ROYCE FUND, N-30D, 1995-05-24

ROYCE FUND
N-30D, 1995-05-24

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<PAGE>
ROYCE
MICRO-CAP
FUND
ANNUAL REPORT
DECEMBER 31, 1994
THE ROYCE FUNDS
<PAGE>
The Royce Funds
1414 Avenue of the Americas
New York, NY 10019
(212) 355-7311
(800) 221-4268

Dear Shareholder:

Although 1994's stock market was one of the least volatile on record, for
many investors, last year's experience was anything but calm. While the S&P 500
remained in a tight trading range, other popular investment vehicles fared
poorly. In its attempt to control renewed growth in our economy and to avoid a
resurgence of inflation, the Federal Reserve increased short-term interest rates
six times. As a result, bonds had one of their worst years ever, and stocks
suffered their first decline since 1990.

We believe that RMC's relative performance advantage versus the indices was
attributable to its disciplined value approach and its micro-cap orientation,
which allowed the Fund to better endure 1994's more difficult first half. RMC
now has a three year performance record and it remains one of the few mutual
funds with a micro-cap focus. Of the 260+ mutual funds classified as small-cap,
fewer than a dozen have a micro-cap emphasis. As of December 31, 1994, RMC has a
5 Star ***** rating by independent mutual fund rating service,
Morningstar Mutual Funds**.

The principal difference in the stock market between 1994 and the prior
three years was the direction of interest rates. From late 1990 until early
1994, short-term rates were driven lower with unparalleled persistence. The
resulting investment environment was one in which reward became synonymous with
risk. It seemed that all one needed to do to boost returns was to employ more
leverage, buy something exotic or foreign, or better yet, invest in a hot IPO
(initial public offering). The world of Wall Street became increasingly isolated
as business fundamentals took a back seat to stock price movement and momentum.
Before interest rates reversed in 1994, many investors had purchased instruments
and obligations of which they had little or no understanding.

Once the Federal Reserve removed the 'punch bowl' from Wall Street's party
by raising interest rates, the true meaning of risk resurfaced with a vengeance.
Instantly, newspaper headlines detailed massive losses in derivative
investments. Starting with sophisticated hedge funds, and touching everything
from mutual funds to major corporations to state and local government pools,
derivative losses reached natural disaster proportions. The carnage that
resulted was not exclusive to fixed income investors. Electric utility stocks,
typically low risk equities, tumbled 18% for the year. Some emerging markets
began to submerge. Clearly, investors received a hard reminder that markets can
move in two directions, and that risk means something other than just earning
too little on cash.
<PAGE>
RMC weathered 1994 relatively well due to its continuous commitment to risk
management as opposed to risk taking. We do not invest in derivatives. We
believe that returns will come, as they have over time, from prudent investment
in selective micro-cap companies. Our role as risk managers is, first, to
purchase attractively priced businesses with strong balance sheets and, second,
to manage the Fund's portfolio ever mindful of the many facets of risk. We
remain committed to a low risk and low volatility approach to this dynamic and
volatile asset class. We're equally optimistic that this technique will provide
an appropriate payoff over full market cycles.

We are generally more optimistic about 1995. The natural corrective forces
of the stock market, which usually result in periodic downdrafts of 10% or more,
appear to be functioning in a less familiar way -- through an extended period of
low returns. This can be unnerving for short-term investors, but can provide
excellent opportunities for a longer-term approach. In addition, because of the
size and diversity of the micro-cap universe and the limited institutional
competition, our outlook for the next three years is very positive.

We appreciate your continued confidence.

Yours faithfully,

<TABLE>
<S> <C>
Thomas R. Ebright
Charles M. Royce Jack E. Fockler, Jr.
W. Whitney George
Charles M. Royce Vice Presidents
President Quest Advisory Corp.
</TABLE>

February 10, 1995

------------

* The S&P 500, Russell 2000 and S&P SmallCap 600 are unmanaged indices and
include the reinvestment of dividends.

** The Morningstar proprietary rating reflects historical risk-adjusted
performance as of December 31, 1994 and may change monthly. The rating is
calculated from the fund's 3-year average annual return with appropriate fee
adjustments and a risk factor that reflects performance relative to the
3-month Treasury bill returns. 1,132 equity funds were rated for the 3-year
period ended December 31, 1994. 10% of the funds in an investment category
receive 5 Stars.

<PAGE>
ROYCE MICRO-CAP FUND ('RMC')
INVESTMENT PHILOSOPHY

RMC INVESTS PRIMARILY IN MICRO-CAP COMPANIES (THOSE WITH MARKET CAPS OF
$300 MILLION OR LESS) THAT MEET OUR VALUATION AND PRICING STANDARDS. The
micro-cap universe is comprised of over 5,600 securities, representing $300
billion in total market capitalization. Due to the sector's size and liquidity
considerations, very few institutions make the universe a primary area of focus.
Of the 260+ mutual funds classified as small-cap, fewer than a dozen have a
micro-cap orientation. This represents less than 3% of the $45 - $50 billion
invested in the small-cap sector. Limited research and limited institutional
competition means that micro-cap stocks are less well known, and therefore, less
likely to be understood and properly priced by investors. We believe that
micro-cap stocks today are what small-cap stocks were 10-15 years ago in terms
of return opportunity.

RMC USES A STRICT FUNDAMENTAL APPROACH WHICH EMPHASIZES THE ANALYSIS OF
BALANCE SHEETS AND INCOME STATEMENTS IN AN ATTEMPT TO DETERMINE THE PRIVATE
WORTH OF A BUSINESS. The keystone of our analytical process is a thorough
understanding of the business cash flow characteristics. We believe that excess
cash flow is the lead indicator of positive corporate activities with
significance for investors, such as share repurchases, debt repayment,
discretionary investments and dividend policy. Our bias is towards those
companies which provide high internal rates of return, generate excess cash-flow
and have little, if any, debt.

RMC ATTEMPTS TO REDUCE THE RISKS ASSOCIATED WITH EQUITY INVESTING. Company
risk is lowered by investing in low leverage firms which generate excess cash
flow. Valuation risk is lowered by using strict pricing standards and portfolio
risk by investing in a wide range of companies and industries.

RMC'S EMPHASIS ON MICRO-CAP COMPANIES, SELECTED USING A DISCIPLINED VALUE
APPROACH, RESULTS IN A UNIQUE COMBINATION, CAPABLE OF GENERATING ABOVE AVERAGE
LONG-TERM RETURNS.
<PAGE>
FINANCIAL REVIEW

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
RMC total return................................................................. 3.6% 23.7% 29.4%
S&P 500 total return............................................................. 1.3% 10.0% 7.7%
RMC 3-yr average annual total return (since inception*).......................... 18.3% -- --

NAV: Beginning of period......................................................... $6.47 $5.83 $5.00
NAV: End of period............................................................... $6.48 $6.47 $5.83

Dividends per share paid from net investment income.............................. $0.00 $0.00 $0.00
Distributions per share paid from net realized gains............................. $0.22 $0.74 $0.64
</TABLE>

The above table depicts the historical results of RMC and the unmanaged S&P
500, as representative of the general equity market. The Fund's present
investment philosophy was followed in each of the periods identified. All
results presented in this Report are on a 'total return' basis which assumes
that all dividends and distributions were reinvested. No redemption fees are
included because they apply only to accounts open for less than one year.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INITIAL INVESTMENT
ON 12/31/91 IN ROYCE MICRO-CAP FUND AND THE S&P 500

<TABLE>
<CAPTION>
ROYCE S&P
MICRO-CAP 500
--------- ------

<S> <C> <C>
December 1991............................................................................... 10,000 10,000
January 1992................................................................................ 9,815 10,360
February 1992............................................................................... 9,941 10,980
March 1992.................................................................................. 9,745 11,099
April 1992.................................................................................. 10,029 10,959
May 1992.................................................................................... 10,083 11,100
June 1992................................................................................... 9,936 10,700
July 1992................................................................................... 10,338 11,121
August 1992................................................................................. 10,129 11,121
September 1992.............................................................................. 10,245 11,421
October 1992................................................................................ 10,282 12,001
November 1992............................................................................... 10,629 12,541
December 1992............................................................................... 10,768 12,941
January 1993................................................................................ 10,847 13,584
February 1993............................................................................... 10,993 13,673
March 1993.................................................................................. 11,232 14,183
April 1993.................................................................................. 10,955 13,783
May 1993.................................................................................... 11,250 14,049
June 1993................................................................................... 11,287 14,205
July 1993................................................................................... 11,234 14,294
August 1993................................................................................. 11,662 14,804
September 1993.............................................................................. 11,577 15,315
October 1993................................................................................ 11,813 15,804
November 1993............................................................................... 11,701 15,693
December 1993............................................................................... 11,845 16,004
January 1994................................................................................ 12,243 16,202
February 1994............................................................................... 11,910 16,400
March 1994.................................................................................. 11,393 16,128
April 1994.................................................................................. 11,540 15,831
May 1994.................................................................................... 11,728 15,682
June 1994................................................................................... 11,437 15,855
July 1994................................................................................... 11,816 16,127
August 1994................................................................................. 12,297 16,597
September 1994.............................................................................. 11,999 16,769
October 1994................................................................................ 12,277 16,818
November 1994............................................................................... 11,827 16,323
December 1994............................................................................... 12,001 16,571
</TABLE>

THE RESULTS PRESENTED IN THIS REPORT REPRESENT PAST PERFORMANCE AND SHOULD
NOT BE CONSIDERED REPRESENTATIVE OF THE 'TOTAL RETURN' FROM AN INVESTMENT IN THE
FUND TODAY. THEY ARE PROVIDED ONLY TO GIVE AN HISTORICAL PERSPECTIVE OF THE
FUND. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF FUND SHARES WILL FLUCTUATE,
SO THAT THE SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST WHEN
REDEEMED.

* Inception Date -- December 31, 1991

<PAGE>
PRICE! PRICE! PRICE!

[Illustration]

Remember the popular television commercial in which the spokesman said that
he was so impressed with the Remington electric razor that he bought the whole
company? Buying a company out of fondness for its product may deliver a close
shave, but it does not guarantee a handsome return. While real estate investors
champion 'location, location, location' as the single most important variable in
the investment equation, we espouse 'price, price, price' -- the price at which
we can profitably acquire the investment returns and prospects provided by a
company's products and services.

By our way of thinking, this means getting an above average current return
without overpaying or relying too much on high future growth. The allure of
growth is attractive for all investors, ourselves included. However, the trick
is to balance the odds of sustainable high growth with the price one pays for
that possibility. We prefer a margin of safety based on receiving adequate
current returns. Even if one is confident about future growth, paying up is hard
to justify and the following illustrates why.

Rick's Razors, which is growing at 10% per year, can be bought at 10x
earnings, while Bennie's Blades, which is growing twice as fast at 20% per year,
commands a price of 20x earnings. Because of the interplay between current
earnings and prevailing price, Rick's Razors generates a significantly higher
earnings yield than Bennie's Blades. Earnings yield (the reciprocal of the price
earnings ratio) is the return that an investor receives if all of the company's
earnings were paid out as a dividend.

<TABLE>
<CAPTION>
RICK'S RAZORS BENNIE'S BLADES
(10 PE/10% GROWER) (20 PE/20% GROWER)
EARNINGS YIELD EARNINGS YIELD
------------------ ------------------
<S> <C> <C>
Year 1 10.0% 5.0%
Year 2 11.0% 6.0%
Year 3 12.1% 7.2%
Year 4 13.3% 8.6%
Year 5 14.6% 10.4%
Year 6 16.1% 12.4%
Year 7 17.7% 14.9%
Year 8 19.5% 17.9%
Year 9 21.4% 21.5%
</TABLE>

Not only does Rick's Razors earn a higher current return on invested
capital, but it also takes nine years for the faster growing, but more expensive
Bennie's Blades to catch up on an earnings yield basis. This, of course, assumes
no earnings interruptions (nicks) during the nine years, and that Bennie's
Blades continues to grow its ever increasing asset base at 20% per annum -- a
difficult task at best and typically not achievable.

Noted investor Benjamin Graham astutely observed 60 years ago that any
business is a good business, but at a certain price. Paying the right price
remains our first and foremost risk reduction technique.

<PAGE>

PORTFOLIO SUMMARY
The following information is provided as a 'bird's eye' view of the Royce
Micro-Cap Fund portfolio. For a more complete picture, the full portfolio and
accompanying financial statements should be read in their entirety.

<TABLE>
<CAPTION>
PORTFOLIO COMPOSITION VALUE % OF NET ASSETS
<S> <C> <C>
----------------------------------------------------------------------------------------------------------
Common Stocks $26,108,117 97.5%
Preferred Stock 78,400 0.3
Cash & Other Net Assets 587,206 2.2
--------------- ------
Total Net Assets $26,773,723 100.0%
--------------- ------
--------------- ------

COMMON STOCK SECTORS % OF NET ASSETS
----------------------------------------------------------------------------------------------------------
Financial 19.9%
Retail 16.4
Industrial Cyclicals 15.6
Technology 13.1
Services 11.5
Consumer Durables 7.4
Energy 6.7
Health 5.4
Consumer Staples 1.5

WEIGHTED AVERAGES
----------------------------------------------------------------------------------------------------------
Market Capitalization $172 million
P/E Ratio 12.5x
P/B Ratio 1.3x
Portfolio Yield 1.1%

TOP TWENTY POSITIONS MARKET VALUE % OF NET ASSETS
----------------------------------------------------------------------------------------------------------
1 The Dress Barn $793,350 3.0%
2 The Standard Register Company 700,000 2.6
3 Thomaston Mills, Inc. Cl. A 661,500 2.5
4 Transnational Re Corporation Cl. A 622,750 2.3
5 Offshore Logistics, Inc. 582,400 2.2
6 Charming Shoppes, Inc. 582,338 2.2
7 Indigo N.V. 581,875 2.2
8 The Colonial Group, Inc. Cl. A 575,250 2.1
9 Hornbeck Offshore Services, Inc. 571,250 2.1
10 Astro-Med, Inc. 567,600 2.1
11 Velcro Industries N.V. 546,000 2.0
12 Richardson Electronics, Ltd. 530,100 2.0
13 Cliffs Drilling Company 526,400 2.0
14 Vallen Corporation 488,125 1.8
15 Gryphon Holdings, Inc. 481,500 1.8
16 Webco Industries, Inc. 481,250 1.8
17 Exar Corporation 475,300 1.8
18 CATHERINES STORES CORPORATION 465,500 1.7
19 Pennsylvania Manufacturers Corporation 465,000 1.7
20 Life Technologies, Inc. 452,400 1.7
</TABLE>
<PAGE>
ROYCE
MICRO-CAP
FUND

FINANCIAL STATEMENTS
<PAGE>
ROYCE MICRO-CAP FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1994
--------------------------------------------------------------------------------
COMMON STOCKS - 97.5%

<TABLE>
<CAPTION>
Value
Shares (Note 1)
-------- ----------
<S> <C> <C>
CONSUMER DURABLES - 7.4%
16,000 K. Swiss Inc. Cl. A......... $ 315,995
1,200 Kiddie Products, Inc. ...... 23,100
30,250 *Lifetime Hoan
Corporation............... 355,438
12,100 Matthews International
Corporation Cl. A......... 166,375
3,500 Oshkosh Truck Corporation
Cl. B..................... 37,625
24,000 SL Industries, Inc. ........ 108,000
42,000 Thomaston Mills, Inc. Cl.
A......................... 661,500
38,500 The Topps Company, Inc. .... 197,313
3,400 Weyco Group, Inc. .......... 123,250
-----------
1,988,596
-----------
CONSUMER STAPLES - 1.5%
10,000 *Ag Services Of America,
Inc. ..................... 80,000
26,500 *Fresh America Corp. ....... 197,094
10,000 *J & J Snack Foods Corp. ... 116,250
-----------
393,344
-----------
ENERGY - 6.7%
38,000 *American Oilfield Divers,
Inc. ..................... 232,750
5,000 *Belden & Blake
Corporation............... 68,750
44,800 *Cliffs Drilling Company.... 526,400
26,100 *Dreco Energy Services Ltd.
Cl. A..................... 199,013
9,000 *Equity Oil Company......... 34,875
22,000 Lufkin Industries, Inc. .... 407,000
15,000 *Noble Drilling
Corporation............... 88,125
47,248 *Pride Petroleum Services,
Inc. ..................... 236,240
-----------
1,793,153
-----------
FINANCIAL - 19.9%
26,000 ALLIED Life Financial
Corporation............... 370,500
33,200 AMRESCO, Inc. .............. 224,100
<CAPTION>
Value
Shares (Note 1)
-------- ----------
<S> <C> <C>
20,000 *Benson Financial
Corporation............... $ 225,000
11,300 CMAC Investment
Corporation............... 326,288
10,000 Capital Re Corporation...... 273,750
10,000 Capitol Transamerica
Corporation............... 167,500
17,700 The Colonial Group, Inc. Cl.
A......................... 575,250
7,000 The Commerce Group, Inc. ... 116,813
5,497 Cupertino National
Bancorp................... 50,847
9,500 DUFF & PHELPS CREDIT RATING
CO. ...................... 93,813
5,000 Eaton Vance Corp. .......... 140,000
36,000 *Gryphon Holdings Inc. ..... 481,500
44,800 Intercargo Corporation...... 369,600
10,500 *Mutual Assurance, Inc. .... 273,000
4,600 *The Navigators Group,
Inc. ..................... 66,700
43,600 Nobel Insurance Limited..... 359,700
30,000 Pennsylvania Manufacturers
Corporation............... 465,000
26,500 *Transnational Re
Corporation Cl. A......... 622,750
3,200 Trenwick Group Inc. ........ 135,600
-----------
5,337,711
-----------
HEALTH - 5.4%
17,300 *Gish Biomedical, Inc. ..... 110,288
23,200 Life Technologies, Inc. .... 452,400
20,000 Medex, Inc. ................ 270,000
5,000 *Professional Sports Care
Management, Inc. ......... 57,500
25,000 *Staff Builders, Inc. ...... 75,781
35,500 *Vallen Corporation......... 488,125
-----------
1,454,094
-----------
INDUSTRIAL CYCLICALS - 15.6%
16,500 Aceto Corporation........... 231,000
12,900 *Guy F. Atkinson Company of
California................ 129,000
12,200 BHA Group, Inc. ............ 153,263
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
ROYCE MICRO-CAP FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 1)
-------- ----------
INDUSTRIAL CYCLICALS (CONT'D)
<S> <C> <C>
6,600 Chemi-Trol Chemical Co. .... $ 75,900
17,600 *Chemfab Corporation........ 220,000
3,300 Curtiss-Wright
Corporation............... 120,038
65,000 *DeVlieg-Bullard, Inc. ..... 113,750
3,000 *Electroglas, Inc. ......... 100,125
5,000 Gilbert Associates, Inc. Cl.
A......................... 71,250
7,500 *Hauser Chemical Research,
Inc. ..................... 36,563
58,753 Hawkins Chemical, Inc. ..... 425,959
10,000 *Insituform Technologies,
Inc. ..................... 116,250
4,400 *Kinark Corporation......... 14,300
4,400 Knape & Vogt Manufacturing
Company................... 85,800
4,000 *Nichols Research
Corporation............... 51,000
28,500 Peerless Mfg. Co. .......... 313,500
5,500 Penn Virginia Corporation... 173,250
25,000 *Pentech International,
Inc. ..................... 100,000
35,000 *Simpson Manufacturing Co.,
Inc. ..................... 376,250
28,000 *Total Containment, Inc. ... 245,000
8,000 Velcro Industries N.V. ..... 546,000
55,000 *Webco Industries, Inc. .... 481,250
-----------
4,179,448
-----------
RETAIL - 16.4%
19,900 *The Buckle, Inc. .......... 213,925
53,200 *CATHERINES STORES
CORPORATION............... 465,500
87,900 Charming Shoppes, Inc. ..... 582,338
48,000 *The Clothestime, Inc. ..... 171,000
13,500 *Crown Books Corporation.... 209,250
27,000 *Dataflex Corporation....... 239,625
23,400 Deb Shops Inc. ............. 70,200
73,800 *The Dress Barn, Inc. ...... 793,350
<CAPTION>
Value
Shares (Note 1)
-------- ----------
<S> <C> <C>
6,633 Frederick's of Hollywood,
Inc. Cl. A................ $ 26,532
13,266 Frederick's of Hollywood,
Inc. Cl. B................ 46,431
12,000 *InterTAN Inc. ............. 97,500
23,200 *Mikasa, Inc. .............. 379,900
2,000 Oshkosh B'Gosh, Inc. Cl.
A......................... 28,000
68,400 Richardson Electronics,
Ltd. ..................... 530,100
20,000 *TBC Corporation............ 185,000
78,413 *The Wet Seal, Inc. Cl. A... 343,057
-----------
4,381,708
-----------
SERVICES - 11.5%
2,500 Atlantic Southeast Airlines,
Inc. ..................... 38,750
9,400 The Harper Group............ 148,050
13,500 Hilb, Rogal & Hamilton
Company................... 163,688
45,700 *Hornbeck Offshore Services,
Inc. ..................... 571,250
1,430 Kenan Transport Company..... 25,025
3,000 *Landair Services, Inc. .... 46,500
23,500 Merrill Corporation......... 399,500
44,800 *Offshore Logistics, Inc. .. 582,400
6,000 Plenum Publishing
Corporation............... 178,500
12,500 *RENO AIR, INC. ............ 46,875
40,000 The Standard Register
Company................... 700,000
16,000 *Steck-Vaughn Publishing
Corporation............... 92,000
7,500 Uniforce Temporary Personel,
Inc. ..................... 75,000
-----------
3,067,538
-----------
TECHNOLOGY - 13.1%
52,800 Astro-Med, Inc. ............ 567,600
14,800 BEI Electronics, Inc. ...... 74,000
21,900 *CSP Inc. .................. 164,250
1,900 *Dionex Corporationn........ 71,725
19,400 *Exar Corporation........... 475,300
</TABLE>

The accompanying notes are an integral part of the financial statements.

PREFERRED STOCK - .3%
4,900 Bird Corp. $1.85 Conv. (Cost
$82,002).................. $ 78,400
-----------

REPURCHASE AGREEMENT - 1.1%
State Street Bank and Trust Company,
5.15% due 1/3/95, collateralized by
U.S. Treasury Obligation, 8% due
8/15/99, valued at $300,540 (Cost
$300,000)............................. 300,000
-----------

TOTAL INVESTMENTS - 98.9% (COST
$25,919,639).......................... 26,486,517

CASH AND OTHER ASSETS LESS
LIABILITIES - 1.1%.................... 287,206
-----------

NET ASSETS - 100.0%..................... $26,773,723
-----------
-----------
</TABLE>

* Non-income producing.

INCOME TAX INFORMATION -- The cost for federal income tax purposes was
$25,921,668. At December 31, 1994, net unrealized appreciation for all
securities was $564,849, consisting of aggregate gross unrealized appreciation
of $2,105,308 and aggregate gross unrealized depreciation of $1,540,459.

The accompanying notes are an integral part of the financial statements.
<PAGE>
ROYCE MICRO-CAP FUND
STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1994
--------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Investments at value (identified cost $25,919,639) (Note 1)......................................... $26,486,517
Receivable for investments sold..................................................................... 898,125
Receivable for dividends and interest............................................................... 42,051
Receivable for shares of beneficial interest sold................................................... 16,667
Cash................................................................................................ 8,679
Prepaid expenses and other assets................................................................... 7,541
-----------
TOTAL ASSETS...................................................................................... 27,459,580
-----------
LIABILITIES:
Payable for investments purchased................................................................... 542,781
Capital gain distributions payable.................................................................. 86,998
Accrued expenses.................................................................................... 33,963
Investment advisory fee payable (Note 2)............................................................ 16,749
Payable for shares of beneficial interest redeemed.................................................. 5,366
-----------
TOTAL LIABILITIES................................................................................. 685,857
-----------
NET ASSETS........................................................................................ $26,773,723
-----------
-----------
ANALYSIS OF NET ASSETS:
Accumulated net realized loss on investments........................................................ $ (81,615)
Net unrealized appreciation on investments.......................................................... 566,878
Shares of beneficial interest (Note 3).............................................................. 4,135
Additional paid-in capital.......................................................................... 26,284,325
-----------
NET ASSETS........................................................................................ $26,773,723
-----------
-----------
PRICING OF SHARES:
Net asset value, offering and redemption price per share ($26,773,723[div]4,134,829 shares
outstanding) (Note 3)............................................................................. $6.48
-----
-----
</TABLE>

STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1994 1993
----------- -----------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income (loss)....................................................... $ 4,348 $ (6,240)
Net realized gain on investments................................................... 837,727 1,013,663
Net unrealized (depreciation) appreciation on investments.......................... (78,268) 436,178
----------- -----------
Increase in net assets resulting from operations................................... 763,807 1,443,601
Distributions paid from net realized gains......................................... (882,286) (1,046,195)
FROM CAPITAL SHARE TRANSACTIONS:
Increase in net assets from capital share transactions (Note 3).................... 16,631,149 6,490,685
----------- -----------
INCREASE IN NET ASSETS............................................................... 16,512,670 6,888,091
NET ASSETS:
Beginning of year.................................................................. 10,261,053 3,372,962
----------- -----------
End of year........................................................................ $26,773,723 $10,261,053
----------- -----------
----------- -----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
ROYCE MICRO-CAP FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994
--------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends........................................................................................ $ 214,291
Interest......................................................................................... 208,550
----------
Total income........................................................................... 422,841
----------
Expenses:
Investment advisory fee (Note 2)................................................................. 315,478
Custodian and transfer agent fees................................................................ 54,646
Distribution fee (Note 2)........................................................................ 51,745
Federal and state registration fees.............................................................. 17,483
Supplies and postage............................................................................. 17,371
Administrative and clerical services............................................................. 8,910
Shareholder reports and notices.................................................................. 8,578
Legal and auditing fees.......................................................................... 6,804
Facilities and office space...................................................................... 2,929
Miscellaneous.................................................................................... 2,734
Trustees' fees................................................................................... 2,630
Organizational costs............................................................................. 1,260
Fees waived by adviser and distributor (Note 2).................................................. (72,075)
----------
Total expenses......................................................................... 418,493
----------
Net investment income.................................................................. 4,348
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments..................................................................... 837,727
Net unrealized depreciation on investments........................................................... (78,268)
----------
Net realized and unrealized gain on investments...................................................... 759,459
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................................. $ 763,807
----------
----------
</TABLE>

The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

This table is presented to show selected data for a share outstanding
throughout each period, and to assist shareholders in evaluating the Fund's
performance over the last three years.

