ROYCE CAPITAL TRUST, 497, 1997-07-30

ROYCE CAPITAL TRUST
497, 1997-07-30

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ROYCE CAPITAL FUND

ROYCE PREMIER PORTFOLIO
ROYCE TOTAL RETURN PORTFOLIO
ROYCE MICRO-CAP PORTFOLIO

PROSPECTUS -- June 30, 1997

Royce Premier Portfolio, Royce Total Return Portfolio and
Royce Micro-Cap Portfolio (the "Funds") are series of Royce
Capital Fund (the "Trust"). Shares of the Funds are offered to life
insurance companies ("Insurance Companies") for allocation to certain
separate accounts established for the purpose of funding qualified and
non-qualified variable annuity contracts and variable life insurance
contracts ("Variable Contracts"), and may also be offered directly to
certain pension plans and retirement plans and accounts permitting
accumulation of assets on a tax-deferred basis ("Retirement
Plans"). Certain Funds may not be available in connection
with a particular Variable Contract, and certain Variable Contracts may limit
allocations among the Funds. See the accompanying Variable Contract
disclosure documents for any restrictions on purchases or allocations.

ABOUT THIS
PROSPECTUS

This Prospectus sets forth concisely the information that
you should know about a Fund before you invest. It should be retained for
future reference. A "Statement of Additional Information" containing further
information about the Funds and the Trust has been filed with the
Securities and Exchange Commission. The Statement is dated June 30, 1997
and has been incorporated by reference into this Prospectus. A copy may
be obtained without charge by writing to the Trust, by calling Investor
Information at 1 (800) 221-4268 or by writing or calling your Insurance
Company.

<TABLE>

TABLE OF CONTENTS

<S> <C> <C> <C>
Page Page
Fund Expenses . . . . . . . . . 2 Investment Limitations . . . . . . 7
Financial Highlights . . . . . . . 3 Management of the Trust. . . . . . 9
Investment Performance . . . . . . 4 General Information. . . . . . . . 10
Investment Objectives. . . . . . . 5 Dividends, Distributions and Taxes . 11
Investment Policies. . . . . . . . 5 Net Asset Value Per Share. . . . . 12
Investment Risks . . . . . . . . . 6 Net Asset Value Per Share. . . . . 12

</TABLE>

LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

FUND EXPENSES

Transaction expenses are charges paid when shares of the
Funds are purchased or sold.

Shareholder Transaction Expenses
--------------------------------
Sales Load Imposed on Purchases or
Reinvested Dividends. . . . . . . . . . . . . . None
Deferred Sales Load on Redemptions. . . . . . . . None

Each Fund pays its own operating expenses, including the investment
management fee to Royce & Associates, Inc. ("Royce"), the investment
adviser to the Funds. Expenses are factored into a Fund's net asset value
daily. The following expenses are estimates for the first year of
operation.

Annual Fund Operating Expenses
------------------------------
<TABLE>

Royce Royce Royce
Premier Total Return Micro-Cap
Portfolio Portfolio Portfolio
--------- ------------ ---------
<S> <C> <C> <C>

Management Fees
(after waivers). . . . . .00% .00% .00%
12b-1 Fees . . . . . . None None None
Other Expenses
(after reimbursement) . . . . . 1.35% 1.35% 1.35%
Total Operating Expenses (after
waivers and reimbursement) 1.35% 1.35% 1.35%
----- ----- -----
</TABLE>

The purpose of the above table is to assist you in understanding the various
costs and expenses that you would bear directly or indirectly as an investor
in the Funds. Management fees would be 1.00%, 1.00% and 1.25% and
total operating expenses would be 2.99%, 2.99% and 3.24% for each of the
Funds without the waivers of management fees and reimbursement of Fund
expenses by Royce. Royce has voluntarily committed to waive its fees and
reimburse Fund expenses through December 31, 1997 to the extent necessary
to maintain total operating expenses of each Fund at or below 1.35%.

The following examples illustrate the expenses that you would incur on a
$1,000 investment over various periods, assuming a 5% annual rate of return
and redemption at the end of each period.

1 Year 3 Years
------ -------
Royce Premier Portfolio. . . . . . . $14 $43
Royce Total Return Portfolio . . . . 14 43
Royce Micro-Cap Portfolio. . . . . . 14 43

THESE EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE HIGHER OR
LOWER THAN THOSE SHOWN.

Additional expenses are incurred under the Variable Contracts and the
Retirement Plans. These expenses are not described in this Prospectus.
Variable Contract owners and Retirement Plan participants should consult the
Variable Contract disclosure documents or Retirement Plan information
regarding these expenses.

FINANCIAL
HIGHLIGHTS

The following financial highlights are part of the Funds' financial statements
and have been audited by Coopers & Lybrand L.L.P., independent
accountants. The Funds' financial statements and Coopers & Lybrand L.L.P.'s
reports on them are included in the Funds' Annual Report to Shareholders and
are incorporated by reference into the Statement of Additional Information and
this Prospectus. Further information about the Funds' performance is
contained elsewhere in this Prospectus and in the Funds'Annual Reports to
Shareholders for 1996, which may be obtained without charge by calling
Investor Information.

<TABLE>

Royce Premier Royce Micro-Cap
------------- ---------------
Period ended December 31, 1996(b) Period ended December 31, 1996(b)
--------------------------------- ---------------------------------

<S> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD

INCOME FROM INVESTMENT
OPERATIONS $5.00 $5.00

Net investment income
(loss) . . . . . . 0.00 0.00
Net realized and unrealized
gain (loss) on invest-
ments. . . . . . . . .05 .01
--- ---
Total from Investment
Operations . . . . . .05 .01
--- ---
LESS DISTRIBUTIONS

Dividends paid from net
investment income. . . . . (0.00) (0.00)
Distributions paid from
capital gains. . . . . (0.00) (0.00)
------ ------
Total Distributions. . . . . . . . . (0.00) (0.00)
------ ------

NET ASSET VALUE, END OF PERIOD $5.05 $5.01
----- -----
----- -----
TOTAL RETURN . . . . . . . 1.0% 1.0%
---- ----
---- ----
RATIOS/SUPPLEMENTAL DATA

Net Assets, End of Year . . . . . . . $252,419 $250,462
Ratio of Expenses to
Average Net Assets(a) . . . . . . . 1.99%* 1.99%*
Ratio of Net Investment
Income (Loss) to
Average Net Assets(a) . . . . . . . (1.99%)* (1.99%)*
Portfolio Turnover Rate . . . . . . . 0% 0%
Average Commission
Rate Paid. . . . . $0.667 $.0499

_____________________________
(a) Expense ratios and net investment income
are shown after fee waivers and expense reimbursements by
the investment adviser. For the period ended December 31, 1996,
the expense ratios for Royce Premier and Micro-Cap Portfolios before
waivers and expense reimbursements would have been 22.02% and 22.49%,
respectively.

(b) From inception of the Fund on December 27, 1996.

* Annualized

</TABLE>

INVESTMENT
PERFORMANCE

Total return is the
change in value over
a given time period,
assuming reinvestment
of any dividends and
capital gains
distributions

From time to time, the Funds may communicate figures reflecting total
return over various time periods. "Total return" is the rate of return on an
amount invested in a Fund from the beginning to the end of the stated period.
"Average annual total return" is the annual compounded percentage change
in the value of an amount invested in a Fund from the beginning until the end
of the stated period. Total returns, which assume the reinvestment of all net
investment income dividends and capital gains distributions, are historical
measures of past performance and are not intended to indicate future
performance.

Total returns quoted for the Funds include the effect of deducting each
Fund's operating expenses, but will not include charges and expenses
attributable to a particular Variable Contract or Retirement Plan. Because
shares of the Funds may be purchased only through a Variable Contract or
an eligible Retirement Plan, an individual owning a Variable Contract or
participating in a Retirement Plan should carefully review the Variable
Contract disclosure documents or Retirement Plan information for
information on relevant charges and expenses. Excluding these charges and
expenses from quotations of each Fund's performance has the effect of
increasing the performance quoted. These charges and expenses should be
considered when comparing a Fund's performance to other investment
vehicles.

Although the Trust is newly-organized and the Funds do not yet have their
own performance records, each Fund has the same investment objectives and
follows substantially the same investment policies as a corresponding Royce
retail fund. The Royce retail funds have the same investment adviser as the
corresponding Funds offered in this Prospectus.

Set forth in the table below is total return information for each of the
Royce retail funds corresponding to the Funds offered in this Prospectus,
calculated as described above. Such information has been obtained from Royce
and updates the information set forth in the current prospectus of each fund.
Investors should not consider this performance data as an indication of the
future performance of the Funds offered in this Prospectus. The
performance figures below reflect the deduction of the historical fees and
expenses paid by the Royce retail funds, and not those to be paid by these
Funds. The figures also do not reflect the deduction of charges or expenses
attributable to Variable Contracts. As discussed above, investors should
refer to the applicable Variable Contract disclosure documents for
information on such charges and expenses. Additionally, although it is
anticipated that each Fund and its corresponding retail fund will hold similar
securities selections, their investment results are expected to differ. In
particular, differences in asset size and in cash flow resulting from purchases
and redemptions of Fund shares may result in different security selections,
differences in the relative weightings of securities or differences in the
price paid for particular portfolio holdings.

The average annual total returns for the corresponding Royce retail funds for
the periods ended December 31, 1996 were:

<TABLE>

One Three Five Since Inception
Year Year Year Inception Date
---- ---- ---- --------- ---------
<S> <C> <C> <C> <C> <C>
Royce Premier Fund . . . . . 18.1% 12.9% 14.7% 14.7% December 31, 1991
Royce Total Return Fund 25.5% 18.7% -- 18.4% December 15, 1993
Royce Micro-Cap Fund . . . . 15.5% 12.5% 17.9% 17.9% December 31, 1991

</TABLE>

The above total returns reflect partial waivers of management fees. Without
such waivers, the average annual total returns would have been lower.

INVESTMENT
OBJECTIVES

Each Fund has different investment objectives and/or its own method of
achieving its objectives and is designed to meet different investment needs.
Since certain risks are inherent in owning any security, there can be no
assurance that any of the Funds will achieve their objectives.

ROYCE PREMIER PORTFOLIO'S investment objectives are primarily long-term
growth and secondarily current income. It seeks to achieve these objectives
through investments in a limited portfolio of common stocks and convertible
securities of companies viewed by Royce as having superior financial
characteristics and/or unusually attractive business prospects.

ROYCE TOTAL RETURN FUND'S investment objective is an equal focus on both
long-term growth of capital and current income. It seeks to achieve this
objective through investments in a broadly diversified portfolio of
dividend-paying common stocks of companies selected on a value basis.

These investment objectives are fundamental and may not be changed
without the approval of a majority of the Fund's outstanding voting shares.

INVESTMENT
POLICIES

The Funds invest on a
"value" basis

The Funds invest pri-
marily in small companies

Royce will use a "value" method in managing the Funds' assets. In its
selection process, Royce puts primary emphasis on various internal returns
indicative of profitability, balance sheet quality, cash flows and the
relationships that these factors have to the current price of a given security.

Royce's value method is based on its belief that the securities of certain
small companies may sell at a discount from its estimate of such companies'
"private worth". Royce will attempt to identify and invest in these securities
for each of the Funds, with the expectation that this "value discount" will
narrow over time and thus provide capital appreciation for the Funds.

ROYCE PREMIER PORTFOLIO
Normally, Royce Premier Portfolio will invest at least 80% of its assets in
a limited number of common stocks, convertible preferred stocks and
convertible bonds. At least 65% of these securities will be
income-producing and/or issued by companies with stock market capitalizations
under $1 billion at the time of investment. The remainder of its assets may
be invested in securities of companies with higher stock market
capitalizations, non-dividend-paying common stocks and non-convertible
preferred stocks and debt securities. In its selection process for the Fund,
Royce will put primary emphasis on companies which have unusually strong
returns on assets, cash flows and balance sheets or unusual business strengths
and/or prospects. Other characteristics, such as a company's growth
potential and valuation considerations, will also be used in selecting
investments for the Fund.

ROYCE TOTAL RETURN PORTFOLIO
In accordance with its dual objective of capital appreciation (realized and
unrealized) and current income, Royce Total Return Portfolio will normally
invest at least 80% of its assets in common stocks and convertible securities.
At least 90% of these securities will be income-producing, and at least 65%
will be issued by companies with stock market capitalizations under $1
billion at the time of investment. The remainder of the Fund's assets may
be invested in securities with higher stock market capitalizations,
non-dividend-paying common stocks and non-convertible securities. While most
of the Fund's securities will be income-producing, the composite yield of the
Fund will vary and may be either higher or lower than the composite yield
of the stocks in the Standard & Poor's 500 Index.

ROYCE MICRO-CAP PORTFOLIO
At least 80% of the assets of Royce Micro-Cap Portfolio will normally be
invested in common stocks and securities convertible into common stocks of
small and micro-sized companies, and at least 65% of these securities will
be issued by companies with stock market capitalizations under $300 million
at the time of investment. The remainder of the Fund's assets may be
invested in the securities of companies with higher stock market
capitalizations and non-convertible preferred stocks and debt securities.

