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As filed with the Securities and Exchange Commission on May 2, 1995.
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Registration No. 2-80348
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X /
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 32 /X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 33 /X /
(Check appropriate box or boxes)
THE ROYCE FUND
(Exact name of Registrant as specified in charter)
1414 Avenue of the Americas, New York, New York 10019
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 355-7311
Charles M. Royce, President
The Royce Fund
1414 Avenue of the Americas, New York, New York 10019
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
/X/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / on (date) pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on (date) pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Royce Fund has registered an indefinite number of securities under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. Its 24f-2 Notice for its most recent fiscal year was filed on February
28, 1995.
Total number of pages: 124
Index to Exhibits is located on page: 98
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CROSS REFERENCE SHEET
(Pursuant to Rule 481 of Regulation C)
<TABLE>
<CAPTION>
Item of Form N-1A CAPTION or Location in Prospectus
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Part A
I. Cover Page.................................. Cover Page
II. Synopsis.................................... FUND EXPENSES
III. Condensed Financial Information............. FINANCIAL HIGHLIGHTS
IV. General Description of Registrant........... INVESTMENT OBJECTIVES,
INVESTMENT POLICIES,
INVESTMENT RISKS,
INVESTMENT LIMITATIONS,
SIZE LIMITATIONS***,
GENERAL INFORMATION
V. Management of the Fund...................... MANAGEMENT OF THE TRUST,
GENERAL INFORMATION
V.A. Management's Discussion of
Fund Performance.......................... *
VI. Capital Stock and Other Securities.......... GENERAL INFORMATION,
DIVIDENDS, DISTRIBUTIONS AND
TAXES,
IMPORTANT ACCOUNT INFORMATION,
REDEEMING YOUR SHARES,
TRANSFERRING OWNERSHIP,
OTHER SERVICES
VII. Purchase of Securities Being
Offered ................................. NET ASSET VALUE PER SHARE,
OPENING AN ACCOUNT AND
PURCHASING SHARES,
EXCHANGE PRIVILEGE,
OTHER SERVICES
VIII. Redemption or Repurchase.................... REDEEMING YOUR SHARES
IX. Pending Legal Proceedings................... *
<PAGE>
Item of Form N-1A CAPTION or Location in Prospectus
Part B
X. Cover Page.................................. Cover Page
XI. Table of Contents........................... TABLE OF CONTENTS
XII. General Information and History............. *
XIII. Investment Objectives and Policies.......... INVESTMENT POLICIES AND
LIMITATIONS,
RISK FACTORS AND SPECIAL
CONSIDERATIONS
XIV. Management of the Fund...................... MANAGEMENT OF THE TRUST
XV. Control Persons and Principal
Holders of Securities..................... MANAGEMENT OF THE TRUST,
PRINCIPAL HOLDERS OF SHARES
XVI. Investment Advisory and Other
Services ................................. MANAGEMENT OF THE TRUST,
INVESTMENT ADVISORY SERVICES
XVII. Brokerage Allocation and Other
Practices................................. PORTFOLIO TRANSACTIONS
XVIII. Capital Stock and Other Securities.......... DESCRIPTION OF THE TRUST
XIX. Purchase, Redemption and Pricing
of Securities Being Offered............... PRICING OF SHARES BEING OFFERED,
REDEMPTIONS IN KIND
XX. Tax Status.................................. TAXATION
XXI. Underwriters................................ *
XXII. Calculation of Performance Data............. PERFORMANCE DATA
XXIII. Financial Statements........................ **
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* Not applicable or item omitted.
** Incorporated by reference.
*** Relates only to The REvest Growth & Income Fund, a series of the Trust.
<PAGE>
THE ROYCE FUNDS
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ROYCE VALUE FUND
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PROSPECTUS -- MAY 2, 1995
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NEW ACCOUNT AND GENERAL INFORMATION: INVESTOR INFORMATION -- 1-800-221-4268
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SHAREHOLDER SERVICES -- 1-800-841-1180 INVESTMENT ADVISOR
SERVICES -- 1-800-33-ROYCE
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INVESTMENT OBJECTIVE AND Royce Value Fund (the 'Fund') is a series of The Royce Fund (the 'Trust'), a diversified,
POLICIES open-end management investment company. Its investment objective is long-term capital
appreciation. The Fund seeks to achieve this objective primarily through investments in
common stocks and securities convertible into common stocks of small companies selected on a
value basis. There can be no assurance that the Fund will achieve its objective.
The Trust is currently offering shares of eight series. This Prospectus relates to Royce
Value Fund only.
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ABOUT THIS PROSPECTUS This Prospectus sets forth concisely the information that you should know about the Fund
before you invest. It should be retained for future reference. A 'Statement of Additional
Information' containing further information about the Fund and the Trust has been filed with
the Securities and Exchange Commission. The Statement is dated May 2, 1995 and has been
incorporated by reference into this Prospectus. A copy may be obtained without charge by
writing to the Trust or calling Investor Information.
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<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
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Fund Expenses..................................... 2
Financial Highlights.............................. 3
Fund Performance and Volatility................... 4
Investment Objective.............................. 5
Investment Policies............................... 5
Investment Risks.................................. 5
Investment Limitations............................ 6
Management of the Trust........................... 7
General Information............................... 8
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Page
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Dividends, Distributions and Taxes................ 8
Net Asset Value Per Share......................... 9
SHAREHOLDER GUIDE
Opening an Account and Purchasing Shares.......... 9
Choosing a Distribution Option.................... 12
Important Account Information..................... 12
Redeeming Your Shares............................. 13
Exchange Privilege................................ 15
Transferring Ownership............................ 15
Other Services.................................... 15
</TABLE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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FUND EXPENSES The following table illustrates all expenses and fees that you would incur as a shareholder
of the Fund.
Shareholder Transaction Expenses
Sales Load Imposed on Purchases...................................................... None
Sales Load Imposed on Reinvested Dividends........................................... None
Deferred Sales Load.................................................................. None
Redemption Fee -- 1 Year or More After Initial Purchase.............................. None
Early Redemption Fee -- Less Than 1 Year After Initial Purchase 1%
</TABLE>
<TABLE>
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Annual Fund Operating Expenses
Management Fees..................................................................... .86%
12b-1 Fees (after waiver)........................................................... .63%
Other Expenses...................................................................... .31%
Total Operating Expenses............................................................ 1.80%
The purpose of the above table is to assist you in understanding the various costs and
expenses that you would bear directly or indirectly as an investor in the Fund. 12b-1 fees
would be 1% and total operating expenses would be 2.16% without the waiver of 12b-1 fees by
Quest Distributors, Inc. ('QDI'), the Fund's distributor. See 'Management of the
Trust -- Distribution.'
The following examples illustrate the expenses that you would incur on a $1,000 investment
over various periods, assuming a 5% annual rate of return and redemption at the end of each
period.
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
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$18 $57 $97 $212
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THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR
PERFORMANCE. ACTUAL EXPENSES MAY BE HIGHER OR LOWER THAN THOSE SHOWN.
Long-term shareholders of the Fund may pay more than the economic equivalent of the maximum
front-end sales charge of 6.25% of the amount invested permitted by the Rules of Fair
Practice of the National Association of Securities Dealers, Inc.
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2
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FINANCIAL HIGHLIGHTS The following financial highlights are part of the Fund's financial statements and have been
(For a share out- audited by Coopers & Lybrand L.L.P., independent accountants. The Fund's financial statements
standing through- and Coopers & Lybrand L.L.P.'s report on them are included in the Fund's Annual Reports to
out each year) Shareholders and are incorporated by reference into the Statement of Additional Information
and this Prospectus. Further information about the Fund's performance is contained elsewhere
in this Prospectus and in the Fund's Annual Report to Shareholders for 1994, which may be
obtained without charge by calling Investor Information.
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<TABLE>
<CAPTION>
Year ended December 31,
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1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
------ ------ ------ ------ ------- ------ ------ ------ ------ ------
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NET ASSET VALUE, BEGINNING OF YEAR........ $9.73 $9.51 $8.83 $6.96 $8.48 $7.99 $6.81 $8.33 $8.70 $6.97
------ ------ ------ ------ ------- ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a).............. 0.07 0.05 0.04 0.09 0.14 0.17 0.11 0.09 0.05 0.04
Net gains (losses) on securities (both
realized and unrealized)............ (0.23) 0.97 1.37 2.05 (1.29) 1.10 1.49 (.02) .50 1.86
------ ------ ------ ------ ------- ------ ------ ------ ------ ------
Total from Investment
Operations...................... (0.16) 1.02 1.41 2.14 (1.15) 1.27 1.60 .07 .55 1.90
------ ------ ------ ------ ------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends (from net investment
income)............................. (0.05) (0.05) (0.04) (0.09) (0.15) (0.18) (0.12) (0.17) (0.04) (0.00)
Distributions (from capital gains).... (0.41) (0.75) (0.69) (0.18) (0.22) (0.60) (0.30) (1.42) (0.88) (0.17)
------ ------ ------ ------ ------- ------ ------ ------ ------ ------
Total Distributions............... (0.46) (0.80) (0.73) (0.27) (0.37) (0.78) (0.42) (1.59) (0.92) (0.17)
------ ------ ------ ------ ------- ------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR.............. $9.11 $9.73 $9.51 $8.83 $6.96 $8.48 $7.99 $6.81 $8.33 $8.70
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TOTAL RETURN.............................. -1.6 % 10.7 % 16.0 % 30.8 % -13.6% 15.9 % 23.6 % 0.6 % 6.5 % 27.6 %
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RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(millions).......................... $ 167 $ 186 $ 178 $ 167 $ 148 $ 193 $ 169 $ 140 $ 147 $ 116
Ratio of Expenses to Average Net
Assets(b)........................... 1.80 % 1.84 % 1.88 % 1.69 % 1.88% 1.87 % 1.88 % 1.88 % 1.98 % 2.13 %
Ratio of Net Investment Income to
Average Net Assets.................. 0.67 % 0.43 % 0.42 % 1.00 % 1.77% 1.84 % 1.36 % 0.97 % .67 % 0.76 %
Portfolio Turnover Rate............... 22 % 31 % 28 % 25 % 18% 31 % 22 % 41 % 28 % 22 %
</TABLE>
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(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.
3
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FUND From time to time, the Fund may include in communications to current or prospective
PERFORMANCE shareholders figures reflecting total return over various time periods. 'Total return' is the
AND VOLATILITY rate of return on an amount invested in the Fund from the beginning to the end of the stated
Total return is the period. 'Average annual total return' is the annual compounded percentage change in the value
change in value over a of an amount invested in the Fund from the beginning until the end of the stated period.
given time period, Total returns are historical measures of past performance and are not intended to indicate
assuming reinvestment of future performance. Total returns assume the reinvestment of all dividends and capital gains
dividends and capital distributions. The figures do not reflect the Fund's early redemption fee because it applies
gains distributions only to redemptions in accounts open for less than one year.
The S&P 500 is a widely recognized, unmanaged index of large company stocks. The S&P 500
figures below, which are presented for comparison to the Fund's performance, also assume the
reinvestment of all dividends paid by the stocks in the index.
The Fund's average annual total returns (%) for the periods ended December 31, were:
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
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-1.6 10.7 16.0 30.8 -13.6
RVF Annual total return..................................
1.3 10.0 7.7 30.5 -3.2
S&P 500 annual total return..............................
7.4 -- -- -- --
RVF 5 year average annual total return...................
10.8 -- -- -- --
RVF 10 year average annual total return..................
</TABLE>
<TABLE>
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'Risk' defined as the The relative risk of investing in a particular fund should be considered in addition to the
volatility of a fund's total returns of the fund. Risk, in terms of how volatile an investor's returns have been,
total returns over time can be measured in a number of ways, including standard deviation and beta.
Standard deviation measures the range of performance within which a fund's total returns
have fallen. The lower the standard deviation of the fund, the less volatile and more
consistent the fund's monthly total returns have been over that period. When the standard
deviation of a fund is lower than the standard deviation of an index such as the S&P 500,
the fund has been less volatile than the index.
Beta measures a fund's sensitivity to market movements. The beta for the index chosen to
represent the market (the S&P 500) is 1.00. If the fund has a beta greater than 1.00, it
has been more volatile than the index; if its beta is less than 1.00, it has been less
volatile than the index.
These measures of risk, which are historical in nature and not necessarily predictive of
future volatility, are more fully described in the Statement of Additional Information. For
the three year period ended December 31, 1994, standard deviation and beta for the Fund and
S&P 500 (Source: Morningstar, Inc.) were:
</TABLE>
<TABLE>
<CAPTION>
STANDARD
DEVIATION BETA
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<S> <C> <C>
S&P 500................................... 7.94 1.00
Royce Value Fund.......................... 6.34 .54
</TABLE>
4
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<TABLE>
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The investment risks associated with the types of securities in which the Fund may invest are
described below -- see 'Investment Risks'
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INVESTMENT OBJECTIVE ROYCE VALUE FUND'S investment objective is long-term capital appreciation, primarily through
investments in securities of small companies. Production of income is incidental to this
objective. Since certain risks are inherent in owning any security, there can be no assurance
that the Fund will achieve its objective.
This investment objective of long-term capital appreciation is fundamental and may not be
changed without the approval of a majority of the Fund's outstanding voting shares.
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INVESTMENT POLICIES Quest Advisory Corp. ('Quest'), the Fund's investment adviser, uses a 'value' method in
managing the Fund's assets. In its selection process, Quest puts primary emphasis on various
The Fund invests on a internal returns indicative of profitability, balance sheet quality, cash flows and the
'value' basis relationships that these factors have to the current price of a given security. This is in
contrast to other methods that primarily focus on the future prospects of a company and
concentrate on high growth or emerging growth companies.
The Fund invests Quest's value method is based on its belief that the securities of certain small companies
primarily in small may sell at a discount from its estimate of such companies' 'business worth'. Quest attempts
companies to identify and invest in these securities for the Fund, with the expectation that this
'value discount' will narrow over time and thus provide capital appreciation for the Fund.
Normally, the Fund will invest at least 65% of its assets in common stocks, convertible
preferred stocks and convertible bonds of small companies with stock market capitalizations
under $750,000,000 at the time of investment. The remainder of its assets may be invested in
securities of companies with higher stock market capitalizations and non-convertible
preferred stocks and debt securities. The securities in which the Fund invests may be traded
on securities exchanges or in the over-the-counter market.
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INVESTMENT RISKS As a mutual fund investing primarily in common stocks and/or securities convertible into
common stocks, the Fund is subject to market risk, that is, the possibility that common stock
The Fund is subject to prices will decline over short or even extended periods. The Fund may invest in securities of
certain investment risks companies that are not well-known to the investing public, may not have significant
institutional ownership and may have cyclical, static or only moderate growth prospects. The
stocks of such companies may be more volatile in price and have lower trading volumes than
the larger capitalization stocks included in the S&P 500 Index. Accordingly, Quest's
investment method requires a long-term investment horizon. The Fund should not be used to
play short-term swings in the market.
</TABLE>
5
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<TABLE>
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INVESTMENT LIMITATIONS The Fund has adopted certain fundamental limitations, designed to reduce its exposure to
specific situations, which may not be changed without the approval of a majority of its
The Fund has outstanding voting shares, as that term is defined in the Investment Company Act of 1940 (the
adopted certain '1940 Act'). These limitations are set forth in the Statement of Additional Information and
fundamental provide, among other things, that the Fund will not:
limitations
(a) invest more than 5% of its assets in the securities of any one issuer, excluding
obligations of the U.S. Government;
(b) invest more than 25% of its assets in any one industry; or
(c) invest in companies for the purpose of exercising control of management.
OTHER INVESTMENT In addition to investing primarily in the equity and fixed income securities described above,
PRACTICES: the Fund may follow a number of additional investment practices.
Short-term fixed income The Fund may invest in short-term fixed income securities for temporary defensive purposes,
securities to invest uncommitted cash balances or to maintain liquidity to meet shareholder redemptions.
These securities consist of United States Treasury bills, domestic bank certificates of
deposit, high-quality commercial paper and repurchase agreements collateralized by U.S.
Government securities. In a repurchase agreement, a bank sells a security to the Fund at one
price and agrees to repurchase it at the Fund's cost plus interest within a specified period
of seven or fewer days. In these transactions, which are, in effect, secured loans by the
Fund, the securities purchased by the Fund will have a value equal to or in excess of the
value of the repurchase agreement and will be held by the Fund's custodian bank until
repurchased. Should the Fund implement a temporary investment policy, its investment
objective may not be achieved.
Foreign securities The Fund may invest up to 10% of its assets in debt and/or equity securities of foreign
issuers. Foreign investments involve certain risks, such as political or economic instability
of the issuer or of the country of issue, fluctuating exchange rates and the possibility of
imposition of exchange controls. These securities may also be subject to greater fluctuations
in price than the securities of U.S. corporations, and there may be less publicly available
information about their operations. Foreign companies may not be subject to accounting
standards or governmental supervision comparable to U.S. companies, and foreign markets may
be less liquid or more volatile than U.S. markets and may offer less protection to investors
such as the Fund.
Lower-rated debt The Fund may invest up to 35% of its assets in debt securities in the lowest category of
securities investment grade debt. These bonds may have speculative characteristics, and changes in
economic conditions or other circumstances are more likely to lead to a weakened capacity to
make principal and interest payments than is the case with higher grade bonds. The Fund may
also invest no more than 5% of its net assets in lower-rated (high-risk) non-convertible debt
securities, which are below investment grade.
</TABLE>
6
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<TABLE>
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Portfolio turnover Although the Fund generally seeks to invest for the long term, it retains the right to sell
securities regardless of how long they have been held. The Fund's annual portfolio turnover
rates are shown in the 'Financial Highlights'. Portfolio turnover rates for the Fund have
averaged 27% over the past 10 years. A 25% turnover rate occurs, for example, if one-fourth
of the Fund's portfolio securities are replaced in one year.
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MANAGEMENT OF THE TRUST The Trust's business and affairs are managed under the direction of its Board of Trustees.
Quest, the Fund's investment adviser, is responsible for the management of the Fund's
Quest Advisory Corp. is portfolio, subject to the authority of the Board of Trustees. Quest was organized in 1967 and
responsible for the has been the Fund's adviser since its inception. Charles M. Royce, Quest's President, Chief
management of the Fund's Investment Officer and sole voting shareholder since 1972, is primarily responsible for
portfolio supervising Quest's investment management activities. Mr. Royce is assisted by Thomas R.
Ebright, Jack E. Fockler, Jr. and W. Whitney George, Vice Presidents of Quest, all of whom
participate in the investment management activities, with their specific responsibilities
varying from time to time. Quest is also the investment adviser to Pennsylvania Mutual Fund,
to Royce Equity Income, Royce Premier, Royce Micro-Cap, Royce Low-Priced Stock, Royce Total
Return and Royce Global Services Funds, which are other series of the Trust, and to other
investment and non-investment company accounts.
As compensation for its services to the Fund, Quest is entitled to receive annual advisory
fees of 1% of the first $50 million of the Fund's average net assets; .875% of the next $50
million of average net assets; and .75% of average net assets in excess of $100 million.
These fees are payable monthly from the assets of the Fund and are higher than those paid by
other funds with similar investment objectives. For 1994, the fees paid to Quest by the Fund
were .86% of its average net assets.
Brokerage Allocation Quest selects the brokers who execute purchases and sales of the Fund's portfolio securities
and may place orders with brokers who provide brokerage and research services to Quest. Quest
is authorized, in recognition of the value of brokerage and research services provided, to
pay commissions to a broker in excess of the amount which another broker might have charged
for the same transaction.
Distribution Quest Distributors, Inc. ('QDI'), which is wholly-owned by Charles M. Royce, acts as
distributor of the Fund's shares. Shares of the Fund are available through certain broker-
dealers having agreements with QDI and, from time to time and in management's sole
discretion, directly from the Fund. The Trust has adopted a distribution plan for the Fund
pursuant to Rule 12b-1. The plan provides for payment to QDI of fees not to exceed 1% per
annum of the Fund's average net assets, which may be used for payment of sales commissions
and other fees to those who introduce investors to the Fund and various other promotional,
sales-related and servicing costs and expenses. The fees payable by the Fund to QDI have been
allocated between asset-based sales charges and personal service and/or account maintenance
fees, so that not more than .25% per annum is payable as a personal service and/or account
maintenance fee and not more than .75% per annum is payable as an asset-based sales charge.
For 1994, the fees paid to QDI by the Fund were .63% of its average net assets. The fees
payable by the Fund are higher than the fees paid by most other mutual funds which use their
own assets to promote the sale of their shares.
</TABLE>
7
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<TABLE>
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GENERAL INFORMATION The Royce Fund (the 'Trust') is a Massachusetts business trust registered with the Securities
and Exchange Commission as a diversified, open-end management investment company. The
Trustees have the authority to issue an unlimited number of shares of beneficial interest,
without shareholder approval, and these shares may be divided into an unlimited number of
series. Shareholders are entitled to one vote per share. Shares vote by individual series on
all matters, except that shares are voted in the aggregate and not by individual series when
required by the 1940 Act and that if the Trustees determine that a matter affects only one
series, then only shareholders of that series are entitled to vote on that matter.
Meetings of shareholders will not be held except as required by the 1940 Act or other
applicable law. A meeting will be held to vote on the removal of a Trustee or Trustees of the
Trust if requested in writing by the holders of not less than 10% of the outstanding shares
of the Trust.
The custodian for securities and cash of the Fund is State Street Bank and Trust Company.
State Street, through its agent National Financial Data Services ('NFDS'), also serves as the
Fund's Transfer Agent. Coopers & Lybrand L.L.P. serves as independent accountants for the
Fund.
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DIVIDENDS, DISTRIBUTIONS The Fund pays dividends from net investment income and distributes its net realized capital
AND TAXES gains annually in December. Dividends and distributions will be automatically reinvested in
additional shares of the Fund unless the shareholder chooses otherwise.
Dividends and capital Shareholders will receive information annually as to the tax status of distributions made by
gains distributions are the Fund for the calendar year. For Federal income tax purposes, all distributions by the
made in December Fund are taxable to shareholders when declared, whether received in cash or reinvested in
shares. Distributions paid from the Fund's net investment income and short-term capital gains
are taxable to shareholders as ordinary income dividends. A portion of the Fund's dividends
may qualify for the corporate dividends-received deduction, subject to certain limitations.
The portion of the Fund's dividends qualifying for such deduction is generally limited to the
aggregate taxable dividends received by the Fund from domestic corporations.
Distributions paid from long-term capital gains of the Fund are treated by a shareholder for
Federal income tax purposes as long-term capital gains, regardless of how long the
shareholder has held Fund shares. If a shareholder disposes of shares held for six months or
less at a loss, such loss will be treated as a long-term capital loss to the extent of any
long-term capital gains reported by the shareholder with respect to such shares.
The redemption of shares is a taxable event, and a shareholder may realize a capital gain or
capital loss. The Fund will report to redeeming shareholders the proceeds of their
redemptions. However, because the tax consequences of a redemption will also depend on the
shareholder's basis in the redeemed shares for tax purposes, shareholders should retain their
account statements for use in determining their tax liability on a redemption.
</TABLE>
8
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At the time of a shareholder's purchase, the Fund's net asset value may reflect undistributed
income or capital gains. A subsequent distribution of these amounts by the Fund will be
taxable to the shareholder even though the distribution economically is a return of part of
the shareholder's investment.
The Fund is required to withhold 31% of taxable dividends, capital gain distributions and
redemptions paid to non-corporate shareholders who have not complied with Internal Revenue
Service taxpayer identification regulations. Shareholders may avoid this withholding
requirement by certifying on the Account Application Form their proper Social Security or
Taxpayer Identification Number and certifying that they are not subject to backup
withholding.
The discussion of Federal income taxes above is for general information only. The Statement
of Additional Information includes an additional description of Federal income tax aspects
that may be relevant to a shareholder. Shareholders may also be subject to state and local
taxes on their investment. Investors should consult their own tax advisers concerning the tax
consequences of an investment in the Fund.
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NET ASSET VALUE PER Fund shares are purchased and redeemed at their net asset value per share next determined
SHARE after an order is received by the Fund's transfer agent. Net asset value per share is
determined by dividing the total value of the Fund's investments and other assets, less any
Net asset value per liabilities, by the number of outstanding shares of the Fund. Net asset value per share is
share (NAV) is calculated at the close of regular trading on the New York Stock Exchange on each day the
determined each day the Exchange is open for business.
New York Stock Exchange
is open In determining net asset value, securities listed on an exchange or the Nasdaq National
Market System are valued on the basis of the last reported sale price prior to the time the
valuation is made or, if no sale is reported for that day, at their bid price for exchange-
listed securities and at the average of their bid and ask prices for Nasdaq securities.
Quotations 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.
- -----------------------------------------------------------------------------------------------------------------------
SHAREHOLDER GUIDE
OPENING AN ACCOUNT AND New accounts (other than IRA or 403(b)(7) accounts) can be opened either by mail, by
PURCHASING SHARES telephone, by wire or through broker-dealers. An Account Application must be completed and
returned, regardless of the method selected. If you need assistance with the Account
Application or have any questions about the Fund, please call Investor Information. NOTE: For
certain types of account registrations (e.g., corporations, partnerships, foundations,
associations, other organizations, trusts or powers of attorney), please call Investor
Information to determine if you need to provide additional forms with your application.
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Minimum Initial TYPE OF ACCOUNT MINIMUM
Investments --------------------------------------------------------------------------- -------
Regular accounts $2,000
IRAs* $ 500
Accounts established with Automatic Investment Plan or Direct Deposit Plan $ 500
403(b)(7) accounts* None
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Additional Investments Subsequent investments may be made by mail ($50 minimum), telephone ($500 minimum), wire or
Express Service (a system of electronic funds transfer from your bank account).
</TABLE>
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--------------------------------------------------------------------------------------------
PURCHASING BY MAIL ADDITIONAL INVESTMENTS
NEW ACCOUNT TO EXISTING ACCOUNTS
Complete and sign the Please include the amount of your initial Additional investments should include the
enclosed Account investment on the Application Form, make your Invest-by-Mail remittance form attached to
Application Form check payable to Royce Value Fund, and mail your Fund account confirmation statements.
to: Please make your check payable to Royce Value
The Royce Funds Fund, write your account number on your check
c/o NFDS and, using the return envelope provided, mail
P.O. Box 419012 to the address indicated on the
Kansas City, MO 64141-6012 Invest-by-Mail form.
For express or The Royce Funds All written requests should be mailed to one
registered mail, c/o National Financial Data Services of the addresses indicated for new accounts.
send to: 1004 Baltimore, 5th Floor
Kansas City, MO 64105
--------------------------------------------------------------------------------------------
PURCHASING BY TELEPHONE To open an account by telephone, you should Subsequent telephone purchases ($500 minimum)
call Investor Information (1-800-221-4268) may also be made by calling Investor
before 4:00 p.m., Eastern time. You will be Information. For all telephone purchases,
given a confirming order number for your payment is due within three business days and
purchase. This number must be placed on your may be made by wire or personal, business or
completed Application before mailing. If an bank check, subject to collection.
Application is not received on an account
opened by telephone, the account may be
subject to backup withholding of Federal
income taxes.
</TABLE>
- ------------
* Separate forms must be used for opening IRAs or
403(b)(7) accounts; please call Investor
Information at 1-800-221-4268 if you need these
forms.
10
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PURCHASING BY WIRE
BEFORE WIRING:
For a new account,
please contact
Investor Services at
1-800-221-4268
Money should be wired to:
State Street Bank and Trust Company
ABA 011000028 DDA 9904-712-8
Ref: Royce Value Fund
Order Number or Account Number
Account Name
To ensure proper receipt, please be sure your bank includes the name of the Fund and your
order number (for telephone purchases) or account number. If you are opening a new account,
you must call Investor Information to obtain an order number, and complete the Account
Application Form and mail it to the 'New Account' address above after completing your wire
arrangement. Note: Federal Funds wire purchase orders will be accepted only when the Fund and
Custodian are open for business.
---------------------------------------------------------------------------------------------
PURCHASING BY You can purchase shares automatically or at your discretion through the following options:
EXPRESS SERVICE
EXPEDITED PURCHASE OPTION permits you, at your discretion, to transfer funds ($100 minimum
and $200,000 maximum) from your bank account to purchase shares in your Royce Fund account by
telephone.
AUTOMATIC INVESTMENT PLAN allows you to make regular, automatic transfers ($50 minimum) from
your bank account to purchase shares in your Royce Fund account on the monthly or quarterly
schedule you select.
To establish the Expedited Purchase Option and/or Automatic Investment Plan, please provide
the appropriate information on the Account Application Form and ATTACH A VOIDED CHECK. We
will send you a confirmation of Express Service activation. Please wait three weeks before
using the service.
To make an Expedited Purchase, please call Shareholder Services at 1-800-841-1180 before 4:00
p.m., Eastern time.
PAYROLL DIRECT DEPOSIT PLAN AND GOVERNMENT DIRECT DEPOSIT PLAN let you have investments ($50
minimum) made from your net payroll or government check into your existing Royce Fund account
each pay period. Your employer must have direct deposit capabilities through ACH available to
its employees. You may terminate participation in these programs by giving written notice to
your employer or government agency, as appropriate. The Fund is not responsible for the
efficiency of the employer or government agency making the payment or any financial
institution transmitting payments.
To initiate a Direct Deposit Plan, you must complete an Authorization for Direct Deposit
form, which may be obtained from Investor Information by calling 1-800-221-4268.
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11
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PURCHASING THROUGH A If you purchase shares of the Fund through a program of services offered or administered by a
BROKER broker-dealer, financial institution or other service provider, you should read the program
materials provided by the service provider, including information regarding fees which may be
charged, in conjunction with this prospectus. Certain shareholder servicing features of a
Fund may not be available or may be modified in connection with the program of services
offered. When shares of a Fund are purchased in this way, the service provider, rather than
the customer, may be the shareholder of record of the shares. Certain service providers may
receive compensation from the Fund and/or Quest for providing such services. Applications
submitted by broker-dealers should be mailed to the Fund's office at 1414 Avenue of the
Americas, New York, NY 10019.
- -----------------------------------------------------------------------------------------------------------------------
CHOOSING A DISTRIBUTION You may select one of three distribution options:
OPTION 1. Automatic Reinvestment Option -- Both dividends and capital gain distributions will be
reinvested in additional Fund shares. This option will be selected for you automatically
unless you specify one of the other options.
2. Cash Dividend Option -- Your dividends will be paid in cash and your capital gain
distributions will be reinvested in additional Fund shares.
3. All Cash Option -- Both dividends and capital gain distributions will be paid in cash.
You may change your option by calling Shareholder Services at 1-800-841-1180.
- -----------------------------------------------------------------------------------------------------------------------
IMPORTANT ACCOUNT The easiest way to establish optional services on your account is to select the options you
INFORMATION desire when you complete your Account Application Form. If you want to add or change
shareholder options later, you may need to provide additional information and a signature
guarantee. Please call Shareholder Services at 1-800-841-1180 for further assistance.
Signature Guarantees For our mutual protection, we may require a signature guarantee on certain written
transaction requests. A signature guarantee verifies the authenticity of your signature and
may be obtained from banks, brokerage firms and any other guarantor that our transfer agent
deems acceptable. A signature guarantee cannot be provided by a notary public.
Certificates Certificates for whole shares will be issued upon request. If a certificate is lost, stolen
or destroyed, you may incur an expense to replace it.
Telephone Transactions Neither the Fund nor its transfer agent will be liable for following instructions
communicated by telephone that are reasonably believed to be genuine. The transfer agent uses
certain procedures designed to confirm that telephone instructions are genuine, which may
include requiring some form of personal identification prior to acting on the instructions,
providing written confirmation of the transaction and/or recording incoming calls, and if it
does not follow such procedures, the Fund or the Transfer Agent may be liable for any losses
due to unauthorized or fraudulent transactions.
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12
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Nonpayment If your check or wire does not clear, or if payment is not received for any telephone
purchase, the transaction will be cancelled and you will be responsible for any loss the Fund
incurs. If you are already a shareholder, the Fund can redeem shares from any identically
registered account in the Trust as reimbursement for any loss incurred.
Trade date for purchases Your TRADE DATE is the date on which your account is credited. If your purchase is made by
telephone, check, Federal Funds wire or exchange and is received by the close of regular
trading on the New York Stock Exchange (generally 4:00 p.m., Eastern time), your trade date
is the date of receipt. If your purchase is received after the close of regular trading on
the Exchange, your trade date is the next business day. Your shares are purchased at the net
asset value determined on your trade date.
In order to prevent lengthy processing delays caused by the clearing of foreign checks, the
Fund will accept only a foreign check which has been drawn in U.S. dollars and has been
issued by a foreign bank with a United States correspondent bank.
The Trust reserves the right to suspend the offering of Fund shares to new investors. The
Trust also reserves the right to reject any specific purchase request.
- -----------------------------------------------------------------------------------------------------------------------
REDEEMING YOUR SHARES You may redeem any portion of your account at any time. You may request a redemption in
writing or by telephone. Redemption proceeds normally will be sent within two business days
after the receipt of the request in Good Order.
REDEEMING BY MAIL Redemption requests should be mailed to The Royce Funds, c/o NFDS, P.O. Box 419012, Kansas
City, MO 64141-6012. (For express or registered mail, send your request to The Royce Funds,
c/o National Financial Data Services, 1004 Baltimore, 5th Floor, Kansas City, MO 64105.)
The redemption price of shares will be their net asset value next determined after NFDS has
received all required documents in Good Order.
Definition of Good Order GOOD ORDER means that the request includes the following:
1. The account number and Fund name.
2. The amount of the transaction (specified in dollars or shares).
3. Signatures of all owners exactly as they are registered on the account.
4. Signature guarantees if the value of the shares being redeemed exceeds $50,000 or if the
payment is to be sent to an address other than the address of record or is to be made to a
payee other than the shareholder.
5. Certificates, if any are held.
6. Other supporting legal documentation that might be required, in the case of retirement
plans, corporations, trusts, estates and certain other accounts.
If you have any questions about what is required as it pertains to your request, please call
Shareholder Services at 1-800-841-1180.