<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.................................. $6.47 $5.83 $5.00
----- ----- -----
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a)....................................... -- -- (0.01)
Net gains on investments (realized and unrealized).............. 0.23 1.38 1.48
----- ----- -----
Total from investment operations............................. 0.23 1.38 1.47
----- ----- -----
LESS DISTRIBUTIONS:
Dividends (from net investment income).......................... -- -- --
Distributions (from capital gains).............................. (0.22) (0.74) (0.64)
----- ----- -----
Total distributions.......................................... (0.22) (0.74) (0.64)
----- ----- -----
NET ASSET VALUE, END OF YEAR........................................ $6.48 $6.47 $5.83
----- ----- -----
----- ----- -----
TOTAL RETURN........................................................ 3.6% 23.7% 29.4%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Year............................................. $26,773,723 $10,261,053 $3,372,962
Ratio of Expenses to Average Net Assets (b)......................... 1.99% 1.99% 1.69%
Ratio of Net Investment Income to Average Net Assets................ 0.02% (0.09)% (0.21)%
Portfolio Turnover Rate............................................. 54% 116% 171%
</TABLE>

(a) Net investment income is shown after waivers of fees by the adviser and
distributor. The per share effect of these waivers is $.01 for the year
ended December 31, 1994, $.03 for the year ended December 31, 1993 and $.12
for the year ended December 31, 1992.

(b) Expense ratio before waiver of fees by the adviser and the distributor
would have been 2.34% for the year ended December 31, 1994, 2.49% for the
year ended December 31, 1993 and 3.77% before the waiver of fees and
reimbursements of expenses by the adviser and distributor for the year
ended December 31, 1992.
<PAGE>
ROYCE MICRO-CAP FUND
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Royce Micro-Cap Fund (the 'Fund') is a series of The Royce Fund (the
'Trust'), a diversified open-end management investment company established as a
business trust under the laws of Massachusetts. The Fund, formerly Royce OTC
Fund, commenced operations on December 31, 1991.

a. Valuation of investments:

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

b. Investment transactions and related investment income:

Investment transactions are accounted for on the trade date and dividend
income is recorded on the ex-dividend date. Interest income is recorded on the
accrual basis. Realized gains and losses from investment transactions and
unrealized appreciation and depreciation of investments are determined on the
basis of identified cost for book and tax purposes.

c. Taxes:

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

d. Distributions:

Any dividend and capital gain distributions are recorded on the ex-dividend
date and paid annually in December. Income and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. Permanent book and tax basis
differences relating to shareholder distributions will result in
reclassifications to paid-in capital and may affect net investment income per
share. Undistributed net investment income may include temporary book and tax
basis differences which will reverse in a subsequent period. Any taxable income
or gain remaining at fiscal year end is distributed in the following year.

e. Repurchase agreements:

The Fund enters into repurchase agreements with respect to its portfolio
securities solely with State Street Bank and Trust Company ('SSB&T'), the
custodian of its assets. The Fund restricts repurchase agreements to maturities
of no more than seven days. Securities pledged as collateral for repurchase
agreements are held by SSB&T until maturity of the repurchase agreements.
Repurchase agreements could involve certain risks in the event of default or
insolvency of SSB&T, including possible delays or restrictions upon the ability
of the Fund to dispose of the underlying securities.

<PAGE>
ROYCE MICRO-CAP FUND
NOTES TO FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------

2. INVESTMENT ADVISER AND DISTRIBUTOR:

Under the Trust's investment advisory agreement with Quest Advisory Corp.
('Quest'), the Fund accrued and paid Quest fees totaling $295,148 (net of
$20,330 voluntarily waived by Quest) for the year ended December 31, 1994. The
agreement provides for fees equal to 1.50% per annum of the Fund's average net
assets. Such fees are computed daily and are payable monthly to Quest.

Effective December 27, 1994, the 12b-1 distribution plan between Quest
Distributors, Inc. ('QDI'), an affiliate of Quest and the Fund was eliminated.
The distribution agreement provided for maximum fees of 0.25% per annum of the
Fund's average net assets. For the period January 1, 1994 through December 26,
1994, QDI waived its distribution fees of $51,745.

Certain administrative, clerical and facilities costs are allocated among
the Fund and other affiliated funds.

3. FUND SHARES:

The Board of Trustees has authority to issue an unlimited number of shares
of beneficial interest of the Fund, with a par value of $.001. Share
transactions were as follows:

<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1994 December 31, 1993
------------------------ -----------------------
Shares Amount Shares Amount
--------- ----------- --------- ----------

<S> <C> <C> <C> <C>
Sold....................................................... 3,065,935 $20,016,833 1,025,508 $6,631,463
Issued as reinvested dividends and distributions........... 122,730 795,288 157,720 1,020,449
Redeemed................................................... (639,780) (4,180,972) (175,621) (1,161,227)
</TABLE>

Shares redeemed within one year of purchase are subject to a 1% redemption fee.

4. PURCHASES AND SALES OF SECURITIES:

For the year ended December 31, 1994, the cost of purchases and the
proceeds from sales of portfolio securities, other than short-term securities,
amounted to $26,063,342 and $9,699,444, respectively.
<PAGE>
ROYCE MICRO-CAP FUND
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------

To the Board of Trustees of the Royce Fund and Shareholders of Royce Micro-Cap
Fund:

We have audited the accompanying statement of assets and liabilities of
Royce Micro-Cap Fund, formerly Royce OTC Fund, including the schedule of
investments as of December 31, 1994, the related statement of operations for the
year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
three years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Royce Micro-Cap Fund as of December 31, 1994, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the three years
in the period then ended, in conformity with generally accepted accounting
principles.

COOPERS & LYBRAND L.L.P.

Boston, Massachusetts
February 1, 1995
<PAGE>
SEE QUESTIONS AND ANSWERS
ON FOLLOWING PAGES

<PAGE>
QUESTIONS AND ANSWERS

1. WHAT IS ROYCE MICRO-CAP'S ('RMC') FOCUS?

RMC invests primarily in micro-cap companies. Because these securities are
less well-known, there is a higher likelihood of a pricing discrepancy between
market and business value.

2. HOW DO YOU DEFINE MICRO-CAP COMPANIES?

Generally, we mean companies with market capitalizations of less than $300
million.

3. AREN'T MICRO-CAP COMPANIES MORE RISKY?

Of course, but we try to reduce the risks by paying careful attention to the
cash flow, balance sheet and return characteristics of each company. We are
constantly looking for the right mix of financial quality, returns and price
that can result in investment opportunities for the Fund.

4. WHY DOES RMC FAVOR A CONSISTENT 'VALUE' APPROACH?

Just as economists can't seem to predict the economy right and weathermen
can't seem to predict the weather right, neither do we think money managers can
predict the future of companies very well. We don't think investors should be
the victims of anyone's guessing, even ours. We prefer an approach that attempts
to understand a company's 'worth' on the basis of today's circumstances.

5. HOW IS CASH USED IN THE PORTFOLIO?

The Fund attempts to stay fully invested. However, if there is cash in the
portfolio from time to time, it is primarily because we are unable to find good
values at that moment.

6. WHO MANAGES THE FUND'S PORTFOLIO?

7. WHAT IS THE OUTLOOK FOR MICRO-CAP STOCKS?

We believe the outlook for micro-cap stocks is excellent. Micro-cap stocks
are what small-cap stocks were 10-15 years ago in terms of return opportunity.
The increased number of small-cap mutual funds (now over 260 funds) has
increased competition for stocks at the upper end of the small capitalization
range ($500 million-$1 billion). The micro-cap universe is larger, has limited
research coverage and limited institutional competition.

8. WHERE DOES RMC STAND ON TIMING THE MARKET?

We don't think it can be done successfully over long time periods. We think
most investors overreact to the short-term 'ups' and 'downs' of the market,
making mistakes that damage their long-term investment program. By seeking to
avoid risk, they actually increase their risk by making too many short-term
decisions. Historical results of many funds, like ours, show that a long-term
continuous investment program can produce better-than-average results for the
patient investor. Of course, investment in a periodic investment plan does not
guarantee a profit nor does it protect against a loss in declining markets.
<PAGE>
9. DOES RMC HAVE 'CONTINUOUS INVESTMENT PROGRAMS' AVAILABLE?

Yes, the Fund offers an Automatic Investment Plan for automatic share
purchases through your checking account on a monthly basis, and a Payroll Direct
Deposit Plan for automatic share purchases through payroll deductions.

10. DOES THE FUND IMPOSE ANY SALES CHARGES OR 12B-1 FEES?

No. The Fund does not impose any charges when you invest or reinvest. In
addition, there are no 12b-1 charges. However, in order to discourage short-term
trading, the Fund imposes a 1% early redemption fee on shareholders who hold the
Fund for less than one year.

11. IS THE FUND AVAILABLE FOR IRA INVESTMENTS AND OTHER RETIREMENT PLANS?

Yes, the Fund offers IRA and 403(b) plans. Due to the Fund's philosophy and
long-term approach, we believe that it may be an appropriate vehicle for all
types of retirement plans.

12. WHEN CAN I EXPECT DIVIDENDS?

The Fund distributes any net realized capital gains and net investment
income annually in December. All distributions are automatically reinvested
unless otherwise instructed by the shareholder.

13. HOW OFTEN DOES THE FUND MAIL OUT STATEMENTS?

Statements are mailed out after each transaction, after any changes in
account registration and at the end of each semi-annual period. Tax information
will be mailed by January 31 of each year. In addition, semi-annual reports to
shareholders are also distributed.
<PAGE>
POSTSCRIPT: CHICKEN PARTS AND CRYSTAL BALLS

Chicken magnate Frank Perdue has convinced millions of Americans through
his television commercials that they need his name on their chicken parts. As
with many things, it's the 'perception' and not the 'substance' which draws the
attention. We are sure that Frank's chicken parts are quite good, but we believe
that it's the impression he creates that makes the chicken particularly
distinctive, not the fact that it is good chicken.

For the moment, let's ignore the hype and self promotion of the wizards and
pretend that there is someone who could actually call market turns. That
information would be so valuable that only a fool would want to sell it. The
smart move would be to prevent others from gaining any understanding of it and
to only use it secretly and more importantly, personally. The bottom line is
that true seers would be publicity shy.

We, on the other hand, avoid year-end fortune telling. Instead, we try to
give you the unvarnished truth without the packaging. Our goal is to give
substance to the stock selection process, not create illusions for our
shareholders. By not getting caught up in the market forecast game, we can spend
more time on what really matters and what we have been hired to do - find
undervalued, high quality small companies for your portfolio.

------------------------------------------------------

THE ROYCE FUNDS

General Information and Telephone Purchases ....... 1-(800) 221-4268
Shareholder Account Services ...................... 1-(800) 841-1180
Financial Advisor Services ........................ 1-(800) 33-ROYCE
The Royce Funds InfoLine .......................... 1-(800) 78-ROYCE

1414 Avenue of the Americas, New York, New York 10019
This report must be accompanied or preceded by a current Prospectus of the Fund

<PAGE>
ROYCE
EQUITY
INCOME
FUND
ANNUAL REPORT
DECEMBER 31, 1994
THE ROYCE FUNDS
<PAGE>
The Royce Funds
1414 Avenue of the Americas
New York, NY 10019
(212) 355-7311
(800) 221-4268

Dear Shareholder:

Although 1994's stock market was one of the least volatile on record, for many
investors, last year's experience was anything but calm. While the S&P 500
remained in a tight trading range, other popular investment vehicles fared
poorly. In its attempt to control renewed growth in our economy and to avoid a
resurgence of inflation, the Federal Reserve increased short-term interest rates
six times. As a result, bonds had one of their worst years ever, and stocks
suffered their first decline since 1990.

For the year, the S&P 500* finished up 1.3% but, exclusive of dividends, the
large company stock index would have been underwater. Small-cap indices, the
Russell 2000* and newly created S&P SmallCap 600*, were also in the red for the
year, down 1.8% and 4.8%, respectively. Equity income funds suffered a similar
fate, off 2.5% as measured by the Lipper Equity Income Average. With both
small-cap and equity income securities under stress in 1994, ROYCE EQUITY INCOME
FUND'S ('REI') use of small-cap yield oriented securities did not have a payoff
as it has in previous years, and the Fund finished the year with a LOSS of 3.3%.

The principal difference in the stock market between 1994 and the prior three
years was the direction of interest rates. From late 1990 until early 1994,
short-term rates were driven lower with unparalleled persistence. The resulting
investment environment was one in which reward became synonymous with risk. It
seemed that all one needed to do to boost returns was to employ more leverage,
buy something exotic or foreign, or, better yet, invest in a hot IPO (initial
public offering). The world of Wall Street became increasingly isolated as
business fundamentals took a back seat to stock price movement and momentum.
Before interest rates reversed in 1994, many investors had purchased instruments
and obligations of which they had little or no understanding.

Once the Federal Reserve removed the 'punch bowl' from Wall Street's party by
raising interest rates, the true meaning of risk resurfaced with a vengeance.
Instantly, newspaper headlines detailed massive losses in derivative
investments. Starting with sophisticated hedge funds, and touching everything
from mutual funds to major corporations to state and local government pools,
derivative losses reached natural disaster proportions. The carnage that
resulted was not exclusive to fixed income investors. Electric utility stocks,
typically low risk equities, tumbled 18% for the year. Some emerging markets
began to submerge. Clearly, investors received a hard reminder that markets can
move in two directions, and that risk means something other than just earning
too little on cash.
<PAGE>
REI remains focused on risk management as opposed to risk taking. We do not
invest in derivatives. We believe that returns will come, as they have over
time, from prudent investment in selective yield oriented small-cap companies.
Our role as risk managers is, first, to purchase attractively priced businesses
with strong balance sheets and, second, to manage the Fund's portfolio ever
mindful of the many facets of risk. The Fund has consistently been one of
Morningstar Mutual Fund's 'lowest risk' equity income funds.** We remain
committed to a low risk and low volatility approach and are equally optimistic
that this technique will provide an appropriate payoff over full market cycles.

We are generally more optimistic about 1995. The natural corrective forces of
the stock market, which usually result in periodic downdrafts of 10% or more,
appear to be functioning in a less familiar way -- through an extended period of
low returns. This can be unnerving for short-term investors, but can provide
excellent opportunities for a longer-term approach. In addition, with the
dramatic upward move in interest rates apparently behind us and with many
traditional equity income sectors hitting new lows in 1994, our outlook for the
next three years is very positive.

We appreciate your continued confidence.

Yours faithfully,

<TABLE>
<S> <C> <C>
Thomas R. Ebright
Charles M. Royce Jack E. Fockler, Jr.
W. Whitney George
Charles M. Royce Vice Presidents
President Quest Advisory Corp.
</TABLE>

February 10, 1995

------------

* The S&P 500, Russell 2000 and S&P SmallCap 600 are unmanaged indices and
include the reinvestment of dividends.

** The Morningstar proprietary risk rating measures a fund's downside volatility
relative to other funds in its investment category and may change monthly.
For the 3-year period ended December 31, 1994, the average score for all
equity funds was 1.00 and for the 54 equity income funds with more than a
3-year history was .63. REI's risk score was .38, the lowest risk fund in the
equity income category for the 3-year period.

<PAGE>
ROYCE EQUITY INCOME FUND ('REI')
INVESTMENT PHILOSOPHY

Equity income investing traces its roots to the fact that a substantial
portion of the long-term returns in indices like the S&P 500 comes from the
compounding of dividends. Dividends represent a better measure of business
health and progress than earnings (which can be subject to bookkeeping
creativity) and balance sheets (which are often distorted by inflation). Such
cash payments are solid confirmation that real earnings have taken place and
reinvestment requirements have been met. Because the dividend-paying side of the
total return equation happens with regularity, there is also the probability of
lower total volatility.

REI CONCENTRATES ON BUYING INCOME-ORIENTED SECURITIES. Dividends and
interest are the fundamental lifeblood of an equity income fund. The
regular and predictable ability to collect and compound such income can
provide up to half of the Fund's total return and, to a large degree,
accounts for the Fund's lower volatility.

REI CONCENTRATES ON BUYING SECONDARY SECURITIES. Such securities are
generally less well-known and therefore less likely to be understood and
properly priced by investors, resulting in better investment opportunities
for the Fund.

REI USES A VALUE APPROACH TO SELECT SECURITIES. We start with a thorough
understanding of the financial and operating dynamics of a prospective
company and then attempt to pay a price that is substantially below our
appraisal of its private worth. Consistent purchasing of securities at
cheap prices is our edge in building capital appreciation for the Fund.

AT REI, WE BELIEVE THAT OUR BLEND OF VALUE, INCOME AND SECONDARY SECURITIES
IS AN IMPROVED VERSION OF EQUITY INCOME INVESTING WITH ITS TRADITIONAL EMPHASIS
ON LARGE, ESTABLISHED COMPANIES. OUR GOAL IS TO BUILD ABOVE-AVERAGE RETURNS WITH
LOW EQUITY INCOME VOLATILITY.
<PAGE>
FINANCIAL REVIEW

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1994 1993 1992 1991 1990*
---------- ----- ----- ----- ----------
<S> <C> <C> <C> <C> <C>
REI total return................................................. - 3.2% 13.1% 19.4% 30.3% - 15.4%
S&P 500 total return............................................. 1.3% 10.0% 7.7% 30.5% - 4.9%
Lipper Equity Income Average annual total return................. - 2.6% 13.8% 9.4% 26.3% - 6.3%
REI 3-yr average annual total return............................. 9.3% -- -- -- --
REI average annual total return since inception*................. 7.6% -- -- -- --
NAV: Beginning of period......................................... $ 5.58 $5.49 $4.93 $4.03 $5.00
NAV: End of period............................................... $ 5.12 $5.58 $5.49 $4.93 $4.03
Dividends paid from net investment income........................ $ 0.182 $0.21 $0.22 $0.22 $0.22
Distributions paid from net realized gains....................... $ 0.099 $0.41 $0.16 $0.09 $0.00
</TABLE>

The above table depicts the historical returns of REI, the unmanaged S&P
500, as representative of large-company stocks, and the Lipper Equity Income
Average, as representative of the equity-income category of funds. The Fund's
present investment philosophy was followed in each of the periods identified.
All results presented in this Report are on a 'total return' basis, which
assumes that all dividends and distributions were reinvested. No redemption fees
are included because they apply only to accounts open for less than one year.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INITIAL INVESTMENT
ON 1/2/90 IN ROYCE EQUITY INCOME FUND AND THE S&P 500

<TABLE>
<CAPTION>
ROYCE
EQUITY
S&P INCOME
------- ------

<S> <C> <C>
January 1990................................................................................... 10,000 10,000
February 1990.................................................................................. 9,166 9,600
March 1990..................................................................................... 9,283 9,720
April 1990..................................................................................... 9,526 9,920
May 1990....................................................................................... 9,290 9,677
June 1990...................................................................................... 10,196 9,859
July 1990...................................................................................... 10,126 9,961
August 1990.................................................................................... 10,092 9,695
September 1990................................................................................. 9,180 8,854
October 1990................................................................................... 8,728 8,361
November 1990.................................................................................. 8,698 7,885
December 1990.................................................................................. 9,256 8,196
January 1991................................................................................... 9,513 8,465
February 1991.................................................................................. 9,934 8,927
March 1991..................................................................................... 10,645 9,746
April 1991..................................................................................... 10,898 10,190
May 1991....................................................................................... 10,928 10,274
June 1991...................................................................................... 11,396 10,444
July 1991...................................................................................... 10,875 10,274
August 1991.................................................................................... 11,383 10,510
September 1991................................................................................. 11,652 10,638
October 1991................................................................................... 11,460 10,638
November 1991.................................................................................. 11,613 10,638
December 1991.................................................................................. 11,145 10,509
January 1992................................................................................... 12,419 11,030
February 1992.................................................................................. 12,189 11,545
March 1992..................................................................................... 12,345 11,903
April 1992..................................................................................... 12,102 11,903
May 1992....................................................................................... 12,455 11,925
June 1992...................................................................................... 12,521 11,903
July 1992...................................................................................... 12,340 11,790
August 1992.................................................................................... 12,838 12,109
September 1992................................................................................. 12,579 12,155
October 1992................................................................................... 12,723 12,316
November 1992.................................................................................. 12,769 12,431
December 1992.................................................................................. 13,200 12,777
January 1993................................................................................... 13,373 13,169
February 1993.................................................................................. 13,470 13,577
March 1993..................................................................................... 13,652 13,793
April 1993..................................................................................... 13,948 14,202
May 1993....................................................................................... 13,605 13,983
June 1993...................................................................................... 13,971 14,225
July 1993...................................................................................... 14,017 14,250
August 1993.................................................................................... 13,951 14,226
September 1993................................................................................. 14,483 14,447
October 1993................................................................................... 14,377 14,497
November 1993.................................................................................. 14,670 14,571
December 1993.................................................................................. 14,531 14,621
January 1994................................................................................... 14,710 14,891
February 1994.................................................................................. 15,204 15,077
March 1994..................................................................................... 14,791 15,104
April 1994..................................................................................... 14,149 14,675
May 1994....................................................................................... 14,331 14,460
June 1994...................................................................................... 14,565 14,487
July 1994...................................................................................... 14,204 14,434
August 1994.................................................................................... 14,674 14,597
September 1994................................................................................. 15,271 15,004
October 1994................................................................................... 14,901 14,815
November 1994.................................................................................. 15,247 14,705
December 1994.................................................................................. 14,687 14,323
January 1995................................................................................... 14,903 14,407
</TABLE>

THE RESULTS PRESENTED IN THIS REPORT REPRESENT PAST PERFORMANCE AND SHOULD
NOT BE CONSIDERED REPRESENTATIVE OF THE 'TOTAL RETURN' FROM AN INVESTMENT IN THE
FUND TODAY. THEY ARE PROVIDED ONLY TO GIVE AN HISTORICAL PERSPECTIVE OF THE
FUND. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF FUND SHARES WILL FLUCTUATE SO
THAT THE SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST WHEN
REDEEMED.

* Inception Date -- January 2, 1990

<PAGE>
PRICE! PRICE! PRICE!

[ILLUSTRATION]

The following information is provided as a 'bird's eye' view of the REI
portfolio. For a more complete picture, the full portfolio and accompanying
financial statements should be read in their entirety.

<TABLE>
<CAPTION>
PORTFOLIO COMPOSITION VALUE % OF NET ASSETS
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks $57,063,242 74.0%
Bonds & Preferred Stocks 17,752,085 23.0
Cash & Other Net Assets 2,315,339 3.0
Total Net Assets $77,130,666 100.0%
COMMON STOCK SECTORS % OF NET ASSETS
---------------------------------------------------------------------------------------------------------
Industrial Cyclicals 19.7%
Financial 19.0
Services 9.7
Technology 6.1
Consumer Durables 6.0
Retail 5.9
Consumer Staples 2.8
Energy 2.7
Health 1.1
Utilities 1.0

WEIGHTED AVERAGES
---------------------------------------------------------------------------------------------------------
Market Capitalization $509 Million
P/E Ratio 13.1x
P/B Ratio 1.4x
Portfolio Yield 5.1%

TOP TWENTY POSITIONS MARKET VALUE % OF NET ASSETS
---------------------------------------------------------------------------------------------------------
1 Argonaut Group, Inc. $1,172,375 1.5%
2 Kimball International, Inc. Cl. B 1,050,400 1.4
3 NCH Corporation 1,049,938 1.4
4 Family Dollar Stores, Inc. 1,031,250 1.3
5 *Richardson Electronics, Ltd. 995,300 1.3
6 *Cliffs Drilling Company 977,850 1.3
7 *Waban Inc. 973,700 1.3
8 *Waterhouse Investors Services, Inc. 966,960 1.3
9 Zenith National Insurance Corp. 957,775 1.2
10 Sturm, Ruger & Company, Inc. 939,213 1.2
11 CB Bancshares, Inc. 923,350 1.2
12 Student Loan Marketing Association 923,000 1.2
13 Lawtor International, Inc. 921,500 1.2
14 Scitex Corporation Limited 912,713 1.2
15 Crawford & Company Cl. A and Cl. B 910,175 1.2
16 *Seagate Technology, Inc. 905,530 1.2
17 National Presto Industries, Inc. 904,700 1.2
18 Lufkin Industries, Inc. 899,100 1.2
19 The Standard Register Company 889,000 1.2
20 *Perry Drug Stores, Inc. 879,360 1.1
</TABLE>

*Debt security of issuer.
<PAGE>
ROYCE EQUITY INCOME FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1994
--------------------------------------------------------------------------------
COMMON STOCKS - 74.0%