INVESTMENT
RISKS

The Funds are subject
to certain investment
risks

As mutual funds investing primarily in common stocks and/or securities
convertible into common stocks, the Funds are subject to market risk, that
is, the possibility that common stock prices will decline over short or even
extended periods. The Funds will invest substantial portions of their assets
in securities of small and/or micro-cap companies. Such companies may not
be well-known to the investing public, may not have significant institutional
ownership and may have cyclical, static or only moderate growth prospects.
In addition, the securities of such companies may be more volatile in price
and have lower trading volumes than the larger capitalization stocks included
in the Standard & Poor's 500 Index. Accordingly, Royce's investment
method requires a long-term investment horizon, and the Funds should not
be used to play short-term swings in the market.

Although Royce Premier Portfolio is diversified within the meaning of the
Investment Company Act of 1940 (the "1940 Act"), it will normally be
invested in a limited number of securities. This Fund's relatively limited
portfolio may involve more risk than investing in other Royce Funds or in
a broadly diversified portfolio of common stocks of large and well-known
companies. To the extent that the Fund invests in a limited number of
securities, it may be more susceptible to any single corporate, economic,
political or regulatory occurrence than a more widely diversified fund.

In addition, Royce Micro-Cap Portfolio may invest in many micro-cap
and/or low-priced securities that are followed by relatively few securities
analysts, with the result that there tends to be less publicly available
information concerning the securities. The securities of these companies
may have limited trading volumes and be subject to more abrupt or erratic
market movements than the securities of larger, more established companies
or the market averages in general, and Royce may be required to deal with
only a few market-makers when purchasing and selling these securities.
Companies in which Royce Micro-Cap Portfolio is likely to invest also may
have limited product lines, markets or financial resources, may lack
management depth and may be more vulnerable to adverse business or
market developments. Thus, the Fund may involve considerably more risk
than a mutual fund investing in the more liquid equity securities of larger
companies traded on the New York or American Stock Exchanges.

INVESTMENT
LIMITATIONS

The Funds have
adopted certain
fundamental
limitations

Each of the Funds has adopted certain fundamental limitations, designed to
reduce its exposure to specific situations, which may not be changed without
the approval of a majority of its outstanding voting shares, as that term is
defined in the 1940 Act. These limitations are set forth in the Statement of
Additional Information and provide, among other things, that no Fund will:

(a) as to 75% of its assets, invest more than 5% of
its assets in the securities of any one issuer, excluding
obligations of the U.S. Government;
(b) invest more than 25% of its assets in any one industry; or
(c) invest in companies for the purpose of exercising
control of management.

OTHER INVESTMENT
PRACTICES:

In addition to investing primarily in the equity and fixed income securities
described above, the Funds may follow a number of additional investment
practices.

Short-term fixed
income securities

The Funds may invest in short-term fixed income securities for temporary
defensive purposes, to invest uncommitted cash balances or to maintain
liquidity to meet shareholder redemptions. These securities consist of United
States Treasury bills, domestic bank certificates of deposit, high-quality
commercial paper and repurchase agreements collateralized by U.S.
Government securities. In a repurchase agreement, a bank sells a security
to the Fund at one price and agrees to repurchase it at the Fund's cost plus
interest within a specified period of seven or fewer days. In these
transactions, which are, in effect, secured loans by the Fund, the securities
purchased by the Fund will have a value equal to or in excess of the value
of the repurchase agreement and will be held by the Fund's custodian bank
until repurchased. Should a Fund implement a temporary investment policy,
its investment objectives may not be achieved.

Securities lending

Each of the Funds may lend up to 25% of its assets to qualified institutional
investors for the purpose of realizing additional income. Loans of securities
of a Fund will be collateralized by cash or securities issued or guaranteed by
the United States Government or its agencies or instrumentalities. The
collateral will equal at least 100% of the current market value of the loaned
securities. The risks of securities lending include possible delays in
receiving additional collateral or in recovery of loaned securities or loss of
rights in the collateral if the borrower defaults or becomes insolvent.

Foreign securities

Each of the Funds may invest up to 10% of its assets in debt and/or equity
securities of foreign issuers. Foreign investments involve certain risks, such
as political or economic instability of the issuer or of the country of issue,
fluctuating exchange rates and the possibility of imposition of exchange
controls. These securities may also be subject to greater fluctuations in
price than the securities of U.S. corporations, and there may be less publicly
available information about their operations. Foreign companies may not be
subject to accounting standards or governmental supervision comparable to
U.S. companies, and foreign markets may be less liquid or more volatile
than U.S. markets and may offer less protection to investors such as the
Funds.

Lower-rated
debt securities

Each of the Funds may also invest no more than 5% of its net assets in
lower-rated (high-risk) non-convertible debt securities, which are below
investment grade. The Funds do not expect to invest in non-convertible debt
securities that are rated lower than Caa by Moody's Investors Service, Inc.
or CCC by Standard & Poor's Corp. or, if unrated, determined to be of
comparable quality.

Warrants, rights
and options

Each Fund may invest up to 5% of its total assets in warrants, rights and
options.

Portfolio turnover

Although the Funds generally will seek to invest for the long term, they
retain the right to sell securities regardless of how long they have been held.
Portfolio turnover rates for the Funds may exceed 100%. Rates which
exceed 100% are higher than those of other funds. A 100% turnover rate
occurs, for example, if all of a Fund's portfolio securities are replaced in
one year. High portfolio activity increases the Fund's transaction costs,
including brokerage commissions.

State insurance
restrictions

The Funds are sold to the Insurance Companies in connection with Variable
Contracts, and will seek to be available under Variable Contracts sold in a
number of jurisdictions. Certain states have regulations or guidelines
concerning concentration of investments and other investment techniques.
If applied to the Funds, the Funds may be limited in their ability to engage
in certain techniques and to manage their portfolios with the flexibility
provided herein. In order to permit a Fund to be available under Variable
Contracts sold in certain states, the Trust may make commitments for the
Fund that are more restrictive than the investment policies and limitations
described above and in the Statement of Additional Information. If the Trust
determines that such a commitment is no longer in the Fund's best interests,
the commitment may be revoked by terminating the availability of the Fund
to Variable Contract owners residing in such states.

MANAGEMENT OF
THE TRUST

Royce & Associates, Inc.
is responsible for the
management of the
Funds' portfolios

The Trust's business and affairs are managed under the direction of its Board
of Trustees. Royce & Associates, Inc. ("Royce"), formerly named Quest
Advisory Corp., the Fund's investment adviser, is responsible for the
management of the Fund's portfolios, subject to the authority of the Board
of Trustees. Royce, which was organized in 1967, is also the investment
adviser to The Royce Fund and to other investment and non-investment
company accounts. Charles M. Royce, Royce's President, Chief Investment
Officer and sole voting shareholder since 1972, is primarily responsible for
managing the Fund's portfolios. He is assisted by Royce's investment staff,
including W. Whitney George, Portfolio Manager and Managing Director,
and by Jack E. Fockler, Jr., Managing Director.

As compensation for its services to the Funds, Royce is entitled to receive
annual advisory fees of 1% of the average net assets of Royce Premier
Portfolio and Royce Total Return Portfolio and 1.5% of the average net
assets of Royce Micro-Cap Portfolio. These fees are payable monthly from
the assets of the Funds involved.

Royce will select the brokers who will execute the purchases and sales of the
Funds' portfolio securities and may place orders with brokers who provide
brokerage and research services to Royce. Royce is authorized, in
recognition of the value of brokerage and research services provided, to pay
commissions to a broker in excess of the amount which another broker might
have charged for the same transaction.

From time to time, Royce may pay amounts to Insurance Companies or other
organizations that provide administrative services for the Funds or that
provide services relating to the Funds to owners of Variable Contracts and/or
participants in Retirement Plans. These services may include, among other
things: sub-accounting services; answering inquiries regarding the Funds;
transmitting, on behalf of the Funds, proxy statements, shareholder reports,
updated prospectuses and other communications regarding the Funds; and
such other related services as the Trust, owners of Variable Contracts and/or
participants in Retirement Plans may request. The amounts of any such
payments will be determined by the nature and extent of the services
provided by the Insurance Company or other organization. Payment of such
amounts by Royce will not increase the fees paid by the Funds or their
shareholders.

GENERAL
INFORMATION

Royce Capital Fund (the "Trust") is a Delaware business trust registered with
the Securities and Exchange Commission as a diversified, open-end
management investment company. The Trustees have the authority to issue
an unlimited number of shares of beneficial interest, without shareholder
approval, and these shares may be divided into an unlimited number of
series. Shareholders are entitled to one vote per share. Shares vote by
individual series on all matters, except that shares are voted in the aggregate
and not by individual series when required by the 1940 Act and that if the
Trustees determine that a matter affects only one series, then only
shareholders of that series are entitled to vote on that matter.

Pursuant to current interpretations of the 1940 Act, the Insurance Companies
will solicit voting instructions from Variable Contract owners with respect
to any matters that are presented to a vote of shareholders and will vote all
shares held by the separate accounts in proportion to the voting instructions
received. The exercise of voting rights on shares held by Retirement Plans
will be governed by the terms of such plans. Some Retirement Plans may
pass-through voting to plan participants, while shares held by other
Retirement Plans may be voted by the trustees of the Retirement Plan or by
a named fiduciary or an investment manager. Retirement Plan participants
should consult their plan documents for information.

Each Fund sells its shares only to certain qualified retirement plans and to
variable annuity and variable life insurance separate accounts of insurance
companies that are unaffiliated with Royce and that may be unaffiliated with
one another. The Funds currently do not foresee any disadvantages to
policyowners arising out of the fact that each Fund offers its shares to such
entities. Nevertheless, the Trustees intend to monitor events in order to
identify any irreconcilable material conflicts that may arise due to future
differences in tax treatment or other considerations and to determine what
action, if any, should be taken in response to such conflicts. If a conflict
occurs, the Trustees may require one or more insurance company separate
accounts or plans to withdraw its investments in one or more of the Funds
and to substitute shares of another Fund. As a result, a Fund may be forced
to sell securities at disadvantageous prices. In addition, the Trustees may
refuse to sell shares of any Fund to any separate account or qualified plan or
may suspend or terminate the offering of shares of any Fund if such action
is required by law or regulatory authority or is deemed by the Trust to be in
the best interests of the shareholders of the Fund.

The custodian for the portfolio securities, cash and other assets of the Funds
is State Street Bank and Trust Company. State Street, through its agent
National Financial Data Services ("NFDS"), also serves as the Funds'
transfer agent. Coopers & Lybrand L.L.P. serves as independent
accountants for the Funds.

DIVIDENDS,
DISTRIBUTIONS
AND TAXES

Each of the Funds will pay dividends from its net investment income (if any)
and distribute its net realized capital gains annually in December. Dividends
and distributions will be automatically reinvested in additional shares of the
Funds.

Each Fund intends to qualify and to remain qualified for taxation as a
"regulated investment company" under the Internal Revenue Code, so that it
will not be subject to Federal income taxes to the extent that its income is
distributed to its shareholders. In addition, each Fund intends to qualify
under the Internal Revenue Code with respect to the diversification
requirements related to the tax-deferred status of insurance company separate
accounts. By meeting these and other requirements, the participating
Insurance Companies, rather than the owners of the Variable Contracts, should
be subject to tax on distributions received with respect to Fund shares. The
tax treatment on distributions made to an Insurance Company will depend on
the Insurance Company's tax status.

Shares of the Funds may be purchased through Variable Contracts. As a result,
it is anticipated that any net investment income dividends or capital gains
distributions from a Fund will be exempt from current taxation if left to
accumulate within a Variable Contract. Dividends and distributions made by
the Funds to the Retirement Plans are not taxable to the Retirement Plans or to
the participants thereunder. The Funds will be managed without regard to tax
ramifications. Withdrawals from such Contracts may be subject to ordinary
income tax plus a 10% penalty tax if made before age 59 1/2.

The tax status of your investment in the Funds depends on the features of your
Variable Contract or Retirement Plan. For further information, please refer to
the prospectus or disclosure documents of your Variable Contract or
information provided by your Retirement Plan. Prospective investors are
encouraged to consult their tax advisers.

The above discussion is only a summary of some of the important tax
considerations generally affecting the Funds and their shareholders; see the
Statement of Additional Information for additional discussion.

NET ASSET VALUE
PER SHARE

Net asset value per
share (NAV) is
determined each day
the New York Stock
Exchange is open

Fund shares are purchased and redeemed at the net asset value per share next
determined after an order is received by the Funds' transfer agent or an
authorized service agent or sub-agent. Net asset value per share is determined
by dividing the total value of the Fund's investments and other assets, less
any liabilities, by the number of outstanding shares of the Fund. Net asset
value per share is calculated at the close of regular trading on the New York
Stock Exchange on each day the Exchange is open for business.

In determining net asset value, securities listed on an exchange or the Nasdaq
National Market System will be valued on the basis of the last reported sale
price prior to the time the valuation is made or, if no sale is reported for
that day, at their bid price for exchange-listed securities and at the average
of their bid and ask prices for Nasdaq securities. Quotations will be taken
from the market where the security is primarily traded. Other over-the counter
securities for which market quotations are readily available will be valued at
their bid price. Securities for which market quotations are not readily
available will be valued at their fair value under procedures established and
supervised by the Board of Trustees. 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.

SHAREHOLDER GUIDE

The Trust will provide Insurance Companies and Retirement Plans with
information Monday through Friday, except holidays, from 9:00 a.m. to
5:00 p.m. (Eastern time). For information, prices, literature or to obtain
information regarding the availability of Fund shares or how Fund shares are
redeemed, call the Trust at 1-800-221-4268.

