As filed with the Securities and Exchange Commission on July 31, 1995.
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. 33 /X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 34 /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: 67
Index to Exhibits is located on page: 63
<PAGE>
CROSS REFERENCE SHEET
(Pursuant to Rule 481 of Regulation C)
ITEM OF FORM N-1A CAPTION OR LOCATION IN PROSPECTUS
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>
CAPTION or Location in Statement
Item of Form N-1A of Additional Information
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........................**
* 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
ROYCE GLOBAL SERVICES FUND
PROSPECTUS -- July 31, 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
OBJECTIVE AND
POLICIES
ROYCE GLOBAL SERVICES FUND (the "Fund") seeks long-term capital appreciation
by investing primarily in common stocks and securities convertible into
common stocks of domestic and foreign companies in service industries. Its
securities are selected on a value basis. There can be no assurance that the
Fund will achieve its objective.
The Fund is a no-load series of The Royce Fund (the "Trust"), a diversified
open-end management investment company. The Trust is currently offering
shares of eight series. This Prospectus relates to Royce Global Services Fund
only.
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 July 31, 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 OF CONTENTS
Page
Fund Expenses . . . . . . 2
Financial Highlights. . . 3
Investment Performance. . 4
Investment Objective. . . 4
Investment Policies . . . 4
Investment Risks. . . . . 5
Investment Limitations. . 7
Management of the Trust . 9
General Information . . . 10
Dividends, Distributions and Taxes10
Net Asset Value Per Share 11
Page
SHAREHOLDER GUIDE
Opening an Account and Purchasing Shares. . . . . . . . . . . 12
Choosing a Distribution Option. . . . . . . . . . . . . . . . 14
Important Account Information . . . . . . . . . . . . . . . . 14
Redeeming Your Shares . . . . . . . . . . . . . . . . . . . . 15
Exchange Privilege. . . . . . . . . . . . . . . . . . . . . . 17
Transferring Ownership. . . . . . . . . . . . . . . . . . . . 18
Other Services. . . . . . . . . . . . . . . . . . . . . . . . 18
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>
FUND EXPENSES
The Fund is
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 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 PurchaseNone
Early Redemption Fee -- Less Than 1 Year After Initial Purchase1%
Annual Fund Operating Expenses
Management Fees (after waivers) .50%
12b-1 Fees (after waivers) .00%
Other Expenses. . . . . . 1.49%
Total Operating Expenses. 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 Fund. Other expenses are based on estimated
amounts for 1995. Management Fees would be 1.50%, 12b-1 fees would
be .25% and Total Operating Expenses would be 3.24% without the
waivers of management fees by Quest Advisory Corp. ("Quest"), the
Fund's investment adviser, and of the 12b-1 fees by Quest
Distributors, Inc. ("QDI"), the Fund's distributor. Quest has
voluntarily committed to reduce its management fees to the extent
necessary to maintain total operating expenses at or below 1.99% for
the year ending December 31, 1995.
The following examples illustrate the expenses that you would incur on
a $1,000 investment over a 1 year and 3 year period, assuming a 5%
annual rate of return and redemption at the end of each period.
1 Year 3 Years
$20 $62
This example should not be considered a representation of past or
future expenses or performance. Actual expenses may be higher or
lower than those shown.
<PAGE>
FINANCIAL
HIGHLIGHTS
(For a share out-
standing through-
out each period)
The following financial highlights are part of the Fund's financial
statements. The financial highlights for the period from December 15, 1994
(commencement of operations) to December 31, 1994 have been audited by
Coopers & Lybrand L.L.P., independent accountants, whose unqualified report
is included in the Fund's Annual Report to Shareholders. The financial
highlights for the six months ended June 30, 1995 are unaudited. The Fund's
financial statements are included in the Fund's Annual Report to Shareholders
for the period ended December 31, 1994 and in its Semi-Annual Report to
Shareholders for the six months ended June 30, 1995, 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 Reports to Shareholders, which may be
obtained without charge by calling Investor Information.
Six months ended
June 30, 1995 Period ended
(unaudited) December 31, 1994
NET ASSET VALUE, BEGINNING OF PERIOD $5.06 $5.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income (1) . . . . (0.02) 0.00
Net gains (losses) on securities
(both realized and unrealized). 0.81 0.06
Total from Investment Operations 0.79 0.06
LESS DISTRIBUTIONS
Dividends (from net
investment income). . . . . . . 0.00 0.00
Distributions (from capital gains) 0.00 0.00
Total Distributions . . . . 0.00 0.00
NET ASSET VALUE, END OF PERIOD. . . . $5.85 $5.06
TOTAL RETURN. . . . . . . . . . . . . 15.6% 1.2%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $1,519 $514
Ratio of Expenses to
Average Net Assets (1). . . . . 1.97%* 1.78%*
Ratio of Net Investment
Income to Average Net Assets. . -0.29%* 0%*
Portfolio Turnover Rate . . . . . 63% 0%
(1) Expenses are shown after waiver of fees by the adviser and distributor.
Absent such waivers, the ratio of expenses to average net assets for the six
months ended June 30, 1995 and for the period ended December 31, 1994 would
have been 3.72% and 3.69%, respectively.
* Annualized.
<PAGE>
INVESTMENT
PERFORMANCE
Total return is the
change in value over
a given time period,
assuming reinvestment
of dividends and capital
gains distributions
The Fund 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 the 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 the 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 dividend and
capital gains distributions. The figures do not reflect the Fund's early
redemption fee because this fee applies only to redemptions in accounts open
for less than one year. Additionally, the performance of the Fund may be
compared in publications to i) the performance of various indices and
investments for which reliable performance data is available and to ii)
averages, performance rankings, or other information prepared by recognized
mutual fund statistical services.
INVESTMENT
OBJECTIVE
Royce Global Services 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
domestic and foreign companies principally engaged in service industries.
There can be no assurance that the Fund will achieve its investment
objective.
The Fund's investment objective of long-term capital appreciation is
fundamental and 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").
INVESTMENT
POLICIES
The Fund invests on a
"value" basis
Quest uses a "value" method in managing the Fund's assets. In its selection
process, Quest puts primary emphasis on the understanding of various internal
returns indicative of profitability, balance sheet quality, cash flows and
the relationships that these factors have to the price of a given security.
This is in contrast to other methods that focus on high growth or emerging
growth companies. Quest's value method is based on its belief that the
securities of certain companies may sell at a discount from its estimate of
such companies' "business worth". Quest attempts 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.