<TABLE>
<CAPTION>
Value
Shares (Note 1)
--------- ----------
<S> <C> <C>
CONSUMER DURABLES - 6.0%
20,400 Flexsteel Industries,
Inc...................... $ 265,190
48,700 Garan Incorporated......... 791,375
5,000 La-Z-Boy Chair Company..... 159,375
21,800 National Presto Industries,
Inc...................... 904,700
32,400 Oshkosh Truck Corporation
Cl. B.................... 348,300
45,900 Russ Berrie and Company,
Inc...................... 631,125
54,800 The Stride Rite
Corporation.............. 609,650
33,100 Sturm, Ruger & Company,
Inc...................... 939,213
-----------
4,648,928
-----------
CONSUMER STAPLES - 2.8%
13,100 Flowers Industries, Inc.... 237,438
33,300 Lance, Inc................. 599,400
23,400 The J.M. Smucker Company
Cl. A.................... 561,600
24,000 Stanhome Inc............... 759,000
-----------
2,157,438
-----------
ENERGY - 2.7%
78,900 Berry Petroleum Company.... 749,550
11,600 The Louisiana Land and
Exploration Company...... 421,950
48,600 Lufkin Industries, Inc..... 899,100
-----------
2,070,600
-----------
FINANCIAL - 19.0%
41,500 Argonaut Group, Inc........ 1,172,375
31,300 CB Bancshares, Inc......... 923,350
41,600 Cousins Properties
Incorporated............. 722,800
24,100 Dauphin Deposit Corp....... 569,363
12,800 Eaton Vance Corp........... 358,400
7,800 A.G. Edwards, Inc.......... 140,400
38,300 Guaranty National
Corporation.............. 703,763
16,750 Keystone Financial, Inc.... 506,688
<CAPTION>
Value
Shares (Note 1)
--------- ----------
<S> <C> <C>
23,952 Mellon Bank Corporation.... $ 733,530
35,300 Mercantile Bankshares
Corporation.............. 692,763
34,900 The Newhall Land and
Farming Company.......... 423,163
23,200 North American Mortgage
Company.................. 342,200
27,100 Peoples Heritage Financial
Group, Inc............... 325,200
11,500 Provident Life and Accident
Insurance Company of
America.................. 250,125
22,400 Raymond James Financial,
Inc...................... 313,600
102,600 Reliance Group Holdings,
Inc...................... 525,825
11,800 Republic New York
Corporation.............. 533,950
28,400 Student Loan Marketing
Association.............. 923,000
29,971 Susquehanna Bancshares,
Inc...................... 666,855
12,600 U. S. Trust Corp........... 800,100
36,200 Washington National
Corporation.............. 687,800
66,800 Willis Corroon Group plc... 684,700
31,000 Wilmington Trust
Corporation.............. 705,250
42,100 Zenith National Insurance
Corp..................... 957,775
-----------
14,662,975
-----------
HEALTH - 1.1%
22,761 Block Drug Company, Inc.... 864,955
-----------
INDUSTRIAL CYCLICALS - 19.7%
12,500 BIC Corporation............ 367,188
5,000 Burnham Corporation Cl.
A........................ 270,000
38,800 CalMat Co.................. 674,150
1,392 Central Steel & Wire
Company.................. 814,320
21,200 CLARCOR Inc................ 450,500
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
ROYCE EQUITY INCOME FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1994 (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 1)
--------- ----------
<S> <C> <C>
12,500 Crompton & Knowles
Corporation.............. $ 206,250
10,600 Curtiss-Wright
Corporation.............. 385,575
71,700 Delta Woodside Industries,
Inc...................... 824,550
43,200 Fansteel Inc............... 302,400
51,000 Gilbert Associates, Inc.
Cl. A.................... 726,750
52,900 P. H. Glatfelter Company... 819,950
3,700 Greif Bros. Corporation Cl.
A........................ 160,025
15,300 International Aluminum
Corporation.............. 459,000
40,400 Kimball International, Inc.
Cl. B.................... 1,050,400
20,111 Knape & Vogt Manufacturing
Company.................. 392,165
76,000 Lawter International,
Inc...................... 921,500
29,900 The Manitowoc Company,
Inc...................... 646,588
15,700 NCH Corporation............ 1,049,938
25,400 New England Business
Service, Inc............. 476,250
34,400 Oregon Steel Mills, Inc.... 537,500
19,600 Penn Virginia
Corporation.............. 617,400
27,100 The Ryland Group, Inc...... 406,500
27,200 Skyline Corporation........ 523,600
9,600 Woodward Governor
Company.................. 633,600
52,600 Zero Corporation........... 736,400
43,100 Zurn Industries, Inc....... 775,800
-----------
15,228,299
-----------
RETAIL - 5.9%
15,800 Blair Corporation.......... 632,000
20,400 Claire's Stores, Inc....... 244,800
82,500 Family Dollar Stores,
Inc...................... 1,031,250
22,700 Longs Drug Stores
Corporation.............. 720,725
<CAPTION>
Value
Shares (Note 1)
--------- ----------
<S> <C> <C>
20,300 Melville Corporation....... $ 626,763
44,800 Nash Finch Company......... 739,200
51,200 Super Food Services,
Inc...................... 550,400
-----------
4,545,138
-----------
SERVICES - 9.7%
22,900 Angelica Corporation....... 632,613
36,300 Atlantic Southeast
Airlines, Inc............ 562,650
3,900 Banta Corporation.......... 117,975
29,000 Bowne & Co., Inc........... 503,875
45,700 Crawford & Company Cl. A... 719,775
11,900 Crawford & Company Cl. B... 190,400
51,800 Ennis Business Forms,
Inc...................... 647,500
56,900 Handleman Company.......... 647,238
33,300 John H. Harland Company.... 666,000
62,500 Hilb, Rogal & Hamilton
Company.................. 757,813
22,000 National Service
Industries, Inc.......... 563,750
34,300 Piccadilly Cafeterias,
Inc...................... 274,400
7,200 Plenum Publishing
Corporation.............. 214,200
50,800 The Standard Register
Company.................. 889,000
1,800 Wallace Computer Services,
Inc...................... 52,200
-----------
7,439,389
-----------
TECHNOLOGY - 6.1%
39,300 AAR CORP................... 525,638
29,000 Comdisco, Inc.............. 670,625
27,650 Joslyn Corporation......... 701,619
77,900 Kaman Corporation Cl. A.... 856,900
33,700 National Computer Systems,
Inc...................... 522,350
54,900 Scitex Corporation
Limited.................. 912,713
15,500 Shared Medical Systems
Corporation.............. 507,625
-----------
4,697,470
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
ROYCE EQUITY INCOME FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1994 (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 1)
--------- ----------
<S> <C> <C>
UTILITIES - 1.0%
37,800 Bangor Hydro-Electric
Company.................. $ 368,550
27,600 Central Maine Power
Company.................. 379,500
-----------
748,050
-----------
Total Common Stocks (Cost
$58,299,562)............. 57,063,242
-----------
PREFERRED STOCKS - 4.5%
17,200 Anacomp, Inc. $4.125 Cum.
Conv. Rd. Exch........... 430,000
36,900 Cliffs Drilling Company
$2.3125 Conv. Exch....... 977,850
28,000 Glendale Federal Bank,
F.S.B. 8.75% Ser. E.
Non-Cum. Conv............ 780,500
10,800 Howell Corporation $3.50
Ser. A. Conv............. 523,800
6,000 Integon Corporation $3.875
Conv..................... 273,750
20,300 Manville Corporation $1
Ser. B. Cum. ............ 471,975
-----------
Total Preferred Stocks
(Cost $3,662,552)........ 3,457,875
-----------
<CAPTION>
Principal
Amount
-----------
<S> <C> <C>
CORPORATE BONDS - 18.5%
$ 678,000 Beverly Enterprises, Inc.
7.625% Conv. Sub. Deb.
due 3/15/03.............. 644,100
150,000 Conner Peripherals, Inc.
6.5% Conv. Sub. Deb. due
3/01/02.................. 105,000
360,000 Continental Pacific Bank
Con. Var. Rt. Deb. due
4/30/03.................. 414,000
481,000 Data Switch Corporation
8.25% Conv. Sub. Deb. due
6/1/02................... 351,130
<CAPTION>
Principal Value
Amount (Note 1)
----------- ----------
<S> <C> <C>
$ 996,000 Dixie Yarns, Inc. 7% Conv.
Sub. Deb. due 5/15/12.... $ 732,060
716,000 Fieldcrest Cannon, Inc. 6%
Conv. Sub. Deb. due
3/15/12.................. 537,000
900,000 Forest Oil Corporation
11.25% Sr. Sub. Deb. due
9/01/03.................. 796,500
507,000 Guilford Mills, Inc. 6%
Conv. Sub. Deb. due
9/15/12.................. 438,555
502,000 Marsh Supermarkets, Inc. 7%
Conv. Sub. Deb. due
2/15/03.................. 426,700
184,000 Micropolis Corporation 6%
Conv. Sub. Deb. due
3/15/12.................. 114,080
1,162,000 National Education
Corporation 6.5% Conv.
Sub. Deb. due 5/15/11.... 586,810
543,000 Orchard Supply Hardware
Corporation 9.375% Sr.
Note due 2/15/02......... 456,120
916,000 Perry Drug Stores, Inc.
8.5% Conv. Sub. Deb. due
9/15/10.................. 879,360
854,000 Pier 1 Imports, Inc. 6.875%
Conv. Sub. Deb. due
4/01/02.................. 802,760
720,000 Playtex Family Products
Corp. 9% Sn. Sub. Note
due 12/15/03............. 626,400
682,000 Pogo Producing Company 8%
Conv. Sub. Deb. due
12/31/05................. 673,475
900,000 RLI Corp. 6% Conv. Sub.
Deb. due 7/15/03......... 774,000
338,000 Reliance Group Holdings,
Inc. 9% Sr. Note due
11/15/00................. 314,340
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
ROYCE EQUITY INCOME FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1994 (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Value
Amount (Note 1)
----------- ----------
<S> <C> <C>
$ 1,345,000 Richardson Electronics,
Ltd. 7.25% Conv. Sub.
Deb. due 12/15/06........ $ 995,300
1,091,000 Seagate Technology, Inc.
6.75% Conv. Sub. Deb. due
5/1/12................... 905,530
888,000 Sequa Corporation 9.375%
Sr. Sub. Deb. due
12/15/03................. 780,330
1,070,000 Waban Inc. 6.5% Conv. Sub.
Deb. due 7/01/02......... 973,700
1,422,000 Waterhouse Investors
Services, Inc. 6% Conv.
Sub. Deb. due 12/15/03... 966,960
-----------
Total Corporate Bonds
(Cost $14,801,350)....... 14,294,210
-----------
<CAPTION>
Value
(Note 1)
----------
<S> <C>
REPURCHASE AGREEMENT - 1.3%
Repurchase agreement with State Street
Bank & Trust Company, 5.15% due
1/3/95, collateralized by U.S.
Treasury Obligation, 6% due 8/15/99,
valued at $1,000,073.................. $ 1,000,000
-----------

TOTAL INVESTMENTS - 98.3% (COST
$77,763,464).......................... 75,815,327
CASH AND OTHER ASSETS LESS
LIABILITIES - 1.7%.................... 1,315,339
-----------
NET ASSETS - 100.0%..................... $77,130,666
-----------
-----------
</TABLE>

* Non-income producing.

INCOME TAX INFORMATION - The cost for federal income tax purposes was
$77,978,283. At December 31, 1994, net unrealized depreciation for all
securities was $2,162,956, consisting of aggregate gross unrealized depreciation
of $5,585,280 and aggregate gross unrealized appreciation of $3,422,324.

The accompanying notes are an integral part of the financial statements.
<PAGE>
ROYCE EQUITY INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1994
--------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Investments at value (identified cost $77,763,464) (Note 1)....................................... $75,815,327
Receivable for investments sold................................................................... 5,858,944
Receivable for dividends and interest............................................................. 546,813
Receivable for shares of beneficial interest sold................................................. 232,324
Cash.............................................................................................. 114,308
Prepaid expenses and other assets................................................................. 7,780
-----------
TOTAL ASSETS.................................................................................... 82,575,496
-----------
LIABILITIES:
Payable for investments purchased................................................................. 4,202,549
Payable for shares of beneficial interest redeemed................................................ 745,036
Net income and capital gain distributions payable................................................. 381,403
Investment advisory fee payable (Note 2).......................................................... 67,915
Accrued expenses.................................................................................. 47,927
-----------
TOTAL LIABILITIES............................................................................... 5,444,830
-----------
NET ASSETS...................................................................................... $77,130,666
-----------
-----------
ANALYSIS OF NET ASSETS: (NOTE 1)
Distributions in excess of net income............................................................. $ (5,515)
Accumulated net realized loss on investments...................................................... (2,323,445)
Net unrealized depreciation on investments........................................................ (1,948,137)
Shares of beneficial interest (Note 3)............................................................ 15,071
Additional paid-in capital........................................................................ 81,392,692
-----------
NET ASSETS...................................................................................... $77,130,666
-----------
-----------
PRICING OF SHARES:
Net asset value, offering and redemption price per share ($77,130,666 [div] 15,071,358 shares
outstanding) (Note 3)........................................................................... $5.12
=====
</TABLE>

STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1994 1993
---------------- ------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income........................................................ $ 2,995,227 $ 2,748,578
Net realized gain on investments............................................. 578,459 5,900,064
Net unrealized depreciation on investments................................... (6,263,425) (416,577)
---------------- ------------
(Decrease) increase in net assets resulting from operations.................. (2,689,739) 8,232,065
Dividends paid from net investment income.................................... (2,910,795) (2,794,075)
Distributions paid from net realized gains................................... (1,456,528) (5,803,064)
FROM CAPITAL SHARE TRANSACTIONS:
(Decrease) increase in net assets from capital share transactions
(Note 3)................................................................... (473,326) 30,924,377
---------------- ------------
(DECREASE) INCREASE IN NET ASSETS.............................................. (7,530,388) 30,559,303
NET ASSETS:
Beginning of year............................................................ 84,661,054 54,101,751
---------------- ------------
End of year.................................................................. $ 77,130,666 $ 84,661,054
---------------- ------------
---------------- ------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
ROYCE EQUITY INCOME FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994
--------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends........................................................................................ $2,774,653
Interest......................................................................................... 1,328,652
----------
Total Income............................................................................. 4,103,305
----------
Expenses:
Investment advisory fee (Note 2)................................................................. 874,288
Custodian and transfer agent fees................................................................ 98,464
Administrative and clerical services............................................................. 36,985
Supplies and postage............................................................................. 34,215
Legal and auditing fees.......................................................................... 32,067
Federal and state registration fees.............................................................. 20,151
Miscellaneous.................................................................................... 19,062
Shareholder reports and notices.................................................................. 17,933
Facilities and office space...................................................................... 15,387
Trustees' fees................................................................................... 13,152
Fees waived by adviser........................................................................... (53,626)
----------
Total Expenses........................................................................... 1,108,078
----------
Net Investment Income.................................................................... 2,995,227
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments..................................................................... 578,459
Net unrealized depreciation on investments........................................................... (6,263,425)
----------
Net realized and unrealized loss on investments...................................................... (5,684,966)
----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS................................................. ($2,689,739)
----------
----------
</TABLE>

--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
This table is presented to show selected data for a share outstanding
throughout each period, and to assist shareholders in evaluating the Fund's
performance over the last five years.

<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR........................... $5.58 $5.49 $4.93 $4.03 $5.00
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a)................................ 0.19 0.21 0.22 0.22 0.23
Net gain (loss) on investments (realized and
unrealized)............................................ (0.37) 0.50 0.72 0.99 (0.98)
------- ------- ------- ------- -------
Total from investment operations..................... (0.18) 0.71 0.94 1.21 (0.75)
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends (from net investment income)................... (0.18) (0.21) (0.22) (0.22) (0.22)
Distributions (from net capital gains)................... (0.10) (0.41) (0.16) (0.09) --
------- ------- ------- ------- -------
Total distributions.................................. (0.28) (0.62) (0.38) (0.31) (0.22)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR................................. $5.12 $5.58 $5.49 $4.93 $4.03
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN................................................. (3.2%) 13.1% 19.4% 30.3% (15.4%)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Year (in thousands)....................... $77,131 $84,661 $54,101 $41,063 $19,497
Ratio of Expenses to Average Net Assets (b).................. 1.27% 1.00% 0.99% 0.99% 1.00%
Ratio of Net Investment Income to Average Net Assets......... 3.43% 3.79% 4.31% 4.58% 4.74%
Portfolio Turnover Rate...................................... 47% 100% 59% 72% 28%
</TABLE>

------------
(a) Net investment income is shown after waivers of fees by the adviser and
distributor. The per share effect of these waivers is $.01 for the years
ended December 31, 1994 and December 31, 1993; $.02 for the years ended
December 31, 1992 and December 31, 1991 and $0.06 for the year ended
December 31, 1990.
(b) Expense ratio before waiver of fees by the adviser and distributor would
have been 1.33% for the year ended December 31, 1994; 1.39% for the year
ended December 31, 1993; 1.30% for each of the years ended December 31,
1992 and 1991; and 1.34% for the year ended December 31, 1990.

The accompanying notes are an integral part of the financial statements.
<PAGE>
ROYCE EQUITY INCOME FUND
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Royce Equity Income Fund (the 'Fund') is a series of The Royce Fund (the
'Trust'), a diversified open-end management investment company established as a
business trust under the laws of Massachusetts. The Fund commenced operations on
January 2, 1990.

a. Valuation of investments:

b. Investment transactions and related investment income:

c. Taxes:

At December 31, 1994, the Fund had a net tax basis capital loss
carryforward of approximately $857,688, of which $214,422 may be applied
annually against any realized net taxable capital gains until December 31, 1998,
the expiration date.

d. Distributions to shareholders:

The Fund declares dividends on a quarterly basis and capital gain
distributions annually. All distributions are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
Permanent book and tax basis differences relating to shareholder distributions
will result in reclassifications to paid-in capital and may affect net
investment income per share. Undistributed net investment income may include
temporary book and tax basis differences which will reverse in a subsequent
period. Any taxable income or gain remaining at fiscal year end is distributed
in the following year.

e. Repurchase agreements:

<PAGE>
ROYCE EQUITY INCOME FUND
NOTES TO FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
agreements are held by SSB&T until maturity of the repurchase agreements.
Repurchase agreements could involve certain risks in the event of default or
insolvency of SSB&T, including possible delays or restrictions upon the ability
of the Fund to dispose of the underlying securities.

2. INVESTMENT ADVISER AND DISTRIBUTOR:

Under the Trust's investment advisory agreement with Quest Advisory Corp.
('Quest'), the Fund paid Quest fees totaling $820,662 (net of $53,626
voluntarily waived by Quest) for the year ended December 31, 1994. The agreement
provides for fees equal to 1.0% per annum of the Fund's average net assets. Such
fees are computed daily and are payable monthly to Quest.

Effective October 1, 1993, the 12b-1 distribution plan between Quest
Distributors, Inc. (QDI), an affiliate of Quest, and the Fund was eliminated.
The distribution agreement provided for maximum fees of .25% per annum of the
Fund's average net assets. For the period January 1, 1993 through September 30,
1993, QDI waived its distribution fees of $50,395.

Certain administrative, clerical and facilities costs are allocated among
the Fund and other affiliated funds.

3. FUND SHARES:

The Board of Trustees has authority to issue an unlimited number of shares
of beneficial interest of the Fund, with a par value of $.001. Share
transactions were as follows:

<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1994 December 31, 1993
-------------------------- --------------------------
Shares Amount Shares Amount
---------- ------------ ---------- ------------

<S> <C> <C> <C> <C>
Sold............................................ 9,149,609 $ 50,298,954 11,857,072 $ 69,262,362
Issued as reinvested dividends and
distributions................................. 645,924 3,397,080 1,186,253 6,661,529
Redeemed........................................ (9,906,907) (54,169,360) (7,717,194) (44,999,514)
</TABLE>

Shares redeemed within one year of purchase are subject to a 1% redemption fee.

4. PURCHASES AND SALES OF SECURITIES:

For the year ended December 31, 1994, the cost of purchases and the
proceeds from sales of portfolio securities, other than short-term securities,
amounted to $67,585,439 and $67,616,614, respectively.
<PAGE>
ROYCE EQUITY INCOME FUND
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------

To the Board of Trustees of The Royce Fund and Shareholders of Royce Equity
Income Fund:

We have audited the accompanying statement of assets and liabilities of
Royce Equity Income Fund, including the schedule of investments as of December
31, 1994, the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Royce Equity Income Fund as of December 31, 1994, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the five
years in the period then ended, in conformity with generally accepted accounting
principles.

COOPERS & LYBRAND L.L.P.

Boston, Massachusetts
February 1, 1995
<PAGE>
SEE QUESTIONS AND ANSWERS
ON FOLLOWING PAGES

<PAGE>
QUESTIONS AND ANSWERS

1. WHAT IS 'EQUITY INCOME' INVESTING?

Equity income investing focuses on securities which pay regular dividends.
The category traces its roots to the fact that a substantial portion of the
long-term returns in indices, like the S&P 500, comes from the compounding of
dividends.

2. WHY DOES REI OWN DIVIDEND PAYING STOCKS?

Dividends and interest are the fundamental lifeblood of an equity income
fund. The regular and predictable ability to collect and compound such income
can provide up to half of the Fund's total return and, to a large degree,
accounts for the Fund's lower volatility.

3. WHY DOES REI CONCENTRATE PRIMARILY ON SECONDARY SECURITIES?

We believe that these securities are generally less well-known and therefore
less likely to be understood and properly priced by investors, resulting in
better investment opportunities for the Fund.

4. WHY DOES REI FAVOR A CONSISTENT 'VALUE APPROACH'?

5. HOW IS REI'S PORTFOLIO STRUCTURED?

The Fund is comprised primarily of secondary securities which have dividend
yields equal to or above that of the yield of the S&P 500. REI also uses
convertible securities and occasionally corporate bonds in the portfolio.

6. HOW IS CASH USED IN THE PORTFOLIO?

The Fund attempts to stay fully invested. However, if there is cash in the
portfolio from time to time, it is primarily because we are unable to find good
values at that moment.

7. WHO MANAGES THE FUND'S PORTFOLIO?

The Fund's portfolio is managed by the Adviser's senior investment staff,
including Charles M. Royce, the firm's Chief Investment Officer. Mr. Royce is
assisted by Thomas R. Ebright, Jack E. Fockler, Jr. and W. Whitney George.
<PAGE>
8. WHERE DOES REI STAND ON TIMING THE MARKET?
We don't think it can be done successfully over long time periods. We think
most investors overreact to the short-term 'ups' and 'downs' of the market and
make mistakes that damage their long-term investment program. By seeking to
avoid risk, they actually increase their risk by making too many short-term
decisions. Historical results of many funds, like ours, show that a long-term
continuous investment program can produce better-than-average results for the
patient investor. Of course, investment in a periodic investment plan does not
guarantee a profit nor does it protect against a loss in a declining market.

9. DOES REI HAVE 'CONTINUOUS INVESTMENT PROGRAMS' AVAILABLE?
Yes, the Fund offers an Automatic Investment Plan for automatic share
purchases through your checking account on a monthly basis, and a Payroll Direct
Deposit Plan for automatic share purchases through payroll deductions.

10. DOES THE FUND IMPOSE ANY SALES CHARGES OR 12B-1 FEES?
No. The Fund does not impose any charges when you invest or reinvest. In
addition, there are no 12b-1 fees. However, in order to discourage short-term
trading, the Fund imposes a 1% early redemption fee on shareholders who hold the
Fund for less than 1 year.

11. WHEN CAN I EXPECT DIVIDENDS?
REI distributes its net investment income quarterly around the 25th day of
the month. All distributions are automatically reinvested unless otherwise
instructed by the shareholder. The Fund distributes any net realized capital
gains for the year in December.

12. IS REI AVAILABLE FOR IRA INVESTMENTS AND OTHER RETIREMENT PLANS?
Yes, the Fund offers IRA and 403(b) plans. Due to the Fund's philosophy and
long-term approach, we believe that it may be an appropriate vehicle for all
types of retirement plans.

13. HOW OFTEN DOES THE FUND MAIL OUT STATEMENTS?
Statements are mailed out after each transaction and after each quarterly
dividend. Tax information is mailed by January 31 of each year. In addition,
semi-annual reports to shareholders are also distributed.
<PAGE>
POSTSCRIPT: CHICKEN PARTS AND CRYSTAL BALLS

------------------------------------------------------

THE ROYCE FUNDS

1414 Avenue of the Americas, New York, New York 10019
This report must be accompanied or preceded by a current Prospectus of the Fund

<PAGE>
ROYCE
VALUE
FUND
ANNUAL REPORT
DECEMBER 31, 1994
The Royce Funds
<PAGE>
The Royce Funds
1414 Avenue of the Americas
New York, NY 10019
(212) 355-7311
(800) 221-4268

Dear Shareholder:

For the year, the S&P 500* finished up 1.3% but, exclusive of dividends,
the large company stock index would have been underwater. Small-cap indices, the
Russell 2000* and newly created S&P SmallCap 600*, were also in the red for the
year, down 1.8% and 4.8%, respectively. ROYCE VALUE FUND ('RVF') outperformed
both small-cap benchmarks with a LOSS OF 1.6%. We believe that RVF's relative
performance advantage versus the small-cap indices was attributable to its
disciplined value approach, which allowed the Fund to better endure 1994's more
difficult first half. The Fund now has a 12-year investment record and a 12.2%
average annual total return over its life.

The principal difference in the stock market between 1994 and the prior
three years was the direction of interest rates. From late 1990 until early
1994, short-term rates were driven lower with unparalleled persistence. The
resulting investment environment was one in which reward became synonymous with
risk. It seemed that all one needed to do to boost returns was to employ more
leverage, buy something exotic or foreign, or, better yet, invest in a hot IPO
(initial public offering). The world of Wall Street became increasingly isolated
as business fundamentals took a back seat to stock price movement and momentum.
Before interest rates reversed in 1994, many investors had purchased instruments
and obligations of which they had little or no understanding.

<PAGE>
RVF weathered 1994 relatively well due to its continuous commitment to risk
management as opposed to risk taking. We do not invest in derivatives. We
believe that returns will come, as they have over time, from prudent investment
in selective small-cap companies. Our role as risk managers is, first, to
purchase attractively priced businesses with strong balance sheets and, second,
to manage the Fund's portfolio ever mindful of the many facets of risk. The Fund
has consistently been one of Morningstar Mutual Fund's** 'lowest risk' small-cap
funds. While the benefit for this low risk profile was not obvious during the
dynamic 1991-1993 period, this discipline has withstood the test of time. We
remain committed to a low risk and low volatility approach to this dynamic and
volatile asset class. We're equally optimistic that this technique will provide
an appropriate payoff over full market cycles.

We are generally more optimistic about 1995. The natural corrective forces
of the stock market, which usually result in periodic downdrafts of 10% or more,
appear to be functioning in a less familiar way- -through an extended period of
low returns. This can be unnerving for short-term investors, but can provide
excellent opportunities for a longer-term approach. For these reasons, our
outlook for the next three years is very positive.

We appreciate your continued confidence.

Yours faithfully,

<TABLE>
<S> <C>
Thomas R. Ebright
Charles M. Royce Jack E. Fockler, Jr.
W. Whitney George
Charles M. Royce Vice Presidents
President Quest Advisory Corp.
</TABLE>

February 10, 1995

------------

* The S&P 500, Russell 2000 and S&P SmallCap 600 are unmanaged indices and
include the reinvestment of dividends.

** The Morningstar proprietary risk rating measures a fund's downside volatility
relative to other funds in its investment category and may change monthly.
The average score for the 3 years ended December 31, 1994 for all equity
funds was 1.00 and for the 119 small company funds rated by Morningstar with
a 3-year history, 1.09. RVF's risk score was 0.54, placing the Fund within
the lowest 10% of all small company funds in the category for the 3-year
period.

<PAGE>
ROYCE VALUE FUND ('RVF')
INVESTMENT PHILOSOPHY

RVF CONCENTRATES ON BUYING THE SECURITIES OF SMALL CAPITALIZATION
COMPANIES. We believe that they are more attractive as investments than the
securities of larger, well-known companies. Smaller companies are more flexible
and have more opportunities to grow. They are more likely to have congruent
management and shareholder interests. They are generally less well-known and,
therefore, less likely to be understood and properly priced by investors. For
these reasons, they are more likely to generate above average returns.