PURCHASING AND
REDEEMING SHARES
OF THE FUNDS

Shares of the Funds will be sold on a continuous basis to separate accounts
of Insurance Companies or to Retirement Plans. Stock certificates will not
be issued; share activity will be recorded in book entry form only. Investors
may not purchase or redeem shares of the Funds directly, but only through
the separate accounts of Insurance Companies or through qualified
Retirement Plans. You should refer to the applicable Separate Account
Prospectus or your Plan documents for information on how to purchase or
surrender a contract, make partial withdrawals of contract values, allocate
contract values to one or more of the Funds, change existing allocations
among investment alternatives, including the Funds, or select specific Funds
as investment options in a Retirement Plan. No sales charge is imposed upon
the purchase or redemption of shares of the Funds. Sales charges for the
Variable Contracts or Retirement Plans are described in the relevant Separate
Account Prospectuses or plan documents.

If the Board of Trustees determines that it would be detrimental to the best
interest of the Fund's remaining shareholders to make payment in cash, a
Fund may pay redemption proceeds in whole or in part by a distribution in
kind.

Fund shares are purchased or redeemed at the net asset value per share next
computed after receipt of a purchase or redemption order by a Fund's
transfer agent or an authorized service agent or sub-agent. Payment for
redeemed shares will generally be made within three business days following
the date of request for redemption. However, payment may be postponed
under unusual circumstances, such as when normal trading is not taking
place on the New York Stock Exchange, an emergency as defined by the
Securities and Exchange Commission exists or as permitted by the Securities
and Exchange Commission.

SHAREHOLDER
COMMUNICATIONS

Owners of Variable Contracts and Retirement Plans and their administrators
will receive annual and semi-annual reports, including the financial
statements of the Funds that they have authorized for investment. Each
report will also show the investments owned by each Fund and the market
values thereof, as well as other information about the Funds and their
operations. The Trust's fiscal year ends December 31.

ROYCE CAPITAL FUND
1414 Avenue of the Americas
New York, NY 10019
1-800-221-4268
ROYCE CAPITAL FUND
------------------
INVESTMENT ADVISER
Royce & Associates, Inc.
1414 Avenue of the Americas
New York, NY 10019 ROYCE PREMIER PORTFOLIO

ROYCE TOTAL RETURN PORTFOLIO
TRANSFER AGENT
State Street Bank and Trust Company ROYCE MICRO-CAP PORTFOLIO
c/o NFDS
P.O. Box 419012
Kansas City, MO 64141-6012
1-800-841-1180

CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1713
Boston, MA 02105

OFFICERS
Charles M. Royce, President and Treasurer
John D. Diederich, Vice President
Jack E. Fockler, Jr., Vice President PROSPECTUS
W. Whitney George, Vice President JUNE 30, 1997
Daniel A. O'Byrne, Vice President
and Asst. Secretary
John E. Denneen, Secretary

ROYCE CAPITAL FUND

ROYCE MICRO-CAP PORTFOLIO

PROSPECTUS -- June 30, 1997

Royce Micro-Cap Portfolio (the "Fund") is a series of Royce
Capital Fund (the "Trust"). Shares of the Fund are offered to life
insurance companies ("Insurance Companies") for allocation to certain separate
accounts established for the purpose of funding qualified and non-
qualified variable annuity contracts and variable life insurance contracts
("Variable Contracts"), and may also be offered directly to certain
pension plans and retirement plans and accounts permitting accumulation of
assets on a tax-deferred basis ("Retirement Plans").

The Trust is currently offering shares of three series. This Prospectus relates
to Royce Micro-Cap Portfolio only.

ABOUT THIS
PROSPECTUS This Prospectus sets forth concisely the
information that you should knowabout the Fund before you
invest. It should be retained for future reference. A
"Statement of Additional Information" containing further
information about the Fund and the Trust has been filed with
the Securities and ExchangeCommission. The Statement is
dated June 30, 1997 and has beenincorporated by reference
into this Prospectus. A copy may be obtainedwithout charge
by writing to the Trust, by calling Investor Information at
1 (800) 221-4268 or by writing or calling your Insurance
Company.

<TABLE>

<S> <C> <C> <C>
TABLE OF CONTENTS Page Page
Fund Expenses. . . . . . . . . 2 Investment Limitations . . . . . . 6
Financial Highlights . . 3 Management of the Trust. . 8
Investment Performance . . . . . . 4 General Information. . . . . . . . 8
Investment Objective . . . . . . . 5 Dividends, Distributions and Taxes . 9
Investment Policies. . . . . . . . 5 Net Asset Value Per Share. . . . . 10
Investment Risks . . . . . . . . . 5 Shareholder Guide. . . . . . . . . 11

</TABLE>

LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED ON THE ACCURACY OR ADEQUACY
OFTHIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

FUND EXPENSES

Transaction expenses are charges paid when shares of the
Fund are purchased or sold.

Shareholder Transaction Expenses
--------------------------------

Sales Load Imposed on Purchases or
Reinvested Dividends . . . . . . None
Deferred Sales Load on Redemptions. . . None

The Fund pays its own operating expenses, including the
investment management fee to Royce & Associates, Inc. ("Royce"), the
investment adviser to the Fund. Expenses are factored into the Fund's
net asset value daily. The following expenses are estimates for the first
year of operation.

Annual Fund Operating Expenses
------------------------------

Management Fees
(after waivers). . . . . .00%
12b-1 Fees . . . . . . None
Other Expenses. . . . . 1.35%
-----
Total Operating Expenses
(after waivers). . . . . 1.35%
-----

The purpose of the above table is to assist you in
understanding the various costs and expenses that you would bear directly or
indirectly as an investor in the Fund. Management fees would be 1.25% and
total operating expenses would be 3.24% for the Fund without the waivers of
management fees and reimbursement of Fund expenses by Royce. Royce has
voluntarily committed to waive its fees and reimburse Fund expenses
through December 31, 1997 to the extent necessary to maintain total operating
expenses of the Fund at or below 1.35%.

The following examples illustrate the expenses that you
would incur on a $1,000 investment over various periods, assuming a 5% annual
rate of return and redemption at the end of each period.

1 Year 3 Years
------ -------
Royce Micro-Cap Portfolio . . . . . 14 43

THESE EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF
PAST OR FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE
HIGHER OR LOWER THAN THOSE SHOWN.

Additional expenses are incurred under the Variable
Contracts and the Retirement Plans. These expenses are not described in this
Prospectus. Variable Contract owners and Retirement Plan participants
should consult the Variable Contract disclosure documents or Retirement Plan
information regarding these expenses.

FINANCIAL
HIGHLIGHTS The following financial highlights are part of the
Fund's financial statements andhave been audited by Coopers
& Lybrand L.L.P., independent accountants. The
Fund's financial statements and Coopers & Lybrand L.L.P.'s
reports on them are
included in the Fund's Annual Report to Shareholders and are
incorporated by reference into the Statement of Additional
Information and this Prospectus. Further information about
the Fund's performance is contained elsewhere in this
Prospectus and in the Fund's Annual Report to Shareholders
for 1996, which may be obtained without charge by calling
Investor Information.

<TABLE>
Royce Micro-Cap
---------------

Period ended December 31, 1996(b)
---------------------------------

<S> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $5.00
-----
INCOME FROM INVESTMENT
OPERATIONS

Net investment income
(loss) . . . . . . . . (0.00)
Net realized and unrealized
gain (loss) on invest-
ments. . . . . . . . .01
---
Total from Investment
Operations . . . . . .01
---
LESS DISTRIBUTIONS

Dividends paid from net
investment income. . . . . (0.00)
Distributions paid from
capital gains. . . . . (0.00)
------
Total Distributions. . . . . . . (0.00)
------

NET ASSET VALUE, END OF PERIOD $5.01
-----
-----
TOTAL RETURN. . . . . . . 0.2%
----
----

RATIOS/SUPPLEMENTAL DATA

Net Assets, End of Year .. . . . $250,462
Ratio of Expenses to
Average Net Assets(a) .. . . . 1.99%*
Ratio of Net Investment
Income (Loss) to
Average Net Assets(a) . . . . . . . (1.99%)*
Portfolio Turnover Rate . . . . . . . 0%
Average Commission
Rate Paid. . . . . $.0499

_____________________________
(a) Expense ratios and net investment income are shown
after fee waivers and expense reimbursements by the
investment adviser. For the period ended December 31, 1996, the
expense ratio for Royce Micro-Cap Portfolio before waivers and
expense reimbursements would have been 22.49%.

(b) From inception of the Fund on December 27, 1996.

* Annualized

</TABLE>

INVESTMENT
PERFORMANCE

Total return is the change
in value over a given time
period, assuming reinvestment
of any dividends and capital
gains distributions

From time to time, the Fund may communicate figures
reflecting total returnover various time periods. "Total
return" is the rate of return on an amountinvested in the
Fund from the beginning to the end of the stated period.
"Average annual total return" is the annual compounded
percentage changein the value of an amount invested in the
Fund from the beginning until theend of the stated period.
Total returns, which assume the reinvestment of all
net investment income dividends and capital gains
distributions, are historical
measures of past performance and are not intended to
indicate future performance.

Total returns quoted for the Fund include the effect of
deducting the Fund's operating expenses, but will not include charges and
expenses attributable to a particular Variable Contract or Retirement Plan.
Because shares of the Fund may be purchased only through a Variable Contract
or an eligible Retirement Plan, an individual owning a Variable Contract or
participating in a Retirement Plan should carefully review the Variable
Contract disclosure documents or Retirement Plan information for information on
relevant charges and expenses. Excluding these charges and expenses from
quotations of the Fund's performance has the effect of increasing the
performance quoted. These charges and expenses should be considered when
comparing the Fund's performance to other investment vehicles.

Although the Trust is newly-organized and the Fund does not
yet have its own performance record, the Fund has the same investment
objectives and follows substantially the same investment policies as a
corresponding Royce retail fund. The Royce retail fund has the same
investment adviser as the corresponding Fund offered in this Prospectus.

Set forth in the table below is total return information for
the Royce retail fund corresponding to the Fund offered in this Prospectus,
calculated as described above. Such information has been obtained from
Royce and updates the information set forth in the current prospectus
of the fund. Investors should not consider this performance data as an
indication of the future performance of the Fund offered in this Prospectus.
The performance figures below reflect the deduction of the historical fees
and expenses paid by the Royce retail fund, and not those to be paid by this
Fund. The figures also do not reflect the deduction of charges or expenses
attributable to Variable Contracts. As discussed above, investors should
refer to the applicable Variable Contract disclosure documents for information
on such charges and expenses. Additionally, although it is anticipated that
the Fund and its corresponding retail fund will hold similar securities
selections, their investment results are expected to differ. In particular,
differences in asset size and in cash flow resulting from purchases and
redemptions of Fund shares may result in different security selections,
differences in the relative weightings of securities or differences in the
price paid for particular portfolio holdings.

The average annual total returns for the corresponding Royce
retail fund for the periods ended December 31, 1996 were:

<TABLE>

One Three Five Since Inception
Year Year Year Inception Date
---- ---- ---- --------- ---------
<S> <C> <C> <C> <C> <C>
Royce Micro-Cap Fund . . 15.5% 12.5% 17.9% 17.9% December 31, 1991

</TABLE>

The above total returns reflect partial waivers of
management fees. Without such waivers, the average annual
total returns would have been lower.

INVESTMENT OBJECTIVE

ROYCE MICRO-CAP PORTFOLIO seeks long-term capital appreciation, primarily
through investments in common stocks and convertible securities of small
and micro-cap companies. Production of income is incidental to
thisobjective. Since certain risks are inherent in owning
any security, there canbe no assurance that the Fund will
achieve its objective.This investment objective is
fundamental and may not be changed without the
approval of a majority of the Fund's outstanding voting shares.

INVESTMENT POLICIES

The Fund invests on a
"value" basis

The Fund invests primarily
in micro-cap companies

Royce will use a "value" method in managing the Fund's assets. In
its selection process, Royce puts primary emphasis on various
internal returns indicative of profitability, balance sheet
quality, cash flows and therelationships that these factors
have to the current price of a given security.

Royce's value method is based on its belief that the
securities of certain small companies may sell at a discount from its
estimate of such companies' "private worth". Royce will attempt to identify
and invest in these securities for the Fund, with the expectation that this
"value discount" will narrow over time and thus provide capital appreciation
for the Fund.

At least 80% of the assets of Royce Micro-Cap Portfolio will normally be
invested in common stocks and securities convertible into common stocks of
small and micro-sized companies, and at least 65% of these securities will be
issued by companies with stock market capitalizations under $300 million at
the time of investment. The remainder of the Fund's assets may be invested
in the securities of companies with higher stock market capitalizations and
non-convertible preferred stocks and debt securities.

INVESTMENT
RISKS

The Fund is subject
to certain
investment risks

As a mutual fund investing primarily in common stocks and/or securities
convertible into common stocks, the Fund is subject to market risk, that is,
the possibility that common stock prices will decline over short or even
extended periods. Royce Micro-Cap Portfolio will invest in many micro-cap
and/or low-priced securities that are followed by relatively few securities
analysts, with the result that there tends to be less publicly available
information concerning the securities. The securities of these companies may
have limited trading volumes and be subject to more abrupt or erratic market
movements than the securities of larger, more established companies or the
market averages in general, and Royce may be required to deal with only a
few market-makers when purchasing and selling these securities. Companies
in which Royce Micro-Cap Portfolio is likely to invest also may have limited
product lines, markets or financial resources, may lack management depth and
may be more vulnerable to adverse business or market developments. Thus,
the Fund may involve considerably more risk than a mutual fund investing in
the more liquid equity securities of larger companies traded on the New York
or American Stock Exchanges. Accordingly, Royce's investment method
requires a long-term investment horizon, and the Fund should not be used to
play short-term swings in the market.