Although Quest has previously applied its value method primarily to the equity
securities of small companies located in the United States, it believes that
valuation discrepancies may exist globally among many service companies
without regard to their stock market capitalizations. For this reason, the
Fund has a global focus and does not limit the stock market capitalizations
of the companies in which it may invest. As set forth below, a mutual fund
of this type is subject to certain investment risks that would not be present
for a domestic equity fund.
The Fund invests
primarily in service
companies
The Fund normally invests at least 65% of its assets in the common stocks,
securities convertible into common stocks and warrants of domestic and
foreign companies "principally" engaged in service industries. Service
industries may include: banking, insurance, securities, investment
management, advertising, communication, consulting, distribution,
<PAGE>
engineering, environmental, health, leisure, security services, printing and
publishing, retail, food services, software and computer services,
transportation services and such other industries as Quest may from time to
time determine to be service industries. For these purposes, a company is
deemed to be "principally" engaged in a service industry if, as of the end of
or for its most recent fiscal year, at least 50% of its consolidated assets,
revenues or net income are committed to, or are derived from, service-related
activities.
The Fund does not concentrate its investments by investing more than 25% of
its assets in the securities of companies principally engaged in any one
industry, including banking, insurance, securities and investment management.
However, because more than 25% of its assets may be invested in companies
engaged collectively in the banking, insurance, securities and investment
management industries, the Fund may, to that extent, be deemed to be
concentrating its investments in a group consisting of such industries.
Global securities
The Fund normally invests more than 65% of its assets in securities of
companies of at least three countries, including the United States. In most
instances investments are made in companies principally based in the United
States or the other developed countries of North America, Europe, Asia and
Australia and not in emerging markets countries.
Other securities
The assets of the Fund that are not required to be invested in the equity
securities of domestic and foreign companies engaged in service industries
may be invested in the common stocks, securities convertible into common
stocks and warrants of domestic and foreign companies engaged in non-service
industries and/or in the non-convertible preferred stocks and debt securities
of domestic and foreign companies engaged in service or non- service
industries.
Other investment
companies
The Fund may also indirectly invest in the securities of domestic and foreign
service and non-service companies by investing up to 20% of its assets in the
securities of other investment companies that invest primarily in such
companies. The other investment companies in which the Fund may invest may
be domestic companies registered under the 1940 Act or foreign companies that
are not so registered or otherwise regulated. They usually have their own
management fees and expenses, and Quest will also earn its fee on Fund assets
invested in such other companies, which would result in a duplication of fees
to the extent of any such investment. However, Quest will waive its
management fee on any Fund assets invested in other open-end investment
companies, and no sales charge will be incurred on such an investment.
INVESTMENT
RISKS
The Fund is subject
to certain investment
risks
As a mutual fund investing primarily in common stocks and securities
convertible into common stocks, the Fund is subject to market risk -- that
is, the possibility that common stock prices will decline over short or even
extended periods. Because of Quest's value method, the Fund may invest in
securities of companies that have cyclical, static or only moderate growth
prospects. Quest's investment method requires a long-term investment
horizon, and the Fund should not be used to play short-term swings in the
market or as a complete investment program.
<PAGE>
Financial service
companies are subject
to certain risks
Financial service companies such as banks, broker-dealers, insurance companies
and investment management companies are subject to extensive governmental
regulation. This may limit both the amounts and types of loans and other
financial commitments that banks, broker-dealers and insurance companies are
permitted to make, and, in the case of banks and insurance companies, the
interest, fees and premiums they are permitted to charge. Insurance companies
are particularly subject to rate setting, potential anti-trust and tax law
changes and industry-wide pricing and competition cycles and may be affected
by catastrophes and/or reinsurance carrier failures. Also, the profitability
of many types of financial service companies is largely dependent on the
availability and cost of capital funds and may fluctuate significantly when
interest rates change. General economic conditions are important to the
operation of most financial service companies, and credit losses resulting
from financial difficulties of borrowers may negatively impact some of them.
Changes in regulations, brokerage commission structure and securities market
activities, together with the leverage and trading strategies employed by
broker-dealers and investment banks, may produce erratic returns for them
over time. Finally, most types of financial service companies are subject to
substantial price and other competition.
Prices of the securities of domestic and foreign financial service companies
may be more volatile than those of more broadly diversified investments, and
the Fund's performance may be tied to the financial services industries and
the United States and world economies as a whole. The securities of
financial service companies may react similarly to market conditions and may
move together.
Foreign securities
The Fund may purchase foreign securities in the form of American Depositary
Receipts ("ADRs"). ADRs are certificates held in trust by a bank or similar
financial institution evidencing ownership of shares of a foreign-based
issuer. Designed for use in U.S. securities markets, ADRs are alternatives
to the purchase of the underlying foreign securities in their national
markets and currencies.
The Fund does not expect to purchase or sell foreign currencies to hedge
against declines in the U.S. dollar or to lock in the value of the foreign
securities it purchases, and its foreign investments may be adversely
affected by changes in foreign currency rates. Consequently, the risks
associated with such investments may be greater than if the Fund did engage
in foreign currency transactions for hedging purposes. Foreign investments
may also be adversely affected by exchange control regulations, if any, in
such foreign markets, and the Fund's ability to make certain distributions
necessary to maintain eligibility as a regulated investment company and avoid
the imposition of income and excise taxes may to that extent be limited.
There may be less information available about a foreign company than a
domestic company; foreign companies may not be subject to accounting,
auditing and reporting standards and requirements comparable to those
applicable to domestic companies; and foreign markets, brokers and issuers
are generally subject to less extensive government regulation than their
domestic counterparts. Foreign securities may be less liquid and may be
<PAGE>
subject to greater price volatility than domestic securities. Foreign
brokerage commissions and custodial fees are generally higher than those in
the United States. Foreign markets also have different clearance and
settlement procedures, and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, thereby making it difficult to conduct such transactions.
Delays or problems with settlements might affect the liquidity of the Fund's
portfolio. Foreign investments may also be subject to local economic and
political risks, political instability and possible nationalization of
issuers or expropriation of their assets, which might adversely affect the
Fund's ability to realize on its investment in such securities. Furthermore,
some foreign securities are subject to brokerage taxes levied by foreign
governments, which have the effect of increasing the cost of such investment
and reducing the realized gain or increasing the realized loss on such
securities at the time of sale.