RVF USES A STRICT FUNDAMENTAL APPROACH WHICH EMPHASIZES THE UNDERSTANDING
OF BALANCE SHEETS, CASH FLOW AND INTERNAL RATES OF RETURN. These characteristics
are expressed in our investment process through 'value themes' -- groupings of
stocks which help us to understand companies in terms of their financial
attributes rather than industry groups. We believe that excess cash-flow is the
lead indicator of positive corporate activities with significance for investors,
such as share repurchases, debt repayment, discretionary investments and
dividend policy. Our bias is towards those companies which provide high internal
rates of return, generate excess cash-flow and have little, if any, debt.

RVF CONCENTRATES ON UNDERSTANDING THE VALUE OF A BUSINESS. We believe that
we are buying a part of a real business, not just a stock. This approach
requires a thoughtful understanding of the financial and operating dynamics of
the business, as though the entire business were being purchased. THE PRICE WE
WILL PAY FOR A GIVEN SET OF FINANCIAL CHARACTERISTICS FIGURES CRITICALLY IN THE
PROCESS AND MUST BE SIGNIFICANTLY UNDER OUR APPRAISAL OF PRIVATE WORTH. Ours is
an updated version of similar value work popularized by 'Graham & Dodd' in the
1930's.

RVF ATTEMPTS TO REDUCE THE RISKS ASSOCIATED WITH SMALL COMPANY OWNERSHIP.
Market risk is lowered by using non-mainstream securities and company risk by
favoring companies with low leverage and excess cash flow. Valuation risk is
lowered by using strict pricing standards and portfolio risk by achieving wide
diversification. Risk reduction should manifest itself in the form of lower
volatility and better relative performance in down markets.

THE SOURCE OF PERFORMANCE THEREFORE, IS THE CONSISTENT USE OF STRICT VALUE
DISCIPLINES APPLIED TO LESS WELL-KNOWN SECURITIES. The Fund will apply these
principles from year-to-year and attempt to avoid the opportunistic and
fashionable investment styles of the moment. We believe that our method,
emphasizing patience and value, comes the closest to an all-weather strategy in
delivering consistent, above average long-term returns.

<PAGE>
FINANCIAL REVIEW

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1994 1993 1992 1991 1990
---------- ----- ----- ----- ----------
<S> <C> <C> <C> <C> <C>
RVF total return...................................................... - 1.6% 10.7% 16.0% 30.8% - 13.6%
S&P 500 total return.................................................. 1.3% 10.0% 7.7% 30.5% - 3.2%
RVF 5 year average annual total return................................ 7.4% -- -- -- --
RVF 10 year average annual total return............................... 10.8% -- -- -- --
RVF average annual total return since inception*...................... 12.2% -- -- -- --
NAV: Beginning of period.............................................. $9.73 $9.51 $8.83 $6.96 $8.48
NAV: End of period.................................................... $9.11 $9.73 $9.51 $8.83 $6.96
Dividends paid from net investment income............................. $0.05 $0.05 $0.04 $0.09 $0.15
Distributions paid from net realized gains............................ $0.41 $0.75 $0.69 $0.18 $0.22
</TABLE>

The above table depicts the historical results of RVF and the unmanaged S&P
500, as representative of the general equity market. The Fund's present
investment philosophy was followed in each of the periods identified. All
results presented in this Report are presented on a 'total return' basis, which
assumes that all dividends and distributions were reinvested. No redemption fees
are included because they apply only to accounts open for less than one year.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INITIAL INVESTMENT
ON 12/31/82 IN ROYCE VALUE FUND, S&P 500 AND THE RUSSELL 2000

<TABLE>
<CAPTION>
ROYCE S & P RUSSELL
------ ------ -------

<S> <C> <C> <C>
December 1982........................................................................... 10,000 10,000 10,000
March 1983.............................................................................. 11,260 10,998 11,745
June 1983............................................................................... 13,540 12,210 14,128
September 1983.......................................................................... 13,800 12,189 13,436
December 1983........................................................................... 14,280 12,243 12,913
March 1984.............................................................................. 13,969 11,948 12,047
June 1984............................................................................... 13,395 11,637 11,684
September 1984.......................................................................... 14,278 12,761 12,327
December 1984........................................................................... 14,278 12,990 11,969
March 1985.............................................................................. 16,168 14,185 13,634
June 1985............................................................................... 16,671 15,216 14,177
September 1985.......................................................................... 16,524 14,588 13,501
December 1985........................................................................... 18,221 17,092 15,684
March 1986.............................................................................. 20,012 19,495 17,905
June 1986............................................................................... 21,057 20,607 18,774
September 1986.......................................................................... 19,337 19,175 16,474
December 1986........................................................................... 19,395 20,206 16,576
March 1987.............................................................................. 22,618 24,512 20,607
June 1987............................................................................... 22,975 25,777 20,461
September 1987.......................................................................... 23,830 27,481 21,318
December 1987........................................................................... 19,505 21,254 15,123
March 1988.............................................................................. 22,513 22,476 18,007
June 1988............................................................................... 23,773 23,946 19,194
September 1988.......................................................................... 23,973 24,034 19,014
December 1988........................................................................... 24,102 24,760 18,888
March 1989.............................................................................. 25,852 24,760 20,342
June 1989............................................................................... 27,300 26,498 21,638
September 1989.......................................................................... 28,477 28,830 23,099
December 1989........................................................................... 27,933 31,900 21,955
March 1990.............................................................................. 27,570 32,545 21,470
June 1990............................................................................... 28,328 33,537 22,299
September 1990.......................................................................... 23,453 28,908 16,827
December 1990........................................................................... 24,144 31,504 17,673
March 1991.............................................................................. 29,000 36,092 22,929
June 1991............................................................................... 29,139 36,016 22,574
September 1991.......................................................................... 30,319 37,953 24,414
December 1991........................................................................... 31,568 41,125 25,812
March 1992.............................................................................. 33,999 40,078 27,748
June 1992............................................................................... 32,857 40,867 25,856
September 1992.......................................................................... 33,678 42,134 26,595
December 1992........................................................................... 36,608 44,287 30,564
March 1993.............................................................................. 38,457 46,196 31,869
June 1993............................................................................... 38,111 46,422 32,563
September 1993.......................................................................... 39,460 47,615 35,409
December 1993........................................................................... 40,537 48,715 36,341
March 1994.............................................................................. 39,953 46,859 35,374
June 1994............................................................................... 39,038 47,042 33,998
September 1994.......................................................................... 40,413 49,352 36,357
December 1994........................................................................... 39,871 49,356 35,681

THE RESULTS PRESENTED IN THIS REPORT REPRESENT PAST PERFORMANCE AND SHOULD
NOT BE CONSIDERED REPRESENTATIVE OF FUTURE PERFORMANCE. THEY ARE PROVIDED ONLY
TO GIVE AN HISTORICAL PERSPECTIVE OF THE FUND. THE INVESTMENT RETURN AND
PRINCIPAL VALUE OF FUND SHARES WILL FLUCTUATE, SO THAT THE SHARES MAY BE WORTH
MORE OR LESS THAN THEIR ORIGINAL COST WHEN REDEEMED.

* Inception Date - December 31, 1982

<PAGE>
PRICE! PRICE! PRICE!

[ILLUSTRATION]

</TABLE>
<TABLE>
<CAPTION>
RICK'S RAZORS BENNIE'S BLADES
(10 PE/10% GROWER) (20 PE/20% GROWER)
EARNINGS YIELD EARNINGS YIELD
------------------ ------------------
<S> <C> <C>
Year 1 10.0% 5.0%
Year 2 11.0% 6.0%
Year 3 12.1% 7.2%
Year 4 13.3% 8.6%
Year 5 14.6% 10.4%
Year 6 16.1% 12.4%
Year 7 17.7% 14.9%
Year 8 19.5% 17.9%
Year 9 21.4% 21.5%
</TABLE>

<PAGE>
PORTFOLIO SUMMARY
The following information is provided as a 'bird's eye' view of the RVF
portfolio. For a more complete picture, the full portfolio and accompanying
financial statements should be read in their entirety.

<TABLE>
<CAPTION>
PORTFOLIO COMPOSITION % OF COMMON STOCKS VALUE % OF NET ASSETS
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Top 200 Stocks 73.6% $ 109,719,628 65.7%
Other Stocks 26.4% 39,342,219 23.6
------- --------------- -------
Common Stocks 100.0% 149,061,847 89.3
-------
-------
Preferred Stocks 693,825 0.4
Other Net Assets 17,124,878 10.3
--------------- -------
Total Net Assets $ 166,880,550 100.0%
--------------- -------
--------------- -------

COMMON STOCK SECTORS % OF NET ASSETS
---------------------------------------------------------------------------------------------------
Industrial Cyclicals 24.0%
Financial 20.2
Services 14.7
Retail 7.5
Consumer Durables 7.0
Technology 5.2
Energy 3.8
Consumer Staples 3.2
Health 2.9
Utilities 0.8

WEIGHTED AVERAGES
---------------------------------------------------------------------------------------------------
Market Capitalization (Total Portfolio) $459 Million
P/E Ratio (200 Largest Positions) 14.5x
P/B Ratio (200 Largest Positions) 1.5x
Portfolio Yield (200 Largest Positions) 2.0%

TOP TWENTY POSITIONS MARKET VALUE % OF NET ASSETS
---------------------------------------------------------------------------------------------------
1 Alleghany Corporation $1,481,240 0.9%
2 Farmer Bros. Co. 1,466,300 0.9
3 Comdisco, Inc. 1,398,022 0.8
4 W.R. Berkley Corp. 1,231,875 0.7
5 U.S. Trust Corp. 1,200,150 0.7
6 Kimball International, Inc. Cl. B 1,162,200 0.7
7 Orion Capital Corporation 1,158,844 0.7
8 The Pioneer Group, Inc. 1,139,600 0.7
9 NCH Corporation 1,136,875 0.7
10 Baldwin & Lyons, Inc. Cl. B 1,129,050 0.7
11 Tecumseh Products Company 1,091,950 0.7
12 Air Express International Corporation 1,065,740 0.6
13 Leucadia National Corporation 989,146 0.6
14 ALLIED Group Inc. 983,813 0.6
15 Block Drug Company, Inc. Cl. A 970,400 0.6
16 The Standard Register Company 964,250 0.6
17 Clarie's Stores, Inc. 943,200 0.6
18 Camco International Inc. 898,450 0.5
19 The Dress Barn, Inc. 879,350 0.5
20 Crawford & Company 875,025 0.5
</TABLE>

<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]

<PAGE>
ROYCE
VALUE
FUND

FINANCIAL STATEMENTS

<PAGE>
ROYCE VALUE FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1994
--------------------------------------------------------------------------------
COMMON STOCKS - 89.3%

<TABLE>
<CAPTION>
Value
Shares (Note 1)
------- --------
<S> <C> <C>
CONSUMER DURABLES - 7.0%
19,200 Aaron Rents, Inc. Cl. B..... $ 230,366
7,079 Allen Organ Company Cl. B... 251,305
18,633 *Athey Products Corp. ...... 121,115
7,000 *Baldwin Piano & Organ
Company................... 77,000
10,787 Bassett Furniture
Industries,
Incorporated.............. 307,430
14,372 *Bell Industries, Inc. ..... 292,830
10,800 Core Industries Inc. ....... 105,300
23,800 Donaldson Company, Inc. .... 562,275
1,500 *Ethan Allen Interiors
Inc. ..................... 36,375
23,300 Fleetwood Enterprises,
Inc. ..................... 436,875
42,200 Flexsteel Industries,
Inc. ..................... 548,600
4,100 Forest City Enterprises,
Inc. Cl. A................ 123,000
10,000 Garan Incorporated.......... 162,500
26,900 *Johnson Worldwide
Associates, Inc. Cl. A.... 524,550
32,500 Juno Lighting, Inc. ........ 576,875
7,100 K-Swiss Inc. Cl. A.......... 140,225
2,500 Katy Industries, Inc. ...... 21,250
12,200 La-Z-Boy Chair Company...... 388,875
3,500 LADD Furniture, Inc. ....... 22,750
16,400 *Lazare Kaplan
International, Inc. ...... 155,800
14,520 *Lifetime Hoan
Corporation............... 170,610
18,100 Minuteman International,
Inc. ..................... 187,788
18,500 National Presto Industries,
Inc. ..................... 767,750
9,625 *Nautica Enterprises,
Inc. ..................... 291,156
7,000 Nordson Corporation......... 420,000
23,300 Oshkosh Truck Corporation
Cl. B..................... 250,475
9,200 *O'Sullivan Industries
Holdings, Inc. ........... 117,300
10,500 Pittway Corporation Cl. A... 422,625
10,300 Reebok International
Ltd. ..................... 406,850
19,400 The Rival Company........... 339,500
<CAPTION>
Value
Shares (Note 1)
------- -------
<S> <C> <C>
20,400 Russ Berrie and Company,
Inc. ..................... $ 280,500
14,100 St. Joe Paper Company....... 764,925
35,600 The Stride Rite
Corporation............... 396,050
24,300 Sturm, Ruger & Company,
Inc. ..................... 689,513
1,200 Thomaston Mills, Inc. Cl.
A......................... 18,900
24,700 Thor Industries, Inc. ...... 478,563
300 Tiffany & Co. .............. 11,700
34,900 The Topps Company, Inc. .... 178,863
6,200 *Vista Resources, Inc. ..... 126,325
7,200 Weyco Group, Inc. .......... 261,000
------------
11,665,689
------------
CONSUMER STAPLES - 3.2%
30,676 Alico, Inc. ................ 529,161
8,800 DEKALB Genetics Corporation
Cl. B..................... 235,400
11,825 Farmer Bros. Co. ........... 1,466,300
9,800 Flowers Industries, Inc. ... 177,625
8,000 *Fresh America Corp. ....... 59,500
5,300 Genesee Corporation Cl. B... 185,500
3,000 *J & J Snack Foods Corp. ... 34,875
422 Maui Land & Pineapple
Company, Inc. ............ 21,100
20,900 Midwest Grain Products,
Inc. ..................... 501,600
32,800 Savannah Foods & Industries,
Inc....................... 483,800
750 Seaboard Corporation........ 120,750
4,494 *Standard Commercial
Corporation............... 53,934
21,500 Stanhome Inc. .............. 679,938
12,300 Thorn Apple Valley, Inc. ... 350,550
9,200 The Tranzonic Companies Cl.
B......................... 154,100
14,100 WLR Foods, Inc. ............ 370,125
------------
5,424,258
------------
ENERGY - 3.8%
20,000 *Alamco, Inc. .............. 122,500
14,200 *American Oilfield Divers,
Inc. ..................... 86,975
15,100 *Atwood Oceanics, Inc. ..... 177,425
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
ROYCE VALUE FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------- --------
<S> <C> <C>
ENERGY - (continued)
15,000 *Belden & Blake
Corporation............... $ 206,250
47,600 Camco International Inc. ... 898,450
15,700 *Dawson Geophysical Co. .... 162,888
16,200 *Equity Oil Company......... 62,775
6,300 *Gulfmark International
Inc. ..................... 106,706
17,700 Helmerich & Payne, Inc. .... 453,563
15,600 The Louisiana Land and
Exploration Company....... 567,450
19,100 Lufkin Industries, Inc. .... 353,350
10,600 *McFarland Energy, Inc. .... 67,575
9,700 Mitchell Energy &
Development Corp. Cl. A... 157,625
16,400 Mitchell Energy &
Development Corp. Cl. B... 307,500
61,680 *Nabors Industries, Inc. ... 400,920
14,475 *Noble Drilling
Corporation............... 85,041
50,300 *Oceaneering International,
Inc. ..................... 515,575
24,700 *Plains Petroleum Company... 580,450
13,400 *Pool Energy Services Co. .. 90,450
21,800 *Pride Petroleum Services,
Inc. ..................... 109,000
22,100 *Santa Fe Energy Resources,
Inc. ..................... 176,800
15,600 Tidewater Inc. ............. 288,600
11,500 *Wainoco Oil Corporation.... 54,625
14,000 The Wiser Oil Company....... 199,500
8,300 Zeigler Coal Holding
Company................... 97,525
------------
6,329,518
------------
FINANCIAL - 20.2%
7,700 *Alabama National Bank
Corporation............... 67,375
1,200 Alex Brown Incorporated..... 36,450
9,745 *Alleghany Corporation...... 1,481,240
39,750 ALLIED Group, Inc. ......... 983,813
24,300 Argonaut Group, Inc. ....... 686,475
17,852 *Avatar Holdings Inc. ...... 678,376
22,900 AVEMCO Corporation.......... 352,088
<CAPTION>
Value
Shares (Note 1)
------- --------
<S> <C> <C>
4,800 Baker Boyer Bancorp......... $ 146,400
5,700 Bar Harbor Bankshares....... 456,000
32,850 W. R. Berkley Corp. ........ 1,231,875
9,800 E.W. Blanch Holdings,
Inc. ..................... 202,125
8,900 The Boston Bancorp.......... 259,213
4,200 CMAC Investment
Corporation............... 121,275
10,172 *CU Bancorp................. 68,661
9,400 Capital Re Corporation...... 257,325
4,300 The Colonial Group, Inc. Cl.
A......................... 139,750
9,700 The Commerce Group, Inc. ... 161,869
2,000 Consolidated-Tomoka Land
Co. ...................... 24,250
24,500 Cousins Properties
Incorporated.............. 425,688
578 Cupertino National
Bancorp................... 5,347
14,020 Dauphin Deposit Corp. ...... 331,223
5,400 Downey Savings & Loan
Association............... 81,675
18,600 DUFF & PHELPS CORPORATION... 160,425
4,766 DUFF & PHELPS CREDIT RATING
CO. ...................... 47,064
11,300 Eaton Vance Corp. .......... 316,400
3,100 A.G. Edwards, Inc. ......... 55,800
2,100 Enhance Financial Services
Group Inc. ............... 35,963
15,700 Equitable of Iowa
Companies................. 443,525
1,580 Exchange Bank............... 99,574
8,800 F & C Bancshares, Inc. ..... 169,400
264 Farmers & Merchants Bank of
Long Beach................ 475,200
13,600 The First American Financial
Corporation............... 234,600
2,200 First Midwest Bancorp,
Inc. ..................... 52,800
120 The First National Bank of
Anchorage................. 180,000
5,475 First Security Corporation.. 124,556
3,900 Foremost Corporation of
America................... 139,425
19,500 Franklin Resources, Inc. ... 694,688
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
ROYCE VALUE FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------- -------
<S> <C> <C>
FINANCIAL - (continued)
17,400 Fremont General
Corporation............... $ 406,725
11,980 Gateway Bancorp, Inc. ...... 134,775
10,500 *GLENFED, Inc. ............. 101,063
26,700 *Gryphon Holdings Inc. ..... 357,113
30,200 Guaranty National
Corporation............... 554,925
18,287 *Hanmi Bank................. 137,153
12,722 Harleysville Group, Inc. ... 308,509
15,000 Horace Mann Educators
Corporation............... 318,750
9,400 Integon Corporation......... 123,375
9,500 Intercargo Corporation...... 78,375
13,000 The John Nuveen Company Cl.
A......................... 297,375
11,852 Keystone Heritage Group,
Inc. ..................... 314,078
35,900 Lehman Bros. Holdings
Inc. ..................... 529,525
22,228 Leucadia National
Corporation............... 989,146
16,200 Mercury General
Corporation............... 465,750
20,200 *Mid Ocean Limited.......... 550,450
7,365 *Mutual Assurance, Inc. .... 191,510
9,500 NYMAGIC, INC. .............. 174,563
5,894 National Bancorp of Alaska,
Inc. ..................... 300,594
10,800 *The Navigators Group,
Inc. ..................... 156,600
6,300 New England Investment
Companies, L.P. .......... 98,438
39,500 The Newhall Land and Farming
Company................... 478,938
20,000 North American Mortgage
Company................... 295,000
29,226 Old Republic International
Corporation............... 621,053
6,311 ONBANCorp, Inc. ............ 146,731
32,875 Orion Capital Corporation... 1,158,844
6,000 *Pacific Gateway Properties
Inc. ..................... 24,000
31,400 Paine Webber Group Inc. .... 471,000
11,500 PartnerRe Holdings Ltd. .... 238,625
<CAPTION>
Value
Shares (Note 1)
------- --------
<S> <C> <C>
7,700 *Piedmont Management Company
Inc. ..................... $ 94,325
51,800 The Pioneer Group, Inc. .... 1,139,600
33,600 Piper Jaffray Companies
Inc. ..................... 348,600
9,207 Portsmouth Bank Shares,
Inc. ..................... 110,484
27,000 T. Rowe Price Associates,
Inc. ..................... 810,000
10,100 Protective Life
Corporation............... 491,113
21,200 RLI Corp. .................. 434,600
3,000 Raymond James Financial,
Inc. ..................... 42,000
23,300 Re Capital Corporation...... 285,425
6,000 *Reading Company Cl. A...... 66,750
9,500 Real Estate Investment Trust
of California............. 152,000
11,900 Reinsurance Group of
America, Incorporated..... 293,038
14,900 Reliance Group Holdings,
Inc. ..................... 76,363
8,251 *Reliance Group Holdings,
Inc. ..................... 13,408
14,520 Republic Bancorp Inc. ...... 143,385
11,000 Republic New York
Corporation............... 497,750
16,200 SEI Corporation............. 279,450
19,700 Security-Connecticut Life
Insurance Company......... 443,250
4,400 Selective Insurance Group,
Inc. ..................... 111,100
5,600 State Street Boston
Corporation............... 160,300
3,200 Student Loan Marketing
Association............... 104,000
15,100 Student Loan Corporation.... 275,575
12,700 SunAmerica Inc. ............ 460,375
8,500 *Sunrise Bancorp............ 14,875
12,710 Susquehanna Bancshares,
Inc. ..................... 282,798
10,800 Transatlantic Holdings,
Inc. ..................... 603,450
1,900 *Transnational Re
Corporation Cl. A......... 44,650
11,700 Trenwick Group Inc. ........ 495,788
18,900 U. S. Trust Corp. .......... 1,200,150
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
ROYCE VALUE FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------- --------
<S> <C> <C>
FINANCIAL - (continued)
5,250 Vornado Realty Trust........ $ 188,344
9,460 Webster Financial
Corporation............... 175,010
5,900 Wesco Financial
Corporation............... 679,238
10,300 Western Investment Real
Estate Trust.............. 132,613
43,800 Willis Corroon Group plc.... 448,950
8,000 Wilmington Trust
Corporation............... 182,000
13,600 Zenith National Insurance
Corp. .................... 309,400
24,600 Zurich Reinsurance Centre,
Inc. ..................... 710,325
------------
33,751,378
------------
HEALTH - 2.9%
5,700 *Advanced Technology
Laboratories, Inc. ....... 105,450
16,200 C. R. Bard, Inc. ........... 437,400
18,100 *Biomet, Inc. .............. 253,400
17,500 Blessings Corporation ...... 249,375
25,536 Block Drug Company, Inc. Cl.
A ........................ 970,400
8,600 Diagnostic Products
Corporation .............. 225,750
7,100 *Gish Biomedical, Inc. ..... 45,263
4,600 Jones Medical Industries,
Inc. ..................... 30,475
19,940 Life Technologies, Inc. .... 388,830
7,600 *Marquette Electronics, Inc.
Cl. A .................... 176,700
22,155 Medex, Inc. ................ 299,093
18,300 Mine Safety Appliances
Company................... 823,500
13,400 *Nellcor Incorporated ...... 442,200
31,500 *Vallen Corporation......... 433,125
------------
4,880,961
------------
INDUSTRIAL CYCLICALS - 24.0%
10,428 Aceto Corporation........... 145,992
6,900 *Ag-Chem Equipment Co.,
Inc. ..................... 272,550
21,200 Albany International
Corp. Cl. A............... 408,100
11,800 American Filtrona
Corporation............... 318,600
<CAPTION>
Value
Shares (Note 1)
------- --------
<S> <C> <C>
12,300 Ameron, Inc. ............... $ 358,238
14,000 Ampco-Pittsburgh
Corporation............... 138,250
13,600 *Anacomp, Inc. ............. 27,200
13,500 AptarGroup, Inc. ........... 388,125
11,324 *Armco, Inc. ............... 75,022
800 *Art's-Way Manufacturing
Co., Inc. ................ 4,600
2,800 Ash Grove Cement Company.... 190,400
19,500 Ashland Coal, Inc. ......... 555,750
22,900 *Guy F. Atkinson Company of
California................ 229,000
13,550 BHA Group, Inc. ............ 170,222
15,300 BW/IP, Inc. Cl. A........... 262,013
22,400 BIC Corporation............. 658,000
35,473 Binks Manufacturing
Company................... 656,251
19,800 *Bird Corp. ................ 169,538
14,000 W. H. Brady Co. Cl. A....... 679,000
4,600 Brenco, Incorporated........ 54,625
3,185 Burnham Corporation Cl. A... 171,990
2,020 Burnham Corporation Cl. B... 109,080
27,600 CRSS Inc. .................. 293,250
36,800 CalMat Co. ................. 639,400
9,400 Carlisle Companies,
Incorporated.............. 339,575
12,900 Carpenter Technology
Corporation............... 722,400
12,500 Cascade Corp. .............. 296,875
27,200 *Chase Brass Industries,
Inc. ..................... 261,800
5,148 Chemi-Trol Chemical Co. .... 59,202
3,500 Chicago Rivet & Machine
Co. ...................... 91,000
14,000 CLARCOR Inc. ............... 297,500
3,800 Cohu, Inc. ................. 85,500
200 ConBraCo Industries,
Inc. ..................... 92,000
9,200 Crompton & Knowles
Corporation............... 151,800
13,000 Curtiss-Wright
Corporation............... 472,875
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
ROYCE VALUE FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------- --------
<S> <C> <C>
INDUSTRIAL CYCLICALS - (continued)
47,388 Delta Woodside Industries,
Inc. ..................... $ 544,962
5,800 *Detrex Corporation......... 59,450
25,800 *Devcon International
Corp. .................... 212,850
14,300 *DeVlieg-Bullard, Inc. ..... 25,025
23,500 Dixie Yarns, Inc. .......... 164,500
15,900 The Duriron Company,
Inc. ..................... 282,225
3,000 Eastern Co. ................ 39,000
26,000 Fab Industries, Inc. ....... 809,250
20,800 Fansteel Inc. .............. 145,600
27,600 Florida Rock Industries,
Inc. ..................... 755,550
16,600 Giddings & Lewis, Inc. ..... 244,850
24,306 Gilbert Associates, Inc. Cl.
A ........................ 346,361
33,400 P. H. Glatfelter Company.... 517,700
8,900 Gleason Corporation......... 131,275
19,087 Gorman-Rupp Company......... 341,180
15,600 Greif Bros. Corporation Cl.
A......................... 674,700
2,825 Guardsman Products, Inc. ... 35,313
15,350 Guilford Mills, Inc. ....... 341,538
29,100 Handy & Harman.............. 447,413
14,512 *C. H. Heist Corp. ......... 103,398
2,000 Hubbell Incorporated Cl.
A......................... 102,500
1,900 Hubbell Incorporated Cl.
B......................... 101,175
3,900 Hunt Manufacturing Co. ..... 52,650
26,400 *Insituform Technologies,
Inc. Cl. A................ 306,900
28,900 *Intermet Corporation....... 195,075
24,300 International Aluminum
Corporation............... 729,000
13,600 Kaydon Corporation.......... 326,400
6,500 *Kentucky Electric Steel
Company................... 56,875
44,700 Kimball International, Inc.
Cl. B..................... 1,162,200
17,200 *Kinark Corporation......... 55,900
4,970 Knape & Vogt Manufacturing
Company................... 96,915
<CAPTION>
Value
Shares (Note 1)
------- --------
<S> <C> <C>
3,900 *Laclede Steel Company...... $ 39,000
3,700 *Lancer Corporation......... 67,988
23,221 Lawter International,
Inc. ..................... 281,555
37,812 LeaRonal, Inc. ............. 694,796
25,900 Liberty Homes, Inc. Cl. A... 239,575
21,950 Liberty Homes, Inc. Cl. B... 196,178
55,849 Lilly Industries, Inc. Cl.
A......................... 781,886
5,900 The Lincoln Electric
Company................... 216,825
9,000 Lindberg Corporation........ 56,250
6,900 Liqui-Box Corporation....... 229,425
4,200 *Lydall, Inc. .............. 136,500
36,400 The Manitowoc Company,
Inc. ..................... 787,150
62,800 *Manville Corporation....... 565,200
6,200 Herman Miller, Inc. ........ 162,750
14,405 The Monarch Cement
Company................... 144,050
14,405 The Monarch Cement Company
Cl. B..................... 144,050
10,000 The Monarch Machine Tool
Company................... 100,000
5,200 Paul Mueller Company........ 156,000
23,232 Myers Industries, Inc. ..... 325,248
17,000 NCH Corporation............. 1,136,875
4,500 *NCI Building Systems,
Inc. ..................... 77,625
6,200 NACCO Industries, Inc. Cl.
A......................... 299,925
14,400 New England Business
Service, Inc. ............ 270,000
12,500 *New Jersey Steel
Corporation............... 190,625
3,500 *Nichols Research
Corporation............... 44,625
575 Northfield Precision
Instrument Corporation.... 3,450
17,872 Oakwood Homes Corporation... 435,630
8,166 Oil-Dri Corporation of
America................... 141,884
31,400 Oregon Steel Mills, Inc. ... 490,625
9,200 *Paragon Trade Brands,
Inc. ..................... 121,900
12,400 Penn Engineering and
Manufacturing Corp. ...... 522,350
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
ROYCE VALUE FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------- --------
<S> <C> <C>
INDUSTRIAL CYCLICALS - (continued)
18,650 Penn Virginia Corporation... $ 587,475
18,900 *Perini Corporation......... 177,188
1,000 *Pioneer Metals, Inc. ...... 170,000
6,000 The Pittston Services
Group..................... 159,000
11,550 Precision Castparts
Corp. .................... 233,888
15,200 Preformed Line Products
Company................... 516,800
7,400 *Proler International
Corp. .................... 46,250
26,500 Puerto Rican Cement Company,
Inc. ..................... 745,313
37,450 Quaker Chemical
Corporation............... 702,188
8,200 Regal-Beloit Corporation.... 111,725
20,900 The Reynolds and Reynolds
Company Cl. A............. 522,500
15,925 Robroy Industries, Inc. Cl.
A......................... 262,763
10,300 Russell Corporation......... 323,163
8,200 Scotsman Industries, Inc. .. 140,425
4,800 *Sealed Air Corporation..... 174,000
1,900 *Sequa Corporation Cl. A.... 49,400
17,900 *Shiloh Industries, Inc. ... 138,725
7,100 *Simpson Manufacturing Co.,
Inc. ..................... 76,325
25,600 Skyline Corporation......... 492,800
35,000 Smith Corona Corporation.... 87,500
2,500 Snap-on Tools Corporation... 83,125
10,700 Springs Industries, Inc. Cl.
A......................... 395,900
8,600 The L. S. Starrett Company
Cl. A..................... 192,425
11,600 *Steel of West Virginia,
Inc. ..................... 127,600
25,000 Stone & Webster, Inc. ...... 831,250
37,700 Tab Products Co. ........... 259,188
18,300 Tecumseh Products Company
Cl. A..................... 823,500
5,900 Tecumseh Products Company
Cl. B..................... 268,450
1,900 Tennant Company............. 91,675
<CAPTION>
Value
Shares (Note 1)
------- --------
<S> <C> <C>
13,450 *Todd Shipyards
Corporation............... $ 77,338
10,000 Treadco, Inc. .............. 150,000
11,200 *The Turner Corporation..... 92,400
36,500 *UNC, Inc. ................. 219,000
4,400 Velcro Industries N.V. ..... 300,300
15,800 Versa Technologies, Inc. ... 217,250
13,700 Vulcan Materials Company.... 693,563
14,800 Watts Industries, Inc. Cl.
A......................... 312,650
5,500 Wausau Paper Mills
Company................... 125,125
3,349 *Wedco Technology, Inc. .... 34,223
7,300 *Westmoreland Coal
Company................... 49,275
6,787 Woodward Governor Company... 447,942
15,800 Zero Corporation............ 221,200
3,200 Zurn Industries, Inc. ...... 57,600
------------
40,101,800
------------
RETAIL - 7.5%
5,000 J. Baker, Inc. ............. 75,000
18,800 Blair Corporation........... 752,000
6,093 A.M. Castle & Co. .......... 84,540
85,700 Charming Shoppes, Inc. ..... 567,763
78,600 Claire's Stores, Inc. ...... 943,200
32,900 *The Clothestime, Inc. ..... 117,206
21,300 *CONSOLIDATED STORES
CORPORATION............... 396,713
5,700 *Crown Books Corporation.... 88,350
4,900 Dart Group Corporation Cl.
A......................... 377,300
25,600 Deb Shops Inc. ............. 76,800
81,800 *The Dress Barn, Inc. ...... 879,350
7,250 *Evans, Inc. ............... 16,313
67,900 Family Dollar Stores,
Inc. ..................... 848,750
31,200 Hancock Fabrics, Inc. ...... 276,900
10,300 *InterTAN Inc. ............. 83,688
8,600 *Jay Jacobs, Inc. .......... 7,525
24,400 Lawson Products, Inc. ...... 634,400
17,200 *The Leslie Fay Companies,
Inc. ..................... 11,825
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
ROYCE VALUE FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------- --------
<S> <C> <C>
RETAIL - (continued)
5,000 *Mac Frugal's Bargains --
Close-outs Inc. .......... $ 100,000
7,800 Marsh Supermarkets, Inc. Cl.
B......................... 74,100
32,100 *Marshall Industries........ 858,675
15,100 *Mikasa, Inc. Cl. A......... 247,263
7,800 *Milgray Electronics,
Inc. ..................... 109,200
23,900 Nash Finch Company.......... 394,350
24,100 The Neiman Marcus Group,
Inc. ..................... 325,350
16,700 *Old America Stores, Inc. .. 246,325
3,600 *One Price Clothing Stores,
Inc. ..................... 28,350
17,400 *Orchard Supply Hardware
Stores Corporation........ 130,500
15,200 Oshkosh B'Gosh, Inc. Cl.
A......................... 212,800
70,100 Pier 1 Imports, Inc. ....... 657,188
7,950 Pioneer-Standard
Electronics, Inc. ........ 125,213
8,300 Richardson Electronics,
Ltd. ..................... 64,325
20,900 Richfood Holdings, Inc. .... 334,400
17,600 Rykoff-Sexton, Inc. ........ 358,600
25,058 Strawbridge & Clothier Cl.
A......................... 573,202
35,900 Super Food Services,
Inc. ..................... 385,925
6,500 *Syms Corp. ................ 42,250
71,100 *TBC Corporation............ 657,675
10,000 *United Retail Group,
Inc. ..................... 78,750
13,425 Wyle Laboratories........... 261,788
------------
12,503,852
------------
SERVICES - 14.7%
27,600 ABM Industries
Incorporated.............. 641,700
20,860 ADVO, Inc. ................. 359,835
53,287 Air Express International
Corporation............... 1,065,740
7,600 Alexander & Alexander
Services Inc. ............ 140,600
17,640 *American City Business
Journals, Inc. ........... 299,880
<CAPTION>
Value
Shares (Note 1)
------- --------
<S> <C> <C>
20,000 Analysis & Technology,
Inc. ..................... $ 310,000
8,500 Angelica Corporation........ 234,813
42,148 Arnold Industries, Inc. .... 874,571
41,400 Atlantic Southeast Airlines,
Inc. ..................... 641,700
16,800 Baldwin & Lyons, Inc. Cl.
A......................... 235,200
60,600 Baldwin & Lyons, Inc. Cl.
B......................... 893,850
10,950 Banta Corporation........... 331,238
3,000 Bay Meadows Operating
Company and California
Jockey Club............... 43,125
9,600 Bowl America Incorporated
Cl. A..................... 153,600
38,900 Bowne & Co., Inc. .......... 675,888
15,000 CPI Corp. .................. 268,125
4,400 *Continental Airlines
Holdings, Inc. Cl. B...... 40,700
35,900 Crawford & Company Cl. A.... 565,425
19,350 Crawford & Company Cl. B.... 309,600
32,800 Dames & Moore............... 483,800
10,400 *Duplex Products, Inc. ..... 88,400
8,800 Ennis Business Forms,
Inc. ..................... 110,000
12,000 Expeditors International of
Washington, Inc. ......... 261,000
22,500 *FCA International Ltd. .... 64,163
70 Fisher Companies Inc. ...... 15,890
15,800 FlightSafety International,
Inc. ..................... 641,875
11,700 Florida East Coast
Industries, Inc. ......... 772,200
38,517 Frozen Food Express
Industries, Inc. ......... 597,014
42,385 G & K Services, Inc. Cl.
A......................... 704,651
18,900 Arthur J. Gallagher &
Co. ...................... 604,800
22,700 A. P. Green Industries,
Inc. ..................... 419,950
4,172 Grey Advertising Inc. ...... 629,972
5,400 *Handex Environmental
Recovery, Inc. ........... 45,225
9,100 Handleman Company........... 103,513
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
ROYCE VALUE FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------- --------
<S> <C> <C>
SERVICES - (continued)
840 Hardinge Brothers, Inc. Cl.
B......................... $ 23,940
49,237 The Harper Group............ 775,483
27,875 Hilb, Rogal & Hamilton
Company................... 337,984
13,800 *Hornbeck Offshore Services,
Inc. ..................... 172,500
3,800 Houghton Mifflin Company.... 172,425
5,200 *IHOP Corp. ................ 141,700
12,700 *International Dairy Queen,
Inc. Cl. A................ 215,900
500 *International Family
Entertainment, Inc. ...... 6,313
34,700 Intertrans Corporation...... 451,100
8,700 Kansas City Southern
Industries, Inc. ......... 268,613
11,400 Kenan Transport Company..... 199,500
1,700 Lady Baltimore Foods, Inc.
Cl. A..................... 96,900
7,000 *Markel Corporation......... 290,500
26,700 Merrill Corporation......... 453,900
29,900 *National Education
Corporation............... 123,338
50,900 *Offshore Logistics,
Inc. ..................... 661,700
2,250 THE OLSTEN CORPORATION...... 71,438
6,700 Omnicom Group Inc. ......... 346,725
5,500 PCA International, Inc. .... 57,063
11,100 PHH Corporation............. 385,725
10,000 *Park Communications,
Inc. ..................... 280,000
14,300 *Payco American
Corporation............... 98,313
8,600 Petroleum Helicopters,
Inc. ..................... 89,225
24,300 *Pinkerton's, Inc. ......... 473,850
16,000 Plenum Publishing
Corporation............... 476,000
47,400 *Rollins Environmental
Services, Inc. ........... 231,075
13,300 *Earl Scheib, Inc. ......... 78,138
1,300 *Scioto Downs, Inc. ........ 13,650
2,500 Scope Industries............ 58,438
1,500 *Shoney's, Inc. ............ 19,125
<CAPTION>
Value
Shares (Note 1)
------- --------
<S> <C> <C>
9,400 Showboat, Inc. ............. $ 136,300
63,900 Sotheby's Holdings, Inc. Cl.
A......................... 734,850
55,100 The Standard Register
Company................... 964,250
8,600 *Supercuts, Inc. ........... 70,950
10,100 True North Communications
Inc. ..................... 434,300
5,200 Uniforce Temporary Personel,
Inc. ..................... 52,000
35,500 *The Union Corporation...... 488,125
22,596 *Vie De France
Corporation............... 79,086
10,600 Wallace Computer Services,
Inc. ..................... 307,400
8,000 Werner Enterprises, Inc. ... 190,000
7,300 John Wiley & Sons, Inc. Cl.
A......................... 323,025
------------
24,478,890
------------
TECHNOLOGY - 5.2%
13,200 AAR CORP. .................. 176,550
46,900 ADT Limited................. 504,175
10,000 *Acuson Corporation......... 162,500
8,200 Adobe Systems
Incorporated.............. 243,950
32,600 *American Software, Inc. Cl.
A......................... 97,800
8,165 *Applied Magnetics
Corporation............... 28,578
20,000 *Aseco Corporation.......... 190,000
5,850 Astro-Med, Inc. ............ 62,888
18,900 *Astrosystems, Inc. ........ 73,238
4,700 Augat Inc. ................. 88,713
2,300 BEI Electronics, Inc. ...... 11,500
5,000 *Bolt Beranek And Newman
Inc. ..................... 74,375
7,700 *CEM Corporation............ 84,700
8,200 *CSP Inc. .................. 61,500
60,455 Comdisco, Inc. ............. 1,398,022
6,700 *Comptek Research, Inc. .... 117,250
8,700 *Comshare, Inc. ............ 123,975
16,050 *DH Technology, Inc. ....... 385,200
3,700 *Dallas Semiconductor
Corporation............... 61,513
10,700 *Data I/O Corporation....... 58,850
4,000 *Data Translation, Inc. .... 74,500
6,400 *Dionex Corporation......... 241,600
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
ROYCE VALUE FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------- --------
<S> <C> <C>
TECHNOLOGY - (continued)
2,000 *Exar Corporation........... $ 47,560
16,733 *Federal Signal
Corporation............... 340,935
3,187 *FIserv Inc. ............... 68,521
2,000 *GTECH Holdings
Corporation............... 40,750
5,156 *Hach Company............... 74,762
2,700 *IFR Systems, Inc. ......... 25,650
5,700 Instron Corporation......... 71,250
5,600 *Indigo N.V. ............... 93,100
9,400 *International Jensen
Incorporated.............. 89,300
2,300 Joslyn Corporation.......... 58,363
16,800 Kaman Corporation Cl. A..... 184,800
14,000 Keithley Instruments,
Inc. ..................... 140,000
12,100 *Key Tronic Corporation..... 127,050
1,900 *Komag, Incorporated........ 49,638
20,800 *MDL Information Systems,
Inc. ..................... 174,200
3,200 MacNeal-Schwendler
Corporation............... 33,200
8,307 *Maxwell Laboratories,
Inc. ..................... 60,745
2,800 Measurex Corporation........ 66,150
9,200 Modern Controls, Inc. ...... 58,650
14,300 *Moore Products Co. ........ 218,075
30,400 National Computer Systems,
Inc. ..................... 471,200
28,200 Newport Corporation......... 218,550
6,200 The Oilgear Company......... 88,350
42,900 Scitex Corporation
Limited................... 713,213
16,400 Shared Medical Systems
Corporation............... 537,100
8,900 *Sunair Electronics,
Inc. ..................... 16,131
17,000 *Wang Laboratories, Inc. ... 172,125
7,400 Woodhead Industries,
Inc. ..................... 118,400
------------
8,679,145
------------
<CAPTION>
Value
Shares (Note 1)
------- --------
<S> <C> <C>