INVESTMENT
LIMITATIONS

The Fund has
adopted certain
fundamental
limitations

The Fund has adopted certain fundamental limitations, designed to reduce its
exposure to specific situations, which may not be changed without the
approval of a majority of its outstanding voting shares, as that term is
defined in the 1940 Act. These limitations are set forth in the
Statement of Additional Information and provide, among other things, that
the Fund will not:

(a) as to 75% of its assets, invest more than 5% of
its assets in the securities of any one issuer, excluding
obligations of the U.S. Government;
(b) invest more than 25% of its assets in any one
industry; or
(c) invest in companies for the purpose of exercising
control of management.

OTHER INVESTMENT
PRACTICES:

In addition to investing primarily in the equity and fixed
income securitiesdescribed above, the Fund may follow a
number of additional investmentpractices.

Short-term fixed
income securities

The Fund may invest in short-term
fixed income securities for temporarydefensive purposes, to
invest uncommitted cash balances or to maintainliquidity to
meet shareholder redemptions. These securities consist of United
States Treasury bills, domestic bank certificates of deposit, high-quality
commercial paper and repurchase agreements collateralized by U.S.
Government securities. In a repurchase agreement, a bank sells a security
to the Fund at one price and agrees to repurchase it at the Fund's cost plus
interest within a specified period of seven or fewer days. In these
transactions, which are, in effect, secured loans by the Fund, the securities
purchased by the Fund will have a value equal to or in excess of the value of
the repurchase agreement and will be held by the Fund's custodian bank until
repurchased. Should the Fund implement a temporary investment policy, its
investment objectives may not be achieved.

Securities lending

The Fund may lend up to 25% of its assets to
qualified institutional investorsfor the purpose of realizing additional
Income. Loans of securities of the Fund will be collateralized by cash or
securities issued or guaranteed by the United States Government or its agencies
or instrumentalities. The collateral will equal at least 100% of the current
market value of the loaned securities. The risks of securities lending
include possible delays in receiving additional collateral or in recovery of
loaned securities or loss of rights in the collateral if the borrower defaults
or becomes insolvent.

Foreign securities

The Fund may invest up to 10% of its assets in
debt and/or equity securitiesof foreign issuers. Foreign
investments involve certain risks, such as political
or economic instability of the issuer or of the country of
issue, fluctuating exchange rates and the possibility of imposition of
exchange controls. These securities may also be subject to greater
fluctuations in price than the securities of U.S. corporations, and there
may be less publicly available information about their operations. Foreign
companies may not be subject to accounting standards or governmental
supervision comparable to U.S. companies, and foreign markets may be less
liquid or more volatile than U.S. markets and may offer less protection to
investors such as the Fund.

Lower-rated
debt securities

The Fund may also invest
no more than 5% of its net assets in lower-rated(high-risk)
non-convertible debt securities, which are below investment
grade. The Fund does not expect to invest in non-convertible
debt securities that arerated lower than Caa by Moody's
Investors Service, Inc. or CCC by Standard& Poor's Corp. or,
if unrated, determined to be of comparable quality.

Warrants, rights
and options

The Fund may invest up to 5% of its total assets
in warrants, rights andoptions.

Portfolio turnover

Although the Fund generally will seek to invest for the long term, it
retains the right to sell securities regardless of how long
they have been held. Portfolio turnover rates for the Fund
may exceed 100%. Rates which exceed 100% are higher than
those of other funds. A 100% turnover rate occurs,
forexample, if all of the Fund's portfolio securities are
replaced in one year. High portfolio activity increases the
Fund's transaction costs, including brokerage commissions.

State insurance
restrictions

The Fund is sold to the Insurance Companies in connection with
VariableContracts, and will seek to be available under
Variable Contracts sold in anumber of jurisdictions.
Certain states have regulations or guidelines concerning
concentration of investments and other investment
techniques. If applied to the Fund, the Fund may be limited
in its ability to engage in certaintechniques and to manage
its portfolio with the flexibility provided herein.
In order to permit the Fund to be available under Variable
Contracts sold in certain states, the Trust may make commitments for the Fund
that are more restrictive than the investment policies and limitations
described above and in the Statement of Additional Information. If the Trust
determines that such a commitment is no longer in the Fund's best interests,
the commitment may be revoked by terminating the availability of the Fund to
Variable Contract owners residing in such states.

MANAGEMENT OF
THE TRUST

Royce &
Associates, Inc.
is responsible for the
management of the
Fund's portfolio

The Trust's business and affairs are managed
under the direction of its Board of Trustees. Royce &
Associates, Inc. ("Royce"), formerly named Quest Advisory
Corp., the Fund's investment adviser, is responsible for
themanagement of the Fund's portfolio, subject to the
authority of the Board of Trustees. Royce, which was
organized in 1967, is also the investment adviser
to The Royce Fund and to other investment and non-investment
company accounts. Charles M. Royce, Royce's President, Chief
Investment Officer and sole voting shareholder since 1972, is primarily
responsible for managing the Fund's portfolio. He is assisted by Royce's
investment staff, including W. Whitney George, Portfolio Manager, and
Managing Director and by Jack E. Fockler, Jr., Managing Director.

As compensation for its services to the Fund, Royce is
entitled to receive annual advisory fees of 1.25% of the average net assets
of Royce Micro-Cap Portfolio. These fees are payable monthly from the assets
of the Fund.

Royce will select the brokers who will execute the purchases
and sales of the Fund's portfolio securities and may place orders with
brokers who provide brokerage and research services to Royce. Royce is
authorized, in recognition of the value of brokerage and research services
provided, to pay commissions to a broker in excess of the amount which
another broker might have charged for the same transaction.

From time to time, Royce may pay amounts to Insurance
Companies or other organizations that provide administrative services for the
Fund or that provide services relating to the Fund to owners of Variable
Contracts and/or participants in Retirement Plans. These services may
include, among other things: sub-accounting services; answering inquiries
regarding the Fund; transmitting, on behalf of the Fund, proxy statements,
shareholder reports, updated prospectuses and other communications regarding
the Fund; and such other related services as the Trust, owners of Variable
Contracts and/or participants in Retirement Plans may request. The amounts
of any such payments will be determined by the nature and extent of the
services provided by the Insurance Company or other organization. Payment of
such amounts by Royce will not increase the fees paid by the Fund or its
shareholders.

GENERAL
INFORMATION

Royce Capital Fund (the "Trust") is a Delaware business trust registered
with the Securities and Exchange Commission as a diversified, open-end
management investment company. The Trustees have the authority to issue
an unlimited number of shares of beneficial interest, without shareholder
approval, and these shares may be divided into an unlimited number of series.
Shareholders are entitled to one vote per share. Shares vote by individual
series on all matters, except that shares are voted in the aggregate and not
by individual series when required by the 1940 Act and that if the Trustees
determine that a matter affects only one series, then only shareholders of
that series are entitled to vote on that matter.

Pursuant to current interpretations of the 1940 Act, the Insurance Companies
will solicit voting instructions from Variable Contract owners with respect to
any matters that are presented to a vote of shareholders and will vote all
shares held by the separate accounts in proportion to the voting instructions
received. The exercise of voting rights on shares held by Retirement Plans
will be governed by the terms of such plans. Some Retirement Plans may
pass-through voting to plan participants, while shares held by other
Retirement Plans may be voted by the trustees of the Retirement Plan or by
a named fiduciary or an investment manager. Retirement Plan participants
should consult their plan documents for information.

The Fund sells its shares only to certain qualified retirement plans and to
variable annuity and variable life insurance separate accounts of insurance
companies that are unaffiliated with Royce and that may be unaffiliated with
one another. The Fund currently does not foresee any disadvantages to
policyowners arising out of the fact that the Fund offers its shares to such
entities. Nevertheless, the Trustees intend to monitor events in order to
identify any irreconcilable material conflicts that may arise due to future
differences in tax treatment or other considerations and to determine what
action, if any, should be taken in response to such conflicts. If a conflict
occurs, the Trustees may require one or more insurance company separate
accounts or plans to withdraw its investments in the Fund and to substitute
shares of another fund. As a result, the Fund may be forced to sell securities
at disadvantageous prices. In addition, the Trustees may refuse to sell shares
of the Fund to any separate account or qualified plan or may suspend or
terminate the offering of shares of the Fund if such action is required by law
or regulatory authority or is deemed by the Trust to be in the best interests of
the shareholders of the Fund.

The custodian for the portfolio securities, cash and other assets of the Fund
is State Street Bank and Trust Company. State Street, through its agent
National Financial Data Services ("NFDS"), also serves as the Fund's transfer
agent. Coopers & Lybrand L.L.P. serves as independent accountants for the
Fund.

DIVIDENDS,
DISTRIBUTIONS
AND TAXES

The Fund will pay dividends from its net investment income (if any) and
distribute its net realized capital gains annually in December. Dividends
and distributions will be automatically reinvested in additional
shares of the Fund.

The Fund intends to qualify and to remain qualified for taxation as a
"regulated investment company" under the Internal Revenue Code, so that it
will not be subject to Federal income taxes to the extent that its income is
distributed to its shareholders. In addition, the Fund intends to qualify
under the Internal Revenue Code with respect to the diversification
requirements related to the tax-deferred status of insurance company
separate accounts. By meeting these and other requirements, the participating
Insurance Companies, rather than the owners of the Variable Contracts, should
be subject to tax on distributions received with respect to Fund shares. The
tax treatment on distributions made to an Insurance Company will depend on
the Insurance Company's tax status.

Shares of the Fund may be purchased through Variable Contracts. As a
result, it is anticipated that any net investment income dividends or capital
gains distributions from the Fund will be exempt from current taxation if left
to accumulate within a Variable Contract. Dividends and distributions made
by the Fund to the Retirement Plans are not taxable to the Retirement Plans
or to the participants thereunder. The Fund will be managed without regard
to tax ramifications. Withdrawals from such Contracts may be subject to
ordinary income tax plus a 10% penalty tax if made before age 59 1/2.

The tax status of your investment in the Fund depends on the features of your
Variable Contract or Retirement Plan. For further information, please refer
to the prospectus or disclosure documents of your Variable Contract or
information provided by your Retirement Plan. Prospective investors are
encouraged to consult their tax advisers.

The above discussion is only a summary of some of the important tax
considerations generally affecting the Fund and its shareholders; see the
Statement of Additional Information for additional
discussion.

NET ASSET VALUE
PER SHARE

Net asset value per
share (NAV) is
determined each day
the New York Stock
Exchange is open

Fund shares are purchased and redeemed at the net asset
value per share nextdetermined after an order is received by
the Fund's transfer agent or anauthorized service agent or
sub-agent. Net asset value per share is determinedby
dividing the total value of the Fund's investments and other
assets, less anyliabilities, by the number of outstanding
shares of the Fund. Net asset value per share is calculated at the
close of regular trading on the New York Stock
Exchange on each day the Exchange is open for business.

In determining net asset value, securities listed on an
exchange or the Nasdaq National Market System will be valued on the basis
of the last reported sale price prior to the time the valuation is made or,
if no sale is reported for that day, at their bid price for exchange-listed
securities and at the average of their bid and ask prices for Nasdaq
securities. Quotations will be taken from the
market where the security is primarily traded. Other over-the counter
securities for which market quotations are readily available will be valued at
their bid price. Securities for which market quotations are not readily
available will be valued at their fair value under procedures established and
supervised by the Board of Trustees. 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.

SHAREHOLDER GUIDE

The Trust will provide Insurance Companies
and Retirement Plans withinformation Monday through Friday,
except holidays, from 9:00 a.m. to 5:00p.m. (Eastern time).
For information, prices, literature or to obtaininformation
regarding the availability of Fund shares or how Fund shares
areredeemed, call the Trust at 1-800-221-4268.

PURCHASING AND
REDEEMING SHARES
OF THE FUND

Shares of the Fund will be
sold on a continuous basis to separate accounts of
Insurance Companies or to Retirement Plans. Stock
certificates will not be issued; share activity will be recorded
in book entry form only. Investors may not purchase or redeem
shares of the Fund directly, but only through the
separate accounts of Insurance Companies or through
qualified Retirement Plans. You should refer to the applicable
Separate Account Prospectus or your Plan documents for information on
how to purchase or surrender a contract, make partial withdrawals of
contract values, allocate contract values to one or more funds, change
existing allocations among investment alternatives, including the Fund,
or select specific funds as investment options in a Retirement Plan.
No sales charge is imposed upon the purchase or redemption of shares of
the Fund. Sales charges for the Variable Contracts or Retirement Plans
are described in the relevant Separate Account Prospectuses or plan documents.

If the Board of Trustees determines that it would be
detrimental to the best interest of the Fund's remaining shareholders
to make payment in cash, the Fund may pay redemption proceeds in whole
or in part by a distribution in kind.

Fund shares are purchased or redeemed at the net asset value
per share next computed after receipt of a purchase or redemption
order by the Fund's transfer agent or an authorized service agent or
sub-agent. Payment for redeemed shares will generally be made within
three business days following the date of request for redemption.
However, payment may be postponed under unusual circumstances, such as
when normal trading is not taking place on the New York Stock Exchange,
an emergency as defined by the Securities and Exchange Commission exists
or as permitted by the Securities and Exchange Commission.