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13
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---------------------------------------------------------------------------------------------
REDEEMING BY TELEPHONE Shareholders who have not established Express Service may redeem up to $50,000 of their Fund
shares by telephone, provided the proceeds are mailed to their address of record. If
preapproved, higher maximums may apply for institutional accounts. To redeem shares by
telephone, you or your pre-authorized representative may call
Shareholder Services at 1-800-841-1180. Redemption requests received by telephone prior to
the close of regular trading on the New York Stock Exchange (generally 4:00 p.m., Eastern
time) are processed on the day of receipt; redemption requests received by telephone after
the close of regular trading on the Exchange are processed on the business day following
receipt.
Telephone redemption service is not available for Trust-sponsored retirement plan accounts or
if certificates are held. TELEPHONE REDEMPTIONS WILL NOT BE PERMITTED FOR A PERIOD OF SIXTY
DAYS AFTER A CHANGE IN THE ADDRESS OF RECORD. See also 'Important Account
Information -- Telephone Transactions'.
---------------------------------------------------------------------------------------------
REDEEMING BY EXPRESS If you select the Express Service AUTOMATIC WITHDRAWAL option, shares will be automatically
SERVICE redeemed from your Fund account and the proceeds transferred to your bank account according
to the schedule you have selected. You must have at least $25,000 in your Fund account to
establish the Automatic Withdrawal option.
The EXPEDITED REDEMPTION option lets you redeem up to $50,000 of shares from your Fund
account by telephone and transfer the proceeds directly to your bank account. You may elect
Express Service on the Account Application Form or call Shareholder Services at
1-800-841-1180 for an Express Service application.
---------------------------------------------------------------------------------------------
EARLY REDEMPTION In order to discourage short-term trading, an early redemption fee of 1% of the net asset
FEE value of the shares being redeemed is imposed if a shareholder redeems shares of the Fund
less than one year after becoming a shareholder. The fee is payable to the Fund out of the
redemption proceeds otherwise payable to the shareholder. No redemption fee will be payable
on an exchange into another Royce fund or by shareholders who are: (a) employees or
representatives of the Fund, Quest, QDI or broker-dealers having agreements with QDI, or
members of their immediate families or employee benefit plans for such individuals or
entities; (b) participants in the Automatic Withdrawal Plan; (c) certain Trust-approved Group
Investment Plans and charitable organizations; (d) profit-sharing trusts, corporations or
other institutional investors who are investment advisory clients of Quest; (e) clients of
other registered investment advisers who are also broker-dealers having agreements with QDI
or affiliates of such broker-dealers; or (f) omnibus and other similar account customers of
certain Trust-approved broker-dealers and other institutions.
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14
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---------------------------------------------------------------------------------------------
IMPORTANT REDEMPTION If you are redeeming shares recently purchased by check, Express Service Expedited Purchase
INFORMATION or Automatic Investment Plan, the proceeds of the redemption may not be sent until payment
for the purchase is collected, which may take up to fifteen calendar days. Otherwise,
redemption proceeds must be sent to you within seven days of receipt of your request in Good
Order.
If you experience difficulty in making a telephone redemption during periods of drastic
economic or market changes, your redemption request may be made by regular or express mail.
It will be processed at the net asset value next determined after your request has been
received by the Transfer Agent in Good Order. The Trust reserves the right to revise or
terminate the telephone redemption privilege at any time.
The Trust may suspend the redemption right or postpone payment at times when the New York
Stock Exchange is closed or under any emergency circumstances as determined by the Securities
and Exchange Commission.
Although redemptions have always been made in cash, the Fund may redeem in kind under certain
circumstances.
---------------------------------------------------------------------------------------------
MINIMUM ACCOUNT BALANCE Due to the relatively high cost of maintaining smaller accounts, the Trust reserves the right
REQUIREMENT to involuntarily redeem shares in any Fund account that falls below the minimum initial
investment due to redemptions by the shareholder. If at any time the balance in an account
does not have a value at least equal to the minimum initial investment, or if an Automatic
Investment Plan is discontinued before an account reaches the minimum investment that would
otherwise be required, you may be notified that the value of your account is below the Fund's
minimum account balance requirement. You would then have sixty days to increase your account
balance before the account is liquidated. Proceeds would be promptly paid to the shareholder.
- -----------------------------------------------------------------------------------------------------------------------
EXCHANGE PRIVILEGE Exchanges between series of the Trust and with other open-end Royce funds are permitted by
telephone or by mail. An exchange is treated as a redemption and purchase; therefore, you
could realize a taxable gain or loss on the transaction. Exchanges are accepted only if the
registrations and the tax identification numbers of the two accounts are identical. Minimum
investment requirements must be met when opening a new account by exchange and exchanges may
be made only for shares of a series or fund then offering its shares for sale in your state
of residence. The Trust reserves the right to revise or terminate the exchange privilege at
any time.
- -----------------------------------------------------------------------------------------------------------------------
TRANSFERRING OWNERSHIP You may transfer the ownership of any of your Fund shares to another person by writing to:
The Royce Funds, c/o NFDS, P.O. Box 419012, Kansas City, MO 64141-6012. The request must be
in Good Order (see 'Redeeming Your Shares -- Definition of Good Order'). Before mailing your
request, please contact Shareholder Services (1-800-841-1180) for full instructions.
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15
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- -----------------------------------------------------------------------------------------------------------------------
OTHER SERVICES For more information about any of these services, please call Investor Information at
1-800-221-4268.
Statements and Reports A confirmation statement will be sent to you each time you have a transaction in your account
and semi-annually. Financial reports will be mailed semi-annually. To reduce expenses, only
one copy of most shareholder reports may be mailed to a household. Please call Investor
Information if you need additional copies.
Tax-sheltered Retirement Shares of the Fund are available for purchase in connection with certain types of tax-
Plans sheltered retirement plans, including Individual Retirement Accounts (IRA's) for individuals
and 403(b)(7) Plans for employees of certain tax-exempt organizations.
These plans should be established with the Fund only after an investor has consulted with a
tax adviser or attorney. Information about the plans and the appropriate forms may be
obtained from Investor Information at 1-800-221-4268.
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16
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- ----------------------------------------------------------------------------------------------------------------------------------
THE ROYCE FUNDS--ROYCE VALUE FUND
ACCOUNT APPLICATION FORM
- ---------------------------------------------
Mail to: The Royce Funds c/o NFDS For help with this application, PLEASE READ THE INSTRUCTIONS ON THE REVERSE
PO Box 419012, or for more information, SIDE BEFORE YOU COMPLETE THIS FORM.
Kansas City, MO 64141-6012 call us at (800) 221-4268 PLEASE DO NOT USE THIS APPLICATION TO OPEN A
ROYCE FUND SPONSORED IRA OR
403(b)(7) RETIREMENT PLAN ACCOUNT.
- ---------------------------------------------
PLEASE PRINT, PREFERABLY WITH BLACK INK
</TABLE>
- ---------------------------------------------------------------
1 ACCOUNT REGISTRATION (Check one box)
[ ] INDIVIDUAL OR JOINT ACCOUNT
- ---------------------------------------------
Owner's Name: First, Initial, Last
- ---------------------------------------------
Owner's Social Security Number
- ---------------------------------------------
Joint Owner's Name: First, Initial, Last
JOINT ACCOUNTS WILL BE REGISTERED AS JOINT TENANTS WITH
RIGHT OF SURVIVORSHIP UNLESS OTHERWISE INDICATED.
[ ] GIFT OR TRANSFER TO MINOR
- ---------------------------------------------
Custodian's Name (One name only: First, Initial, Last)
- ---------------------------------------------
Name (One name only: First, Initial, Last)
- -----------------------------
Minor's Social Security Number
under the ___________________________Uniform Gift/Transfer to Minors Act
(State of Minor's Residence)
[ ] TRUST (Including Corporate Retirement Plans)
- ---------------------------------------------
Trustee Name(s)
- ---------------------------------------------
Name of Trust or Retirement Plan
- ---------------------------------------------
Date of Trust Agreement
- ---------------------------------------------
For Benefit Of (Name, if applicable)
- ---------------------------------------------
Social Security Number or Taxpayer ID Number
[ ] OTHER ENTITIES
Type: [ ] Corporation [ ] Partnership [ ] Nominee
[ ] Foundation [ ] Charitable Organization
[ ] Other ()
- ---------------------------------------------
Name of Entity
- ------------------ [ ] Tax-Exempt Entity Under
Taxpayer ID Number IRS Sec. 501(c)3)
- ---------------------------------------------------------------
2 MAILING ADDRESS
- ---------------------------------------------
Street or PO Box Number
- ---------------------------------------------
City State Zip
- -------------------- -------------------------
Daytime Phone Evening Phone
- ---------------------------------------------------------------
3 ADVISER/DEALER INFORMATION
(must be completed to receive copies of account statements)
- ---------------------------------------------
- ---------------------------------------------
Representative Name Rep. Number
- ---------------------------------------------
Firm Phone
- ---------------------------------------------
Address State Zip
---------------------------------------------------------------
4 INITIAL INVESTMENT
(see instructions below for initial investment minimums)
---------------------------------------------
$______________
- ---------------------------------------------------------------
5 METHOD OF PAYMENT
Payment of:
[ ] Initial Investment (check enclosed)
[ ] Telephone Order, previously submitted on
(Date) ___________________________________
Telephone order number ______________________
- ---------------------------------------------------------------
6 DIVIDEND AND CAPITAL GAIN PAYMENT
OPTIONS (check one box)
If no box is checked, all income dividends and capital gain distributions will
be reinvested.
[ ] Reinvest both dividends and capital gain distributions
[ ] Pay dividends in cash, reinvest capital gain distributions
[ ] Pay dividends and capital gain distributions in cash
- ---------------------------------------------------------------
7 EXPRESS SERVICE
To arrange for Express Service, please provide the information below. Passbook
savings accounts are not eligible.
A VOIDED CHECK MUST BE ATTACHED
Please indicate the type of Express Service you wish to establish:
[ ] AUTOMATIC INVESTMENT PLAN: On the ____ day each [ ] month [ ] quarter,
transfer $___________ from my bank account to purchase shares in my Royce
Fund account ($50 minimum). I wish to begin my plan in __________ (select
month).
[ ] AUTOMATIC WITHDRAWAL PLAN: On the ____ day each month, redeem and transfer
$___________ from my Royce Fund account to my bank account ($100 minimum).
[ ] EXPEDITED PURCHASES AND REDEMPTIONS: To purchase or redeem shares at any
time, using a bank account to clear the transaction ($100 minimum).
[ ] WIRE REDEMPTIONS: To have redemption proceeds wired to my commercial bank
($1,000 minimum).
(APPLICATION MUST BE SIGNED ON REVERSE SIDE)
<PAGE>
<PAGE>
- ---------------------------------------------------------------
8 SIGNATURE (Please be sure to sign below)
I am (we are) of legal age, have full capacity to make this investment, have
read the Prospectus for the Fund and agree to its terms. Neither the Fund nor
its transfer agent will be liable for any loss or expense for acting upon
written or telephone instructions reasonably believed to be genuine and in
accordance with the procedures described in the Prospectus.
As required by Federal law, I (we) certify under penalties of perjury (1) that
the Social Security or Taxpayer Identification Number provided above is correct
and (2) that the IRS has never notified me (us) that I am (we are) subject to
31% backup withholding, or has notified me (us) that I am (we are) no longer
subject to such backup withholding. (Note: if part (2) of this sentence is not
true in your case, please strike out that part before signing.
CHECK ONE:
[ ] U.S. Citizen [ ] Resident Alien [ ] Non-Resident Alien _____________________
(Country of Citizenship)
___________________________________________________________
Signature of Owner, Trustee or Custodian Date
___________________________________________________________
Signature of Joint Owner or Co-trustee (if any) Date
- ---------------------------------------------------------------
ACCOUNT REGISTRATION INSTRUCTIONS
If you need assistance in completing this form, please call us at (800)
221-4268.
This form cannot be used to open a Royce Fund sponsored IRA or 403(b)(7)
account. Please call us to receive the appropriate retirement application
forms.
- ---------------------------------------------------------------
1 ACCOUNT REGISTRATION
Please provide the information exactly as you wish it to appear on your account
(e.g., as your name appears on your other legal/financial records such as your
bank account, will, etc.). Please provide your Taxpayer Identification Number to
avoid withholding of taxes. For most individuals, this is your Social Security
Number.
- ---------------------------------------------------------------
2 MAILING ADDRESS
Please provide your complete mailing address.
- ---------------------------------------------------------------
3 ADVISER/DEALER INFORMATION
This section should be completed by your financial adviser or dealer if
applicable.
- ---------------------------------------------------------------
4 INITIAL INVESTMENT
Please indicate the dollar amount you wish to invest. Minimum initial investment
s $2,000 ($500 minimum for accounts opened with an Automatic Investment Plan).
- ---------------------------------------------------------------
5 METHOD OF PAYMENT
Checks should be made payable to Royce Value Fund. If you have placed a
telephone order to open your account and purchase shares, please include the
order number on the application. Payment is due within 3 business days after
placing the order.
- ---------------------------------------------------------------
6 DIVIDEND AND CAPITAL GAIN PAYMENT
OPTIONS
All distributions will be reinvested if a box is not checked.
- ---------------------------------------------------------------
7 EXPRESS SERVICE
Express Service is a convenient way to purchase or sell shares automatically or
at your discretion. You may choose from the following Express Service options:
AUTOMATIC INVESTMENT PLAN -- automatically purchases shares in your Royce Fund
account by transferring money from your bank account on a monthly or quarterly
basis.
AUTOMATIC WITHDRAWAL PLAN -- automatically sells shares in your Royce Fund
account and transfers the money to your bank account on a monthly basis.
$25,000 minimum account balance required to initiate Plan.
EXPEDITED PURCHASES AND REDEMPTIONS -- enables you, at your discretion, to
transfer up to $200,000 on a purchase or $50,000 on a redemption between your
Royce Fund account and your bank account with a toll-free telephone call.
WIRE REDEMPTIONS -- allows for telephone redemption proceeds to be wired to
your commercial bank. Institutional investors must attach wire instructions in
lieu of a voided check.
To arrange for Express Service, you must check the appropriate box and ATTACH A
VOIDED CHECK. Passbook accounts are not eligible for Express Service, and your
bank must be a member of the Automated Clearing House (ACH) network.
Please be sure to specify the amount of the investment/ withdrawal and the
transaction date. You may not establish both an Automatic Investment Plan and an
Automatic Withdrawal Plan on the same account. Expedited Purchases and
Redemptions may be established with either of the automatic plans. A signature
guarantee may be required if your bank registration does not match your Royce
Fund account registration. A signature guarantee may be obtained from a bank,
broker or other guarantor that NFDS deems acceptable.
Please allow 3 weeks for set up before using Express Service.
- ---------------------------------------------------------------
8 SIGNATURE
Please sign exactly as your name is registered in Section 1. Both owners must
sign on joint accounts.
<PAGE>
__________________________________
THE ROYCE FUNDS
1414 Avenue of the Americas
New York, NY 10019
1-800-221-4268
INVESTMENT ADVISER
Quest Advisory Corp.
1414 Avenue of the Americas
New York, NY 10019
DISTRIBUTOR
Quest Distributors, Inc.
1414 Avenue of the Americas
New York, NY 10019
TRANSFER AGENT
State Street Bank and Trust Company
c/o National Financial Data Services
P.O. Box 419012
Kansas City, MO 64141-6012
1-800-841-1180
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1713
Boston, MA 02105
OFFICERS
Charles M. Royce, President and Treasurer
Jack E. Fockler, Jr., Vice President
W. Whitney George, Vice President
Daniel A. O'Byrne, Vice President and
Asst. Secretary
Susan I. Grant, Secretary
__________________________________
[Logo]
THE ROYCE FUNDS
ROYCE VALUE
FUND
PROSPECTUS
MAY 2, 1995
__________________________________
<PAGE>
THE ROYCE FUNDS
- --------------------------------------------------------------------------------
ROYCE PREMIER FUND
ROYCE EQUITY INCOME FUND
ROYCE MICRO-CAP FUND
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 2, 1995
- --------------------------------------------------------------------------------
NEW ACCOUNT AND GENERAL INFORMATION: INVESTOR INFORMATION -- 1-800-221-4268
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES -- 1-800-841-1180 INVESTMENT ADVISOR
SERVICES -- 1-800-33-ROYCE
- --------------------------------------------------------------------------------
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INVESTMENT OBJECTIVES Royce Premier Fund, Royce Equity Income Fund and Royce Micro-Cap Fund (the 'Funds') are
AND POLICIES no-load series of The Royce Fund (the 'Trust'), a diversified, open-end management investment
company. The Funds have in common an investment focus on small companies that are selected on
a value basis.
ROYCE PREMIER FUND primarily seeks long-term growth and secondarily current income by
investing in a limited portfolio of common stocks and convertible securities of companies
viewed by the Fund's investment adviser as having superior financial characteristics and/or
unusually attractive business prospects.
ROYCE EQUITY INCOME FUND'S investment objective is reasonable income. The potential for
capital appreciation will also be considered when selecting the Fund's securities. It seeks
to achieve this objective by investing primarily in dividend-paying common and preferred
stocks and debt securities convertible into common stocks. The composite yield on these
securities is intended to be higher than that of the stocks in the Standard & Poor's 500
Index.
ROYCE MICRO-CAP FUND seeks long-term capital appreciation by investing primarily in common
stocks and convertible securities of companies traded in the over-the-counter market.
There can be no assurance that the Funds will achieve their objectives. The Trust is
currently offering shares of eight series. This Prospectus relates to the above Funds only.
- -----------------------------------------------------------------------------------------------------------------------
ABOUT THIS PROSPECTUS This Prospectus sets forth concisely the information that you should know about a Fund before
you invest. It should be retained for future reference. A 'Statement of Additional
Information' containing further information about the Funds and the Trust has been filed with
the Securities and Exchange Commission. The Statement is dated May 2, 1995 and has been
incorporated by reference into this Prospectus. A copy may be obtained without charge by
writing to the Trust or calling Investor Information.
</TABLE>
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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Fund Expenses..................................... 2
Financial Highlights.............................. 3
Fund Performance and Volatility................... 4
Investment Objectives............................. 5
Investment Policies............................... 6
Investment Risks.................................. 7
Investment Limitations............................ 7
Management of the Trust........................... 9
General Information............................... 9
<CAPTION>
Page
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Dividends, Distributions and Taxes................ 10
Net Asset Value Per Share......................... 11
SHAREHOLDER GUIDE
Opening an Account and Purchasing Shares.......... 11
Choosing a Distribution Option.................... 13
Important Account Information..................... 13
Redeeming Your Shares............................. 14
Exchange Privilege................................ 16
Transferring Ownership............................ 16
Other Services.................................... 17
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<TABLE>
<S> <C> <C>
FUND EXPENSES The following table illustrates all expenses and fees that you would incur as a shareholder
of the Funds.
Shareholder Transaction Expenses
The Funds are Sales Load Imposed on Purchases...................................................... None
no-load and have Sales Load Imposed on Reinvested Dividends........................................... None
no 12b-1 fees Deferred Sales Load.................................................................. None
Redemption Fee -- 1 Year or More After Initial Purchase.............................. None
Early Redemption Fee -- Less Than 1 Year After Initial Purchase...................... 1%
</TABLE>
<TABLE>
<CAPTION>
Annual Fund Operating Expenses
------------------------------------------------------------------------------------------
Royce Royce Royce
Premier Equity Income Micro-Cap
Fund Fund Fund
------- ------------- ---------
<S> <C> <C> <C> <C>
Management Fees (after waivers)................... 1.00% .94% 1.40%
12b-1 Fees........................................ None None None
Other Expenses.................................... .38% .33% .59%
------- ------ ---------
Total Operating Expenses (after waivers).......... 1.38% 1.27% 1.99%
------- ------ ---------
The purpose of the above table is to assist you in understanding the various costs and
expenses that you would bear directly or indirectly as an investor in the Funds.
Management fees would have been 1.00% and 1.50% and total operating expenses would have
been 1.33% and 2.09% for Royce Equity Income and Royce Micro-Cap Funds, respectively,
without the waivers of management fees by Quest Advisory Corp. ('Quest'), the Funds'
investment adviser.
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
The following examples illustrate the expenses that you would incur on a $1,000 investment
over various periods, assuming a 5% annual rate of return and redemption at the end of
each period.
</TABLE>
<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
Royce Premier Fund..................................... $ 14 $44 $76 $166
Royce Equity Income Fund............................... 13 40 70 153
Royce Micro-Cap Fund................................... 20 62 107 232
</TABLE>
<TABLE>
<S> <C>
THESE EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE EXPENSES OR
PERFORMANCE. ACTUAL EXPENSES MAY BE HIGHER OR LOWER THAN THOSE SHOWN.
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
FINANCIAL HIGHLIGHTS The following financial highlights are part of the Funds' financial statements and have been
audited by Coopers & Lybrand L.L.P., independent accountants. The Funds' financial statements
and Coopers & Lybrand L.L.P.'s report on them are included in the Funds' Annual Reports to
Shareholders and are incorporated by reference into the Statement of Additional Information
and this Prospectus. Further information about the Funds' performance is contained elsewhere
in this Prospectus and in the Funds' Annual Report to Shareholders for 1994, which may be
obtained without charge by calling Investor Information.
</TABLE>
<TABLE>
<CAPTION>
ROYCE PREMIER ROYCE MICRO-CAP
-------------------------------- --------------------------------
Year ended December 31, Year ended December 31,
-------------------------------- --------------------------------
1994 1993 1992 1994 1993 1992
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR................. $ 6.41 $ 5.52 $ 5.00 $ 6.47 $ 5.83 $ 5.00
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a)....................... 0.06 0.02 0.02 0.00 0.00 (0.01)
Net gains (losses) on securities (both realized
and unrealized)............................. 0.15 1.03 0.77 0.23 1.38 1.48
-------- -------- -------- -------- -------- --------
Total from Investment Operations.......... 0.21 1.05 0.79 0.23 1.38 1.47
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends (from net investment income)......... (0.05) (0.02) (0.02) (0.00) (0.00) (0.00)
Distributions (from capital gains)............. (0.09) 0.14 (0.25) (0.22) (0.74) (0.64)
-------- -------- -------- -------- -------- --------
Total Distributions....................... (0.14) (0.16) (0.27) (0.22) (0.74) (0.64)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR....................... $ 6.48 $ 6.41 $ 5.52 $ 6.48 $ 6.47 $ 5.83
--------------------------------------------------------------------
--------------------------------------------------------------------
TOTAL RETURN....................................... 3.3% 19.0% 15.8% 3.6% 23.7% 29.4%
--------------------------------------------------------------------
--------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's).............. $202,390 $47,143 $2,329 $26,774 $10,261 $3,373
Ratio of Expenses to Average Net Assets(b)..... 1.38% 1.50% 1.77% 1.99% 1.99% 1.69%
Ratio of Net Investment Income to Average Net
Assets...................................... 1.19% 0.68% 0.53% 0.02% (0.09%) (0.21%)
Portfolio Turnover Rate........................ 38% 85% 116% 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 was $.01 and $.09 for 1993
and 1992, respectively for Royce Premier Fund and $.01, $.03 and $.12 for 1994,
1993 and 1992, respectively for Royce Micro-Cap Fund.
(b) Expense ratios before waivers of fees by the adviser and distributor would
have been 1.68% and 4.17% for 1993 and 1992, respectively, for Royce Premier
Fund and 2.34%, 2.49% and 3.77% for 1994, 1993 and 1992, respectively, for Royce
Micro-Cap Fund.
3
<PAGE>
<TABLE>
<CAPTION>
ROYCE EQUITY INCOME
--------------------------------------------------------
Year 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 gains (losses) on securities (both 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 capital gains)........................ (0.10) (0.41) (0.16) (0.09) (0.00)
-------- -------- -------- -------- --------
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 Period (000's)......................... $77,131 $84,661 $54,102 $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.
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------
FUND From time to time, the Funds may include in communications to current or prospective
PERFORMANCE shareholders figures reflecting total return over various time periods. 'Total return' is the
AND VOLATILITY rate of return on an amount invested in a Fund from the beginning to the end of the stated
period. 'Average annual total return' is the annual compounded percentage change in the value
Total return is the of an amount invested in a Fund from the beginning until the end of the stated period. Total
change in value over a returns are historical measures of past performance and are not intended to indicate future
given time period, performance. Total returns assume the reinvestment of all dividends and capital gains
assuming reinvestment of distributions. The figures do not reflect a Fund's early redemption fee because it applies
dividends and capital only to redemptions in accounts open for less than one year.
gains distributions
The Funds' average annual total returns for the periods ended December 31, 1994 were:
</TABLE>
<TABLE>
<CAPTION>
ONE THREE SINCE
YEAR YEAR INCEPTION INCEPTION DATE
---- ----- --------- ------------------
<S> <C> <C> <C> <C> <C>
3.3% 12.5 % 12.5% December 31, 1991
Royce Premier Fund.................
-3.2% 9.3 % 7.6% January 2, 1990
Royce Equity Income Fund
3.6% 18.3 % 18.3% December 31, 1991
Royce Micro-Cap Fund...............
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
'Risk' defined as the The relative risk of investing in a particular fund should be considered in addition to the
volatility of a fund's total returns of the fund. Risk, in terms of how volatile an investor's returns have been,
total returns over time can be measured in a number of ways, including standard deviation and beta.
Standard deviation measures the range of performance within which a fund's total returns have
fallen. The lower the standard deviation of the fund, the less volatile and more
consistent the fund's monthly total returns have been over that period. When the standard
deviation of a fund is lower than the standard deviation of an index such as the S&P 500,
the fund has been less volatile than the index.
Beta measures a fund's sensitivity to market movements. The beta for the index chosen to
represent the market (the S&P 500) is 1.00. If the fund has a beta greater than 1.00, it
has been more volatile than the index; if its beta is less than 1.00, it has been less
volatile than the index.
These measures of risk, which are historical in nature and not necessarily predictive of
future volatility, are more fully described in the Statement of Additional Information. For
the three year period ended December 31, 1994, standard deviation and beta for the Funds and
for the S&P 500 (Source: Morningstar, Inc.) were:
</TABLE>
<TABLE>
<CAPTION>
STANDARD
DEVIATION BETA
--------- ----
<S> <C> <C> <C>
7.94 1.00
S&P 500.............................
5.12 .43
Royce Premier Fund..................
5.83 .42
Royce Equity Income Fund............
8.10 .48
Royce Micro-Cap Fund................
</TABLE>
<TABLE>
<S> <C>
The investment risks associated with the types of securities in which the Funds may invest
are described below -- see 'Investment Risks.'
</TABLE>
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------
INVESTMENT Each Fund has different investment objectives and/or its own method of achieving its
OBJECTIVES objectives and is designed to meet different investment needs. Since certain risks are
inherent in owning any security, there can be no assurance that any of the Funds will achieve
their objectives.
ROYCE PREMIER FUND'S investment objectives are primarily long-term growth and secondarily
current income. It seeks to achieve these objectives through investments in a limited
portfolio of common stocks and securities convertible into common stocks of companies viewed
by Quest as having superior financial characteristics and/or unusually attractive business
prospects.
ROYCE EQUITY INCOME FUND seeks reasonable income by investing primarily in dividend-paying
common and preferred stocks and debt securities convertible into common stocks. In choosing
these securities, Quest will also consider their potential for capital appreciation.
ROYCE MICRO-CAP FUND (formerly named Royce OTC Fund) seeks long-term capital appreciation,
primarily through investments in common stocks and securities convertible into common stocks
of companies primarily traded in the over-the-counter market.*
Production of income is incidental to this objective.
</TABLE>
------------
* Royce Micro-Cap Fund expects to call a shareholders meeting
to ask shareholders to approve the deletion of the
requirement that the securities in which the Fund invests
be primarily traded in the over-the-counter market.
5
These investment objectives are fundamental and may not
be changed without the approval of a majority of the
Fund's outstanding voting shares.
<PAGE>
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------
INVESTMENT Quest uses a 'value' method in managing the Funds' assets. In its selection process, Quest
POLICIES puts primary emphasis on various internal returns indicative of profitability, balance sheet
quality, cash flows and the relationships that these factors have to the current price of a
The Funds invest on a given security. This is in contrast to other methods that primarily focus on the future
'value' basis prospects of a company and concentrate on high growth or emerging growth companies.
The Funds invest Quest's value method is based on its belief that the securities of certain small companies
primarily in small may sell at a discount from its estimate of such companies' 'business worth'. Quest attempts
companies to identify and invest in these securities for each of the Funds, with the expectation that
this 'value discount' will narrow over time and thus provide capital appreciation for the
Funds.
ROYCE PREMIER FUND
Normally, Royce Premier Fund will invest at least 80% of its assets in a limited number of
common stocks, convertible preferred stocks and convertible bonds. At least 65% of these
securities will be income-producing and/or issued by companies with stock market
capitalizations under $1,000,000,000 at the time of investment. The remainder of its assets
may be invested in securities of companies with higher stock market capitalizations, non-
dividend-paying common stocks and non-convertible preferred stocks and debt securities. In
its selection process for the Fund, Quest puts primary emphasis on companies which have
unusually strong returns on assets, cash flows and balance sheets or unusual business
strengths and/or prospects. Other characteristics, such as a company's growth potential and
valuation considerations, are also used in selecting investments for the Fund.
ROYCE EQUITY INCOME FUND
In accordance with its objective of seeking reasonable income, Royce Equity Income Fund will
normally invest at least 80% of its assets in common stocks, convertible preferred stocks and
convertible bonds. At least 90% of these securities will be income-producing, and at least
65% of these securities will be issued by companies with stock market capitalizations under
$1,000,000,000 at the time of investment. The remainder of the Fund's assets may be invested
in securities of companies with higher stock market capitalizations, non-dividend-paying
common stocks and non-convertible preferred stocks and debt securities. Quest seeks to invest
the Fund's portfolio in a manner that produces a composite yield which is higher than the
composite yield of the stocks in the Standard & Poor's 500 Index and considers the capital
appreciation potential of the securities it selects for the Fund's portfolio.
ROYCE MICRO-CAP FUND
At least 80% of the assets of Royce Micro-Cap Fund will normally be invested in common stocks
and securities convertible into common stocks of small and micro-sized companies. At least
75% of these securities will be traded in the over-the-counter market*, and at least 65% of
these securities will be issued by companies with stock market capitalizations under
$300,000,000 at the time of investment. The over-the-counter market securities will generally
be listed on the Nasdaq system.
</TABLE>
------------
* See Footnote on previous page.
6
<PAGE>
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------
INVESTMENT As mutual funds investing primarily in common stocks and/or securities convertible into
RISKS common stocks, the Funds are subject to market risk, that is, the possibility that common
stock prices will decline over short or even extended periods. The Funds may invest in
The Funds are subject to securities of companies that are not well-known to the investing public, may not have
certain investment risks significant institutional ownership and may have cyclical, static or only moderate growth
prospects. The stocks of such companies may be more volatile in price and have lower trading
volumes than the larger capitalization stocks included in the S&P 500 Index. Accordingly,
Quest's investment method requires a long-term investment horizon. The Funds should not be
used to play short-term swings in the market.
Although Royce Premier Fund is diversified within the meaning of the Investment Company Act
of 1940 (the '1940 Act'), it will normally be invested in a limited number of securities.
This Fund's broad investment character and relatively limited portfolio may involve more risk
than investing in other Royce Funds or in a broadly diversified portfolio of common stocks of
large and well-known companies. To the extent that the Fund invests in a limited number of
securities, it may be more susceptible to any single corporate, economic, political or
regulatory occurrence than a more widely diversified fund.
Quest may employ a more aggressive approach to investing for Royce Micro-Cap Fund that
involves a substantially higher than average portfolio turnover rate. In addition, Royce
Micro-Cap Fund invests in many micro-cap securities that are followed by relatively few
securities analysts, with the result that there tends to be less publicly available
information concerning the securities compared to what is available for exchange-listed or
larger companies. The securities of these companies may have limited trading volumes and be
subject to more abrupt or erratic market movements than the securities of larger, more
established companies or the market averages in general, and Quest may be required to deal
with only a few market-makers when purchasing and selling these securities. Companies in
which Royce Micro-Cap Fund is likely to invest also may have limited product lines, markets
or financial resources and may lack management depth and may be more vulnerable to adverse
business or market developments. Thus, the Fund may involve considerably more risk than a
mutual fund investing in the more liquid equity securities of companies traded on the New
York or American Stock Exchanges.
- -----------------------------------------------------------------------------------------------------------------------
INVESTMENT Each of the Funds has adopted certain fundamental limitations, designed to reduce its
LIMITATIONS exposure to specific situations, which may not be changed without the approval of a majority
of its outstanding voting shares, as that term is defined in the Investment Company Act of
The Funds have adopted 1940 (the '1940 Act'). These limitations are set forth in the Statement of Additional
certain fundamental Information and provide, among other things, that no Fund will:
limitations (a) invest more than 5% of its assets in the securities of any one issuer, excluding
obligations of the U.S. Government. (This limitation applies to only 75% of the assets of
Royce Premier and Royce Micro-Cap Funds);
(b) invest more than 25% of its assets in any one industry; or
(c) invest in companies for the purpose of exercising control of management.
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
OTHER INVESTMENT In addition to investing primarily in the equity and fixed income securities described above,
PRACTICES: the Funds may follow a number of additional investment practices.
Short-term fixed The Funds may invest in short-term fixed income securities for temporary defensive purposes,
income securities to invest uncommitted cash balances or to maintain liquidity to meet shareholder redemptions.
These securities consist of United States Treasury bills, domestic bank certificates of
deposit, high-quality commercial paper and repurchase agreements collateralized by U.S.
Government securities. In a repurchase agreement, a bank sells a security to the Fund at one
price and agrees to repurchase it at the Fund's cost plus interest within a specified period
of seven or fewer days. In these transactions, which are, in effect, secured loans by the
Fund, the securities purchased by the Fund will have a value equal to or in excess of the
value of the repurchase agreement and will be held by the Fund's custodian bank until
repurchased. Should a Fund implement a temporary investment policy, its investment objectives
may not be achieved.
Securities lending Royce Equity Income Fund may lend up to 25% of its assets to qualified institutional
investors for the purpose of realizing additional income. Loans of securities of the Fund
will be collateralized by cash or securities issued or guaranteed by the United States
Government or its agencies or instrumentalities. The collateral will equal at least 100% of
the current market value of the loaned securities. The risks of securities lending include
possible delays in receiving additional collateral or in recovery of loaned securities or
loss of rights in the collateral if the borrower defaults or becomes insolvent.