UTILITIES - .8%
7,500 *Allegheny & Western Energy
Corporation............... $ 78,750
6,900 *American Mobile Satellite
Corporation............... 87,975
18,900 *Public Service Company of
New Mexico................ 245,700
10,200 *Seagull Energy
Corporation............... 195,075
12,171 *Southern Union Company..... 200,831
7,650 Southwest Water Company..... 65,025
1,000 *Technical Communications
Corporation............... 7,250
19,000 Western Gas Resources,
Inc. ..................... 365,750
------------
1,246,356
------------
Total Common Stocks (Cost
$117,095,832)............. 149,061,847
------------

PREFERRED STOCKS - .4%
7,500 Anacomp, Inc. $4.125 Cum.
Conv. Rd. Exch. .......... 187,500
4,100 Bird Corp. $1.85 Conv. ..... 65,600
4,600 Glendale Federal Bank,
F.S.B. 8.75% Non-Cum. Cv.
Ser. E.................... 128,225
12,500 Sterling Financial
Corporation $1.8125 Conv.
Cum. ..................... 312,500
------------
Total Preferred Stocks (Cost
$650,370)................. 693,825
------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
ROYCE VALUE FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1994
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
U.S. GOVERNMENT OBLIGATIONS - 8.8%

Principal Value
Amount (Note 1)
----------- ------------
<S> <C> <C>
$ 5,000,000 U.S. Treasury Notes
7.625% due 4/30/96... $ 5,008,600
10,000,000 U.S. Treasury Notes 7%
due 4/15/99.......... 9,690,600
------------
Total U.S. Government Obligations
(Cost $15,635,937)................. 14,699,200
------------

REPURCHASE AGREEMENT - 2.5%
<CAPTION>

Value
(Note 1)
------------
<S> <C> <C>
State Street Bank and Trust
Company, 5.15% due 1/3/95,
collateralized by U.S. Treasury
Obligation, 6.125% due 7/31/96,
valued at $4,100,144 (Cost
$4,100,000)........................ $ 4,100,000
------------

TOTAL INVESTMENTS - 101.0% (COST
$137,482,139)...................... 168,554,872

LIABILITIES LESS CASH AND OTHER
ASSETS - (1.0%).................... (1,674,322)
------------

NET ASSETS - 100.0%.................. $166,880,550
------------
------------
</TABLE>

* Non-income producing.

INCOME TAX INFORMATION - The cost for federal income tax purposes was
$138,083,399. At December 31, 1994, net unrealized appreciation for all
securities amounted to $30,471,473 consisting of aggregate gross unrealized
appreciation of $39,591,238 and aggregate gross unrealized depreciation of
$9,119,765.

The accompanying notes are an integral part of the financial statements.

<PAGE>
ROYCE VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1994
--------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Investments at value (identified cost $137,482,139) (Note 1)..................................... $168,554,872
Receivable for dividends and interest............................................................ 504,624
Receivable for investments sold.................................................................. 194,345
Cash............................................................................................. 83,976
Prepaid expenses and other assets................................................................ 16,098
Receivable for shares of beneficial interest sold................................................ 8,699
------------
TOTAL ASSETS................................................................................... 169,362,614
------------
LIABILITIES:
Payable for investments purchased................................................................ 1,740,942
Net income and capital gain distributions payable................................................ 451,453
Investment advisory fee payable (Note 2)......................................................... 118,095
Accrued expenses................................................................................. 93,967
Payable for shares of beneficial interest redeemed............................................... 77,607
------------
TOTAL LIABILITIES.............................................................................. 2,482,064
------------
NET ASSETS..................................................................................... $166,880,550
------------
------------
ANALYSIS OF NET ASSETS:
Undistributed net investment income.............................................................. $ 77,262
Accumulated net realized gains on investments.................................................... 1,060,031
Net unrealized appreciation on investments....................................................... 31,072,732
Shares of beneficial interest (Note 3)........................................................... 18,313
Additional paid-in capital....................................................................... 134,652,212
------------
NET ASSETS..................................................................................... $166,880,550
------------
------------
PRICING OF SHARES:
Net asset value, offering and redemption price per share ($166,880,550[div]18,312,598 shares
outstanding) (Note 3).......................................................................... $9.11
=====
</TABLE>

STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Years ended December 31,
----------------------------
1994 1993
------------ ------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income........................................................ $ 1,170,329 $ 786,472
Net realized gain on investments............................................. 8,986,324 12,997,262
Net unrealized (depreciation) appreciation on investments.................... (13,075,621) 4,948,331
------------ ------------
(Decrease) increase in net assets resulting from operations.................. (2,918,968) 18,732,065
Dividends paid from net investment income.................................... (874,449) (885,975)
Distributions paid from net realized gains................................... (7,169,090) (13,289,625)
FROM CAPITAL SHARE TRANSACTIONS:
(Decrease) increase in net assets from capital share transactions (Note 3)... (7,932,456) 3,091,078
------------ ------------
(DECREASE) INCREASE IN NET ASSETS.............................................. (18,894,963) 7,647,543
NET ASSETS:
Beginning of year............................................................ 185,775,513 178,127,970
------------ ------------
End of year (including undistributed net investment income and distributions
in excess of net investment income of $77,262 and $184,436,
respectively).............................................................. $166,880,550 $185,775,513
------------ ------------
------------ ------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
ROYCE VALUE FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994
--------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends....................................................................................... $ 2,906,455
Interest........................................................................................ 1,423,141
-----------
Total Income............................................................................ 4,329,596
-----------
Expenses:
Distribution fee (Note 2)....................................................................... 1,759,817
Investment advisory fee (Note 2)................................................................ 1,503,696
Custodian and transfer agent fees............................................................... 198,182
Administrative and clerical services............................................................ 74,265
Legal and auditing fees......................................................................... 61,068
Shareholder reports and notices................................................................. 46,541
Supplies and postage............................................................................ 46,168
Facilities and office space..................................................................... 37,361
Insurance....................................................................................... 35,100
Trustees' fees.................................................................................. 25,766
Federal and state registration fees............................................................. 17,259
Miscellaneous................................................................................... 4,686
Fees waived by distributor (Note 2)............................................................. (650,642)
-----------
Total Expenses.......................................................................... 3,159,267
-----------
Net Investment Income................................................................... 1,170,329
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments.................................................................... 8,986,324
Net unrealized depreciation on investments.......................................................... (13,075,621)
-----------
Net realized and unrealized loss on investments..................................................... (4,089,297)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS................................................ ($ 2,918,968)
-----------
-----------
</TABLE>

This table is presented to show selected data for a share outstanding
throughout each period, and to assist shareholders in evaluating the Fund's
performance over the last five years.

<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
1994 1993 1992 1991 1990
--------- ----- ----- ----- ----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR........................... $9.73 $9.51 $8.83 $6.96 $8.48
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a)................................ 0.07 0.05 0.04 0.09 0.14
Net gain (loss) on investments (realized and
unrealized)............................................ (0.23) 0.97 1.37 2.05 (1.29)
----- ---- ---- ---- -----
Total From Investment Operations....................... (0.16) 1.02 1.41 2.14 (1.15)
----- ---- ---- ---- -----
LESS DISTRIBUTIONS:
Dividends (from net investment income)................... (0.05) (0.05) (0.04) (0.09) (0.15)
Distributions (from capital gains)....................... (0.41) (0.75) (0.69) (0.18) (0.22)
----- ---- ---- ---- -----
Total Distributions.................................... (0.46) (0.80) (0.73) (0.27) (0.37)
----- ---- ---- ---- -----
NET ASSET VALUE, END OF YEAR................................. $9.11 $9.73 $9.51 $8.83 $6.96
----- ---- ---- ---- -----
----- ---- ---- ---- -----
TOTAL RETURN................................................. - 1.6% 10.7% 16.0% 30.8% - 13.6%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Year (in thousands)....................... $166,881 $185,776 $178,128 $167,498 $148,412
Ratio of Expenses to Average Net Assets (b).................. 1.80% 1.84% 1.88% 1.69% 1.88%
Ratio of Net Investment Income to Average Net Assets......... 0.67% 0.43% 0.42% 1.00% 1.77%
Portfolio Turnover Rate...................................... 22% 31% 28% 25% 18%
</TABLE>

(a) Net investment income is shown after waivers of fees by the distributor.
The per share effect of these waivers is $.03 for the years ended December
31, 1994, December 31, 1993 and December 31, 1992; and $.04 for the year
ended December 31, 1991.
(b) Expense ratio before waiver of fees by the distributor would have been
2.16% for the year ended December 31, 1994, 2.15% for the years ended
December 31, 1993 and December 31, 1992; and 2.20% for the year ended
December 31, 1991.
(c) Total returns do not reflect the 1.0% contingent deferred sales charge
applicable to accounts open less than 5 years.

<PAGE>
ROYCE VALUE FUND
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Royce Value Fund (the 'Fund') is a series of The Royce Fund (the 'Trust'),
a diversified open-end management investment company established as a business
trust under the laws of Massachusetts. The Fund commenced operations on December
31, 1982.

a. Valuation of investments:

b. Investment transactions and related investment income:

c. Taxes:

d. Distributions:

Dividend and capital gain distributions are recorded on the ex-dividend
date and paid annually in December. Dividend and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. Permanent book and tax basis
differences relating to shareholder distributions will result in
reclassifications to paid-in capital and may affect net investment income per
share. Undistributed net investment income may include temporary book and tax
basis differences which will reverse in a subsequent period. Any taxable income
or gain remaining at fiscal year end is distributed in the following year.

e. Repurchase agreements.

<PAGE>
ROYCE VALUE FUND
NOTES TO FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------

agreements to maturities of no more than seven days. Securities pledged as
collateral for repurchase agreements are held by SSB&T until maturity of the
repurchase agreements. Repurchase agreements could involve certain risks in the
event of default or insolvency of SSB&T, including possible delays or
restrictions upon the ability of the Fund to dispose of the underlying
securities.

2. INVESTMENT ADVISER AND DISTRIBUTOR:

Under its investment advisory agreement with Quest Advisory Corp.
('Quest'), the Fund paid Quest fees totaling $1,503,696 for the year ended
December 31, 1994. The agreement provides for fees equal to 1.0% per annum of
the first $50 million of each Fund's average net assets, .875% per annum of the
next $50 million of such net assets and .75% per annum of additional amounts of
average net assets. Such fees are computed daily and are payable monthly to
Quest. Certain administrative, clerical and facilities costs are allocated among
the Fund and other affiliated funds.