SHAREHOLDER
COMMINICATIONS

Owners of Variable Contracts and Retirement Plans and their
administrators will receive annual and semi-annual reports, including
the financial statements of the Fund that they have authorized for
investment. Each report will alsoshow the investments owned
by the Fund and the market values thereof, as
well as other information about the Fund and its operations.
The Trust's fiscal year ends December 31.

ROYCE CAPITAL FUND
1414 Avenue of the Americas
New York, NY 10019
1-800-221-4268

INVESTMENT ADVISER
Royce & Associates, Inc. ROYCE CAPITAL FUND
1414 Avenue of the Americas ------------------
New York, NY 10019

TRANSFER AGENT ROYCE MICRO-CAP PORTFOLIO
State Street Bank and Trust Company
c/o NFDS
P.O. Box 419012
Kansas City, MO 64141-6012
1-800-841-1180

CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1713
Boston, MA 02105

ROYCE CAPITAL FUND

STATEMENT OF ADDITIONAL INFORMATION

ROYCE CAPITAL FUND (the "Trust"), a Delaware business trust
organized in January 1996, is a professionally managed, open-end
registered investment company, which has three portfolios or
series ("Funds"). Each Fund has distinct investment objectives
and/or policies, and a shareholder's interest is limited to the
Fund in which the shareholder owns shares. The three Funds are:

ROYCE PREMIER PORTFOLIO
ROYCE TOTAL RETURN PORTFOLIO
ROYCE MICRO-CAP PORTFOLIO

Shares of the Funds are offered to life insurance companies
("Insurance Companies") for allocation to certain separate
accounts established for the purpose of funding qualified and non-
qualified variable annuity contracts and variable life insurance
contracts ("Variable Contracts"), and may also be offered
directly to certain pension plans and retirement plans and
accounts permitting accumulation of assets on a tax-deferred
basis ("Retirement Plans").

This Statement of Additional Information is not a
prospectus, but should be read in conjunction with the Trust's
current Prospectus dated June 30, 1997. To obtain an
additional copy of the Prospectus, please call Investor
Information at 1-800-221-4268 or contact your Insurance Company.

INVESTMENT ADVISER
Royce & Associates, Inc. ("Royce")

TRANSFER AGENT CUSTODIAN
State Street Bank and Trust Company State Street Bank and Trust Company
c/o National Financial Data Services

June 30, 1997

TABLE OF CONTENTS

PAGE
INVESTMENT POLICIES AND LIMITATIONS 2
RISK FACTORS AND SPECIAL CONSIDERATIONS 3
MANAGEMENT OF THE TRUST 8
PRINCIPAL HOLDERS OF SHARES 11
INVESTMENT ADVISORY SERVICES 11
CUSTODIAN 12
INDEPENDENT ACCOUNTANTS 13
PORTFOLIO TRANSACTIONS 13
CODE OF ETHICS AND RELATED MATTERS 14
PRICING OF SHARES BEING OFFERED 15
REDEMPTIONS IN KIND 15
TAXATION 15
DESCRIPTION OF THE TRUST 17
PERFORMANCE DATA 19
FINANCIAL STATEMENTS 23

INVESTMENT POLICIES AND LIMITATIONS

The following investment policies and limitations supplement
those set forth in the Funds' Prospectus. Unless otherwise
noted, whenever an investment policy or limitation states a
maximum percentage of a Fund's assets that may be invested in any
security or other asset or sets forth a policy regarding quality
standards, the percentage limitation or standard will be
determined immediately after giving effect to the Fund's
acquisition of the security or other asset. Accordingly, any
subsequent change in values, net assets or other circumstances
will not be considered in determining whether the investment
complies with the Fund's investment policies and limitations.

A Fund's fundamental investment policies cannot be changed
without the approval of a "majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940
(the "1940 Act")) of the Fund. Except for the fundamental
investment restrictions set forth below, the investment policies
and limitations described in this Statement of Additional
Information are operating policies and may be changed by the
Board of Trustees without shareholder approval. However,
shareholders will be notified prior to a material change in an
operating policy affecting their Fund.

NO FUND MAY, AS A MATTER OF FUNDAMENTAL POLICY:

1. Issue any senior securities;

2. Purchase securities on margin or write call options on its
portfolio securities;

3. Sell securities short;

4. Borrow money, except from banks as a temporary measure for
extraordinary or emergency purposes in an amount not exceeding
5% of its assets;

5. Underwrite the securities of other issuers;

6. Invest more than 10% of its assets in the securities of
foreign issuers;

7. Invest in restricted securities, unless such securities are
issued by money market funds registered under the Investment
Company Act of 1940, or in repurchase agreements which mature in
more than seven days;

8. Invest more than 10% of its assets in securities without
readily-available market quotations (i.e., illiquid securities);

9. Invest, with respect to 75% of its assets, more than 5% of
its assets in the securities of any one issuer (except U.S.
Government securities);

10. Invest more than 25% of its assets in any one industry;

11. Acquire more than 10% of the outstanding voting securities
of any one issuer;

12. Purchase or sell real estate or real estate mortgage loans
or invest in the securities of real estate companies unless such
securities are publicly-traded;

13. Purchase or sell commodities or commodity contracts;

14. Make loans, except for purchases of portions of issues of
publicly-distributed bonds, debentures and other securities,
whether or not such purchases are made upon the original
issuance of such securities, and except that the Funds may loan
up to 25% of their respective assets to qualified brokers,
dealers or institutions for their use relating to short sales or
other securities transactions (provided that such loans are
fully collateralized at all times);

15. Invest in companies for the purpose of exercising control of
management; or

16. Purchase portfolio securities from or sell such securities
directly to any of the Trust's Trustees, officers, employees or
investment adviser, as principal for their own accounts.

NO FUND MAY, AS A MATTER OF OPERATING POLICY:

1. Invest more than 5% of its net assets in lower-rated (high-risk)
non-convertible debt securities;

2. Enter into repurchase agreements with any party other than the
custodian of its assets; or

3. Invest more than 5% of its total assets in warrants, rights
and options.

RISK FACTORS AND SPECIAL CONSIDERATIONS

FUNDS' RIGHTS AS STOCKHOLDERS

As noted above, no Fund may invest in a company for the
purpose of exercising control of management. However, a Fund may
exercise its rights as a stockholder and communicate its views on
important matters of policy to management, the board of directors
and/or stockholders if Royce or the Board of Trustees determine
that such matters could have a significant effect on the value of
the Fund's investment in the company. The activities that a Fund
may engage in, either individually or in conjunction with others,
may include, among others, supporting or opposing proposed
changes in a company's corporate structure or business
activities; seeking changes in a company's board of directors or
management; seeking changes in a company's direction or policies;
seeking the sale or reorganization of a company or a portion of
its assets; or supporting or opposing third party takeover
attempts. This area of corporate activity is increasingly prone
to litigation, and it is possible that a Fund could be involved
in lawsuits related to such activities. Royce will monitor such
activities with a view to mitigating, to the extent possible, the
risk of litigation against the Funds and the risk of actual
liability if a Fund is involved in litigation. However, no
guarantee can be made that litigation against a Fund will not be
undertaken or liabilities incurred.

A Fund may, at its expense or in conjunction with others,
pursue litigation or otherwise exercise its rights as a security
holder to seek to protect the interests of security holders if
Royce and the Trust's Board of Trustees determine this to be in
the best interests of a Fund's shareholders.

SECURITIES LENDING

The Funds may lend up to 25% of their respective assets to
brokers, dealers and other financial institutions. Securities
lending allows a Fund to retain ownership of the securities
loaned and, at the same time, to earn additional income. Since
there may be delays in the recovery of loaned securities or even
a loss of rights in collateral supplied should the borrower fail
financially, loans will be made only to parties that participate
in a Global Securities Lending Program monitored by the Funds'
custodian and who are deemed by it to be of good standing.
Furthermore, such loans will be made only if, in Royce's
judgment, the consideration to be earned from such loans would
justify the risk.

Royce understands that it is the current view of the staff
of the Securities and Exchange Commission that a Fund may engage
in such loan transactions only under the following conditions:
(i) the Fund must receive 100% collateral in the form of cash or
cash equivalents (e.g., U.S. Treasury bills or notes) from the
borrower; (ii) the borrower must increase the collateral whenever
the market value of the securities loaned (determined on a daily
basis) rises above the value of the collateral; (iii) after
giving notice, the Fund must be able to terminate the loan at any
time; (iv) the Fund must receive reasonable interest on the loan
or a flat fee from the borrower, as well as amounts equivalent to
any dividends, interest or other distributions on the securities
loaned and to any increase in market value; (v) the Fund may pay
only reasonable custodian fees in connection with the loan; and
(vi) the Fund must be able to vote proxies on the securities
loaned, either by terminating the loan or by entering into an
alternative arrangement with the borrower.

LOWER-RATED (HIGH-RISK) DEBT SECURITIES

Each Fund may invest up to 5% of its net assets in lower-
rated (high-risk) non-convertible debt securities. They may be
rated from Ba to Ca by Moody's Investors Service, Inc. or from BB
to D by Standard & Poor's Corporation or may be unrated. These
securities have poor protection with respect to the payment of
interest and repayment of principal and may be in default as to
the payment of principal or interest. These securities are often
considered to be speculative and involve greater risk of loss or
price changes due to changes in the issuer's capacity to pay.
The market prices of lower-rated (high-risk) debt securities may
fluctuate more than those of higher-rated debt securities and may
decline significantly in periods of general economic difficulty,
which may follow periods of rising interest rates.

While the market for lower-rated (high-risk) corporate debt
securities has been in existence for many years and has weathered
previous economic downturns, the 1980s brought a dramatic
increase in the use of such securities to fund highly leveraged
corporate acquisitions and restructurings. Past experience may
not provide an accurate indication of the future performance of
the high-yield/high-risk bond market, especially during periods
of economic recession. In fact, from 1989 to 1991, the
percentage of lower-rated (high-risk) debt securities that
defaulted rose significantly above prior levels.

The market for lower-rated (high-risk) debt securities may
be thinner and less active than that for higher-rated debt
securities, which can adversely affect the prices at which the
former are sold. If market quotations cease to be readily
available for a lower-rated (high-risk) debt security in which a
Fund has invested, the security will then be valued in accordance
with procedures established by the Board of Trustees. Judgment
plays a greater role in valuing lower-rated (high-risk) debt
securities than is the case for securities for which more
external sources for quotations and last sale information are
available. Adverse publicity and changing investor perceptions
may affect a Fund's ability to dispose of lower-rated (high-risk)
debt securities.

Since the risk of default is higher for lower-rated (high-
risk) debt securities, Royce's research and credit analysis may
play an important part in managing securities of this type for
the Funds. In considering such investments for the Funds, Royce
will attempt to identify those issuers of lower-rated (high-risk)
debt securities whose financial condition is adequate to meet
future obligations, has improved or is expected to improve in the
future. Royce's analysis may focus on relative values based on
such factors as interest or dividend coverage, asset coverage,
earnings prospects and the experience and managerial strength of
the issuer.

FOREIGN INVESTMENTS

Each Fund may invest up to 10% of its assets in the
securities of foreign issuers. Foreign investments can involve
significant risks in addition to the risks inherent in U.S.
investments. The value of securities denominated in or indexed to
foreign currencies and of dividends and interest from such
securities can change significantly when foreign currencies
strengthen or weaken relative to the U.S. dollar. Foreign
securities markets generally have less trading volume and less
liquidity than U.S. markets, and prices on some foreign markets
can be highly volatile. Many foreign countries lack uniform
accounting and disclosure standards comparable to those
applicable to U.S. companies, and it may be more difficult to
obtain reliable information regarding an issuer's financial
condition and operations. In addition, the costs of foreign
investing, including withholding taxes, brokerage commissions and
custodial costs, are generally higher than for U.S. investments.

Foreign markets may offer less protection to investors than
U.S. markets. Foreign issuers, brokers and securities markets
may be subject to less government supervision. Foreign security
trading practices, including those involving the release of
assets in advance of payment, may involve increased risks in the
event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to
enforce legal rights in foreign countries.

Investing abroad also involves different political and
economic risks. Foreign investments may be affected by actions
of foreign governments adverse to the interests of U.S.
investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on
U.S. investment or on the ability to repatriate assets or convert
currency into U.S. dollars or other government intervention.
There may be a greater possibility of default by foreign
governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local
political, economic or social instability, military action or
unrest or adverse diplomatic developments. There is no assurance
that Royce will be able to anticipate these potential events or
counter their effects.

The considerations noted above are generally intensified for
investments in developing countries. Developing countries may
have relatively unstable governments, economies based on
only a few industries and securities markets that trade a small
number of securities.

American Depositary Receipts ("ADRs") are certificates held
in trust by a bank or similar financial institution evidencing
ownership of securities of a foreign-based issuer. Designed for
use in U.S. securities markets, ADRs are alternatives to the
purchase of the underlying foreign securities in their national
markets and currencies.