Foreign securities Each of the Funds may invest up to 10% of its assets in debt and/or equity securities of
foreign issuers. Foreign investments involve certain risks, such as political or economic
instability of the issuer or of the country of issue, fluctuating exchange rates and the
possibility of imposition of exchange controls. These securities may also be subject to
greater fluctuations in price than the securities of U.S. corporations, and there may be less
publicly available information about their operations. Foreign companies may not be subject
to accounting standards or governmental supervision comparable to U.S. companies, and foreign
markets may be less liquid or more volatile than U.S. markets and may offer less protection
to investors such as the Funds.
Lower-rated debt Each of the Funds may also invest no more than 5% of its net assets in lower-rated (high-
securities risk) non-convertible debt securities, which are below investment grade. The Funds do not
expect to invest in non-convertible debt securities that are rated lower than Caa by Moody's
Investors Service, Inc. or CCC by Standard & Poor's Corp. or, if unrated, determined to be of
comparable quality.
Portfolio turnover Although the Funds generally seek to invest for the long term, they retain the right to sell
securities regardless of how long they have been held. The Funds' annual portfolio turnover
rates are shown in the 'Financial Highlights'. Portfolio turnover rates for the Funds have
ranged from 28% to 171%. Rates which exceed 100% are higher than those of other funds. A 100%
turnover rate occurs, for example, if all of a Fund's portfolio securities are replaced in
one year. High portfolio activity increases the Fund's transaction costs, including brokerage
commissions.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------
MANAGEMENT OF The Trust's business and affairs are managed under the direction of its Board of Trustees.
THE TRUST Quest, the Funds' investment adviser, is responsible for the management of the Funds'
portfolios, subject to the authority of the Board of Trustees. Quest was organized in 1967
Quest Advisory Corp. is and has been the Funds' adviser since their inception. Charles M. Royce, Quest's President,
responsible for the Chief Investment Officer and sole voting shareholder since 1972, is primarily responsible for
management of the Funds' supervising Quest's investment management activities. Mr. Royce is assisted by Thomas R.
portfolios Ebright, Jack E. Fockler, Jr. and W. Whitney George, Vice Presidents of Quest, all of whom
participate in the investment management activities, with their specific responsibilities
varying from time to time. Quest is also the investment adviser to Pennsylvania Mutual Fund,
to Royce Value, Royce Low-Priced, Royce Total Return and Royce Global Services Funds, which
are other series of the Trust, and to other investment and non-investment company accounts.
As compensation for its services to the Funds, Quest is entitled to receive annual advisory
fees of 1% of the average net assets of Royce Premier and Royce Equity Income Funds and 1.5%
of the average net assets of Royce Micro-Cap Fund. These fees are payable monthly from the
assets of the Funds involved and are higher (substantially higher in the case of Royce
Micro-Cap Fund) than those paid by most other mutual funds with similar investment
objectives. For 1994, the fees paid to Quest on average net assets were 1.00%, .94% and 1.40%
(net of voluntary waivers) for Royce Premier Fund, Royce Equity Income Fund and Royce
Micro-Cap Fund, respectively.
Quest selects the brokers who execute the purchases and sales of the Funds' portfolio
securities and may place orders with brokers who provide brokerage and research services to
Quest. Quest is authorized, in recognition of the value of brokerage and research services
provided, to pay commissions to a broker in excess of the amount which another broker might
have charged for the same transaction.
Quest Distributors, Inc. ('QDI'), which is wholly-owned by Charles M. Royce, acts as
distributor of the Funds' shares.
- -----------------------------------------------------------------------------------------------------------------------
GENERAL The Royce Fund (the 'Trust') is a Massachusetts business trust registered with the Securities
INFORMATION and Exchange Commission as a diversified, open-end management investment company. The
Trustees have the authority to issue an unlimited number of shares of beneficial interest,
without shareholder approval, and these shares may be divided into an unlimited number of
series. Shareholders are entitled to one vote per share. Shares vote by individual series on
all matters, except that shares are voted in the aggregate and not by individual series when
required by the 1940 Act and that if the Trustees determine that a matter affects only one
series, then only shareholders of that series are entitled to vote on that matter.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Meetings of shareholders will not be held except as required by the 1940 Act or other
applicable law. A meeting will be held to vote on the removal of a Trustee or Trustees of the
Trust if requested in writing by the holders of not less than 10% of the outstanding shares
of the Trust.
The custodian for securities and cash of the Funds is State Street Bank and Trust Company.
State Street, through its agent National Financial Data Services ('NFDS'), also serves as the
Funds' Transfer Agent. Coopers & Lybrand L.L.P. serves as independent accountants for the
Funds.
- -----------------------------------------------------------------------------------------------------------------------
DIVIDENDS, Royce Equity Income Fund pays quarterly dividends from net investment income. Royce Premier
DISTRIBUTIONS Fund and Royce Micro-Cap Fund pay dividends from net investment income (if any) annually in
AND TAXES December. Each Fund distributes its net realized capital gains in December. Dividends and
distributions will be automatically reinvested in additional shares of the Fund unless the
shareholder chooses otherwise.
9
<PAGE>
Shareholders will receive information annually as to the tax status of distributions made by
each Fund for the calendar year. For Federal income tax purposes, all distributions by a Fund
are taxable to shareholders when declared, whether received in cash or reinvested in shares.
Distributions paid from a Fund's net investment income and short-term capital gains are
taxable to shareholders as ordinary income dividends. A portion of a Fund's dividends may
qualify for the corporate dividends-received deduction, subject to certain limitations. The
portion of a Fund's dividends qualifying for such deduction is generally limited to the
aggregate taxable dividends received by the Fund from domestic corporations.
Distributions paid from long-term capital gains of a Fund are treated by a shareholder for
Federal income tax purposes as long-term capital gains, regardless of how long a shareholder
has held Fund shares. If a shareholder disposes of shares held for six months or less at a
loss, such loss will be treated as a long-term capital loss to the extent of any long-term
capital gains reported by the shareholder with respect to such shares.
The redemption of shares is a taxable event, and a shareholder may realize a capital gain or
capital loss. Each Fund will report to redeeming shareholders the proceeds of their
redemptions. However, because the tax consequences of a redemption will also depend on the
shareholder's basis in the redeemed shares for tax purposes, shareholders should retain their
account statements for use in determining their tax liability on a redemption.
At the time of a shareholder's purchase, a Fund's net asset value may reflect undistributed
income or capital gains. A subsequent distribution of these amounts by a Fund will be taxable
to the shareholder even though the distribution economically is a return of part of the
shareholder's investment.
The Funds are required to withhold 31% of taxable dividends, capital gain distributions and
redemptions paid to non-corporate shareholders who have not complied with Internal Revenue
Service taxpayer identification regulations. Shareholders may avoid this withholding
requirement by certifying on the Account Application Form their proper Social Security or
Taxpayer Identification Number and certifying that they are not subject to backup
withholding.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
The discussion of Federal income taxes above is for general information only. Shareholders
may also be subject to state and local taxes on their investment. Investors should consult
their own tax advisers concerning the tax consequences of an investment in the Funds. The
Statement of Additional Information includes an additional description of Federal income tax
aspects that may be relevant to a shareholder.
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE Fund shares are purchased and redeemed at their net asset value per share next determined
PER SHARE after an order is received by the Funds' transfer agent. Net asset value per share is
determined by dividing the total value of the Fund's investments and other assets, less any
Net asset value per liabilities, by the number of outstanding shares of the Fund. Net asset value per share is
share (NAV) is calculated at the close of regular trading on the New York Stock Exchange on each day the
determined each day the Exchange is open for business.
New York Stock Exchange
is open In determining net asset value, securities listed on an exchange or the Nasdaq National
Market System are valued on the basis of the last reported sale price prior to the time the
valuation is made or, if no sale is reported for that day, at their bid price for
exchange-listed securities and at the average of their bid and ask prices for Nasdaq
securities. Quotations 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.
10
- -----------------------------------------------------------------------------------------------------------------------
<PAGE>
SHAREHOLDER GUIDE
OPENING AN Each Fund's shares are offered on a no-load basis. To open a new account other than an IRA or
ACCOUNT AND 403(b)(7) account, either by mail, by telephone or by wire, simply complete and return an
PURCHASING Account Application. If you need assistance with the Account Application or if you have any
SHARES questions about the Funds, please call Investor Information at 1-800-221-4268. NOTE: For
certain types of account registrations (e.g., corporations, partnerships, foundations,
associations, other organizations, trusts or powers of attorney), please call Investor
Information to determine if you need to provide additional forms with your application.
</TABLE>
<TABLE>
<S> <C> <C>
Minimum Initial TYPE OF ACCOUNT MINIMUM
Investments -------------------------------------------------------------------------- -------
Regular Accounts $2,000
IRAs* $ 500
Accounts established with Automatic Investment Plan or Direct Deposit Plan $ 500
403(b)(7) accounts* None
</TABLE>
<TABLE>
<S> <C>
Additional Investments Subsequent investments may be made by mail ($50 minimum), telephone ($500 minimum), wire or
Express Service (a system of electronic funds transfer from your bank account).
</TABLE>
<TABLE>
<S> <C> <C>
--------------------------------------------------------------------------------------------
ADDITIONAL INVESTMENTS
NEW ACCOUNT TO EXISTING ACCOUNTS
PURCHASING BY MAIL Please include the amount of your initial Additional investments should include the
Complete and sign the investment on the Application Form, make your Invest-by-Mail remittance form attached to
enclosed Account check payable to The Royce Fund, and mail to: your Fund confirmation statements. Please
Application Form The Royce Funds make your check payable to The Royce Fund,
P.O. Box 419012 write your account number on your check and,
c/o NFDS using the return envelope provided, mail to
Kansas City, MO 64141-6012 the address indicated on the Invest-by-Mail
form.
For express or The Royce Funds All written requests should be mailed to one
registered mail, c/o National Financial Data Services of the addresses indicated for new accounts.
send to: 1004 Baltimore, 5th Floor
Kansas City, MO 64105
--------------------------------------------------------------------------------------------
PURCHASING BY To open an account by telephone, you should Subsequent telephone purchases ($500 minimum)
TELEPHONE: call Investor Information (1-800-221-4268) may also be made by calling Investor
before 4:00 p.m., Eastern time. You will be Information. For all telephone purchases,
given a confirming order number for your payment is due within three business days and
purchase. This number must be placed on your may be made by wire or personal, business or
completed Application before mailing. If an bank check, subject to collection.
Application is not received on an account
opened by telephone, the account may be
subject to backup withholding of Federal
income taxes.
</TABLE>
------------
* Separate forms must be used for opening IRAs or
403(b)(7) accounts; please call Investor
Information at 1-800-221-4268 if you need these
forms.
11
<PAGE>
<TABLE>
<S> <C>
---------------------------------------------------------------------------------------------
PURCHASING BY WIRE Money should be wired to:
BEFORE WIRING: State Street Bank and Trust Company
For a new account, ABA 011000028 DDA 9904-712-8
please contact Investor Ref: (Name of Fund)
Information at Order Number or Account Number ------------
1-800-221-4268 Account Name ------------------------------
To ensure proper receipt, please be sure your bank includes the name of the Fund and your
order number (for telephone purchases) or account number. If you are opening a new account,
you must call Investor Information to obtain an order number, and complete the Account
Application Form and mail it to the 'New Account' address above after completing your wire
arrangement. Note: Federal Funds wire purchase orders will be accepted only when the Fund and
Custodian are open for business.
</TABLE>
<TABLE>
<S> <C>
---------------------------------------------------------------------------------------------
PURCHASING BY You can purchase shares automatically or at your discretion through the following options:
EXPRESS EXPEDITED PURCHASE OPTION permits you, at your discretion, to transfer funds ($100
SERVICE: minimum and $200,000 maximum) from your bank account to purchase shares in your Royce Fund
account by telephone.
AUTOMATIC INVESTMENT PLAN allows you to make regular, automatic transfers ($50 minimum) from
your bank account to purchase shares in your Royce Fund account on the monthly or quarterly
schedule you select.
To establish the Expedited Purchase Option and/or the Automatic Investment Plan, please
provide the appropriate information on the Account Application Form and ATTACH A VOIDED
CHECK. We will send you a confirmation of Express Service activation. Please wait three weeks
before using the service.
To make an Expedited Purchase, please call Shareholder Services at 1-800-841-1180 before 4:00
p.m., Eastern time.
PAYROLL DIRECT DEPOSIT PLAN AND GOVERNMENT DIRECT DEPOSIT PLAN let you have investments ($50
minimum) made from your net payroll or government check into your existing Royce Fund account
each pay period. Your employer must have direct deposit capabilities through ACH (Automated
Clearing House) available to its employees. You may terminate participation in these programs
by giving written notice to your employer or government agency, as appropriate. The Fund is
not responsible for the efficiency of the employer or government agency making the payment or
any financial institution transmitting payments.
To initiate a Direct Deposit Plan, you must complete an Authorization for Direct Deposit
form, which may be obtained from Investor Information by calling 1-800-221-4268.
- -----------------------------------------------------------------------------------------------------------------------
CHOOSING A You may select one of three distribution options:
DISTRIBUTION 1. Automatic Reinvestment Option -- Both dividends and capital gain distributions will be
OPTION reinvested in additional Fund shares. This option will be selected for you automatically
unless you specify one of the other options.
2. Cash Dividend Option -- Your dividends will be paid in cash and your capital gain
distributions will be reinvested in additional Fund shares.
12
<PAGE>
3. All Cash Option -- Both dividends and capital gain distributions will be paid in cash.
You may change your option by calling Shareholder Services at 1-800-841-1180.
- -----------------------------------------------------------------------------------------------------------------------
IMPORTANT The easiest way to establish optional services on your account is to select the options you
ACCOUNT desire when you complete your Account Application Form. If you want to add or change
INFORMATION shareholder options later, you may need to provide additional information and a signature
guarantee. Please call Shareholder Services at 1-800-841-1180 for further assistance.
Signature Guarantees For our mutual protection, we may require a signature guarantee on certain written
transaction requests. A signature guarantee verifies the authenticity of your signature and
may be obtained from banks, brokerage firms and any other guarantor that our transfer agent
deems acceptable. A signature guarantee cannot be provided by a notary public.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Certificates Certificates for whole shares will be issued upon request. If a certificate is lost, stolen
or destroyed, you may incur an expense to replace it.
Purchases Through If you purchase shares of a Fund through a program of services offered or administered by a
Service Providers broker-dealer, financial institution or other service provider, you should read the program
materials provided by the service provider, including information regarding fees which may be
charged, in conjunction with this prospectus. Certain shareholder servicing features of a
Fund may not be available or may be modified in connection with the program of services
offered. When shares of a Fund are purchased in this way, the service provider, rather than
the customer, may be the shareholder of record of the shares. Certain service providers may
receive compensation from the Funds, QDI and/or Quest for providing such services.
Telephone Transactions Neither the Funds nor their transfer agent will be liable for following instructions
communicated by telephone that are reasonably believed to be genuine. The transfer agent uses
certain procedures designed to confirm that telephone instructions are genuine, which may
include requiring some form of personal identification prior to acting on the instructions,
providing written confirmation of the transaction and/or recording incoming calls, and if it
does not follow such procedures, the Fund or the Transfer Agent may be liable for any losses
due to unauthorized or fraudulent transactions.
Nonpayment If your check or wire does not clear, or if payment is not received for any telephone
purchase, the transaction will be cancelled and you will be responsible for any loss the Fund
incurs. If you are already a shareholder, the Fund can redeem shares from any identically
registered account in the Trust as reimbursement for any loss incurred.
Trade Date for purchases Your TRADE DATE is the date on which your account is credited. If your purchase is made by
telephone, check, Federal Funds wire or exchange and is received by the close of regular
trading on the New York Stock Exchange (generally 4:00 p.m., Eastern time), your trade date
is the date of receipt. If your purchase is received after the close of regular trading on
the Exchange, your trade date is the next business day. Your shares are purchased at the net
asset value determined on your trade date.
In order to prevent lengthy processing delays caused by the clearing of foreign checks, the
Funds will accept only a foreign check which has been drawn in U.S. dollars and has been
issued by a foreign bank with a United States correspondent bank.
The Trust reserves the right to suspend the offering of Fund shares to new investors. The
Trust also reserves the right to reject any specific purchase request.
13
<PAGE>
- -----------------------------------------------------------------------------------------------------------------------
REDEEMING YOUR You may redeem any portion of your account at any time. You may request a redemption in
SHARES: writing or by telephone. Redemption proceeds normally will be sent within two business days
after the receipt of the request in Good Order.
REDEEMING BY MAIL Redemption requests should be mailed to The Royce Funds, c/o NFDS, P.O. Box 419012, Kansas
City, MO 64141-6012. (For express or registered mail, send your request to The Royce Funds,
c/o NFDS, 1004 Baltimore, 5th Floor, Kansas City, MO 64105.)
The redemption price of shares will be their net asset value next determined after NFDS has
received all required documents in Good Order.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Definition of Good Order GOOD ORDER means that the request includes the following:
1. The account number and Fund name.
2. The amount of the transaction (specified in dollars or shares).
3. Signatures of all owners exactly as they are registered on the account.
4. Signature guarantees if the value of the shares being redeemed exceeds $50,000 or if the
payment is to be sent to an address other than the address of record or is to be made to a
payee other than the shareholder.
5. Certificates, if any are held.
6. Other supporting legal documentation that might be required, in the case of retirement
plans, corporations, trusts, estates and certain other accounts.
If you have any questions about what is required as it pertains to your request, please call
Shareholder Services at 1-800-841-1180.
---------------------------------------------------------------------------------------------
REDEEMING BY Shareholders who have not established Express Service may redeem up to $50,000 of their Fund
TELEPHONE shares by telephone, provided the proceeds are mailed to their address of record. If
preapproved, higher maximums may apply for institutional accounts. To redeem shares by
telephone, you or your pre-authorized representative may call Shareholder Services at
1-800-841-1180. Redemption requests received by telephone prior to the close of regular
trading on the New York Stock Exchange (generally 4:00 p.m., Eastern time) are processed on
the day of receipt; redemption requests received by telephone after the close of regular
trading on the Exchange are processed on the business day following receipt. Telephone
redemption service is not available for Trust-sponsored retirement plan accounts or if
certificates are held. TELEPHONE REDEMPTIONS WILL NOT BE PERMITTED FOR A PERIOD OF SIXTY DAYS
AFTER A CHANGE IN THE ADDRESS OF RECORD. See also 'Important Account Information -- Telephone
Transactions.
---------------------------------------------------------------------------------------------
REDEEMING BY If you select the Express Service AUTOMATIC WITHDRAWAL option, shares will be automatically
EXPRESS redeemed from your Fund account and the proceeds transferred to your bank account according
SERVICE to the schedule you have selected. You must have at least $25,000 in your Fund account to
establish the Automatic Withdrawal option.
The EXPEDITED REDEMPTION option lets you redeem up to $50,000 of shares from your Fund
account by telephone and transfer the proceeds directly to your bank account. You may elect
Express Service on the Account Application Form or call Shareholder Services at
1-800-841-1180 for an Express Service application.
14
<PAGE>
---------------------------------------------------------------------------------------------
IMPORTANT REDEMPTION If you are redeeming shares recently purchased by check, Express Service Expedited Purchase
INFORMATION or Automatic Investment Plan, the proceeds of the redemption may not be sent until payment
for the purchase is collected, which may take up to fifteen calendar days. Otherwise,
redemption proceeds must be sent to you within seven days of receipt of your request in Good
Order.
If you experience difficulty in making a telephone redemption during periods of drastic
economic or market changes, your redemption request may be made by regular or express mail.
It will be processed at the net asset value next determined after your request has been
received by the Transfer Agent in Good Order. The Trust reserves the right to revise or
terminate the telephone redemption privilege at any time.
</TABLE>
<TABLE>
<S> <C>
The Trust may suspend the redemption right or postpone payment at times when the New York
Stock Exchange is closed or under any emergency circumstances as determined by the Securities
and Exchange Commission.
Although redemptions have always been made in cash, the Fund may redeem in kind under certain
circumstances.
EARLY REDEMPTION In order to discourage short-term trading, an early redemption fee of 1% of the net asset
FEE value of the shares being redeemed is imposed if a shareholder redeems shares of the Fund
less than one year after becoming a shareholder. The fee is payable to the Fund out of the
redemption proceeds otherwise payable to the shareholder. No redemption fee will be payable
on an exchange into another Royce fund or by shareholders who are (a) employees of the Trust
or Quest or members of their immediate families or employee benefit plans for them, (b)
participants in the Automatic Withdrawal Plan, (c) certain Trust-approved Group Investment
Plans and charitable organizations, (d) profit-sharing trusts, corporations or other
institutional investors who are investment advisory clients of Quest or (e) omnibus or other
similar account customers of certain Trust-approved broker-dealers and other institutions.
MINIMUM ACCOUNT Due to the relatively high cost of maintaining smaller accounts, the Trust reserves the right
BALANCE REQUIREMENT to involuntarily redeem shares in any Fund account that falls below the minimum initial
investment due to redemptions by the shareholder. If at any time the balance in an account
does not have a value at least equal to the minimum initial investment, or if an Automatic
Investment Plan is discontinued before an account reaches the minimum initial investment that
would otherwise be required, you may be notified that the value of your account is below the
Fund's minimum account balance requirement. You would then have sixty days to increase your
account balance before the account is liquidated. Proceeds would be promptly paid to the
shareholder.
- -----------------------------------------------------------------------------------------------------------------------
EXCHANGE Exchanges between series of the Trust, and with other open-end Royce funds are permitted by
PRIVILEGE telephone or by mail. An exchange is treated as a redemption and purchase; therefore, you
could realize a taxable gain or loss on the transaction. Exchanges are accepted only if the
registrations and the tax identification numbers of the two accounts are identical. Minimum
investment requirements must be met when opening a new account by exchange and exchanges may
be made only for shares of a series or fund then offering its shares for sale in your state
of residence. The Trust reserves the right to revise or terminate the exchange privilege at
any time.
15
<PAGE>
- -----------------------------------------------------------------------------------------------------------------------
TRANSFERRING You may transfer the ownership of any of your Fund shares to another person by writing to:
OWNERSHIP The Royce Funds, c/o NFDS, P.O. Box 419012, Kansas City, MO 64141-6012. The request must be
in Good Order (see 'Redeeming Your Shares -- Definition of Good Order'). Before mailing your
request, please contact Shareholder Services (1-800-841-1180) for full instructions.
</TABLE>
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------
OTHER SERVICES: For more information about any of these services, please call Investor Information at 1-800-
221-4268.
Statements and A confirmation statement will be sent to you each time you have a transaction in your account
Reports and semi-annually. Financial reports will be mailed semi-annually. To reduce expenses, only
one copy of most shareholder reports may be mailed to a household. Please call Investor
Information if you need additional copies.
Tax-sheltered Shares of the Funds are available for purchase in connection with certain types of tax-
Retirement Plans sheltered retirement plans, including Individual Retirement Accounts (IRA's) for individuals
and 403(b)(7) Plans for employees of certain tax-exempt organizations.
These plans should be established with the Trust only after an investor has consulted with a
tax adviser or attorney. Information about the plans and the appropriate forms may be
obtained from Investor Information at 1-800-221-4268.
16
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
THE ROYCE FUNDS
ACCOUNT APPLICATION FORM
- ---------------------------------------------
Mail to: The Royce Funds c/o NFDS For help with this application, PLEASE READ THE INSTRUCTIONS ON THE REVERSE
PO Box 419012, or for more information, SIDE BEFORE YOU COMPLETE THIS FORM.
Kansas City, MO 64141-6012 call us at (800) 221-4268 PLEASE DO NOT USE THIS APPLICATION TO OPEN
A ROYCE FUND SPONSORED IRA OR
403(b)(7) RETIREMENT PLAN ACCOUNT.
- ---------------------------------------------
PLEASE PRINT, PREFERABLY WITH BLACK INK
</TABLE>
- ---------------------------------------------------------------
1 ACCOUNT REGISTRATION (Check one box)
[ ] INDIVIDUAL OR JOINT ACCOUNT
- ---------------------------------------------
Owner's Name: First, Initial, Last
- ---------------------------------------------
Owner's Social Security Number
- ---------------------------------------------
Joint Owner's Name: First, Initial, Last
JOINT ACCOUNTS WILL BE REGISTERED AS JOINT TENANTS WITH
RIGHT OF SURVIVORSHIP UNLESS OTHERWISE INDICATED.
[ ] GIFT OR TRANSFER TO MINOR
- ---------------------------------------------
Custodian's Name (One name only: First, Initial, Last)
- ---------------------------------------------
Name (One name only: First, Initial, Last)
- ---------------------------------------------
Minor's Social Security Number
under the ____________________________Uniform Gift/Transfer to Minors Act
(State of Minor's Residence)
[ ] TRUST (Including Corporate Retirement Plans)
- ---------------------------------------------
Trustee Name(s)
- ---------------------------------------------
Name of Trust or Retirement Plan
- ---------------------------------------------
Date of Trust Agreement
- ---------------------------------------------
For Benefit Of (Name, if applicable)
- ---------------------------------------------
Social Security Number or Taxpayer ID Number
[ ] OTHER ENTITIES
Type: [ ] Corporation [ ] Partnership [ ] Nominee
[ ] Foundation [ ] Charitable Organization
[ ] Other (____)
- ---------------------------------------------
Name of Entity
- ------------------- [ ] Tax-Exempt Entity Under
Taxpayer ID Number IRS Sec. 501(c)3)
- ---------------------------------------------
2 MAILING ADDRESS
- ---------------------------------------------
Street or PO Box Number
- ---------------------------------------------
City State Zip
- ------------------- -----------------------
Daytime Phone Evening Phone
- ---------------------------------------------------------------
3 ADVISER/DEALER INFORMATION
(must be completed to receive copies of account statements)
- ---------------------------------------------
Representative Name Rep. Number
- ---------------------------------------------
Firm Phone
- ---------------------------------------------
Address State Zip
- ---------------------------------------------------------------
4 INITIAL INVESTMENT
(see instructions below for initial investment minimums)
Royce Equity Income Fund (263) $________
Royce Micro-Cap Fund (264) $________
Royce Premier Fund (265) $________
- ---------------------------------------------------------------
5 METHOD OF PAYMENT
Payment of:
[ ] Initial Investment (check enclosed)
[ ] Telephone Order, previously submitted on
(Date) __________________________________________
Telephone order number _________________________
- ---------------------------------------------------------------
6 DIVIDEND AND CAPITAL GAIN PAYMENT
OPTIONS (check one box)
If no box is checked, all income dividends and capital gain distributions will
be reinvested.
[ ] Reinvest both dividends and capital gain distributions
[ ] Pay dividends in cash, reinvest capital gain distributions
[ ] Pay dividends and capital gain distributions in cash
- ---------------------------------------------------------------
7 EXPRESS SERVICE
To arrange for Express Service, please provide the information below. Passbook
savings accounts are not eligible.
A VOIDED CHECK MUST BE ATTACHED
Please indicate the type of Express Service you wish to establish:
[ ] AUTOMATIC INVESTMENT PLAN: On the ____ day each [ ] month [ ] quarter,
transfer $___________ from my bank account to purchase shares in my Royce
Fund account ($50 minimum). I wish to begin my plan in __________ (select
month).
<PAGE>
[ ] AUTOMATIC WITHDRAWAL PLAN: On the ____ day each month, redeem and transfer
$___________ from my Royce Fund account to my bank account ($100 minimum).
[ ] EXPEDITED PURCHASES AND REDEMPTIONS: To purchase or redeem shares at any
time, using a bank account to clear the transaction ($100 minimum).
[ ] WIRE REDEMPTIONS: To have redemption proceeds wired to my commercial bank
($1,000 minimum).
(APPLICATION MUST BE SIGNED ON REVERSE SIDE)
<PAGE>
- ---------------------------------------------------------------
8 SIGNATURE (Please be sure to sign below)
I am (we are) of legal age, have full capacity to make this investment, have
read the Prospectus for the Fund and agree to its terms. Neither the Fund nor
its transfer agent will be liable for any loss or expense for acting upon
written or telephone instructions reasonably believed to be genuine and in
accordance with the procedures described in the Prospectus.
As required by Federal law, I (we) certify under penalties of perjury (1) that
the Social Security or Taxpayer Identification Number provided above is correct
and (2) that the IRS has never notified me (us) that I am (we are) subject to
31% backup withholding, or has notified me (us) that I am (we are) no longer
subject to such backup withholding. (Note: if part (2) of this sentence is not
true in your case, please strike out that part before signing.
CHECK ONE:
[ ] U.S. Citizen [ ] Resident Alien
[ ] Non-Resident Alien ________________________________
(Country of Citizenship)
___________________________________________________________
Signature of Owner, Trustee or Custodian Date
___________________________________________________________
Signature of Joint Owner or Co-trustee (if any) Date
- ---------------------------------------------------------------
ACCOUNT REGISTRATION INSTRUCTIONS
If you need assistance in completing this form, please call us at (800)
221-4268.
This form cannot be used to open a Royce Fund sponsored IRA or 403(b)(7)
account. Please call us to receive the appropriate retirement application
forms.
- ---------------------------------------------------------------
1 ACCOUNT REGISTRATION
Please provide the information exactly as you wish it to appear on your account
(e.g., as your name appears on your other legal/financial records such as your
bank account, will, etc.). Please provide your Taxpayer Identification Number to
avoid withholding of taxes. For most individuals, this is your Social Security
Number.
- ---------------------------------------------------------------
2 MAILING ADDRESS
Please provide your complete mailing address.
- ---------------------------------------------------------------
3 ADVISER/DEALER INFORMATION
This section should be completed by your financial adviser or dealer if
applicable.
- ---------------------------------------------------------------
4 INITIAL INVESTMENT
Please indicate the dollar amount you wish to invest. Minimum initial investment
s $2,000 ($500 minimum for accounts opened with an Automatic Investment Plan).
- ---------------------------------------------------------------
5 METHOD OF PAYMENT
Checks should be made payable to The Royce Fund. If you have placed a telephone
order to open your account and purchase shares, please include the order number
on the application. Payment is due within 3 business days after placing the
order.
- ---------------------------------------------------------------
6 DIVIDEND AND CAPITAL GAIN PAYMENT
OPTIONS
All distributions will be reinvested if a box is not checked.
- ---------------------------------------------------------------
7 EXPRESS SERVICE
Express Service is a convenient way to purchase or sell shares automatically or
at your discretion. You may choose from the following Express Service options:
AUTOMATIC INVESTMENT PLAN -- automatically purchases shares in your Royce Fund
account by transferring money from your bank account on a monthly or quarterly
basis.
AUTOMATIC WITHDRAWAL PLAN -- automatically sells shares in your Royce Fund
account and transfers the money to your bank account on a monthly basis.
$25,000 minimum account balance required to initiate Plan.
EXPEDITED PURCHASES AND REDEMPTIONS -- enables you, at your discretion, to
transfer up to $200,000 on a purchase or $50,000 on a redemption between your
Royce Fund account and your bank account with a toll-free telephone call.
WIRE REDEMPTIONS -- allows for telephone redemption proceeds to be wired to
your commercial bank. Institutional investors must attach wire instructions in
lieu of a voided check.
To arrange for Express Service, you must check the appropriate box and ATTACH A
VOIDED CHECK. Passbook accounts are not eligible for Express Service, and your
bank must be a member of the Automated Clearing House (ACH) network.
Please be sure to specify the amount of the investment/ withdrawal and the
transaction date. You may not establish both an Automatic Investment Plan and an
Automatic Withdrawal Plan on the same account. Expedited Purchases and
Redemptions may be established with either of the automatic plans. A signature
guarantee may be required if your bank registration does not match your Royce
Fund account registration. A signature guarantee may be obtained from a bank,
broker or other guarantor that NFDS deems acceptable.
Please allow 3 weeks for set up before using Express Service.
- ---------------------------------------------------------------
8 SIGNATURE
Please sign exactly as your name is registered in Section 1. Both owners must
sign on joint accounts.
<PAGE>
__________________________________
THE ROYCE FUNDS
1414 Avenue of the Americas
New York, NY 10019
1-800-221-4268
INVESTMENT ADVISER
Quest Advisory Corp.
1414 Avenue of the Americas
New York, NY 10019
DISTRIBUTOR
Quest Distributors, Inc.
1414 Avenue of the Americas
New York, NY 10019
TRANSFER AGENT
State Street Bank and Trust Company
c/o NFDS
P.O. Box 419012
Kansas City, MO 64141-6012
1-800-841-1180
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1713
Boston, MA 02105
OFFICERS
Charles M. Royce, President and Treasurer
Jack E. Fockler, Jr., Vice President
W. Whitney George, Vice President
Daniel A. O'Byrne, Vice President
and Asst. Secretary
Susan I. Grant, Secretary
__________________________________
['RECYCLED' LOGO]
__________________________________
THE ROYCE FUNDS
- ----------------------------------------------------
ROYCE PREMIER FUND
ROYCE EQUITY INCOME FUND
ROYCE MICRO-CAP FUND
NO-LOAD MUTUAL FUNDS
PROSPECTUS
MAY 2, 1995
__________________________________
<PAGE>
The Royce Funds
- --------------------------------------------------------------------------------
Royce Low-Priced Stock Fund
Royce Total Return Fund
- --------------------------------------------------------------------------------
PROSPECTUS -- May 2, 1995
- --------------------------------------------------------------------------------
NEW ACCOUNT AND GENERAL INFORMATION: Investor Information -- 1-800-221-4268
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES--1-800-841-1180 INVESTMENT ADVISOR SERVICES--1-800-33-ROYCE
- --------------------------------------------------------------------------------
INVESTMENT
OBJECTIVES AND
POLICIES
Royce Low-Priced Stock Fund and Royce Total Return Fund (the "Funds") are
no-load series of The Royce Fund (the "Trust"), a diversified, open-end
management investment company. The Funds have in common an investment focus on
small companies that are selected on a value basis.
Royce Low-Priced Stock Fund seeks long-term capital appreciation by investing
primarily in common stocks and securities convertible into common stocks of
companies with shares that trade at prices below $15 per share.
Royce Total Return Fund seeks long-term growth of capital and current income by
investing primarily in a broadly diversified portfolio of dividend-paying common
stocks.
There can be no assurance that the Funds will achieve their objectives. The
Trust is currently offering shares of eight series. This Prospectus relates to
the above Funds only.