Income earned or received by the Fund from sources within foreign countries
may be subject to withholding and other taxes imposed by such countries. Any
such taxes paid by the Fund will reduce its cash available for distribution
to shareholders. The Fund is required to calculate its distributable income
and capital gains for U.S. Federal income tax purposes by reference to the
U.S. dollar. Fluctuations in applicable foreign currency exchange rates may
cause the Fund's distributable income and capital gains for U.S. Federal
income tax purposes to differ from the value of its investments calculated by
reference to foreign currencies. If the Fund invests in stock of a so-called
passive foreign investment company, the Fund may make certain elections that
will affect the calculation of its net investment income and capital gains.
INVESTMENT
LIMITATIONS
The Fund has adopted
certain
fundamental
limitations
The Fund has certain fundamental limitations, designed to reduce its exposure
to specific situations, which may not be changed without the approval of a
majority of its outstanding voting shares, as that term is defined in the
1940 Act. These limitations are set forth in the Statement of Additional
Information and provide, among other things, that the Fund will not:
(a) 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.
The Fund's investments
in financial services
companies are
subject to certain
other limitations
The 1940 Act contains certain limitations applicable to the Fund's investments
in the securities of a company that is 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. These limitations are set forth
in the Statement of Additional Information.
Other Investment
Practices
In addition to investing primarily in the equity and fixed income securities
described above, the Fund may follow a number of additional investment
practices.
Restricted and
illiquid securities
The Fund will not invest more than 15% of its net assets in illiquid
securities, including those restricted securities that are illiquid.
<PAGE>
Restricted securities are securities which, if publicly sold, might cause the
Fund to be deemed an "underwriter" under the Securities Act of 1933 (the
"1933 Act") or which are subject to contractual restrictions on resale.
Restricted securities which the Fund may purchase include securities which
have not been registered under the 1933 Act, but are eligible for purchase
and sale pursuant to Rule 144A under the 1933 Act. This Rule permits certain
qualified institutional buyers to trade in privately placed securities even
though such securities are not registered under the 1933 Act. Quest, under
criteria established by the Trust's Board of Trustees, will consider whether
securities purchased under Rule 144A are illiquid and thus subject to the 15%
limitation. In making this determination, Quest will consider the frequency
of trades and quotes, the number of dealers and potential purchasers, dealer
undertakings to make a market and the nature of the security and the market
place trades (for example, the time needed to dispose of the security, the
method of soliciting offers and the mechanics of transfer). The liquidity of
Rule 144A securities will also be monitored by Quest, and if, as a result of
changed conditions, it is determined that a Rule 144A security is no longer
liquid, the Fund's holding of illiquid securities will be reviewed to
determine what, if any, action is required in light of the 15% limitation.
Investing in Rule 144A securities could have the effect of increasing the
amount of investments in illiquid securities if qualified institutional
buyers are unwilling to purchase such securities.
Short-term fixed
income securities
The Fund 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 the Fund implement a temporary
investment policy, its investment objective may not be achieved.
Securities lending
The 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.
Lower-rated
debt securities
The Fund may also invest no more than 5% of its net assets in lower-rated
(high-risk) non- convertible debt securities, which are below investment
grade. The Fund does not expect to invest in 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.
<PAGE>
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 rate is not expected to exceed 100%, which
is higher than that of other funds. A 100% turnover rate occurs, for
example, if all of the Fund's portfolio securities are replaced in one year.
High portfolio activity increases the Fund's transaction costs, including
brokerage commissions.
MANAGEMENT OF
THE TRUST
Quest Advisory Corp.
is responsible for
management of the
Fund's portfolio
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 portfolio, subject to the authority of the Board of
Trustees. Quest was organized in 1967 and has been the Fund's adviser since
its 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 Pennsylvania Mutual Fund, to Royce
Equity Income, Royce Premier, Royce Micro-Cap, Royce Low-Priced Stock, Royce
Total Return and Royce Value 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 1.5% of the average net assets of the Fund. These
fees are payable monthly from the assets of the Fund and are substantially
higher than those paid by most other mutual funds with a similar investment
objective.
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.
Quest Distributors, Inc. ("QDI"), which is wholly-owned by Charles M. Royce,
acts as distributor of the Fund's shares. The Trust has adopted a
distribution plan for the Fund pursuant to Rule 12b-1. The plan provides for
payment to QDI of .25% per annum of the average net assets of the Fund, which
may be used for payment of sales commissions and other fees to those who
introduce investors to the Fund and for various other promotional,
sales-related and servicing costs and expenses. QDI has voluntarily committed
to waive its fees through 1995.
<PAGE>
GENERAL
INFORMATION
The Royce Fund ("the "Trust") is a Massachusetts business trust registered
with the Securities and Exchange Commission as an open-end, diversified
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
and classes. 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 other assets of the Fund is State Street Bank
and Trust Company. State Street, through its agent National Financial Data
Services ("NFDS"), also serves as the Fund's transfer agent. Coopers &
Lybrand, L.L.P. serves as independent accountants for the Fund.
DIVIDENDS,
DISTRIBUTIONS
AND
TAXES
The Fund pays
dividends and capital
gains annually in
December
The Fund pays dividends from net investment income (if any) and distributes
its 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.
Shareholders receive information annually as to the tax status of
distributions made by the Fund for the calendar year. For Federal income tax
purposes, all distributions by the 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 is 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.
<PAGE>
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 gains
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.
NET ASSET VALUE
PER SHARE
Net asset value per
share (NAV) is
determined each day
the New York Stock
Exchange is open
Fund shares are purchased and redeemed at their net asset value per share next
determined 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 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 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.
<PAGE>
OPENING AN
ACCOUNT AND
PURCHASING
SHARES
SHAREHOLDER GUIDE
The 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 Fund, 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.
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
* Separate forms must be used for opening IRAs or 403(b)(7) accounts; please
call Investor Information 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).
PURCHASING BY MAIL
Complete and sign the
enclosed Account
Application
ADDITIONAL INVESTMENTS
NEW ACCOUNT TO EXISTING ACCOUNTS
Please include the amount of your Additional investments should include
initial investment on the Application the Invest-by-Mail remittance form
Form, make your check payable to The attached to your Fund account
Royce Fund, and mail confirmation statements. Please make
to: your check payable to ThePurchasing
By Royce Fund, write your account
The Royce Funds number onTelephone your check and,
P.O. Box 419012 using the return envelope provided,
Kansas City, MO 64141-6012 mail to the address indicated on the
Invest-by-Mail form.