Quest Distributors, Inc. ('QDI'), the distributor of the Fund's shares, is
an affiliate of Quest and received distribution fees from the Fund totaling
$1,109,175 for the year ended December 31, 1994. This amount is net of $650,642
of fees which were voluntarily waived by QDI. The distribution agreement
provides for maximum fees of 1.0% per annum of average net assets. In addition,
prior to April 29, 1994, QDI receives the proceeds of any contingent deferred
sales charges. The charge, which was eliminated as of April 29, 1994, was 1% of
the then current net asset value of the shares being redeemed if an investor
redeemed shares within five years after initial purchase. Contingent deferred
sales charges amounted to $12,992 for the period ended April 29, 1994.

Based on a resolution adopted by the Board of Trustees, QDI will hold the
contingent deferred sales charges received from January 1, 1994 through December
31, 1994 in a separate reserve account controlled by the Trust to be spent only
upon approval of the Board of Trustees, for the specific purposes as outlined in
the Trust's Distribution Plan. Any such proceeds not so spent at the end of four
years are to be paid to the Fund, the shareholders of which bore the contingent
deferred sales charges involved.

3. FUND SHARES:

The Board of Trustees has authority to issue an unlimited number of shares
of beneficial interest of the Fund, with a par value of $.001. Share
transactions were as follows:

<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1994 December 31, 1993
------------------------- -------------------------
Shares Amount Shares Amount
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Sold............................................... 763,903 $ 7,367,068 1,027,978 $10,220,491
Issued as reinvested dividends and distributions... 833,361 7,591,915 1,370,323 13,333,237
Redeemed........................................... (2,377,449) (22,891,439) (2,038,936) (20,462,650)
</TABLE>

Effective April 29, 1994, shares redeemed within one year of purchase are
subject to a 1% redemption fee.

4. PURCHASES AND SALES OF SECURITIES:

During the year ended December 31, 1994, the cost of purchases and the
proceeds from sales of investment securities, other than short-term securities,
amounted to $41,832,407 and $36,318,661 respectively.

<PAGE>
ROYCE VALUE FUND
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------

To the Board of Trustees of The Royce Fund and Shareholders of Royce Value Fund:

We have audited the accompanying statement of assets and liabilities of
Royce Value Fund, including the schedule of investments as of December 31, 1994,
the related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.

In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Royce Value Fund as of December 31, 1994, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended, in conformity with generally accepted accounting
principles.

COOPERS & LYBRAND L.L.P.

Boston, Massachusetts
February 1, 1995
<PAGE>
SEE QUESTIONS AND ANSWERS
ON FOLLOWING PAGES

<PAGE>
QUESTIONS AND ANSWERS

1. WHY DOES RVF CONCENTRATE ON SMALL COMPANY INVESTING?
We believe the less well-known the company, the greater the likelihood of a
pricing discrepancy between market and business value. The 'sleuth-work' that
goes into discovering value-oriented investments for the Fund is our historic
strength.

2. HOW DO YOU DEFINE SMALL COMPANIES?
Generally we mean companies with market capitalizations of less than $750
million. Over longer periods of time, these companies have exhibited higher
returns for their investors.

3. AREN'T SMALL COMPANIES MORE RISKY?
Of course, but we try to reduce the risks by paying careful attention to the
cash flow, balance sheet and return characteristics of each company. We are
constantly looking for the right mix of financial quality, returns and price
that can result in investment opportunities for the Fund.

4. WHY DOES RVF FAVOR A CONSISTENT 'VALUE APPROACH'?
Just as economists can't seem to predict the economy right and weathermen
can't seem to predict the weather right, neither do we think money managers can
predict the future of companies very well. We don't think investors should be
the victims of anyone's guessing, even ours. We prefer an approach that attempts
to understand a company's 'worth' on the basis of today's circumstances.

5. HOW IS CASH USED IN THE PORTFOLIO?
The Fund attempts to stay fully invested. However, if there is cash in the
portfolio from time to time, it is primarily because we are unable to find good
values at that moment.

6. WHO MANAGES THE FUND'S PORTFOLIO?
The Fund's portfolio is managed by the Adviser's senior investment staff,
including Charles M. Royce, the firm's Chief Investment Officer. Mr. Royce is
assisted by Thomas R. Ebright, Jack E. Fockler Jr. and W. Whitney George.

7. WHAT'S THE OUTLOOK FOR SMALL-CAP STOCKS?
The outlook for small-cap companies still appears to be favorable, and
especially so in our current slow growth environment. Relative valuations are
still attractive and the 1994 pause in small company performance returns was in
keeping with similar slowdowns experienced in previous small-cap cycles.

8. WHERE DOES RVF STAND ON TIMING THE MARKET?
We don't think it can be done successfully over long time periods. We think
most investors overreact to the short-term 'ups' and 'downs' of the market,
making mistakes that damage their long-term investment program. By seeking to
avoid risk, they actually increase their risk by making too many short-term
decisions. Historical results of many funds, like ours, show that a long-term
continuous investment program can produce better-than-average results for the
patient investor. Of course, investment in a periodic investment plan does not
guarantee a profit nor does it protect against a loss in declining markets.

<PAGE>
9. DOES RVF HAVE 'CONTINUOUS INVESTMENT PROGRAMS' AVAILABLE?
Yes, the Fund offers an Automatic Investment Plan for automatic share
purchases through your checking account on a monthly basis and a Payroll Direct
Deposit Plan for automatic share purchases through payroll deduction.

10. IS THE FUND AVAILABLE FOR IRA INVESTMENTS AND OTHER RETIREMENT PLANS?
Yes, the Fund offers IRA and 403(b) plans. Due to the Fund's philosophy and
long-term approach, we believe that it may be an appropriate vehicle for all
types of retirement plans.

11. WHEN CAN I EXPECT DIVIDENDS?
The Fund distributes any net realized capital gains and net investment
income annually in December. All distributions are automatically reinvested
unless otherwise instructed by the shareholder.

12. HOW OFTEN DOES THE FUND MAIL OUT STATEMENTS?
Statements are mailed out after each transaction, after any changes in
account registration and at the end of each semi-annual period. Tax information
will be mailed by January 31 of each year. In addition, semi-annual and annual
reports to shareholders are also distributed.

<PAGE>
POSTSCRIPT: CHICKEN PARTS AND CRYSTAL BALLS

------------------------------------------------------

THE ROYCE FUNDS

General Information and Telephone Purchases ....... 1-(800) 221-4268
Shareholder Account Services .................... .. 1-(800) 841-1180
Financial Advisor Services .......................... 1-(800) 33-ROYCE
The Royce Funds InfoLine ............................ 1-(800) 78-ROYCE

1414 Avenue of the Americas, New York, New York 10019
This report must be accompanied or preceded by a current Prospectus of the Fund

<PAGE>
ROYCE
PREMIER
FUND
ANNUAL REPORT
DECEMBER 31,1994
THE ROYCE FUNDS

<PAGE>
The Royce Funds
1414 Avenue of the Americas
New York, NY 10019
(212) 355-7311
(800) 221-4268

Dear Shareholder:

For the year, the S&P 500* finished up 1.3% but, exclusive of dividends,
the large company stock index would have been underwater. Small-cap indices, the
Russell 2000* and newly created S&P SmallCap 600*, were also in the red for the
year, down 1.8% and 4.8%, respectively. ROYCE PREMIER FUND ('PREMIER')
outperformed the S&P 500 and both small-cap benchmarks, posting a GAIN of 3.3%.
We believe that Premier's relative performance advantage versus the indices was
attributable to its disciplined value approach and its concentrated focus on
high quality small-cap companies, which allowed the Fund to better endure 1994's
more difficult first half. Premier now has $202 million in total assets and
a three year performance record. As of December 31, 1994, Premier has a 5 Star
(*****) rating by independent mutual fund rating service, Morningstar Mutual
Funds**.

<PAGE>
Premier weathered 1994 relatively well due to its continuous commitment to
risk management as opposed to risk taking. We do not invest in derivatives. We
believe that returns will come, as they have over time, from prudent investment
in selective small-cap companies. Our role as risk managers is, first, to
purchase attractively priced businesses with strong balance sheets and, second,
to manage the Fund's portfolio ever mindful of the many facets of risk. We
remain committed to a low risk and low volatility approach to this dynamic and
volatile asset class. We're equally optimistic that this technique will provide
an appropriate payoff over full market cycles.

We are generally more optimistic about 1995. The natural corrective forces
of the stock market, which usually result in periodic downdrafts of 10% or more,
appear to be functioning in a less familiar way -- through an extended period of
low returns. This can be unnerving for short-term investors, but can provide
excellent opportunities for a longer-term approach. For these reasons, our
outlook for the next three years is very positive.

We appreciate your continued confidence.

Faithfully,

<TABLE>
<S> <C>
Thomas R. Ebright
Jack E. Fockler, Jr.
Charles M. Royce W. Whitney George
Charles M. Royce Vice Presidents
President Quest Advisory Corp.
</TABLE>

February 10, 1995

------------

* The S&P 500, Russell 2000 and S&P SmallCap 600 are unmanaged indices and
include the reinvestment of dividends.

<PAGE>
ROYCE PREMIER FUND ('PREMIER')
INVESTMENT PHILOSOPHY

PREMIER CONCENTRATES ON WHAT WE BELIEVE TO BE 'SUPERIOR COMPANIES' within
the small-cap universe. We believe that superior companies are uniquely equipped
to handle corporate opportunities (expanding and protecting market share,
product development and strategic alliances) and to provide a margin of safety
while adapting to specific external changes in the more difficult economic
environment of the '90s. Although not restricted in terms of market
capitalization, the Fund will generally invest in securities with market caps of
less than $1 billion, believing that they are less well-known and, therefore,
less likely to be understood and properly priced by investors.

PREMIER USES A FUNDAMENTAL APPROACH WHICH EMPHASIZES HIGH INTERNAL RETURNS,
EXCESS CASH FLOW AND STRONG BALANCE SHEET COMPANIES. The Fund will attempt to
purchase these companies at a discount to their private worth while remaining
attentive to qualitative dimensions which may affect future value. The result is
a more focused portfolio, featuring only the 'highest confidence' ideas of the
manager.

PREMIER CONCENTRATES ON UNDERSTANDING THE VALUE OF A BUSINESS. We believe
that we are buying a part of a real business, not just a stock. This approach
requires a thoughtful understanding of the financial and operating dynamics of
the business, as though the entire business were being purchased. THE PRICE WE
WILL PAY FOR A GIVEN SET OF FINANCIAL CHARACTERISTICS FIGURES CRITICALLY IN THE
PROCESS AND MUST BE SIGNIFICANTLY UNDER OUR APPRAISAL OF PRIVATE WORTH. Ours is
an updated version of similar value work popularized by 'Graham & Dodd' in the
1930's.

PREMIER ATTEMPTS TO REDUCE THE RISKS ASSOCIATED WITH SMALL COMPANY
OWNERSHIP. Market risk is lowered by using non-mainstream securities and company
risk by favoring companies with low leverage and excess cash flow. Valuation
risk is lowered by using strict pricing standards and portfolio risk by
achieving diversification. Risk reduction should manifest itself in the form of
lower volatility and better relative performance in down markets.

At PREMIER, we believe that the marriage of a disciplined value approach to
a focused portfolio of 'superior' small-cap companies is a powerful combination,
capable of providing consistent, above average long-term returns.

<PAGE>
FINANCIAL REVIEW

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Premier total return......................................................... 3.3% 19.0% 15.8%
S&P 500 total return......................................................... 1.3% 10.0% 7.7%
Premier 3-yr average annual total return (since inception*).................. 12.5% -- --
NAV: Beginning of period..................................................... $6.41 $5.52 $5.00
NAV: End of period........................................................... $6.48 $6.41 $5.52
Dividends per share paid from net investment income.......................... $0.05 $0.02 $0.02
Distributions per share paid from net realized gains......................... $0.09 $0.14 $0.25
</TABLE>

The above table depicts the historical results of Premier and the unmanaged
S&P 500, as representative of the general equity market. The Fund's present
investment philosophy was followed in each of the periods identified. All
results presented in this Report are on a 'total return' basis, which assumes
that all dividends and distributions were reinvested. No redemption fees are
included because they apply only to accounts open for less than one year.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INITIAL INVESTMENT
ON 12/31/91 IN ROYCE PREMIER FUND AND THE S&P 500

<TABLE>
<CAPTION>
ROYCE
PREMIER S & P
------- ------

<S> <C> <C>
December 1991.................................................................................. 10,000 10,000
January 1992................................................................................... 10,120 9,815
February 1992.................................................................................. 10,020 9,941
March 1992..................................................................................... 10,160 9,745
April 1992..................................................................................... 10,160 10,029
May 1992....................................................................................... 10,160 10,083
June 1992...................................................................................... 10,140 9,936
July 1992...................................................................................... 10,420 10,338
August 1992.................................................................................... 10,420 10,129
September 1992................................................................................. 10,440 10,245
October 1992................................................................................... 10,699 10,282
November 1992.................................................................................. 11,259 10,629
December 1992.................................................................................. 11,579 10,768
January 1993................................................................................... 11,788 10,847
February 1993.................................................................................. 11,893 10,993
March 1993..................................................................................... 12,124 11,232
April 1993..................................................................................... 12,103 10,955
May 1993....................................................................................... 12,398 11,250
June 1993...................................................................................... 12,607 11,287
July 1993...................................................................................... 12,796 11,234
August 1993.................................................................................... 12,986 11,662
September 1993................................................................................. 12,923 11,577
October 1993................................................................................... 13,280 11,813
November 1993.................................................................................. 13,322 11,701
December 1993.................................................................................. 13,783 11,845
January 1994................................................................................... 13,956 12,243
February 1994.................................................................................. 14,084 11,910
March 1994..................................................................................... 13,891 11,393
April 1994..................................................................................... 13,762 11,540
May 1994....................................................................................... 13,805 11,728
June 1994...................................................................................... 13,740 11,437
July 1994...................................................................................... 14,019 11,816
August 1994.................................................................................... 14,384 12,297
September 1994................................................................................. 14,255 11,999
October 1994................................................................................... 14,276 12,277
November 1994.................................................................................. 14,039 11,827
December 1994.................................................................................. 14,233 12,001
</TABLE>

THE RESULTS PRESENTED IN THIS REPORT REPRESENT PAST PERFORMANCE AND SHOULD
NOT BE CONSIDERED REPRESENTATIVE OF THE 'TOTAL RETURN' FROM AN INVESTMENT IN THE
FUND TODAY. THEY ARE PROVIDED ONLY TO GIVE AN HISTORICAL PERSPECTIVE OF THE
FUND. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF FUND SHARES WILL FLUCTUATE SO
THAT THE SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST WHEN
REDEEMED.
* Inception Date -- December 31, 1991

<PAGE>
PRICE! PRICE! PRICE!

[ILLUSTRATION]

<PAGE>
PORTFOLIO SUMMARY

The following information is provided as a 'bird's eye' view of the Royce
Premier Fund portfolio. For a more complete picture, the full portfolio and
accompanying financial statements should be read in their entirety.

<TABLE>
<CAPTION>
PORTFOLIO COMPOSITION VALUE % OF NET ASSETS
<S> <C> <C>
----------------------------------------------------------------------------------------------------------
Common Stocks $ 167,266,241 82.7%
Cash & Other Net Assets 35,123,872 17.3
--------------- ------
Total Net Assets $ 202,390,113 100.0%
--------------- ------
--------------- ------

COMMON STOCK SECTORS % OF NET ASSETS
----------------------------------------------------------------------------------------------------------
Financial 24.8%
Services 14.8
Retail 12.3
Industrial Cyclicals 9.9
Technology 7.1
Health 5.1
Consumer Durables 4.6
Energy 4.1

TOP TWENTY POSITIONS MARKET VALUE % OF NET ASSETS
----------------------------------------------------------------------------------------------------------
1 Franklin Resources, Inc. $5,258,250 2.6%
2 Comdisco, Inc. 4,895,563 2.4
3 W.R. Berkley Corp. 4,552,500 2.2
4 The Dress Barn, Inc. 4,138,750 2.0
5 The Standard Register Company 3,942,750 1.9
6 Claire's Stores, Inc. 3,866,400 1.9
7 Fab Industries, Inc. 3,682,088 1.8
8 Atlantic Southeast Airlines, Inc. 3,659,550 1.8
9 CONSOLIDATED STORES CORPORATION 3,628,150 1.8
10 NCH Corporation 3,597,875 1.8
11 Sturm, Ruger & Company, Inc. 3,509,988 1.7
12 Wesco Financial Corporation 3,476,775 1.7
13 The Louisiana Land and Exploration Company 3,455,625 1.7
14 Wilmington Trust Corporation 3,423,875 1.7
15 Orion Capital Corporation 3,355,800 1.7
16 Leucadia National Corporation 3,293,000 1.6
17 E.W. Blanch Holdings, Inc. 3,033,938 1.5
18 Curtiss-Wright Corporation 2,975,475 1.5
19 Florida Rock Industries, Inc. 2,959,238 1.5
20 ADVO, Inc. 2,901,450 1.4
</TABLE>

<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]

<PAGE>
ROYCE
PREMIER
FUND

FINANCIAL STATEMENTS

<PAGE>
ROYCE PREMIER FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1994
--------------------------------------------------------------------------------
COMMON STOCKS - 82.7%
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------- --------
<S> <C> <C>
CONSUMER DURABLES - 4.6%
173,900 Garan Incorporated........ $ 2,825,870
134,400 The Stride Rite
Corporation............. 1,495,200
123,700 Sturm, Ruger & Company,
Inc. ................... 3,509,988
98,600 Thomaston Mills, Inc. Cl.
A....................... 1,552,950
------------
9,384,008
------------
ENERGY - 4.1%
131,000 Camco International
Inc. ................... 2,472,625
95,000 The Louisiana Land and
Exploration Company..... 3,455,625
229,900 *Oceaneering
International, Inc. .... 2,356,475
------------
8,284,725
------------
FINANCIAL - 24.8%
52,800 Alex Brown Incorporated... 1,603,800
15,232 *Alleghany Corporation.... 2,315,264
121,400 W. R. Berkley Corp. ...... 4,552,500
147,100 E.W. Blanch Holdings,
Inc. ................... 3,033,938
116,500 The Commerce Group,
Inc. ................... 1,944,094
147,600 Franklin Resources,
Inc. ................... 5,258,250
99,900 *Gryphon Holdings
Inc. ................... 1,336,163
128,500 Guaranty National
Corporation............. 2,361,188
59,900 The John Nuveen Company... 1,370,213
74,000 Leucadia National
Corporation............. 3,293,000
95,200 Orion Capital
Corporation............. 3,355,800
100,000 Pennsylvania Manufacturers
Corporation............. 1,550,000
46,300 T. Rowe Price Associates,
Inc. ................... 1,389,000
90,300 Raymond James Financial,
Inc. ................... 1,264,200
74,400 Student Loan Marketing
Association............. 2,418,000

<CAPTION>
Value
Shares (Note 1)
------- -------
<S> <C> <C>
34,200 Transatlantic Holdings,
Inc. ................... $ 1,910,925
30,200 Wesco Financial
Corporation............. 3,476,775
165,300 Willis Corroon Group
plc..................... 1,694,325
150,500 Wilmington Trust
Corporation............. 3,423,875
125,900 PartnerRe Holdings
Ltd. ................... 2,612,425
------------
50,163,735
------------
HEALTH - 5.1%
185,400 *Biomet, Inc. ............ 2,595,600
144,400 Blessings Corporation..... 2,057,700
53,313 Block Drug Company, Inc.
Cl. A................... 2,025,886
67,500 *Nellcor Incorporated..... 2,227,500
35,100 *St. Jude Medical, Inc. .. 1,395,225
------------
10,301,911
------------
INDUSTRIAL CYCLICALS - 9.9%
119,100 CalMat Co. ............... 2,069,363
81,800 Curtiss-Wright
Corporation............. 2,975,475
118,300 Fab Industries, Inc. ..... 3,682,088
108,100 Florida Rock Industries,
Inc. ................... 2,959,238
89,100 P. H. Glatfelter
Company................. 1,381,050
20,100 Liqui-Box Corporation..... 668,325
53,800 NCH Corporation........... 3,597,875
41,192 Woodward Governor
Company................. 2,718,672
------------
20,052,086
------------
RETAIL - 12.3%
46,800 Blair Corporation......... 1,872,000
294,000 Charming Shoppes, Inc. ... 1,947,750
322,200 Claire's Stores, Inc. .... 3,866,400
194,800 *CONSOLIDATED STORES
CORPORATION............. 3,628,150
385,000 *The Dress Barn, Inc...... 4,138,750
201,400 Family Dollar Stores,
Inc. ................... 2,517,500
70,800 *Marshall Industries...... 1,893,900
175,300 *Mikasa, Inc. ............ 2,870,538
239,200 *TBC Corporation.......... 2,212,600
-----------
24,947,588
-----------

</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
ROYCE PREMIER FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1994
--------------------------------------------------------------------------------
COMMON STOCKS - continued
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------- --------
<S> <C> <C>
SERVICES - 14.8%
168,200 ADVO, Inc. ............... $ 2,901,450
94,050 Air Express International
Corporation............. 1,881,000
236,100 Atlantic Southeast
Airlines, Inc. ......... 3,659,550
111,200 Bowne & Co., Inc. ........ 1,932,100
182,700 Crawford & Company
Cl. A................... 2,877,525
126,900 Dames & Moore............. 1,871,775
107,700 Ennis Business Forms,
Inc. ................... 1,346,250
44,500 FlightSafety
International, Inc. .... 1,807,813
16,262 Grey Advertising Inc. .... 2,455,562
86,800 *International Dairy
Queen, Inc. Cl. A....... 1,475,600
47,900 Plenum Publishing
Corporation............. 1,425,025
196,000 Sotheby's Holdings, Inc.
Cl. A................... 2,254,000
225,300 The Standard Register
Company................. 3,942,750
------------
29,830,400
------------
TECHNOLOGY - 7.1%
53,400 Adobe Systems
Incorporated............ 1,588,650
100,000 Astro-Med, Inc. .......... 1,075,000
211,700 Comdisco, Inc. ........... 4,895,563
<CAPTION>
Value
Shares (Note 1)
------- --------
<S> <C> <C>
64,300 *Dionex Corporation....... $ 2,427,325
152,400 Scitex Corporation
Limited................. 2,533,650
54,400 Shared Medical Systems
Corporation............. 1,781,600
------------
14,301,788
------------
Total Common Stocks
(Cost $165,347,954)..... 167,266,241
------------

U.S. TREASURY OBLIGATION - 6.7%
<CAPTION>

Principal
Amount
---------
<S> <C> <C>
$14,000,000 U.S. Treasury Note 7% due
4/15/99 (Cost
$14,194,688)............. 13,566,840
------------

REPURCHASE AGREEMENT - 10.2%
State Street Bank and Trust Company,
5.15% due 1/3/95, collateralized by
U.S. Treasury Obligation, 6.125% due
7/31/96, valued at $20,701,457 (Cost
$20,700,000)........................... 20,700,000
------------
TOTAL INVESTMENTS - 99.6% (COST
$200,242,642).......................... 201,533,081
CASH AND OTHER ASSETS LESS
LIABILITIES - .4%...................... 857,032
------------
NET ASSETS - 100.0%...................... $202,390,113
------------
------------
</TABLE>
*Non-income producing.

INCOME TAX INFORMATION -- The cost for federal income tax purposes was
$200,242,642. At December 31, 1994, net unrealized appreciation for all
securities was $1,290,439, consisting of aggregate gross unrealized appreciation
of $11,477,486 and aggregate gross unrealized depreciation of $10,187,047.

The accompanying notes are an integral part of the financial statements.

<PAGE>

ROYCE PREMIER FUND
STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1994
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments at value (identified cost $179,542,642) (Note 1)...................................... $180,833,081
Repurchase agreement (Note 1)..................................................................... 20,700,000
Receivable for investments sold................................................................... 2,799,358
Receivable for shares of beneficial interest sold................................................. 1,024,398
Receivable for dividends and interest............................................................. 459,920
Cash.............................................................................................. 74,494
Prepaid expenses and other assets................................................................. 14,806
------------
TOTAL ASSETS.................................................................................... 205,906,057
------------
LIABILITIES:
Payable for investments purchased................................................................. 2,839,751
Net income and capital gain distributions payable................................................. 283,869
Investment advisory fee payable (Note 2).......................................................... 162,304
Accrued expenses.................................................................................. 139,869
Payable for shares of beneficial interest redeemed................................................ 90,151
------------
TOTAL LIABILITIES............................................................................... 3,515,944
------------
NET ASSETS...................................................................................... $202,390,113
------------
------------
ANALYSIS OF NET ASSETS:
Undistributed net investment income............................................................... $ 84,442
Accumulated net realized gain on investments...................................................... 965,310
Net unrealized appreciation on investments........................................................ 1,290,439
Shares of beneficial interest (Note 3)............................................................ 31,210
Additional paid-in capital........................................................................ 200,018,712
------------
NET ASSETS...................................................................................... $202,390,113
------------
------------
PRICING OF SHARES:
Net asset value, offering and redemption price per share
($202,390,113[div]31,209,893 shares outstanding) (Note 3)....................................... $6.48
-----
-----

STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------

</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------
1994 1993
------------ -----------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income............................................................. $ 1,659,357 $ 89,697
Net realized gain on investments.................................................. 3,788,411 935,747
Net unrealized (depreciation) appreciation on investments......................... (706,602) 1,831,343
------------ -----------
Increase in net assets resulting from operations.................................. 4,741,166 2,856,787
Dividends paid from net investment income......................................... (1,525,419) (143,134)
Distributions paid from net realized gains........................................ (2,746,290) (1,001,939)
FROM CAPITAL SHARE TRANSACTIONS:
Increase in net assets from capital share transactions (Note 3)................... 154,777,578 43,101,910
------------ -----------
INCREASE IN NET ASSETS.............................................................. 155,247,035 44,813,624
NET ASSETS:
Beginning of year................................................................. 47,143,078 2,329,454
------------ -----------
End of year (including undistributed net investment income and distributions in
excess of net investment income of $84,442 and $53,964, respectively)........... $202,390,113 $47,143,078
------------ -----------
------------ -----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

ROYCE PREMIER FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994
--------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest......................................................................................... $2,080,739
Dividends........................................................................................ 1,501,059
----------
Total Income............................................................................ 3,581,798
----------
Expenses:
Investment advisory fee (Note 2)................................................................. 1,400,394
Custodian and transfer agent fees................................................................ 188,561
Federal and state registration fees.............................................................. 99,208
Supplies and postage............................................................................. 64,317
Administrative and clerical services............................................................. 58,830
Legal and auditing fees.......................................................................... 34,517
Shareholder reports and notices.................................................................. 33,614
Facilities and office space...................................................................... 17,475
Trustees' fees................................................................................... 15,584
Miscellaneous.................................................................................... 4,522
Insurance........................................................................................ 4,159
Organizational costs............................................................................. 1,260
----------
Total Expenses.......................................................................... 1,922,441
----------
Net Investment Income................................................................... 1,659,357
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments..................................................................... 3,788,411
Net unrealized depreciation on investments........................................................... (706,602)
----------
Net realized and unrealized gain on investments...................................................... 3,081,809
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................................. $4,741,166
----------
----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

This table is presented to show selected data for a share outstanding
throughout each period, and to assist shareholders in evaluating the Fund's
performance over the last three years.