- --------------------------------------------------------------------------------
TO OPEN AN
ACCOUNT
Please complete, sign and return the Account Application Form. If you have any
questions regarding the Funds or if you need help in completing the Application
Form, please call Investor Information. The minimum initial investment is
$2,000, except for IRA's and accounts establishing Automatic Investment Plans,
which have $500 minimums. The Funds are offered on a no-load basis.
- --------------------------------------------------------------------------------
ABOUT THIS
PROSPECTUS
This Prospectus sets forth concisely the information that you should know about
a Fund before you invest. It should be retained for future reference. A
"Statement of Additional Information" containing further information about the
Funds and the Trust has been filed with the Securities and Exchange Commission.
The Statement is dated May 2, 1995 and has been incorporated by reference into
this Prospectus. A copy may be obtained without charge by writing to the Trust
or calling Investor Information.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EX-
CHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Fund Expenses................................. 2
Financial Highlights.......................... 3
Investment Performance........................ 4
Investment Objectives......................... 4
Investment Policies........................... 4
Investment Risks.............................. 5
Investment Limitations........................ 6
Management of the Trust ...................... 7
General Information........................... 8
Page
Dividends, Distributions and Taxes............ 8
Net Asset Value Per Share..................... 9
SHAREHOLDER GUIDE
Opening an Account and Purchasing Shares...... 10
Choosing a Distribution Option................ 12
Important Account Information................. 12
Redeeming Your Shares......................... 13
Exchange Privilege............................ 15
Transferring Ownership........................ 15
Other Services................................ 15
</TABLE>
- -------------------------------------------------------------------------------
FUND EXPENSES
The Funds are
no-load and no
12b-1 fees are
being charged
The following table illustrates all expenses and fees that you would incur as a
shareholder of the Funds.
Shareholder Transaction Expenses
<TABLE>
<S> <C>
Sales Load Imposed on Purchases........................................ None
Sales Load Imposed on Reinvested Dividends............................. None
Deferred Sales Load.................................................... None
Redemption Fee -- 1 Year or More After Initial Purchase................ None
Early Redemption Fee -- Less Than 1 Year After Initial Purchase........ 1%
</TABLE>
Annual Fund Operating Expenses
<TABLE>
<CAPTION>
Royce Royce
Low-Priced Total
Stock Return
Fund Fund
----------- --------
<S> <C> <C>
Management Fees (after waivers).............. .00% .00%
12b-1 Fees (after waivers)................... .00% .00%
Other Expenses............................... 1.89% 1.96%
Total Operating Expenses (after waivers)..... 1.89% 1.96%
</TABLE>
- -------------------------------------------
The purpose of the above table is to assist you in understanding the various
costs and expenses that you would bear directly or indirectly as an investor in
the Funds. Management fees would have been 1.50% and 1.00%, 12b-1 fees would
have been .25% and total operating expenses would have been 3.63% and 3.21% for
Royce Low-Priced Stock Fund and Royce Total Return Fund, respectively, without
the waivers of management fees by Quest Advisory Corp. ("Quest"), the Funds'
investment adviser, and of the 12b-1 fees by Quest Distributors, Inc. ("QDI"),
the Funds' distributor.
3
<PAGE>
The following examples illustrate the expenses that you would incur on a $1,000
investment over various periods, assuming a 5% annual rate of return and
redemption at the end of each period.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Royce Low-Priced Stock Fund...... $20 $62 $107 $232
Royce Total Return Fund.......... 20 62 107 232
</TABLE>
These examples should not be considered representations of past or future
expenses or performance. Actual expenses may be higher or lower than those
shown.
- --------------------------------------------------------------------------------
FINANCIAL
HIGHLIGHTS
(For a share out-
standing through-
out each period)
The following financial highlights are part of the Funds' financial statements
and have been audited by Coopers & Lybrand L.L.P., independent accountants. The
Funds' financial statements and Coopers & Lybrand L.L.P.'s report on them are
included in the Funds' Annual Reports to Shareholders and are incorporated by
reference into the Statement of Additional Information and this Prospectus.
Further information about the Funds' performance is contained elsewhere in this
Prospectus and in the Funds' Annual Report to Shareholders for 1994, which may
be obtained without charge by calling Investor Information.
<TABLE>
<CAPTION>
Royce Total Return Royce Low-Priced Stock
Year ended Period ended Year ended Period ended
December 31, December 31, December 31, December 31,
1994 1993 (2) 1994 1993 (2)
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period............................. $5.00 $5.00 $5.01 $5.00
Income from Investment
Operations
Net investment income (1)...... 0.02 0.00 (0.03) 0.00
Net gains (losses) on
securities (both
realized and unrealized)..... 0.24 0.00 0.18 0.01
Total from Investment Operations 0.26 0.00 0.15 0.01
Less Distributions
Dividends (from net
investment income)........... (0.02) 0.00 (0.00) 0.00
Distributions (from capital gains) (0.12) 0.00 (0.09) 0.00
Total Distributions......... (0.14) 0.00 (0.09) 0.00
Net Asset Value, End of Period..... $5.12 $5.00 $5.07 $5.01
Total Return....................... 5.2% 0.0% 3.0% 0.3%
Ratios/Supplemental Data
Net Assets, End of Period (000's) $1,656 $451 $1,880 $452
Ratio of Expenses to
Average Net Assets (1)....... 1.96% 0.29%* 1.89% 0.29%*
Ratio of Net Investment
Income to Average Net Assets. 0.49% -0.29%* -1.11% -0.29%*
Portfolio Turnover Rate........ 88% 0% 95% 0%
</TABLE>
(1) Net investment income and the ratio of expenses to average net assets are
shown after waiver of fees by the adviser and distributor. Absent such waivers,
the ratios of expenses to average net assets would have been 3.21% and 2.04% for
Royce Total Return and 3.63% and 2.04% for Royce Low-Priced Stock Fund for 1994
and the period ended December 31, 1993, respectively.
(2) From inception of the Funds on December 15, 1993.
* Annualized.
4
<PAGE>
- -------------------------------------------------------------------------------
INVESTMENT
PERFORMANCE
Total return is the
change in value over
a given time period,
assuming reinvestment
of any dividends and
capital gains
distributions
From time to time, the Funds may include in communications to current or
prospective shareholders figures reflecting total return over various time
periods. "Total return" is the rate of return on an amount invested in a Fund
from the beginning to the end of the stated period. "Average annual total
return" is the annual compounded percentage change in the value of an amount
invested in a Fund from the beginning until the end of the stated period. Total
returns are historical measures of past performance and are not intended to
indicate future performance. Total returns assume the reinvestment of all
dividends and capital gains distributions. The figures do not reflect a Fund's
early redemption fee because it applies only to redemptions in accounts open for
less than one year.
The Funds' average annual total returns for the periods ended December 31, 1994
were:
<TABLE>
<CAPTION>
One Since
Year Inception *
<S> <C> <C>
Royce Low-Priced Stock Fund......... 2.98% 3.05%
Royce Total Return Fund............. 5.12% 4.91%
</TABLE>
* Inception Date was December 31, 1993.
- --------------------------------------------------------------------------------
INVESTMENT
OBJECTIVES
Each Fund has different investment objectives and/or its own method of achieving
its objectives and is designed to meet different investment needs. Since certain
risks are inherent in owning any security, there can be no assurance that any of
the Funds will achieve their objectives.
Royce Low-Priced Stock Fund's investment objective is long-term capital
appreciation. It seeks to achieve this objective primarily through investments
in common stocks and securities convertible into common stocks of companies
selected on a value basis, with shares that trade at prices below $15 per share.
Royce Total Return Fund's investment objective is an equal focus on both
long-term growth of capital and current income. It seeks to achieve this
objective through investments in a broadly diversified portfolio of
dividend-paying common stocks of companies selected on a value basis.
These investment objectives are fundamental and may not be changed without the
approval of a majority of the Fund's outstanding voting shares.
- --------------------------------------------------------------------------------
INVESTMENT
POLICIES
The Funds invest on a
"value" basis
Quest uses a "value" method in managing the Funds' assets. In its selection
process, Quest puts primary emphasis on various internal returns indicative of
profitability, balance sheet quality, cash flows and the relationships that
these factors have to the current price of a given security. This is in contrast
to other methods that primarily focus on the future prospects of a company and
concentrate on high growth or emerging growth companies.
5
<PAGE>
The Funds invest
primarily in small
companies
Quest's value method is based on its belief that the securities of certain small
companies may sell at a discount from its estimate of such companies' "business
worth". Quest attempts to identify and invest in these securities for each of
the Funds, with the expectation that this "value discount" will narrow over time
and thus provide capital appreciation for the Funds. The securities in which the
Funds invest may be traded on securities exchanges or in the over-the-counter
market.
ROYCE LOW-PRICED STOCK FUND
Normally, Royce Low-Priced Stock Fund will invest at least 65% of its assets in
common stocks and securities convertible into common stocks of companies with
shares that trade at prices below $15 at the time of initial investment. In
addition, at least 65% of these securities will be issued by companies with
stock market capitalizations under $1,000,000,000 at the time of investment. In
determining whether a convertible security is low-priced, Quest may consider
either the price of the convertible security itself or the price of the security
into which it is convertible. The remainder of its assets may be invested in
stocks of companies with higher prices or higher stock market capitalizations
and non- convertible preferred stocks and bonds.
ROYCE TOTAL RETURN FUND
In accordance with its dual objective of seeking both capital appreciation
(realized and unrealized) and current income, Royce Total Return Fund will
normally invest at least 80% of its assets in common stocks. At least 90% of
these securities will be dividend-paying, and at least 65% of these securities
will be issued by companies with stock market capitalizations under
$1,000,000,000 at the time of investment. The remainder of the Fund's assets may
be invested in securities with higher stock market capitalizations,
non-dividend-paying common stocks and convertible and non-convertible
securities. While most of the Fund's securities will be income-producing, the
composite yield of the Fund will vary and may be either higher or lower than the
composite yield of the stocks in the Standard & Poor's 500 Index.
- --------------------------------------------------------------------------------
INVESTMENT
RISKS
The Funds are subject
to certain investment
risks
As mutual funds investing primarily in common stocks and/or securities
convertible into common stocks, the Funds are subject to market risk, that is,
the possibility that common stock prices will decline over short or even
extended periods. The Funds may invest in securities of companies that are not
well-known to the investing public, may not have significant institutional
ownership and may have cyclical, static or only moderate growth prospects. The
stocks of such companies may be more volatile in price and have lower trading
volumes than the larger capitalization stocks included in the S&P 500 Index.
Accordingly, Quest's investment method requires a long-term investment horizon.
The Funds should not be used to play short-term swings in the market.
Quest may employ a more aggressive approach to investing for Royce Low-Priced
Stock Fund that involves a substantially higher than average portfolio turnover
rate. In addition, Royce Low-Priced Stock Fund will invest in many companies
with low price securities that are followed by relatively few securities
analysts, with the result that there tends to be less publicly available
information concerning the securities. Companies in which Royce
6
<PAGE>
Low-Priced Stock Fund is likely to invest also may have limited product lines,
markets or financial resources, may lack management depth and may have limited
trading volumes. Some issuers of low-priced securities may be financially
distressed or involved in liquidation, reorganization or recapitalization.
Finally, specifically because of their lower prices relative to other companies,
these securities may be subject to more abrupt or erratic market movements than
higher priced securities of larger, more established companies or the market
averages in general.
- --------------------------------------------------------------------------------
INVESTMENT
LIMITATIONS
The Funds have
adopted certain
fundamental
limitations
Each of the Funds has adopted certain fundamental limitations, designed to
reduce its exposure to specific situations, which may not be changed without the
approval of a majority of its outstanding voting shares, as that term is defined
in the Investment Company Act of 1940 (the "1940 Act"). These limitations are
set forth in the Statement of Additional Information and provide, among other
things, that no Fund will:
(a) with respect to 75% of its assets, invest more than 5% of its assets in
the securities of any one issuer, excluding obligations of the U.S.
Government;
(b) invest more than 25% of its assets in any one industry; or
(c) invest in companies for the purpose of exercising control of
management.
OTHER INVESTMENT
PRACTICES:
In addition to investing primarily in the equity and fixed income securities
described above, the Funds may follow a number of additional investment
practices.
Short-term fixed
income securities
The Funds may invest in short-term fixed income securities for temporary
defensive purposes, to invest uncommitted cash balances or to maintain liquidity
to meet shareholder redemptions. These securities consist of United States
Treasury bills, domestic bank certificates of deposit, high-quality commercial
paper and repurchase agreements collateralized by U.S. Government securities. In
a repurchase agreement, a bank sells a security to the Fund at one price and
agrees to repurchase it at the Fund's cost plus interest within a specified
period of seven or fewer days. In these transactions, which are, in effect,
secured loans by the Fund, the securities purchased by the Fund will have a
value equal to or in excess of the value of the repurchase agreement and will be
held by the Fund's custodian bank until repurchased. Should a Fund implement a
temporary investment policy, its investment objectives may not be achieved.
Securities lending
Each Fund may lend up to 25% of its assets to qualified institutional investors
for the purpose of realizing additional income. Loans of securities of the Funds
will be collateralized by cash or securities issued or guaranteed by the United
States Government or its agencies or instrumentalities. The collateral will
equal at least 100% of the current market value of the loaned securities. The
risks of securities lending include possible delays in receiving additional
collateral or in recovery of loaned securities or loss of rights in the
collateral if the borrower defaults or becomes insolvent.
7
<PAGE>
Foreign securities
Each of the Funds may invest up to 10% of its assets in debt and/or equity
securities of foreign issuers. Foreign investments involve certain risks, such
as political or economic instability of the issuer or of the country of issue,
fluctuating exchange rates and the possibility of imposition of exchange
controls. These securities may also be subject to greater fluctuations in price
than the securities of U.S. corporations, and there may be less publicly
available information about their operations. Foreign companies may not be
subject to accounting standards or governmental supervision comparable to U.S.
companies, and foreign markets may be less liquid or more volatile than U.S.
markets and may offer less protection to investors such as the Funds.
Lower-rated
debt securities
Up to 20% of Total Return Fund's assets and up to 35% of Low-Priced Stock Fund's
assets may be invested in debt securities in the lowest category of investment
grade debt. These bonds may have speculative characteristics, and changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade bonds. Each of the Funds may also invest no more than 5% of its net assets
in lower-rated (high-risk) non-convertible debt securities, which are below
investment grade.
Portfolio turnover
Although the Funds generally seek to invest for the long term, they retain the
right to sell securities regardless of how long they have been held. The Funds'
annual portfolio turnover rates are shown in the "Financial Highlights".
Portfolio turnover rates for the Funds ranged from 88% to 95% for the Funds in
1994, which is higher than those of other funds. A 100% turnover rate occurs,
for example, if all of a Fund's portfolio securities are replaced in one year.
High portfolio activity increases the Fund's transaction costs, including
brokerage commissions.
- --------------------------------------------------------------------------------
MANAGEMENT OF
THE TRUST
Quest Advisory Corp.
is responsible for
the management of
the Funds' portfolios
The Trust's business and affairs are managed under the direction of its Board of
Trustees. Quest, the Funds' investment adviser, is responsible for the
management of the Funds' portfolios, subject to the authority of the Board of
Trustees. Quest was organized in 1967 and has been the Funds' adviser since
their inception. Charles M. Royce, Quest's President, Chief Investment Officer
and sole voting shareholder since 1972, is primarily responsible for supervising
Quest's investment management activities. Mr. Royce is assisted by Thomas R.
Ebright, Jack E. Fockler, Jr. and W. Whitney George, Vice Presidents of Quest,
all of whom participate in the investment management activities, with their
specific responsibilities varying from time to time. Quest is also the
investment adviser to Royce Value, Royce Equity Income, Royce Premier, Royce
Micro-Cap and Royce Global Services Funds, which are other series of the Trust,
to Pennsylvania Mutual Fund, and to other investment and non- investment company
accounts.
As compensation for its services to the Funds, Quest is entitled to receive
annual advisory fees of 1% of the average net assets of Royce Total Return Fund
and 1.5% of the average net assets of Royce Low-Priced Stock Fund. These fees
are payable monthly from the assets of the Fund involved and are higher
(substantially higher in the case of Royce Low- Priced Stock Fund) than those
paid by most other mutual funds with similar investment objectives. For 1994,
Quest voluntarily waived its fees on the Funds.
8
<PAGE>
Quest selects the brokers who execute the purchases and sales of the Funds'
portfolio securities and may place orders with brokers who provide brokerage and
research services to Quest. Quest is authorized, in recognition of the value of
brokerage and research services provided, to pay commissions to a broker in
excess of the amount which another broker might have charged for the same
transaction.
Quest Distributors, Inc. ("QDI"), which is wholly-owned by Charles M. Royce,
acts as distributor of the Funds' shares. The Trust has adopted a distribution
plan for the Funds pursuant to Rule 12b-1. The plan provides for payment to QDI
of .25% per annum of the average net assets of the Funds, which may be used for
payment of sales commissions and other fees to those who introduce investors to
the Funds and for various other promotional, sales-related and servicing costs
and expenses. QDI has committed to waive its fees through 1995.
- --------------------------------------------------------------------------------
GENERAL
INFORMATION
The Royce Fund (the "Trust") is a Massachusetts business trust registered with
the Securities and Exchange Commission as a diversified, open-end management
investment company. The Trustees have the authority to issue an unlimited number
of shares of beneficial interest, without shareholder approval, and these shares
may be divided into an unlimited number of series. Shareholders are entitled to
one vote per share. Shares vote by individual series on all matters, except that
shares are voted in the aggregate and not by individual series when required by
the 1940 Act and that if the Trustees determine that a matter affects only one
series, then only shareholders of that series are entitled to vote on that
matter.
Meetings of shareholders will not be held except as required by the 1940 Act or
other applicable law. A meeting will be held to vote on the removal of a Trustee
or Trustees of the Trust if requested in writing by the holders of not less than
10% of the outstanding shares of the Trust.
The custodian for securities and cash of the Funds is State Street Bank and
Trust Company. State Street, through its agent National Financial Data Services
("NFDS"), also serves as the Funds' Transfer Agent. Coopers & Lybrand L.L.P.
serves as independent accountants for the Funds.
- --------------------------------------------------------------------------------
DIVIDENDS,
DISTRIBUTIONS
AND
TAXES
Each Fund pays dividends from net investment income (if any) and distributes any
net realized capital gains annually in December. Dividends and distributions
will be automatically reinvested in additional shares of the Fund unless the
shareholder chooses otherwise.
The Funds pay
dividends and capital
gains annually in
December
Shareholders will receive information annually as to the tax status of
distributions made by each Fund for the calendar year. For Federal income tax
purposes, all distributions by a Fund are taxable to shareholders when declared,
whether received in cash or reinvested in shares. Distributions paid from a
Fund's net investment income and short-term capital gains are taxable to
shareholders as ordinary income dividends. A portion of a Fund's dividends may
qualify for the corporate dividends-received deduction, subject to certain
limitations. The portion of a Fund's dividends qualifying for such deduction is
generally limited to the aggregate taxable dividends received by the Fund from
domestic
9
<PAGE>
corporations.
Distributions paid from long-term capital gains of a Fund are treated by a
shareholder for Federal income tax purposes as long-term capital gains,
regardless of how long a shareholder has held Fund shares. If a shareholder
disposes of shares held for six months or less at a loss, such loss will be
treated as a long-term capital loss to the extent of any long-term capital gains
reported by the shareholder with respect to such shares.
The redemption of shares is a taxable event, and a shareholder may realize a
capital gain or capital loss. Each Fund will report to redeeming shareholders
the proceeds of their redemptions. However, because the tax consequences of a
redemption will also depend on the shareholder's basis in the redeemed shares
for tax purposes, shareholders should retain their account statements for use in
determining their tax liability on a redemption.
At the time of a shareholder's purchase, a Fund's net asset value may reflect
undistributed income or capital gains. A subsequent distribution of these
amounts by a Fund will be taxable to the shareholder even though the
distribution economically is a return of part of the shareholder's investment.
The Funds are required to withhold 31% of taxable dividends, capital gain
distributions and redemptions paid to non-corporate shareholders who have not
complied with Internal Revenue Service taxpayer identification regulations.
Shareholders may avoid this withholding requirement by certifying on the Account
Application Form their proper Social Security or Taxpayer Identification Number
and certifying that they are not subject to backup withholding.
- ------------------------
NET ASSET VALUE
PER SHARE
The discussion of Federal income taxes above is for general information only.
Shareholders may also be subject to state and local taxes on their investment.
Investors should consult their own tax advisers concerning the tax consequences
of an investment in the Funds. The Statement of Additional Information includes
an additional description of Federal income tax aspects that may be relevant to
a shareholder.
Net asset value per
share (NAV) is
determined each day
the New York Stock
Exchange is open
Fund shares are purchased and redeemed at their net asset value per share next
determined after an order is received by the Funds' transfer agent. Net asset
value per share is determined by dividing the total value of the Fund's
investments and other assets, less any liabilities, by the number of outstanding
shares of the Fund. Net asset value per share is calculated at the close of
regular trading on the New York Stock Exchange on each day the Exchange is open
for business.
In determining net asset value, securities listed on an exchange or the Nasdaq
National Market System are valued on the basis of the last reported sale price
prior to the time the valuation is made or, if no sale is reported for that day,
at their bid price for exchange-listed securities and at the average of their
bid and ask prices for Nasdaq securities. Quotations 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
10
<PAGE>
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.
OPENING AN
ACCOUNT AND
PURCHASING
SHARES
SHAREHOLDER GUIDE
Each Fund's shares are offered on a no-load basis. New accounts (other than IRA
or 403(b)(7) accounts) can be opened either by mail, by telephone or by wire. An
Account Application must be completed and returned, regardless of the method
selected. If you need assistance with the account application or have any
questions about the funds, please call investor information. note: for certain
types of account registrations (e.g., corporations, partnerships, foundations,
associations, other organizations, trusts or powers of attorney), please call
investor information to determine if you need to provide additional forms with
your application.
Minimum Initial
Investments
<TABLE>
<S> <C>
Type Of Account Minimum
Regular Accounts $2,000
Iras * $500
Accounts Established With Automatic $500
Investment Plan Or Direct Deposit Plan
403(B)(7) Accounts * None
</TABLE>
* Separate forms must be used for opening IRAs or 403(b)(7) accounts; please
call Investor Information at 1-800- 221-4268 if you need these forms.
Additional
Investments
Subsequent investments may be made by mail ($50 minimum), telephone ($500
minimum), wire ($1,000 minimum) or Express Service (a system of electronic funds
transfer from your bank account).
- --------------------------------------------------------------------------------
NEW ACCOUNT
PURCHASING BY MAIL:
Complete and sign the
enclosed Account
Application Form
Please include the amount of your initial
investment on the Application, make your
check payable to The Royce Fund, and
mail to:
The Royce Funds
P.O. Box 419012
Kansas City, MO 64141-6012
For express or
registered mail,
send to:
The Royce Funds
c/o National Financial Data Services
1004 Baltimore, 5th Floor
Kansas City, MO 64105
- --------------------------------------------------------------------------------
PURCHASING BY
TELEPHONE:
To open an account by telephone, you
should call Investor Information before
4:00 p.m., Eastern time. You will be
given a confirming order number for your
purchase. This number must be placed on
your completed Application before
mailing. If a completed Application is
not received, the account may be subject
to backup withholding of Federal income
taxes.
ADDITIONAL INVESTMENTS
TO EXISTING ACCOUNTS
Additional investments should include
the Invest-by-Mail remittance form
attached to your Fund confirmation
statements. Please make your check
payable to The Royce Fund, write your
account number on your check and, using
the return envelope provided, mail to
the address indicated on the
Invest-by-Mail form.
All written requests should be mailed to
one of the addresses indicated for new
accounts.
- --------------------------------------------------------------------------------
Subsequent telephone purchases ($500
minimum) may also be made by calling
Investor Information. For all telephone
purchases, payment is due within three
business days and may be made by wire or
personal, business or bank check,
subject to collection.
11
<PAGE>
PURCHASING BY WIRE:
Money should be wired to:
State Street Bank and Trust Company
ABA 011000028 DDA 9904-712-8
Ref: (Name of Fund)
Order Number or Account Number____________________
Account Name _____________________________________
BEFORE WIRING:
For a new account,
please contact Investor
Information at
1-800-221-4268
To ensure proper receipt, please be sure your bank includes the name of the Fund
and your order number (for telephone purchases) or account number. If you are
opening a new account, you must call Investor Information to obtain an order
number, and complete the Account Application Form and mail it to the "New
Account" address above after completing your wire arrangement. Note: Federal
Funds wire purchase orders will be accepted only when the Fund and Custodian are
open for business.
- --------------------------------------------------------------------------------
PURCHASING BY
EXPRESS
SERVICE:
You can purchase shares automatically or at your discretion through the
following options:
EXPEDITED PURCHASE OPTION permits you, at your discretion, to transfer funds
($100 minimum and $200,000 maximum) from your bank account to purchase shares in
your Royce Fund account by telephone.
AUTOMATIC INVESTMENT PLAN allows you to make regular, automatic transfers ($50
minimum) from your bank account to purchase shares in your Royce Fund account on
the monthly or quarterly schedule you select.
To establish the Expedited Purchase Option and/or the Automatic Investment Plan,
please provide the appropriate information on the Account Application Form and
ATTACH A VOIDED CHECK. We will send you a confirmation of Express Service
activation. Please wait three weeks before using the service.
To make an Expedited Purchase, please call Shareholder Services at
1-800-841-1180 before 4:00 p.m., Eastern time.
PAYROLL DIRECT DEPOSIT PLAN AND GOVERNMENT DIRECT DEPOSIT PLAN let you have
investments ($50 minimum) made from your net payroll or government check into
your existing Royce Fund account each pay period. Your employer must have direct
deposit capabilities through ACH (Automated Clearing House) available to its
employees. You may terminate participation in these programs by giving written
notice to your employer or government agency, as appropriate. The Fund is not
responsible for the efficiency of the employer or government agency making the
payment or any financial institution transmitting payments.
12
<PAGE>
To initiate a Direct Deposit Plan, you must complete an Authorization for Direct
Deposit form which may be obtained from Investor Information by calling
1-800-221-4268.
- --------------------------------------------------------------------------------
CHOOSING A
DISTRIBUTION
OPTION
You may select one of three distribution options:
1. Automatic Reinvestment Option--Both dividends and capital gain distributions
will be reinvested in additional Fund shares. This option will be selected
for you automatically unless you specify one of the other options.
2. Cash Dividend Option--Your dividends will be paid in cash and your capital
gain distributions will be reinvested in additional Fund shares.
3. All Cash Option--Both dividends and capital gains distributions will be paid
in cash.
You may change your option by calling Shareholder Services at 1-800-841-1180.
- --------------------------------------------------------------------------------
IMPORTANT
ACCOUNT
INFORMATION
The easiest way to establish optional services on your account is to select the
options you desire when you complete your Account Application Form. If you want
to add or change shareholder options later, you may need to provide additional
information and a signature guarantee. Please call Shareholder Services at
1-800-841-1180 for further assistance.
Signature Guarantees
For our mutual protection, we may require a signature guarantee on certain
written transaction requests. A signature guarantee verifies the authenticity of
your signature and may be obtained from banks, brokerage firms and any other
guarantor that our transfer agent deems acceptable. A signature guarantee cannot
be provided by a notary public.
Certificates
Certificates for whole shares will be issued upon request. If a certificate is
lost, stolen or destroyed, you may incur an expense to replace it.
Purchases Through
Service Providers
If you purchase shares of a Fund through a program of services offered or
administered by a broker-dealer, financial institution or other service
provider, you should read the program materials provided by the service
provider, including information regarding fees which may be charged, in
conjunction with this prospectus. Certain shareholder servicing features of a
Fund may not be available or may be modified in connection with the program of
services offered. When shares of a Fund are purchased in this way, the service
provider, rather than the customer, may be the shareholder of record of the
shares. Certain service providers may receive compensation from the Funds, QDI
and/or Quest for providing such services.
Telephone
Transactions
Neither the Funds nor their transfer agent will be liable for following
instructions communicated by telephone that are reasonably believed to be
genuine. The transfer agent uses certain procedures designed to confirm that
telephone instructions are genuine, which may include requiring some form of
personal identification prior to acting on the instructions, providing written
confirmation of the transaction and/or recording incoming
13
<PAGE>
calls, and if it does not follow such procedures, the Fund or the Transfer Agent
may be liable for any losses due to unauthorized or fraudulent transactions.
Nonpayment
If your check or wire does not clear, or if payment is not received for any
telephone purchase, the transaction will be cancelled and you will be
responsible for any loss the Fund incurs. If you are already a shareholder, the
Fund can redeem shares from any identically registered account in the Fund as
reimbursement for any loss incurred.
Trade Date for
purchases
Your TRADE DATE is the date on which your account is credited. If your purchase
is made by telephone, check, Federal Funds wire or exchange and is received by
the close of regular trading on the New York Stock Exchange (generally 4:00
p.m., Eastern time), your trade date is the date of receipt. If your purchase is
received after the close of regular trading on the Exchange, your trade date is
the next business day. Your shares are purchased at the net asset value
determined on your trade date.
In order to prevent lengthy processing delays caused by the clearing of foreign
checks, the Funds will accept only a foreign check which has been drawn in U.S.
dollars and has been issued by a foreign bank with a United States correspondent
bank.
The Trust reserves the right to suspend the offering of Fund shares to new
investors. The Trust also reserves the right to reject any specific purchase
request.
- --------------------------------------------------------------------------------
REDEEMING YOUR
SHARES:
REDEEMING BY MAIL:
You may redeem any portion of your account at any time. You may request a
redemption in writing or by telephone. Redemption proceeds normally will be sent
within two business days after the receipt of the request in Good Order.
Requests should be mailed to The Royce Funds, c/o NFDS, P.O. Box 419012, Kansas
City, MO 64141-6012. (For express or registered mail, send your request to The
Royce Funds, c/o NFDS, 1004 Baltimore, 5th Floor, Kansas City, MO 64105.)
Definition of
Good Order
The redemption price of shares will be their net asset value next determined
after NFDS has received all required documents in Good Order.
GOOD ORDER means that the request includes the following:
1. The account number and Fund name.
2. The amount of the transaction (specified in dollars or shares).
3. Signatures of all owners exactly as they are registered on the account.
4. Signature guarantees if the value of the shares being redeemed exceeds
$50,000 or if the payment is to be sent to an address other than the
address of record or is to be made to a payee other than the
shareholder.
5. Certificates, if any are held.
6. Other supporting legal documentation that might be required, in the case
of retirement plans, corporations, trusts, estates and certain other
accounts.
14
<PAGE>
If you have any questions about what is required as it pertains to your request,
please call Shareholder Services at 1-800-841-1180.
- --------------------------------------------------------------------------------
REDEEMING BY
TELEPHONE:
Shareholders who have not established Express Service may redeem up to $50,000
of their Fund shares by telephone, provided the proceeds are mailed to their
address of record. If preapproved, higher maximums may apply to institutional
accounts. To redeem shares by telephone, you or your pre-authorized
representative may call Shareholder Services at 1-800-841-1180. Redemption
requests received by telephone prior to the close of regular trading on the New
York Stock Exchange (generally 4:00 p.m., Eastern time) are processed on the day
of receipt; redemption requests received by telephone after the close of regular
trading on the Exchange are processed on the business day following receipt.
Telephone redemption service is not available for Trust-sponsored retirement
plan accounts or if certificates are held. Telephone redemptions will not be
permitted for a period of sixty days after a change in the address of record.
See also "Important Account Information- Telephone Transactions".
- --------------------------------------------------------------------------------
REDEEMING BY
EXPRESS
SERVICE:
If you select the Express Service AUTOMATIC WITHDRAWAL option, shares will be
automatically redeemed from your Fund account and the proceeds transferred to
your bank account according to the schedule you have selected. You must have at
least $25,000 in your Fund account to establish the Automatic Withdrawal option.
IMPORTANT
REDEMPTION
INFORMATION
The EXPEDITED REDEMPTION option lets you redeem up to $50,000 of shares from
your Fund account by telephone and transfer the proceeds directly to your bank
account. You may elect Express Service on the Account Application Form or call
Shareholder Services at 1-800-841-1180 for an Express Service application.
- --------------------------------------------------------------------------------
If you are redeeming shares recently purchased by check, Express Service
Expedited Purchase or Automatic Investment Plan, the proceeds of the redemption
may not be sent until payment for the purchase is collected, which may take up
to fifteen calendar days. Otherwise, redemption proceeds must be sent to you
within seven days of receipt of your request in Good Order.
If you experience difficulty in making a telephone redemption during periods of
drastic economic or market changes, your redemption request may be made by
regular or express mail. It will be processed at the net asset value next
determined after your request has been received by the Transfer Agent in Good
Order. The Trust reserves the right to revise or terminate the telephone
redemption privilege at any time.
The Trust may suspend the redemption right or postpone payment at times when the
New York Stock Exchange is closed or under any emergency circumstances as
determined by the
15
<PAGE>
Securities and Exchange Commission.
EARLY REDEMPTION
FEE
Although redemptions have always been made in cash, the Fund may redeem in kind
under certain circumstances.
In order to discourage short-term trading, an early redemption fee of 1% of the
net asset value of the shares being redeemed is imposed if a shareholder redeems
shares of the Fund less than one year after becoming a shareholder. The fee is
payable to the Fund out of the redemption proceeds otherwise payable to the
shareholder. No redemption fee will be payable on an exchange into another Royce
fund or by shareholders who are (a) employees of the Trust or Quest or members
of their immediate families or employee benefit plans for them, (b) participants
in the Automatic Withdrawal Plan, (c) certain Trust-approved Group Investment
Plans and charitable organizations, (d) profit-sharing trusts, corporations or
other institutional investors who are investment advisory clients of Quest; or
(e) omnibus or similar account customers of certain Trust-approved
broker-dealers and other institutions.
MINIMUM ACCOUNT
BALANCE REQUIREMENT
Due to the relatively high cost of maintaining smaller accounts, the Trust
reserves the right to involuntarily redeem shares in any Fund account that falls
below the minimum initial investment due to redemptions by the shareholder. If
at any time the balance in an account does not have a value at least equal to
the minimum initial investment, or if an Automatic Investment Plan is
discontinued before an account reaches the minimum initial investment that would
otherwise be required, you may be notified that the value of your account is
below the Fund's minimum account balance requirement. You would then have sixty
days to increase your account balance before the account is liquidated. Proceeds
would be promptly paid to the shareholder.