For express or
registered mail,
send to:
The Royce Funds
c/o National Financial Data Services All written requests should be mailed
1004 Baltimore, 5th Floor to one of the addresses indicated for
Kansas City, MO 64105 new accounts.
<PAGE>
PURCHASING BY TELEPHONE
ADDITIONAL INVESTMENTS
NEW ACCOUNT TO EXISTING ACCOUNTS
To open an account by telephone, you Subsequent telephone purchases ($500
should call Investor Information minimum) may also be made by calling
(1-800-221- 4268) before 4:00 p.m., Investor Information. For all
Eastern time. You will be given a telephone purchases, payment is due
confirming order number for your within three business days and may be
purchase. This number must be placed made by wire or personal, business or
on your completed Application before bank check, subject to collection.
mailing. If an Application is not
received on an account opened by
telephone, the account may be subject
to backup withholding of Federal
income taxes.
PURCHASING BY WIRE
BEFORE WIRING:
For a new account,
please contact Investor
Information at 1-800-
221-4268
Money should be wired to:
State Street Bank and Trust Company
ABA 011000028 DDA 9904-712-8
Ref: Royce Global Services 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 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 its
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 Automatic Investment Plan,
please provide the appropriate information on the Account Application 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.
<PAGE>
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.
CHOOSING A
DISTRIBUTION
OPTION
You may select one of three distribution options:
1. Automatic Reinvestment Option--Both dividends and capital gains
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 gains 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. 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 the 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
the Fund may not be available or may be modified in connection with the
program of services offered. When shares of the 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, QDI and/or Quest for providing such services.
Telephone
Transactions
<PAGE>
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.
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 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.
<PAGE>
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
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. 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.
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 or
call Shareholder Services at 1-800- 841-1180 for an Express Service
application.
IMPORTANT
REDEMPTION
INFORMATION
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.
<PAGE>
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.
EARLY REDEMPTION
FEE
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 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 and other 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.
<PAGE>
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
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 are 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 Plans
Shares of the Fund 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 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.
<PAGE>
THE ROYCE FUNDS
1414 Avenue of the Americas
New York, NY 10019
1-800-221-4268
THE ROYCE FUNDS
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 ROYCE
GLOBAL SERVICES
FUND
TRANSFER AGENT
State Street Bank and Trust Company A NO-LOAD MUTUAL FUND
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 PROSPECTUS
Jack E. Fockler, Jr., Vice President JULY 31, 1995
W. Whitney George, Vice President
Daniel A. O'Byrne, Vice President and
Assistant Secretary
Susan I. Grant, Secretary
<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 July 31, 1995 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 and the unaudited financial statements included in
the Semi-Annual Report to Shareholders of Royce Global Services Fund for the
six months ended June 30, 1995 are incorporated herein by reference. To
obtain an additional copy of the Prospectus or Annual or Semi-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
July 31, 1995
TABLE OF CONTENTS
PAGE
INVESTMENT POLICIES AND LIMITATIONS . . . . . . . . 2
RISK FACTORS AND SPECIAL CONSIDERATIONS . . . . . . 5
MANAGEMENT OF THE TRUST . . . . . . . . . . . . . . 8
PRINCIPAL HOLDERS OF SHARES . . . . . . . . . . . . 10
INVESTMENT ADVISORY SERVICES. . . . . . . . . . . . 12
DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . 14
CUSTODIAN . . . . . . . . . . . . . . . . . . . . . 17
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . 17
PORTFOLIO TRANSACTIONS. . . . . . . . . . . . . . . 17
CODE OF ETHICS AND RELATED MATTERS. . . . . . . . . 19
PRICING OF SHARES BEING OFFERED . . . . . . . . . . 19
REDEMPTIONS IN KIND . . . . . . . . . . . . . . . . 20
TAXATION. . . . . . . . . . . . . . . . . . . . . . 20
DESCRIPTION OF THE TRUST. . . . . . . . . . . . . . 23
PERFORMANCE DATA. . . . . . . . . . . . . . . . . . 24
<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;
<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.
<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 invest up to 20% of its assets in the
securities of other investment companies, provided that (i) the Fund and all
affiliated persons of the Fund do not invest in more than 3% of the total
outstanding stock of any one such company and (ii) the Fund does not offer or
sell its shares at a public offering price which includes a sales load of
more than 1 1/2%. (The 20% and 3% limitations do not apply to securities
received as dividends, through offers of exchange or as a result of a
reorganization, consolidation or merger.) The other investment company is not
obligated to redeem those of its securities held by the Fund in an amount
exceeding 1% of its total outstanding securities during any period of less
than thirty days, and the Fund will be obligated to exercise voting rights
with respect to any such security by voting the securities held by it in the
same proportion as the vote of all other holders of the security.
The Global Service Fund does not currently intend to invest more than 5%
of its assets in the securities of any one other investment company, 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.
<PAGE>
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 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: (i) the Fund must receive
100% collateral in the form of cash or cash equivalents (e.g., U.S. Treasury
bills or notes) from the borrower; (ii) the borrower must increase the
collateral whenever the market value of the securities loaned (determined on
a daily basis) rises above the value of the collateral; (iii) after giving
notice, the Fund must be able to terminate the loan at any time; (iv) the Fund
must receive reasonable interest on the loan or a flat fee from the borrower,
as well as amounts equivalent to any dividends, interest or other
distributions on the securities loaned and to any increase in market value;
(v) the Fund may pay only reasonable custodian fees in connection with the
loan; and (vi) the Fund must be able to vote proxies on the securities
loaned, either by terminating the loan or by entering into an alternative
arrangement with the borrower.
Lower-Rated (High-Risk) Debt Securities
Each Fund may invest up to 5% of its net assets in lower-rated
(high-risk) non-convertible debt securities. They may be rated from Ba to Ca
by Moody's Investors Service, Inc. or from BB to D by Standard & Poor's
<PAGE>
Corporation or may be unrated. These securities have poor protection with
respect to the payment of interest and repayment of principal and may be in
default as to the payment of principal or interest. These securities are
often considered to be speculative and involve greater risk of loss or price
changes due to changes in the issuer's capacity to pay. The market prices of
lower-rated (high-risk) debt securities may fluctuate more than those of
higher-rated debt securities and may decline significantly in periods of
general economic difficulty, which may follow periods of rising interest
rates.