<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR............................. $6.41 $5.52 $5.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (a).................................. 0.06 0.02 0.02
Net Gains on Investments (realized and unrealized)......... 0.15 1.03 0.77
----- ----- -----
Total from Investment Operations......................... 0.21 1.05 0.79
----- ----- -----
LESS DISTRIBUTIONS:
Dividends (from net investment income)..................... (0.05) (0.02) (0.02)
Distributions (from capital gains)......................... (0.09) (0.14) (0.25)
----- ----- -----
Total Distributions...................................... (0.14) (0.16) (0.27)
----- ----- -----
NET ASSET VALUE, END OF YEAR................................... $6.48 $6.41 $5.52
----- ----- -----
----- ----- -----

TOTAL RETURN................................................... 3.3% 19.0% 15.8%

RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Year........................................ $202,390,113 $47,143,078 $2,329,454
Ratio of Expenses to Average Net Assets (b).................... 1.38% 1.50% 1.77%
Ratio of Net Investment Income to Average Net Assets........... 1.19% 0.68% 0.53%
Portfolio Turnover Rate........................................ 38% 85% 116%
</TABLE>

(a) Net investment income is shown after waivers of fees by the adviser and
distributor in 1993 and 1992. The per share effect of these waivers is $.01
for the year ended December 31, 1993, and $.09 for the year ended December
31, 1992.
(b) Expense ratio before waiver of fees by the adviser and distributor would
have been 1.68% for the year ended December 31, 1993 and 4.17% before the
waivers of fees and reimbursements of expenses by the adviser and
distributor for the year ended December 31, 1992.

<PAGE>
ROYCE PREMIER FUND
NOTES TO FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Royce Premier Fund (the 'Fund') is a series of The Royce Fund (the 'Trust'),
a diversified open-end management investment company established as a business
trust under the laws of Massachusetts. The Fund commenced operations on December
31, 1991.
a. Valuation of investments:
Securities listed on an exchange or on the Nasdaq National Market System are
valued on the basis of the last reported sale prior to the time the valuation is
made or, if no sale is reported for such day, at their bid price for
exchange-listed securities and at the average of their bid and asked prices for
Nasdaq securities. Quotations are taken from the market where the security is
primarily traded. Other over-the-counter securities for which market quotations
are readily available are valued at their bid price. Securities for which market
quotations are not readily available are valued at their fair value under
procedures established 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.
b. Investment transactions and related investment income:
Investment transactions are accounted for on the trade date and dividend
income is recorded on the ex-dividend date. Interest income is recorded on the
accrual basis. Realized gains and losses from investment transactions and
unrealized appreciation and depreciation of investments are determined on the
basis of identified cost for book and tax purposes.
c. Taxes:
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the extent
that it distributes substantially all of its taxable income for its fiscal year.
The schedule of investments includes information regarding income taxes under
the caption 'Income Tax Information'.
d. Distributions to shareholders:
Any dividend and capital gain distributions are recorded on the ex-dividend
date and paid annually in December. Income and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. Permanent book and tax basis
differences relating to shareholder distributions will result in
reclassifications to paid-in capital and may affect net investment income per
share. Undistributed net investment income may include temporary book and tax
basis differences which will reverse in a subsequent period. Any taxable income
or gain remaining at fiscal year end is distributed in the following year.
e. Repurchase agreements:
The Fund enters into repurchase agreements with respect to its portfolio
securities solely with State Street Bank and Trust Company ('SSB&T'), the
custodian of its assets. The Fund restricts repurchase agreements to maturities
of no more than seven days. Securities pledged as collateral for repurchase
agreements are held by SSB&T until maturity of the repurchase agreements.
Repurchase agreements could involve certain risks in the event of default or
insolvency of SSB&T, including possible delays or restrictions upon the ability
of the Fund to dispose of the underlying securities.

<PAGE>

2. INVESTMENT ADVISER:
Under the Trust's investment advisory agreement with Quest Advisory Corp.
('Quest'), the Fund accrued and paid Quest fees totaling $1,400,394 for the year
ended December 31, 1994. The agreement provides for fees equal to 1.0% per annum
of the Fund's average net assets. Such fees are computed daily and are payable
monthly to Quest.
Effective October 1, 1993, the 12b-1 distribution plan between Quest
Distributors, Inc. (QDI), an affiliate of Quest, and the Fund was eliminated.
The distribution agreement provided for maximum fees of .25% per annum of the
Fund's average net assets. For the period January 1, 1993 through September 30,
1993, QDI waived its distribution fees of $14,903.
Certain administrative, clerical and facilities costs are allocated among the
Fund and other affiliated funds.

3. FUND SHARES:
The Board of Trustees has authority to issue an unlimited number of shares of
beneficial interest of the Fund, with a par value of $.001. Share transactions
were as follows:

<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1994 December 31, 1993
-------------------------- -----------------------
Shares Amount Shares Amount
----------- ------------ --------- -----------

<S> <C> <C> <C> <C>
Sold.......................................................... 26,163,792 $169,885,610 7,012,428 $43,502,563
Issued as reinvested dividends and distributions.............. 615,431 3,987,995 167,497 1,073,656
Redeemed...................................................... (2,927,034) (19,096,027) (244,227) (1,474,309)
</TABLE>

Shares redeemed within one year of purchase are subject to a 1% redemption fee.

4. PURCHASES AND SALES OF SECURITIES:

For the year ended December 31, 1994, the cost of purchases and the proceeds
from sales of portfolio securities, other than short-term securities, amounted
to $191,201,187 and $56,939,098, respectively.

<PAGE>

ROYCE PREMIER FUND
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------

To the Board of Trustees of The Royce Fund and Shareholders of Royce Premier
Fund:

We have audited the accompanying statement of assets and liabilities of Royce
Premier Fund, including the schedule of investments as of December 31, 1994, and
the related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the three years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Royce
Premier Fund as of December 31, 1994, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the three years in
the period then ended, in conformity with generally accepted accounting
principles.

COOPERS & LYBRAND L.L.P.

Boston, Massachusetts
February 1, 1995

<PAGE>

SEE QUESTIONS AND ANSWERS
ON FOLLOWING PAGES

<PAGE>

QUESTIONS AND ANSWERS

1. WHAT IS PREMIER'S FOCUS?

Premier focuses exclusively on 'superior' small-cap companies, which we
define as those which generate excess cash flow, provide high internal returns
and have strong balance sheets. Premier believes that superior companies are
uniquely qualified to handle corporate opportunities (expanding and protecting
market share) and to provide a margin of safety while adapting to external
changes in the more difficult environment of the '90s.

2. WHY DOES PREMIER CONCENTRATE ON SMALL COMPANIES?

We believe the less well-known the company, the greater the likelihood of a
pricing discrepancy between market and business value. The 'sleuth-work' that
goes into discovering value-oriented investments for the Fund is our historic
strength.

3. HOW DOES THE FUND DEFINE SMALL COMPANIES?

Generally, we mean companies with market capitalizations of less than $1
billion. Over longer periods of time these companies have exhibited higher
returns for their investors.

4. AREN'T SMALL COMPANIES MORE RISKY?

5. WHY DOES PREMIER FAVOR A CONSISTENT 'VALUE APPROACH'?

6. HOW IS PREMIER'S PORTFOLIO STRUCTURED?

The Fund is primarily comprised of approximately 50-70 'superior' small-cap
equity securities.

7. HOW IS CASH USED IN THE PORTFOLIO?

The Fund attempts to stay fully invested. However, if there is cash in the
portfolio from time to time, it is primarily because we are unable to find good
values at that moment.

8. WHO MANAGES THE FUND'S PORTFOLIO?

<PAGE>

9. WHAT IS THE OUTLOOK FOR SMALL-CAP STOCKS?

The outlook for small-cap companies still appears to be favorable, and
especially so in our current slow growth environment. Relative valuations are
still attractive and the 1994 pause in small company performance returns was in
keeping with similar slowdowns experienced in previous small-cap cycles.

10. WHERE DOES PREMIER STAND ON TIMING THE MARKET?

11. DOES PREMIER HAVE 'CONTINUOUS INVESTMENT PROGRAMS' AVAILABLE?

12. DOES THE FUND IMPOSE ANY SALES CHARGES OR 12b-1 FEES?

13. IS THE FUND AVAILABLE FOR IRA INVESTMENTS AND OTHER RETIREMENT PLANS?

Yes, the Fund offers IRA and 403(b) plans. Due to the Fund's philosophy and
long-term approach, we believe that it may be an appropriate vehicle for all
types of retirement plans.

14. WHEN CAN I EXPECT DIVIDENDS?

The Fund distributes any net realized capital gains and net investment income
annually in December. All distributions are automatically reinvested unless
otherwise instructed by the shareholder.

15. HOW OFTEN DOES THE FUND MAIL OUT STATEMENTS?

<PAGE>

POSTSCRIPT: CHICKEN PARTS AND CRYSTAL BALLS

About this time every year the various Wall Street 'wizards' begin their
banter in hopes of creating the impression for investors that their crystal ball
is the right one. This annual rite of stock market prognostication amounts to
nothing more than an illusion because no one really knows what the future will
hold. The competition among both the seers and their suckers grows in intensity
and since opinions are more prevalent than facts, the illusions start to blur
reality, turning perception into substance.
For the moment, let's ignore the hype and self promotion of the wizards and
pretend that there is someone who could actually call market turns. That
information would be so valuable that only a fool would want to sell it. The
smart move would be to prevent others from gaining any understanding of it and
to only use it secretly and more importantly, personally. The bottom line is
that true seers would be publicity shy.
We, on the other hand, avoid year-end fortune telling. Instead, we try to
give you the unvarnished truth without the packaging. Our goal is to give
substance to the stock selection process, not create illusions for our
shareholders. By not getting caught up in the market forecast game, we can spend
more time on what really matters and what we have been hired to do - find
undervalued, high quality small companies for your portfolio.

------------------------------------------------------

THE ROYCE FUNDS

General Information and Telephone Purchases ....... 1-(800) 221-4268
Shareholder Account Services ...................... 1-(800) 841-1180
Financial Advisor Services .......................... 1-(800) 33-ROYCE
The Royce Funds InfoLine ............................ 1-(800) 78-ROYCE

1414 Avenue of the Americas, New York, New York 10019
This report must be accompanied or preceded by a current Prospectus of the Fund

<PAGE>
ROYCE GLOBAL SERVICES FUND
Schedule of Investments at December 31, 1994
<TABLE>
<CAPTION>
COMMON STOCKS - 49.8%
Value
Shares (Note 1)
------ -------
<S> <C> <C>
FINANCIAL - 27.8%
Banking - 8.8%
500 Oriental Federal Savings Bank $ 6,813
1,000 State Street Boston Corporation 28,625
300 Student Loan Marketing Association 9,750
------
45,188
------

Insurance - 8.9%
700 E.W. Blanch Holdings, Inc. 14,438
100 Leucadia National Corporation 4,450
500 MacKenzie Financial Corporation 3,208
600 PartnerRe Holdings Ltd. 12,450
500 Zenith National Insurance Corp. 11,375
------
45,921
------
Securites and Investment Management Industries - 10.1%
100 Alex Brown Incorporated 3,036
300 The Bear Stearns Companies, Inc. 4,613
400 Franklin Resources, Inc. 14,250
100 Merrill Lynch & Co., Inc. 3,575
200 Morgan Stanley Group Inc. 11,800
300 T. Rowe Price Associates, Inc. 9,000
400 Raymond James Financial, Inc. 5,600
------
51,874
------

HEALTH -3.2%
1,200 * Vallen Corporation 16,500
------

INDUSTRIAL CYCLICALS - 1.3%
100 Velcro Industries N.V. 6,825
------

SERVICES - 6.9%
200 Bowne & Co., Inc. 3,475
5,000 * FCA International Ltd. 14,258
100 Arthur J. Gallagher & Co. 3,200
500 Intertrans Corporation 6,500
116 Poe & Brown, Inc. 2,523
500 Sotheby's Holdings, Inc. Cl. A 5,750
------
35,706
------

TECHNOLOGY - 10.6%
800 Adobe Systems Incorporated 23,800
600 Comdisco, Inc. 13,875
1,000 Scitex Corporation Limited 16,625
------
54,300
------

</TABLE>
The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ -------
<S> <C> <C>

Total Common Stocks
(Cost $252,048) $256,314

PREFERRED STOCK - 3.2%
5,000 United Services Advisors, Inc. 5% Non. Cum.
(Cost $13,750) 16,250
------

REPURCHASE AGREEMENT - 19.4%
State Street Bank and Trust Company, 5.15% due 1/3/95, collateralized
by U.S. Treasury Obligation, 6.75% due 5/31/99, valued at $101,357
(Cost $100,000) 100,000
-------

TOTAL INVESTMENTS - 72.4%
(Cost $365,798) 372,564
CASH AND OTHER ASSETS LESS
LIABILITIES - 27.6% 141,928
-------
NET ASSETS - 100.0% $514,492
========
</TABLE>

*Non-income producing.

Income Tax Information -- The cost for federal income tax purposes was $365,798.
At December 31, 1994, net unrealized apprecation for all securities amounted to
$6,766, consisting of aggregate gross unrealized apprecation of $7,854 and
aggregate gross unrealized depreciation of $1,088.

The accompanying notes are an integral part of the financial statements.

<PAGE>
ROYCE GLOBAL SERVICES FUND
Statement of Assets and Liabilities at December 31, 1994
--------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Investments at value (identified cost $365,798) (Note 1) $ 372,564
Cash 299,044
Prepaid expenses and other assets 5,952
Receivable for dividends and interest 149
-----------------
TOTAL ASSETS 677,709
-----------------

LIABILITIES:
Payable for investments purchased 162,817
Accrued expenses 400
-----------------
TOTAL LIABILITIES 163,217
-----------------
NET ASSETS $ 514,492
-----------------
-----------------

ANALYSIS OF NET ASSETS:
Unrealized appreciation on investments $ 6,766
Shares of beneficial interest 102
Additional paid-in capital 507,624
-----------------
NET ASSETS $ 514,492
-----------------
-----------------

PRICING OF SHARES:
Net asset value, offering and redemption price per share ($514,492 101,587 shares outstanding)
(Note 3) $ 5.06
-----------------
-----------------
</TABLE>

STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 15, 1994
THROUGH
DECEMBER 31, 1994
-----------------

<S> <C>
From Investment Activities:
Net investment loss ($ 251)
Net realized gain on investments 0
Net unrealized appreciation on investments 6,766
-----------------
Increase in net assets resulting from operations 6,515
Distributions paid from net realized gains 0
From Capital Share Transactions:
Increase in net assets from capital share transactions (Note 3) 506,977
-----------------
Increase in Net Assets 513,492
Net Assets:
Beginning of period 1,000
-----------------
End of period $ 514,492
-----------------
-----------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

ROYCE GLOBAL SERVICES FUND
Statement of Operations for the period ended December 31, 1994
INVESTMENT INCOME:
<TABLE>
<S> <C>
Income:
Dividends $120
Interest 29
----
Total Income 149
----
Expenses:
Miscellaneous 400
Investment adviser fees 367
Distribution fees 61
Fees waived by Adviser and Distributor (428)
----
Total Expenses 400
----
Net Investment Loss (251)
----

REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments $0
Net unrealized appreciation on investments 6,766
-----
Net realized and unrealized gain on investments 6,766
-----
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $6,515
======
</TABLE>

The accompanying notes are an integral part of the financial statements

Financial Highlights
This table is presented to show selected data for a share outstanding
throughout the period, and to assist shareholders in evaluating the Fund's
performance over the period.
<TABLE>
<CAPTION>

For the period
December 15, 1994
through
December 31, 1994
-----------------
<S> <C>
Net Asset Value, Beginning of Year $5.00
-----
Income From Investment Operations:
Net investment income 0.00
Net gain on investments (realized and unrealized 0.06
-----
Total from investment operations 0.06
-----
Less Distributions:
Dividends (from net investment income) 0.00
Distributions (from capital gains) 0.00
-----
Total distributions 0.00
-----

Net Asset Value, End of Year $5.06
=====
Total Return 1.2%
Ratios/Supplemental Data:
Net Assets, End of Year $514,492
Ratio of Expenses to Average Net Assets (a) 1.78%*
Ratio of Net Investment Income to Average Net Assets 0%
Portfolio Turnover Rate 0%
</TABLE>

*Annualized.
(a) Expenses are shown after waivers by adviser and distributor. Absent such
waivers, the ratio of expenses to average net assets would have been 3.69% for
the period ended December 31, 1994.

<PAGE>
ROYCE GLOBAL SERVICES FUND
NOTES TO FINANCIAL STATEMENTS
-----------------------------------------------------------------
1. Summary of Significant Accounting Policies:

Royce Global Services Fund (the "Fund") is a series of The Royce Fund
(the "Trust"), a diversified open-end management investment company established
as a business trust under the laws of Massachusetts. The Fund commenced
operations on December 15, 1994.

a. Valuation of investments:

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

b. Investment transactions and related investment income:

Investment transactions are accounted for on the trade date and
dividend income is recorded on the ex-dividend date. Interest income is recorded
on the accrual basis. Realized gains and losses from investment transactions and
unrealized appreciation and depreciation of investments are determined on the
basis of identified cost for book and tax purposes.

c. Taxes:

d. Distributions:

Dividend and capital gain distributions are recorded on the ex-dividend
date and are paid annually in December. Income and capital gain distributions
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. Permanent book and tax basis
differences relating to shareholder distributions will result in
reclassifications to paid-in capital and may affect net investment income per
share. Undistributed net investment income may include temporary book and tax
basis differences which will reverse in a subsequent period. Any taxable income
or gain remaining at fiscal year end is distributed in the following year.

e. Repurchase agreements:

The Fund enters into repurchase agreements with respect to its
portfolio securities solely with State Street Bank and Trust Company ("SSB&T"),
the custodian of its assets. The Fund restricts repurchase agreements to
maturities of no more than seven days. Securities pledged as collateral for
repurchase agreements are held by SSB&T until maturity of the repurchase
agreements. Repurchase agreements could involve certain risks in the event of
default or insolvency of SSB&T, including possible delays or restrictions upon
the ability of the Fund to dispose of the underlying securities.

<PAGE>

ROYCE GLOBAL SERVICES FUND
NOTES TO FINANCIAL STATEMENTS (continued)
------------------------------------------------------------------
f. Organizational expenses:

Costs incurred by the Fund in connection with its organization and
initial registration of shares of $5,952 have been deferred and are being
amortized on a straight line basis over a five-year period from the date of
commencement of operations.

2. Investment Adviser and Distributor:

Under its investment advisory agreement with Quest Advisory Corp.
("Quest"), advisory fees of $367 were voluntarily waived by Quest for the period
December 15, 1994 through December 31, 1994. The agreement provides for fees
equal to 1.50% per annum of the Fund's average total net assets. Such fees are
computed daily and are payable monthly to Quest.

Quest Distributors, Inc. ("QDI"), the distributor of the Fund' shares,
is an affiliate of Quest. QDI voluntarily waived the Fund's distribution fee of
$61 for the period December 15, 1994 through December 31, 1994. The distribution
agreement provides for maximum fees of .25% per annum of the Fund's average
total net assets.

Certain administrative, clerical and facilities costs are allocated
amoung the Fund and other affiliated funds.

3. Fund Shares:

The Board of Trustees has authority to issue an unlimited number of
shares of beneficial interest of the Fund, with a par value of $.001. Share
transactions were as follows:

<TABLE>
<CAPTION>
For the period
December 15, 1994 through
December 31, 1994 (Note 1)
--------------------------
Shares Amount
------ ------
<S> <C> <C>
Balance, beginning of period 200 $ 1,000
Sold 101,588 506,977
------- --------
Balance, end of period 101,788 $507,977
</TABLE>

Shares redeemed within one year are subject to a 1% redemption fee.

4. Purchases of Securities:

During the year ended December 31, 1994, the cost of purchases of
investment securities, other than short-term securities amounted to $265,798.

<PAGE>

Report of Independent Accountants

To the Board of Trustees and Shareholders of Royce Global Services Fund:

We have audited the accompanying statement of assets and liabilities of
Royce Global Services Fund, including the schedule of investments as of December
31, 1994, and the related statements of operations and changes in net assets,
and the financial highlights for the period December 15, 1994 (commencement of
operations) to December 31, 1994. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Royce Global Services Fund as of December 31, 1994, the results of
its operations and changes in its net assets, and the financial highlights for
the period December 15, 1994 (commencement of operations) to December 31, 1994,
in conformity with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Boston, Massachusetts
February 1, 1995

<PAGE>
POSTSCRIPT: CHICKEN PARTS AND CRYSTAL BALLS

--------------------------------------------------------------------------------

THE ROYCE FUNDS

<TABLE>
<S> <C>
General Information and Telephone Purchases............................................... 1-(800) 221-4268
Shareholder Account Services.............................................................. 1 -(800) 841-1180
Financial Advisor Services................................................................ 1-(800) 221-4268
The Royce Funds InfoLine.................................................................. 1-(800) 78-ROYCE
</TABLE>

<PAGE>

The Royce Funds

1414 Avenue of the Americas
New York, NY 10019
(212) 355-7311
(800) 221-4268

Dear Shareholder:

Although 1994's stock market was one of the least volatile on record,
for many investors, last year's experience was anything but calm. While the S&P
500 remained in a tight trading range, other popular investment vehicles fared
poorly. In its attempt to control renewed growth in our economy and to avoid a
resurgence of inflation, the Federal Reserve increased short-term interest rates
six times. As a result, bonds had one of their worst years ever, and stocks
suffered their first decline since 1990.

For the year, the S&P 500* finished up 1.3%, but exclusive of
dividends, the large company index would have been underwater. Small-cap
indices, the Russell 2000* and newly created S&P SmallCap 600*, were also in the
red for the year, down 1.8% and 4.8%, respectively. Royce Total Return Fund
("RTR") outperformed the S&P 500 and both small-cap benchmarks, posting a gain
of 5.1%. We believe that RTR's relative performance advantage versus the indices
was attributable to its gradual pattern of investment and its disciplined value
approach. Because of these factors, the Fund was able to better endure 1994's
more difficult first half and to perform more vibrantly in the more dynamic
second half.

The principal difference in the market between 1994 and the prior three
years was the direction of interest rates. From late 1990 until early 1994,
short-term rates were driven lower with unparalleled persistence. The resulting
investment environment was one in which reward became synonymous with risk. It
seemed that all one needed to do to boost returns was to employ more leverage,
buy something exotic or foreign, or, better yet, invest in a hot IPO (initial
public offering). The world of Wall Street became increasingly isolated as
business fundamentals took a back seat to stock price movement and momentum.
Before interest rates reversed in 1994, many investors had purchased instruments
and obligations of which they had little or no understanding.

Once the Federal Reserve removed the "punch bowl" from Wall Street's
party by raising interest rates, the true meaning of risk resurfaced with a
vengeance. Instantly, newspaper headlines detailed massive losses in derivative
investments. Starting with sophisticated hedge funds, and touching everything
from mutual funds to major corporations to state and local government pools,
derivative losses reached natural disaster proportions. The carnage that
resulted was not exclusive to fixed income investors. Electric utility stocks,
typically low risk equities, tumbled 18% for the year. Some emerging markets
began to submerge. Clearly, investors received a hard reminder that markets can
move in two directions, and that risk means something other than just earning
too little on cash.

<PAGE>

RTR weathered 1994 relatively well due to its continuous commitment to
risk management as opposed to risk taking. We do not invest in derivatives. We
believe that returns will come, as they have over time, from prudent investment
in selective small-cap companies. Our role as risk managers is, first, to
purchase low priced businesses with strong balance sheets and, second, to manage
the Fund's portfolio ever mindful of the many facets of risk. We remain
committed to a low risk and low volatility approach to this dynamic and volatile
asset class. We're equally optimistic that this technique will provide an
appropriate payoff over full market cycles.

We are generally more optimistic about 1995. The natural corrective
forces of the stock market, which usually result in periodic downdrafts of 10%
or more, appear to be functioning in a less familiar way--through an extended
period of low returns. This can be unnerving for short-term investors, but can
provide excellent opportunities for a longer-term approach. For these reasons
our outlook for the next three years is very positive.

We appreciate your continued confidence.

Yours faithfully,

Thomas R. Ebright
Charles M. Royce Jack E. Fockler, Jr.
W. Whitney George
Charles M. Royce Vice Presidents
President Quest Advisory Corp.

February 28, 1995
-----------

* The S&P 500, Russell 2000 and S&P SmallCap 600 are unmanaged indices
and include the reinvestment of dividends.

Note: 1995 performance returns are off to a fast start. Through February 28, the
Fund was up 5.1%.