- --------------------------------------------------------------------------------
EXCHANGE
PRIVILEGE
Exchanges between series of the Trust, and with other open-end Royce funds are
permitted by telephone or by mail. An exchange is treated as a redemption and
purchase; therefore, you could realize a taxable gain or loss on the
transaction. Exchanges are accepted only if the registrations and the tax
identification numbers of the two accounts are identical. Minimum investment
requirements must be met when opening a new account by exchange and exchanges
may be made only for shares of a series or fund then offering its shares for
sale in your state of residence. The Trust reserves the right to revise or
terminate the exchange privilege at any time.
- --------------------------------------------------------------------------------
TRANSFERRING
OWNERSHIP
You may transfer the ownership of any of your Fund shares to another person by
writing to: The Royce Funds, c/o NFDS, P.O. Box 419012, Kansas City, MO
64141-6012. The request must be in Good Order (see "Redeeming Your Shares -
Definition of Good Order"). Before mailing your request, please contact
Shareholder Services (1-800-841-1180) for full instructions.
- --------------------------------------------------------------------------------
OTHER SERVICES:
Statements and
Reports
For more information about any of these services, please call Investor
Information at 1-800-221-4268.
A confirmation statement will be sent to you each time you have a transaction in
your account and semi-annually. Financial reports will be mailed semi-annually.
To reduce
16
<PAGE>
expenses, only one copy of most shareholder reports may be mailed to a
household. Please call Investor Information if you need additional copies.
Tax-sheltered
Retirement Plans
Shares of the Funds are available for purchase in connection with certain types
of tax-sheltered retirement plans, including Individual Retirement Accounts
(IRA's) for individuals and 403(b)(7) Plans for employees of certain tax-exempt
organizations.
These plans should be established with the Trust only after an investor has
consulted with a tax adviser or attorney. Information about the plans and the
appropriate forms may be obtained from Investor Information at 1-800-221-4268.
17
- ---------------------------------------------------------
- ---------------------------------------------------------
The Royce Funds
1414 Avenue of the Americas
New York, NY 10019
1-800-221-4268
INVESTMENT ADVISER
Quest Advisory Corp.
1414 Avenue of the Americas
New York, NY 10019
DISTRIBUTOR
Quest Distributors, Inc.
1414 Avenue of the Americas
New York, NY 10019
TRANSFER AGENT
State Street Bank and Trust Company
c/o NFDS
P.O. Box 419012
Kansas City, MO 64141-6012
1-800-841-1180
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1713
Boston, MA 02105
OFFICERS
Charles M. Royce, President and Treasurer
Jack E. Fockler, Jr., Vice President
W. Whitney George, Vice President
Daniel A. O'Byrne, Vice President and
Assistant Secretary
Susan I. Grant, Secretary
- ---------------------------------------------------------
- ---------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
THE ROYCE FUNDS
- ----------------------------------------------------------
ROYCE LOW-PRICED STOCK FUND
ROYCE TOTAL RETURN FUND
NO-LOAD MUTUAL FUNDS
PROSPECTUS
MAY 2, 1995
- ----------------------------------------------------------
- ----------------------------------------------------------
<PAGE>
THE ROYCE FUND
STATEMENT OF ADDITIONAL INFORMATION
THE ROYCE FUND (the "Trust"), a Massachusetts business trust, is a
professionally managed, open-end registered investment company, which offers
investors the opportunity to invest in eight portfolios or series ("Funds").
Each Fund has distinct investment objectives and/or policies, and a
shareholder's interest is limited to the Fund in which the shareholder owns
shares. The eight Funds are:
ROYCE VALUE FUND
ROYCE PREMIER FUND
ROYCE EQUITY INCOME FUND
ROYCE MICRO-CAP FUND (FORMERLY NAMED ROYCE OTC FUND)
ROYCE LOW-PRICED STOCK FUND
ROYCE TOTAL RETURN FUND
ROYCE GLOBAL SERVICES FUND
REVEST GROWTH AND INCOME FUND
This Statement of Additional Information relates to all of the Funds other than
REvest Growth and Income Fund, which is covered by its own separate Statement of
Additional Information.
The Trust is designed for long-term investors, including those who wish
to use shares of any Fund as a funding vehicle for certain tax-deferred
retirement plans (including Individual Retirement Account (IRA) plans), and not
for investors who intend to liquidate their investments after a short period of
time.
This Statement of Additional Information is not a prospectus, but
should be read in conjunction with the Trust's current Prospectuses dated May 2,
1995 for Royce Value Fund, Royce Premier Fund, Royce Equity Income Fund, Royce
Micro-Cap Fund, Royce Low-Priced Stock Fund and Royce Total Return Fund, and
dated December 15, 1994 for Royce Global Services Fund. Please retain this
document for future reference. The audited financial statements included in the
Annual Reports to Shareholders of such Funds for the fiscal year or period ended
December 31, 1994 are incorporated herein by reference. To obtain an additional
copy of the Prospectus or Annual Report for any of the Funds, please call
Investor Information at 1-800-221-4268.
INVESTMENT ADVISER TRANSFER AGENT
Quest Advisory Corp. ("Quest") State Street Bank and Trust Company
c/o National Financial Data Services
DISTRIBUTOR CUSTODIAN
Quest Distributors, Inc. ("QDI") State Street Bank and Trust Company
MAY 2, 1995
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INVESTMENT POLICIES AND LIMITATIONS.......................................... 2
RISK FACTORS AND SPECIAL CONSIDERATIONS...................................... 4
MANAGEMENT OF THE TRUST...................................................... 8
PRINCIPAL HOLDERS OF SHARES................................................. 10
INVESTMENT ADVISORY SERVICES................................................. 12
DISTRIBUTOR.................................................................. 14
CUSTODIAN.................................................................... 16
INDEPENDENT ACCOUNTANTS...................................................... 17
PORTFOLIO TRANSACTIONS....................................................... 17
CODE OF ETHICS AND RELATED MATTERS........................................... 18
PRICING OF SHARES BEING OFFERED.............................................. 19
REDEMPTIONS IN KIND.......................................................... 19
TAXATION .................................................................... 19
DESCRIPTION OF THE TRUST..................................................... 23
PERFORMANCE DATA............................................................. 23
</TABLE>
<PAGE>
INVESTMENT POLICIES AND LIMITATIONS
The following investment policies and limitations supplement those set
forth in the Funds' Prospectuses. Unless otherwise noted, whenever an investment
policy or limitation states a maximum percentage of a Fund's assets that may be
invested in any security or other asset, or sets forth a policy regarding
quality standards, the percentage limitation or standard will be determined
immediately after giving effect to the Fund's acquisition of the security or
other asset. Accordingly, any subsequent change in values, net assets or other
circumstances will not be considered in determining whether the investment
complies with the Fund's investment policies and limitations.
A Fund's fundamental investment policies cannot be changed without the
approval of a "majority of the outstanding voting securities" (as defined in the
Investment Company Act of 1940 [the "1940 Act"]) of the Fund. Except for the
fundamental investment restrictions set forth below, the investment policies and
limitations described in this Statement of Additional Information are operating
policies and may be changed by the Board of Trustees without shareholder
approval. However, shareholders will be notified prior to a material change in
an operating policy affecting their Fund.
NO FUND MAY, AS A MATTER OF FUNDAMENTAL POLICY:
1. Issue any senior securities;
2. Purchase securities on margin or write call options on its
portfolio securities;
3. Sell securities short;
4. Borrow money, except that each of the Funds other than Royce
Value Fund may borrow money from banks as a temporary measure
for extraordinary or emergency purposes in an amount not
exceeding 5% of such Fund's total assets;
5. Underwrite the securities of other issuers;
6. Invest more than 10% of its total assets in the securities of
foreign issuers (except for Royce Global Services Fund, which is
not subject to any such limitation);
7. Invest in restricted securities (except for Royce Global
Services Fund, which may invest up to 15% of its net assets in
illiquid securities, including restricted securities) or in
repurchase agreements which mature in more than seven days;
8. Invest more than 10% (15% for Royce Global Services Fund) of its
assets in securities without readily available market quotations
(i.e., illiquid securities);
9. Invest, with respect to Royce Value and Royce Equity Income
Funds, more than 5% of such Fund's assets in the securities of
any one issuer (except U.S. Government securities) or, with
respect to 75% of the other Funds' total assets, more than 5% of
such Fund's assets in the securities of any one issuer (except
U.S. Government securities);
10. Invest more than 25% of its assets in any one industry;
11. Acquire more than 10% of the outstanding voting securities of
any one issuer;
2
<PAGE>
12. Purchase or sell real estate or real estate mortgage loans or
invest in the securities of real estate companies unless such
securities are publicly-traded;
13. Purchase or sell commodities or commodity contracts;
14. Make loans, except for purchases of portions of issues of
publicly-distributed bonds, debentures and other securities,
whether or not such purchases are made upon the original
issuance of such securities, and except that Royce Equity
Income, Low-Priced Stock, Total Return and Global Services Funds
may loan up to 25% of their respective assets to qualified
brokers, dealers or institutions for their use relating to short
sales or other securities transactions (provided that such loans
are fully collateralized at all times);
15. Invest in companies for the purpose of exercising control of
management;
16. Purchase portfolio securities from or sell such securities
directly to any of the Trust's Trustees, officers, employees or
investment adviser, as principal for their own accounts;
17. Invest in the securities of other investment companies (except
for Royce Global Services Fund, which may invest in the
securities of other investment companies to the extent permitted
by the 1940 Act); or
18. Purchase any warrants, rights or options, except that (i) all of
the Funds other than Royce Value Fund, may, if no value is
assigned thereto, acquire warrants in units with or attached to
debt securities or non-convertible preferred stock, and (ii)
Royce Low-Priced Stock, Total Return and Global Services Funds
may also invest up to 5% of their respective net assets in
warrants, valued at the lower of cost or market, provided that
warrants that are not listed on the New York or American Stock
Exchanges shall not exceed 2% of such Funds' respective net
assets.
NO FUND MAY, AS A MATTER OF OPERATING POLICY:
1. Invest more than 5% of its total assets in securities of
unseasoned issuers, including their predecessors, which have
been in operation for less than three years;
2. Invest in oil, gas or other mineral leases or development
programs;
3. Invest more than 5% of its net assets in lower-rated (high-risk)
non-convertible debt securities; or
4. Enter into repurchase agreements with any party other than the
custodian of its assets or having a term of more than seven
days.
3
<PAGE>
ROYCE GLOBAL SERVICES FUND
The Global Services Fund may invest in the securities of a company that is
engaged in securities related activities as a broker, a dealer, an underwriter,
an investment adviser registered under the Investment Advisers Act of 1940 or an
investment adviser to an investment company, subject to the following
limitations in the case of a company that, in its most recent fiscal year,
derived more than 15% of its gross revenues from such activities:
(a) The purchase cannot cause more than 5% of the Global Services Fund's
assets to be invested in the securities of the company;
(b) For an equity security, the purchase cannot result in the Global
Services Fund owning more than 5% of the company's outstanding securities
of that class; and
(c) For a debt security, the purchase cannot result in the Global Services
Fund owning more than 10% of the principal amount of the company's
outstanding debt securities.
In applying the gross revenues test, a company's gross revenues from its
own securities related activities and from its ratable share of the securities
related activities of enterprises of which it owns 20% or more of the voting or
equity interest are considered in determining the degree to which the company is
engaged in securities related activities. The limitations apply only at the time
of the Global Services Fund's purchase of the securities of such a company. When
the Global Services Fund is considering purchasing or has purchased warrants or
convertible securities of a securities related business, the required
determination is made as though such warrants or conversion privileges had been
exercised.
The Global Services Fund is not permitted to acquire a general partnership
interest or a security issued by its investment adviser or principal underwriter
or any affiliated person of its investment adviser or principal underwriter.
The Global Services Fund may, under the 1940 Act, invest up to 10% of its
assets in the securities of other investment companies, provided that not more
than 5% of its assets are invested in the securities of any one such company and
that the Global Services Fund does not invest in more than 3% of the total
outstanding voting stock of any one such company. It does not currently intend
to purchase securities of other investment companies, except in the open market
where no commission other than the ordinary broker's commission is paid, or to
purchase or hold securities issued by other open-end investment companies. These
limitations do not apply to securities received as dividends, through offers of
exchange or as a result of a reorganization, consolidation or merger.
RISK FACTORS AND SPECIAL CONSIDERATIONS
FUNDS' RIGHTS AS STOCKHOLDERS
As noted above, no Fund may invest in a company for the purpose of
exercising control of management. However, a Fund may exercise its rights as a
stockholder and communicate its views on important matters of policy to
management, the board of directors and/or stockholders if Quest or the Board of
Trustees determine that such matters could have a significant effect on the
value of the Fund's investment in the company. The activities that a Fund may
engage in, either individually or in conjunction with others, may include, among
others, supporting or opposing proposed changes in a company's corporate
structure or business activities; seeking changes in a company's board of
directors or
4
<PAGE>
management; seeking changes in a company's direction or policies; seeking the
sale or reorganization of a company or a portion of its assets; or supporting or
opposing third party takeover attempts. This area of corporate activity is
increasingly prone to litigation, and it is possible that a Fund could be
involved in lawsuits related to such activities. Quest will monitor such
activities with a view to mitigating, to the extent possible, the risk of
litigation against the Funds and the risk of actual liability if a Fund is
involved in litigation. However, no guarantee can be made that litigation
against a Fund will not be undertaken or liabilities incurred.
A Fund may, at its expense or in conjunction with others, pursue litigation
or otherwise exercise its rights as a security holder to seek to protect the
interests of security holders if Quest and the Trust's Board of Trustees
determine this to be in the best interests of a Fund's shareholders.
SECURITIES LENDING
Royce Equity Income, Low-Priced Stock, Total Return and Global Services
Funds may lend up to 25% of their respective assets to brokers, dealers and
other financial institutions. Securities lending allows the Fund to retain
ownership of the securities loaned and, at the same time, to earn additional
income. Since there may be delays in the recovery of loaned securities or even a
loss of rights in collateral supplied should the borrower fail financially,
loans will be made only to parties that participate in a Global Securities
Lending Program monitored by the Funds' custodian and who are deemed by it to be
of good standing. Furthermore, such loans will be made only if, in Quest's
judgment, the consideration to be earned from such loans would justify the risk.
Quest understands that it is the current view of the staff of the
Securities and Exchange Commission that a Fund may engage in such loan
transactions only under the following conditions: (1) the Fund must receive 100%
collateral in the form of cash or cash equivalents (e.g., U.S. Treasury bills or
notes) from the borrower; (2) the borrower must increase the collateral whenever
the market value of the securities loaned (determined on a daily basis) rises
above the value of the collateral; (3) after giving notice, the Fund must be
able to terminate the loan at any time; (4) the Fund must receive reasonable
interest on the loan or a flat fee from the borrower, as well as amounts
equivalent to any dividends, interest or other distributions on the securities
loaned and to any increase in market value; (5) the Fund may pay only reasonable
custodian fees in connection with the loan; and (6) the Fund must be able to
vote proxies on the securities loaned, either by terminating the loan or by
entering into an alternative arrangement with the borrower.
LOWER-RATED (HIGH-RISK) DEBT SECURITIES
Each Fund may invest up to 5% of its net assets in lower-rated (high-risk)
non-convertible debt securities. They may be rated from Ba to Ca by Moody's
Investors Service, Inc. or from BB to D by Standard & Poor's Corporation or may
be unrated. These securities have poor protection with respect to the payment of
interest and repayment of principal and may be in default as to the payment of
principal or interest. These securities are often considered to be speculative
and involve greater risk of loss or price changes due to changes in the issuer's
capacity to pay. The market prices of lower-rated (high-risk) debt securities
may fluctuate more than those of higher-rated debt securities and may decline
significantly in periods of general economic difficulty, which may follow
periods of rising interest rates.
While the market for lower-rated (high-risk) corporate debt securities has
been in existence for many years and has weathered previous economic downturns,
the 1980s brought a dramatic increase in the use of such securities to fund
highly leveraged corporate acquisitions and restructurings. Past
5
<PAGE>
experience may not provide an accurate indication of the future performance of
the high-yield/high-risk bond market, especially during periods of economic
recession. In fact, from 1989 to 1991, the percentage of lower-rated (high-risk)
debt securities that defaulted rose significantly above prior levels.
The market for lower-rated (high-risk) debt securities may be thinner and
less active than that for higher-rated debt securities, which can adversely
affect the prices at which the former are sold. If market quotations cease to be
readily available for a lower-rated (high-risk) debt security in which a Fund
has invested, the security will then be valued in accordance with procedures
established by the Board of Trustees. Judgment plays a greater role in valuing
lower-rated (high-risk) debt securities than is the case for securities for
which more external sources for quotations and last sale information are
available. Adverse publicity and changing investor perceptions may affect a
Fund's ability to dispose of lower-rated (high-risk) debt securities.
Since the risk of default is higher for lower-rated (high-risk) debt
securities, Quest's research and credit analysis may play an important part in
managing securities of this type for the Funds. In considering such investments
for the Funds, Quest will attempt to identify those issuers of lower-rated
(high-risk) debt securities whose financial condition is adequate to meet future
obligations, has improved or is expected to improve in the future. Quest's
analysis may focus on relative values based on such factors as interest or
dividend coverage, asset coverage, earnings prospects and the experience and
managerial strength of the issuer.
FOREIGN INVESTMENTS
Except for Royce Global Services Fund, which is not subject to any such
limitation, each Fund may invest up to 10% of its total assets in the securities
of foreign issuers. Foreign investments can involve significant risks in
addition to the risks inherent in U.S. investments. The value of securities
denominated in or indexed to foreign currencies and of dividends and interest
from such securities can change significantly when foreign currencies strengthen
or weaken relative to the U.S. dollar. Foreign securities markets generally have
less trading volume and less liquidity than U.S. markets, and prices on some
foreign markets can be highly volatile. Many foreign countries lack uniform
accounting and disclosure standards comparable to those applicable to U.S.
companies, and it may be more difficult to obtain reliable information regarding
an issuer's financial condition and operations. In addition, the costs of
foreign investing, including withholding taxes, brokerage commissions and
custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal rights
in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility of
default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic or social instability, military action or unrest or adverse diplomatic
developments. There is no assurance that Quest will be able to anticipate these
potential events or counter their effects.
6
<PAGE>
The considerations noted above are generally intensified for investments in
developing countries. Developing countries may have relatively unstable
governments, economies based on only a few industries and securities markets
that trade a small number of securities.
American Depositary Receipt (ADR) facilities may be established as either
unsponsored or sponsored. While ADRs issued under these two types of facilities
are in some respects similar, there are distinctions between them relating to
the rights and obligations of ADR holders and the practices of market
participants. A depository may establish an unsponsored facility without
participation by (or even necessarily the acquiescence of) the issuer of the
deposited securities, although typically the depository requests a letter of
non-objection from such issuer prior to the establishment of the facility.
Holders of unsponsored ADRs generally bear all the costs of such facilities. The
depository usually charges fees upon the deposit and withdrawal of the deposited
securities, the conversion of dividends into U.S. dollars, the disposition of
non-cash distributions and the performance of other services. The depository of
an unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited securities
or to pass through voting rights to ADR holders in respect of the deposited
securities. Sponsored ADR facilities are created in generally the same manner as
unsponsored facilities, except that the issuer of the deposited securities
enters into a deposit agreement with the depository. The deposit agreement sets
out the rights and responsibilities of the issuer, the depository and the ADR
holders. With sponsored facilities, the issuer of the deposited securities
generally will bear some of the costs relating to the facility (such as deposit
and withdrawal fees). Under the terms of most sponsored arrangements,
depositories agree to distribute notices of shareholder meetings and voting
instructions and to provide shareholder communications and other information to
the ADR holders at the request of the issuer of the deposited securities.
REPURCHASE AGREEMENTS
In a repurchase agreement, a Fund in effect makes a loan by purchasing a
security and simultaneously committing to resell that security to the seller at
an agreed upon price on an agreed upon date within a number of days (usually not
more than seven) from the date of purchase. The resale price reflects the
purchase price plus an agreed upon incremental amount which is unrelated to the
coupon rate or maturity of the purchased security. A repurchase agreement
involves the obligation of the seller to pay the agreed upon price, which
obligation is in effect secured by the value (at least equal to the amount of
the agreed upon resale price and marked to market daily) of the underlying
security.
The Funds may engage in repurchase agreements with respect to any U.S.
Government security. While it does not presently appear possible to eliminate
all risks from these transactions (particularly the possibility of a decline in
the market value of the underlying securities, as well as delays and costs to
the Fund in connection with bankruptcy proceedings), it is the policy of the
Trust to enter into repurchase agreements only with its custodian, State Street
Bank and Trust Company, and having a term of seven days or less.
* * *
Quest believes that Royce Value, Micro-Cap, Low-Priced Stock and Global
Services Funds are suitable for investment only by persons who can invest
without concern for current income, and that such Funds and Royce Premier Fund
are suitable only for those who are in a financial position to assume
above-average investment risks in search for long-term capital appreciation.
7
<PAGE>
MANAGEMENT OF THE TRUST
The following table sets forth certain information as to each Trustee and
officer of the Trust:
<TABLE>
<CAPTION>
Position Held
Name, Address and Age with the Trust Principal Occupations During Past 5 Years
- --------------------- -------------- -----------------------------------------
<S> <C> <C>
Charles M. Royce* (55) Trustee, President, Secretary, Treasurer and sole director and
1414 Avenue of the President and sole voting shareholder of Quest Advisory Corp.
Americas Treasurer ("Quest"), the Trust's principal investment adviser;
New York, NY 10019 Trustee, President and Treasurer of Pennsylvania
Mutual Fund ("PMF"), an open-end diversified
management investment company of which Quest is the
investment adviser; Director, President and Treasurer
of Royce Value Trust, Inc. ("RVT") and, since
September 1993, Royce OTC Micro-Cap Fund, Inc.
("OTCM"), closed-end diversified management investment
companies of which Quest is the investment adviser;
Secretary and sole director and shareholder of Quest
Distributors, Inc. ("QDI"), the distributor of the
Trust's shares; and managing general partner of Quest
Management Company ("QMC"), a registered investment
adviser, and its predecessor.
Richard M. Galkin (56) Trustee Private investor and President of Richard M. Galkin
5284 Boca Marina Circle Associates, Inc., tele-communications consultants.
South
Boca Raton, FL 33487
Stephen L. Isaacs (55) Trustee Attorney; Director of Columbia University Development
60 Haven Street, Fl. B-2 Law and Policy Program; Professor at Columbia
New York, NY 10032 University; President of Stephen L. Isaacs Associates,
Consultants; and counsel to Kaplan & Kilsheimer from
January 1988 to February 1991.
David L. Meister (55) Trustee Consultant to the communications industry since
111 Marquez Place January 1993; Executive officer of Digital Planet
Pacific Palisades, CA Inc. from April 1991 to December 1992; consultant to
90272 the communications and television industry from
August 1990 to April 1991; and Executive Vice
President of Infotechnology, Inc. from December 1986
to July 1990.
8
<PAGE>
Position Held
Name, Address and Age with the Trust Principal Occupations During Past 5 Years
- --------------------- -------------- -----------------------------------------
Jack E. Fockler, Jr.* (36) Vice President Vice President (since August 1993) and senior
1414 Avenue of the associate of Quest, having been employed by Quest
Americas since October 1989; Vice President of the Trust,
New York, NY 10019 PMF, RVT and OTCM since April 1995; and general
partner of QMC since July 1993.
W. Whitney George* (36) Vice President Vice President (since August 1993) and senior analyst
1414 Avenue of the of Quest, having been employed by Quest since October
Americas 1991; Vice President of the Trust, PMF, RVT and OTCM
New York, NY 10019 since April 1995; and general partner of QMC and its
predecessor since January 1992.
Daniel A. O'Byrne* (33) Vice President Vice President of Quest since May 1994, having been
1414 Avenue of the and Assistant employed by Quest since October 1986; and Vice
Americas Secretary President of the Trust, PMF, RVT and OTCM since July
New York, NY 10019 1994.
Susan I. Grant* (42) Secretary Senior Counsel and Chief Compliance Officer of Quest
1414 Avenue of the and Secretary of the Trust, PMF, RVT and OTCM since
Americas August 1994; and Assistant Counsel of First Investors
New York, NY 10019 Corporation from July 1989 to August 1994.
</TABLE>
- --------------------------------
*An "interested person" under Section 2(a)(19) of the 1940 Act.
All of the Trust's trustees are also trustees of PMF and directors of RVT
and OTCM.
The Board of Trustees has an Audit Committee, comprised of Richard M.
Galkin, Stephen L. Isaacs and David L. Meister. The Audit Committee is
responsible for the selection and nomination of independent auditors for the
Funds and for conducting post-audit reviews of their financial conditions with
such auditors.
For the year ended December 31, 1994, the following trustees received
compensation from the Trust and the three other funds in the group of registered
investment companies comprising The Royce Funds for services as a
trustee/director on such funds' Boards:
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation
Name from Trust from The Royce Funds
- ----------------- ------------------------ --------------------
<S> <C> <C>
Richard M. Galkin $17,500 $60,000
Stephen L. Isaacs 17,500 60,000
David L. Meister 17,500 60,000
</TABLE>
9
<PAGE>
PRINCIPAL HOLDERS OF SHARES
As of March 31, 1995, the following persons were known to the Trust to be
the record or beneficial owners of 5% or more of the outstanding shares of
certain of its Funds:
<TABLE>
<CAPTION>
Type of
Fund Number of Shares Ownership Percentage of Outstanding Shares
- ---- ---------------- --------- --------------------------------
<S> <C> <C> <C>
Royce Premier Fund
- ------------------
Charles Schwab & Co. Inc. 12,938,381 Record 37.0%
Attn: Mutual Fund Dept.
1010 Montgomery Street
San Francisco, CA 94104
Royce Equity Income Fund
- ------------------------
Charles Schwab & Co. Inc. 6,437,037 Record 50.2%
Attn: Mutual Fund Dept.
1010 Montgomery Street
San Francisco, CA 94104
Royce Micro-Cap Fund
- --------------------
Charles Schwab & Co. Inc. 683,748 Record 14.1%
Attn: Mutual Fund Dept.
1010 Montgomery Street
San Francisco, CA 94104
Royce Low-Priced Stock Fund
- ---------------------------
Bruce Museum Inc. 20,426 Record 5.5%
Special Program Fund and
Museum Drive beneficial
Greenwich, CT 06830
Charles Schwab & Co. Inc. 71,720 Record 19.3%
Attn: Mutual Fund Dept.
1010 Montgomery Street
San Francisco, CA 94104
Charles M. Royce 203,551 Record 54.8%
1414 Avenue of the Americas and
New York, NY 10019 beneficial
W. Whitney George, Trustee 63,640 Record 17.1%
Royce 1992 Generation
Skipping Trust
1414 Avenue of the Americas
New York, NY 10019
10
<PAGE>
Type of
Fund Number of Shares Ownership Percentage of Outstanding Shares
- ---- ---------------- --------- --------------------------------
Royce Total Return Fund
- -----------------------
Delaware Charter Guarantee 24,827 Record 6.7%
Trust Co.
FBO Alice M. Harvey
P.O. Box 8963
Wilmington, DE 19899
Integra Trust Company 98,474 Record 26.6%
National Assn.
Trust Securities Sect. 2-032
300 Fourth Avenue
Pittsburgh, PA 15278
James M. Novak 74,340 Record 20.1%
Mark Stadler Trustees
Cindrich & Titus Profit
Sharing Plan
FBO Thomas O. Arbogast
2000 Gateway Center
Pittsburgh, PA 15222
Charles M. Royce, Trustee 47,331 Record 12.8%
N. Holmes Clare Trust
FBO Barbara K. Clare
c/o Quest Advisory Corp.
1414 Avenue of the Americas
New York, NY 10019
State Street Bank & Trust Co. 71,653 Record 19.4%
Custodian for IRA of
Becky L. O'Connor
10 St. James Place
Pittsburgh, PA 15215
Royce Global Services Fund
- --------------------------
Bruce Museum Inc. 19,493 Record 8.5%
Special Program Fund and
Museum Drive beneficial
Greenwich, CT 06830
Integra Trust Company 27,780 Record 12.0%
National Assn.
Trust Securities Sect. 2-032
300 Fourth Avenue
Pittsburgh, PA 15278
Charles M. Royce 170,540 Record 73.9%
1414 Avenue of the Americas and
New York, NY 10019 beneficial
</TABLE>
11
<PAGE>
As of March 31, 1995, all of the trustees and officers of the Trust as a
group beneficially owned less than 1% of the outstanding shares of each of Royce
Equity Income Fund, Royce Premier Fund and Royce Value Fund, 2.6% of the
outstanding shares of Royce Micro-Cap Fund, 14.8% of the outstanding shares of
Royce Total Return Fund, 54.8% of the outstanding shares of Royce Low-Priced
Stock Fund and 73.9% of the shares of Royce Global Services Fund.
INVESTMENT ADVISORY SERVICES
SERVICES PROVIDED BY QUEST
As compensation for its services under the Investment Advisory Agreements
with the Funds, Quest is entitled to receive the following fees:
<TABLE>
<CAPTION>
Fund Percentage Per Annum of Fund's Average Net Assets
- ---- -------------------------------------------------
<S> <C>
Royce Value Fund 1.00% of first $50,000,000,
.875% of next $50,000,000 and
.75% of any additional average net assets
Royce Premier Fund 1.00%
Royce Equity Income Fund 1.00%
Royce Micro-Cap Fund 1.50%
Royce Low-Priced Stock Fund 1.50%
Royce Total Return Fund 1.00%
Royce Global Services Fund 1.50%
</TABLE>
Such fees, which are payable monthly from the assets of the Fund involved, are
higher (substantially higher, in the case of Royce Micro-Cap, Low-Priced Stock
and Global Services Funds) than those paid by most other mutual funds with
similar investment objectives.
Under the Investment Advisory Agreements, Quest (i) determines the
composition of each Fund's portfolio, the nature and timing of the changes in it
and the manner of implementing such changes, subject to any directions it may
receive from the Trust's Board of Trustees; (ii) provides each Fund with
investment advisory, research and related services for the investment of its
funds; (iii) furnishes, without expense to the Trust, the services of such
members of its organization as may be duly elected executive officers or
Trustees of the Trust; and (iv) pays all executive officers' salaries and
executive expenses and all expenses incurred in performing its investment
advisory duties under the Investment Advisory Agreements.
The Trust pays all administrative and other costs and expenses attributable
to its operations and transactions, including, without limitation, transfer
agent and custodian fees; legal, administrative and clerical services; rent for
its office space and facilities; auditing; preparation, printing and
distribution of its prospectuses, proxy statements, shareholders reports and
notices; supplies and postage; Federal and state registration fees; Federal,
state and local taxes; non-affiliated trustees' fees; and brokerage commissions.
For each of the three fiscal years ended December 31, 1992, 1993 and 1994,
as applicable, Quest received advisory fees from the Funds (net of any amounts
waived by Quest) and waived advisory fees payable to it, as follows:
12
<PAGE>
<TABLE>
<CAPTION>
Advisory Fees Amounts
Received by Quest Waived by Quest
----------------- ---------------
<S> <C> <C>
Royce Value Fund
1992 $1,460,910 -
1993 1,568,398 -
1994 1,503,696 -
Royce Equity Income Fund
1992 $ 322,488 $137,825
1993 488,816 229,166
1994 820,662 53,626
Royce Premier Fund
1992 $ 2,496 $ 12,279
1993 124,020 8,461
1994 1,400,394 -
Royce Micro-Cap Fund
1992 $ 3,473 $ 15,138
1993 83,095 19,063
1994 295,148 20,330
Royce Low-Priced Stock Fund
1993* $ 0 $ 294
1994 0 15,272
Royce Total Return Fund
1993* $ 0 $ 294
1994 0 10,506
Royce Global Services Fund
1994** $ 0 $ 367
</TABLE>
- -------
* December 15, 1993 (commencement of operations) to December 31, 1993
**December 15, 1994 (commencement of operations) to December 31, 1994
PORTFOLIO MANAGEMENT
The Funds' portfolios and the portfolios of Quest's other accounts are
managed by Quest's senior investment staff, including Charles M. Royce, Quest's
Chief Investment Officer, who is primarily responsible for supervising its
investment management activities. Mr. Royce is assisted by Thomas R. Ebright,
Jack E. Fockler, Jr. and W. Whitney George, Vice Presidents of Quest, all of
whom participate in such activities, with their specific responsibilities
varying from time to time. In the event of any significant change in Quest's
senior investment staff, the members of the Trust's Board of Trustees who are
not interested persons of the Trust will consider what action, if any, should be
taken in connection with the Funds' management arrangements.
Certain information concerning Messrs. Royce, Ebright, Fockler and George
is set forth above under "MANAGEMENT OF THE TRUST". Set forth below is certain
information concerning Mr. Ebright.
13
<PAGE>
<TABLE>
<CAPTION>
Name Principal Occupations and Other Affiliations During Last 5 Years
- ---- ----------------------------------------------------------------
<S> <C>
Thomas R. Ebright Vice President and member of the senior investment staff of Quest;
Trustee/Director of PMF, RVT and, since September 1993, OTCM;
President and Treasurer of QDI; general partner of QMC and its
predecessor until June 1994; President, Treasurer and a director
and principal shareholder of Royce, Ebright & Associates, Inc.,
the investment adviser for REvest Growth and Income Fund, since
June 1994; director of Atlantic Pro Sports, Inc. and of the
Strasburg Rail Road Co. since March 1993; and President and
principal owner of Baltimore Professional Hockey, Inc. until May
1993.
</TABLE>
LIMITATION ON FUND EXPENSES
Quest has agreed, in connection with the Trust's qualification of shares of
each Fund for sale in California, to reduce its investment advisory fee for each
Fund monthly to the extent that such Fund's "aggregate annual expenses" (as
defined) exceed 2 1/2% of the first $30 million, 2% of the next $70 million and
1 1/2% of any remaining average net assets of such Fund for any fiscal year. All
or a portion of the distribution fee payable to QDI may be excludable from such
"aggregate annual expenses".
