Royce Global Value Fund Performance Discussion

This discussion comes from our June 30, 2011 Semiannual Review and Report to Shareholders.

Royce Global Value Fund (RGV) was up 3.9% for the year-to-date period ended June 30, 2011 versus gains of 5.6% for the MSCI WORLD Small Core Index and 2.5% for its new small-cap global benchmark, the Russell Global Small Cap Index, for the same period. (We chose the Fund's new benchmark because it better reflects the Fund's security selection universe.) The Fund lost the most ground to the MSCI WORLD Small Core Index during the first quarter, a mostly uneventful bull period in which RGV rose 4.5% versus respective gains of 6.2% and 3.2% for the MSCI and Russell Indexes.

Relative results were much closer during the second quarter. While the overseas markets were less volatile than their domestic counterparts, results were still negative for the major global and international indexes. RGV fell 0.7% for the second quarter, compared to a decline of 0.6% for the MSCI WORLD Small Core Index and 0.7% for the Russell Global Small Cap Index. These quarterly results obscure the Fund's edge through the domestic market downturn. From the interim domestic small-cap high on April 29 through the subsequent low on June 13 RGV lost 3.5% versus a decline of 4.2% for both global small-cap indexes.

Recent market cycle performance was strong on an absolute and relative basis. From the domestic small-cap market peak on July 13, 2007 through June 30, 2011, the Fund rose 29.6% versus declines of 1.2% and 5.0%, respectively, for the MSCI WORLD Small Core Index and the Russell Global Small Cap Index. In the more bullish period from the domestic market bottom on March 9, 2009 through the end of June 2011, RGV rose 177.9% compared to the MSCI WORLD Small Core Index's return of 155.6% and the Russell Global Small Cap Index's gain of 146.0%. These strong market cycle results were a major factor in RGV's ability to outpace both small-cap global benchmarks for the oneyear, three-year and since inception (12/29/06) periods ended June 30, 2011. The Fund's average annual total return since inception was 10.5%.

Six of the Fund's nine equity sectors finished the semiannual period with net gains, led by Energy, Information Technology, Health Care and Consumer Discretionary. Net losses from the Materials and Financials sectors were comparatively modest and keyed primarily by respective difficulties for the metals & mining group and real estate management & development companies. Net gains at the individual stock level were spread across several sectors, with the Fund's top-ten net gainers for the period coming from eight different sector groups.

The Fund benefited from the continued pick-up in M&A (mergers and acquisitions) activity as Varian Semiconductor Equipment Associates agreed to be acquired in an all cash deal early in May. We began to reduce our position not long after the announcement of the transaction.

Luk Fook Holdings (International) is a long-established Hong Kong jewelry company that also has stores in mainland China. The company profited from rising consumer demand throughout Asia in the first half, helped in part by Japanese consumers flocking to Hong Kong after the devastating Tohoku earthquake and tsunami. Earlier in the year, the company announced same store sales growth of close to 30%. We held a good-sized position at the end of June.

Although many precious metals and mining stocks struggled in the first half, Allied Nevada Gold ultimately proved a happy exception. Its stock price reflected much of the volatility of both the stock market and precious metals prices, but it finished the first half as the Fund's third-largest contributor. The announcement of increased production guidance in May helped bring investors back. We were initially drawn to its pristine balance sheet and skill at making the transition from exploration to production in several gold mines. It was a top-ten holding at the end of June.

Lamprell provides construction and engineering services for oil and gas rigs and is the leading contractor in the Arabian Gulf, where it has operated for more than three decades. We like its business model, which is driven in large part by demand for younger jack-up rigs. We also were in favor of its accretive acquisition of Maritime Industrial Services (MIS) because we think it makes a compelling strategic fit—MIS brings onshore capabilities and enhances Lamprell's in-house engineering capabilities.

As for those positions that detracted most from performance, Moshi Moshi Hotline is a Japanese business that offers call centers, back office services, consulting and other services. Its stock fell sharply in the aftermath of the March earthquake and has not yet recovered. Liking its core businesses, dividend yield and attractive valuation, we significantly built our position in the first half, purchasing most of our shares in the second quarter.

We also increased our stake in Raubex Group, a South African road construction and infrastructure development specialist. Its share price was hurt as the company faced delays in major road construction projects, dealt with lower-priced competition from imported Chinese crews and tried waiting out unrest in the ranks of South Africa's national highway administration.

The sum of all contributions to and detractions from performance for all securities would approximate the Fund's year-to-date performance for the period ended June 30, 2011.

See our June 30, 2011 Semiannual Review and Report to Shareholders for a complete list of holdings for Royce Global Value Fund as of June 30, 2011.

View the complete list of holdings for Royce Global Value Fund as of the current quarter end.

Current month-end performance may be obtained from our Prices and Performance page.