ADR facilities may be established as either unsponsored or
sponsored. While ADRs issued under these two types of facilities
are in some respects similar, there are distinctions between them
relating to the rights and obligations of ADR holders and the
practices of market participants. A depository may establish an
unsponsored facility without participation by (or even
necessarily the acquiescence of) the issuer of the deposited
securities, although typically the depository requests a letter
of non-objection from such issuer prior to the establishment of
the facility. Holders of unsponsored ADRs generally bear all the
costs of such facilities. The depository usually charges fees
upon the deposit and withdrawal of the deposited securities, the
conversion of dividends into U.S. dollars, the disposition of non-
cash distributions and the performance of other services. The
depository of an unsponsored facility frequently is under no
obligation to distribute shareholder communications received from
the issuer of the deposited securities or to pass through voting
rights to ADR holders in respect of the deposited securities.
Sponsored ADR facilities are created in generally the same manner
as unsponsored facilities, except that the issuer of the
deposited securities enters into a deposit agreement with the
depository. The deposit agreement sets out the rights and
responsibilities of the issuer, the depository and the ADR
holders. With sponsored facilities, the issuer of the deposited
securities generally will bear some of the costs relating to the
facility (such as deposit and withdrawal fees). Under the terms
of most sponsored arrangements, depositories agree to distribute
notices of shareholder meetings and voting instructions and to
provide shareholder communications and other information to the
ADR holders at the request of the issuer of the deposited
securities.

REPURCHASE AGREEMENTS

In a repurchase agreement, a Fund in effect makes a loan by
purchasing a security and simultaneously committing to resell
that security to the seller at an agreed upon price on an agreed
upon date within a number of days (usually not more than seven)
from the date of purchase. The resale price reflects the
purchase price plus an agreed upon incremental amount which is
unrelated to the coupon rate or maturity of the purchased
security. A repurchase agreement involves the obligation of the
seller to pay the agreed upon price, which obligation is in
effect secured by the value (at least equal to the amount of the
agreed upon resale price and marked to market daily) of the
underlying security.

The Funds may engage in repurchase agreements with respect
to any U.S. Government security. While it does not presently
appear possible to eliminate all risks from these transactions
(particularly the possibility of a decline in the market value of
the underlying securities, as well as delays and costs to a Fund
in connection with bankruptcy proceedings), it is the policy of
the Trust to enter into repurchase agreements only with its
custodian, State Street Bank and Trust Company, and having a term
of seven days or less.

WARRANTS, RIGHTS AND OPTIONS

The Funds may invest up to 5% of their assets in warrants,
rights and options. A warrant, right or call option entitles the
holder to purchase a given security within a specified period for
a specified price and does not represent an ownership interest.
A put option gives the holder the right to sell a particular
security at a specified price during the term of the option.
These securities have no voting rights, pay no dividends and have
no liquidation rights. In addition, their market prices do not
necessarily move parallel to the market prices of the underlying
securities.

The sale of warrants, rights or options held for more than
one year generally results in a long-term capital gain or loss to
the Fund, and the sale of warrants, rights or options held for
one year or less generally results in a short term capital gain
or loss. The holding period for securities acquired upon
exercise of a warrant, right or call option, however, generally
begins on the day after the date of exercise, regardless of how
long the warrant, right or option was held. The securities
underlying warrants, rights and options could include shares of
common stock of a single company or securities market indices
representing shares of the common stocks of a group of companies,
such as the Standard & Poor's SmallCap 600 Stock Price Index, an
unmanaged market-weighted index.

Investing in warrants, rights and call options on a given
security allow the Fund to hold an interest in that security
without having to commit assets equal to the market price of the
underlying security and, in the case of securities market
indices, to participate in a market without having to purchase
all of the securities comprising the index. Put options, whether
on shares of common stock of a single company or on a securities
market index, would permit the Fund to protect the value of a
portfolio security against a decline in its market price and/or
to benefit from an anticipated decline in the market price of a
given security or of a market. Thus, investing in warrants,
rights and options permits the Fund to incur additional risk
and/or to hedge against risk.

* * *

Royce believes that Royce Micro-Cap Portfolio is suitable
for investment only by persons who can invest without concern for
income, and that such Fund and Royce Premier Portfolio are
suitable for those who are in a financial position to assume
above-average investment risks in search for long-term capital
appreciation.

MANAGEMENT OF THE TRUST

The following table sets forth certain information as to
each Trustee and officer of the Trust:

<TABLE>

Position Held
Name, Address and Age with the Trust Principal Occupations During Past 5 Years
- --------------------- -------------- ------------------------------------------
<S> <C> <C>

Charles M. Royce* (57) Trustee, President President, Managing Director
1414 Avenue of the Americas and Treasurer (since April 1997),
New York, NY 10019 Secretary, Treasurer, sole
director and sole voting
shareholder of Royce &
Associates, Inc. ("Royce"),
formerly named Quest
Advisory Corp, the Trust's
investment adviser; Trustee,
President and Treasurer of
The Royce Fund ("TRF") and
its predecessor, an open-end
diversified management
investment company of which
Royce is the principal
investment adviser;
Director, President and
Treasurer of Royce Value
Trust, Inc. ("RVT"), Royce
Micro-Cap Trust, Inc.
("OTCM") (since September
1993) and Royce Global
Trust, Inc. ("RGT") (since
October 1996) closed-end
management investment
companies of which Royce is
the investment adviser (TRF,
RVT, OTCM and RGT
collectively, "The Royce
Funds"); Secretary and sole
director and shareholder of
Royce Fund Services, Inc.
("RFS), formerly named Quest
Distributors, Inc., the
distributor of TRF's shares;
and managing general partner
of Royce Management Company
("RMC"), formerly named
Quest Management Company, a
registered investment
adviser, and its predecessor.

Richard M. Galkin (59) Trustee Private investor and
5284 Boca Marina Circle president of Richard M.
South Galkin Associates, Inc.,
Boca Raton, FL 33487 tele-communications consultants.

Stephen L. Isaacs (57) Trustee President of The Center for
65 Harmon Avenue Health and Social Policy
Pelham, NY 10803 since September 1996;
President of Stephen L.
Isaacs Associates,
Consultants; and Director of
Columbia University
Development Law and Policy
Program and Professor at
Columbia University until
August 1996.

David L. Meister (57) Trustee Consultant to the
111 Marquez Place communications industry
Pacific Palisades, CA 90272 since January 1993;
Executive Officer of Digital
Planet Inc. from April 1991
to December 1992.

W. Whitney George* (39) Trustee and Managing Director (since
1414 Avenue of the Americas Vice President April 1997) and Vice
New York, NY 10019 President (since August
1993) of Royce, having been
employed by Royce since
October 1991; Vice President
of RGT (since October 1996)
and of the other Royce Funds
(since April 1995); and
general partner of RMC and
its predecessor since January 1992.

John D. Diederich (45) Vice President Director of Operations of
1414 Avenue of the Americas President TRF and RVT (since April
New York, NY 10019 1993) and of OTCM (since
September 1993); Vice President
and Director (since April 1997
and June 1997, respectively)
of RVT and OTCM; Vice President
of RGT (since October 1996);
President of RFS since
November 1995; and President
of Fund/Plan Services, Inc.
from January 1988 to December 1992.

Jack E. Fockler, Jr.* (38) Vice President Managing Director (since
1414 Avenue of the Americas April 1997) and Vice
New York, NY 10019 President (since August
1993) of Royce, having been
employed by Royce since
October 1989; Vice President
of RGT (since October 1996)
and of the other Royce Funds
(since April 1995); Vice
President of RFS (since
November 1995); and general
partner of RMC and its
predecessor (since July 1993).

Daniel A. O'Byrne* (35) Vice President Vice President of Royce
1414 Avenue of the Americas and Assistant (since May 1994), having
New York, NY 10019 Secretary been employed by Royce since
October 1986; and Vice
President of RGT (since
October 1996) and of the
other Royce Funds (since July 1994).

John E. Denneen* (30) Secretary Associate General Counsel
1414 Avenue of the Americas and Chief Compliance Officer
New York, NY 10019 of Royce (since May 1996);
Secretary of RGT (since
October 1996) and of the
other Royce Funds (since
June 1996); and Associate of
Seward & Kissel from
September 1992 to May 1996.

</TABLE>
________________________________
*An "interested person" under Section 2(a)(19) of the 1940 Act.

All of the Trust's Trustees except W. Whitney George are
also trustees of TRF and directors of RVT, OTCM and RGT.

The Board of Trustees has an Audit Committee, comprised of
Richard M. Galkin, Stephen L. Isaacs and David L. Meister. The
Audit Committee is responsible for the selection and nomination
of independent auditors for the Funds and for conducting post-
audit reviews of their financial conditions with such auditors.

For the year ended December 31, 1996, the following Trustees
received compensation from the Trust and the other funds in the
group of registered investment companies comprising The Royce
Funds for services as a trustee/director on such funds' Boards:

<TABLE>

Aggregate Compensation Total Compensation
Name from Trust from The Royce Funds
- ---- ----------------------- --------------------
<S> <C> <C>

Richard M. Galkin $ - 0 - $60,500
Stephen L. Isaacs - 0 - 60,500
David L. Meister - 0 - 60,500

</TABLE>

Each of the non-affiliated Trustees will receive a fee of $500
per year for serving on the Trust's Board of Trustees.

PRINCIPAL HOLDERS OF SHARES

As of June 1, 1997, Royce & Associates, Inc. Money Purchase
Pension Plan owned of record 120,000 shares of the Trust,
consisting of 50,000 shares of Royce Premier Portfolio, 20,000
shares of Royce Total Return Portfolio and 50,000 shares of Royce
Micro-Cap Portfolio, representing 100% of the Trust's and each
Portfolio's then outstanding shares. All of these shares were
beneficially owned by Charles M. Royce.

INVESTMENT ADVISORY SERVICES

SERVICES PROVIDED BY ROYCE

As compensation for its services under its Investment Advisory
Agreement with the Trust, Royce is entitled to receive the
following fees:

<TABLE>

Fund Percentage Per Annum of Fund's Average Net Assets
---- --------------------------------------------------
<S> <C>

Royce Premier Portfolio 1.00%
Royce Total Return Portfolio 1.00%
Royce Micro-Cap Portfolio 1.25%

</TABLE>

Under the Investment Advisory Agreement, Royce (i)
determines the composition of each Fund's portfolio, the nature
and timing of the changes in it and the manner of implementing
such changes, subject to any directions it may receive from the
Trust's Board of Trustees; (ii) provides each Fund with
investment advisory, research and related services for the
investment of its funds; (iii) furnishes, without expense to the
Trust, the services of such of its executive officers and full-
time employees as may be duly elected executive officers or
Trustees of the Trust; and (iv) pays any additional expenses
incurred by the Trust in connection with promoting the sale of
its shares and all expenses incurred in performing its investment
advisory duties under the Investment Advisory Agreement.

The Trust pays all administrative and other costs and
expenses attributable to its operations and transactions,
including, without limitation, transfer agent and custodian fees;
legal, administrative and clerical services; rent for its office
space and facilities; auditing; preparation, printing and
distribution of its prospectuses to existing shareholders, proxy
statements, shareholders reports and notices; supplies and
postage; Federal and state registration fees; Federal, state and
local taxes; non-affiliated Trustees' fees; and brokerage
commissions.

PORTFOLIO MANAGEMENT

The Funds' portfolios and the portfolios of Royce's other
accounts are managed by Charles M. Royce, Royce's Chief
Investment Officer. He is assisted by Royce's investment staff,
including W. Whitney George, Portfolio Manager and Managing
Director, and by Jack E. Fockler, Jr., Managing Director. In the
event of any significant change in Royce's senior investment
staff, the members of the Trust's Board of Trustees who are not
interested persons of the Trust will consider what action, if
any, should be taken in connection with the Trust's management
arrangements.

Certain information concerning Messrs. Royce, Fockler and
George is set forth above under "MANAGEMENT OF THE TRUST".

CUSTODIAN

State Street Bank and Trust Company ("State Street") is the
custodian for the securities, cash and other assets of each Fund
and the transfer agent and dividend disbursing agent for the
shares of each Fund, but it does not participate in any Fund's
investment decisions. The Trust has authorized State Street to
deposit certain domestic and foreign portfolio securities in
several central depository systems and to use foreign sub-
custodians for certain foreign portfolio securities, as allowed
by Federal law. State Street's main office is at 225 Franklin
Street, Boston, Massachusetts 02107. All mutual fund transfer,
dividend disbursing and shareholder service activities are
performed by State Street's agent, National Financial Data
Services, at 1004 Baltimore, Kansas City, Missouri 64105.

State Street is responsible for the calculation of each
Fund's daily net asset value per share and for the maintenance of
its portfolio and general accounting records and also provides
certain shareholder services.

INDEPENDENT ACCOUNTANTS

Coopers & Lybrand L.L.P., whose address is One Post Office
Square, Boston, Massachusetts, 02109, are the independent
accountants of the Trust. The balance sheets of the Funds
included in the Statement of Additional Information have been
examined by Coopers & Lybrand L.L.P., as set forth in their
report with respect thereto and are included in reliance upon
such report and upon the authority of such firm as experts in
accounting and auditing.

PORTFOLIO TRANSACTIONS

Royce is responsible for selecting the brokers who effect
the purchases and sales of each Fund's portfolio securities. No
broker is selected to effect a securities transaction for a Fund
unless such broker is believed by Royce to be capable of
obtaining the best price and execution for the security involved
in the transaction. In addition to considering a broker's
execution capability, Royce generally considers the brokerage and
research services which the broker has provided to it, including
any research relating to the security involved in the transaction
and/or to other securities. Such services may include general
economic research, market and statistical information, industry
and technical research, strategy and company research, and may be
written or oral. Royce determines the overall reasonableness of
brokerage commissions paid, after considering the amount another
broker might have charged for effecting the transaction and the
value placed by Royce upon the brokerage and/or research services
provided by such broker, viewed in terms of either that
particular transaction or Royce's overall responsibilities with
respect to its accounts.

