputs in isolation could result in significantly higher or lower fair value measurements.

 

Repurchase Agreements:  

The Funds may enter into repurchase agreements with institutions that the Funds’ investment adviser has determined are creditworthy. Each 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 each Fund to dispose of its underlying securities. The remaining contractual maturities of repurchase agreements held by the Funds at March 31, 2020 are overnight and continuous.

 

 

Securities Lending:  

The Funds loan securities through a lending agent, State Street Bank and Trust Company, to qualified institutional investors for the purpose of earning additional income. The lending agent receives and holds collateral from such borrowers to secure their obligations to the Funds. Such loans must be secured at all times by collateral in an amount at least equal to the market value of the loaned securities. The market values of the loaned securities and the collateral fluctuate and are determined at the close of each business day by the lending agent. Borrowers are required to post additional collateral to the lending agent on the next succeeding business day in the event of a collateral shortfall. Counterparty risk is further reduced by loaning securities only to parties that participate in a Global Securities Lending Program organized and monitored by the lending agent and that are deemed by it to satisfy its requirements and by having the lending agent enter into securities lending agreements with such borrowers. The lending agent is not affiliated with Royce.

 

Collateral may be in the form of cash or U.S. Treasuries. Cash collateral is invested in certain money market pooled investment vehicles. The Funds record a liability in their respective Statements of Assets and Liabilities for the return of such cash collateral during periods in which securities are on loan. The Funds bear the risk of loss for any decrease in the market value of the loaned securities or the investments purchased with cash collateral received from the borrowers.

 

Pursuant to the agreement in place between the Funds and the lending agent, if a borrower fails to return loaned securities, and the cash collateral being maintained by the lending agent on behalf of such borrower is insufficient to cover the value of loaned securities and provided such collateral insufficiency is not the result of investment losses, the lending agent shall, at its option, either replace the loaned securities or pay the amount of the shortfall to the Funds. In the event of the bankruptcy of a borrower, the Funds could experience delay in recovering the loaned securities or only recover cash or a security of equivalent value.

 

Loans of securities generally do not have stated maturity dates, and the Funds may recall a security at any time. The Funds’ securities lending income consists of the income earned on investing cash collateral, plus any premium payments received for lending certain securities, less any rebates paid to borrowers and lending agent fees associated with the loan. Pursuant to the agreement in place between the Funds and the lending agent, the Funds are responsible for any shortfall in the event the value of the investments purchased with cash collateral is insufficient to pay the rebate fee to the borrower.

 

The following table presents cash collateral and the market value of securities on loan collateralized by cash collateral held by the Funds at March 31, 2020:

 

    Cash Collateral1   Securities on Loan
Collateralized by Cash Collateral
  Net Amount
Micro-Cap Portfolio   $ 865,462     $ (844,322 )   $ 21,140  
Small-Cap Portfolio     67,068       (69,080 )     (2,012 )

 

1 The remaining contractual maturity of cash collateral is overnight and continuous.

 

The following table presents non-cash collateral and the market value of securities on loan collateralized by non-cash collateral held by the Funds’ custodian at March 31, 2020:

 

    Non-Cash Collateral   Securities on Loan
Collateralized by Non-Cash Collateral
  Net Amount
Micro-Cap Portfolio   $ 1,728,015     $ (1,680,741 )   $ 47,274  
Small-Cap Portfolio     1,840,517       (1,803,841 )     36,676  

 

Other information regarding the Fund is available in the Fund’s most recent Prospectus and Report to Shareholders. This information is available through Royce Investment Partners (www.royceinvest.com) and on the Securities and Exchange Commission’s website (www.sec.gov).

 

 

Important Disclosure Information

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