While the market for lower-rated (high-risk) corporate debt securities
has been in existence for many years and has weathered previous economic
downturns, the 1980s brought a dramatic increase in the use of such
securities to fund highly leveraged corporate acquisitions and restructurings.
Past experience may not provide an accurate indication of the future
performance of the high-yield/high-risk bond market, especially during
periods of economic recession. In fact, from 1989 to 1991, the percentage of
lower-rated (high-risk) debt securities that defaulted rose significantly
above prior levels.
The market for lower-rated (high-risk) debt securities may be thinner and
less active than that for higher-rated debt securities, which can adversely
affect the prices at which the former are sold. If market quotations cease
to be readily available for a lower-rated (high-risk) debt security in which a
Fund has invested, the security will then be valued in accordance with
procedures established by the Board of Trustees. Judgment plays a greater
role in valuing lower-rated (high-risk) debt securities than is the case for
securities for which more external sources for quotations and last sale
information are available. Adverse publicity and changing investor
perceptions may affect a Fund's ability to dispose of lower-rated (high-risk)
debt securities.
Since the risk of default is higher for lower-rated (high-risk) debt
securities, 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.
<PAGE>
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.
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.
<PAGE>
* * *
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.
MANAGEMENT OF THE TRUST
The following table sets forth certain information as to each Trustee and
officer of the Trust:
Position Held Principal
Name, Address and Age with the Trust Occupations During Past 5 Years
Charles M. Royce* (55) Trustee, President, Secretary, Treasurer and
1414 Avenue of the President and sole director and sole voting
Americas Treasurer shareholder of Quest Advisory Corp.
New York, NY 10019 ("Quest"), the Trust's principal
investment adviser; 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 Micro-Cap
Trust, 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 (57) Trustee Private investor and President of
5284 Boca Marina Circle Richard M. Galkin Associates, Inc.,
South tele-communications consultants.
Boca Raton, FL 33487
Stephen L. Isaacs (55) Trustee Attorney; Director of Columbia
60 Haven Street, Fl. B-2 University Development Law and Policy
New York, NY 10032 Program; Professor at Columbia
University; President of Stephen L.
Isaacs Associates, Consultants; and
counsel to Kaplan & Kilsheimer from
January 1988 to February 1991.
<PAGE>
Position Held Principal
Name, Address and Age with the Trust Occupations During Past 5 Years
David L. Meister (55) Trustee Consultant to the communications
111 Marquez Place industry since January 1993;
Pacific Palisades, CA Executive officer of Digital Planet
90272 Inc. from April 1991 to December
1992; consultant to the
communications and television
industry from August 1990 to April
1991; and Executive Vice President
of Infotechnology, Inc. from
December 1986 to July 1990.
Jack E. Fockler, Jr.* (36) Vice President (since August 1993)
1414 Avenue of the Vice President and senior associate of Quest,
Americas having been employed by Quest since
New York, NY 10019 October 1989; Vice President of the
Trust, PMF, RVT and OTCM since April
1995; and general partner of QMC
since July 1993.
W. Whitney George* (37) Vice President Vice President (since August 1993)
1414 Avenue of the and senior analyst of Quest, having
Americas been employed by Quest since October
New York, NY 10019 1991; Vice President of the Trust,
PMF, RVT and OTCM 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
1414 Avenue of the and Assistant 1994, having been employed by Quest
Americas Secretary since October 1986; and Vice
New York, NY 10019 President of the Trust, PMF, RVT and
OTCM since July 1994.
Susan I. Grant* (42) Secretary Compliance Officer and Senior Counsel
1414 Avenue of the of Quest and Secretary of the Trust,
Americas PMF, RVT and OTCM since August 1994;
New York, NY 10019 and Assistant Counsel of First
Investors Corporation from July 1989
to August 1994.
________________________________
*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:
<PAGE>
Aggregate Compensation Total Compensation
Name from Trust from The Royce Funds
Richard M. Galkin $17,500 $60,000
Stephen L. Isaacs 17,500 60,000
David L. Meister 17,500 60,000
PRINCIPAL HOLDERS OF SHARES
As of July 18, 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:
Number Type of Percentage of
Fund of Shares Ownership Outstanding Shares
Royce Premier Fund
Charles Schwab & Co., Inc. 13,448,554 Record 36.3%
Attn: Mutual Fund Dept.
101 Montgomery Street
San Francisco, CA 94104
Royce Equity Income Fund
Charles Schwab & Co., Inc. 5,861,533 Record 51.0%
Attn: Mutual Fund Dept.
101 Montgomery Street
San Francisco, CA 94104
Royce Micro-Cap Fund
Charles Schwab & Co., Inc. 1,421,579 Record 19.4%
Attn: Mutual Fund Dept.
101 Montgomery Street
San Francisco, CA 94104
Donaldson, Lufkin Jenrette 572,953 Record 7.8%
Securities Corp.
Pershing Division
P.O. Box 2052
Jersey City, NJ 07303
Royce Low-Priced Stock Fund
Charles Schwab & Co., Inc. 95,791 Record 24.5%
Attn: Mutual Fund Dept.
101 Montgomery Street
San Francisco, CA 94104
Bruce Museum, Inc. 92,145 Beneficial 23.6%*
Special Program Fund
Museum Drive
Greenwich, CT 06830
* These shares are held of record by Charles Schwab & Co., Inc.
<PAGE>
Number Type of Percentage of
Fund of Shares Ownership Outstanding Shares
Royce Low-Priced Stock Fund
Charles M. Royce 176,915 Record 48.2%
1414 Avenue of the Americas and
New York, NY 10019 beneficial
W. Whitney George, Trustee 63,640 Record 16.3%
Royce 1992 Generation
Skipping Trust
1414 Avenue of the Americas
New York, NY 10019
Royce Total Return Fund
Integra Trust Company 98,474 Record 26.7%
National Assn.
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 46,261 Record 12.5%
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
State Street Bank & Trust Co. 24,827 Record 6.7%
Custodian for IRA of
David Reese
528 N. Maple Avenue
Greensburg, PA 15601
Royce Global Services Fund
Bruce Museum Inc. 40,015 Record 15.3%
Special Program Fund and
Museum Drive beneficial
Greenwich, CT 06830
<PAGE>
Number Type of Percentage of
Fund of Shares Ownership Outstanding Shares
Royce Global Services Fund
Integra Trust Company 27,780 Record 10.6%
National Assn.