Royce is authorized, under Section 28(e) of the Securities
Exchange Act of 1934 and under its Investment Advisory Agreement
with the Trust, to pay a brokerage commission in excess of that
which another broker might have charged for effecting the same
transaction, in recognition of the value of brokerage and
research services provided by the broker.

Brokerage and research services furnished by brokers through
whom a Fund effects securities transactions may be used by Royce
in servicing all of its accounts and those of RMC, and not all of
such services may be used by Royce in connection with the Trust
or any one of its Funds.

Consistent with achieving the best price and execution,
Royce may also consider sales by a broker-dealer of Variable
Contracts that permit allocation of contract value to one or more
of the Funds as a factor in the selection of broker-dealers to
execute portfolio transactions for the Funds. In no event will a
Fund's brokerage business be placed with RFS.

Even though investment decisions for each Fund are made
independently from those for the other Funds and the other
accounts managed by Royce and RMC, securities of the same issuer
are frequently purchased, held or sold by more than one Royce/RMC
account because the same security may be suitable for all of
them. When the same security is being purchased or sold for more
than one Royce/RMC account on the same trading day, Royce seeks
to average the transactions as to price and allocate them as to
amount in a manner believed to be equitable to each. Such
purchases and sales of the same security are generally effected
pursuant to Royce/RMC's Trade Allocation Guidelines and
Procedures. Under such Guidelines and Procedures, unallocated
orders are placed with and executed by broker-dealers during the
trading day. The securities purchased or sold in such
transactions are then allocated to one or more of Royce's and
RMC's accounts at or shortly following the close of trading,
using the average net price obtained. Such allocations are done
based on a number of judgmental factors that Royce and RMC
believe should result in fair and equitable treatment to those of
their accounts for which the securities may be deemed suitable.
In some cases, this procedure may adversely affect the price paid
or received by a Fund or the size of the position obtainable for
a Fund.

CODE OF ETHICS AND RELATED MATTERS

Royce, RFS, RMC and The Royce Funds have adopted a Code of
Ethics under which directors, officers, employees and partners of
Royce, RFS and RMC ("Royce-related persons") and interested
trustees/directors, officers and employees of The Royce Funds are
prohibited from personal trading in any security which is then
being purchased or sold or considered for purchase or sale by a
Royce Fund or any other Royce or RMC account. Such persons are
permitted to engage in other personal securities transactions if
(i) the securities involved are United States Government debt
securities, municipal debt securities, money market instruments,
shares of affiliated or non-affiliated registered open-end
investment companies or shares acquired from an issuer in a
rights offering or under an automatic dividend reinvestment plan
or employer-sponsored automatic payroll deduction cash purchase
plan or (ii) they first obtain permission to trade from Royce's
Compliance Officer and an executive officer of Royce. The Code
contains standards for the granting of such permission, and it is
expected that permission to trade will be granted only in a
limited number of instances.

Royce's and RMC's clients include several private investment
companies in which Royce or RMC has (and, therefore, Charles M.
Royce, Jack E. Fockler, Jr. and/or W. Whitney George may be
deemed to beneficially own) a share of up to 15% of the company's
realized and unrealized net capital gains from securities
transactions, but less than 5% of the company's equity interests.
The Code of Ethics does not restrict transactions effected by
Royce or RMC for such private investment company accounts.
Transactions for such private investment company accounts are
subject to Royce's and RMC's allocation policies and procedures.
See "Portfolio Transactions".

As of June 1, 1997, Royce-related persons, interested
trustees/directors, officers and employees of The Royce Funds and
members of their immediate families beneficially owned shares of
The Royce Funds having a total value of approximately $ 27.4
million, and Royce's and RMC's equity interests in such private
investment companies totalled approximately $3.3 million.

PRICING OF SHARES BEING OFFERED

The purchase and redemption price of each Fund's shares is
based on the Fund's current net asset value per share. See "Net
Asset Value Per Share" in the Funds' Prospectus.

As set forth under "Net Asset Value Per Share", the Funds'
custodian determines the net asset value per share of each Fund
at the close of regular trading on the New York Stock Exchange on
each day that the Exchange is open. The Exchange is open on all
weekdays which are not holidays. Thus, it is closed on Saturdays
and Sundays and on New Year's Day, Martin Luther King Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.

REDEMPTIONS IN KIND

It is possible that conditions may arise in the future which
would, in the judgment of the Board of Trustees or management,
make it undesirable for a Fund to pay for all redemptions in
cash. In such cases, payment may be made in portfolio securities
or other property of the Fund. However, the Trust has obligated
itself under the 1940 Act to redeem for cash all shares presented
for redemption by any one shareholder up to $250,000 (or 1% of
the Fund's net assets if that is less) in any 90-day period.
Securities delivered in payment of redemptions would be valued at
the same value assigned to them in computing the net asset value
per share for purposes of such redemption. Shareholders
receiving such securities would incur brokerage costs when these
securities are sold.

TAXATION

Shares of the Funds are offered to separate accounts of
Insurance Companies that fund Variable Contracts and may be
offered to certain Retirement Plans, which are pension plans and
retirement arrangements and accounts permitting the accumulation
of funds on a tax-deferred basis. See the disclosure documents
for the Variable Contracts or the plan documents for the
Retirement Plans for a discussion of the special taxation of
insurance companies with respect to the separate accounts and the
Variable Contracts, and the holders thereof, or the special
taxation of Retirement Plans and the participants therein.

Each Fund intends to qualify and to remain qualified each
year for the tax treatment applicable to a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986,
as amended (the "Code"). To so qualify, a Fund must comply with
certain requirements of the Code relating to, among other things,
the source of its income and the diversification of its assets.

As a regulated investment company, a Fund will not be
subject to Federal income tax on net investment income and
capital gains (short- and long-term), if any, that it distributes
to its shareholders if at least 90% of its net investment income
and net short-term capital gains for the taxable year are
distributed, but will be subject to tax at regular corporate
rates on any income or gains that are not distributed. In
general, dividends will be treated as paid when actually
distributed, except that dividends declared in October, November
or December and made payable to shareholders of record in such a
month will be treated as having been paid by the Fund (and
received by shareholders) on December 31, provided the dividend
is paid in the following January. Each Fund intends to satisfy
the distribution requirements in each taxable year.

The Funds will not be subject to the 4% Federal excise tax
imposed on registered investment companies that do not distribute
substantially all of their income and gains each calendar year
because such tax does not apply to a registered investment
company whose only shareholders are segregated asset accounts of
life insurance companies held in connection with variable annuity
and/or variable life insurance policies or Retirement Plans.

Each Fund will maintain accounts and calculate income by
reference to the U.S. dollar for U.S. Federal income tax
purposes. Investments calculated by reference to foreign
currencies will not necessarily correspond to a Fund's
distributable income and capital gains for U.S. Federal income
tax purposes as a result of fluctuations in foreign currency
exchange rates. Furthermore, if any exchange control regulations
were to apply to a Fund's investments in foreign securities, such
regulations could restrict that Fund's ability to repatriate
investment income or the proceeds of sales of securities, which
may limit the Fund's ability to make sufficient distributions to
satisfy the 90% distribution requirements.

Income earned or received by a Fund from investments in
foreign securities may be subject to foreign withholding taxes
unless a withholding exemption is provided under an applicable
treaty. Any such taxes would reduce that Fund's cash available
for distribution to shareholders.

If a Fund invests in stock of a so-called passive foreign
investment company ("PFIC"), such Fund may be subject to Federal
income tax on a portion of any "excess distribution" with respect
to, or gain from the disposition of, such stock. The tax would
be determined by allocating such distribution or gain ratably to
each day of the Fund's holding period for the stock. The amount
so allocated to any taxable year of the Fund prior to the taxable
year in which the excess distribution or disposition occurs would
be taxed to the Fund at the highest marginal income tax rate in
effect for such years, and the tax would be further increased by
an interest charge. The amount allocated to the taxable year of
the distribution or disposition would be included in the Fund's
investment company taxable income and, accordingly, would not be
taxable to the Fund to the extent distributed by the Fund as a
dividend to shareholders. In lieu of being taxable in the manner
described above, such Fund may be able to elect to include
annually in income its pro rata share of the ordinary earnings
and net capital gain (whether or not distributed) of the PFIC.
In order to make this election, the Fund would be required to
obtain annual information from the PFICs in which it invests,
which in many cases may be difficult to obtain. Alternatively,
if eligible, the Fund may be able to elect to mark to market its
PFIC stock, resulting in the stock being treated as sold at fair
market value on the last business day of each taxable year. Any
resulting gain would be reported as ordinary income, and any
resulting loss would not be recognized.

Investments of a Fund in securities issued at a discount or
providing for deferred interest payments or payments of interest
in kind (which investment are subject to special tax rules under
the Code) will affect the amount, timing and character of
distributions to shareholders. For example, a Fund which
acquires securities issued at a discount will be required to
accrue as ordinary income each year a portion of the discount
(even though the Fund may not have received cash interest
payments equal to the amount included in income) and to
distribute such income each year in order to maintain its
qualification as a regulated investment company and to avoid
income taxes. In order to generate sufficient cash to make
distributions necessary to satisfy the 90% distribution
requirement and to avoid income taxes, the Fund may have to
dispose of securities that it would otherwise have continued to
hold.

Each Fund must and the Funds intend to comply with Section
817(h) of the Code and the regulations issued thereunder, which
impose certain diversification requirements on the segregated
asset accounts investing in the Funds. These requirements, which
are in addition to the diversification requirements applicable to
the Funds under the 1940 Act and under the regulated investment
company provisions of the Code, may limit the types and amounts
of securities in which the Funds may invest. Failure to meet the
requirements of Section 817(h) could result in current taxation
of the holder of the Variable Contract on the income of the
Variable Contract.

The foregoing is only a general summary of some of the
important Federal income tax considerations generally affecting
the Funds and their shareholders. No attempt is made to present
a complete explanation of the Federal tax treatment of the Funds'
activities, and this discussion and the discussion in the
prospectuses and/or statements of additional information for
Variable Contracts are not intended as a substitute for careful
tax planning. Accordingly, potential investors are urged to
consult their own tax advisers for more detailed information and
for information regarding any state, local or foreign taxes
applicable to the Variable Contracts and the holders thereof.

DESCRIPTION OF THE TRUST

TRUST ORGANIZATION

The Trust was established as a Delaware business trust,
effective January 11, 1996. A copy of the Trust's Certificate of
Trust is on file with the Secretary of State of Delaware, and a
copy of its Trust Instrument, its principal governing document,
is available for inspection by shareholders at the Trust's office
in New York, New York.

The Trust has an unlimited authorized number of shares of
beneficial interest, which may be divided into an unlimited
number of series and/or classes without shareholder approval.
(The Trust presently has three series, each of which has only one
class of shares.) These shares are entitled to one vote per
share (with proportional voting for fractional shares) on such
matters as shareholders are entitled to vote. Shares vote by
individual series, except as otherwise required by the 1940 Act
or when the Trustees determine that the matter affects
shareholders of more than one series.

There will normally be no meeting of shareholders for the
purpose of electing Trustees unless and until such time as less
than a majority of the current five Trustees remain in office, at
which time the Trustees then in office will call a shareholders
meeting for the election of trustees. In addition, Trustees may
be removed from office by written consents signed by the holders
of 66 2/3% of the outstanding shares of the Trust and filed with
the Trust's custodian or by a vote of the holders of 66 2/3% of
the outstanding shares of the Trust at a meeting duly called for
the purpose, which meeting will be held upon the written request
of the holders of at least 10% of the Trust's outstanding shares.
Upon the written request by 10 or more shareholders of the Trust,
who have been shareholders for at least 6 months and who hold
shares constituting at least 1% of the Trust's outstanding
shares, stating that such shareholders wish to communicate with
the Trust's other shareholders for the purpose of obtaining the
signatures necessary to demand a meeting to consider the removal
of a Trustee, the Trust is required to provide a lists of its
shareholders or to disseminate appropriate materials (at the
expense of the requesting shareholders). Except as provided
above the Trustees may continue to hold office and appoint their
successors.

Shares are freely transferable, are entitled to
distributions as declared by the Trustees and, in liquidation of
the Trust, are entitled to receive the net assets of their
series. Shareholders have no preemptive rights. The Trust's
fiscal year ends on December 31.

The separate accounts of Insurance Companies and the
trustees of qualified plans invested in the Funds, rather than
individual contract owners or plan participants, are the
shareholders of the Funds. However, each Insurance Company or
qualified plan will vote such shares as required by law and
interpretations thereof, as amended or changed from time to time.
Under current law, an Insurance Company is required to request
voting instructions from its contract owners and must vote Fund
shares held by each of its separate accounts in proportion to the
voting instructions received. Additional information about voting
procedures is contained in the applicable separate account
prospectuses.

SHAREHOLDER LIABILITY

Generally, Trust shareholders will not be personally liable
for the obligations of the Trust under Delaware law. The
Delaware Business Trust Act provides that a shareholder of a
Delaware business trust is entitled to the same limited liability
extended to stockholders of private corporations for profit
organized under the Delaware General Corporation Law. No similar
statutory or other authority limiting business trust shareholder
liability exists in many other states. As a result, to the
extent that the Trust or a shareholder of the Trust is subject to
the jurisdiction of courts in those states, the courts may not
apply Delaware law and may thereby subject the Trust's
shareholders to liability. To guard against this possibility,
the Trust Instrument (i) requires that every written obligation
of the Trust contain a statement that such obligation may be
enforced only against the Trust's assets (however, the omission
of this disclaimer will not operate to create personal liability
for any shareholder); and (ii) provides for indemnification out
of a Fund's property of any Fund shareholder held personally
liable for the Fund's obligations. Thus, the risk of a Fund
shareholder incurring financial loss beyond its investment
because of shareholder liability is limited to circumstances in
which: (i) a court refuses to apply Delaware law; (ii) no
contractual limitation of liability was in effect; and (iii) the
Fund itself would be unable to meet its obligations. In light of
Delaware law, the nature of the Trust's business and the nature
of its assets, management believes that the risk of personal
liability to a shareholder is extremely remote.