<PAGE>
ROYCE TOTAL RETURN FUND
Schedule of Investments at December 31, 1994

<TABLE>
<CAPTION>
COMMON STOCKS - 84.6%
Value
Shares (Note 1)
------ --------
<S> <C> <C>
CONSUMER DURABLES - 13.8%
2,000 Flexsteel Industries, Inc. $26,000
2,900 Garan Incorporated 47,125
2,000 Sturm, Ruger & Company, Inc. 56,750
5,000 The Topps Company, Inc. 25,625
2,000 Weyco Group, Inc. 72,500
----------
228,000
----------
ENERGY - 1.4%
2,000 * Cliffs Drilling Company 23,500
----------
FINANCIAL - 21.5%
1,800 E.W. Blanch Holdings, Inc. 37,125
1,500 The Colonial Group, Inc. Cl. A 48,750
8,200 Nobel Insurance Limited 67,650
1,000 Orion Capital Corporation 35,250
4,000 Pennsylvania Manufacturers Corporation 62,000
1,500 Student Loan Marketing Association 48,750
2,500 Wilmington Trust Corporation 56,875
----------
356,400
----------
INDUSTRIAL CYCLICALS - 23.3%
1,800 Curtiss-Wright Corporation 65,475
2,000 Fab Industries, Inc. 62,250
2,000 Florida Rock Industries, Inc. 54,750
4,000 Gilbert Associates, Inc. Cl. A 57,000
500 The Manitowoc Company, Inc. 10,813
1,200 New England Business Service, Inc. 22,500
1,000 Penn Engineering and Manufacturing 42,125
2,000 Skyline Corporation 38,500
500 Woodward Governor Company 33,000
----------
386,413
----------
RETAIL - 3.3%
3,500 * CATHERINE'S STORES CORPORATION 30,625
2,000 Claire's Stores, Inc. 24,000
----------
54,625
----------

SERVICES - 12.3%
1,000 Crawford & Company Cl. B 16,000
6,000 Ennis Business Forms, Inc. 75,000
4,200 Hilb, Rogal & Hamilton Company 50,925
3,500 The Standard Register Company 61,250
----------
203,175
----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ --------
<S> <C> <C>
TECHNOLOGY - 9.0%
3,000 Comdisco, Inc. $ 69,375
2,800 Landauer Inc 46,550
2,000 Scitex Corporation Limited 33,250
----------
149,175
----------
Total Common Stocks
(Cost $1,376,120) 1,401,288
----------

PREFERRED STOCK - 3.8%
3,900 Bird Corp. $1.85 Conv.
(Cost $63,998) 62,400
----------

Principal
Amount
---------
CORPORATE BONDS - 7.7%
$100,000 Reliance Group Holdings, Inc.
9% Sr. Note due 11/15/00 93,000
50,000 Waterhouse Investors Services, Inc.
6% Conv. Sub. Deb. due 12/15/03 34,000
----------
Total Corporate Bonds
(Cost $127,938) 127,000
----------
REPURCHASE AGREEMENT - 6.0%
State Street Bank and Trust Company, 5.15% due
1/3/95, collateralized by U.S. Treasury Obligation,
8% due 8/15/99, valued at $103,635 (Cost $100,000) 100,000
----------

TOTAL INVESTMENTS - 102.1%
(Cost $1,668,056) 1,690,688
LIABILITIES LESS CASH AND
OTHER ASSETS - (2.1%) (34,488)
----------
NET ASSETS - 100.0% $1,656,200
==========
</TABLE>

*Non-income producing.

Income Tax Information--The cost for federal income tax purposes was $1,668,056.
At December 31, 1994, net unrealized appreciation for all securities amounted
to $22,632, consisting of aggregate gross unrealized appreciation of $67,290 and
aggregate gross unrealized deprecation of $44,658.

The accompanying notes are an integral part of the financial statements.
<PAGE>
ROYCE TOTAL RETURN FUND
Statement of Assets and Liabilities at December 31, 1994
--------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Investments at value (identified cost $1,668,056) (Note 1) $1,690,688
Cash 28,119
Prepaid expenses and other assets 6,850
Receivable for dividends and interest 3,940
-----------------
TOTAL ASSETS 1,729,597
-----------------

LIABILITIES:
Payable for investments purchased 65,528
Accrued expenses 7,869
-----------------
TOTAL LIABILITIES 73,397
-----------------
NET ASSETS $1,656,200
-----------------
-----------------

ANALYSIS OF NET ASSETS:
Undistributed net investment income $43
Distributions in excess of net realized gain on investments (5,216)
Net unrealized appreciation on investments 22,632
Shares of beneficial interest (Note 3) 323
Additional paid-in capital 1,638,418
-----------------
NET ASSETS $1,656,200
-----------------
-----------------

PRICING OF SHARES:
Net asset value, offering and redemption price per share ($1,656,200 323,201 shares outstanding)
(Note 3) $ 5.12
-----------------
-----------------
</TABLE>

STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE PERIOD
YEAR ENDED DECEMBER 15, 1993
DECEMBER 31, THROUGH
1994 DECEMBER 31, 1993
------------- -----------------

<S> <C> <C>
From Investment Activities:
Net investment income (loss) $ 5,137 ($ 57)
Net realized gain on investments 32,565 --
Net unrealized appreciation on investments 22,632 --
---------- -----------------
Increase (decrease) in net assets resulting from operations 60,334 (57)
Dividends paid from net investment income (5,037) --
Distributions paid from net realized gains (37,781) --
From Capital Share Transactions:
Increase in net assets from capital share transactions (Note 3) 1,187,741 450,000
---------- -----------------
Increase in Net Assets 1,205,257 449,943
Net Assets:
Beginning of year 450,943 1,000
---------- -----------------
End of year (including undistributed net investment income
of $43 and $0, respectively) $1,656,200 $ 450,943
---------- -----------------
---------- -----------------
</TABLE>

The accompanying notes are an integral part of the financial statements.
<PAGE>
<PAGE>

ROYCE TOTAL RETURN FUND
Statement of Operations for the year ended December 31, 1994
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends $18,433
Interest 7,348
----------
Total income 25,781
----------
Expenses:
Investment management fee (Note 2) 10,506
Custodian and transfer agent fees 6,686
Legal and auditing fees 6,114
Miscellaneous 2,938
Distribution fee (Note 2) 2,626
Federal and state registration fees 2,452
Organizational costs (Note 1) 1,676
Administrative and clerical services 438
Trustees' fees 212
Facilities and office space 128
Fees waived by Adviser and Distributor (Note 2) (13,132)
----------
Total expenses 20,644
----------
Net investment income 5,137
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments $32,565
Net unrealized appreciation on investments 22,632
----------
Net realized and unrealized gain on investments 55,197
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $60,334
=========
</TABLE>

The accompanying notes are an integral part of the financial statements

Financial Highlights

This table is presented to show selected data for a share outstanding
throughout the period, and to assist shareholders in evaluating the Fund's
performance over the last two periods.
<TABLE>
<CAPTION>
For the period
Year Ended December 15, 1993
December 31, through
1994 December 31, 1993
------------ -----------------
<S> <C> <C>
Net Asset Value, Beginning of Year $5.00 $5.00
----- ------
Income From Investment Operations:
Net investment income 0.02 0.00
Net gain on investments (realized
and unrealized 0.24 0.00
----- ------
Total from investment operations 0.26 0.00
----- ------
Less Distributions:
Dividends (from net investment income (0.02) 0.00
Distributions (from capital gains) (0.12) 0.00
----- ------
Total distributions (0.14) 0.00
----- ------
Net Asset Value, End of Year $5.12 $5.00
===== =====
Total Return 5.2% 0.0%
Ratios/Supplemental Data:
Net Assets, End of Year $1,656,200 $450,943
Ratio of Expenses to Average
Net Assets 1.96% 0.29%*
Ratio of Net Investment Income
to Average Net Assets 0.49% -0.29%*
Portfolio Turnover Rate 88% 0%
</TABLE>

*Annualized
(a) Expenses are shown after waivers by the adviser and distributor. Absent such
waivers, the ratio of expenses to average net assets would have been 3.21% for
the year ended December 31, 1994 and 2.04% for the period December 15, 1993
through December 31, 1993.

<PAGE>

ROYCE TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS
-----------------------------------------------------------------
1. Summary of Significant Accounting Policies:

Royce Total Return Fund (the "Fund") is a series of The Royce Fund (the
"Trust"), a diversified open-end management investment company established as a
business trust under the laws of Massachusetts. The Fund commenced operations on
December 15, 1993.

a. Valuation of investments:

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

b. Investment transactions and related investment income:

Investment transactions are accounted for on the trade date and
dividend income is recorded on the ex-dividend date. Interest income is recorded
on an accrual basis. Realized gains and losses from investment transactions and
unrealized appreciation and depreciation of investments are determined on the
basis of identified cost for book and tax purposes.

c. Taxes:

d. Distributions:

Dividend and capital gain distributions are recorded on the ex-dividend
date and are paid annually in December. Dividend and capital gain distributions
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. Permanent book and tax basis
differences relating to shareholder distributions will result in
reclassifications to paid-in capital and may affect net investment income per
share. Undistributed net investment income may include temporary book and tax
basis differences which will reverse in a subsequent period. Any taxable income
or gain remaining at fiscal year end is distributed in the following year.

e. Repurchase agreements.

<PAGE>

ROYCE TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS (continued)
------------------------------------------------------------------
f. Organizational expenses:

Costs incurred by the Fund in connection with its organization and
initial registration of shares of $10,288 have been deferred and are being
amortized on a straight line basis over a five-year period from the date of
commencement of operations.

2. Investment Adviser and Distributor:

Under its investment advisory agreement with Quest Advisory Corp.
("Quest"), advisory fees of $10,506 were voluntarily waived by Quest for the
year ended December 31, 1994. The agreement provides for fees equal to 1.0% per
annum of the Fund's average total net assets. Such fees are computed daily and
are payable monthly to Quest.

Quest Distributors, Inc. ("QDI"), the distributor of the Fund' shares,
is an affiliate of Quest. QDI voluntarily waived the Fund's distribution fee of
$2,626 for the year ended December 31, 1994. The distribution agreement provides
for maximum fees of .25% per annum of the Fund's average total net assets.

Certain administrative, clerical and facilities costs are allocated
among the Fund and other affiliated funds.

3. Fund Shares:

The Board of Trustees has authority to issue an unlimited number of
shares of beneficial interest of the Fund, with a par value of $.001. Share
transactions were as follows:
<TABLE>
<CAPTION>

For the period
Year Ended December 15, 1993 through
December 31, 1994 December 31, 1993
-------------------------- ----------------------
Shares Amount Shares Amount
-------- ------------ ------ -----------
<S> <C> <C> <C> <C>
Sold 341,214 $ 1,731,736 90,000 $ 450,000
Issued as reinvested dividends and distributions 8,36 42,817 -- --
Redeemed (116,576) (586,812) -- --
</TABLE>

Shares redeemed within 1 year are subject to a 1% redemption fee.

4. Purchases and Sales of Securities:

During the year ended December 31, 1994, the cost of purchases and the
proceeds from sales of investment securities, other than short-term securities,
amounted to $2,110,887 and $575,397, respectively.

<PAGE>

Report of Independent Accountants

To the Board of Trustees and Shareholders of Royce Total Return Fund:

We have audited the accompanying statement of assets and liabilities of
Royce Total Return Fund, including the schedule of investments as of December
31, 1994, the related statement of operations for the year then ended and the
statements of changes in net assets for the year then ended and for the period
December 15, 1993 (commencement of operations) to December 31, 1993, and
financial highlights for each of the two years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.

In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Royce Total Return Fund as of December 31, 1994, the results of its
operations for the year then ended, the changes in its net assets for the year
then ended and for the period December 15, 1993 (commencement of operations) to
December 31, 1993, and financial highlights for the year then ended, in
conformity with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Boston, Massachusetts
February 1, 1995

<PAGE>
POSTSCRIPT: CHICKEN PARTS AND CRYSTAL BALLS

--------------------------------------------------------------------------------

THE ROYCE FUNDS

<PAGE>

The Royce Funds

1414 Avenue of the Americas
New York, NY 10019
(212) 355-7311
(800) 221-4268

Dear Shareholder:

Although 1994's stock market was one of the least volatile on record,
for many investors, last year's experience was anything but calm. While the S&P
500 remained in a tight trading range, other popular investment vehicles fared
poorly. In its attempt to control renewed growth in our economy and to avoid a
resurgence of inflation, the Federal Reserve increased short-term interest rates
six times. As a result, bonds had one of their worst years ever, and stocks
suffered their first decline since 1990.

For the year, the S&P 500* finished up 1.3%, but exclusive of
dividends, the large company index would have been underwater. Small-cap
indices, the Russell 2000* and newly created S&P SmallCap 600*, were also in the
red for the year, down 1.8% and 4.8%, respectively. Royce Low-Priced Stock Fund
("RLP") outperformed the S&P 500 and both small-cap benchmarks, posting a gain
of 3.0%. We believe that RLP's relative performance advantage versus the indices
was attributable to its gradual pattern of investment and its micro-cap
orientation. Because of these factors, the Fund was able to better endure 1994's
more difficult first half and to perform more vibrantly in the more dynamic
third quarter.

The principal difference in the stock market between 1994 and the prior
three years was the direction of interest rates. From late 1990 until early
1994, short-term rates were driven lower with unparalleled persistence. The
resulting investment environment was one in which reward became synonymous with
risk. It seemed that all one needed to do to boost returns was to employ more
leverage, buy something exotic or foreign, or, better yet, invest in a hot IPO
(initial public offering). The world of Wall Street became increasingly isolated
as business fundamentals took a back seat to stock price movement and momentum.
Before interest rates reversed in 1994, many investors had purchased instruments
and obligations of which they had little or no understanding.

<PAGE>

RLP weathered 1994 relatively well due to its continuous commitment to
risk management as opposed to risk taking. We do not invest in derivatives. We
believe that returns will come, as they have over time, from prudent investment
in selective low priced companies. Our role as risk managers is, first, to
purchase low priced businesses with strong balance sheets and, second, to manage
the Fund's portfolio ever mindful of the many facets of risk. We remain
committed to a low risk and low volatility approach to this dynamic and volatile
asset class. We're equally optimistic that this technique will provide an
appropriate payoff over full market cycles.

We are generally more optimistic about 1995. The natural corrective
forces of the stock market, which usually result in periodic downdrafts of 10%
or more, appear to be functioning in a less familiar way--through an extended
period of low returns. This can be unnerving for short-term investors, but can
provide excellent opportunities for a longer-term approach. In addition, because
of the size and diversity of the low-priced stock universe and limited
institutional competition within this segment of the market, our outlook for the
next three years is very positive.

We appreciate your continued confidence.

Yours faithfully,

Thomas R. Ebright
Charles M. Royce Jack E. Fockler, Jr.
W. Whitney George
Charles M. Royce Vice Presidents
President Quest Advisory Corp.

February 28, 1995

* The S&P 500, Russell 2000 and S&P SmallCap 600 are unmanaged indices
and include the reinvestment of dividends.

<PAGE>
ROYCE LOW-PRICED STOCK FUND
Schedule of Investments at December 31, 1994
<TABLE>
<CAPTION>
COMMON STOCKS - 95.6%

Value
Shares (Note 1)
------ --------
<S> <C> <C>
CONSUMER DURABLES - 5.0%
2,500 * Kit Manufacturing Co. $ 29,061
2,000 * Lazare Kaplan International, Inc. 19,000
1,700 * Little Switzerland, Inc. 8,925
2,000 * Simpson Manufacturing Co., Inc. 21,500
2,800 The Topps Company, Inc. 14,350
----------
92,836
----------
CONSUMER STAPLES - 1.2%
3,000 * Fresh America Corp. 22,313
----------
ENERGY - 21.8%
2,000 * Alamco, Inc. 12,250
7,000 * American Oilfield Divers, Inc. 42,875
2,000 Berry Petroleum Company 19,000
7,000 * Cliffs Drilling Company 82,250
1,500 * Dreco Energy Services Ltd. Cl. A 11,438
8,000 * Equity Oil Company 31,000
6,800 * Nabors Industries, Inc. 44,200
5,900 * Oceaneering International, Inc. 60,475
8,000 * Pride Petroleum Services, Inc. 40,000
3,000 * Reading & Bates Corporation 18,000
5,000 * Weatherford International
Incorporated 48,750
----------
410,238
----------
FINANCIAL - 10.3%
5,600 AMRESCO Holdings, Inc. 37,800
2,500 * Gryphon Holdings Inc. 33,438
8,200 Intercargo Corporation 67,650
2,000 Nobel Insurance Limited 16,500
2,100 Raymond James Financial, Inc. 29,400
2,500 * Toreador Royalty Corporation 9,375
----------
194,163
----------
HEALTH - 4.6%
2,000 * Biomet, Inc. 28,000
10,000 * Staff Builders, Inc. 30,313
2,000 * Vallen Corporation 27,500
----------
85,813
----------
INDUSTRIAL CYCLICALS - 5.8%
5,000 * DeVlieg-Bullard, Inc. 8,750
4,000 Peerless Mfg. Co. 44,000
2,500 * Total Containment, Inc. 21,875
4,000 * Webco Industries, Inc. 35,000
----------
109,625
----------
</TABLE>
The accompanying notes are an integral part of the financial statements

<PAGE>
<TABLE>
<S> <C> <C>
RETAIL - 25.8%
3,000 * Brookstone, Inc. 19,125
3,500 * The Buckle, Inc. 37,625
4,000 * CATHERINES STORES CORPORATION 35,000
4,000 Charming Shoppes, Inc. 26,500
2,000 Claire's Stores, Inc. 24,000
5,000 * The Clothestime, Inc. 17,813
7,000 * The Dress Barn, Inc. 75,250
800 Frederick's of Hollywood, Inc. Cl. A 3,200
700 Frederick's of Hollywood, Inc. Cl. B 2,450
3,000 * Perry Drug Stores, Inc. 33,000
10,000 Pier 1 Imports, Inc. 93,750
8,247 Richardson Electronics, Ltd. 63,914
12,000 * The Wet Seal, Inc. Cl. A 52,500
----------
484,127
----------
SERVICES - 11.4%
2,000 * Air Transportation Holding Company Inc. 8,000
15,000 * Allwaste, Inc. 84,375
1,500 Dames & Moore 22,125
1,000 Hilb, Rogal & Hamilton Company 12,125
3,500 * Hornbeck Offshore Services, Inc. 43,750
2,000 * Offshore Logistics, Inc. 26,000
5,000 * RENO AIR, INC. 18,750
----------
215,125
----------
TECHNOLOGY - 9.7%
6,500 Astro-Med, Inc. 69,875
4,000 Kaman Corporation Cl. A 44,000
2,200 Landauer Inc 36,575
4,000 Newport Corporation 31,000
----------
181,450
----------
Total Common Stocks
(Cost $1,729,332) 1,795,690
----------
PREFERRED STOCK - 1.0%
6,000 United Services Advisors, Inc.
5% Non. Cum. (Cost $31,168) 19,500
----------
TOTAL INVESTMENTS - 96.6%
(Cost $1,760,500) 1,815,190
CASH AND OTHER ASSETS
LESS LIABILITIES - 3.4% 64,660
----------

NET ASSETS - 100.0% $1,879,850
==========

</TABLE>
*Non-income producing.

Income Tax Information-The cost for federal income tax purposes was $1,766,527.
At December 31, 1994, net unrealized appreciation was $48,662, consisting of
aggregate gross unrealized apprecation of $142,867 and aggregate gross
unrealized depreciation of $94,205.
The accompanying notes are an integral part of the financial statements

<PAGE>

ROYCE LOW-PRICED STOCK FUND
Statement of Assets and Liabilities at December 31, 1994
<TABLE>

<S> <C>
ASSETS:
Investments at value (identified cost $1,760,500) (Note 1) $1,815,189
Receivable for investments sold 74688
Receivable for dividends and interest 1721
Cash 34179
Prepaid expenses and other assets 6843
----------
TOTAL ASSETS 1932620
----------
LIABILITIES:
Payable for investments purchased 46199
----------
Accrued expenses 6571
----------
TOTAL LIABILITIES 52770
----------
NET ASSETS $1,879,850
----------
ANALYSIS OF NET ASSETS:
Accumulated net realized loss on investments ($967)
Unrealized appreciation on investments 54689
Shares of beneficial interest (Note 3) 370
Additional paid-in capital 1,825,758
----------
NET ASSETS $1,879,850
==========

PRICING OF SHARES:
Net asset value, offering and redemption price per share
($1,879,850 370,451 shares outstanding) (Note 3) $5.07
=====
</TABLE>

STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the period
Year Ended December 15, 1993
December 31, through
From Investment Activities: 1994 December 31, 1993
------------- -------------------
<S> <C> <C>
Net investment loss ($11,701) ($57)
Net realized gain on investments 43,493 0
Net unrealized appreciation on investments 53,595 1,094
---------- --------
Increase in net assets resulting from operations 85,387 1,037
Distributions paid from net realized gains (32,759) 0
From Capital Share Transactions:
Increase in net assets from capital share transactions (Note 3) 1,375,085 450,100
---------- --------
Increase in Net Assets 1,427,713 451,137
Net Assets:
Beginning of year 452,137 1,000
---------- --------
End of year $1,879,850 $452,137
========== ========
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
ROYCE LOW-PRICED STOCK FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994
--------------------------------------------------------------------------------

INVESTMENT INCOME:

<TABLE>
<S> <C>
Income:
Dividends $ 8,052
--------
Expenses:
Investment management fee (Note 2) 15,727
Custodian and transfer agent fees 6,950
Legal and auditing fees 6,052
Distribution fee (Note 2) 2,621
Federal and state registration fees 1,922
Organizational costs (Note 1) 1,676
Supplies and postage 1,206
Miscellaneous 1,290
Administrative and clerical services 400
Facilities and office space 130
Trustees' fees 127
Fees waived by Adviser and Distributor (Note 2) (18,348)
--------
Total Expenses 19,753
--------
Net Investment Loss (11,701)
--------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments $ 43,493
Net unrealized appreciation on investments 53,595
--------
Net realized and unrealized gain on investments 97,088
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 85,387
--------
--------
</TABLE>

The accompanying notes are an integral part of the financial statements

--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

This table is presented to show selected data for a share outstanding throughout
the period, and to assist shareholders in evaluating the Fund's performance over
the last two periods.

<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 15, 1993
YEAR ENDED THROUGH
DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- -----------------

<S> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $5.01 $5.00
------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss (0.03) 0.00
Net gain on investments (realized and unrealized) 0.18 0.01
------ ------
Total from investment operations 0.15 0.01
------ ------
LESS DISTRIBUTIONS:
Distributions (from capital gains) (0.09) 0.00
------ ------
Total distributions (0.09) 0.00
------ ------
NET ASSET VALUE, END OF YEAR $5.07 $5.01
------ ------
------ ------
TOTAL RETURN 3.0% 0.03
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Year $1,879,850 $452,137
Ratio of Expenses to Average Net Assets (a) 1.89% 0.29%*
Ratio of Net Investment Income to Average Net Assets -1.11% -0.29%*
Portfolio Turnover Rate 95% 0%
</TABLE>

* Annualized

(a) Expenses are shown after waivers by adviser and distributor. Absent such
waivers, the ratio of expenses to average net assets would have been
3.63% for the year ended December 31, 1994, and 2.04% for the period
December 15, 1993 through December 31. 1993.

<PAGE>

ROYCE LOW-PRICED STOCK FUND
NOTES TO FINANCIAL STATEMENTS
-----------------------------------------------------------------
1. Summary of Significant Accounting Policies:

Royce Low-Priced Stock Fund (the "Fund") is a series of The Royce Fund
(the "Trust"), a diversified open-end management investment company established
as a business trust under the laws of Massachusetts. The Fund commenced
operations on December 15, 1993.

a. Valuation of investments:

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

b. Investment transactions and related investment income:

Investment transactions are accounted for on the trade date and
dividend income is recorded on the ex-dividend date. Interest income is recorded
on the accrual basis. Realized gains and losses from investment transactions are
determined on the basis of identified cost for book and tax purposes.

c. Taxes:

d. Distributions:

e. Repurchase agreements.

<PAGE>

ROYCE LOW-PRICED STOCK FUND
NOTES TO FINANCIAL STATEMENTS (continued)
------------------------------------------------------------------
f. Organizational expenses:

2. Investment Adviser and Distributor:

Under its investment advisory agreement with Quest Advisory Corp.
("Quest"), advisory fees of $15,727 were voluntarily waived by Quest for the
year ended December 31, 1994. The agreement provides for fees equal to 1.50% per
annum of the Fund's average total net assets. Such fees are computed daily and
are payable monthly to Quest.

Quest Distributors, Inc. ("QDI"), the distributor of the Fund' shares,
is an affiliate of Quest. QDI voluntarily waived the Fund's distribution fee of
$2,621 for the year ended December 31, 1994. The distribution agreement provides
for maximum fees of .25% per annum of the Fund's average total net assets.

Certain administrative, clerical and facilities costs are allocated
amoung the Fund and other affiliated funds.

3. Fund Shares:

The Board of Trustees has authority to issue an unlimited number of
shares of beneficial interest of the Fund, with a par value of $.001. Share
transactions were as follows:
<TABLE>
<CAPTION>
For the period
Year Ended December 15, 1993 through
December 31, 1994 December 31, 1993
--------------------------- -------------------------
Shares Amount Shares Amount
-------- ----------- ------ ----------
<S> <C> <C> <C> <C>
Sold 374,131 $ 1,855,225 9,020 $ 450,100
Issued as reinvested dividends and distributions 6,46 32,759 -- --
Redeemed (100,361) (512,899) -- --
</TABLE>

Shares redeemed within one year are subject to a 1% redemption fee.

4. Purchases and Sales of Securities:

During the year ended December 31, 1994, the cost of purchases and the
proceeds from sales of investment securities, other than short-term securities,
amounted to $2,484,551 and $847,301, respectively.

<PAGE>

Report of Independent Accountants

To the Board of Trustees and Shareholders of Royce Low-Priced Stock Fund:

We have audited the accompanying statement of assets and liabilities of
Royce Low-Priced Stock Fund, including the schedule of investments as of
December 31, 1994, the related statement of operations for the year then ended
and the statements of changes in net assets for the year then ended and for the
period December 15, 1993 (commencement of operations) to December 31, 1993, and
financial highlights for each of the two years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.

In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Royce Low-Priced Stock Fund as of December 31, 1994, the results of
its operations for the year then ended and the changes in its net assets for the
year then ended and for the period December 15, 1993 (commencement of
operations) to December 31, 1993, and financial highlights for the year then
ended, in conformity with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Boston, Massachusetts
February 1, 1995
<PAGE>
POSTSCRIPT: CHICKEN PARTS AND CRYSTAL BALLS

Chicken magnate Frank Perdue has convinced millions of Americans through his
television commercials that they need his name on their chicken parts. As with
many things, it's the 'perception' and not the 'substance' which draws the
attention. We are sure that Frank's chicken parts are quite good, but we believe
that it's the impression he creates that makes the chicken particularly
distinctive, not the fact that it is good chicken.

We, on the other hand, avoid year-end fortune telling. Instead, we try to give
you the unvarnished truth without the packaging. Our goal is to give substance
to the stock selection process, not create illusions for our shareholders. By
not getting caught up in the market forecast game, we can spend more time on
what really matters and what we have been hired to do -- find undervalued, high
quality small companies for your portfolio.

------------------------------------------------------------------------

THE ROYCE FUNDS

<TABLE>
<S> <C>
General Information and Telephone Purchases.................................................. 1-(800) 221-4268
Shareholder Account Services................................................................. 1-(800) 841-1180
Financial Advisor Services................................................................... 1-(800) 221-4268
The Royce Funds InfoLine..................................................................... 1-(800) 78-ROYCE
</TABLE>

STATEMENT OF DIFFERENCES

The division sign shall be expressed as [div]