DISTRIBUTOR
QDI, the distributor of the shares of each Fund, has its principal office
at 1414 Avenue of the Americas, New York, New York 10019. It was organized in
November 1982 and is a member of the National Association of Securities Dealers,
Inc. ("NASD").
As compensation for its services and for the expenses payable by it under
the Distribution Agreement with the Trust, QDI is entitled to receive, for and
from the assets of the Fund involved, a monthly fee equal to 1% per annum
(consisting of an asset-based sales charge of .75% and a personal service and/or
account maintenance fee of .25%) of Royce Value Fund's average net assets and
.25% per annum (consisting of an asset-based sales charge) of Royce Low-Priced
Stock, Total Return and Global Services Funds' respective average net assets.
Except to the extent that they may be waived by QDI, these fees are not subject
to any required reductions and, in the case of Royce Value Fund, are higher than
the fees paid by most other mutual funds which use their own assets to promote
the sale of their shares. QDI is also entitled to receive the proceeds of any
front-end sales loads that may be imposed on purchases of shares of Royce Value
Fund and of any contingent deferred sales charges that may be imposed on
redemptions of such Fund's shares. The Distribution Agreement has been
terminated as to Royce Equity Income, Premier and Micro-Cap Funds.
Under the Distribution Agreement, QDI (i) seeks to promote the sale and/or
continued holding of shares of such Funds through a variety of activities,
including advertising, direct marketing and servicing investors and introducing
parties on an on-going basis; (ii) pays sales commissions and other fees to
those broker-dealers, investment advisers and others (excluding banks) who have
introduced investors to such Funds (which commissions and other fees may or may
not be the same amount as or otherwise comparable to the distribution fees
payable to QDI); (iii) pays the cost of preparing, printing and distributing any
advertising or sales literature and the cost of printing and mailing the Funds'
prospectuses to persons other than shareholders of the Funds; and (iv) pays all
other expenses incurred by it in promoting the sale and/or continued holding of
the shares of such Funds and in rendering such services under the Distribution
Agreement. The Trust bears the expense of registering its shares with the
Securities
14
<PAGE>
and Exchange Commission and the cost of qualifying and maintaining the
qualification of its shares for sale under the securities laws of the various
states.
The Trust entered into the Distribution Agreement with QDI pursuant to a
Distribution Plan which, among other things, permits each Fund that remains
covered by the Plan to pay the monthly distribution fee out of its net assets.
As required by Rule 12b-1 under the 1940 Act, the Plan has been approved by the
shareholders of each Fund that remains covered by the Plan and by the Trust's
Board of Trustees (which also approved the Distribution Agreement pursuant to
which the distribution fees are paid), including a majority of the Trustees who
are not interested persons of the Trust and who have no direct or indirect
financial interest in the operation of the Plan or the Distribution Agreement.
In approving the Plan, the Trustees, in accordance with the requirements of
Rule 12b-1, considered various factors (including the amount of the distribution
fees) and determined that there is a reasonable likelihood that the Plan will
benefit each Fund and its shareholders.
The Plan may be terminated as to any Fund by vote of a majority of the
non-interested Trustees who have no direct or indirect financial interest in the
Plan or in the Distribution Agreement or by vote of a majority of the
outstanding voting securities of such Fund. Any change in the Plan that would
materially increase the distribution cost to a Fund requires approval by the
shareholders of such Fund; otherwise, the Plan may be amended by the Trustees,
including a majority of the non-interested Trustees, as described above.
The Distribution Agreement may be terminated as to any Fund at any time on
60 days' written notice and without payment of any penalty, by QDI, by the vote
of a majority of the outstanding voting securities of such Fund or by the vote
of a majority of the Trustees who are not interested persons of the Trust and
who have no direct or indirect financial interest in the operation of the Plan
or in any agreements related thereto.
The Distribution Agreement and the Plan, if not sooner terminated in
accordance with their terms, will continue in effect for successive one-year
periods, provided that each such continuance is specifically approved (i) by the
vote of a majority of the Trustees who are not parties to the Agreement or
interested persons of any such party and who have no direct or indirect
financial interest in the Plan or the Agreement and (ii) either (a) by the vote
of a majority of the outstanding voting securities of the Fund involved or (b)
by the vote of a majority of the entire Board of Trustees.
While the Plan is in effect, the selection and nomination of those Trustees
who are not interested persons of the Trust will be committed to the discretion
of the Trustees who are not interested persons.
The Board of Trustees has adopted resolutions pursuant to which the
proceeds of all contingent deferred sales charges for redeemed shares of Royce
Value Fund received from January 1, 1990 through April 7, 1994 (when the
contingent deferred sales charge was terminated) will be held in separate
reserve accounts for the year involved, to be spent by QDI only upon the
approval of the Board of Trustees for the specific purposes set forth in the
Plan. If the proceeds received in a particular year have not been spent within
the four year period following the close of the year in which they were
received, the proceeds are to be paid by QDI to Royce Value Fund, the
shareholders of which bore such contingent deferred sales charges. See Note 2 of
Notes to Financial Statements of Royce Value Fund contained in such Fund's
Annual Report to Shareholders for the year ended December 31, 1994.
For the year ended December 31, 1994, Royce Value Fund paid distribution
fees to QDI of $1,109,175 (net of $650,642 waived by QDI -- 1% of its average
net assets during such year before
15
<PAGE>
giving effect to such waiver and 0.63% of its average net assets after giving
effect to such waiver). QDI spent the distribution fees paid to it by, and the
proceeds of contingent deferred sales charges released to it for, Royce Value
Fund during 1994 in the following manner:
<TABLE>
<S> <C> <C>
(i) Promotion, Literature & Advertising $ 54,808
(ii) Printing and mailing of prospectuses
to other than current shareholders 5,477
(iii) Compensation paid or to be paid to introducing
brokers, investment advisers and others 1,201,833
(iv) Registration fees, accounting and legal 10,690
(v) Administration and other 11,789
-----------
Total $ 1,284,597
===========
</TABLE>
As of January 1, 1994, $336,642 was held by QDI in such separate reserve
accounts for Royce Value Fund. For the year ended December 31, 1994, $12,992 of
proceeds of contingent deferred sales charges on account of redemptions of
shares of Royce Value Fund during such year were added to such reserve accounts,
and $162,902 was released to QDI from such reserve accounts for Royce Value
Fund. Thus, as of January 1, 1995, $186,732 was held by QDI in such reserve
accounts for Royce Value Fund, and no proceeds of contingent deferred sales
charges on account of redemptions of shares of Royce Value Fund during the year
ended December 31, 1990 remained in the reserve account for such proceeds
because all of the monies in such reserve account had been previously released
by the Board of Trustees to QDI.
QDI has temporarily waived the distribution fees payable to it by Royce
Low-Priced Stock, Total Return and Global Services Funds.
No trustee of the Trust who was not an interested person of the Trust had
any direct or indirect financial interest in the operation of the Plan or the
Distribution Agreement. Charles M. Royce, an interested person of the Trust,
Quest and QDI, had such an interest.
The benefits to Royce Value Fund included the receipt of net proceeds of
$7,367,068 from sales of its shares during the fiscal year ended December 31,
1994. The cost of shares redeemed by such Fund during such year aggregated
$7,591,915.
Under the Rules of Fair Practice of the NASD, the front-end sales loads,
asset-based sales charges and contingent deferred sales charges payable by any
Fund and/or the shareholders thereof to QDI are limited to (i) 6.25% of total
new gross sales occurring after July 7, 1993 plus interest charges on such
amount at the prime rate plus 1% per annum increased by (ii) 6.25% of total new
gross sales occurring after such Fund first adopted the Plan until July 7, 1993,
plus interest charges on such amount at the prime rate plus 1% per annum less
any front-end, asset-based or deferred sales charges on such sales or net assets
resulting from such sales.
CUSTODIAN
State Street Bank and Trust Company ("State Street") is the custodian for
the securities, cash and other assets of each Fund and the transfer agent and
dividend disbursing agent for the shares of each Fund, but it does not
participate in any Fund's investment decisions. The Trust has authorized State
Street to deposit certain domestic and foreign portfolio securities in several
central depository systems and to use foreign sub-custodians for certain foreign
portfolio securities, as allowed by Federal law. State Street's main office is
at 225 Franklin Street, Boston, Massachusetts 02107. All mutual fund transfer,
dividend
16
<PAGE>
disbursing and shareholder service activities are performed by State Street's
agent, National Financial Data Services, at 1004 Baltimore, Kansas City,
Missouri 64105.
State Street is responsible for the calculation of each Fund's daily net
asset value per share and for the maintenance of its portfolio and general
accounting records and also provides certain shareholder services.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., whose address is One Post Office Square, Boston,
Massachusetts 02109, are the independent accountants of the Trust.
PORTFOLIO TRANSACTIONS
Quest is responsible for selecting the brokers who effect the purchases and
sales of each Fund's portfolio securities. No broker is selected to effect a
securities transaction for a Fund unless such broker is believed by Quest to be
capable of obtaining the best price and execution for the security involved in
the transaction. In addition to considering a broker's execution capability,
Quest generally considers the brokerage and research services which the broker
has provided to it, including any research relating to the security involved in
the transaction and/or to other securities. Such services may include general
economic research, market and statistical information, industry and technical
research, strategy and company research, and may be written or oral. Quest
determines the overall reasonableness of brokerage commissions paid, after
considering the amount another broker might have charged for effecting the
transaction and the value placed by Quest upon the brokerage and/or research
services provided by such broker, viewed in terms of either that particular
transaction or Quest's overall responsibilities with respect to its accounts.
Quest is authorized, under Section 28(e) of the Securities Exchange Act of
1934 and under its Investment Advisory Agreements with the Trust, to pay a
brokerage commission in excess of that which another broker might have charged
for effecting the same transaction, in recognition of the value of brokerage and
research services provided by the broker.
Brokerage and research services furnished by brokers through whom a Fund
effects securities transactions may be used by Quest in servicing all of its
accounts and those of QMC, and not all of such services may be used by Quest in
connection with the Trust or any one of its Funds.
Quest may also place a Fund's brokerage business with firms which promote
the sale of the Fund's shares, consistent with achieving the best price and
execution. In no event will a Fund's brokerage business be placed with QDI.
Even though investment decisions for each Fund are made independently from
those for the other Funds and of the other accounts managed by Quest and its
affiliate, securities of the same issuer are frequently purchased, held or sold
by more than one Fund and the other accounts because the same security may be
suitable for all of them. When more than one Fund and/or such other accounts are
simultaneously engaged in the purchase or sale of the same security, Quest seeks
to average the transactions as to price and allocate them as to amount in a
manner believed to be equitable to each. In some cases, this procedure may
adversely affect the price paid or received by a Fund or the size of the
position obtainable for a Fund.
17
<PAGE>
During each of the three years ended December 31, 1992, 1993 and 1994, the
Funds paid brokerage commissions as follows:
<TABLE>
<CAPTION>
Fund 1992 1993 1994
- ---- ---- ---- ----
<S> <C> <C> <C>
Royce Value Fund $181,211 $123,987 $138,437
Royce Equity Income Fund 145,385 283,374 218,843
Royce Premier Fund 6,079 87,723 465,986
Royce Micro-Cap Fund 14,603 39,013 41,497
Royce Low-Priced Stock Fund - 632* 12,946
Royce Total Return Fund - 0* 6,231
Royce Global Services Fund - - 382**
</TABLE>
- -----------------
* For the period from December 15, 1993 (commencement of operations) to December
31, 1993.
**For the period from December 15, 1994 (commencement of operations)
to December 31, 1994.
For the year ended December 31, 1994, the aggregate amount of brokerage
transactions of each Fund having a research component and the amount of
commissions paid by each Fund for such transactions were as follows:
<TABLE>
<CAPTION>
Brokerage Transactions Commissions Paid
Fund Having a Research Component For Such Transactions
- ---- --------------------------- ---------------------
<S> <C> <C>
Royce Value Fund $ 35,290,829 $115,592
Royce Equity Income Fund 42,720,179 171,128
Royce Premier Fund 111,406,730 348,875
Royce Micro-Cap Fund 1,514,807 7,296
Royce Low-Priced Stock Fund 999,173 7,001
Royce Total Return Fund 961,777 3,845
Royce Global Services Fund 39,899 147*
</TABLE>
- -----------------
* For the period from December 15, 1994 (commencement of operations) to December
31, 1994.
Certain of the Funds acquired securities of their respective "regular
brokers" (as such term is defined in Rule 10b-1 under the 1940 Act) or of the
parent of their "regular brokers" during the year ended December 31, 1994, and
their respective aggregate holdings of such securities had market values at
December 31, 1994, as follows: Royce Value Fund -- A.G. Edwards, Inc. $55,800,
Lehman Brothers Holdings Inc. -- $529,525, PaineWebber Group -- $471,000, and
Piper Jaffray Companies Inc. -- $348,600; and Royce Global Services Fund --
Merrill Lynch & Co., Inc. -- $3,575 and Morgan Stanley Group Inc. -- $11,800.
CODE OF ETHICS AND RELATED MATTERS
Quest, QDI and QMC (collectively, "Quest-related persons") and The Royce
Funds have adopted a Code of Ethics under which directors, officers, employees
and partners of Quest-related persons and interested trustees/directors,
officers and employees of The Royce Funds are prohibited from personal trading
in any security which is then being purchased or sold or considered for purchase
or sale by a Royce Fund or any other Quest or QMC account. Such persons are
permitted to engage in other personal securities transactions if (i) the
securities involved are issued by the Government of the United States, certain
short-term debt securities, money market instruments, shares of affiliated or
non-affiliated registered
18
<PAGE>
open-end investment companies or shares acquired from an issuer in a rights
offering or under an automatic dividend reinvestment plan or (ii) they first
obtain permission to trade from Quest's Compliance Officer and an executive
officer of Quest. The Code contains standards for the granting of such
permission, and it is expected that permission to trade will be granted only in
a limited number of instances.
Quest's and QMC's clients include several private investment companies in
which Quest or QMC has (and, therefore, Charles M. Royce, Jack E. Fockler, Jr.
and/or W. Whitney George may be deemed to beneficially own) a share of up to 15%
of the company's realized and unrealized net capital gains from securities
transactions, but less than 5% of the company's equity interests. The Code of
Ethics does not restrict transactions effected by Quest or QMC for such private
investment company accounts. Transactions for such private investment company
accounts are subject to Quest's and QMC's allocation policies and procedures.
See "Portfolio Transactions".
As of March 31, 1995, Quest-related persons and members of their immediate
families beneficially owned shares of The Royce Funds having a total value of
approximately $14.6 million, and Quest's and QMC's equity interests in such
private investment companies totalled approximately $3.6 million.
PRICING OF SHARES BEING OFFERED
The purchase and redemption price of each Fund's shares is based on the
Fund's current net asset value per share. See "Net Asset Value Per Share" in the
Funds' Prospectuses.
As set forth under "Net Asset Value Per Share", the Funds' custodian
determines the net asset value per share of each Fund at the close of regular
trading on the New York Stock Exchange on each day that the Exchange is open.
The Exchange is open on all weekdays which are not holidays. Thus, it is closed
on Saturdays and Sundays and on New Year's Day, Washington's Birthday, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
REDEMPTIONS IN KIND
It is possible that conditions may arise in the future which would, in the
judgment of the Board of Trustees or management, make it undesirable for a Fund
to pay for all redemptions in cash. In such cases, payment may be made in
portfolio securities or other property of the Fund. However, the Trust has
obligated itself under the 1940 Act to redeem for cash all shares presented for
redemption by any one shareholder up to $250,000 (or 1% of the Trust's net
assets if that is less) in any 90-day period. Securities delivered in payment of
redemptions would be valued at the same value assigned to them in computing the
net asset value per share for purposes of such redemption. Shareholders
receiving such securities would incur brokerage costs when these securities are
sold.
TAXATION
Each Fund has qualified and intends to remain qualified each year for the
tax treatment applicable to a regulated investment company under Subchapter M of
the Internal Revenue Code of 1986, as amended (the "Code"). To so qualify, a
Fund must comply with certain requirements of the Code relating to, among other
things, the source of its income and the diversification of its assets.
19
<PAGE>
By so qualifying, a Fund will not be subject to Federal income taxes to the
extent that its net investment income and capital gain net income are
distributed, so long as the Fund distributes, as ordinary income dividends, at
least 90% of its investment company taxable income.
A non-deductible 4% excise tax will be imposed on a Fund to the extent that
the Fund does not distribute (including by declaration of certain dividends),
during each calendar year, (i) 98% of its ordinary income for such calendar
year, (ii) 98% of its capital gain net income for the one-year period ending
October 31 of such calendar year and (iii) certain other amounts not distributed
in previous years. To avoid the application of this tax, each Fund intends to
distribute substantially all of its net investment income and capital gain net
income at least annually to its shareholders.
Each Fund will maintain accounts and calculate income by reference to the
U.S. dollar for U.S. Federal income tax purposes. Investments calculated by
reference to foreign currencies will not necessarily correspond to a Fund's
distributable income and capital gains for U.S. Federal income tax purposes as a
result of fluctuations in foreign currency exchange rates. Furthermore, if any
exchange control regulations were to apply to a Fund's investments in foreign
securities, such regulations could restrict that Fund's ability to repatriate
investment income or the proceeds of sales of securities, which may limit the
Fund's ability to make sufficient distributions to satisfy the 90% distribution
requirement and avoid the 4% excise tax.
Income earned or received by a Fund from investments in foreign securities
may be subject to foreign withholding taxes unless a withholding exemption is
provided under an applicable treaty. Any such taxes would reduce that Fund's
cash available for distribution to shareholders. It is currently anticipated
that none of the Funds will be eligible to elect to "pass through" such taxes to
their shareholders for purposes of enabling them to claim foreign tax credits or
other U.S. income tax benefits with respect to such taxes.
If a Fund invests in stock of a so-called passive foreign investment
company ("PFIC"), such Fund may be subject to Federal income tax on a portion of
any "excess distribution" with respect to, or gain from the disposition of, such
stock. The tax would be determined by allocating such distribution or gain
ratably to each day of the Fund's holding period for the stock. The amount so
allocated to any taxable year of the Fund prior to the taxable year in which the
excess distribution or disposition occurs would be taxed to the Fund at the
highest marginal income tax rate in effect for such years, and the tax would be
further increased by an interest charge. The amount allocated to the taxable
year of the distribution or disposition would be included in the Fund's
investment company taxable income and, accordingly, would not be taxable to the
Fund to the extent distributed by the Fund as a dividend to shareholders. In
lieu of being taxable in the manner described above, such Fund may be able to
elect to include annually in income its pro rata share of the ordinary earnings
and net capital gain (whether or not distributed) of the PFIC. In order to make
this election, the Fund would be required to obtain annual information from the
PFICs in which it invests, which in many cases may be difficult to obtain.
Alternatively, if eligible, the Fund may be able to elect to mark to market its
PFIC stock, resulting in the stock being treated as sold at fair market value on
the last business day of each taxable year. Any resulting gain would be reported
as ordinary income, and any resulting loss would not be recognized.
Investments of a Fund in securities issued at a discount or providing for
deferred interest payments or payments of interest in kind (which investment are
subject to special tax rules under the Code) will affect the amount, timing and
character of distributions to shareholders. For example, a Fund which acquires
securities issued at a discount will be required to accrue as ordinary income
each year a portion of the discount (even though the Fund may not have received
cash interest payments equal to the amount included in income) and to distribute
such income each year in order to maintain its qualification as a
20
<PAGE>
regulated investment company and to avoid income and excise taxes. In order to
generate sufficient cash to make distributions necessary to satisfy the 90%
distribution requirement and to avoid income and excise taxes, the Fund may have
to dispose of securities that it would otherwise have continued to hold.
DISTRIBUTIONS
For Federal income tax purposes, distributions by each Fund from net
investment income and from any net realized short-term capital gain are taxable
to shareholders as ordinary income, whether received in cash or reinvested in
additional shares. Ordinary income generally cannot be offset by capital losses.
For corporate shareholders, distributions of net investment income (but not
distributions of short-term capital gains) may qualify in part for the 70%
dividends received deduction for purposes of determining their regular taxable
income. (However, the 70% dividends received deduction is not allowable in
determining a corporate shareholder's alternative minimum taxable income.) The
amount qualifying for the dividends received deduction generally will be limited
to the aggregate dividends received by the Fund from domestic corporations. The
dividends received deduction for corporate shareholders may be further reduced
or eliminated if the shares with respect to which dividends are received by the
Fund are treated as debt-financed or are deemed to have been held for fewer than
46 days, or under other generally applicable statutory limitations.
So long as a Fund qualifies as a regulated investment company and satisfies
the 90% distribution requirement, distributions by such Fund from net capital
gains will be taxable as long-term capital gains, whether received in cash or
reinvested in shares and regardless of how long a shareholder has held his or
its Fund shares. Such distributions are not eligible for the dividends received
deduction. Long-term capital gains of non-corporate shareholders, although fully
includable in income, currently are taxed at a lower maximum marginal Federal
income tax rate than ordinary income.
Distributions by a Fund in excess of its current and accumulated earnings
and profits will reduce a shareholder's basis in Fund shares (but, to that
extent, will not be taxable) and, to the extent such distributions exceed the
shareholder's basis, will be taxable as capital gain assuming the shareholder
holds Fund shares as capital assets.
A distribution will be treated as paid during a calendar year if it is
declared in October, November or December of the year to shareholders of record
in such month and paid by January 31 of the following year. Such distributions
will be taxable to such shareholders as if received by them on December 31, even
if not paid to them until January. In addition, certain other distributions made
after the close of a taxable year of a Fund may be "spilled back" and treated as
paid by the Fund (other than for purposes of avoiding the 4% excise tax) during
such year. Such dividends would be taxable to the shareholders in the taxable
year in which the distribution was actually made by the Fund.
The Trust will send written notices to shareholders regarding the amount
and Federal income tax status as ordinary income or capital gain of all
distributions made during each calendar year.
BACK-UP WITHHOLDING/WITHHOLDING TAX
Under the Code, certain non-corporate shareholders may be subject to 31%
withholding on reportable dividends, capital gains distributions and redemption
payments ("back-up withholding"). Generally, shareholders subject to back-up
withholding will be those for whom a taxpayer identification number and certain
required certifications are not on file with the Trust or who, to the Trust's
knowledge, have furnished an incorrect number. In addition, the Trust is
required to withhold from distributions to any shareholder who does not certify
to the Trust that such shareholder is not subject to back-up
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<PAGE>
withholding due to notification by the Internal Revenue Service that such
shareholder has under-reported interest or dividend income. When establishing an
account, an investor must certify under penalties of perjury that such
investor's taxpayer identification number is correct and that such investor is
not subject to or is exempt from back-up withholding.
Ordinary income distributions paid to shareholders who are non-resident
aliens or which are foreign entities will be subject to 30% United States
withholding tax unless a reduced rate of withholding or a withholding exemption
is provided under an applicable treaty. Non-U.S. shareholders are urged to
consult their own tax advisers concerning the United States tax consequences to
them of investing in a Fund.
TIMING OF PURCHASES AND DISTRIBUTIONS
At the time of an investor's purchase, a Fund's net asset value may reflect
undistributed income or capital gains or net unrealized appreciation of
securities held by the Fund. A subsequent distribution to the investor of such
amounts, although it may in effect constitute a return of his or its investment
in an economic sense, would be taxable to the shareholder as ordinary income or
capital gain as described above. Investors should carefully consider the tax
consequences of purchasing Fund shares just prior to a distribution as they will
receive a distribution that is taxable to them.
SALES OR REDEMPTIONS OF SHARES
Gain or loss recognized by a shareholder upon the sale, redemption or other
taxable disposition of Fund shares (provided that such shares are held by the
shareholder as a capital asset) will be treated as capital gain or loss,
measured by the difference between the adjusted basis of the shares and the
amount realized on the sale or exchange. Such gain or loss will be long-term
capital gain or loss if the shares disposed of were held for more than one year.
A loss will be disallowed to the extent that the shares disposed of are replaced
(including by receiving shares upon the reinvestment of distributions) within a
period of 61 days, beginning 30 days before and ending 30 days after the sale of
the shares. In such a case, the basis of the shares acquired will be increased
to reflect the disallowed loss. A loss recognized upon the sale, redemption or
other taxable disposition of shares held for 6 months or less will be treated as
a long-term capital loss to the extent of any long-term capital gain
distributions received with respect to such shares.
* * *
The foregoing relates to Federal income taxation. Distributions, as well as
any gains from a sale, redemption or other taxable disposition of Fund shares,
also may be subject to state and local taxes. Under current law, so long as each
Fund qualifies for the Federal income tax treatment described above, it is
believed that neither the Trust nor any Fund will be liable for any income or
franchise tax imposed by Massachusetts.
Investors are urged to consult their own tax advisers regarding the
application to them of Federal, state and local tax laws.
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<PAGE>
DESCRIPTION OF THE TRUST
TRUST ORGANIZATION
The Trust was established as a Massachusetts business trust by a
Declaration of Trust, effective October 22, 1985. A copy of the Declaration of
Trust, as amended, is on file with the Secretary of the Commonwealth of
Massachusetts. The Trust has an unlimited authorized number of shares of
beneficial interest, which may be divided into an unlimited number of series
and/or classes without shareholder approval. (Each Fund presently has only one
class of shares.) These shares are entitled to one vote per share (with
proportional voting for fractional shares). Shares vote by individual series
except as otherwise required by the 1940 Act or when the Trustees determine that
the matter affects shareholders of more than one series.
Three of the four Trustees currently in office were elected by the Trust's
predecessor's stockholders. There will normally be no meeting of shareholders
for the election of Trustees until less than a majority of such Trustees remain
in office, at which time the Trustees will call a shareholders' meeting for the
election of Trustees. In addition, Trustees may be removed from office by
written consents signed by the holders of a majority of the outstanding shares
of the Trust and filed with the Trust's custodian or by a vote of the holders of
a majority of the outstanding shares of the Trust at a meeting duly called for
this purpose upon the written request of holders of at least 10% of the Trust's
outstanding shares. Upon the written request of 10 or more shareholders of the
Trust, who have been shareholders for at least 6 months and who hold shares
constituting at least 1% of the Trust's outstanding shares, stating that such
shareholders wish to communicate with the Trust's other shareholders for the
purpose of obtaining the necessary signatures to demand a meeting to consider
the removal of a Trustee, the Trust is required (at the expense of the
requesting shareholders) to provide a list of its shareholders or to distribute
appropriate materials. Except as provided above, the Trustees may continue to
hold office and appoint their successors.
Shares are freely transferable, are entitled to distributions as declared
by the Trustees and, in liquidation of the Trust, are entitled to receive net
assets of their series. Shareholders have no preemptive rights. The Trust's
fiscal year ends on December 31.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders of a Massachusetts business trust
may, under certain circumstances, be held personally liable for the obligations
of the Trust. However, the Declaration of Trust disclaims shareholder liability
for acts or obligations of the Trust and requires that notice of such disclaimer
be given in each agreement, obligation or instrument entered into or executed by
the Trust or the Trustees. The Declaration of Trust provides for indemnification
out of a series' property for all losses and expenses of any shareholder of that
series held liable on account of being or having been a shareholder. Thus, the
risk of shareholders incurring financial loss on account of shareholder
liability is limited to circumstances in which their particular series was
unable to meet its obligations.
PERFORMANCE DATA
The Funds' performances may be quoted in various ways. All performance
information supplied for the Funds is historical and is not intended to indicate
future returns. Each Fund's share price and total returns fluctuate in response
to market conditions and other factors, and the value of a Fund's shares when
redeemed may be more or less than their original cost.
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<PAGE>
TOTAL RETURN CALCULATIONS
Total returns quoted reflect all aspects of a Fund's return, including the
effect of reinvesting dividends and capital gain distributions, and any change
in the Fund's net asset value per share (NAV) over the period. Average annual
total returns are calculated by determining the growth or decline in value of a
hypothetical historical investment in the Fund over a stated period, and then
calculating the annually compounded percentage rate that would have produced the
same result if the rate of growth or decline in value had been constant over the
period. For example, a cumulative return of 100% over ten years would produce an
average annual total return of 7.18%, which is the steady annual rate of return
that would equal 100% growth on a compounded basis in ten years. While average
annual total returns are a convenient means of comparing investment
alternatives, investors should realize that a Fund's performance is not constant
over time, but changes from year to year, and that average annual total returns
represent averaged figures as opposed to the actual year-to-year performance of
the Fund.
In addition to average annual total returns, a Fund's unaveraged or
cumulative total returns, reflecting the simple change in value of an investment
over a stated period, may be quoted. Average annual and cumulative total returns
may be quoted as a percentage or as a dollar amount, and may be calculated for a
single investment, a series of investments or a series of redemptions, over any
time period. Total returns may be broken down into their components of income
and capital (including capital gains and changes in share prices) in order to
illustrate the relationship of these factors and their contributions to total
return. Total returns and other performance information may be quoted
numerically or in a table, graph or similar illustration.
HISTORICAL FUND RESULTS
The following table shows certain of the Funds' total returns for the
periods indicated. Such total returns reflect all income earned by each Fund,
any appreciation or depreciation of the assets of such Fund and all expenses
incurred by such Fund for the stated periods. The table compares the Funds'
total returns to the record of the Russell 2000 Index (Russell 2000) and
Standard & Poor's 500 Composite Stock Price Index (S&P 500) over the same
periods. The comparison to the Russell 2000 shows how the Funds' total returns
compared to the record of a broad index of small capitalization stocks. The S&P
500 comparison is provided to show how the Funds' total returns compared to the
record of a broad average of common stock prices over the same period. The Funds
have the ability to invest in securities not included in the indices, and their
investment portfolios may or may not be similar in composition to the indices.
Figures for the indices are based on the prices of unmanaged groups of stocks,
and, unlike the Funds, their returns do not include the effect of paying
brokerage commissions and other costs and expenses of investing in a mutual
fund.
<TABLE>
<CAPTION>
Period Ended
Fund December 31, 1994 Russell 2000 S&P 500
- ---- ----------------- ------------ -------
<S> <C> <C> <C>
Royce Value Fund
- ----------------
1 Year Total Return - 1.64% - 1.81% + 1.32%
5 Year Average Annual Total Return + 7.38 +10.20 + 8.69
10 Year Average Annual Total Return +10.82 +11.54 +14.28
Royce Equity Income Fund
1 Year Total Return - 3.26% - 1.81% + 1.32%
Average Annual Total Return since 1-2-90 + 7.57 + 9.99 + 8.31
(commencement of operations)
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<PAGE>
Period Ended
Fund December 31, 1994 Russell 2000 S&P 500
- ---- ----------------- ------------ -------
Royce Premier Fund
- ------------------
1 Year Total Return + 3.28% - 1.81% + 1.32%
Average Annual Total Return since 1-1-92 +12.50 +11.40 + 6.27
(commencement of operations)
Royce Micro-Cap Fund
1 Year Total Return + 3.55% - 1.81% + 1.32%
Average Annual Total Return since 1-1-92 +18.34 +11.40 + 6.27
(commencement of operations)
Royce Low-Priced Stock Fund
1 Year Total Return + 2.98% - 1.81% + 1.32%
Average Annual Total Return since 12-15-93 + 3.05 + 1.56 + 2.23
(commencement of operations)
Royce Total Return Fund
1 Year Total Return + 5.13% - 1.81% + 1.32%
Average Annual Total Return since 12-15-93 + 4.91 + 1.56 + 2.23
(commencement of operations)
</TABLE>
During the applicable period ended December 31, 1994, a hypothetical
$10,000 investment in certain of the Funds would have grown as indicated below,
assuming all distributions were reinvested:
<TABLE>
<CAPTION>
Fund/Period Commencement Date Hypothetical Investment at December 31, 1994
- ----------------------------- --------------------------------------------
<S> <C>
Royce Value Fund (1-1-85) $ 27,925
Royce Equity Income Fund (1-2-90) 14,402
Royce Premier Fund (1-1-92) 14,236
Royce Micro-Cap Fund (1-1-92) 16,572
Royce Low-Priced Stock Fund (12-15-93) 10,300
Royce Total Return Fund (12-15-93) 10,513
</TABLE>
The Funds' performances may be compared in advertisements to the
performance of other mutual funds in general or to the performance of particular
types of mutual funds, especially those with similar investment objectives. Such
comparisons may be expressed as mutual fund rankings prepared by Lipper
Analytical Services, Inc. ("Lipper"), an independent service that monitors the
performance of registered investment companies. The Funds' rankings by Lipper
for the one-year period ended December 31, 1994 were:
<TABLE>
<CAPTION>
Fund Lipper Ranking
- ---- --------------
<S> <C>
Royce Value Fund 130 out of 283 small company growth funds
Royce Equity Income Fund 60 out of 120 equity income funds
Royce Premier Fund 46 out of 283 small company growth funds
Royce Micro-Cap Fund 42 out of 283 small company growth funds
Royce Low-Priced Stock Fund 51 out of 283 small company growth funds
Royce Total Return Fund 18 out of 412 growth and income funds
</TABLE>
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<PAGE>
Money market funds and municipal funds are not included in the Lipper survey.
The Lipper performance analysis ranks funds on the basis of total return,
assuming reinvestment of distributions, but does not take sales charges or
redemption fees payable by shareholders into consideration and is prepared
without regard to tax consequences.
The Lipper General Equity Funds Average can be used to show how the Funds'
performances compare to a broad-based set of equity funds. The Lipper General
Equity Funds Average is an average of the total returns of all equity funds
(excluding international funds and funds that specialize in particular
industries or types of investments) tracked by Lipper. As of December 31, 1994,
the average included 155 capital appreciation funds, 564 growth funds, 283 small
company growth funds, 412 growth and income funds and 120 equity income funds.
Capital appreciation, growth and small company growth funds usually invest
principally in common stocks, with long-term growth as a primary goal. Growth
and income and equity income funds tend to be more conservative in nature and
usually invest in a combination of common stocks, bonds, preferred stocks and
other income-producing securities. Growth and income and equity income funds
generally seek to provide their shareholders with current income as well as
growth of capital, unlike growth funds which may not produce income.
The Lipper Growth & Income Fund Index can be used to show how the Total
Return Fund's performance compares to a set of growth and income funds. The
Lipper Growth & Income Fund Index is an equally-weighted performance index,
adjusted for capital gains distributions and income dividends, of the 30 largest
qualifying funds within Lipper's growth & income investment objective category.