PERFORMANCE DATA

The Funds' performances may be quoted in various ways. All
performance information supplied for the Funds will be historical
and is not intended to indicate future returns. Each Fund's
share price and total returns fluctuate in response to market
conditions and other factors, and the value of a Fund's shares
when redeemed may be more or less than their original cost. The
Funds' performance figures do not reflect expenses of the
separate accounts of Insurance Companies, expenses imposed under
the Variable Contracts or expenses imposed by the Retirement
Plans.

TOTAL RETURN CALCULATIONS

Total returns quoted will reflect all aspects of a Fund's
return, including the effect of reinvesting dividends and capital
gain distributions and any change in the Fund's net asset value
per share (NAV) over a stated period. Average annual total
returns are calculated by determining the growth or decline in
value of a hypothetical historical investment in the Fund over a
stated period, and then calculating the annually compounded
percentage rate that would have produced the same result if the
rate of growth or decline in value had been constant over the
period. For example, a cumulative return of 100% over ten years
would produce an average annual total return of 7.18%, which is
the steady annual rate of return that would equal 100% growth on
a compounded basis in ten years. While average annual total
returns are a convenient means of comparing investment
alternatives, investors should realize that a Fund's performance
is not constant over time, but changes from year to year, and
that average annual total returns represent averaged figures as
opposed to the actual year-to-year performance of the Fund.

In addition to average annual total returns, a Fund's
unaveraged or cumulative total returns, reflecting the simple
change in value of an investment over a stated period, may be
quoted. Average annual and cumulative total returns may be
quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments or a
series of redemptions, over any time period. Total returns may
be broken down into their components of income and capital
(including capital gains and changes in share prices) in order to
illustrate the relationship of these factors and their
contributions to total return. Total returns and other
performance information may be quoted numerically or in a table,
graph or similar illustration.

COMPARATIVE RESULTS

The Funds total returns may be compared to the records of
various indices of securities prices over the same periods,
including the Standard & Poor's 500 Composite Stock Price Index
(S&P 500) the Standard & Poor's SmallCap 600 Stock Price Index
(S&P 600) and the Russell 2000 Index (Russell 2000).

The S&P 500 is an unmanaged index of common stocks
frequently used as a general measure of stock market performance.
The Index's performance figures reflect changes of market prices
and quarterly reinvestment of all distributions.

The S&P 600 is an unmanaged market-weighted index consisting
of 600 domestic stocks chosen for market size, liquidity and
industry group representation. As of December 31, 1996, the
weighted mean market value of a company in this Index was
approximately $780 million.

The Russell 2000, prepared by the Frank Russell Company,
tracks the return of the common stocks of the 2,000 smallest out
of the 3,000 largest publicly-traded U.S.-domiciled companies by
market capitalization. The Russell 2000 tracks the return on
these stocks based on price appreciation or depreciation and
includes dividends.

The Funds have the ability to invest in securities not
included in these indices, and their investment portfolios may or
may not be similar in composition to the indices. Figures for
the indices are based on the prices of unmanaged groups of
stocks, and unlike the Funds, their returns do not include the
effect of paying brokerage commissions and the other costs and
expenses of investing in a mutual fund.

The Funds' performances may be compared in advertisements to
the performance of other mutual funds in general or to the
performance of particular types of mutual funds, especially those
with similar investment objectives. Such comparisons may be
expressed as mutual fund rankings prepared by Lipper Analytical
Services, Inc. ("Lipper"), an independent service that monitors
the performance of registered investment companies.

Money market funds and municipal funds are not included in
the Lipper survey. The Lipper performance analysis ranks funds
on the basis of total return, assuming reinvestment of
distributions, but does not take sales charges or redemption fees
payable by shareholders into consideration and is prepared
without regard to tax consequences.

The Lipper General Equity Funds Average can be used to show
how the Funds' performances compare to a broad-based set of
equity funds. The Lipper General Equity Funds Average is an
average of the total returns of all equity funds (excluding
international funds and funds that specialize in particular
industries or types of investments) tracked by Lipper. As of
December 31, 1996, the average included 221 capital appreciation
funds, 758 growth funds, 186 mid-cap funds, 443 small company
growth funds, 583 growth and income funds, 180 equity income
funds and 56 S&P 500 index objective funds. Capital
appreciation, growth and small company growth funds usually
invest principally in common stocks, with long-term mid-cap growth as a
primary goal. Growth and income and equity income funds tend to
be more conservative in nature and usually invest in a
combination of common stocks, bonds, preferred stocks and other
income-producing securities. Growth and income and equity income
funds generally seek to provide their shareholders with current
income as well as growth of capital, unlike growth funds which
may not produce income. S&P 500 index objective funds seek to
replicate the performance of the S&P 500.

Ibbotson Associates (Ibbotson) provides historical returns
of the capital markets in the United States. The Funds'
performance may be compared to the long-term performance of the
U.S. capital markets in order to demonstrate general long-term
risk versus reward investment scenarios. Performance comparisons
could also include the value of a hypothetical investment in
common stocks, long-term bonds or U.S. Treasury securities.
Ibbotson calculates total returns in the same manner as the
Funds.

The capital markets tracked by Ibbotson are common stocks, small
capitalization stocks, long-term corporate bonds, intermediate-
term government bonds, long-term government bonds, U.S. Treasury
bills and the U.S. rate of inflation. These capital markets are
based on the returns of several different indices. For common
stocks, the S&P 500 is used. For small capitalization stocks,
return is based on the return achieved by Dimensional Fund
Advisors (DFA) Small Company Fund. This fund is a market-value-
weighted index of the ninth and tenth deciles of the New York
Stock Exchange (NYSE), plus stocks listed on the American Stock
Exchange (AMEX) and over-the-counter (OTC) with the same or less
capitalization as the upper bound of the NYSE ninth decile. As
of August 31, 1996, DFA contained approximately 2,880 stocks,
with a median market capitalization of about $120 million.

U.S. Treasury bonds are securities backed by the credit and
taxing power of the U.S. government and, therefore, present
virtually no risk of default. Although such government
securities fluctuate in price, they are highly liquid and may be
purchased and sold with relatively small transaction costs
(direct purchase of U.S. Treasury securities can be made with no
transaction costs). Returns on intermediate-term government
bonds are based on a one-bond portfolio constructed each year,
containing a bond that is the shortest non-callable bond
available with a maturity of not less than five years. This bond
is held for the calendar year and returns are recorded. Returns
on long-term government bonds are based on a one-bond portfolio
constructed each year, containing a bond that meets several
criteria, including having a term of approximately 20 years. The
bond is held for the calendar year and returns are recorded.
Returns on U.S. Treasury bills are based on a one-bill portfolio
constructed each month, containing the shortest term bill having
not less than one month to maturity. The total return on the
bill is the month-end price divided by the previous month-end
price, minus one. Data up to 1976 is from the U.S. Government
Bond file at the University of Chicago's Center for Research in
Security Prices; The Wall Street Journal is the source
thereafter. Inflation rates are based on the Consumer Price
Index.

Royce may, from time to time, compare the performance of
common stocks, especially small capitalization stocks, to the
performance of other forms of investment over periods of time.

From time to time, in reports and promotional literature,
the Funds' performances also may be compared to other mutual
funds tracked by financial or business publications and
periodicals, such as The BARDS Report, KIPLINGER's, INDIVIDUAL
INVESTOR, MONEY, FORBES, BUSINESS WEEK, BARRON's, FINANCIAL
TIMES, FORTUNE, MUTUAL FUNDS MAGAZINE and THE WALL STREET
JOURNAL. In addition, financial or business publications and
periodicals, as they relate to fund management, investment
philosophy and investment techniques, may be quoted.

Morningstar, Inc.'s proprietary risk ratings may be quoted
in advertising materials. For the three years ended December 31,
1996, the average risk score for the 1,833 equity funds rated by
Morningstar with a three-year history was 1.00; the average risk
score for the 242 small company funds rated by Morningstar with a
three-year history was 1.29; and the average risk score for the
91 equity income funds rated by Morningstar with a three-year
history was 0.71.

The Funds' performances may also be compared to those of
other compilations or indices.

Advertising for the Funds may contain examples of the
effects of periodic investment plans, including the principle of
dollar cost averaging. In such a program, an investor invests a
fixed dollar amount in a fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when
prices are low. While such a strategy does not assure a profit
or guard against loss in a declining market, the investor's
average cost per share can be lower than if fixed numbers of
shares are purchased at the same intervals. In evaluating such a
plan, investors should consider their ability to continue
purchasing shares during periods of low price levels.

RISK MEASUREMENTS

Quantitative measures of "total risk," which quantify the
total variability of a portfolio's returns around or below its
average return, may be used in advertisements and in
communications with current and prospective shareholders. These
measures include standard deviation of total return and the
Morningstar risk statistic. Such communications may also include
market risk measures, such as beta, and risk-adjusted measures of
performance, such as the Sharpe Ratio, Treynor Ratio, Jensen's
Alpha and Morningstar's star rating system.

Standard Deviation. The risk associated with a fund or
portfolio can be viewed as the volatility of its returns,
measured by the standard deviation of those returns. For
example, a fund's historical risk could be measured by computing
the standard deviation of its monthly total returns over some
prior period, such as three years. The larger the standard
deviation of monthly returns, the more volatile - i.e., spread
out around the fund's average monthly total return, the fund's
monthly total returns have been over the prior period. Standard
deviation of total return can be calculated for funds having
different objectives, ranging from equity funds to fixed income
funds, and can be measured over different time frames. The
standard deviation figures presented would be annualized
statistics based on the trailing 36 monthly returns.
Approximately 68% of the time, the annual total return of a fund
will differ from its mean annual total return by no more than
plus or minus the standard deviation figure. 95% of the time, a
fund's annual total return will be within a range of plus or
minus 2x the standard deviation from its mean annual total
return.

Beta. Beta measures the sensitivity of a security's or
portfolio's returns to the market's returns. It measures the
relationship between a fund's excess return (over 3-month T-
bills) and the excess return of the benchmark index (S&P 500 for
domestic equity funds). The market's beta is by definition equal
to 1. Portfolios with betas greater than 1 are more volatile than
the market, and portfolios with betas less than 1 are less
volatile than the market. For example, if a portfolio has a beta
of 2, a 10% market excess return would be expected to result in a
20% portfolio excess return, and a 10% market loss would be
expected to result in a 20% portfolio loss (excluding the effects
of any firm-specific risk that has not been eliminated through
diversification).

Morningstar Risk. The Morningstar proprietary risk
statistic evaluates a fund's downside volatility relative to that
of other funds in its class based on the under-performances of
the fund relative to the riskless T-bill return. It then
compares this statistic to those of other funds in the same broad
investment class.

Sharpe Ratio. Also known as the Reward-to-Variability
Ratio, this is the ratio of a fund's average return in excess of
the risk-free rate of return ("average excess return") to the
standard deviation of the fund's excess returns. It measures the
returns earned in excess of those that could have been earned on
a riskless investment per unit of total risk assumed.

Treynor Ratio. Also known as the Reward-to-Volatility
Ratio, this is the ratio of a fund's average excess return to the
fund's beta. It measures the returns earned in excess of those
that could have been earned on a riskless investment per unit of
market risk assumed. Unlike the Sharpe Ratio, the Treynor Ratio
uses market risk (beta), rather than total risk (standard
deviation), as the measure of risk.

Jensen's Alpha. This is the difference between a fund's
actual returns and those that could have been earned on a
benchmark portfolio with the same amount of risk - i.e., the same
beta, as the portfolio. Jensen's Alpha measures the ability of
active management to increase returns above those that are purely
a reward for bearing market risk.

Morningstar Star Ratings. Morningstar, Inc. is a mutual fund
rating service that rates mutual funds on the basis of risk-
adjusted performance. Ratings may change monthly. Funds with at
least three years of performance history are assigned ratings
from one star (lowest) to five stars (highest). Morningstar
ratings are calculated from the funds' three-, five- and ten-year
average annual returns (when available). Funds' returns are
adjusted for fees and sales loads. Ten percent of the funds in an
investment category receive five stars, 22.5% receive four stars,
35% receive three stars, 22.5% receive two stars and the bottom
10% receive one star.

None of these quantitative risk measures taken alone can be
used for a complete analysis and, when taken individually, can be
misleading at times. However, when considered in some
combination and with the total returns of a fund, they can
provide the investor with additional information regarding the
volatility of a fund's performance. Such risk measures will
change over time and are not necessarily predictive of future
performance or risk.

FINANCIAL STATEMENTS

The financial statements and schedules of investments for the
Micro-Cap Portfolio and Premier Portfolio of the Trust for the year
ended December 31, 1996, with Report of Indepenent Accountants, are
included in the Trust's filing with the Securities and Exchange Commission
pursuant to Rule 30b2-1 under the Investment Company Act of 1940, as
amended, and such financial statements and schedules of investments are
incorporated herein by reference.