300 Fourth Avenue
Pittsburgh, PA 15278
Charles M. Royce 171,534 Record 65.7%
1414 Avenue of the Americas and
New York, NY 10019 beneficial
As of June 30, 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 Value Fund, Royce Premier Fund and Royce Equity Income Fund, 1.6% of
the outstanding shares of Royce Micro-Cap Fund, 15.7% of the outstanding
shares of Royce Total Return Fund, 75.7% of the outstanding shares of Royce
Low-Priced Stock Fund and 66.7% of the outstanding 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:
Fund Percentage Per Annum of Fund's Average Net Assets
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%
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.
<PAGE>
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:
Advisory Fees Amounts
Received by Quest Waived by Quest
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
_______
* December 15, 1993 (commencement of operations) to December 31, 1993
**December 15, 1994 (commencement of operations) to December 31, 1994
<PAGE>
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, Fockler and George is set
forth above under "MANAGEMENT OF THE TRUST". Set forth below is certain
information concerning Mr. Ebright.
Name Principal Occupations and Other Affiliations During Last 5 Years
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.
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
<PAGE>
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 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 by the vote
of a majority of the outstanding voting securities of the Fund involved or by
the vote of a majority of the entire Board of Trustees.
<PAGE>
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 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:
(i) Promotion, literature and 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
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
<PAGE>
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 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.
<PAGE>
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.
During each of the three years ended December 31, 1992, 1993 and 1994,
the Funds paid brokerage commissions as follows:
Fund 1992 1993 1994
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**
_________________
* 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:
Brokerage Transactions Commissions Paid
Fund Having a Research Component For Such Transactions
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*
_________________
* For the period from December 15, 1994 (commencement of operations) to
December 31, 1994.
<PAGE>
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, QMC and The Royce Funds have adopted a Code of Ethics under
which directors, officers, employees and partners of Quest, QDI and QMC
("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 United States Government debt securities, municipal
debt securities, money market instruments, shares of affiliated or
non-affiliated registered open-end investment companies or shares acquired
from an issuer in a rights offering or under an automatic dividend
reinvestment plan or (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 June 30, 1995, Quest-related persons, interested
trustees/directors, officers and employees of The Royce Funds and members of
their immediate families beneficially owned shares of The Royce Funds having
a total value of approximately $16.1 million, and Quest's and QMC's equity
interests in such private investment companies totalled approximately $3.9
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.
<PAGE>
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.
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
<PAGE>
amount so allocated to any taxable year of the Fund prior to the taxable year
in which the excess distribution or disposition occurs would be taxed to the
Fund at the highest marginal income tax rate in effect for such years, and the
tax would be further increased by an interest charge. The amount allocated to
the taxable year of the distribution or disposition would be included in the
Fund's investment company taxable income and, accordingly, would not be
taxable to the Fund to the extent distributed by the Fund as a dividend to
shareholders. In lieu of being taxable in the manner described above, such
Fund may be able to elect to include annually in income its pro rata share of
the ordinary earnings and net capital gain (whether or not distributed) of
the PFIC. In order to make this election, the Fund would be required to
obtain annual information from the PFICs in which it invests, which in many
cases may be difficult to obtain. Alternatively, if eligible, the Fund may be
able to elect to mark to market its PFIC stock, resulting in the stock being
treated as sold at fair market value on the last business day of each taxable
year. Any resulting gain would be reported as ordinary income, and any
resulting loss would not be recognized.
Investments of a Fund in securities issued at a discount or providing for
deferred interest payments or payments of interest in kind (which investment
are subject to special tax rules under the Code) will affect the amount,
timing and character of distributions to shareholders. For example, a Fund
which acquires securities issued at a discount will be required to accrue as
ordinary income each year a portion of the discount (even though the Fund may
not have received cash interest payments equal to the amount included in
income) and to distribute such income each year in order to maintain its
qualification as a regulated investment company and to avoid income 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.
<PAGE>
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 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
<PAGE>
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.
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
<PAGE>
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.
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
<PAGE>
returns do not include the effect of paying brokerage commissions and other
costs and expenses of investing in a mutual fund.
Period Ended
Fund December 31, 1994 Russell 2000 S&P 500
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)
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)
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:
Fund/Period Commencement Date Hypothetical Investment at December 31, 1994
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
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
<PAGE>
service that monitors the performance of registered investment companies. The
Funds' rankings by Lipper for the one-year period ended December 31, 1994
were:
Fund Lipper Ranking
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
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 and 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
<PAGE>
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 June 30, 1995, the weighted mean market
value of a company in this Index was approximately $530 million.
The Russell 2000, prepared by the Frank Russell Company, tracks the
return of the common stocks of the 2,000 smallest out of the 3,000 largest
publicly traded U.S.-domiciled companies by market capitalization. The
Russell 2000 tracks the return on these stocks based on price appreciation or
depreciation and includes dividends.
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.'s proprietary risk ratings may be quoted in advertising
materials. For the three years ended December 31, 1994, the average risk
score for the 1,311 equity funds rated by Morningstar with a three-year
history was 0.97; the average risk score for the 119 small company funds rated
by Morningstar with a three-year history was 1.09; and the average risk score
for the 54 equity income funds rated by Morningstar with a three-year history
was 0.63. For the three years ended December 31, 1994, the risk scores for
the Funds with a three-year history, and their ranks within Morningstar's
equity funds category and either its small company or equity income funds
categories, as applicable, were as follows:
<PAGE>
Morningstar Rating within Morningstar Category of
Fund Risk Score Equity Funds Small Company Funds Equity Income Funds
Value 0.54 Within lowest 10% Within lowest 10% -
Equity Income 0.38 Within lowest 5% - Lowest risk score
Premier 0.25 Within lowest 5% Lowest risk score -
Micro-Cap 0.43 Within lowest 5% Within lowest 5% -
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 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
having 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 the trailing 36 monthly
returns. Approximately 68% of the time, the annual total return of a fund
will differ from its mean annual total return by no more than plus or minus
the standard deviation figure. 95% of the time, a fund's annual total return
will be within a range of plus or minus 2x the standard deviation from its
mean annual total return.