The Lipper Global Fund Index can be used to show how the Global Services
Fund's performance compares to a set of global funds. The Lipper Global Fund
Index is an equally-weighted performance index, adjusted for capital gains
distributions and income dividends, of the 30 largest qualifying funds in
Lipper's global investment objective category.
Ibbotson Associates (Ibbotson) provides historical returns of the capital
markets in the United States. The Funds' performance may be compared to the
long-term performance of the U.S. capital markets in order to demonstrate
general long-term risk versus reward investment scenarios. Performance
comparisons could also include the value of a hypothetical investment in common
stocks, long-term bonds or U.S. Treasury securities. Ibbotson calculates total
returns in the same manner as the Funds.
The capital markets tracked by Ibbotson are common stocks, small
capitalization stocks, long-term corporate bonds, intermediate-term government
bonds, long-term government bonds, U.S. Treasury bills and the U.S. rate of
inflation. These capital markets are based on the returns of several different
indices. For common stocks, the S&P 500 is used. For small capitalization
stocks, return is based on the return achieved by Dimensional Fund Advisors
(DFA) Small Company Fund. This fund is a market-value-weighted index of the
ninth and tenth deciles of the New York Stock Exchange (NYSE), plus stocks
listed on the American Stock Exchange (AMEX) and over-the-counter (OTC) with the
same or less capitalization as the upper bound of the NYSE ninth decile. As of
December 31, 1994, DFA contained approximately 2,000 stocks, with a median
market capitalization of about $80 million.
The S&P 500 Composite Stock Price Index is an unmanaged index of common
stocks frequently used as a general measure of stock market performance. The
Index's performance figures reflect changes of market prices and quarterly
reinvestment of all distributions.
The S&P SmallCap 600 Index is an unmanaged market-weighted index consisting
of 600 domestic stocks chosen for market size, liquidity and industry group
representation. As of September 30, 1994, the weighted mean market value of a
company in this Index was approximately $400 million.
26
<PAGE>
The Russell 2000, prepared by the Frank Russell Company, tracks the return
of the common stock of the 2,000 smallest out of the 3,000 largest publicly
traded U.S.-domiciled companies by market capitalization. The Russell 2000
tracks the return on these stocks based on price appreciation or depreciation
and includes dividends.
U.S. Treasury bonds are securities backed by the credit and taxing power of
the U.S. government and, therefore, present virtually no risk of default.
Although such government securities fluctuate in price, they are highly liquid
and may be purchased and sold with relatively small transaction costs (direct
purchase of U.S. Treasury securities can be made with no transaction costs).
Returns on intermediate-term government bonds are based on a one-bond portfolio
constructed each year, containing a bond that is the shortest non-callable bond
available with a maturity of not less than five years. This bond is held for the
calendar year and returns are recorded. Returns on long-term government bonds
are based on a one-bond portfolio constructed each year, containing a bond that
meets several criteria, including having a term of approximately 20 years. The
bond is held for the calendar year and returns are recorded. Returns on U.S.
Treasury bills are based on a one-bill portfolio constructed each month,
containing the shortest term bill having not less than one month to maturity.
The total return on the bill is the month-end price divided by the previous
month-end price, minus one. Data up to 1976 is from the U.S. Government Bond
file at the University of Chicago's Center for Research in Security Prices; the
Wall Street Journal is the source thereafter. Inflation rates are based on the
Consumer Price Index.
Quest may, from time to time, compare the performance of common stocks,
especially small capitalization stocks, to the performance of other forms of
investment over periods of time.
From time to time, in reports and promotional literature, the Funds'
performances also may be compared to other mutual funds tracked by financial or
business publications and periodicals, such as KIPLINGER's, INDIVIDUAL INVESTOR,
MONEY, FORBES, BUSINESS WEEK, BARRON's, FINANCIAL TIMES, FORTUNE, MUTUAL FUNDS
MAGAZINE AND THE WALL STREET JOURNAL. In addition, financial or business
publications and periodicals as they relate to fund management, investment
philosophy and investment techniques may be quoted.
Morningstar, Inc. may be quoted in advertising materials. For the three
years ended December 31, 1994, the average risk score for the 1,132 equity funds
rated by Morningstar with a three-year history was 1.00; the average risk score
for the 119 small company funds rated by Morningstar with a three-year history,
1.09; the average risk score for the 54 equity income funds with more than a
3-year history, .63. Royce Value Fund's risk score was 0.54, placing the Fund
within the lowest 10% of all small company funds in the category for the
three-year period. Royce Equity Income Fund's risk score was .38, the lowest
risk fund in the equity income category for the three-year period.
The Funds' performances may also be compared to those of other compilations
or indices.
Advertising for the Funds may contain examples of the effects of periodic
investment plans, including the principle of dollar cost averaging. In such a
program, an investor invests a fixed dollar amount in a fund at periodic
intervals, thereby purchasing fewer shares when prices are high and more shares
when prices are low. While such a strategy does not assure a profit or guard
against loss in a declining market, the investor's average cost per share can be
lower than if fixed numbers of shares are purchased at the same intervals. In
evaluating such a plan, investors should consider their ability to continue
purchasing shares during periods of low price levels.
The Funds may be available for purchase through retirement plans or other
programs offering deferral of or exemption from income taxes, which may produce
superior after-tax returns over time. For
27
<PAGE>
example, a $1,000 investment earning a taxable return of 10% annually would have
an after-tax value of $2,004 after ten years, assuming tax was deducted from the
return each year at a 28% rate. An equivalent tax-deferred investment would have
an after-tax value of $2,147 after ten years, assuming tax was deducted at a 28%
rate from the tax-deferred earnings at the end of the ten-year period.
RISK MEASUREMENTS
Quantitative measures of "total risk," which quantify the total variability
of a portfolio's returns around, or below, its average return, may be used in
advertisements and in communications with current and prospective shareholders.
These measures include standard deviation of total return and the Morningstar
risk statistic. Such communications may also include market risk measures, such
as beta, and risk-adjusted measures of performance such as the Sharpe Ratio,
Treynor Ratio, Jensen's Alpha and Morningstar's star rating system.
Standard Deviation. The risk associated with a fund or portfolio can be
viewed as the volatility of its returns, measured by the standard deviation of
those returns. For example, a fund's historical risk could be measured by
computing the standard deviation of its monthly total returns over some prior
period, such as three years. The larger the standard deviation of monthly
returns, the more volatile, i.e., spread out around the fund's average monthly
total return, the fund's monthly total returns have been over the prior period.
Standard deviation of total return can be calculated for funds of different
objectives, ranging from equity funds to fixed income funds, and can be measured
over different time frames. The standard deviation figures presented are
annualized statistics based on 36 monthly returns. Approximately 68% of the
time, the monthly total return of a fund will differ from its average monthly
total return by no more than plus or minus the standard deviation figure. 95% of
the time, a fund's monthly total return will be within a range of plus or minus
2x the standard deviation from its average monthly total return.
Beta. Beta measures the sensitivity of a security's, or portfolio's,
returns to the market's returns. It measures the relationship between a fund's
excess return (over 3-month T-bills) and the excess return of the benchmark
index (S&P 500 for domestic equity funds). The market's beta is by definition
equal to 1. Portfolios with betas greater than 1 are more volatile than the
market, and portfolios with betas less than 1 are less volatile than the market.
For example, if a portfolio has a beta of 2, a 10% market return would result in
a 20% portfolio return, and a 10% market loss would result in a 20% portfolio
loss (excluding the effects of any firm-specific risk that has not been
eliminated through diversification).
Morningstar Risk. The Morningstar proprietary risk statistic evaluates a
fund's downside volatility relative to that of other funds in its class based on
the underperformances of the fund relative to the riskless T-bill return. It
then compares this statistic to those of other funds in the same broad
investment class.
Sharpe Ratio. Also known as the Reward-to-Variability Ratio, this is the
ratio of a fund's average return in excess of the risk-free rate of return
("average excess return") to the standard deviation of the fund's excess
returns. It measures the returns earned in excess of those that could have been
earned on a riskless investment per unit of total risk assumed.
Treynor Ratio. Also known as the Reward-to-Volatility Ratio, this is the
ratio of a fund's average excess return to the fund's beta. It measures the
returns earned in excess of those that could have been earned on a riskless
investment per unit of market risk assumed. Unlike the Sharpe Ratio, the Treynor
Ratio uses market risk (beta), rather than total risk (standard deviation), as
the measure of risk.
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<PAGE>
Jensen's Alpha. This is the difference between a fund's actual returns and
those that could have been earned on a benchmark portfolio with the same amount
of risk, i.e., the same beta, as the portfolio. Jensen's Alpha measures the
ability of active management to increase returns above those that are purely a
reward for bearing market risk.
Morningstar Star Ratings. Morningstar, Inc. is a mutual fund rating service
that rates mutual funds on the basis of risk-adjusted performance. Ratings may
change monthly. Funds with at least three years of performance history are
assigned ratings from one star (lowest) to five stars (highest). Morningstar
ratings are calculated from the funds' three-, five- and ten-year average annual
returns (when available). Funds' returns are adjusted for fees and sales loads.
Ten percent of the funds in an investment category receive five stars, 22.5%
receive four stars, 35% receive three stars, 22.5% receive two stars, and the
bottom 10% receive one star.
None of the quantitative risk measures taken alone can be used for a
complete analysis and, when taken individually, can be misleading at times.
However, when considered in some combination and with the total returns of a
fund, they can provide the investor with additional information regarding the
volatility of a fund's performance. Such risk measures will change over time and
are not necessarily predictive of future performance or risk.
29
<PAGE>
PART C -- OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a. Financial Statements Included in Prospectuses (Part A):
Financial Highlights or Selected Per Share Data and
Ratios of Royce Value Fund and Royce Value Fund,
Inc., its predecessor, for the ten years ended
December 31, 1994 (audited), of Royce Equity Income
Fund for the five years ended December 31, 1994
(audited), of Royce Premier Fund and Royce Micro-Cap
Fund (formerly Royce OTC Fund) for the three years
ended December 31, 1993 (audited), and of Royce
Low-Priced Stock Fund and Royce Total Return Fund for
the period from December 15, 1993 through December
31, 1993 and the year ended December 31, 1994
(audited).
The following audited financial statements of the Registrant are
included in the Registrant's Annual Reports to Shareholders for the fiscal year
or period ended December 31, 1994, filed with the Securities and Exchange
Commission under Section 30(b)(1) of the Investment Company Act of 1940, and
have been incorporated in Part B hereof by reference:
Royce Value Fund -- Schedule of Investments at
December 31, 1994;
Royce Value Fund -- Statement of Assets and
Liabilities at December 31, 1994;
Royce Value Fund -- Statement of Changes in Net
Assets for the years ended December 31, 1994 and
1993;
Royce Value Fund -- Statement of Operations for the
year ended December 31, 1994;
Royce Value Fund -- Financial Highlights for the
years ended December 31, 1994, 1993, 1992, 1991 and
1990;
Royce Value Fund -- Notes to Financial Statements
-- Report of Independent Accountants dated February
1, 1995;
Royce Equity Income Fund -- Schedule of Investments
at December 31, 1994;
Royce Equity Income Fund -- Statement of Assets and
Liabilities at December 31, 1994;
Royce Equity Income Fund -- Statement of Changes in
Net Assets for the years ended December 31, 1994 and
1993;
Royce Equity Income Fund -- Statement of Operations
for the year ended December 31, 1994;
Royce Equity Income Fund -- Financial Highlights for
the years ended December 31, 1994, 1993, 1992, 1991
and 1990;
Royce Equity Income Fund -- Notes to Financial
Statements -- Report of Independent Accountants
dated February 1, 1995;
Royce Premier Fund -- Schedule of Investments at
December 31, 1994;
<PAGE>
Royce Premier Fund -- Statement of Assets and
Liabilities at December 31, 1994;
Royce Premier Fund -- Statement of Changes in Net
Assets for the years ended December 31, 1994 and
1993;
Royce Premier Fund -- Statement of Operations for the
year ended December 31, 1994;
Royce Premier Fund -- Financial Highlights for the
years ended December 31, 1994, 1993 and 1992;
Royce Premier Fund -- Notes to Financial Statements
-- Report of Independent Accountants dated February
1, 1995;
Royce Micro-Cap Fund -- Schedule of Investments at
December 31, 1994;
Royce Micro-Cap Fund -- Statement of Assets and
Liabilities at December 31, 1994;
Royce Micro-Cap Fund -- Statement of Changes in Net
Assets for the years ended December 31, 1994 and
1993;
Royce Micro-Cap Fund -- Statement of Operations for
the year ended December 31, 1994;
Royce Micro-Cap Fund -- Financial Highlights for the
years ended December 31, 1994, 1993 and 1992;
Royce Micro-Cap Fund -- Notes to Financial Statements
-- Report of Independent Accountants dated February
1, 1995;
Royce Low-Priced Stock Fund -- Schedule of
Investments at December 31, 1994;
Royce Low-Priced Stock Fund -- Statement of Assets
and Liabilities at December 31, 1994;
Royce Low-Priced Stock Fund -- Statement of Changes
in Net Assets for the year ended December 31, 1994
and the period December 15, 1993 through December 31,
1993;
Royce Low-Priced Stock Fund -- Statement of
Operations for the year ended December 31, 1994;
Royce Low-Priced Stock Fund -- Financial Highlights
for the year ended December 31, 1994 and the period
December 15, 1993 through December 31, 1993;
Royce Low-Priced Stock Fund -- Notes to Financial
Statements -- Report of Independent Accountants dated
February 1, 1995;
Royce Total Return Fund -- Schedule of Investments at
December 31, 1994;
Royce Total Return Fund -- Statement of Assets and
Liabilities at December 31, 1994;
Royce Total Return Fund -- Statement of Changes in
Net Assets for the year ended December 31, 1994 and
the period December 15, 1993 through December 31,
1993;
2
<PAGE>
Royce Total Return Fund -- Statement of Operations
for the year ended December 31, 1994;
Royce Total Return Fund -- Financial Highlights for
the year ended December 31, 1994 and the period
December 15, 1993 through December 31, 1993;
Royce Total Return Fund -- Notes to Financial
Statements -- Report of Independent Accountants dated
February 1, 1995;
Royce Global Services Fund -- Schedule of Investments
at December 31, 1994;
Royce Global Services Fund -- Statement of Assets and
Liabilities at December 31, 1994;
Royce Global Services Fund -- Statement of Changes in
Net Assets for the period December 15, 1994 through
December 31, 1994;
Royce Global Services Fund -- Statement of Operations
for the period ended December 31, 1994;
Royce Global Services Fund -- Financial Highlights
for the period December 15, 1994 through December 31,
1994;
Royce Global Services Fund -- Notes to Financial
Statements -- Report of Independent Accountants dated
February 1, 1995.
Financial statements, schedules and historical information
other than those listed above have been omitted since they are
either inapplicable or are not required.
b. Exhibits:
The exhibits required by Items (1) through (16), to the extent
applicable to the Registrant, have been filed with
Registrant's initial Registration Statement (No. 2-80348) and
Post-Effective Amendment Nos. 4, 5, 6, 8, 9, 11, 14, 15, 16,
17, 18, 19, 20, 21, 22, 23, 24, 26, 27, 28, 29, 30 and 31
thereto and are incorporated by reference herein.
(5) Investment Advisory Agreement between The Royce Fund (Royce
Global Services Fund) and Quest Advisory Corp.
(6) Distribution Fee Agreement for Royce Global Services Fund
between The Royce Fund and Quest Distributors, Inc.
(8) State Street Bank and Trust Company Custodian Fee Schedule.
(11) Consent of Coopers & Lybrand L.L.P., Independent Public
Accountants, dated April 25, 1995, relating to all Funds of
the Registrant except The REvest Growth & Income Fund.
3
<PAGE>
(15) Agreement between The Royce Fund and Fidelity Brokerage
Services, Inc.
(16) Schedule for Computation of Performance Quotations Provided in
Item 22.
Item 25. Persons Controlled by or Under Common Control With Registrant
There are no persons directly or indirectly controlled by or
under common control with the Registrant.
Item 26. Number of Holders of Securities
As of March 31, 1995, the number of record holders of shares
of each Fund of the Registrant was as follows:
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF FUND RECORD HOLDERS
<S> <C>
Royce Equity Income Fund .............................. 2,792
Royce Low-Priced Stock Fund ........................... 31
Royce Micro-Cap Fund .................................. 3,794
Royce Premier Fund .................................... 11,956
Royce Total Return Fund ............................... 29
Royce Global Services Fund ............................ 27
Royce Value Fund ...................................... 9,065
The REvest Growth and Income Fund ..................... 368
</TABLE>
Item 27. Indemnification
(a) Article XI of the Declaration of Trust of the Registrant provides
as follows:
"ARTICLE XI
LIMITATION OF LIABILITY AND INDEMNIFICATION
LIMITATION OF LIABILITY
Section l. Provided they have exercised reasonable
care and have acted under the belief that their actions are in the best
interest of the Trust, the Trustees shall not be responsible for or
liable in any event for neglect or wrongdoing of any other Trustee or
any officer, employee, agent or Investment Adviser, Principal
Underwriter, transfer agent, custodian or other independent contractor
of the Trust, but nothing contained herein shall protect any Trustee
4
<PAGE>
against any liability to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence in the performance
of his duties or reckless disregard of the obligations and duties
involved in the conduct of his office.
Every note, bond, contract, instrument, certificate
or undertaking and every other act or thing whatsoever executed or done
by or on behalf of the Trust or the Trustees or any of them in
connection with the Trust shall be conclusively deemed to have been
executed or done only in or with respect to their or his capacity as
Trustees or Trustee, and such Trustees or Trustee shall not be
personally liable thereon.
INDEMNIFICATION
Section 2.
(a) Subject to the exceptions and limitations
contained in Section 2(b) below:
(i) Every person who is, or has been, a
Trustee or officer of the Trust (including persons who serve at the
Trust's request as directors, officers or trustees of another entity in
which the Trust has any interest as a shareholder, creditor or
otherwise) (hereinafter referred to as a "Covered Person") shall be
indemnified by the appropriate Fund to the fullest extent not
prohibited by law against liability and against all expenses reasonably
incurred or paid by him in connection with any claim, action, suit or
proceeding in which he becomes involved as a party or otherwise by
virtue of his being or having been a Trustee or officer and against
amounts paid or incurred by him in the settlement thereof; and
(ii) The words "claim", "action", "suit"
or "proceeding" shall apply to all claims, actions, suits or
proceedings (civil, criminal, administrative, investigatory or other,
including appeals), actual or threatened, while in office or
thereafter, and the words "liability" and "expenses" shall include,
without limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder
to a Covered Person:
(i) Who shall, in respect of the matter
or matters involved, have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross
negligence in the performance of his duties or reckless disregard of
the obligations and duties involved in the conduct of his
5
<PAGE>
office or (B) not to have acted in the belief that his action was in
the best interest of the Trust; or
(ii) In the event of a settlement, unless
there has been a determination that such Trustee or officer did not
engage in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office,
(A) By the court or other body
approving the settlement;
(B) By a majority of those Trustees
who are neither Interested Persons of the Trust nor are parties to the
matter, based upon a review of readily available facts (as opposed to a
full trial-type inquiry); or
(C) By written opinion of
independent legal counsel, based upon a review of readily available
facts (as opposed to a full trial-type inquiry).
(c) The rights of indemnification herein provided
may be insured against by policies maintained by the Trust, shall be
severable, shall not be exclusive of or affect any other rights to
which any Covered Person may now or hereafter be entitled, shall
continue as to a person who has ceased to be such Trustee or officer
and shall inure to the benefit of the heirs, executors and
administrators of such a person. Nothing contained herein shall affect
any rights to indemnification to which Trust personnel, other than
Trustees and officers, and other persons may be entitled by contract or
otherwise under law.
(d) Expenses in connection with the preparation and
presentation of a defense to any claim, action, suit or proceeding of
the type described in subsection (a) of this Section 2 may be paid by
the applicable Fund from time to time prior to final disposition
thereof upon receipt of an undertaking by or on behalf of such Covered
Person that such amount will be paid over by him to the applicable Fund
if and when it is ultimately determined that he is not entitled to
indemnification under this Section 2; provided, however, that either
(i) such Covered Person shall have provided appropriate security for
such undertaking, (ii) the Trust is insured against losses arising out
of any such advance payments or (iii) either a majority of the Trustees
who are neither Interested Persons of the Trust nor parties to the
matter, or independent legal counsel in a written opinion, shall have
determined, based upon a review of readily available facts (as opposed
to a trial-type inquiry or full investigation), that there is reason to
believe that such Covered Person will be found entitled to
indemnification under this Section 2."
(b)(1) Paragraph 8 of the Investment Advisory Agreements by
and between the Registrant and Quest Advisory Corp. provides as follows:
6
<PAGE>
"8. Protection of the Adviser. The Adviser shall not
be liable to the Fund or to any portfolio series thereof for any action
taken or omitted to be taken by the Adviser in connection with the
performance of any of its duties or obligations under this Agreement or
otherwise as an investment adviser of the Fund or such series, and the
Fund or each portfolio series thereof involved, as the case may be,
shall indemnify the Adviser and hold it harmless from and against all
damages, liabilities, costs and expenses (including reasonable
attorneys' fees and amounts reasonably paid in settlement) incurred by
the Adviser in or by reason of any pending, threatened or completed
action, suit, investigation or other proceeding (including an action or
suit by or in the right of the Fund or any portfolio series thereof or
its security holders) arising out of or otherwise based upon any action
actually or allegedly taken or omitted to be taken by the Adviser in
connection with the performance of any of its duties or obligations
under this Agreement or otherwise as an investment adviser of the Fund
or such series. Notwithstanding the preceding sentence of this
Paragraph 8 to the contrary, nothing contained herein shall protect or
be deemed to protect the Adviser against or entitle or be deemed to
entitle the Adviser to indemnification in respect of, any liability to
the Fund or to any portfolio series thereof or its security holders to
which the Adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its duties and
obligations under this Agreement.
Determinations of whether and the extent to which the
Adviser is entitled to indemnification hereunder shall be made by
reasonable and fair means, including (a) a final decision on the
merits by a court or other body before whom the action, suit or other
proceeding was brought that the Adviser was not liable by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard
of its duties or (b) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the Adviser was
not liable by reason of such misconduct by (i) the vote of a majority
of a quorum of the Trustees of the Fund who are neither "interested
persons" of the Fund (as defined in Section 2(a)(19) of the Investment
Company Act of 1940) nor parties to the action, suit or other
proceeding or (ii) an independent legal counsel in a written opinion."
(b)(2) Paragraph 8 of the Investment Advisory Agreement by
and between the Registrant and Royce, Ebright & Associates, Inc. provides as
follows:
"8. Protection of the Adviser. The Adviser shall not
be liable to the Fund or to any portfolio series thereof for any action
taken or omitted to be taken by the Adviser in connection with the
performance of any of its duties or obligations under this Agreement or
otherwise as an investment adviser of the Fund or such series, and the
Fund or each portfolio series thereof involved, as the case may be,
shall indemnify the Adviser and hold it harmless from and against all
damages, liabilities, costs and expenses (including reasonable
attorneys' fees and amounts reasonably paid in settlement) incurred by
the Adviser in or by reason of any pending, threatened or completed
action, suit, investigation or other
7
<PAGE>
proceeding (including an action or suit by or in the right of the Fund
or any portfolio series thereof or its security holders) arising out of
or otherwise based upon any action actually or allegedly taken or
omitted to be taken by the Adviser in connection with the performance
of any of its duties or obligations under this Agreement or otherwise
as an investment adviser of the Fund or such series. Notwithstanding
the preceding sentence of this Paragraph 8 to the contrary, nothing
contained herein shall protect or be deemed to protect the Adviser
against or entitle or be deemed to entitle the Adviser to
indemnification in respect of, any liability to the Fund or to any
portfolio series thereof or its security holders to which the Adviser
would otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence in the performance of its duties or by reason of
its reckless disregard of its duties and obligations under this
Agreement.
Determinations of whether and the extent to which the Adviser
is entitled to indemnification hereunder shall be made by reasonable
and fair means, including (a) a final decision on the merits by a court
or other body before whom the action, suit or other proceeding was
brought that the Adviser was not liable by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
duties or (b) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the Adviser was
not liable by reason of such misconduct by (i) the vote of a majority
of a quorum of the Trustees of the Fund who are neither "interested
persons" of the Fund (as defined in Section 2(a)(19) of the Investment
Company Act of 1940) nor parties to the action, suit or other
proceeding or (ii) an independent legal counsel in a written opinion."
(c) Paragraph 9 of the Distribution Agreement made October 31,
1985 by and between the Registrant and Quest Distributors, Inc. provides as
follows:
"9. Protection of the Distributor. The Distributor
shall not be liable to the Fund or to any series thereof for any action
taken or omitted to be taken by the Distributor in connection with the
performance of any of its duties or obligations under this Agreement or
otherwise as an underwriter of the Shares, and the Fund or each
portfolio series thereof involved, as the case may be, shall indemnify
the Distributor and hold it harmless from and against all damages,
liabilities, costs and expenses (including reasonable attorneys' fees
and amounts reasonably paid in settlement) incurred by the Distributor
in or by reason of any pending, threatened or completed action, suit,
investigation or other proceeding (including an action or suit by or in
the right of the Fund or any series thereof or its security holders)
arising out of or otherwise based upon any action actually or allegedly
taken or omitted to be taken by the Distributor in connection with the
performance of any of its duties or obligations under this Agreement or
otherwise as an underwriter of the Shares. Notwithstanding the
preceding sentences of this Paragraph 9 to the contrary, nothing
contained herein shall protect or be deemed to protect the Distributor
against, or entitle or be deemed to entitle the Distributor to
indemnification in respect of, any liability to the Fund or to any
portfolio series thereof or its security holders to which the
Distributor would otherwise be subject
8
<PAGE>
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
duties and obligations under this Agreement.
Determinations of whether and to the extent to which the
Distributor is entitled to indemnification hereunder shall be made by
reasonable and fair means, including (a) a final decision on the merits
by a court or other body before whom the action, suit or other
proceeding was brought that the Distributor was not liable by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard
of its duties or (b) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the Distributor
was not liable by reason of such misconduct by (a) the vote of a
majority of a quorum of the Trustees of the Fund who are neither
"interested persons" of the Fund (as defined in Section 2(a)(19) of the
1940 Act) nor parties to the action, suit or other proceeding or (b) an
independent legal counsel in a written opinion."
Item 28. Business and Other Connections of Investment Advisers
Reference is made to the filings on Schedule D to the
Applications on Form ADV, as amended, of Quest Advisory Corp. and Royce, Ebright
& Associates, Inc. for Registration as Investment Advisers under the Investment
Advisers Act of 1940.
Item 29. Principal Underwriters
Inapplicable. The Registrant does not have any principal
underwriters.
Item 30. Location of Accounts and Records
The accounts, books and other documents required to be
maintained by the Registrant pursuant to the Investment Company Act of 1940, are
maintained at the following locations:
The Royce Fund
1414 Avenue of the Americas
10th Floor
New York, New York 10019
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02101
9
<PAGE>
Item 31. Management Services
State Street Bank and Trust Company, a Massachusetts trust
company ("State Street"), provides certain management-related services to the
Registrant pursuant to a Custodian Contract made as of December 31, 1985 between
the Registrant and State Street. Under such Custodian Contract, State Street,
among other things, has contracted with the Registrant to keep books of accounts
and render such statements as agreed to in the then current mutually-executed
Fee Schedule or copies thereof from time to time as requested by the Registrant,
and to assist generally in the preparation of reports to holders of shares of
the Registrant, to the Securities and Exchange Commission and to others, in the
auditing of accounts and in other ministerial matters of like nature as agreed
to between the Registrant and State Street. All of these services are rendered
pursuant to instructions received by State Street from the Registrant in the
ordinary course of business.
Registrant paid the following fees to State Street for
services rendered pursuant to the Custodian Contract, as amended, for each of
the three (3) fiscal years ended December 31:
1994: $309,492
1993: $224,234
1992: $182,000
Item 32. Undertakings
Registrant hereby undertakes to call a special meeting of the
Registrant's shareholders upon the written request of shareholders owning at
least 10% of the outstanding shares of the Registrant for the purpose of voting
upon the question of the removal of a trustee or trustees and, upon the written
request of 10 or more shareholders of the Registrant who have been such for at
least 6 months and who own at least 1% of the outstanding shares of the
Registrant, to provide a list of shareholders or to disseminate appropriate
materials at the expense of the requesting shareholders.
Registrant hereby undertakes to furnish each person to whom a
prospectus for any series of the Registrant is delivered with a copy of the
latest annual report to shareholders of such series upon request and without
charge.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post- Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York, and State
of New York, on the 27th day of April, 1995.
The Registrant represents that this Post-Effective Amendment is filed
solely for one or more of the purposes set forth in paragraph (b)(1) of Rule 485
under the Securities Act of 1933 and that no material event requiring disclosure
in the prospectus, other than one listed in paragraph (b)(1) of such Rule or one
for which the Commission has approved a filing under paragraph (b)(1)(ix) of the
Rule, has occurred since the latest of the following three dates: (i) the
effective date of the Registrant's Registration Statement; (ii) the effective
date of the Registrant's most recent Post-Effective Amendment to its
Registration Statement which included a prospectus; or (iii) the filing date of
a post-effective amendment filed under paragraph (a) of Rule 485 which has not
become effective.
THE ROYCE FUND
By: /s/Charles M. Royce
Charles M. Royce, President
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, this Post-Effective Amendment to the
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Charles M. Royce President, Treasurer 4/27/95
Charles M. Royce and Trustee (Principal
Executive, Accounting
and Financial Officer)
/s/Richard M. Galkin Trustee 4/27/95
Richard M. Galkin
/s/Stephen L. Isaacs Trustee 4/27/95
Stephen L. Isaacs
/s/David L. Meister Trustee 4/27/95
David L. Meister
</TABLE>
NOTICE
A copy of the Declaration of Trust of The Royce Fund is on file with
the Secretary of the Commonwealth of Massachusetts, and notice is hereby given
that this instrument is executed on behalf of the Registrant by an officer of
the Registrant as an officer and not individually and that the obligations of or
arising out of this instrument are not binding upon any of the Trustees or
shareholders individually but are binding only upon the assets and property of
the Registrant.
STATEMENT OF DIFFERENCES
------------------------
"superscript" is used to indicate "raised to the power of"
as in e.g., (1+T)"superscript" n or (1+.0738)"superscript"5.
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
<S> <C> <C>
(5) Investment Advisory Agreement between 99
The Royce Fund (Royce Global Services
Fund) and Quest Advisory Corp.
(6) Distribution Fee Agreement for Royce 104
Global Services Fund between The Royce
Fund and Quest Distributors, Inc.
(8) State Street Bank and Trust Company 106
Custodian Fee Schedule.
(11) Consent of Coopers & Lybrand L.L.P., 110
Independent Public Accountants, dated
dated April 25, 1995, relating to all series
except The REvest Growth & Income Fund.
(15) Agreement with Fidelity Brokerage 112
Services, Inc.
(16) Schedule for Computation of 121
Performance Quotations Provided in
Item 22
</TABLE>
<PAGE>
EXHIBIT (5)
INVESTMENT ADVISORY AGREEMENT
BETWEEN THE ROYCE FUND (ROYCE GLOBAL SERVICES FUND)
AND QUEST ADVISORY CORP.
<PAGE>
INVESTMENT ADVISORY AGREEMENT
BETWEEN
THE ROYCE FUND (ROYCE GLOBAL SERVICES FUND)
AND
QUEST ADVISORY CORP.
Agreement made this 15th day of December, 1994, by and between THE
ROYCE FUND, a Massachusetts business trust (the "Fund"), and QUEST ADVISORY
CORP., a New York corporation (the "Adviser").
The Fund and the Adviser hereby agree as follows in respect of Royce
Global Services Fund, a series of the Fund (the "Series"):
1. Duties of the Adviser. The Adviser shall, during the term and
subject to the provisions of this Agreement, (a) determine the composition of
the portfolio of the Series, the nature and timing of the changes therein and
the manner of implementing such changes, and (b) provide the Series with such
investment advisory, research and related services as the Series may, from time
to time, reasonably require for the investment of its funds. The Adviser shall
perform such duties in accordance with the applicable provisions of the Fund's
Declaration of Trust, By- Laws and current prospectus and any directions it may
receive from the Fund's Trustees.
2. Expenses Payable by the Series. Except as otherwise provided in
Paragraphs 1 and 3 hereof, the Fund shall be responsible for effecting sales and
redemptions of the Series' shares, for determining the net asset value thereof
and for all of the Series' other operations and shall cause the Series to pay
all administrative and other costs and expenses attributable to its operations
and transactions, including, without limitation, transfer agent and custodian
fees; legal, administrative and clerical services; rent for office space and
facilities; auditing; preparation, printing and distribution of its
prospectuses, proxy statements, shareholders' reports and notices; supplies and
postage; Federal and state registration fees; Federal, state and local taxes;
non-affiliated Trustees' fees; and brokerage commissions.
3. Expenses Payable by the Adviser. The Adviser shall furnish, without
expense to the Fund or to the Series, the services of those of its executive
officers and full-time employees who may be duly elected executive officers or
Trustees of the Fund, subject to their individual consent to serve and to any
limitations imposed by law, and shall pay all the salaries and expenses of such
persons. For purposes of this Agreement, only a president, a treasurer or a
vice-president in charge of a principal business function shall be deemed to be
an executive officer. The
<PAGE>
Adviser shall also pay all expenses which it may incur in performing its duties
under Paragraph 1 hereof and shall reimburse the Fund for any space leased by
the Fund and occupied by the Adviser. In the event the Fund shall qualify shares
of the Series for sale in any jurisdiction, the applicable statutes or
regulations of which expressly limit the amount of the Series' total annual
expenses, the Adviser agrees to reduce its annual investment advisory fee for
the Series, to the extent that such total annual expenses (other than brokerage
commissions and other capital items, interest, taxes, distribution fees,
extraordinary items and other excludable items, charges, costs and expenses)
exceed the limitations imposed on the Series by the most stringent regulations
of any such jurisdiction.
4. Compensation of the Adviser. The Fund agrees to cause the Series to
pay to the Adviser, and the Adviser agrees to accept as compensation for the
services provided by the Adviser hereunder, a fee equal to 1.5% per annum of the
average net assets of the Series at the close of business on each day that the
value of its net assets is computed during the year. However, the Fund and the
Adviser may agree in writing to temporarily or permanently reduce such fee. Such
compensation shall be accrued on the Series' books at the close of business on
each day that the value of its net assets is computed during each year and shall
be payable to the Adviser monthly, on the last day of each month, and adjusted
as of year-end if required.