<PAGE>
Beta. Beta measures the sensitivity of a security's or portfolio's
returns to the market's returns. It measures the relationship between a
fund's excess return (over 3-month T-bills) and the excess return of the
benchmark index (S&P 500 for domestic equity funds). The market's beta is by
definition equal to 1. Portfolios with betas greater than 1 are more volatile
than the market, and portfolios with betas less than 1 are less volatile than
the market. For example, if a portfolio has a beta of 2, a 10% market excess
return would be expected to result in a 20% portfolio excess return, and a 10%
market loss would be expected to result in a 20% portfolio loss (excluding
the effects of any firm-specific risk that has not been eliminated through
diversification).
Morningstar Risk. The Morningstar proprietary risk statistic evaluates a
fund's downside volatility relative to that of other funds in its class based
on the 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.
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.
<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, 1994 (audited), of Royce Low-Priced Stock Fund and Royce
Total Return Fund for the period from December 15, 1993 through
December 31, 1993 and for the year ended December 31, 1994
(audited), and of Royce Global Services Fund for the period
from December 15, 1994 through December 31, 1994 (audited) and
for the six months ended June 30, 1995 (unaudited).
The following audited and unaudited 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 and, in the case of Royce Global
Services Fund, in the Semi-Annual Report to Shareholders for the six months
ended June 30, 1995, 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;
<PAGE>
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;
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;
<PAGE>
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;
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;
Royce Global Services Fund -- Schedule of Investments at June 30, 1995
(unaudited);
Royce Global Services Fund -- Statement of Assets and Liabilities at
June 30, 1995 (unaudited);
Royce Global Services Fund -- Statement of Changes in Net Assets for
the six months ended June 30, 1995 (unaudited);
Royce Global Services Fund -- Statement of Operations for the six
months ended June 30, 1995 (unaudited);
Royce Global Services Fund -- Financial Highlights for the six months
ended June 30, 1995 (unaudited);
Royce Global Services Fund -- Notes to Financial Statements
(unaudited).
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, 31 and 32 thereto and are incorporated by
reference herein.
<PAGE>
(15)
Service Agreement -- NoFee Network Mutual Fund Service among the
Registrant, Pennsylvania Mutual Fund, Quest Distributors, Inc., Quest
Advisory Corp. and Jack White and Company.
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 June 30, 1995, the number of record holders of shares of each
Fund of the Registrant was as follows:
Title of Fund Number of Record Holders
Royce Equity Income Fund 2,479
Royce Low-Priced Stock Fund 48
Royce Micro-Cap Fund 4,403
Royce Premier Fund 12,510
Royce Total Return Fund 44
Royce Global Services Fund 48
Royce Value Fund 8,808
The REvest Growth and Income Fund 411
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 against any liability
<PAGE>
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 office or (B) not to have acted in
the belief that his action was in the best interest of the Trust; or
<PAGE>
(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:
"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
<PAGE>
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 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
<PAGE>
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 by reason of willful misfeasance, bad
faith or gross negligence in the performance of its duties or by reason of its
<PAGE>
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
<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.
<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 28th day of July, 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.
SIGNATURE TITLE DATE
/s/ Charles M. Royce President, Treasurer 7/28/95
Charles M. Royce and Trustee (Principal
Executive, Accounting
and Financial Officer)
/s/Richard M. Galkin Trustee 7/28/95
Richard M. Galkin
/s/Stephen L. Isaacs Trustee 7/28/95
Stephen L. Isaacs
/s/David L. Meister Trustee 7/28/95
David L. Meister
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.
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description Page No.
(15) Agreement with Jack White & Company. 64
<PAGE>
Jack White & Company
California's First Discount Broker. Since 1973
SERVICE AGREEMENT
NOFEE NETWORK MUTUAL FUND SERVICE
Pennsylvania Mutual Fund, The Royce Fund, Quest Distributors, Inc., and Quest
Advisory Corp. ("Participants"), on behalf of The Royce Funds (the "Funds")
and Jack White & Company hereby agree as follows:
1. Jack White & Company will provide or arrange for the provision to the
Funds of certain shareholder Services described herein as part of its NoFee
Network (No Transaction Fee) Service. In consideration of such services,
Participants agree to pay to Jack White & Company a shareholder service fee
as set forth herein.
2. Services. Jack White & Company agrees to perform or arrange for the
performance of the following Services:
Order Processing
Jack White & Company shall:
Process all purchase, redemption and exchange orders by investors; transmit or
arrange for the transmission to each Fund each Business Day by 4:00 P.M.
(eastern time) and facilitate subsequent settlement of purchase or redemption
orders reflecting purchase, redemption and exchange orders received by it
that business day with respect to subaccounts.
Record Maintenance
Jack White & Company shall:
Maintain records for each customer who holds shares of a participating fund in
an account with us, which records shall include: number of shares; date and
price of purchases and redemptions (including dividend reinvestments) and
dates and amounts of dividends paid for at least the current year to date;
name and address of such customers; records of distributions and dividend
payments; any transfers of shares; and overall control records.
Shareholder Communications
Jack White & Company shall:
Mail Fund prospectuses, statements of additional information, and any
supplements thereto, upon customer request and, as applicable, with
confirmation statements;
Mail statements to customers on a monthly basis (or, as to accounts in which
there has been no activity in particular month, no less frequently than
quarterly) showing, among other things, the number of shares of each fund
owned by such customers and the net asset values of such shares as of a
recent date.
Produce and mail to customers confirmation statements reflecting purchases and
redemptions of shares of each fund in a customer's account.
<PAGE>
Page 2 of 4
Mail Annual and other shareholder reports and proxy statements to customers
upon receipt from the Fund. Participants understand that such mailings may
involve third parties (such as ADP and Jack White & Company's clearing agent,
Pershing.)
Respond to customer inquiries regarding, among other things, share prices,
account balances, dividend amounts and dividend payment dates.
Tax Information Returns and-Reports
Jack White & Company will arrange for the preparation of and filing with the
appropriate governmental agencies such information returns and reports as are
required to be so filed, including those required for reporting (i) dividends
and other distributions made, (ii) amounts withheld on dividends and other
distributions and payments under applicable federal and state laws, rules and
regulations, and (iii) gross proceeds of sales transactions as required.
Payment of Fund Distribution
Jack White & Company (or its clearing agent(s)) shall distribute all dividend,
capital gain or other payments authorized by a Fund and distributed to and
received by Jack White & Company (or its clearing agent(s)), and such
distributions will be credited to customers in accordance with the
instructions provided by each customer.
3. Fees. Payment due to Jack White & Company for its services will be
based on the average monthly market value of Eligible Fund Share Balances for
each fund held in Jack White & Company accounts. Eligible Fund Share
Balances held in Jack White & Company accounts will be monitored and updated
on a daily basis. Eligible Fund Share Balances on which service fees shall be
paid are the following: (i) Fund shares purchased through subaccounts held
with Jack White & Company; (ii) additional Fund shares received through
dividends reinvested in the same fund; and (iii) Fund shares transferred into
Jack White & Company accounts from other brokerage firms, the Funds, its
transfer agent, or other service agents.
4. Eligible Fund Share Balances will not include and no service fees will
be due on the following fund shares held in Jack White & Company accounts:
(i) shares held in Jack White & Company's customer accounts prior to entering
into this agreement; (ii) shares for which any transaction fees are paid by
the shareholder for their purchase, including transactions by customers who
exceed the limit on short- term redemptions as specified in paragraph 7 of
this agreement.
5. The total market value of Eligible Fund Shares of each fund will be
calculated daily and averaged through the exact number of days in the month
to arrive at the average daily net asset value of outstanding fund shares
held in Jack White & Company's accounts. Service fees will be billed monthly
at an annual rate determined by the average daily market value of the fund's
share balances. The annual service fee rate will be based on the following
schedule:
Average Daily Market Value of Eligible Fund Shares Annual Service Fee Rat
Under $10 Million 20 basis points
$10-S25 Million 15 basis points
Over $25 Million 10 basis points
<PAGE>
Page 3 of 4
The rate schedule is not intended to produce a "blended rate." Rather, once a
threshold is reached, the rate applicable for the total amount of assets of
each fund will be applied to each fund. The exact formula to arrive at the
monthly service fees due is as follows:
Service (Average Daily Market (corresponding Annual
Fee = Value-of Fund Shares)x Service Fee Rate) / 12 months
Jack White & Company will make available to the fund all information
pertaining to the above calculations.
Each Fund will be obligated to pay that portion of the service fee designated
by the Fund as representing transfer agent or shareholder servicing fees
which the Fund would otherwise pay if the Jack White & Company customers were
direct shareholders of the Fund, and Quest Distributors, Inc. (Quest Advisory
Corp. in the case of Pennsylvania Mutual Fund) will be obligated to pay any
difference between the total fee determined per the applicable rate schedule
and the amount paid by the Fund.
Jack White & Company represents that (i) the service fee schedule in this
agreement is not higher than under other agreements between Jack White &
Company and other funds/distributors providing for similar services, and (ii)
Jack White & Company will reduce the fee schedule in this agreement as and
when it reduces the fee schedule in respect of other funds/distributors.
6. All fund positions are held in book entry form in a master account by
our clearing firm, Donaldson, Lufkin & Jenrette, Pershing Division. Pershing
Division of Donaldson, Lufkin & Jenrette may make available an independent
report of the holdings carried in Jack White & Company accounts.
7. Jack White & Company maintains a policy that, in order for customers to
avoid transaction fees, customers shall adhere to limitations on short-term
redemptions. The limitation currently in effect states that:
If a customer makes 5 short-term redemptions (i.e., a redemption of shares
held less than 6 months) in calendar year, transaction fees will apply on all
transactions for the remainder of the year. However, any shares previously
purchased without a transaction fee may be sold without a transaction fee.
Jack White & Company reserves the right to modify at any time its policies and
limitations regarding short term redemptions.
8. Jack White & Company agrees to monitor customer activity in the No
Transaction Fee Service to control short-term trading activity, according to
the fund management's policies or the fund's prospectus. A fund may impose
its own short-term trading restrictions. If the Funds wish to impose such
restrictions, Jack White & Company requests that each fund participating in
the program provide written guidelines to be communicated with prospective
shareholders regarding the size, number, and frequency of transactions each
customer shall be allowed to make within a specified time period. If no
policies are communicated to Jack White & Company by the Funds it will be
assumed that the Funds have no additional restrictions that need be considered
by Jack White & Company or by its customers.
9. Jack White & Company is registered as a broker-dealer under the
Securities Exchange Act of 1934 in all 50 states and in the District of
Columbia and is qualified to act as a broker-dealer in the states or other
<PAGE>
Page 4 of 4
jurisdictions where we transact business, and is a member in good standing of
the National Association of Securities Dealers, Inc. ("NASD").
Representatives of Jack White & Company do not solicit orders to buy or sell
mutual fund shares. All orders to buy or sell mutual funds are unsolicited.
10. Each Fund understands that upon the addition of a fund to the NoFee
Network, Jack White & Company will update its listing of participating funds
to indicate their availability in the service. Such listings are sent to
existing, and prospective clients. Participating, funds may also be named on
a "messages" section of customer account statements. Funds participating in
the program will be highlighted in Jack White & Company's regularly published
mutual fund list, the Mutual Fund Network. Each Fund consents to such
references to it.
11. Each Fund acknowledges that Jack White & Company intends to market its
NoFee Network to its current and prospective customers via direct mailing and
regular advertising in regional and national financial publications, trade
conferences, and other media and that Jack White & Company may include
reference in its advertising to the Funds participation in the NoFee Network,
and each Fund consents to such references to it.
12. Participation in the No Transaction Fee Service may be terminated upon
no less than 30 days' advance notification in writing either by the Funds or
by Jack White & Company.
13. Other funds sponsored or distributed by the sponsor or distributor of
the Funds, whose registration may not currently be effective or whose
operations commence after the date of this agreement may be included under
the terms of this agreement without written amendment.
IN WITNESS WHEREOF the parties hereto have delivered and executed this
Agreement.
Participants, on behalf of The Royce Funds:
By:
John D. Diederich June 26, 1995
Authorized Signature Date
John D. Diederich Director of Operations
Print Name Title
Denis Fitzgerald
Name of Operations Contact Person
1414 Avenue of the Americas
Address
New York, NY 10019
800 221-4268 (212) 832-8921
Telephone FAX
Accepted by: Peter A. Mangan
Jack White & Company, Authorized Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 07
<NAME> ROYCE GLOBAL SERVICES FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
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<DISTRIBUTIONS-OTHER> 0
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 5.06
<PER-SHARE-NII> (.02)
<PER-SHARE-GAIN-APPREC> .81
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 5.85
<PAGE>
<EXPENSE-RATIO> 1.97
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<PAGE>