5. Excess Brokerage Commissions. The Adviser is hereby authorized, to
the fullest extent now or hereafter permitted by law, to cause the Series to pay
a member of a national securities exchange, broker or dealer an amount of
commission for effecting a securities transaction in excess of the amount of
commission another member of such exchange, broker or dealer would have charged
for effecting that transaction, if the Adviser determines in good faith that
such amount of commission is reasonable in relation to the value of the
brokerage and/or research services provided by such member, broker or dealer,
viewed in terms of either that particular transaction or its overall
responsibilities with respect to all portfolio series of the Fund and/or the
Series.
6. Limitations on the Employment of the Adviser. The services of the
Adviser to the Series shall not be deemed exclusive, and the Adviser may engage
in any other business or render similar or different services to others so long
as its services to the Series hereunder are not impaired thereby, and nothing in
this Agreement shall limit or restrict the right of any director, officer or
employee of the Adviser to engage in any other business or to devote his time
and attention in part to any other business, whether of a similar or dissimilar
nature. So long as this Agreement or any extension, renewal or amendment remains
in effect, the Adviser shall be the only investment adviser for the Series,
subject to the Adviser's right to enter into sub-advisory agreements. The
Adviser assumes no responsibility under this Agreement other than to render the
services called for hereunder, and shall not be responsible for any action of or
directed by the Fund's Trustees, or any committee thereof, unless such action
has been caused by the Adviser's gross negligence, willful malfeasance, bad
faith or reckless disregard of its obligations and duties under this Agreement.
2
<PAGE>
7. Responsibility of Dual Directors, Officers and/or Employees. If any
person who is a director, officer or employee of the Adviser is or becomes a
Trustee, officer and/or employee of the Fund and acts as such in any business of
the Fund pursuant to this Agreement, then such director, officer and/or employee
of the Adviser shall be deemed to be acting in such capacity solely for the
Fund, and not as a director, officer or employee of the Adviser or under the
control or direction of the Adviser, although paid by the Adviser.
8. Protection of the Adviser. The Adviser shall not be liable to the
Fund or to any portfolio series thereof for any action taken or omitted to be
taken by the Adviser in connection with the performance of any of its duties or
obligations under this Agreement or otherwise as an investment adviser of the
Fund or such series, and the Fund or each portfolio series thereof involved, as
the case may be, shall indemnify the Adviser and hold it harmless from and
against all damages, liabilities, costs and expenses (including reasonable
attorneys' fees and amounts reasonably paid in settlement) incurred by the
Adviser in or by reason of any pending, threatened or completed action, suit,
investigation or other proceeding (including an action or suit by or in the
right of the Fund or any portfolio series thereof or its security holders)
arising out of or otherwise based upon any action actually or allegedly taken or
omitted to be taken by the Adviser in connection with the performance of any of
its duties or obligations under this Agreement or otherwise as an investment
adviser of the Fund or such series. Notwithstanding the preceding sentence of
this Paragraph 8 to the contrary, nothing contained herein shall protect or be
deemed to protect the Adviser against or entitle or be deemed to entitle the
Adviser to indemnification in respect of, any liability to the Fund or to any
portfolio series thereof or its security holders to which the Adviser would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its duties and obligations under this Agreement.
Determinations of whether and the extent to which the Adviser is
entitled to indemnification hereunder shall be made by reasonable and fair
means, including (a) a final decision on the merits by a court or other body
before whom the action, suit or other proceeding was brought that the Adviser
was not liable by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of its duties, or (b) in the absence of such a decision, a
reasonable determination, based upon a review of the facts, that the Adviser was
not liable by reason of such misconduct by (i) the vote of a majority of a
quorum of the Trustees of the Fund who are neither "interested persons" of the
Fund (as defined in Section 2(a)(19) of the Investment Company Act of 1940) nor
parties to the action, suit or other proceeding, or (ii) an independent legal
counsel in a written opinion.
9. Effectiveness, Duration and Termination of Agreement. This Agreement
shall become effective immediately upon approval by a majority of the
outstanding voting securities of the Series, and the Investment Advisory
Agreement made September 24, 1992 by and between the Fund and the Adviser shall
not apply as to the Series. This Agreement shall remain in effect until April
30, 1996, and thereafter shall continue automatically for successive annual
periods, provided that such continuance is specifically approved at least
annually by (a) the vote of the Fund's Trustees, including a majority of such
Trustees who are not parties to this Agreement or
3
<PAGE>
"interested persons" (as such term is defined in Section 2(a)(19) of the
Investment Company Act of 1940) of any such party, cast in person at a meeting
called for the purpose of voting on such approval, or (b) the vote of a majority
of the outstanding voting securities of the Series and the vote of the Fund's
Trustees, including a majority of such Trustees who are not parties to this
Agreement or "interested persons" (as so defined) of any such party. This
Agreement may be terminated at any time, without the payment of any penalty, on
60 days' written notice by the vote of a majority of the outstanding voting
securities of the Series, or by the vote of a majority of the Fund's Trustees or
by the Adviser, and will automatically terminate in the event of its
"assignment" (as such term is defined for purposes of Section 15(a)(4) of the
Investment Company Act of 1940); provided, however, that the provisions of
Paragraph 8 of this Agreement shall remain in full force and effect, and the
Adviser shall remain entitled to the benefits thereof, notwithstanding any such
termination. The Adviser or Charles M. Royce may, upon termination of this
Agreement, require the Fund to refrain from using the name "Royce" in any form
or combination in its name or in its business, and the Fund shall, as soon as
practicable following its receipt of any such request from the Adviser or
Charles M. Royce, so refrain from using such name.
Any notice under this Agreement shall be given in writing, addressed
and delivered or mailed, postage prepaid, to the other party at its principal
office.
10. Shareholder Liability. Notice is hereby given that this Agreement
is entered into on the Fund's behalf by an officer of the Fund in his capacity
as an officer and not individually and that the obligations of or arising out of
this Agreement are not binding upon any of the Fund's Trustees, officers,
employees, agents or shareholders individually, but are binding only upon the
assets and property of the Series.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed the day and year first above written.
THE ROYCE FUND
By: Charles M. Royce
-------------------------------
Charles M. Royce, President
QUEST ADVISORY CORP.
By: Charles M. Royce
-------------------------------
Charles M. Royce, President
4
EXHIBIT (6)
DISTRIBUTION FEE AGREEMENT FOR
ROYCE GLOBAL SERVICES FUND BETWEEN THE ROYCE FUND
AND QUEST DISTRIBUTORS, INC.
<PAGE>
DISTRIBUTION FEE AGREEMENT
FOR
ROYCE GLOBAL SERVICES FUND
The Royce Fund, a Massachusetts business trust (the "Trust"), and Quest
Distributors, Inc., a New York corporation ("QDI"), hereby agree that as
compensation for QDI's services and for the expenses payable by QDI under the
Distribution Agreement made October 31, 1985 by and between the parties hereto,
QDI shall receive, for and from the assets of Royce Global Services Fund, a
series of the Trust, a monthly fee equal to .25% per annum of Royce Global
Services Fund's average net assets.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the 15th day of December, 1994.
THE ROYCE FUND
By: Charles M. Royce
---------------------------
Charles M. Royce, President
QUEST DISTRIBUTORS, INC.
By: Charles M. Royce
---------------------------
Charles M. Royce, Secretary
<PAGE>
EXHIBIT (8)
STATE STREET BANK AND TRUST COMPANY CUSTODIAN FEE SCHEDULE
<PAGE>
STATE STREET BANK AND TRUST COMPANY [LOGO]
CUSTODIAN FEE SCHEDULE
ROYCE GLOBAL SERVICES FUND
I. A. INTERNATIONAL PORTFOLIO AND FUND ACCOUNTING
Includes: Maintaining multicurrency investment ledgers, and providing position
and income reports. Maintaining general ledger and capital stock accounts in
compliance with GAAP (FAS 52). Preparing daily trial balances. Calculating net
asset values daily. Providing selected general ledger reports. Securities yield
or market value quotations will be provided to State Street by the fund or via
State Street's pricing service (See Section III). (The fee is calculated using
basis points per portfolio per annum: 1 basis point=0.01%).
<TABLE>
<S> <C> <C>
First $ 50 Million (Net Asset Value) 5 bpts
Net $ 50 Million 3 bpts
Over $100 Million 1/2bpt
Minimum Monthly Charges -- 1st 6 months per portfolio: $0
Next 3 Months per portfolio: $1,150
After 9 Months per portfolio: $2,300
B. DOMESTIC PORTFOLIO AND FUND ACCOUNTING
First $20 Million 1/15 of 1%
Next $80 Million 1/30 of 1%
Excess 1/100 of 1%
</TABLE>
II. GLOBAL CUSTODY
Maintain custody of fund assets. Settle portfolio purchases and sales. Report
buy and sell fails. Determine and collect portfolio income. Make cash
disbursements and report cash transactions in local and base currency. Withhold
foreign taxes. File foreign tax reclaims. Monitor corporate actions. Report
portfolio positions.
A. COUNTRY GROUPING
<TABLE>
<S> <C> <C> <C>
GROUP A GROUP B GROUP C GROUP D
Australia Austria Botswana Argentina
Canada Belgium Brazil Bangladesh
Denmark Finland China Bolivia*
Euroclear Hong Kong Czech Republic Chile
France Indonesia Ecuador* Colombia
Germany Ireland Egypt Cyprus
Italy Malaysia Ghana Greece
Japan Mexico Israel Hungary
New Zealand Netherlands Kenya India
Spain Norway Luxembourg Jamaica*
Switzerland Philippines Morocco Jordan
U.K. Portugal South Africa Mauritus
Singapore Sri Lanka Namibia
Sweden Taiwan Pakistan
Thailand Trinidad and Tobago* Peru
Turkey Poland
Zambia Slovakia
Zimbabwe South Korea
Tunisia
Uruguay
Vanezuela
</TABLE>
*17f-5 Ineligible at this time
<PAGE>
B. TRANSACTION CHARGES
<TABLE>
<CAPTION>
GROUP A GROUP B GROUP C GROUP D
<S> <C> <C> <C> <C>
State Street Bank $25 $50 $100 $150
Repos or Euros -- $7.00
</TABLE>
C. HOLDING CHARGES IN BASIS POINTS (ANNUAL FEE)
<TABLE>
<CAPTION>
GROUP A GROUP B GROUP C GROUP D GROUP E
<S> <C> <C> <C> <C>
1.5 5.0 15.0 40 50
</TABLE>
*Excludes: agent, depository and local auditing fees
**Transaction charges waived if brokerage provided by National Securities
Company.
<TABLE>
<S> <C>
UNITED STATES -- for each line item processed
State Street Bank Repos $ 7.00
DTC or Fed Book Entry $ 12.00
New York Physical $ 25.00
PTC Buy/Sell $ 20.00
All other Trades $ 16.00
Maturity Collections $ 8.00
Options charge for each option written or closing contract, per issue, per broker $ 25.00
Option expiration/Option exercised $ 15.00
Interest Rate Futures -- no security movement $ 8.00
Monitoring for calls and processing coupons -- for each coupon issue held -- monthly charge $ 5.00
Principal Reduction Payments Per Paydown $ 10.00
Dividend Charges (For items held at the Request of Traders over record date in street form) $ 50.00
III. PRICING SERVICE
Monthly Base Fee per portfolio $200.00
Monthly Quote Charge: (based on the average number of positions in portfolio)
-- Foreign Equities and Bonds via Extel Ltd. $ 6.00
-- Listed Equities, OTC Equities, and Bonds $ 3.00
</TABLE>
IV. SPECIAL SERVICES
Fees for activities of a non-recurring nature such as fund consolidations or
reorganizations, extraordinary security shipments and the preparation of special
reports will be subject to negotiation. Fees for tax accounting/recordkeeping
for options, financial futures, standardized yield calculation, securities
lending and other special items will be negotiated separately.
<PAGE>
V. OUT-OF-POCKET EXPENSES
A billing for the recovery of applicable out-of-pocket expenses will be made as
of the end of each month. Out-of-pocket expenses include, but are not limited to
the following:
Telephone/Telexes
Wire Charges
Postage and Insurance
Courier Service
Duplicating
Legal Fees
Transfer Fees
Sub-custodian Out-of-Pocket Charges
(e.g., Stamp Duties, Registration, etc.)
Price Waterhouse Audit Letter
Federal Reserve Fee for Return Check items over $2,500 -- $4.25
GNMA Transfer -- $15.00 each
<TABLE>
<S> <C>
ROYCE GLOBAL SERVICES FUND STATE STREET BANK & TRUST CO.
By: John D. Diedrich By: Charles N. WHITTEMORE, JR.
Title: Director of Operations Title: Vice President
Date: April 10, 1995 Date: 10/20/94
</TABLE>
<PAGE>
EXHIBIT (11)
CONSENT OF COOPERS & LYBRAND L.L.P.,
INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
[COOPERS & LYBRAND LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of THE ROYCE FUND:
Royce Total Return Fund
Royce Low-Priced Stock Fund
Royce Value Fund
Royce Premier Fund
Royce Equity Income Fund
Royce Micro-Cap Fund
Royce Global Services Fund
We consent to the incorporation by reference in Post-Effective Amendment No. 32
to the Registration Statement of The Royce Fund on Form N-1A (No. 2-80348) of
our reports dated February 1, 1995 on our audits of the financial statements and
financial highlights of the above referenced funds, which reports are included
in the Annual Report to Shareholders for the year ended December 31, 1994 which
are incorporated by reference in the Registration Statement.
We further consent to the reference to our Firm under the captions 'Financial
Highlights' and 'General Information' in the Prospectus and 'Independent
Accountants' in the Statement of Additional Information.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
April 25, 1995
<PAGE>
EXHIBIT (15)
AGREEMENT BETWEEN REGISTRANT AND
FIDELITY BROKERAGE SERVICES, INC.
<PAGE>
SERVICES AGREEMENT
This Agreement is made as the 26th day of August, 1994 between: (1)
Fidelity Brokerage Services, Inc. ('FBSI') and National Financial Services
Corporation ('NFSC') (together 'Fidelity'), and (2) the undersigned
('Fund/Agent').
RECITALS
A. Fund/Agent is either (i) an open-end investment company with one or more
series or classes of shares (each such series or class of shares a 'Fund'), (ii)
an investment adviser to or administrator for the Funds, (iii) the principal
underwriter or distributor for the Funds, or (iv) the transfer agent for the
Funds.
B. Fund/Agent wishes to have Fidelity provide to Fund/Agent or on its behalf
certain administrative services with respect to beneficial owners of shares
('Shareholder(s)') of such Funds which Fidelity makes available to Shareholders
through securities brokerage accounts carried by NFSC on behalf of FBSI or
correspondents of NFSC ('Correspondents').
C. Fidelity agrees to provide such services on the terms and conditions set
forth herein.
AGREEMENT
THEREFORE, in consideration of the mutual promises set forth herein, the
parties agree as follows:
I. SHAREHOLDER SERVICES
A. Shareholder Account Set-Up and Maintenance -- To facilitate Shareholders'
ownership of shares of any Fund, Fidelity shall provide to FBSI and
Correspondents adequate facilities and procedures to: (1) establish and maintain
Fund investments on behalf of Shareholders within a consolidated brokerage
account(s) on the Fidelity transaction processing and recordkeeping system, and
(2) access Shareholders' current Fund information including, but not limited to,
share balances, dividend information and transaction history.
B. Shareholder Assistance -- Fidelity shall make available to Correspondents any
information maintained by Fidelity as may be necessary for Correspondents to
support and resolve Shareholder servicing inquiries. Fidelity personnel will
assist Correspondents in the investigation of Shareholder inquiries when
necessary. FBSI will support Shareholder service inquiries from Shareholders who
maintain brokerage accounts with FBSI.
C. Transaction Processing and Settlement -- The Fidelity transaction processing
system shall enable Shareholders to purchase, redeem and exchange shares of
Funds available through Fidelity. NFSC shall facilitate settlement with each
Fund of Shareholder transactions in such Fund insofar as such transactions are
transmitted to NFSC by FBSI or Correspondents on behalf of Shareholders.
<PAGE>
D. Shareholder Account Statement Preparation and Distribution -- With respect to
each Shareholder holding Fund investments through Fidelity, Fidelity shall
deliver or cause to be delivered to such Shareholder monthly statements when
there has been activity in such Shareholder's brokerage account during such
month, or quarterly statements during periods when there has been no monthly
account activity. Statements will include transaction detail for the statement
period for each Fund in which shares were purchased, redeemed or exchanged, and
a summary of the number of Fund shares owned and share value thereof as of the
statement date to the extent such value is provided by the Fund.
E. Confirmation Preparation and Distribution -- Fidelity shall generate a
written confirmation for each purchase, redemption and exchange transaction
affecting each Shareholder's Fund investments held through Fidelity to the
extent such confirmation is required, and such confirmation shall be distributed
to Shareholders through or on behalf of FBSI or Correspondents.
F. Payment of Fund Distributions -- NFSC shall distribute to Shareholders all
dividend, capital gain or other payments authorized by the Fund and distributed
to and received by NFSC, and such distributions shall be credited to
Shareholders in accordance with the instructions provided by each Shareholder,
including but not limited to dividend reinvestment into the Fund, or cash
payments of distributions.
G. Prospectus Fulfillment -- Subsequent to any Shareholder's acquisition of
shares of a Fund by purchase or exchange, Fidelity shall provide to such
Shareholder a confirming prospectus for such Fund to the extent such prospectus
is required with respect to such acquisition and is provided by the Fund to
Fidelity or its designee.
Fund/Agent acknowledges and agrees that Fidelity is not responsible for (i)
the compliance of any prospectus or supplement thereto, annual report, proxy
statement or item of advertising or marketing material of or relating to any
Fund unless generated by Fidelity, with any applicable laws, rules or
regulations, (ii) the registration or qualification of any shares of any Fund
under any federal or applicable state laws or (iii) the compliance by any Fund
or Fund/Agent or any 'affiliated person' (as that term is defined in the rules
under the Investment Company Act of 1940, as amended), with any applicable
federal or state law, rule, or regulation or the rules and regulations of any
self-regulatory organization with jurisdiction over such Fund, Fund Agent or
affiliated person.
H. Account Level Tax Reporting -- NFSC shall provide to Shareholders
through FBSI or Correspondent such reports and information as may be required by
the then-prevailing laws and regulations under the Internal Revenue Code for
non-retirement accounts and qualified and non-qualified retirement plan
accounts.
II. REPRESENTATIONS AND WARRANTIES
A. Fund/Agent represents and warrants that:
(1) it has the requisite authority to enter into this agreement on its
own behalf and on behalf of the Fund(s), and
(2) that the payment to NFSC of any fees pursuant hereto:
(a) has been duly authorized by the Fund(s), the Board of Trustees
of the Fund(s), or any other persons to the extent such authorization is
required to properly make such payment;
<PAGE>
(b) is properly disclosed in the relevant Fund prospectus to the
extent such disclosure may be required, and
(c) is in conformity with all federal, state and industry laws or
regulations to which the Fund or its agents are subject.
B. FBSI and NFSC each represent and warrant that:
(1) it is a corporation duly organized under the laws of the
Commonwealth of Massachusetts and is duly registered and/or qualified as a
broker/dealer with the SEC, NASD and in every state or territory of the
United States of America (including the District of Columbia) where such
registration or qualification is required and has the requisite authority
to enter into this Agreement and to carry out the services contemplated
herein;
(2) the execution and delivery of this Agreement and the performance
of the services contemplated herein have been duly authorized by all
necessary corporate action in its part, and this Agreement constitutes the
valid and binding obligations of FBSI and NFSC; and
(3) it is in material conformity with all federal, state and industry
laws or regulations to which it is subject.
C. Each party hereto represents and warrants that it shall provide to the others
such information or documentation necessary for such party to fulfill its
obligations hereunder, such other information or documentation as any party may
reasonably request, and that it shall comply with such operating policies and
procedures as the parties may adopt from time to time.
III. FEES
For the services provided by Fidelity hereunder, Fund/Agent shall pay to
NFSC a fee with respect to each Fund, which fee shall be based upon a percentage
per annum of the average daily value of the aggregate number of shares of the
Fund held by NFSC for the accounts of customers of FBSI and Correspondents. Such
fee shall be calculated and paid in accordance with Exhibit A hereto.
In the event the parties agree to material changes to the scope of services
provided hereunder, the parties agree to negotiate in good faith as to the
appropriate amendment to the fees due NFSC.
IV. INDEMNIFICATION
Fund/Agent shall indemnify and hold harmless Fidelity and each officer,
employee and agent of Fidelity from and against any and all claims, demands,
actions, losses, damages, liabilities, or costs, charges, counsel fees, and
expenses of any nature ('Losses') arising out of (i) any inaccuracy or omission
in any prospectus or supplement thereto, registration statement, annual report
or proxy statement, of any Fund or Fund/Agent or any advertising or promotional
material generated by any Fund or Fund/Agent, (ii) any breach by Fund/Agent of
any representation, warranty, covenant, or agreement contained in this Agreement
and (iii ) any action taken or omitted to be taken by Fidelity pursuant to this
Agreement, except to the extent such Losses result from Fidelity's breach of
this Agreement, willful misconduct, or negligence.
<PAGE>
V. CONFIDENTIALITY
Each party acknowledges and understands that any and all technical, trade
secret, or business information, including, without limitation, financial
information, business or marketing strategies or plans, product development or
customer information, which is disclosed to the other or is otherwise obtained
by the other, its affiliates, agent or representatives during the term of this
Agreement (the 'Proprietary Information') is confidential and proprietary,
constitutes trade secrets of the owner, and is of great value and importance to
the success of the owner's business. Each party agrees to use its best efforts
(the same being not less than that employed to protect his own proprietary
information) to safeguard the Proprietary Information and to prevent the
unauthorized, negligent or inadvertent use or disclosure thereof. Neither party
shall, without the prior written approval of any officer of the other, directly
or indirectly, disclose the Proprietary Information to any person or business
entity except for a limited number of employees, attorneys, accountants and
other advisors of the other on a need-to-know basis or as may be required by law
or regulation. Each party shall promptly notify the other in writing of any
unauthorized, negligent or inadvertent use or disclosure of Proprietary
Information. Each party shall be liable under this Agreement to the other for
any use or disclosure in violation of this Agreement by its employees,
attorneys, accountants, or other advisors or agents. This Section V shall
continue in full force and effect notwithstanding the termination of this
Agreement.
VI. DURATION AND TERMINATION OF AGREEMENT
With respect to any Fund, this Agreement shall become effective upon the
date such Fund is identified on Exhibit B, and this Agreement is approved by the
Fund or its Board of Trustees if such approval is required, and shall continue
in force for one year, and shall thereafter continue automatically for
successive annual periods unless earlier terminated and subject to any periodic
approval required by the Fund or its Board of Trustees. This Agreement is
terminable as to any Fund by any party upon 90 days written notice thereof to
the other parties or upon default hereof provided that such default shall not
terminate this Agreement to the extent the defaulting party has been notified of
such default by the non-defaulting party and the defaulting party cures such
default within 10 business days of notice of such default.
After the date of termination as to any Fund, no fee will be due with
respect to any shares of such Fund that are first placed or purchased in
Fidelity or Correspondent customer accounts after the date of such termination.
However, notwithstanding any such termination, Fund/Agent will remain obligated
to pay NFSC the fee as to each share of such Fund that was considered in the
calculation of the fee as of the date of such termination, for so long as such
share is held in the Fidelity or Correspondent account. This Agreement, or any
provision hereof, shall survive termination to the extent necessary for each
party to perform its obligations with respect to shares for which a fee
continues to be due subsequent to such termination.
VII. MISCELLANEOUS
A. Custody -- Fund/Agent acknowledges that Fund shares maintained by the Fund
for Shareholders hereunder are held in custody for the exclusive benefit of
customers of NFSC or its Correspondents and shall be held free of any right,
charge, security interest, lien or claim against NFSC in favor of the Fund or
its agents acting on behalf of the Fund.
<PAGE>
B. Transaction Charges -- During the term of this Agreement, FBSI shall not
assess against or collect from its brokerage customers any transaction fee upon
the purchase or redemption of any Fund's shares that are considered in
calculating the fee due pursuant to Section III hereof. The parties acknowledge
and agree that FBSI reserves the right to collect such transaction fees from
certain customers (including 'Active Traders,' as FBSI may define that term) for
certain special trading services and from other customers upon such other
customers' redemption of certain shares.
C. Use of Fidelity Investments Name -- Fund/Agent will not, nor will Fund/Agent
cause or permit any Fund to, describe or refer to the name 'Fidelity
Investments' or any derivation thereof, or to FMR Corp. or any affiliate
thereof, or to the services or relationship contemplated by this Agreement in
any advertisement or promotional materials or activities without the prior
written consent of an authorized officer of Fidelity.
D. Nonexclusivity -- Fund/Agent acknowledges that Fidelity may perform services
similar to those to be provided under this Agreement to other investment
companies, investment company sponsors, or service providers to investment
companies.
E. Force Majeure -- Neither Fidelity nor its affiliates shall be liable to
Fund/Agent or any Fund for any damage, claim or other loss whatsoever caused by
circumstances or events beyond its reasonable control.
F. Notices -- All notices and communications required or permitted by this
Agreement shall be in writing and delivered personally or sent by first class
mail unless otherwise agreed. All such notices and other communications shall be
made:
if to Fidelity, to:
Fidelity Investments
82 Devonshire Street, R20A
Boston, MA 02109
Attn: Donna Morris
if to Fund/Agent, to:
The Royce Funds
1414 Avenue of the Americas
New York, NY 10019
Attn: John Diederich
G. This Agreement and any Exhibits hereto may be amended only upon the written
agreement of the parties.
H. This Agreement may not be transferred or assigned by either Fund/Agent or
Fidelity, and shall be construed in accordance with the laws of the Commonwealth
of Massachusetts.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
<TABLE>
<S> <C>
Fund/Agent Fidelity Brokerage Services, Inc.
John Diederich Donna Morris
By: ................................................... By: ...................................................
Title: Director of Operations Title: Sr. Vice President
Fund or
Company: The Royce Fund
National Financial Services Corporation
Robert J. Adams
By: ...................................................
Title: Director
</TABLE>
<PAGE>
EXHIBIT A
Calculation and Payment of Fees Pursuant to Section III
1. Except as provided in paragraph 2 below, for the services provided by
Fidelity hereunder, Fund/Agent shall pay to NFSC a fee with respect to each
Fund, calculated daily and paid monthly in arrears, equal to (1) .35 percent per
annum with respect to non-Fixed Income Funds and (2) .25 percent per annum with
respect to Fixed Income Funds (as defined below) of the daily market value of
the total number of shares of such Fund held in accounts at NFSC (determined by
multiplying the number of such shares times the publicly-reported net asset
value of each share), excluding the value of (i) shares as to which a brokerage
customer may pay a transaction fee to FBSI because such customer has been
defined as an Active Trader, and (ii) shares held in a brokerage account prior
to the effective date of the Agreement as to the Fund issuing such shares, and
(iii) shares first placed or purchased in a brokerage account after the
termination of the Agreement as to the Fund/Agent issuing such shares. The total
number of shares of all Funds with respect to which a fee will be due to
Fidelity hereunder shall be referred to in this Exhibit A as 'Participating
Assets'. For the purposes of Exhibit A, Fixed Income Fund shall be defined as
any Fund whose underlying portfolio at the time of the calculation of the fee is
not less than 80% invested in fixed income instruments.
2. With respect to non-Fixed Income Funds, Fidelity shall calculate the total
market value of Participating Assets for each Fund/Agent two times per calendar
year, once as of Fidelity's brokerage month end in June and once as of
Fidelity's brokerage month end in December. In the event that as of any such
month-end the total value of Fund/Agent Participating Assets equals or exceeds
the amount(s) set forth below, then the fee due Fidelity with respect to total
Participating Assets shall be adjusted prospectively as of such month-end to the
per annum fee set forth opposite the total value of Participating Assets. The
new fee will apply on a per annum basis going forward, calculated daily and paid
monthly in arrears, on all participating assets until the next evaluation date.
<TABLE>
<CAPTION>
TOTAL VALUE OF FUND/AGENT
PARTICIPATING ASSETS PER ANNUM FEE
- ------------------------------------------------------------------- -------------
<S> <C>
$100 million up to $500 million .30%
over $500 million .25%
</TABLE>
In all other respects, the fee due Fidelity shall be calculated and payable in
accordance with this Agreement and Exhibit A.
3. Subsequent to each month-end, NFSC shall send to Fund/Agent a statement of
the market value of shares of the Fund for which the fee is calculated for the
preceding month, together with a statement of the amount of such fee. In the
calculation of such fee, NFSC records shall govern unless Fund/Agent can
demonstrate that the number of shares or Fund price(s) used in such calculation
is inaccurate.
4. Fund/Agent shall pay to NFSC such fee within 30 days after Fund/Agent's
receipt of such statement. Such payment shall be by wire transfer or other form
acceptable to NFSC and shall be separate from payments related to redemption
proceeds and distributions.
<PAGE>
EXHIBIT B
FUNDS PARTICIPATING IN SERVICES AGREEMENT
<TABLE>
<CAPTION>
FUND NAME CUSIP TRADING SYMBOL
--------- ------------ --------------
<S> <C> <C>
The Royce Fund --
Royce Low-Priced Stock Fund 780 905 808 N/A
Royce OTC Fund 780 905 709 RYOTX
Royce Value Fund 780 905 105 RYVFX
</TABLE>
<PAGE>
Exhibit (16)
SCHEDULE FOR COMPUTATION OF
PERFORMANCE QUOTATIONS PROVIDED IN
ITEM 22
<PAGE>
SCHEDULE FOR COMPUTATION OF
PERFORMANCE QUOTATIONS PROVIDED IN ITEM 22
This Schedule illustrates the growth of a $1,000 initial investment in
each Fund of the Trust by applying the "Annual Total Return" and the "Average
Annual Total Return" percentages set forth in this Registration Statement in
response to Item 22 to the following total return formula:
P(1+T)"superscript" n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 investment made at the beginning of
the 1, 5 or 10 year or other periods at the
end of the 1, 5 or 10 year or other periods.
Royce Value Fund
(a) 1 Year Ending Redeemable Value ("ERV") of a
$1,000 investment for the one year period
ended December 31, 1994:
$1,000 (1+ [-.0164])"superscript" 1 = $983.60 ERV
(b) 5 Year ERV of a $1,000 investment for the five (5) year
period ended December 31, 1994:
$1,000 (1+ .0738)"superscript" 5 = $1,427.40 ERV
(c) 10 Year ERV of a $1,000 investment for the ten (10) year
period ended December 31, 1994:
$1,000 (1+ .1082)"superscript" 10 = $2,702.50 ERV
Royce Equity Income Fund
(a) 1 Year ERV of a $1,000 investment for the one year period
ended December 31, 1994:
$1,000 (1+ [-.0326])"superscript" 1 = $967.40 ERV
<PAGE>
(b) ERV of a $1,000 investment for the period
from the Fund's inception on January 2, 1990
through December 31, 1994:
$1,000 (1+ .0757)"superscript" 5 = $1,440.20 ERV
Royce Premier Fund
(a) 1 Year Ending Redeemable Value ("ERV") of a
$1,000 investment for the one year period
ended December 31, 1994:
$1,000 (1+ .0328)"superscript" 1 = $1,032.80 ERV
(b) ERV of a $1,000 investment for the period
from the Fund's inception on January 1, 1992
through December 31, 1994:
$1,000 (1+ .1250)"superscript" 3 = $1,423.60 ERV
Royce Micro-Cap Fund
(a) 1 Year Ending Redeemable Value ("ERV") of a
$1,000 investment for the one year period
ended December 31, 1994:
$1,000 (1+ .0355)"superscript" 1 = $1,035.50 ERV
(b) ERV of a $1,000 investment for the period
from the Fund's inception on January 1, 1992
through December 31, 1994:
$1,000 (1+ .1834)"superscript" 3 = $1,657.20 ERV
Royce Low-Priced Stock Fund
(a) 1 Year Ending Redeemable Value ("ERV") of a
$1,000 investment for the one year period
ended December 31, 1994:
$1,000 (1+ .0298)"superscript" 1 = $1,029.80 ERV
(b) ERV of a $1,000 investment for the period
from the Fund's inception on December 15,
1993 through December 31, 1994:
$1,000 (1+ .0305)"superscript" 1.04 = $1,031.99 ERV
2
<PAGE>
Royce Total Return Fund
(a) 1 Year Ending Redeemable Value ("ERV") of a
$1,000 investment for the one year period
ended December 31, 1994:
$1,000 (1+ .0513)"superscript" 1 = $1,051.30 ERV
(b) ERV of a $1,000 investment for the period
from the Fund's inception on December 15,
1993 through December 31, 1994:
$1,000 (1+ .0491)"superscript" 1.04 = $1,051.30 ERV
3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> ROYCE VALUE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 9.73
<PER-SHARE-NII> 0.07
<PER-SHARE-GAIN-APPREC> (0.23)
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 0.41
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.11
<EXPENSE-RATIO> 1.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> ROYCE PREMIER FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 6.41
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 0.15
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 0.09
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.48
<EXPENSE-RATIO> 1.38
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> ROYCE EQUITY INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 5.58
<PER-SHARE-NII> 0.19
<PER-SHARE-GAIN-APPREC> (0.37)
<PER-SHARE-DIVIDEND> 0.18
<PER-SHARE-DISTRIBUTIONS> 0.10
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 5.12
<EXPENSE-RATIO> 1.27
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 04
<NAME> ROYCE MICRO-CAP FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 6.47
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.23
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.22
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.48
<EXPENSE-RATIO> 1.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 05
<NAME> ROYCE LOW-PRICED STOCK FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 5.01
<PER-SHARE-NII> (0.03)
<PER-SHARE-GAIN-APPREC> 0.18
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.09
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 5.07
<EXPENSE-RATIO> 1.89
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 06
<NAME> ROYCE TOTAL RETURN FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 5.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0.24
<PER-SHARE-DIVIDEND> 0.02
<PER-SHARE-DISTRIBUTIONS> 0.12
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 5.12
<EXPENSE-RATIO> 1.96
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
